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As filed with the Securities and Exchange Commission on August 27, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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. [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed
Proposed Maximum
Maximum Aggregate Amount of
Amount to be Offering Price Offering Registration
Title of Securities to be Registered Registered Per Share(1) Price(1) Fee
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<S> <C> <C> <C> <C>
Common Shares of Beneficial Interest, par
value $0.01 per share........................ 32,683 $19.40 $634,050.02 $176.27
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Preferred Shares Purchase Rights.............. 32,683 N/A N/A N/A
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</TABLE>
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(1) Estimated solely for purposes of determining the registration fee.
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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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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED AUGUST 27, 1999
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 August 26, 1999, the last reported sale price of our common shares on
the New York Stock Exchange was $19.375 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.
-----------
The date of this prospectus is , 1999.
<PAGE>
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>
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Page
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<S> <C>
PROLOGIS.................................................................. 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
PLAN OF DISTRIBUTION...................................................... 38
EXPERTS................................................................... 39
LEGAL MATTERS............................................................. 39
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 August 26, 1999, 161,418,759 common shares were issued
and outstanding and held of record by approximately 11,788 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.
16
<PAGE>
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
partnership. The partnership
agreement provides that the limited
partners may not remove MIT
Unsecured as general partner of the
partnership with or without cause.
ProLogis and Security Capital Group
Incorporated, ProLogis' largest
shareholder, are parties to a Third
Amended and Restated Investor
Agreement. The investor agreement
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
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 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.
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.
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
individuals under current law is
39.6%.
Cash distributions from the Except to the extent designated as
partnership are not taxable to a capital gain dividends,
holder of partnership units except distributions made by ProLogis to
to the extent they exceed such its taxable domestic shareholders
holder's basis in its interest in out of current or accumulated
the partnership, which will include earnings and profits will be taken
such holder's allocable shares of into account by them as ordinary
the partnership's nonrecourse debt. income. Distributions that are
designated as capital gain dividends
generally will be taxed as long-term
capital gain, subject to some
limitations. Distributions in excess
of current or accumulated earnings
and profits will be treated as a
non-taxable return of basis to the
extent of a shareholder's adjusted
basis in its common shares with the
excess taxed as capital gain.
Each year, holders of partnership Each year, shareholders of ProLogis
units will receive a Schedule K-1 will receive Form 1099 used by
tax form containing detailed tax corporations to report distributions
information for inclusion in paid to their stockholders.
preparing their Federal income tax
returns.
Holders of the partnership units are
required, in some cases, to file
state income tax returns and/or pay
state income taxes in the states in
which the partnership owns property,
even if they are not residents of
those states.
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, and April 16, 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 August 27, 1999.
ProLogis Trust
By: /s/ K. Dane Brooksher
----------------------------------
K. Dane Brooksher
Chairman, Chief Executive Officer
SPECIAL POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of ProLogis Trust, a Maryland real
estate investment trust, and the undersigned trustees and officers of ProLogis
Trust, hereby constitutes and appoints K. Dane Brooksher, M. Gordon Keiser,
Jr., Edward F. Long, and Edward S. Nekritz, its or his true and lawful
attorneys-in-fact and agents, for it or him and in its or his name, place and
stead, in any and all capacities, with full power to act alone, to sign any and
all amendments to this report, and to file each such amendment to this report,
with all exhibits thereto, and any and all documents in connection therewith,
with the Securities and Exchange Commission, hereby granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform any and all acts and things requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as it or he might
or could do in person, hereby ratifying and confirming all that said attorneys-
in-fact and agents, or any of them may lawfully do or cause to be done by
virtue hereof.
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>
/s/ K. Dane Brooksher Chairman, Chief Executive August 27, 1999
____________________________________ Officer and Trustee
K. Dane Brooksher
/s/ Irving F. Lyons III President, Chief Investment August 27, 1999
____________________________________ Officer and Trustee
Irving F. Lyons III
/s/ Walter C. Rakowich Chief Financial Officer and August 27, 1999
____________________________________ Managing Director
Walter C. Rakowich
/s/ Shari J. Jones Vice President (Principal August 27, 1999
____________________________________ Accounting Officer)
Shari J. Jones
/s/ Thomas G. Wattles Trustee August 27, 1999
____________________________________
Thomas G. Wattles
Trustee August 27, 1999
____________________________________
Stephen L. Feinberg
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Donald P. Jacobs Trustee August 27, 1999
____________________________________
Donald P. Jacobs
/s/ William G. Myers Trustee August 27, 1999
____________________________________
William G. Myers
Trustee August 27, 1999
____________________________________
John E. Robson
/s/ J. Andre Teixeira Trustee August 27, 1999
____________________________________
J. Andre Teixeira
/s/ John S. Moody Trustee August 27, 1999
____________________________________
John S. Moody
Trustee August 27, 1999
____________________________________
Kenneth N. Stensby
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<C> <S>
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 (included at page II-4)
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>
<PAGE>
Exhibit 5.1
[LETTERHEAD OF MAYER, BROWN & PLATT]
August 27, 1999
The Board of Trustees
ProLogis Trust
14100 East 35th Place
Aurora, Colorado 80011
Re: ProLogis Trust Registration Statement on Form S-3
-------------------------------------------------
Ladies and Gentlemen:
We have acted as special counsel to ProLogis Trust, a Maryland real estate
investment trust ("ProLogis"), in connection with the registration of up to
32,683 common shares of beneficial interest, par value $0.01 per share, of
ProLogis (the "Common Shares"), which may be issued in exchange for units of
partnership interest ("Units"), in Meridian Realty Partners, L.P. (the
"Partnership"), pursuant to the Agreement of Limited Partnership dated as of
August 20, 1998 among MIT Unsecured, Inc. and the limited partners in the
Partnership (the "Partnership Agreement"), and as set forth in the Form S-3
Registration Statement filed with the Securities and Exchange Commission on the
date hereof (the "Registration Statement").
As special counsel to ProLogis, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of ProLogis' declaration
of trust and bylaws, the Partnership Agreement, resolutions of ProLogis' Board
of Trustees and such of ProLogis' records, certificates and other documents and
such questions of law as we considered necessary or appropriate for the purpose
of this opinion. As to certain facts material to our opinion, we have relied, to
the extent we deem such reliance proper, upon certificates of public officials
and officers of ProLogis. In rendering this opinion, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals and the conformity to authentic original documents of all documents
submitted to us as copies.
Based upon and subject to the foregoing and to the assumptions, conditions
and limitations set forth herein, we are of the opinion that the Common Shares
have been duly authorized and, when the Common Shares are issued upon conversion
of Units in accordance
<PAGE>
ProLogis Trust
August 27, 1999
Page 2
with the terms of the Partnership Agreement, the Common Shares will be legally
issued, fully paid and, except as described in the Registration Statement,
nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to all references to our firm in the Registration
Statement.
The opinions contained herein are limited to Federal laws of the United
States, the laws of the State of Illinois and the laws of the State of Maryland
governing real estate investment trusts. We are not purporting to opine on any
matter to the extent that it involves the laws of any other jurisdiction.
These opinions are furnished to you solely for your benefit in connection
with the transactions described herein and are not to be used for any other
purpose without our prior written consent.
Very truly yours,
/s/Mayer, Brown & Platt
MAYER, BROWN & PLATT
<PAGE>
Exhibit 8.1
[LETTERHEAD OF MAYER, BROWN & PLATT]
August 27, 1999
ProLogis Trust
14100 East 35th Place
Aurora, Colorado 80011
Re: Partnership Classification; Status as a Real
Estate Investment Trust ("REIT"); Information in
the Registration Statement under "FEDERAL INCOME
TAX CONSIDERATIONS"
------------------------------------------------
Gentlemen:
In connection with the filing of a Registration Statement with the
Securities and Exchange Commission on the date hereof (the "Registration
Statement"), by ProLogis Trust, a Maryland real estate investment trust (the
"Company"), you have requested our opinions concerning (i) the treatment of
ProLogis Limited Partnership-I, ProLogis Limited Partnership-II, ProLogis
Limited Partnership-III, and ProLogis Limited Partnership-IV (collectively, the
"Partnerships") as partnerships for Federal income tax purposes, and not as
associations taxable as corporations; (ii) the qualification and taxation of the
Company as a REIT; and (iii) the information in the Registration Statement under
the heading "FEDERAL INCOME TAX CONSIDERATIONS."
In formulating our opinions, we have reviewed and relied upon the
partnership agreements of the Partnerships, the Registration Statement, such
other documents and information provided by you, and such applicable provisions
of law as we have considered necessary or desirable for purposes of the opinions
expressed herein.
In addition, we have relied upon certain representations made by the
Company relating to the organization and actual and proposed operation of the
Company and the Partnerships. For purposes of our opinions, we have not made an
independent investigation of the facts set forth in such documents,
representations from the Company, the partnership agreements for the
Partnerships or the Registration Statement. We have, consequently, relied upon
your representations that the information presented in such documents or
otherwise furnished to us accurately and completely describes all material
facts. We have also relied upon the opinion of Vinson & Elkins L.L.P., dated
March 30, 1999, with respect to the qualification as a real estate investment
trust of Meridian Industrial Trust, Inc., a
<PAGE>
ProLogis Trust
August 27, 1999
Page 2
Maryland corporation, for its taxable years ending December 31, 1995, 1996,
1997, 1998 and its taxable year ending March 30, 1999.
In rendering these opinions, we have assumed that the transactions
contemplated by the foregoing documents will be consummated in accordance with
the operative documents, and that such documents accurately reflect the material
facts of such transactions. In addition, the opinions are based on the
correctness of the following specific assumptions: (i) the Company and the
Partnerships have operated and will continue to each be operated in the manner
described in the applicable partnership agreement or other organizational
documents and in the Registration Statement, and all terms and provisions of
such agreements and documents have been and will continue to be complied with by
all parties thereto; and (ii) each partner in the Partnerships has been
motivated in acquiring its partnership interest by its anticipation of economic
rewards apart from tax considerations. Our opinions expressed herein are based
on the applicable laws of the States of Maryland and Delaware, the Code, the
Treasury regulations promulgated thereunder, and the interpretations of the Code
and such regulations by the courts and the Internal Revenue Service, all as they
are in effect and exist at the date of this letter. It should be noted that
statutes, regulations, judicial decisions, and administrative interpretations
are subject to change at any time and, in some circumstances, with retroactive
effect. A material change that is made after the date hereof in any of the
foregoing bases for our opinions, could adversely affect our conclusions.
Based upon and subject to the foregoing, it is our opinion that:
1. The Partnerships will be treated, for Federal income tax purposes, as
partnerships, and not as associations taxable as corporations.
2. Beginning with the Company's taxable year ending December 31, 1993, the
Company has been organized in conformity with the requirements for qualification
as a REIT under the Code, and the Company's actual and proposed method of
operation, as described in the Registration Statement and as represented by the
Company, has enabled it and will continue to enable it to satisfy the
requirements for qualification as a REIT.
3. The information in the Registration Statement under the headings
"FEDERAL INCOME TAX CONSIDERATIONS," to the extent that it constitutes matters
of law or legal conclusions, has been reviewed by us and is correct in all
material respects.
<PAGE>
ProLogis Trust
August 27, 1999
Page 3
Other than as expressly stated above, we express no opinion on any issue
relating to the Company and the Partnerships or to any investment therein.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of the name of our firm therein and under
the caption "FEDERAL INCOME TAX CONSIDERATIONS" in the Registration Statement.
Very truly yours,
/s/ Mayer, Brown & Platt
MAYER, BROWN & PLATT
<PAGE>
Exhibit 15
August 25, 1999
Board of Trustees and Shareholders
of ProLogis Trust:
We are aware that ProLogis Trust has incorporated by reference in its
Registration Statement Nos. 33-91366, 33-92490, 333-4961, 333-31421, 333-39797,
333-38515, 333-52867, 333-26597 and 333-79813 its Forms 10-Q for the quarters
ending March 31, 1999 and June 30, 1999, which include our reports dated May 13,
1999 and August 11, 1999 covering the unaudited interim financial information
contained therein. Pursuant to Regulation C of the Securities Act of 1933 (the
"Act"), those reports are not considered a part of the registration statements
prepared or certified by our firm or a report prepared or certified by our firm
within the meaning of Sections 7 and 11 of the Act.
Very truly yours,
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
<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
August 25, 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 August 20, 1999
<PAGE>
EXHIBIT 99.1
AGREEMENT OF LIMITED PARTNERSHIP
OF
MERIDIAN REALTY PARTNERS, L.P.
a Delaware limited partnership
================================================================================
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES
LAWS OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED
OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION, UNLESS THE TRANSFEROR DELIVERS TO
THE PARTNERSHIP AN OPINION OF COUNSEL SATISFACTORY
TO THE PARTNERSHIP IN FORM AND SUBSTANCE, TO THE
EFFECT THAT THE PROPOSED SALE, TRANSFER OR OTHER
DISPOSITION MAY BE EFFECTED WITHOUT REGISTRATION
UNDER THE SECURITIES ACT AND UNDER APPLICABLE
STATE SECURITIES OR "BLUE SKY" LAWS.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. DEFINED TERMS...................................................... 1
2. ORGANIZATIONAL MATTERS............................................. 15
2.1 Organization............................................ 15
2.2 Name.................................................... 15
2.3 Registered Office and Agent; Principal Office........... 16
2.4 Power of Attorney....................................... 16
2.5 Term.................................................... 17
3. PURPOSE............................................................ 17
3.2 Powers.................................................. 18
3.3 Partnership Only For Purposes Specified................. 18
3.4 Representations and Warranties by the Limited Partners.. 18
4. CAPITAL CONTRIBUTIONS.............................................. 21
4.1 Capital Contributions of the Original Partners.......... 21
4.2 Additional Limited Partners............................. 21
4.3 Loans by Third Parties.................................. 22
4.4 Additional Funding and Capital Contributions............ 22
4.5 No Interest-, No Return................................. 23
5. DISTRIBUTIONS...................................................... 23
5.1 Requirement and Characterization of Distributions....... 23
5.2 Distributions in Kind................................... 24
5.3 Amounts Withheld........................................ 24
5.4 Distribution Upon Liquidation........................... 24
6. ALLOCATIONS........................................................ 24
6.1 Timing and Amount of Allocations of Net Income and
Net Loss................................................ 24
6.2 General Allocations..................................... 24
6.3 Additional Allocation Provisions........................ 25
6.4 Tax Allocations......................................... 27
6.5 Other Provisions........................................ 28
7. MANAGEMENT AND OPERATIONS OF BUSINESS.............................. 28
7.1 Management.............................................. 28
7.2 Certificate of Limited Partnership...................... 32
</TABLE>
i
<PAGE>
7.3 Restrictions on General Partner's Authority............. 32
7.4 Reimbursement of the General Partner.................... 35
7.5 Other Business of General Partner....................... 35
7.6 Contracts with Affiliates............................... 36
7.7 Indemnification......................................... 36
7.8 Liability of the General Partner........................ 38
7.9 Other Matters Concerning the General Partner............ 39
7.10 Ownership of Partnership Assets......................... 40
7.11 Reliance by Third Parties............................... 40
8. RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS......................... 41
8.1 Limitation of Liability................................. 41
8.2 Management of Business.................................. 41
8.3 Outside Activities of Limited Partners.................. 41
8.4 Return of Capital....................................... 42
8.5 Rights of Limited Partners-, Relation to the
Partnership............................................ 42
8.6 Redemption Rights....................................... 43
8.7 Partnership Right to Call Limited Partner Interests..... 46
8.8 General Partner's Right to Trigger Redemptions.......... 46
8.9 Other Redemptions....................................... 47
9. BOOKS, RECORDS, ACCOUNTING AND REPORTS............................. 47
9.1 Books and Accounting.................................... 47
9.2 Fiscal Year............................................. 48
9.3 Reports................................................. 48
10. TAX MATTERS............................................... 48
10.1 Preparation of Tax Returns.............................. 48
10.2 Tax Elections........................................... 48
10.3 Tax Matters Partner..................................... 49
10.4 Withholding............................................. 50
11. TRANSFERS AND WITHDRAWALS.......................................... 51
11.1 Transfer................................................ 51
11.2 Transfer of General Partner's Partnership Interest...... 51
11.3 Limited Partners' Rights to Transfer.................... 52
11.4 Substituted Limited Partners............................ 54
11.5 Assignees............................................... 55
11.6 General Provisions...................................... 55
ii
<PAGE>
12. ADMISSION OF PARTNERS.............................................. 57
12.1 Admission of Successor General Partner.................. 57
12.2 Admission of Original Limited Partners.................. 57
12.3 Admission of Additional Limited Partners................ 57
12.4 Amendment of Agreement and Certificate of Limited
Partnership............................................ 58
13. DISSOLUTION, LIQUIDATION AND TERMINATION........................... 58
13.1 Dissolution............................................. 58
13.2 Winding Up.............................................. 59
13.3 Notice of Dissolution................................... 61
13.4 Cancellation of Certificate of Limited Partnership...... 61
13.5 Reasonable Time for Winding-Up.......................... 61
14. PROCEDURES FOR ACTIONS AND CONSENTS OF PARTNERS; AMENDMENTS;
MEETINGS........................................................... 61
14.1 Procedures for Actions and Consents of Partners......... 61
14.2 Amendments.............................................. 61
14.3 Meetings of the Partners................................ 62
15. GENERAL PROVISIONS................................................. 63
15.1 Addresses and Notice.................................... 63
15.2 Titles and Captions..................................... 63
15.3 Pronouns and Plurals.................................... 63
15.4 Further Action.......................................... 63
15.5 Binding Effect.......................................... 63
15.6 Waiver.................................................. 64
15.7 Time of Essence......................................... 64
15.8 Counter-parts........................................... 64
15.9 Applicable Law.......................................... 64
15.10 Entire Agreement........................................ 64
15.11 Invalidity of Provisions................................ 65
15.12 Limitation to Preserve REIT Status...................... 65
15.13 No Partition............................................ 66
15.14 No Third-Party Rights Created Hereby.................... 66
iii
<PAGE>
AGREEMENT OF LIMITED PARTNERSHIP
OF
MERIDIAN REALTY PARTNERS, L.P.
THIS AGREEMENT OF LIMITED PARTNERSHIP OF MERIDIAN REALTY PARTNERS, L.P.
(the "Agreement") dated as of ____________, 1998, is entered into by and among
MIT UNSECURED, INC., a wholly-owned California subsidiary of Meridian Industrial
Trust, Inc., as the General Partner, and the Persons whose names are set forth
on Exhibit A as attached hereto, as the Limited Partners, together with any
---------
other Persons who become Partners in the Partnership as provided herein.
1. DEFINED TERMS
The following definitions shall be for all purposes, unless otherwise
clearly indicated to
the contrary, applied to the terms used in this Agreement.
"ACT" means the Delaware Revised Limited Partnership Act, as it may be
amended from
time to time, and any successor to such statute.
"ACTIONS" has the meaning set forth in Section 7.7(a) hereof.
"ADDITIONAL FUNDS" has the meaning set forth in Section 4.4(a) hereof.
"ADDITIONAL LIMITED PARTNER" means a Person admitted to the Partnership as
a Limited Partner pursuant to Section 4.2 or Section 4.4(d) and Section 12.2
hereof and who is shown as such on the books and records of the Partnership.
"ADJUSTED CAPITAL ACCOUNT BALANCE" means, with respect to any Partner, the
deficit balance, if any, in such Partner's Capital Account as of the end of the
relevant Fiscal Year, after giving effect to the following adjustments:
(a) decrease such deficit by any amounts that the Partner is obligated to
restore pursuant to this Agreement or by operation of law upon liquidation of
the Partner's Partnership Interest or is deemed to be obligated to restore
pursuant to the penultimate sentence of each of Sections 1.704-2(g)(1) and
1.704-2(i)(5) of the Tre asury Regulations; and
(b) increase such deficit by the items described in Section 1.704-
1(b)(2)(ii)(d)(4), (5) and (6) of the Treasury Regulations.
The foregoing definition of "Adjusted Capital Account Balance" is intended to
comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the Treasury
Regulations and shall be interpreted consistently therewith.
<PAGE>
"AFFILIATE" means, with respect to any Person, any Person directly or
indirectly controlling or controlled by or under common control with such
Person. For the purposes of this definition, "control" when used with respect
to any Person means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise,
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"AGREEMENT" means this Agreement of Limited Partnership of Meridian Realty
Partners, L.P., as it may be amended, supplemented or restated from time to
time.
"APPRAISAL' means, with respect to any assets, the written opinion of the
value of such assets of an independent third party experienced in the valuation
of similar assets, selected by the General Partner in good faith.
"ASSIGNEE" means a Person to whom one or more Partnership Units have been
Transferred in a manner permitted under this Agreement, but who has not become a
Substituted Limited Partner, and who has the rights set forth in Section 11.5
hereof.
"AVAILABLE CASH" means, with respect to any period for which such
calculation is being made, except as otherwise herein provided, the cash
receipts of the Partnership, from whatever source derived, minus all Partnership
expenditures, including Partnership expenses, capital expenditures, and
principal payments on Partnership indebtedness, minus all amounts used by the
General Partner, in its sole judgment, to create or enhance Partnership
reserves, plus all amounts which the General Partner, in its sole discretion,
releases from Partnership reserves; provided, however, that Available Cash shall
not include any Capital Contributions or any proceeds attributable to
Terminating Capital Transactions.
"BUSINESS DAY" means any day except a Saturday, Sunday or other day on
which commercial banks in San Francisco, California, or New York, New York, are
authorized or required by law to close. -
"CAPITAL ACCOUNT" means, with respect to any Partner, the capital account
maintained for such Partner on the Partnership's books and records in accordance
with Section 1.704-1(b)(2)(iv) of the Treasury Regulations.
"CAPITAL CONTRIBUTION" means, with respect to any Partner, the amount of
money and the initial Gross Asset Value of any Contributed Property that such
partner contributes to the Partnership pursuant to Section 4.1, Section 4.2 or
Section 4.4 hereof.
"CASH AMOUNT" means an amount of cash equal to the Value of the REIT Shares
Amount determined as of the applicable Valuation Date.
2
<PAGE>
"CERTIFICATE" means the Certificate of Limited Partnership of the
Partnership filed in the office of the Secretary of State of the State of
Delaware as amended from time to time in accordance with the terms hereof and
the Act.
"CHARTER" means the Third Amended and Restated Articles of Incorporation of
Meridian filed with the Maryland State Department of Assessments and Taxation on
April 1, 1996, as amended, supplemented or restated from time to time.
"CODE" means the Internal Revenue Code of 1986, as amended and in effect
from time
to time or any successor statute thereto.
"CONSENT" means the consent to, approval of, or vote on a . proposed action
by a Partner given in accordance with Article 14 hereof.
"CONSENT OF THE LIMITED PARTNERS" means the Consent of a Majority In
Interest of the Limited Partners, which Consent shall be obtained prior to the
taking of any action for which it is required by this Agreement and, except as
otherwise provided in this Agreement, may be given or withheld by a Majority In
Interest of the Limited Partners, in their reasonable discretion.
"CONSTRUCTIVELY OWN" means ownership determined through the application of
the ownership attribution rules of Section 318 of the Code, as modified by
Section 856(d)(5) of the Code.
"CONTRIBUTED PROPERTY" means each Property or other asset, but excluding
cash,
contributed to the Partnership as a Capital Contribution.
"CONTROLLED ENTITY" means, as to any Limited Partner, (a) any corporation
more than fifty percent (50%) of the outstanding voting stock of which is owned
by such Limited Partner or such Limited Partner's Family Members, (b) any trust,
whether or not revocable, of which such Limited Partner or such Limited
Partner's Family Members are the sole beneficiaries, (c) any partnership of
which such Limited Partner is the managing partner and in which such Limited
Partner or such Limited Partner's Family Members hold partnership interests
representing at least twenty-five percent (25%) of such partnership's capital
and profits and (d) any limited liability company of which such Limited Partner
is the manager and in which such Limited Partner or such Limited Partner's
Family Members hold membership interests representing at least twenty-five
percent (25%) of such limited liability company's capital and profits.
"CONVERSION FACTOR" means 1.0; provided, however, that:
(a) in the event that Meridian (i) declares or pays a dividend on its
outstanding REIT Shares in REIT Shares or makes a distribution to all holders of
its outstanding REIT Shares in REIT Shares, (ii) splits or subdivides its
outstanding REIT Shares or (iii) effects a reverse stock split or otherwise
combines its outstanding REIT Shares into a smaller number of REIT Shares,
3
<PAGE>
the Conversion Factor shall be adjusted by multiplying the Conversion Factor
previously in effect by an amount equal to the quotient of (1) the number of
REIT Shares issued and outstanding on the record date for such dividend,
distribution, split, subdivision, reverse split or combination (assuming for
such purposes that such dividend, distribution, split, subdivision, reverse
split or combination has occurred as of such time), divided by (2) the actual
number of REIT Shares (determined without the above assumption) issued and
outstanding on the record date for such dividend, distribution, split,
subdivision, reverse split or combination;
(b) in the event that Meridian distributes any rights, options or warrants
to all holders of its REIT Shares to subscribe for or to purchase or to
otherwise acquire REIT Shares (or other securities or rights convertible into,
exchangeable for or exercisable for REIT Shares) at a price per share less than
the Value of a REIT Share on the record date for such distribution (each a
"Distributed Right"), then the Conversion Factor shall be adjusted by
multiplying the Conversion Factor previously in effect by a fraction (i) the
numerator of which shall be the number of REIT Shares issued and outstanding on
the record date plus the maximum number of REIT Shares purchasable under such
Distributed Rights and (ii) the denominator of which shall be the sum of the
number of REIT Shares issued and outstanding on the record date plus a fraction,
(1) the numerator of which is the product of the maximum number of REIT Shares
purchasable under such Distributed Rights multiplied by the minimum purchase
price per REIT Share under such Distributed Rights and (2) the denominator of
which is the Value of a REIT Share as of the record date; provided, however,
that, if any such Distributed Rights expire or become no longer exercisable,
then the Adjustment Factor shall be adjusted, effective retroactive to the date
of distribution of the Distributed Rights, to reflect a reduced number of REIT
Shares or any change in the minimum purchase price for the purposes of the above
calculations; and
(c) in the event that Meridian shall, by dividend or otherwise, distribute
to all holders of its REIT Shares evidences of its indebtedness or assets
(including securities, but excluding any dividend or distribution referred to in
subsection (a) above), which evidences of indebtedness or assets relate to
assets not received by Meridian pursuant to a pro rata distribution by the
Partnership, then the Conversion Factor shall be adjusted to equal the amount
determined by multiplying the Conversion Factor in effect immediately prior to
the close of business on the date fixed for determination of shareholders
entitled to receive such distribution by an amount equal to the quotient of (i)
the Value of a REIT Share on the date fixed for such determination, divided by
(ii) the Value of a REIT Share on the date fixed for such determination less the
then fair market value (as determined in good faith by the General Partner,
whose determination shall be conclusive) of the portion of the evidences of
indebtedness or assets so distributed applicable to one REIT Share.
Any adjustments to the Conversion Factor shall become effective immediately
after the effective date of such event, retroactive to the record date, if any,
for such event; provided, however, that any Limited Partner may waive, by
written notice to the General Partner, the effect of any adjustment that would
increase the Conversion Factor applicable to the Partnership Units held by such
Limited Partner, and, thereafter, such adjustment will not be effective as to
such Partnership
4
<PAGE>
Units. For illustrative purposes, examples of adjustments to the Conversion
Factor are set forth on Exhibit B attached hereto.
"DEPRECIATION" means, for each Fiscal Year or other applicable period, an
amount equal to the federal income tax depreciation, amortization or other cost
recovery deduction allowable with respect to an asset for such year or other
period, except that, if the Gross Asset Value of an asset differs from its
adjusted basis for federal income tax purposes at the beginning of such year or
period, Depreciation shall be in an amount that bears the same ratio to such
beginning Gross Asset value as the federal income tax depreciation, amortization
or other cost recovery deduction for such year or other period bears to such
beginning adjusted tax basis; provided, however that, if the federal income tax
depreciation, amortization or other cost recovery deduction for such year or
period is zero, Depreciation shall be determined with reference to such
beginning Gross Asset Value using any reasonable method selected by the General
Partner.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the SEC promulgated thereunder.
"FAMILY MEMBERS" means, as to a Person that is an individual, (a) such
Person's spouse, (b) such Person's lineal ancestors, (c) such Person's lineal
descendants (whether by blood or by adoption), (d) such Person's brothers and
sisters, (e) inter vivos or testamentary trusts of which only such Person and/or
his spouse, lineal ancestors, lineal descendants (whether by blood or by
adoption), brothers and/or sisters are beneficiaries and (f) any partnership or
limited liability company all of whose partners or members comprise such Person
and/or his spouse, lineal ancestors, lineal descendants (whether by blood or by
adoption), brothers and/or sisters and/or inter vivos or testamentary trusts of
which only such Person and/or his spouse, lineal ancestors, lineal descendants
(whether by blood or by adoption), brothers and/or sisters arc beneficiaries.
"FISCAL YEAR" means the annual accounting period of the Partnership for
book and tax purposes.
"FUNDING NOTICE" has the meaning set forth in Section 4.4(b) hereof.
"GENERAL PARTNER" means MIT Unsecured, Inc., a California corporation and
Qualified REIT Subsidiary of Meridian, and its successors and assigns as the
general partner of the Partnership, in its capacity as general partner of the
Partnership.
"GENERAL PARTNER INTEREST" means the Partnership Interest held by the
General Partner, which Partnership Interest is an interest as a general partner
under the Act. A General Partner Interest may be expressed as a number of
Partnership Units.
"GENERAL PARTNER LOAN" has the meaning set forth in Section 4.4(c) hereof.
5
<PAGE>
"GROSS ASSET VALUE" means, with respect to any asset, the asset's adjusted
basis for federal income tax purposes, except as follows:
(a) The initial Gross Asset Value of any asset contributed by a Limited
Partner to the Partnership shall be set forth on the Partner Schedule with
respect to such Limited Partner.
(b) The Gross Asset Values of all Partnership assets immediately prior to
the occurrence of any event described in clause (i), clause (ii), clause (iii),
clause (iv) or clause (v) hereof shall be adjusted to equal their respective
gross fair market values, as determined by the General Partner using such
reasonable method of valuation as it may adopt, as of the following times:
(i) the acquisition of an additional interest in the Partnership
(other than in connection with the execution of this Agreement but including,
without limitation, acquisitions pursuant to Section 4.4 hereof or contributions
or deemed contributions by the General Partner pursuant to Section 4.4 hereof)
by a new or existing Partner in exchange for more than a de minimis Capital
Contribution, if the General Partner reasonably determines that such adjustment
is necessary or appropriate to reflect the relative economic interests of the
Partners in the Partnership;
(ii) the distribution by the Partnership to a Partner of more than a
de minimis amount of Partnership property as consideration for an interest in
the Partnership, if the General Partner reasonably determines that such
adjustment is necessary or appropriate to reflect the relative economic
interests of the Partners in the Partnership;
(iii) the liquidation of the Partnership within the meaning of
Section 1.704l(b)(2)(ii)(g) of the Treasury Regulations;
(iv) upon the admission of a successor General Partner pursuant to
Section 12.1 hereof, and
(v) at such other times as the General Partner shall reasonably
determine is necessary or advisable in order to comply with Sections 1.704-1(b)
and 1.704-2 of the Treasury Regulations.
(c) The Gross Asset Value of any Partnership ' asset distributed to a
Partner shall be the gross fair market value of such asset on the date of
distribution as determined by the distributes and the General Partner, provided
that, if the distributes is the General Partner or if the distributor and the
General Partner cannot agree on such a determination, such gross fair market
value shall be determined by Appraisal.
(d) The Gross Asset Values of Partnership assets shall be increased (or
decreased) to reflect any adjustments to the adjusted basis of such assets
pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent
that such adjustments are taken into account in
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<PAGE>
determining Capital Accounts pursuant to Section 1.704-1(b)(2)(iv)(m) of the
Treasury Regulations; provided, however, that Gross Asset Values shall not be
adjusted pursuant to this subsection (d) to the extent that the General Partner
reasonably determines that an adjustment pursuant to subsection (b) above is
necessary or appropriate in connection with a transaction that would otherwise
result in an adjustment pursuant to this subsection (d).
(e) If the Gross Asset Value of a Partnership asset has been determined or
adjusted pursuant to subsection (a), subsection (b) or subsection (d) above,
such Gross Asset Value shall thereafter be adjusted by the Depreciation taken
into account with respect to such asset for purposes of computing Net Income and
Net Losses.
"HOLDER" means either (a) a Partner or (b) an Assignee, owning a
Partnership Unit, that is treated as a member of the Partnership for federal
income tax purposes.
"HOLDING PERIOD" means a consecutive period of time set forth in the
relevant Partner Schedule, commencing on the day of either the admission of such
party as a Limited Partner in the Partnership or the Transfer of Partnership
Units to such party.
"INCAPACITY" or "INCAPACITATED" means, (a) as to any Partner who is an
individual, death, other physical disability or entry by a court of competent
jurisdiction adjudicating such Partner incompetent to manage his or her person
or his or her estate; (b) as to any Partner that is a corporation or limited
liability company, the filing of a certificate of dissolution, or its
equivalent, for the corporation or limited liability company or the revocation
of its charter; (c) as to any Partner that is a partnership, the dissolution and
commencement of winding up of such partnership; (d) as to any Partner that is an
estate, the distribution by the fiduciary of the estate's entire interest in the
Partnership; (e) as to any trustee of a trust that is a Partner, the termination
of the trust (but not the substitution of a new trustee); or (f) as to any
Partner, the bankruptcy of such Partner. For purposes of this definition,
bankruptcy of a Partner shall be deemed to have occurred when (i) the Partner
commences a voluntary proceeding seeking liquidation, reorganization or other
relief of or against such Partner under any bankruptcy, insolvency or other
similar law now or hereafter in effect, (ii) the Partner is adjudged as bankrupt
or insolvent, or a final and nonappealable order for relief under any
bankruptcy, insolvency or similar law now or hereafter in effect has been
entered against the Partner, (iii) the Partner executes and delivers a general
assignment for the benefit of the Partner's creditors, (iv) the Partner files an
answer or other pleading admitting or failing to contest the material
allegations of a petition filed against the Partner in any proceeding of the
nature described in clause (i) above, (v) the Partner seeks, consents to or
acquiesces in the appointment of a trustee, receiver or liquidator for the
Partner or for all or any substantial part of the Partner's properties, (vi) any
proceeding seeking liquidation, reorganization or other relief against a Partner
under any bankruptcy, insolvency or other similar law now or hereafter in effect
has not been dismissed within one hundred twenty (120) days after the
commencement thereof, (vii) the appointment without the Partner's consent or
acquiescence of a trustee, receiver or liquidator has not been vacated or stayed
within ninety (90) days of such appointment, or (viii) an appointment referred
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<PAGE>
to in clause (vii) above is not vacated within ninety (90) days after the
expiration of any such stay.
"INDEMNITEE" means any Person made a party to a proceeding by reason of its
status as (a) the General Partner, (b) a director of the General Partner, (c) an
officer or employee of the Partnership, the General Partner or any Affiliate of
the Partnership or the General Partner, or (d) any Affiliate of the Partnership
or the General Partner.
"INTEREST" means interest, original issue discount and other similar
payments or amounts payable by the Partnership for the use or forbearance of
money.
"IRS" means the Internal Revenue Service, and any successor organization,
which administers the Code.
"LIMITED PARTNER" means any Person named as a Limited Partner in Exhibit A
---------
attached hereto, as such Exhibit A may be amended from time to time, or any
-------------
Substituted Limited Partner or Additional Limited Partner, in such Person's
capacity as a Limited Partner in the Partnership.
"LIMITED PARTNER INTEREST" means a Partnership interest of a Limited
Partner in the Partnership representing a fractional part of the Partnership
Interests of all Limited Partners and includes any and all benefits to which the
holder of such a Partnership Interest may be entitled as provided in this
Agreement, together with all obligations of such Person to comply with the terms
and provisions of this Agreement. A Limited Partner Interest may be expressed
as a number of Partnership Units.
"LIQUIDATING EVENT" has the meaning set forth in Section 13.1 hereof.
"LIQUIDATOR" has the meaning set forth in Section 13.2(a) hereof.
"MAJORITY IN INTEREST OF THE LIMITED PARTNERS" means those Limited Partners
(other than any Limited Partner fifty percent (50%) or more of whose equity is
owned, directly or indirectly, by the General Partner) holding in the aggregate
more than fifty percent (50%) of the aggregate Partnership Units of all Limited
Partners (other than any Limited Partner fifty percent (50%) or more of whose
equity is owned, directly or indirectly, by the General Partner).
"MERIDIAN" means Meridian Industrial Trust, Inc., a Maryland corporation.
"MERIDIAN TRANSACTION" means (a) a merger or consolidation of Meridian with
any Person, whether effected as a single transaction or a series of related
transactions, in which Meridian is not the continuing or surviving entity, or
(b) the transfer, directly or indirectly, of all or substantially all of the
assets of Meridian (whether by sale, merger, consolidation,
8
<PAGE>
liquidation or otherwise) to any Person or Persons, whether effected as a single
transaction or a series of related transactions.
"NET INCOME" or "NET LOSS" means, for each Fiscal Year of the Partnership,
an amount equal to the Partnership's taxable income or loss for such year,
determined in accordance with Code Section 703(a) (for this purpose, all items
of income, gain, loss or deduction required to be stated separately pursuant to
Code Section 703(a)(1) shall be included in taxable income or loss), with the
following adjustments:
(a) Any income of the Partnership that is exempt from federal income tax
and not otherwise taken into account in computing Net Income (or Net Loss)
pursuant to this definition of 'Net Income,' or "Net Loss" shall be added to (or
subtracted from, as the case may be) such taxable income (or loss);
(b) Any expenditure of the Partnership described in Code Section
705(a)(2)(B) or treated as a Code Section 705(a)(2)(B) expenditure pursuant to
Section 1.704- 1 (b)(2)(iv)(i) of the Treasury Regulations, and not otherwise
taken into account in computing Net Income (or Net Loss) pursuant to this
definition of "Net Income" or a Net Loss, shall be subtracted from (or added to,
as the case may be) such taxable income (or loss);
(c) In the event that the Gross Asset Value of any Partnership asset is
adjusted pursuant to subsection (b) or subsection (c) of the definition of
"Gross Asset Value," the amount of such adjustment shall be taken into account
as gain or loss from the disposition of such asset for purposes of computing Net
Income or Net Loss;
(d) Gain or loss resulting from any disposition of properly with respect
to which gain or loss is recognized for federal income tax purposes shall be
computed by reference to the (Gross Asset Value of the property disposed of,
notwithstanding that the adjusted tax basis of such property differs from its
Gross Asset Value;
(e) In lieu of the depreciation, amortization and other cost recovery
deductions that would otherwise be taken into account in computing such taxable
income or loss, there shall be taken into account Depreciation for such Fiscal
Year; and
(f) To the extent that an adjustment to the adjusted tax basis of any
Partnership asset pursuant to Code Section 734(b) or Code Section 743(b) is
required pursuant to Section 1.7041(b)(2)(iv)(m)(4) of the Treasury Regulations
to be taken into account in determining Capital Accounts as a result of a
distribution other than in liquidation of a Partner's interest in the
Partnership, the amount of such adjustment shall be treated as an item of gain
(if the adjustment increases the basis of the asset) or loss (if the adjustment
decreases the basis of the asset) from the disposition of the asset and shall be
taken into account for purposes of computing Net Income or Net Loss.
9
<PAGE>
Notwithstanding any other-provision of this definition of "Net Income" or "Net
Loss," any item that is specially allocated pursuant to Section 6.3 hereof shall
not be taken into account in computing Net Income or Net Loss. The amounts of
the items of Partnership income, gain, loss or deduction available to be
specially allocated pursuant to Section 6.3 hereof shall be determined by
applying rules analogous to those set forth in this definition of "Net Income"
or "Net Loss."
"NONRECOURSE DEDUCTIONS" has the meaning set forth in Section 1.704-2(b)(1)
of the Treasury Regulations, and the amount of Nonrecourse Deductions for a
Fiscal Year shall be determined in accordance with the rules of Section 1.704-
2(c) of the Treasury Regulations.
"NONRECOURSE LIABILITY" has the meaning set forth in Section 1.752-1 (a)(2)
of the Treasury Regulations.
"NOTICE OF REDEMPTION" means the Notice of Redemption substantially in the
form of Exhibit C attached to this Agreement.
"ORIGINAL LIMITED PARTNERS" means each Person executing a Partner Schedule
together with the General Partner and being admitted to the Partnership either
as an initial Limited Partner or as an Additional Limited Partner; provided,
however, that "Original Limited Partners" does not include any Assignee or other
transferee, including, without limitation, any Substituted Limited Partner
succeeding to all or any part of the Partnership Interest of any such Person-
The initial Original Limited Partners are listed on Exhibit A attached hereto.
---------
"OWNERSHIP LIMIT" means the applicable restriction on ownership of shares
of the capital stock of Meridian imposed under the Charter.
"PARTNER" means the General Partner or a Limited Partner, and "PARTNERS"
means the General Partner and the Limited Partners.
"PARTNER MINIMUM GAIN" means an amount, with respect to each Partner
Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if
such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Section 1.704-2(i)(3) of the Treasury Regulations.
"PARTNER NONRECOURSE DEBT" has the meaning set forth in Section 1.704-
2(b)(4) of the Treasury Regulations.
"PARTNER NONRECOURSE DEDUCTIONS" has the meaning set forth in Section
1.704-2(i)(2) of the Treasury Regulations, and the amount of Partner Nonrecourse
Deductions with respect to a Partner Nonrecourse Debt for a Fiscal Year shall be
determined in accordance with the rules of Section 1.704-2(i)(2) of the Treasury
Regulations.
"PARTNER SCHEDULE" means a schedule, substantially in the form attached
hereto as Exhibit D and executed by the General Partner and a Limited Partner
---------
(including any Original
10
<PAGE>
Limited Partner and any Substituted Limited Partner), that shall set forth, with
respect to a Limited Partner to which Partnership Units are issued pursuant to
this Agreement, (a) the Gross Asset Values, as determined by the General Partner
and agreed to by the contributing Limited Partner, for any Contributed
Properties contributed by such contributing Limited Partner, (b) the Partnership
Units initially issued to such Limited Partner, (c) the Preferred Return Per
Unit, (d) the Specific Adjustment Factor, (e) any Specific Adjustments, (f) the
applicable Holding Periods, and (g) such other matters to which the General
Partner and such Limited Partner agree.
"PARTNERSHIP" means the limited partnership formed pursuant to this
Agreement under the Act, and any successor thereto.
"PARTNERSHIP INTEREST" means an ownership interest in the Partnership
representing a Capital Contribution by either a Limited Partner or the General
Partner and. includes any and all benefits to which the holder of such a
Partnership Interest may be entitled as provided in this Agreement, together
with all obligations of such Person to comply with the terms and provisions of
this Agreement. A Partnership Interest may be expressed as a number of
Partnership Units.
"PARTNERSHIP MINIMUM GAIN" has the meaning set forth in Section 1.704-
2(b)(2) of the Treasury Regulations, and the amount of Partnership Minimum Gain,
as well as any net increase or decrease in Partnership Minimum Gain, for a
Fiscal Year shall be determined in accordance with the rules of Section 1.704-
2(d) of the Treasury Regulations.
"PARTNERSHIP RECORD DATE" means the record date established by the General
Partner for the distribution of Available Cash pursuant to Section 5. 1 (a)
hereof, which record date shall generally be the same as the record date
established by Meridian for a distribution to its stockholders of some or all of
its portion of such distribution.
"PARTNERSHIP UNIT" means a fractional share of the Partnership Interests of
all , Partners issued pursuant to Section 4.1, Section 4.2 or Section 4.4 hereof
equal as to any specific Partner to the quotient of (a) such Partner's Capital
Contribution divided by (b) the Value of a REIT Share determined as of the date
such Capital Contribution was made; provided, however, that the General Partner
Units and the Limited Partner Units shall have the differences in rights and
privileges specified in this Agreement. The ownership of Partnership Units may
(but need not, in the sole and absolute discretion of the General Partner) be
evidenced by the form of certificate for Partnership Units attached hereto as
Exhibit E.
"PERMITTED TRANSFER" has the meaning set forth in Section 11.3(a) hereof.
"PERSON" means a natural person or a corporation, partnership, trust,
unincorporated organization, association, limited liability company or other
entity.
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<PAGE>
"PLEDGE" has the meaning set forth in Section 11.3(a) hereof.
"PREFERRED RETURN PER UNIT" means, as to a Limited Partner or its Assignee
(including, without limitation, the General Partner following the acquisition of
Tendered Units pursuant to Section 8.6 hereof), the amount specified as such on
the Partner Schedule with respect to such Limited Partner. The Preferred Return
per Unit need not be the same amount for each Limited Partner or Assignee or
with respect to each Partnership Unit.
"PROPERTIES" means any assets and property of the Partnership such as, but
not limited to, interests in real property and personal property, including,
without limitation, fee interests, interests in ground leases, purchase
contracts, interests in corporations, limited liability companies, joint
ventures or partnerships, and interests in mortgages and other debt instruments
that the Partnership may hold from time to time.
"QUALIFIED REIT SUBSIDIARY" means a Subsidiary of Meridian that is a
"QUALIFIED REIT SUBSIDIARY" within the meaning of Section 856(i)(2) of the
Code.
"QUALIFIED TRANSFEREE" means an accredited investor, as defined in Rule 501
promulgated under the Securities Act.
"REDEMPTION" has the meaning set forth in Section 8.6(a) hereof
"REDEMPTION AMOUNT" means either the Cash Amount or the REIT Shares Amount,
as determined by the General Partner in its sole and absolute discretion. A
Tendering Party shall have no right, without the General Partner's express
written consent, to receive the Redemption Amount in the form of the REIT Shares
Amount.
"REDEMPTION RIGHT" has the meaning set forth in Section 8.6(a) hereof.
"REGULATORY ALLOCATIONS" has the meaning set forth in Section 6.3(b)(viii)
hereof.
"REIT" means a real estate investment trust qualifying under Code Section
856.
"REIT PARTNER" has the meaning set forth in Section 15.12 hereof.
"REIT PAYMENT" has the meaning set forth in Section 15.12 hereof.
"REIT REQUIREMENTS" has the meaning set forth in Section 5.1(b) hereof.
"REIT SHARE" means a share of Meridian's Common Stock or, in connection
with a Meridian Transaction, the number of shares of stock, other securities,
cash, or other property which a holder of Meridian Common Stock is entitled to
receive in exchange for one share of Meridian Common Stock.
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<PAGE>
"REIT SHARES AMOUNT" means a number of REIT Shares equal to the product of
(a) the number of Tendered Units, (b) the Conversion Factor and (c) the
applicable Specific Adjustment Factor, taking into account any applicable
Specific Adjustments; provided, however, that, in the event that Meridian issues
to all holders of REIT Shares as of a certain record date rights, options,
warrants or convertible or exchangeable securities entitling Meridian's
shareholders to subscribe for or purchase REIT Shares, or any other securities
or property (collectively, the "Rights"), with the record date for such Rights
issuance falling within the period starting on the date of the Notice of
Redemption and ending on the day immediately preceding the Specified Redemption
Date, which Rights will not be distributed before the relevant Specified
Redemption Date, then the REIT Shares Amount shall also include such Rights that
a holder of that number of REIT Shares would be entitled to receive, expressed,
where relevant hereunder, in a number of REIT Shares determined by the General
Partner in good faith.
"RELATED PARTY" means, with respect to any Person, any other Person whose
ownership of shares of Meridian's capital stock would be attributed to the first
such Person under Code Section 544 (as modified by Code Section 856(h)(1)(13)).
"SEC" means the Securities and Exchange Commission, and any successor
organization.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
"SPECIFIC ADJUSTMENT FACTOR" means, as to a Limited Partner or its
Assignee, the amount specified as such on the Partner Schedule with respect to
such Limited Partner; provided, however, that, if no such amount is specified on
such Partner Schedule, the Specific Adjustment Factor shall be 1.0. The Specific
Adjustment Factor need not be the same for each Limited Partner and Assignee.
"SPECIFIC ADJUSTMENTS" means, as to a Limited Partner or its Assignee, the
adjustments, if any, specified as such on the Partner Schedule with respect to
such Limited Partner. The Specific Adjustments need not be the same for each
Limited Partner and Assignee.
"SPECIFIED REDEMPTION DATE" means the thirtieth (30th) calendar day (or, if
such day is not a Business Day, the next following Business Day) after the
receipt by the General Partner of a Notice of Redemption given in compliance
with the provisions of Section 8.6; provided, further, that the Specified
Redemption Date, as well as the closing of a Redemption, or an acquisition of
Tendered Units by the General Partner pursuant to Section 8.6(b) hereof, on any
Specified Redemption Date, may be deferred, in the General Partner's sole and
absolute discretion, for such time (but in any event not more than ninety (90)
days) as may reasonably be required to effect, as applicable, (a) necessary
funding arrangements, (b) compliance with the Securities Act or other law
(including, but not limited to, state "blue sky" or other securities laws) and
(c) satisfaction or waiver of other commercially reasonable and customary
closing conditions and requirements for a transaction of such nature.
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<PAGE>
"SUBSIDIARY" means, with respect to any Person, any corporation or other
entity of which a majority of the voting power or the outstanding equity
interests is owned, directly or indirectly, by such Person.
"SUBSTITUTED LIMITED PARTNER" means an Assignee who is admitted as a
Limited Partner to the Partnership pursuant to Section 1 1.4 hereof.
"TAX ITEMS" has the meaning set forth in Section 6.4(a) hereof.
"TENANT" means any tenant from which Meridian derives rent, either directly
or indirectly through a Subsidiary, including the Partnership.
"TENDERED UNITS" has the meaning set forth in Section 8.6(a) hereof.
"TENDERING PARTY" has the meaning set forth in Section 8.6(a) hereof.
"TERMINATING CAPITAL TRANSACTION" means any sale or other disposition of
all or substantially all of the assets of the Partnership or a related series of
transactions that, taken together, result in the sale or other disposition of
all or substantially all of the assets of the Partnership.
"TRANSFER" when used with respect to a Partnership Unit or all or any
portion of a Partnership Interest, means any sale, assignment, bequest,
conveyance, devise, gift (outright or in trust), pledge, encumbrance,
hypothecation, mortgage, exchange, transfer or other disposition or act of
alienation, whether voluntary or involuntary or by operation of law; provided,
however, that, when the term is used in Article I I hereof, Transfer does not
include (a) any Redemption -of Partnership Units by the Partnership, or
acquisition of Tendered Units by the General Partner, pursuant to Section 8.6
hereof or (b) any redemption of Partnership Units pursuant to Section 8.7 or
Section 8.8 hereof. The terms "Transferred" and "Transferring" have correlative
meanings.
"TREASURY REGULATIONS" means the applicable income tax regulations under
the Code, whether such regulations are in proposed, temporary or final form, as
such regulations may be amended from time to time (including corresponding
provisions of succeeding regulations).
"UNITHOLDER" means a Holder of Partnership Units.
"VALUATION DATE" means (a) in the case of a tender of Partnership Units for
Redemption, the date of receipt by the General Partner of a Notice of Redemption
or, if such date is not a Business Day, the immediately preceding Business Day
or (b) in any other case, the date specified in this Agreement.
"VALUE" means, on any Valuation Date with respect to a REIT Share, the
average of the daily market price for each of the twenty (20) trading days on
which a REIT Share was in
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<PAGE>
fact traded immediately preceding the Valuation Date. The market price for any
such trading day shall be:
(a) if the REIT Shares are listed or admitted to trading on any securities
exchange or the Nasdaq National Market, the closing sale price thereon for such
day, as reported in the principal consolidated transaction reporting system,
(b) if the REIT Shares are not listed or admitted to trading on any
securities exchange or the Nasdaq National Market, the last reported sale price
on such day or, if no sale takes place on such day, the average of the closing
bid and asked prices on such day, as reported by a reliable quotation source
reasonably designated by the General Partner, or_
(c) if the REIT Shares are not listed or admitted to trading on any
securities exchange or the Nasdaq National Market and no such last reported sale
price or closing bid and asked prices are available, the average of the reported
high bid and low asked prices on such day, as reported by a reliable quotation
source reasonably designated by the General Partner, or if there shall be no bid
and asked prices on such day, the average of the high bid and low asked prices,
as so reported, on the most recent day (not more than ten (10) days prior to the
date in question) for which prices have been so reported; provided, however,
that, if there are no bid and asked prices reported during the ten (10) days
prior to the date in question, the Value of the REIT Shares shall be determined
by the General Partner acting in good faith on the basis of such quotations and
other information as it considers, in its reasonable judgment, appropriate. If
the REIT Shares Amount includes Rights that a holder of REIT Shares would be
entitled to receive, then the Value of such Rights shall be as reasonably
determined by the General Partner acting in good faith on the basis of such
quotations and other information as it considers, in its reasonable judgment,
appropriate.
2. ORGANIZATIONAL MATTERS
2.1 Organization.
------------
The Partnership is a limited partnership organized pursuant to the
provisions of the Act and upon the terms and subject to the conditions set forth
in this Agreement. Except as expressly provided herein to the contrary, the
rights and obligations of the Partners and the administration and termination of
the Partnership shall be governed by the Act.
2.2 Name.
----
The name of the Partnership is Meridian Realty Partners, L.P. The
Partnership's business may be conducted under any other name or names deemed
advisable by the General Partner, including the name of Meridian or any
Affiliate thereof. The words "Limited Partnership," "L.P," "Ltd." or similar
words or letters shall be included in the Partnership's name where necessary for
the purposes of complying with the laws of any jurisdiction that so requires.
The General Partner in its sole and absolute discretion may change the name of
the Partnership
15
<PAGE>
at any time and from time to time and shall notify the Limited Partners of such
change in the next regular communication to the Limited Partners. If at any time
neither the General Partner, Meridian, nor a Qualified REIT Subsidiary of
Meridian is a General Partner of the Partnership, the Partnership shall change
its name to a name that does not include the names "Meridian" or "MIT".
2.3 Registered Office and Agent; Principal Office.
---------------------------------------------
The Partnership's registered office and agent in the State of Delaware are
as set forth in the Certificate. The principal office of the Partnership is
located at 455 Market Street, 17th Floor, San Francisco, CA 94105. The
Partnership may maintain offices at such other place or places as the General
Partner deems advisable. The General Partner, in its sole and absolute
discretion, may from time to time cause the Partnership to change its registered
office or agent in the State of Delaware or the location of its principal
office. The General Partner shall cause the Partnership to register and qualify
to do business in California and each other jurisdiction in which such action is
appropriate.
2.4 Power of Attorney.
-----------------
(a) Each Limited Partner and each Assignee hereby irrevocably constitutes
and appoints the General Partner, any Liquidator, and authorized officers and
attorneys-in-fact of each, each of those acting singly, in each case with full
power of substitution, as its true and lawful agent and attorney-in-fact, with
full power and authority in its name, place and stead to:
(i) execute, swear to, seal, acknowledge, deliver, file and record
in the appropriate public offices (A) all certificates, documents and other
instruments (including, without limitation, this Agreement and the Certificate
and all amendments, supplements or restatements thereof) that the General
Partner or the Liquidator deems appropriate or necessary to for-in, qualify or
continue the existence or qualification of the Partnership as a limited
partnership (or a partnership in which the limited partners have limited
liability to the extent provided by applicable law) in the State of Delaware and
in all other jurisdictions in which the Partnership may conduct business or own
property; (B) all instruments that the General Partner deems appropriate or
necessary to reflect any amendment, change, modification or restatement of this
Agreement in accordance with its terms; (C) all instruments, relating to the
admission, withdrawal, removal or substitution of any Partner pursuant t:--, or
other events described in, Article I 1, Article 12 or Article 13 hereof or the
Capital Contribution of any Partner; and (D) all certificates, documents and
other instruments reflecting the rights, preferences and privileges relating to
Partnership Interests; and
(ii) execute, swear to, acknowledge and file all ballots, consents,
approvals, waivers, certificates and other instruments appropriate or necessary,
in the sole and absolute discretion of the General Partner, to make, evidence,
give, confirm or ratify any vote, consent, approval, agreement or other action
that is made or given by the Partners hereunder or is
16
<PAGE>
consistent with the terms of this Agreement or appropriate or necessary, in the
sole and absolute discretion of the General Partner, to effectuate the terms or
intent of this Agreement.
(b) The foregoing power of attorney is hereby declared to be irrevocable
and 2 special power coupled with an interest, in recognition of the fact that
each of the Limited Partners and Assignees will be relying upon the power of the
General Partner to act as contemplated by this Agreement in any filing or other
action by it on behalf of the Partnership, and it shall survive and not be
affected by the subsequent Incapacity of any Limited Partner or Assignee and the
Transfer of all or any portion of such Limited Partner's or Assignee's
Partnership Units or Partnership Interest and shall extend to such Limited
Partner's or Assignee's heirs, successors, assigns and personal representatives.
Each such Limited Partner or Assignee hereby agrees to be bound by any
representation made by the General Partner, acting in good faith pursuant to
such power of attorney; each such Limited Partner or Assignee hereby waives any
and all defenses that may be available to contest, negate or disaffirm the
action of the General Partner, taken in good faith under such power of attorney;
and each such Limited Partner or Assignee shall execute and deliver to the
General Partner or the Liquidator, within fifteen (15) days after receipt of
the General Partner's or the Liquidator's request therefor, such further
designation, powers of attorney and other instruments as the General Partner or
the Liquidator, as the case may be, deems necessary to effectuate this Agreement
and the purposes of the Partnership.
2.5 Term.
----
The term of the Partnership shall commence on the date that the original
Certificate is filed in the office of the Secretary of State of Delaware in
accordance with the Act, and shall continue until December 31, 2096 unless the
Partnership is dissolved sooner pursuant to the provisions of Article 13 hereof
or as otherwise provided by law.
3. PURPOSE
3.1 Purpose and Business.
--------------------
The purpose and nature of the Partnership is to conduct any business,
enterprise or activity permitted by or under the Act, including, but not limited
to, (a) the business of owning, managing, acquiring and developing industrial
and suburban office or other real estate rental properties, (b) entering into
any partnership, joint venture, business trust arrangement, limited liability
company or other similar arrangement to engage in any business permitted by or
under the Act, or to own interests in any entity engaged in any business
permitted by or under the Act, and (c) doing anything necessary or incidental to
the foregoing; provided, however, such business and arrangements and interests
may be limited to and conducted in such a manner as to permit the General
Partner, in its sole and absolute discretion, at all times to be classified as a
REIT.
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3.2 Powers.
------
(a) The Partnership shall be empowered to do any and all acts and things
necessary, appropriate, proper, advisable, incidental to or convenient for the
furtherance and accomplishment of the purposes and business described herein and
for the protection and benefit of the Partnership, including, without
limitation, the creation of one or more classes of Limited Partners whose
rights, powers and duties are set forth in this Agreement and the Partner
Schedules.
(b) Notwithstanding ' any other provision in this Agreement, the General
Partner may cause the Partnership not to take, or to refrain from taking, any
action that, in the judgment of the General Partner, in - its sole and absolute
discretion, (i) could adversely affect the ability of Meridian to continue to
qualify as a REIT, (ii) could subject Meridian to any additional taxes under
Code Section 857 or Code Section 4981 or (iii) could violate any law' or
regulation of any governmental body or agency having jurisdiction over Meridian,
its securities, the General Partner, or the Partnership.
3.3 Partnership Only For Purposes Specified.
---------------------------------------
The Partnership shall be a limited partnership only for the purposes
specified in Section 3.1 hereof, and this Agreement shall not be deemed to
create a company, venture or partnership between or among the Partners with
respect to any activities whatsoever other than the activities within the
purposes of the Partnership as specified in Section 3.1 hereof. Except as
otherwise provided in this Agreement, no Partner shall have any authority to act
for, bind, commit or assume any obligation or responsibility on behalf of the
Partnership, its properties or any other Partner. No Partner, in its capacity
as a Partner under this Agreement, shall be responsible or liable for any
indebtedness or obligation of another Partner, nor shall the Partnership be
responsible or liable for any indebtedness or obligation of any Partner,
incurred either before or after the execution and delivery of this Agreement by
such Partner, except as to those responsibilities, liabilities, indebtedness or
obligations incurred pursuant to and as limited by the terms of this Agreement
and the Act.
3.4 Representations and Warranties by the Limited Partners.
------------------------------------------------------
(a) Each Limited Partner that is an individual (including, without
limitation, each Additional Limited Partner or Substituted Limited Partner as a
condition to becoming an Additional Limited Partner or Substituted Limited
Partner) represents and warrants to the Partnership, the General Partner and
each other Limited Partner that (i) the consummation of the transactions
contemplated by this Agreement to be performed by such Limited Partner will not
result in a breach or violation of, or a default under, any material agreement
by which such Limited Partner or any of such Limited Partner's property is
bound, or any statute, regulation, order or other law to which such Limited
Partner is subject, (ii) such Limited Partner is neither a "foreign person"
within the meaning of Code Section 1445(o nor a "foreign partner" within the
meaning of Code Section 1446(e), and (iii) this Agreement is binding upon, and
enforceable against, such Limited Partner in accordance with its terms.
18
<PAGE>
(b) Each Limited Partner that is not an individual (including, without
limitation, each Additional Limited Partner or Substituted Limited Partner as a
condition to becoming an Additional Limited Partner or a Substituted Limited
Partner) represents and warrants to the Partnership, the General Partner and
each other Limited Partner that (i) all transactions contemplated by this
Agreement to be performed by it have been duly authorized by all necessary
action, including, without limitation, that of its general partner(s),
committee(s), trustee(s), beneficiaries, director(s) and/or shareholders), as
the case may be, as required, (ii) the consummation of such transactions shall
not result in a breach or violation of, or a default under, its partnership, or
operating agreement, trust agreement, charter or bylaws, as the case may be, any
material agreement by which such Limited Partner or any of such Limited
Partner's properties or any of its partners, members, beneficiaries, trustees or
shareholders, as the case may be, is or arc bound, or any statute, regulation,
order or other law to which such Limited Partner or any of its partners,
members, trustees, beneficiaries or shareholders, as the case may be, is or are
subject, (iii) such Limited Partner is neither a "foreign person" within the
meaning of Code Section 1445(f) nor a "foreign partner" within the meaning of
Code Section 1446(e), and (iv) this Agreement is binding upon, and enforceable
against, such Limited Partner in accordance with its terms.
(c) Each Limited Partner (including, without limitation, each Additional
Limited Partner or Substituted Limited Partner as a condition to becoming an
Additional Limited Partner or Substituted Limited Partner) represents, warrants
and agrees that it has acquired and continues to hold its interest in the
Partnership for its own account for investment only and not for the purpose of,
or with a view toward, the resale or distribution of all or any part thereof,
nor with a view toward selling or otherwise distributing such interest or any
part thereof at any particular time or under any predetermined circumstances.
Each Limited Partner further represents and warrants that it is a sophisticated
investor, able and accustomed to handling sophisticated financial matters for
itself, particularly real estate investments, and that it has a sufficiently
high net worth that it does not anticipate a need for the funds that it has
invested in the Partnership in what it understands to be a highly speculative
and illiquid investment.
(d) Each Limited Partner (including, without limitation, each Additional
Limited Partner or Substituted Limited Partner as a condition to becoming an
Additional Limited. Partner or Substituted Limited Partner) represents and
warrants that it is an "accredited investor" within the meaning of Regulation D
under the Securities Act.
(e) Each Limited Partner (including, without limitation, each Additional
Limited Partner or Substituted Limited Partner as a condition to becoming an
Additional Limited Partner or Substituted Limited Partner) represents and
warrants as follows:
(i) Except as provided in the Limited Partner's Partner Schedule,
the Limited Partner does not and will not, without the prior written consent of
the General Partner, which consent may be withheld in the General Partner's
absolute discretion, own or Constructively Own (A) with respect to any Tenant
that is a corporation, any stock of such Tenant, and (B) with
19
<PAGE>
respect to any Tenant that is not a corporation, any interest in the assets or
net profits of such Tenant;
(ii) Except as provided in the Limited Partner's Partner Schedule,
the Limited Partner does not and will not, without the prior written consent of
the General Partner, which consent may be withheld in the General Partner's
absolute discretion, own or Constructively Own any REIT Shares other than the
REIT Shares which the Limited Partner may acquire as a result of a Redemption;
and
(iii) Upon request of the General Partner given at any time or from
time to time, the Limited Partner will promptly disclose to the General Partner
all interests described in subparagraph (i) of this paragraph (e) that the
Limited Partner owns or Constructively Owns and all REIT Shares that the Limited
Partner owns or Constructively Owns.
(f) Each Limited Partner hereby acknowledges that if, for any reason, (i)
any of the Limited Partner's representations and warranties set forth in Section
3.4(e)(i) or 3.4(e)(ii) are violated or (ii) the Limited Partner violates the
Ownership Limit, some or all of the REIT Shares owned by the Limited Partner may
be automatically transferred to a trust for the benefit of a charitable
beneficiary, as provided in the Charter.
(g) The representations and warranties contained in Sections 3.4(a),
3.4(b), 14(c), 3.4(d) and 3.4(e) hereof shall survive the execution and delivery
of this Agreement by each Limited Partner (and, in the case of an Additional
Limited Partner or a Substituted Limited Partner, the admission of such
Additional Limited Partner or Substituted Limited Partner as a Limited Partner
in the Partnership) and the dissolution, liquidation and termination of the
Partnership. The General Partner may, in its sole and absolute discretion on
behalf of the Partnership and its Partners, grant waivers and exceptions to the
representations and warranties contained in Sections 3.4(a), 3.4(b), 3.4(c),
3.4(d) and 3.4(c) hereof, but any such waiver or exception must be in writing,
must refer to this Section 3.4(g) and must describe with particularity the
representation or warranty as to which such waiver or exception shall apply. The
General Partner may also, in its sole and absolute discretion on behalf of the
Partnership and its Partners, condition the admission to the Partnership of a
Limited Partner (including Original Limited Partners, Additional Limited
Partners, and Substituted Limited Partners) upon such Person making such
representations and warranties in addition to those set forth in this Section
3.4 as the General Partner deems appropriate.
(h) EACH LIMITED PARTNER (INCLUDING, WITHOUT LIMITATION, EACH SUBSTITUTED
LIMITED PARTNER AS A CONDITION TO BECOMING A SUBSTITUTED LIMITED PARTNER) HEREBY
ACKNOWLEDGES THAT NO REPRESENTATIONS AS TO POTENTIAL PROFIT, TAX CONSEQUENCES OF
ANY SORT (INCLUDING, WITHOUT LIMITATION, THE TAX CONSEQUENCES RESULTING FROM
MAKING A CAPITAL CONTRIBUTION, BEING ADMITTED TO THE PARTNERSHIP OR BEING
ALLOCATED TAX ITEMS), CASH FLOWS, FUNDS FROM OPERATIONS OR YIELD, IF ANY, IN
RESPECT OF THE PARTNERSHIP, THE GENERAL PARTNER OR MERIDIAN HAVE
20
<PAGE>
BEEN MADE BY ANY PARTNER OR ANY EMPLOYEE OR REPRESENTATIVE OR AFFILIATE OF ANY
PARTNER, AND THAT PROJECTIONS AND ANY OTHER INFORMATION, INCLUDING, WITHOUT
LIMITATION, FINANCIAL AND DESCRIPTIVE INFORMATION AND DOCUMENTATION, THAT MAY
HAVE BEEN IN ANY MANNER SUBMITTED TO "SUCH LIMITED PARTNER SHALL NOT CONSTITUTE
ANY REPRESENTATION OR WARRANTY OF ANY KIND OR NATURE, EXPRESS OR IMPLIED.
4. CAPITAL CONTRIBUTIONS
4.1 Capital Contributions of the Original Partners.
----------------------------------------------
At the time of the execution of this Agreement, each Original Limited
Partner shall make the Capital Contribution as set forth in the Partner Schedule
for such Partner, and the General Partner shall make the Capital Contribution
shown on Exhibit A attached hereto. Each Original Limited Partner shall own
Partnership Units in the amount set forth for such Partner in the Partner
Schedule with respect to such Partner, as the same may be amended from time to
time. The General Partner shall initially own Partnership Units in the amount
set forth for the General Partner on Exhibit A attached hereto. Except as
provided in a particular Partner Schedule, by law or in Section 4.4(d) or
Section 10.4 hereof, the Partners shall have no obligation or right to make any
additional Capital Contributions or loans to the Partnership.
4.2 Additional Limited Partners.
---------------------------
The General Partner is authorized to admit one or more Additional Limited
Partners to the Partnership from time to time, on terms and conditions and for
such Capital Contributions as may be established by the General Partner in its
reasonable discretion. No action or consent by the Limited Partners shall be
required in connection with the admission of any additional Limited Partner. In
the sole and absolute discretion of the General Partner, the Partnership may
acquire in the future additional Properties by means of Capital Contributions by
other Persons, which Capital Contributions shall be set forth in one or more
Partner Schedules. Persons making such Capital Contributions and executing such
Partner Schedules together with the General Partner shall be admitted to the
Partnership as Additional Limited Partners, with such number of Partnership
Units, Preferred Returns Per Unit, Specific Adjustment Factors and Specific
Adjustment Limitations as are set forth in such Partner Schedules. To the
extent that the Partnership acquires in the future any property by the merger of
any other Person into the Partnership, Persons who receive Partnership Interests
in exchange for their interests in the Person merging into the Partnership shall
become Additional Limited Partners and shall be deemed to have made Capital
Contributions as provided in the applicable merger agreement and as set forth in
one or more Partner Schedules.
21
<PAGE>
4.3 Loans by Third Parties.
----------------------
The Partnership may incur or assume indebtedness, or enter into other
similar credit, guarantee, financing or refinancing arrangements, for any
purpose (including, without limitation, in connection with any further
acquisition of Properties from any Person), upon such terms as the General
Partner determines appropriate; provided, however, that the Partnership shall
not incur or assume any indebtedness under which a breach, violation or default
would be deemed to occur by virtue of the Transfer of any Limited Partner
Interest or General Partner Interest; provided, further, that any such
indebtedness shall be nonrecourse to the General Partner unless the General
Partner otherwise agrees.
4.4 Additional Funding and Capital Contributions.
--------------------------------------------
(a) General. The General Partner may, at any time and from time to time,
-------
determine that the Partnership requires additional funds ("Additional Funds")
for the acquisition or development of Properties or for such other purposes as
the General Partner may determine. Additional Funds may be raised by the
Partnership, at the election of the General Partner, in any manner provided in,
and in accordance with the terms of this Section 4.4 or, alternatively, the
terms of Section 4.3 hereof. No Person, including, without limitation, any
Partner or Assignee, shall have any preemptive, preferential, participation or
similar right or rights to subscribe for or acquire any Partnership Interest.
(b) Notice of Additional Funds Requirement. The General Partner may, but
--------------------------------------
shall not be required to, give written notice (the "Funding Notice") to the
Limited Partners of the need for Additional Funds and the anticipated source(s)
thereof.
(c) General Partner Loans. Whether or not a Funding Notice is given to the
---------------------
Limited Partners, the General Partner may lend the Additional Funds to the
Partnership (a "General Partner Loan"). All General Partner Loans shall be on
terms and conditions no less favorable to the Partnership than would be
available to the Partnership from institutional lenders.
(d) Additional General Partner Contributions: Additional Limited Partners.
---------------------------------------------------------------------
Whether or not a Funding Notice is given to the Limited Partners, the General
Partner on behalf of the Partnership may raise all or any portion of the
Additional Funds by making additional Capital Contributions and/or accepting
additional Capital Contributions from any other Partners and/or third parties
and either (i) in the case of a Partner (including the General Partner),
increasing such Partner's Partnership Units or (ii) in the case of a third
party, admitting such third party as an Additional Limited Partner as
contemplated by Section 4.2 of this Agreement. Subject to the terms of this
Section 4.4 and to the definition of "Gross Asset Value," the General Partner
shall determine in good faith the amount, terms and conditions of such
additional Capital Contributions; provided, however, that, in the case of an
additional Capital Contribution by the General Partner, the Partnership shall
issue to the General Partner the number of Partnership Units derived by dividing
(A) the amount of the additional Capital Contribution (net of any
22
<PAGE>
liabilities assumed or taken subject to by the Partnership) by (B) the Value of
a REIT Share determined as of the date of such Capital Contribution.
4.5 No Interest-, No Return.
-----------------------
No Partner shall be entitled to interest on its Capital Contribution or on
such Partner's Capital Account. Except as provided herein or by law, no Partner
shall have any right to demand or receive the return of its Capital Contribution
from the Partnership.
5. DISTRIBUTIONS
5.1 Requirement and Characterization of Distributions.
-------------------------------------------------
(a) The General Partner shall cause the Partnership to distribute
quarterly (or, with respect to a particular Holder of Partnership Units, in
installments upon such other frequency as may be provided in the relevant
Partner Schedule) all, or such portion as the General Partner may in its sole
and absolute discretion determine, of Available Cash generated by the
Partnership during such, quarter (or other period) to the Unitholders on the
Partnership Record Date with respect to such quarter (or other period) as
follows:
(i) First, to each Holder of Partnership Units, pari passu, an amount
equal to the sum of (A) the product of (1) the Preferred Return per Unit for
such Holder (or its predecessor) for such quarter (or for such other period as
is provided in the relevant Partner Schedule) and (2) the number of Partnership
Units held by such Holder as of the Partnership Record Date and (B) any unpaid
amounts previously distributable to such Holder (or its predecessor) under this
Section 5.1(a)(i); provided, however, that, except as may otherwise be provided
in a particular Partner Schedule, the amount distributable pursuant to clause
(A) to any Additional Limited Partner admitted to the Partnership in the quarter
immediately preceding and ending with such Partnership Record Date shall be
prorated based upon the number of days that such Additional Limited Partner was
a Holder of Partnership Units during such quarter; and
(ii) Second, the balance, (A) ninety-nine percent (99%) to the General
Partner and (B) one percent (1%) to the Holders of Partnership Units (including,
without limitation, the General Partner), in proportion to the number of
Partnership Units held by each as of the Partnership Record Date.
(b) The General Partner in its sole and absolute discretion may distribute
to the Unitholders Available Cash in accordance with the foregoing priorities on
a more frequent basis and provide for an appropriate record date. The General
Partner shall make such reasonable efforts, as determined by it in its sole and
absolute discretion and consistent with Meridian's qualification as a REIT, to
cause the Partnership to distribute sufficient amounts to enable Meridian to pay
stockholder dividends that will (i) satisfy the requirements for qualifying as a
REIT under the Code and Treasury Regulations (the "REIT Requirements") and (ii)
avoid the imposition of any federal income or excise tax liability on Meridian.
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<PAGE>
5.2 Distributions in Kind.
---------------------
No right is given to any Unitholder to demand and receive property
other than cash as provided in this Agreement. The General Partner may
determine, in its sole and absolute discretion, to make a distribution in kind
of Partnership assets to the Unitholders, and, subject to Section 8.8 hereof,
shall use its good faith efforts to cause any such assets to be distributed in
such a fashion as to cause the fair market value thereof to be distributed and
allocated in accordance with Articles 5, 6 and 10 hereof.
5.3 Amounts Withheld.
----------------
All amounts withheld pursuant to the Code or any provisions of any state or
local tax law and Section 10.4 hereof with respect to any allocation, payment or
distribution to any Unitholder shall be treated as amounts paid or distributed
to such Unitholder pursuant to Section 5.1 hereof for all purposes under this
Agreement.
5.4 Distribution Upon Liquidation.
-----------------------------
Notwithstanding the other provisions of this Article 5, net proceeds from a
Terminating Capital Transaction, and any other cash received or reductions in
reserves made after commencement of the liquidation of the Partnership, shall be
distributed to the Unitholders in accordance with Section 13.2 hereof.
6. ALLOCATIONS
6.1 Timing and Amount of Allocations of Net Income and Net Loss.
-----------------------------------------------------------
Net Income and Net Loss of the Partnership shall be determined and
allocated with respect to each Fiscal Year of the Partnership as of the end of
each such year. Except as otherwise provided in this Article 6, and subject to
Section 11.6(c) hereof, an allocation to a Unitholder of a share of Net Income
or Net Loss shall be treated as an allocation of the same share of each item of
income, gain, loss or deduction that is taken into account in computing Net
Income or Net Loss.
6.2 General Allocations.
-------------------
Except as otherwise provided in this Article 6 and subject to Section
11.6(c) hereof, Net Income and Net Loss shall be allocated as follows:
(a) ninety-nine percent (99%) to the General Partner; and
(b) one percent (1%) to the Holders of Partnership Units (including,
without limitation, the General Partner) in proportion to the number of
Partnership Units held by each.
24
<PAGE>
6.3 Additional Allocation Provisions.
--------------------------------
Notwithstanding the foregoing provisions of this Article 6:
(a) Special Allocations. Gross income and, if necessary, gain shall be
-------------------
allocated lo each Unitholder for any Fiscal Year (and, if necessary, subsequent
Fiscal Years) to the extent that such Holder receives a distribution of the
Preferred Return Per Unit pursuant to Section 5.1(a)(i) of this Agreement.
(b) Regulatory Allocations.
----------------------
(i) Minimum Gain Chargeback. Except as otherwise provided in Section
-----------------------
1.704-2(f) of the Treasury Regulations, notwithstanding any other provision of
this Article 6, if there is a net decrease in Partnership Minimum gain during
any Fiscal Year, each Unitholder shall be specially allocated items of
Partnership income and gain for such year (and, if necessary, subsequent years)
in an amount equal to such Unitholder's share of the net decrease in Partnership
Minimum Gain, as determined under Section 1.704-2(g) of the Treasury
Regulations.. Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each Unitholder
pursuant thereto. The items to be allocated shall be determined in accordance
with Sections 1.704-2(f)(6) and 1.704-20)(2) of the Treasury Regulations. This
Section 6.3(b)(i) is intended to qualify as a "minimum gain chargeback" within
the meaning of Section 1.704-2(o of the Treasury Regulations and shall be
interpreted consistently therewith.
(ii) Partner Minimum Chargeback. Except as otherwise provided in
--------------------------
Section 1.704-2(i)(4) of the Treasury Regulations, notwithstanding any other
provision of this Article 6, except Section 6.3(b)(i) hereof; if there is a ret
decrease in Partner Minimum Gain attributable to a Partner Nonrecourse Debt
during any Fiscal Year, each Unitholder who has a share of the Partner Minimum
Gain attributable to such Partner Nonrecourse Debt, determined in accordance
with Section 1.704-2(i)(5) of the Treasury Regulations, shall be specially
allocated items of Partnership income and gain for such year (and, if necessary,
subsequent years) in an amount equal to such Unitholder's share of the net
decrease in Partner Minimum Gain attributable to such Partner Nonrecourse Debt,
determined in accordance with Section 1.704-2(i)(4) of the Treasury Regulations.
Allocations pursuant to the previous sentence shall be made in proportion to the
respective amounts required to be allocated to each General Partner, Limited
Partner and other Holder pursuant thereto. The items to be so allocated shall be
determined in accordance with Sections 1.704-2(i)(4) and 1.704-20)(2) of the
Treasury Regulations. This Section 6.3(b)(ii) is intended to qualify as a
"chargeback of partner nonrecourse debt minimum gain" within the meaning of
Section 1.704-2(i) of the Treasury Regulations and shall be interpreted
consistently therewith.
(iii) Nonrecourse Deductions and Partner Nonrecourse Deductions. Any
---------------------------------------------------------
Nonrecourse Deductions for any Fiscal Year shall be specially allocated to the
Holders of
25
<PAGE>
Partnership Units in accordance with their respective shares of the Nonrecourse
Liabilities of the Partnership, determined in accordance with Section 1.752-3 of
the Treasury Regulations. Any Partner Nonrecourse Deductions for any Fiscal Year
shall be specially allocated to the Unitholder(s) who bears the economic risk of
loss with respect to the Partner Nonrecourse Debt to which such Partner
Nonrecourse Deductions are attributable, in accordance with Section 1.7042(i) of
the Treasury Regulations.
(iv) Qualified Income Offset. If an), Unitholder unexpectedly
-----------------------
receives an adjustment, allocation or distribution described in Section 1.704-
1(b)(2)(ii)(d)(4), (5) or (6) of the Treasury Regulations, items of Partnership
income and gain shall be specially allocated to such Unitholder in an amount and
manner sufficient to eliminate, to the extent required by such Treasury
Regulations, the Adjusted Capital Account Deficit of such Unitholder as quickly
as possible, provided that an allocation pursuant to this Section 6.3(b)(iv)
shall be made if and only to the extent that such Unitholder would have an
Adjusted Capital Account Deficit after all other allocations provided in this
Article 6 have been tentatively made as if this Section 6.3(b)(iv) were not in
the Agreement. It is intended that this Section 6.3(b)(iv) qualify and be
construed as a " qualified income offset" within the meaning of Section 1.704-
1(b)(2)(ii)(d) of the Treasury Regulations and shall be interpreted consistently
therewith.
(v) Gross Income Allocation. In the event that any Unitholder has a
-----------------------
deficit Capital Account at the end of any Fiscal Year that is in excess of the
sum of (A) the amount (if any) that such, Unitholder is obligated to restore to
the Partnership upon complete liquidation of such Unitholder's Partnership
Interest and (B) the amount that such Unitholder is deemed to be obligated to
restore pursuant to the penultimate sentences of Sections 1.704-2(g)(1) and
1.704-2(i)(5) of the Treasury Regulations, each such Unitholder shall be
specially allocated items of Partnership income and gain in the amount of such
excess to eliminate such deficit as quickly as possible, provided that an
allocation pursuant to this Section 6.3(b)(v) shall be made if and only to the
extent that such Unitholder would have a deficit Capital Account in excess of
such sum after all other allocations provided in this Article 6 have been
tentatively made as if this Section 6.3(b)(v) and Section 6.3(b)(iv) hereof were
not in the Agreement.
(vi) Limitation on Allocation of Net Loss. To the extent that any
------------------------------------
allocation of Net Loss would cause or increase an Adjusted Capital Account
Deficit as to any Unitholder, such allocation of Net Loss shall be reallocated
among the other Unitholders in accordance with their respective Partnership
Units.
(vii) Section 754 Adjustment. To the extent that an adjustment to the
----------------------
adjusted tax basis of any Partnership asset pursuant to Code Section 734(b) or
Code Section 743(b) is required, pursuant to Section 1.704- 1 (b)(2)(iv)(m)(2)
or Section 1.704- 1 (b)(2)(iv)(m)(4) of the Treasury Regulations, to be taken
into account in determining Capital Accounts as the result of a distribution to
a Unitholder in complete liquidation of its interest in the Partnership, the
amount of such adjustment to the Capital Accounts shall be treated as an item of
gain (if the adjustment increases the basis of the asset) or loss (if the
adjustment decreases such basis), and such gain or loss shall be specially
allocated to the Unitholders in accordance with their Partnership Units in
26
<PAGE>
the event that Section 1.704-1(b)(2)(iv)(m)(2) of the Treasury Regulations
applies, or to the Unitholders to whom such distribution was made in the event
that Section 1.704-1(b)(2)(iv)(m)(4) of the Treasury Regulations applies.
(viii) Curative Allocations. The allocations set forth in Sections
--------------------
6.3(b)(i), (ii), (iii), (iv), (v), (vi) and (vii) hereof (the "Regulatory
Allocations") are intended to comply with certain regulatory requirements,
including the requirements of Sections 1.704-1(b) and 1.704-2 of the Treasury
Regulations. Notwithstanding the provisions of Section 6.1 hereof, the
Regulatory Allocations shall be taken into account in allocating other items of
income, gain, loss and deduction among the Unitholders so that, to the extent
possible without violating the requirements giving rise to the Regulatory
Allocations, the net amount of such allocations of other items and the
Regulatory Allocations to each Unitholder shall be equal to the net amount that
would have been allocated to each such Unitholder if the Regulatory Allocations
had not occurred.
(c) Allocation of Excess Nonrecourse Liabilities. A Holder's proportional
--------------------------------------------
share of the "excess nonrecourse liabilities" of the Partnership shall be
determined by the General Partner under any allocation method acceptable under
Section 1.752-3(a)(3) of the Treasury Regulations.
6.4 Tax Allocations.
---------------
(a) In General. Except as otherwise provided in this Section 6.4, for
income tax purposes under the Code and the Treasury Regulations each Partnership
item of income, gain, loss and deduction (collectively, "Tax Items") shall be
allocated among the Unitholders; in the same manner as its correlative item of
'book" income, gain, loss or deduction is allocated pursuant to Sections 6.2 and
6.3 hereof.
(b) Allocations Respecting Section 704(c) Revaluations. Notwithstanding
--------------------------------------------------
Section 6.4(a) hereof, Tax Items with respect to Property that is contributed to
the Partnership with a Gross Asset Value that varies from its tax basis in the
hands of the contributing Partner immediately preceding the date of contribution
shall be allocated among the Unitholders for income tax purposes pursuant to
Treasury Regulations promulgated under Code Section 704(c) so as to take into
account such variation. The General Partner shall have the authority to elect
any method permitted by Section 1.704-3 of the Treasury Regulations for purposes
of Code Section 704(c) and such elections shall be binding on the Partnership
and all Partners. The General Partner shall have the authority to elect
different such methods for different Properties. In the event that the Gross
Asset Value of any Partnership asset is adjusted pursuant to subsection (b) of
the definition of "Gross Asset Value" (provided in Article I hereof, subsequent
allocations of Tax Items with respect to such asset shall take account of the
variation, if any, between the adjusted basis of such asset and its Gross Asset
Value in the same manner as under Code Section 704(c) and the applicable
Treasury Regulations.
(c) Compliance with Section 514(c)(9)(D. Notwithstanding anything to the
-----------------------------------
contrary in this Agreement, if any allocation of income, gain, loss, deduction
or credit (or any item
27
<PAGE>
thereof) would cause the Partnership to fail to satisfy the requirements of
Section 514(c)(9)(E) of the Code (determined as if the General Partner were a
qualified trust, as provided in Section 856(h)(3)(C)(i) of the Code), then the
allegations under this Agreement shall be modified to the extent necessary to
satisfy those requirements. If the above provision is applicable, then
subsequent allocations shall be adjusted (to the extent possible without
violating the requirements of Section 514(c)(9)(E) of the Code or the otherwise
applicable provisions of Section 704 of the Code and the Treasury Regulations
thereunder) so as to put the Partners in the same economic positions as they
would have been in had the above provision not been applicable. To the extent
that such adjustments are not possible, the General Partner is hereby authorized
to modify the allocations under this Agreement with a view to minimizing the
difference in each Partner's economic position as a consequence of such
modifications while causing the Partnership to satisfy the requirements of
Sections 514(c)(9)(E) and 704 of the Code; provided, however, that the Limited
Partners hereby hold the General Partner harmless from and against any and all
loss, cost, claim, or liability attributable to any good faith modification made
by the General Partner pursuant to the grant of authority conferred on it by
this paragraph (c), it being recognized and acknowledged that the General
Partner shall not be held accountable for the consequences of such modification
notwithstanding that the modification fails to optimize the economic position of
any Limited Partner or of the Limited Partners collectively given the
constraints imposed by this paragraph (c).
6.5 Other Provisions.
----------------
(a) Other Allocations upon Change in Law. In the event that the Code or
------------------------------------
any Treasury Regulations require allocations of items of income, gain, loss,
deduction or credit different from those set forth in this Article 6, the
General Partner is hereby authorized to make new allocations in reliance on the
Code and such Treasury Regulations, and such new allocations shall be deemed to
be made pursuant to the fiduciary duty of the General Partner to the Partnership
and the other Partners, and no such new allocation shall give rise to any claim
or cause of action by any Partner.
(b) Consistent Tax Reporting. The Partners acknowledge and are aware of
------------------------
the income tax consequences of the allocations made by this Article 6 and hereby
agree to be bound by the provisions of this Article 6 in reporting their shares
of Net Income and Net Loss and other items of income, gain, loss, deduction and
credit for federal, state and local income tax purposes.
7. MANAGEMENT AND OPERATIONS OF BUSINESS
-------------------------------------
7.1 Management.
----------
(a) Except as otherwise expressly provided in this Agreement, all
management powers over the business and affairs of the Partnership are and shall
be exclusively vested in the General Partner, and no Limited Partner shall have
any right to participate in or exercise control or management power over the
business and affairs of the Partnership. The General Partner may not be removed
by the Partners with or without cause, except with the Consent of the General
28
<PAGE>
Partner. In addition to the powers now or hereafter granted a general partner of
a limited partnership under applicable law or that are granted to the General
Partner under any other provision of this Agreement, the General Partner,
subject to the other provisions hereof including Section 7.3, shall have full
power and authority to do all things deemed necessary or desirable by it to
conduct the business of the Partnership, to exercise all powers set forth in
Section 3.2 hereof and to effectuate the purposes set forth in Section 3.1
hereof, including, without limitation:
(i) the making of any expenditures, the lending or borrowing of
money (including to or from the General Partner and including, without
limitation, making prepayments on loans and borrowing money to permit the
Partnership to make distributions to its Partners in such amounts as will permit
Meridian (so long as Meridian qualifies as a REIT) to avoid the payment of any
federal income tax (including, for this purpose, any excise tax pursuant to Code
Section 4981) and to make distributions to its stockholders sufficient to permit
Meridian to maintain REIT status or otherwise to satisfy the REIT Requirements),
the assumption or guarantee of, or other contracting for, indebtedness and other
liabilities, the issuance of evidences of indebtedness (including the securing
of same by deed to secure debt, mortgage, deed of trust or other lien or
encumbrance on the Partnership's assets) and the incurring of any obligations
that it deems necessary for the conduct of the activities of the Partnership;
provided, however, that any loans of Partnership funds to the General Partner or
any Affiliate thereof shall be on terms and conditions no more favorable to the
borrower than would be available to the borrower from institutional lenders; and
provided further that no such loan of Partnership funds shall be made to the
General Partner or any Affiliate thereof or remain outstanding at any time that
any amounts distributable to Holders of Partnership Units under Section 5. 1
(a)(i) hereof remain undistributed;
(ii) the making of tax, regulatory and other filings, and the
rendering of periodic or other reports to governmental or other agencies having
jurisdiction over the business or assets of the Partnership;
(iii) the acquisition, sale, transfer, exchange or other disposition
of any assets of the Partnership (including, but not limited to, the exercise or
grant of any conversion, option, privilege or subscription right or any other
right available in connection with any assets at any time held by the
Partnership) or the merger, consolidation, reorganization or other combination
of the Partnership with or into another entity;
(iv) the mortgage, pledge, encumbrance or hypothecation of any assets
of the Partnership (including, without limitation, any Contributed Property),
the use of the assets of the Partnership (including, without limitation, cash on
hand (subject to the provisions of subparagraph (i) above)) for any purpose
consistent with the terms of this Agreement, including, without limitation the
financing of the operations and activities of the General Partner, the
Partnership, Meridian, or any of the Subsidiaries of the Partnership or
Meridian, the lending of funds to other Persons (including, without limitation,
the General Partner, Meridian, and Subsidiaries of Meridian and the
Partnership), the repayment of obligations of the Partnership, the General
Partner, Meridian, and Subsidiaries of Meridian and the Partnership, the
---
guaranty of the debt obligation of Meridian or its Affiliates, now existing or
- ----------- -----------
hereafter arising, to Bank Boston, N.A.
- --------------------- ------------
29
<PAGE>
or any other creditor thereof, and the making of capital contributions to and
- -----------------------------
equity investments in the Partnership's Subsidiaries;
(v) the management, operation, leasing, landscaping, repair,
alteration, demolition, replacement or improvement of any Property, including,
without limitation, any Contributed Property, or other asset of the Partnership
or any Subsidiary;
(vi) the negotiation, execution and performance of any contracts,
leases, conveyances or other instruments that the General Partner considers
useful or necessary to the conduct of the Partnership's operations or the
implementation of the General Partner's powers under this Agreement, including
contracting with property managers (including, without limitation, as to any
Contributed Properly or other Property, contracting with the contributing or any
other Limited Partner or its Affiliates for property management services),
contractors, developers, consultants, accountants, legal counsel, other
professional advisors and other agents and the payment of their expenses and
compensation out of the Partnership's assets;
(vii) the distribution of Partnership cash or other Partnership
assets in accordance with this Agreement, the holding, management, investment
and reinvestment of cash and other assets of the Partnership, and the collection
and receipt of revenues, rents and income of the Partnership;
(viii) the selection and dismissal of employees of the Partnership
(including, without limitation, employees having titles or offices such as
"president," "vice president," "secretary" and "treasurer"), and agents, outside
attorneys, accountants, consultants and contractors of the Partnership and the
determination of their compensation and other terms of employment or hiring;
(ix) the maintenance of such insurance for the benefit of the
Partnership and the Partners as it deems necessary or appropriate;
(x) the formation of, or acquisition of an interest in, and the
contribution of property to, any further limited or general partnerships,
limited liability companies, joint ventures or other relationships that it deems
desirable (including, without limitation, the acquisition of interests in, and
the contributions of property to, any Subsidiary of the Partnership and any
other Person in which it has an equity investment from time to time); provided,
however, that, as long as Meridian has determined to continue to qualify as a
REIT, the General Partner may not engage in any such formation, acquisition or
contribution that would cause Meridian to fail to qualify as a REIT;
(xi) the control of any matters affecting the rights and obligations
of the Partnership, including the settlement, compromise, submission to
arbitration or any other form of dispute resolution, or abandonment, of any
claim, cause of action, liability, debt or damages, due or owing to or from the
Partnership, the commencement or defense of suits, legal proceedings,
administrative proceedings, arbitrations or other forms of dispute resolution,
and the
30
<PAGE>
representation of the Partnership in all suits or legal proceedings,
administrative proceedings, arbitrations or other forms of dispute resolution,
the incur-ring of legal expense, and the indemnification of any Person against
liabilities and contingencies to the extent permitted by ]"w;
(xii) the undertaking of any action in connection with the
Partnership's direct or indirect investment in any Subsidiary or any other
Person (including, without limitation, the contribution or loan of funds by the
Partnership to such Persons);
(xiii) the determination of the fair market value of any Partnership
property distributed in kind using such reasonable method of valuation as it may
adopt, provided that such methods are otherwise consistent with the requirements
of this Agreement;
(xiv) the enforcement of any rights against any Partner pursuant to
representations, warranties, covenants and indemnities relating to such
Partner's contribution of property or assets to the Partnership;
(xv) the exercise, directly or indirectly, through any attorney-in-
fact acting under a general or limited power of attorney, of any right,
including the right to vote, appurtenant to any asset or investment held by the
Partnership;
(xvi) the exercise of any of the powers of the General Partner
enumerated in this Agreement on behalf of or in connection with any Subsidiary
of the Partnership or any other Person in which the Partnership has a direct or
indirect interest, or jointly with any such Subsidiary or other Person;
(xvii) the making, execution and delivery of any and all deeds,
leases, notes, deeds to secure debt, mortgages, deeds of trust, security
agreements, conveyances, contracts, guarantees, warranties, indemnities,
waivers, releases or legal instruments or agreements in writing necessary or
appropriate in the judgment of the General Partner for the accomplishment of any
of the powers of the General Partner enumerated in this Agreement;
(xviii) the issuance of additional Partnership Units, as appropriate
and in the General Partner's sole and absolute discretion, in connection with
Capital Contributions by Additional Limited Partners and additional Capital
Contributions by Partners pursuant to Article 4 hereof, and
(xix) the making of an election to dissolve the Partnership pursuant
to Section 13.1(c) hereof.
(b) Each of the Limited Partners agrees that, except as provided in
Section 7.3 hereof, the General Partner is authorized to execute, deliver and
perform the above-mentioned agreements and transactions on behalf of the
Partnership without any further act, approval or vote of the Partners. The
execution, delivery or performance by the General Partner or the Partnership of
any agreement authorized or permitted under this Agreement shall not constitute
a breach by the
31
<PAGE>
General Partner of any duty that the General Partner may owe the Partnership or
the Limited Partners or of any other Persons under this Agreement or of any duty
stated or implied by law or equity.
(c) At all times from and after the date hereof, the General Partner may
cause the Partnership to establish and maintain working capital and other
reserves in such amounts as the General Partner, in its sole and absolute
discretion, deems appropriate and reasonable from time to time.
(d) In exercising its authority under this Agreement, the General Partner
may, but shall be under no obligation to, take into account the tax consequences
to any Partner (including the General Partner) of any action taken by it. The
General Partner and the Partnership shall not have liability to a Limited
Partner under any circumstances as a result of an income tax liability incurred
by such Limited Partner as a result of an action (or inaction) by the General
Partner pursuant to its authority under this Agreement so long as the action or
inaction is taken in good faith.
7.2 Certificate of Limited Partnership.
----------------------------------
To the extent that such action is determined by the General Partner to be
reasonable and necessary or appropriate, the General Partner shall file
amendments to and restatements of the Certificate and do all the things to
maintain the Partnership as a limited partnership (or a partnerships in which
the limited partners have limited liability) under the laws of the State of
Delaware and each other state, the District of Columbia or any other
jurisdiction in which the Partnership may elect to do business or own property.
Subject to the terms of Section 8.5(a)(iv) hereof, the General Partner shall not
be required, before or after filing, to deliver or mail a copy of the
Certificate or any amendment thereto to any Limited Partner. The General Partner
shall use all reasonable efforts to cause to be filed such other certificates or
documents as may be reasonable and necessary or appropriate for the formation,
continuation, qualification and operation of the Partnership as a limited
partnership (or a partnership in which the limited partners have limited
liability to the extent provided by applicable law) in the State of Delaware and
any other state, or the District of Columbia or other jurisdiction in which the
Partnership may elect to do business or own property.
7.3 Restrictions on General Partner's Authority.
-------------------------------------------
(a) The General Partner shall not take any action in contravention of this
Agreement. Specifically (but without limitation), the General Partner shall not:
(i) take any action that would make it impossible to carry on the
ordinary business of the Partnership, except as otherwise provided in this
Agreement;
32
<PAGE>
(ii) possess Partnership property, or assign any rights in specific
Partnership property, for other than a Partnership purpose except as otherwise
provided in this
Agreement;
(iii) admit a Person as a Partner, except as otherwise provided in
this Agreement;
(iv) perform any act that would subject a Limited Partner to
liability as a general partner in any Jurisdiction or any other liability except
as provided herein or under the Act; or
(v) enter into any contract, mortgage, loan or other agreement that
prohibits or restricts, or has the effect of prohibiting or restricting (except
delays permitted under the definition "Specified Redemption Date"), the ability
of (A) the General Partner or the Partnership from satisfying its obligations
under Section 8.6 hereof in full or (B) a Limited Partner from exercising its
rights under Section 8.6 hereof to effect a Redemption in full, except, in
either case, with the written consent of the Limited Partner affected by the
prohibition or restriction.
(b) The General Partner shall not, without the prior Consent of the
Limited Partners, undertake, on behalf of the Partnership, any of the following
actions or enter into any transaction that would have the effect of such
actions:
(i) except as provided in Section 7.3(c) hereof, amend, modify or
terminate this Agreement other than to reflect the admission, substitution,
termination or withdrawal of Partners pursuant to Article I I or Article 12
hereof;
(ii) make a general assignment for the benefit of creditors or
appoint or acquiesce in the appointment of a custodian, receiver or trustee for
all or any part of the assets of the Partnership;
(iii) institute any proceeding for bankruptcy on behalf of the
Partnership; or
(iv) subject to the rights of Transfer provided in Section 11.2
hereof, approve or acquiesce to the Transfer of the Partnership Interest of the
General Partner, or admit into the Partnership any additional or successor
General Partners.
(c) Notwithstanding Sections 7.3(b) and 14.2 hereof, the General Partner
shall have the power, without the Consent of the Limited Partners, to amend this
Agreement as may be required to facilitate or implement any of the following
purposes:
(i) for the benefit of the Limited Partners, to add to the
obligations of the General Partner or surrender any right or power granted to
the General Partner or any Affiliate of the General Partner;
33
<PAGE>
(ii) to reflect the admission, substitution or withdrawal of Partners
or the termination of the Partnership in accordance with this Agreement, and to
amend Exhibit A in connection with such admission, substitution or withdrawal;
---------
(iii) to reflect a change that is of an inconsequential nature and
does not adversely affect any of the Limited Partners in any material respect,
or to cure any ambiguity, correct or supplement any provision in this Agreement
not inconsistent with law or with other provisions of this Agreement, or make
other changes with respect to matters arising under this Agreement that will not
be inconsistent with law or with other provisions of this Agreement;
(iv) to reflect a change consistent with an express grant of
authority to the General Partner under this Agreement;
(v) to satisfy any requirements, conditions or guidelines contained
in any applicable order, directive, opinion, ruling or regulation of a federal
or state agency or contained in federal or state law;
(vi) to reflect such changes as are reasonably necessary for Meridian
to maintain its status as a REIT or to satisfy the REIT Requirements; and
(vii) to modify the manner in which Capital Accounts are computed (but
only to the extent set forth in the definition of "Capital Account" or
contemplated by the Code or the Treasury Regulations).
The General Partner will provide notice to the Limited Partners when any
action under this Section 73(c) is taken.
(d) Notwithstanding Sections 7.3(b), 7.3(c) and 14.2 hereof, this
Agreement shall not be amended, and no action may be taken by the General
Partner, 'Without the Consent of each Partner adversely affected, if such
amendment or action would (i) convert a Limited Partner Interest in the
Partnership into a General Partner Interest (except as a result of the General
Partner acquiring such Partnership Interest), (ii) modify the limited liability
of a Limited Partner, (iii) alter rights of the Partner to receive distributions
pursuant to Article 5 or Section 13.2(a)(iv) hereof, or the allocations
specified in Article 6 hereof (except in any case as permitted pursuant to
Sections 4.4 and 7.3(c) hereof), (iv) alter or modify the Redemption Rights,
Cash Amount or REIT Shares Amount as set forth in Sections 8.6 and 11.3 hereof,
or amend or modify any related definitions, (v) amend or modify the provisions
of any Partner Schedule, or (vi) amend this Section 7.3(d). Further, no
amendment may alter the restrictions on the General Partner's authority set
forth elsewhere in this Section 7.3 without the Consent specified therein. Any
such amendment or action consented to by any Partner shall be effective as to
that Partner, notwithstanding the absence of such consent by any other Partner.
7.4 Reimbursement of the General Partner.
------------------------------------
34
<PAGE>
(a) The General Partner shall not be compensated for its services as
general partner of the Partnership except as provided elsewhere in this
Agreement (including the provisions of Articles 5 and 6 hereof regarding
distributions, payments and allocations to which it may be entitled in its
capacity as the General Partner).
(b) Subject to Sections 7.4(c) and 15.12 hereof, the Partnership shall be
liable, and shall reimburse the General Partner on a monthly basis (or such
other basis as the General Partner may determine in its reasonable discretion),
for all sums expended in connection with the Partnership's business. Any such
reimbursements shall be in addition to any reimbursement of the General Partner
as a result of indemnification pursuant to Section 7.7 hereof.
(c) To the extent practicable, Partnership expenses shall be billed
directly to and paid by the partnership. Unless otherwise provided in any other
written agreement between the Partnership and one or more Partners, and subject
to Section 15.12 hereof, reimbursements to the General Partner or any of its
Affiliates by the Partnership shall be allowed, however, for the actual cost to
the General Partner or any of its Affiliates of operating and other expenses of
the Partnership, including, without limitation, the actual cost of goods,
materials and administrative services related to (i) Partnership operations,
(ii) Partnership accounting, (iii) communications with Partners, (iv) computer
services, (v) risk management, (vi) mileage and travel expenses, (vii) such
other related operational and administrative expenses as are necessary for the
prudent organization and operation of the Partnership, (viii) legal services,
and (ix) tax services. "Actual cost of goods and materials" means the actual
cost to the General Partner or any of its Affiliates of goods and materials used
for or by the Partnership obtained from entities not affiliated with the General
Partner, and "actual cost of administrative services" means the pro rata cost of
personnel (as if such persons were employees of the Partnership) providing
administrative services to the Partnership. The cost for such services to be
reimbursed to the General Partner or any Affiliate thereof shall be the General
Partner's or Affiliate's actual cost. Notwithstanding the foregoing, the
Partnership shall not reimburse the General Partner or any Affiliate thereof
under this Section 7.4 for any rent, depreciation, utilities or other
administrative items generally constituting the General Partner's or Affiliate's
overhead.
7.5 Other Business of General Partner.
---------------------------------
The General Partner may engage independently or with others in other
business ventures of every nature and description, including, without
limitation, the ownership of other properties and the making or management of
other investments. Nothing in this Agreement shall be deemed to prohibit the
General Partner or any Affiliate of the General Partner from dealing, or
otherwise engaging in business with, Persons transacting business with the
Partnership, or from providing services related to the purchase, sale,
financing, management, development or operation of real or personal property and
receiving compensation therefore not involving any rebate or reciprocal
arrangement that would have the effect of circumventing any restriction set
forth herein upon dealings with the General Partner or any Affiliate of the
General Partner. Neither the Partnership nor any Partner shall have any right by
virtue of this Agreement or the Partnership relationship created hereby in or to
such other ventures or activities or to the income or proceeds
35
<PAGE>
derived therefrom, and the pursuit of such ventures, even if competitive with
the business of the Partnership, shall not be deemed wrongful or improper.
7.6 Contracts with Affiliates.
--------------------------
(a) Subject to the provisions of Section 7.1(a)(i), the Partnership may
lend or contribute funds or other assets to its Subsidiaries or other Persons in
which it has equity investments, and such Persons may borrow funds from the
Partnership, on terms and conditions established in the reasonable discretion of
the General Partner. The foregoing authority shall not create any right or
benefit in favor of any Subsidiary or any other Person.
(b) The Partnership may transfer assets to joint ventures, limited
liability companies, partnerships, corporations, business trusts or other
business entities in which it is or thereby becomes a participant upon such
terms and subject to such conditions consistent with this Agreement and
applicable law as the General Partner, in its reasonable discretion, believes to
he advisable.
(c) Except as expressly permitted by this Agreement, neither the General
Partner nor any of its Affiliates shall sell, transfer or convey any property to
the Partnership, or purchase, lease or acquire any property from the
Partnership, directly or indirectly, except pursuant to transactions that are
reasonably determined by the General Partner in good faith to be fair and
reasonable to the Partnership.
7.7 Indemnification.
---------------
(a) To the fullest extent permitted by applicable law, the Partnership
shall indemnify each Indemnitee from and against any and all losses, claims,
damages, liabilities, joint or several, expenses (including, without limitation,
attorney's fees and other legal fees and expenses), judgments, fines,
settlements and other amounts arising from any and all claims, demands, actions,
suits or proceedings, civil, criminal, administrative or investigative, that
relate to or arise out of the operations of the Partnership ("Actions") in which
such Indemnitee may be involved, or is threatened to be involved, as a party or
otherwise; provided, however, that the Partnership shall not indemnify an
Indemnitee (i) for willful misconduct or a knowing violation of the law or (ii)
for any transaction for which such Indemnitee received an improper personal
benefit in violation or breach of any provision of this Agreement. Without
limitation, the foregoing indemnity shall extend to any liability of any
Indemnitee, pursuant to a loan guaranty or otherwise, for any indebtedness of
the Partnership or any Subsidiary of the Partnership (including, without
limitation, any indebtedness which the Partnership or any Subsidiary of the
Partnership has assumed or taken subject to), and the General Partner is hereby
authorized and empowered, on behalf of the Partnership, to enter into one or
more indemnity agreements consistent with the provisions of this Section 7.7 in
favor of any Indemnitee having or potentially having liability for any such
indebtedness. The termination of any proceeding by judgment, order or
settlement does not create a presumption that the Indemnitee did not meet the
requisite standard of conduct set forth in this Section 7.7(a). The termination
of any proceeding by conviction of an Indemnitee
36
<PAGE>
or upon a plea of nolo contenders or its equivalent by an Indemnitee, or an
entry of an order of probation against an Indemnitee prior to judgment, does not
create a presumption that such Indemnitee acted in a manner contrary to that
specified in this Section 7.7(a) with respect to the subject matter of such
proceeding. Any indemnification pursuant to this Section 7.7 shall be made only
out of the assets of the Partnership, and neither the General Partner nor any
Limited Partner shall have any obligation to contribute to the capital of the
Partnership or otherwise provide funds to enable the Partnership to fund its
obligations under this Section 7.7.
(b) To the fullest extent permitted by law, expenses incurred by an
Indemnitee, who is a party to a proceeding or otherwise subject to or the focus
of or is involved in any Action shall be paid or reimbursed by the Partnership
as incurred by the Indemnitee in advance of the final disposition of the Action
upon receipt by the Partnership of (i) a written affirmation by the Indemnitee
of the Indemnitee's good faith belief that the standard of conduct necessary for
indemnification by the Partnership as authorized in this Section 7.7(a) has been
met, and (ii) a written undertaking by or on behalf of the Indemnitee to repay
the amount if it shall ultimately be determined that the standard of conduct has
not been met.
(c) The indemnification provided by this Section 7.7 shall be in addition
to any other rights to which an Indemnitee or any other Person may be entitled
under any agreement, pursuant to any vote of the Partners, as a matter of law or
otherwise, and shall continue as to an Indemnitee who has ceased to serve in
such capacity and shall inure to the benefit of the heirs, successors, assigns
and administrators of the Indemnitee unless otherwise provided in a written
agreement with such Indemnitee or in the writing pursuant to which such
Indemnitee is indemnified.
(d) The Partnership may, but shall not be obligated to, purchase and
maintain insurance, on behalf of any of the Indemnitees and such other Persons
as the General Partner shall determine, against any liability that may be
asserted against or expenses that may be incurred by such Person in connection
with the Partnership's activities, regardless of whether the Partnership would
have the power to indemnify such Person against such liability under the
provisions of this Agreement.
(e) Any liabilities that an Indemnitee incurs as a result of acting on
behalf of the Partnership or the General Partner (whether as a fiduciary or
otherwise in connection with the operation, administration or maintenance of an
employee benefit plan or any related trust or funding mechanism (whether such
liabilities are in the form of excise taxes assessed by the IRS, penalties
assessed by the Department of Labor, restitutions to such a plan or trust or
other funding mechanism or to a participant or beneficiary of such plan, trust
or other funding mechanism, or otherwise) shall be treated as liabilities or
judgments or fines under this Section 7.7, unless such liabilities arise as a
result of (i) such Indemnitee's intentional misconduct or knowing violation of
the law or (ii) any transaction in which such Indemnitee received a personal
benefit in violation or breach of any provision of this Agreement or applicable
law.
37
<PAGE>
(f) In no event may an Indemnitee subject any of the Partners to personal
liability by reason of the indemnification provisions set forth in this
Agreement.
(g) An Indemnitee shall not be denied indemnification as a whole or in
part under this Section 7.7 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the transaction
was otherwise permitted by the terms of this Agreement-
(h) The provisions of this Section 7.7 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons. Any
amendment, modification or repeal of this Section 7.7 or any provision hereof
shall be prospective only and shall not in any way affect the limitations on the
Partnership's liability to any Indemnitee under this Section 7.7 as in effect
immediately prior to such amendment, modification or repeal with respect to
claims arising from or relating to matters occurring, as a whole or in part,
prior to such amendment, modification or repeal, regardless of when such claims
may arise or be asserted.
7.8 Liability of the General Partner.
--------------------------------
(a) Notwithstanding anything to the contrary set forth in this Agreement,
neither the General Partner nor any of its directors, officers, employees,
agents, or Affiliates shall be liable or accountable in damages or otherwise to
the Partnership, any Partners or any Assignees for losses sustained, liabilities
incurred or benefits not derived as a result of errors in judgment or mistakes
of fact or law or of any act or omission if the General Partner or such other
Person acted in good faith.
(b) The Limited Partners expressly acknowledge that the General Partner is
acting for the benefit of the Partnership, the Limited Partners and the
shareholders of Meridian collectively and that the General Partner is under no
obligation to give priority to the separate interests of the Limited Partners or
the stockholders of Meridian (including, without limitation, as to the tax
consequences to Limited Partners, Assignees or the stockholders of Meridian) in
deciding whether to cause the Partnership to take (or decline to take) any
actions.
(c) Subject to its obligations and duties as General Partner set forth in
Section 7.1(a) hereof, the General Partner may exercise any of the powers
granted to it by this Agreement and perform any of the duties imposed upon it
hereunder either directly or by or through its employees or agents (subject to
the supervision and control of the General Partner). The General Partner shall
not be responsible for any misconduct or negligence on the part of any such
agent appointed by it in good faith.
(d) Any amendment, modification or repeal of this Section 7.8 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the liability of any Person to the Partnership and the Limited
Partners under this Section 7.8 as in effect immediately prior to such
amendment, modification or repeal with respect to claims arising from or
relating
38
<PAGE>
to matters occurring, as a whole or in part, prior to such amendment,
modification or repeal, regardless of when such claim may arise or be asserted.
(e) Notwithstanding anything herein to the contrary, except for fraud,
willful misconduct or gross negligence, or pursuant to any express indemnities
given to the Partnership by any Partner pursuant to any other written
instrument, no Partner shall have any personal liability whatsoever, to the
Partnership or to the other Partners, for the debts or liabilities of the
Partnership or the Partnership's obligations hereunder, and the full recourse of
the other Partners shall be limited to the interest of that Partner in the
Partnership. To the fullest extent permitted by law, no officer, director,
employee, agent, or shareholder of the General Partner shall be liable to the
Partnership for money damages except for (i) active and deliberate dishonesty
established by a non-appealable final judgment or (ii) actual receipt of an
improper benefit or profit in money, property or services. Without limitation
of the foregoing, and except for fraud, willful misconduct or gross negligence,
or pursuant to any such express indemnity, no property or assets of any Partner,
other than its interest in the Partnership, shall be subject to levy, execution
or other enforcement procedures for the satisfaction of any judgment (or other
judicial process) in favor of any other Partner(s) and arising out of, or in
connection with, this Agreement. This Agreement is executed by the officers of
the General Partner solely as officers of the same and not in their individual
capacities.
(f) To the extent that, at law or in equity, the General Partner has
duties (including fiduciary duties) land liabilities relating thereto to the
Partnership or the Limited Partners, the General Partner shall not be liable to
the Partnership or to any other Partner for its good faith reliance on the
provisions of this Agreement. The provisions of this Agreement, to the extent
that they restrict the duties and liabilities of the General Partner otherwise
existing at law or in equity, are agreed by the Partners to replace such other
duties and liabilities of the General Partner.
7.9 Other Matters Concerning the General Partner.
--------------------------------------------
(a) The General Partner may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, bond, debenture or other paper
or document believed by it in good faith to be genuine and to have been signed
or presented by the proper party or parties.
(b) The General Partner may consult with legal counsel, accountants,
appraisers, management consultants, investment bankers, architects, engineers,
environmental consultants and other consultants and advisers selected by it, and
any act taken or omitted to be taken in reliance upon the opinion of such
Persons as to matters that the General Partner reasonably believes to be within
such Person's professional or expert competence shall be conclusively presumed
to have been done or omitted in good faith and in accordance with such opinion.
(c) The General Partner shall have the right, in respect of any of its
powers or obligations hereunder, to act through any of its duly authorized
officers and a duly appointed
39
<PAGE>
attorney or attorneys-in-fact. Each such attorney shall, to the extent provided
by the General Partner in the power of attorney, have full power and authority
to do and perform all and c ' very act and duly that is permitted or required to
be done by the General Partner hereunder.
(d) Notwithstanding any other provision of this Agreement or the Act, any
action of the General Partner on behalf of the Partnership or any decision of
the General Partner to refrain from acting on behalf of the Partnership,
undertaken in the good faith belief that such action or omission is necessary or
advisable (i) to protect the ability of Meridian to continue to qualify as a
REIT, (ii) for Meridian otherwise to satisfy the REIT Requirements or (iii) to
avoid Meridian incurring any taxes under Code Section 857 or Code Section 4981,
is expressly authorized under this Agreement and is deemed approved by all of
the Limited Partners.
7.10 Ownership of Partnership Assets.
-------------------------------
All Partnership assets, whether real, personal or mixed and whether
tangible or intangible, shall be deemed to be owned by the Partnership as an
entity, and no Partner, as such, individually or collectively with other
Partners or Persons, shall have any ownership interest in such Partnership
assets or any portion thereof. Title to any or all of the Partnership assets may
be held in the name of the Partnership, the General Partner or one or more
nominees, as the General Partner may determine, including Affiliates of the
General Partner. The General Partner hereby declares and warrants that any
Partnership assets for which legal title is held in the name of the General
Partner or any nominee or Affiliate of the General Partner shall be held by the
General Partner for the use and benefit of the Partnership in accordance with
the provisions of this Agreement; provided, however, that the General Partner
shall use its best efforts to cause record title to such assets to be vested in
the Partnership as soon as reasonably practicable. All Partnership assets shall
be recorded as the property of the Partnership in its books and records,
irrespective of the name in which legal title to such Partnership assets is
held.
7.11 Reliance by Third Parties.
-------------------------
Notwithstanding anything to the contrary in this Agreement, any Person
dealing with the Partnership shall be entitled to assume that the General
Partner has full power and authority, without the consent or approval of any
other Partner or Person, to encumber, sell or otherwise use in any manner any
and all assets of the Partnership and to enter into any contracts on behalf of
the Partnership, and take any and all actions on behalf of the Partnership, and
such Person shall be entitled to deal with the General Partner as if it were the
Partnership's sole party in Interest both legally and beneficially. Each Limited
Partner hereby waives any and all defenses or other remedies that may be
available against such Person to contest, negate or disaffirm, any action of the
General Partner in connection with any such dealing. In no event shall any
Person dealing with the General Partner or its representatives be obligated to
ascertain that the terms of this Agreement have been complied with or to inquire
into the necessity or expediency of any action of the General Partner or its
representatives. Each and every certificate, document or other instrument
executed on behalf of the Partnership by the General Partner or its
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representatives shall be conclusive evidence in favor of any and every Person
relying thereon or claiming thereunder that (a) at the time of the execution and
delivery of such certificate, document or instrument, this Agreement was in full
force and effect, (b) the Person executing and delivering such certificate,
document or instrument was duly authorized and empowered to ' do so for and on
behalf of the Partnership and (c) such certificate, document or instrument was
duly executed and delivered in accordance with the terms and provisions of this
Agreement and is binding upon the Partnership.
8. RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
8.1 Limitation of Liability.
-----------------------
The Limited Partners shall have no liability under this Agreement except as
expressly provided in this Agreement (including, without limitation, Section
10.4 hereof) or under
the Act.
8.2 Management of Business.
----------------------
No Limited Partner or Assignee (other than the General Partner, any of its
Affiliates or any officer, director, member, employee, partner, agent or trustee
of the General Partner, the Partnership or any of their Affiliates, in their
capacity as such) shall take part in the operations, management or control
(within the meaning of the Act) of the Partnership's business, transact any
business in the Partnership's name or have the power to sign documents for or
otherwise bind the Partnership. The transaction of any such business by the
General Partner, any of its Affiliates or any officer, director, member,
employee, partner, agent, representative, or trustee of the General Partner, the
Partnership or any of their Affiliates, in their capacity as such, shall not
affect, impair or eliminate the limitations on the liability of the Limited
Partners or Assignees under this Agreement.
8.3 Outside Activities of Limited Partners.
--------------------------------------
Subject to any agreements (including, without limitation, any employment
agreement) entered into by a Limited Partner or its Affiliates with the General
Partner, the Partnership or an Affiliate of either, and subject also to the
provisions of the Limited Partner's Partner Schedule, any Limited Partner and
any officer, director, employee, agent, trustee, Affiliate or shareholder of any
Limited Partner shall be entitled to and may have business interests and engage
in business activities in addition to those relating to the Partnership,
including business interests and activities that are in direct or indirect
competition with the Partnership or that arc enhanced by the activities of the
Partnership. Neither the Partnership nor any Partner shall have any rights by
virtue of this Agreement in any such business ventures of any Limited Partner or
Assignee. Subject to such agreements, none of the Limited Partners nor any other
Person shall have any rights by virtue of this Agreement or the partnership
relationship established hereby in any business ventures of any other Person
(other than the General Partner, to the extent expressly
41
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provided herein), and such Person shall have no obligation pursuant to this
Agreement, subject to any agreements entered into by a Limited Partner or its
Affiliates with the General Partner, the Partnership or an Affiliate of either,
and subject also to the Limited Partner's Partner Schedule, to offer any
interest in any such business ventures to the Partnership, any Partner or any
such other Person, even if such opportunity is of a character that, if presented
to the Partnership, any Partner or such other Person, could be taken by such
Person.
8.4 Return of Capital.
-----------------
Except pursuant to the rights of Redemption set forth in Section 8.6
hereof, no Limited Partner shall be entitled to the withdrawal or return of its
Capital Contribution, except to the extent of distributions made pursuant to
this Agreement or upon termination of the Partnership as provided herein. Except
to the extent provided in Article 6 hereof or otherwise expressly provided in
this Agreement or in the Partner Schedules, no Limited Partner or Assignee shall
have priority over any other Limited Partner or Assignee either as to the return
of Capital Contributions or as to profits, losses or distributions.
8.5 Rights of Limited Partners-, Relation to the Partnership.
--------------------------------------------------------
(a) In addition to other rights provided by this Agreement or by the Act,
and except as limited by Section 8.5(c) hereof, each Limited Partner shall have
the right, for a purpose reasonably related to such Limited Partner's interest
as a limited partner in the Partnership, upon written demand with a statement of
the purpose of such demand and at such Limited Partner's own expense:
(i) to obtain a copy of (A) the most recent annual and quarterly
reports of Meridian filed with the SEC pursuant to the Exchange Act and (B) each
report or other written communication sent to the stockholders of Meridian;
(ii) to obtain a copy of the Partnership's federal, state and local
income tax returns for each Fiscal Year;
(iii) to obtain a current list of the name and last known business,
residence or mailing address of each Partner;
(iv) to obtain a copy of this Agreement and the Certificate and all
amendments thereto, together with executed copies of all powers of attorney
pursuant to which tills Agreement, the Certificate and all amendments thereto
have been executed; and
(v) to obtain true and full information regarding the amount of cash
and a description and statement of any other property or services contributed by
each Partner and that each Partner has agreed to contribute in the future, and
the date on which each became a Partner.
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(b) On written request, the Partnership shall notify any Limited Partner
of the then current Conversion Factor or any change made as to the Conversion
Factor or to the REIT Shares Amount, Preferred Return Per Unit or Specific
Adjustment Factor applicable to such Limited Partner.
(c) Notwithstanding any other provision of this Section 8.5, the General
Partner may keep confidential from the Limited Partners, for such period of time
as the General Partner determines in its sole and absolute discretion to be
reasonable, any information that (i) the General Partner believes to be in the
nature of trade secrets or other information the disclosure of which the General
Partner in good faith believes is not in the best interests of the Partnership
or the General Partner or (ii) the Partnership or the General Partner is
required by law or by agreements with unaffiliated third parties to keep
confidential.
8.6 Redemption Rights.
-----------------
(a) After the Holding Period, a Limited Partner or Assignee but not the
General Partner, shall have the right (subject to the terms and conditions set
forth herein) (the "Redemption Right") to require the Partnership to redeem all
or a portion of the Partnership Units ("Tendered Units") held by such Person
(the "Tendering Party") in exchange for the Redemption Amount payable on the
Specified Redemption Date (a "Redemption"). A Redemption shall be exercised
pursuant to a Notice of Redemption delivered to the General Partner by the
Tendering Party exercising the Redemption Right. Notwithstanding anything else
contained herein to the contrary, a Holder shall not be entitled to receive a
distribution with respect to any Tendered Unit for any period for which such
Holder is entitled to receive a distribution with respect to a REIT Share that
is to be received by the Holder in exchange for the Tendered Unit, and the
General Partner is hereby authorized to delay or omit a distribution with
respect to Tendered Units in furtherance of this objective.
(b) Notwithstanding the provisions of Section 8.6(a) hereof, the General
Partner may, in its sole and absolute discretion but subject to the Ownership
Limit and the transfer restrictions and other limitations of the Charter, elect
to acquire the Tendered Units from the Tendering Party in exchange for the
payment by the General Partner of the Redemption Amount. If the General Partner
so elects, on the Specified Redemption Date the Tendering Party shall sell the
Tendered Units to the General Partner in exchange for the Redemption Amount. To
the extent the General Partner elects to pay the Redemption Amount with REIT
Shares, the Tendering Party shall submit (i) such information, certification or
affidavit as the General Partner may reasonably require in connection with the
application of the Ownership Limit and -other restrictions and limitations of
the Charter to any such acquisition and (ii) such written representations,
investment letters, legal opinions (at Partnership expense) or other instruments
necessary, in the General Partner's view, to effect compliance with the
Securities Act. In the event of a purchase of the Tendered Units pursuant to
this Section 8.6(b), the Tendering Party shall no longer have the. right to
cause the Partnership to effect a Redemption of such Tendered Units, and, upon
notice to the Tendering Party by the General Partner that the General Partner
has elected to acquire some or all of the Tendered Units pursuant to this
Section 8.6(b), the obligation of the Partnership to effect a
43
<PAGE>
Redemption of the Tendered Units as to which the General Partner's notice
relates shall not accrue or arise. Any REIT Shares delivered by the General
Partner shall be duly authorized, validly issued, fully paid and nonassessable
REIT Shares and, if applicable, Rights, free of any pledge, lien, encumbrance or
restriction, other than the Ownership Limit and other restrictions provided in
the Charter, the Bylaws of Meridian, the Securities Act and applicable state
securities or "blue sky" laws. Neither any Tendering Party, any other Partner,
any Assignee nor any other interested Person shall have any right to require or
cause the General Partner or Meridian to register, qualify or list any REIT
Shares owned or held by such Person, whether or not such REIT Shares are issued
pursuant to this Section 8.6(b), with the SEC, with any state securities
commissioner, department or agency, under the Securities Act or the Exchange Act
or with any stock exchange; provided, however, that this limitation shall not be
in derogation of any registration or similar rights granted pursuant to any
other written agreement between the General Partner or Meridian and any such
Person. Notwithstanding any delay in such delivery, the Tendering Party shall be
deemed the owner of such REIT Shares and Rights for all purposes, including,
without limitation, rights to vote or consent, receive dividends, and exercise
rights, as of the Specified Redemption Date. REIT Shares issued upon an
acquisition of the Tendered Units by the General Partner pursuant to this
Section 8.6(b) may contain such legends regarding restrictions under the
Securities Act and applicable state securities laws as the General Partner in
good faith determines to be necessary or advisable in order to ensure compliance
with such laws.
(c) Notwithstanding the provisions of Sections 8.6(a) and 8.6(b) hereof,
no Tendering Party (i) where the Redemption would consist of less than all the
Partnership Units held by other than the General Partner, shall be entitled to
elect or effect a Redemption to the extent that the aggregate Partnership Units
of the Limited Partners would be reduced, as a result of the Redemption (or the
acquisition of the Tendered Units by the General Partner pursuant to Section
8.6(b) hereof), to less than one percent (1%) of all Partnership Units
outstanding immediately prior to delivery of the Notice of Redemption and (ii)
shall have any rights under this Agreement with respect to REIT Shares that
would otherwise be prohibited under the Charter. To the extent that any
attempted Redemption or acquisition of the Tendered Units by the General Partner
pursuant to Section 8.6(b) hereof would be in violation of this Section 8.6(c),
it shall be null and void ab initio.
(d) Notwithstanding the provisions of Section 8.6(b) hereof, the General
Partner shall not, under any circumstances, elect to acquire Tendered Units in
exchange for the REIT Shares Amount if such exchange would be prohibited under
the Charter.
(e) Notwithstanding anything herein to the contrary, but subject to
Section 8.6(c) hereof, with respect to any Redemption (or any tender of
Partnership Units for Redemption if the Tendered Units are acquired by the
General Partner pursuant to Section 8.6(b) hereof) pursuant to this Section 8.6:
44
<PAGE>
(i) All Partnership Units acquired by the General Partner pursuant
to Section 8.6(b) hereof shall automatically, and without further action
required, be converted into and deemed to be General Partner Interests
comprising the same number of Partnership Units.
(ii) Subject to the Ownership Limit, no Tendering Party may effect a
Redemption for fewer than five thousand (5,000) Partnership Units or, if such
Tendering Party holds fewer than five thousand (5,000) Partnership Units, all of
the Partnership Units held by such Tendering Party.
(iii) Each Tendering Party (A) may deliver a Notice of Redemption only
once in each consecutive twelve-month period (unless the restriction contained
in this Section 8.6(e)(iii)(A) is waived by the General Partner in its sole and
absolute discretion) and (B) may not deliver a Notice of Redemption during the
period after the Partnership Record Date with respect to a distribution and
before the record date established by Meridian for a distribution to its
stockholders of some or all of its portion of such Partnership distribution.
(iv) The Tendering Party shall continue to own (subject, in the case
of an Assignee, to the provisions of Section 11.5 hereof) all Partnership Units
subject to any Redemption, and be treated as a Limited Partner or an Assignee,
as applicable, with respect such Partnership Units for all purposes of this
Agreement, subject to the provisions of Section 8.6(a), until such Partnership
Units are either paid for by the Partnership pursuant to Section 8.6(a) hereof
or by the General Partner, pursuant to Section 8.6(b) hereof on the Specified
Redemption Date. Until a Specified Redemption Date and an acquisition of the
Tendered Units by the General Partner pursuant to Section 8.6(b) hereof, the
Tendering Party shall have no rights as a stockholder of Meridian with respect
to the REIT Shares issuable in connection with such acquisition.
For purposes of determining compliance with the restrictions set forth in this
Section 8.6(e), all Partnership Units beneficially owned by a Related Party of a
Tendering Party shall be considered to be owned or held by such Tendering Party.
(f) In connection with an exercise of Redemption rights pursuant to this
Section 8.6, the Tendering Party shall submit the following to the General
Partner, in addition to the Notice of Redemption:
(i) A written affidavit, dated the same date as, and accompanying,
the Notice of Redemption, (A) disclosing the actual and constructive ownership,
as determined for purposes of Code Sections 856(a)(6) and 856(h), of REIT Shares
by (1) such Tendering Party and (2) any Related Party and (B) representing that,
after giving effect to the Redemption or an acquisition of the Tendered Units by
the General Partner pursuant to Section 8.6(b) hereof, neither the Tendering
Party nor any Related Party will own REIT Shares in excess of the Ownership
Limit;
(ii) A written representation that neither the Tendering Party nor
any Related Party has any intention to acquire any additional REIT Shares prior
to the closing of the
45
<PAGE>
Redemption or an acquisition of the Tendered Units by the General Partner
pursuant to Section 8.6(b) hereof on the Specified Redemption Date; and
(iii) An undertaking to certify, at and as a condition to the closing
of (A) the Redemption or (B) the acquisition of the Tendered Units by the
General Partner pursuant to Section 8.6(b) hereof on the Specified Redemption
Date, that either (1) the actual and constructive ownership of REIT Shares by
the Tendering Party and any Related Party remain unchanged from that disclosed
in the affidavit required by Section 8.6(f)(i) or (2) after giving effect to the
Redemption or an acquisition of the Tendered Units by the General Partner
pursuant to Section 8.6(b) hereof, neither the Tendering Party nor any Related
Party shall own REIT Shares in violation of the Ownership Limit.
8.7 Partnership Right to Call Limited Partner Interests.
---------------------------------------------------
Notwithstanding any other provision of this Agreement, on and after the
date on which the aggregate Partnership Units of the Limited Partners are fewer
than twenty thousand (20,000) or in the event of a Terminating Capital
Transaction, the Partnership shall have the right, but not the obligation, from
time to time and at any time to redeem all outstanding Limited Partner Interests
by treating any Holder thereof as a Tendering Party who has delivered a Notice
of Redemption pursuant to Section 8.6 hereof for the amount of Partnership Units
to be specified by the General Partner, in its sole and absolute discretion, by
notice to such Holder that the Partnership has elected to exercise its rights
under this Section 8.7. Such notice given by the General Partner to a Holder
pursuant to this Section 8.7 shall be treated as if it were a Notice of
Redemption delivered to the General Partner by such Limited Partner. For
purposes of this Section 8.7, the provisions of Section 8.6(c)(i) hereof shall
not apply, but the remainder of Section 8.6 hereof shall apply with such
adjustments as shall be reasonable and necessary in the circumstances.
8.8 General Partner's Right to Trigger Redemptions.
----------------------------------------------
Notwithstanding any other provision of this Agreement, in connection with
any Meridian Transaction, the General Partner may, in its sole and absolute
discretion, cause all Limited Partners and all Assignees (but in no event fewer
than all Limited Partners and all Assignees) to be deemed to be Tendering
Parties who have delivered Notices of Redemption pursuant to Section 8.6 hereof
for all of the Partnership Units held by such Persons. Any notice given by the
General Partner to a Holder of the General Partner's election to exercise the
right conferred on it by the immediately preceding sentence shall be treated as
if it were a Notice of Redemption delivered to the General Partner by such
Holder. All consequent Redemptions pursuant to Section 8.6(a) -hereof or General
Partner acquisitions of Tendered Units pursuant to Section 8.6(b) hereof shall
close, as appropriate, immediately prior to or simultaneously with the closing
of the Meridian Transaction. If the Meridian Transaction involves a series of
related transactions, each Redemption and each acquisition of Tendered Units by
the General Partner shall occur on or before the close of the last such related
transaction. For purposes of this
46
<PAGE>
Section 8.8, the provisions of Section 8.6 hereof shall apply with such
adjustments as shall be reasonable and necessary under the circumstances.
8.9 Other Redemptions.
-----------------
Notwithstanding the provisions of Section 8.6 hereof, nothing in this
Agreement shall preclude the redemption of a Limited Partner Interest or
Partnership Units by the Partnership upon such terms and conditions as may be
negotiated between the Limited Partner or Assignee holding such Limited Partner
Interest or Partnership Units, on the one hand, and the General Partner, on the
other hand, in their sole and absolute discretion. Such a redemption may
include, without limitation, the payment of cash by the Partnership to the
Limited Partner or Assignee, in a lump sum or in installments, or the
distribution in kind of Partnership assets to such Limited Partner or Assignee
(which assets may be encumbered), including assets to be designated by the
Limited Partner or Assignee and acquired (with or without debt financing) by the
Partnership. Upon any such redemption, the Partnership Units and Limited Partner
Interest redeemed and the applicable Partner Schedule shall be canceled and
Exhibit A shall be amended as appropriate to reflect such redemption. In
- ---------
effecting any such redemption by negotiated agreement, none of the Partnership,
the General Partner, the Limited Partner and the Assignee, as the case may be,
shall incur any liability to any other Holder of Partnership Units or have any
duty to offer the same or similar terms for redemption of any other Limited
Partner Interest or Partnership Units.
9. BOOKS, RECORDS, ACCOUNTING AND REPORTS
9.1 Books and Accounting.
--------------------
(a) The General Partner shall keep or cause to be kept at the principal
off-ice of the Partnership those records and documents required to be maintained
by the Act and other books and records deemed by the General Partner to be
appropriate with respect to the Partnership's business, including, without
limitation, all books and records necessary to provide to the Limited Partners
any information, lists and copies of documents required to be provided pursuant
to Section 8.5(a) or Section 9.3 hereof. Any records maintained by or on behalf
of the Partnership in the regular course of its business may be kept on, or be
in the form of, punch cards, magnetic tape, photographs, micro graphics or any
other information storage device, provided that the records so maintained are
convertible into clearly legible written form within a reasonable period of
time.
(b) The books of the Partnership shall be maintained, for financial and
tax reporting purposes, on an accrual basis in accordance with generally
accepted accounting principles, or on such other basis as the General Partner
determines to be necessary or appropriate. To the extent permitted by sound
accounting practices and principles, the Partnership and the General Partner may
operate with integrated or consolidated accounting records, operations and
principles.
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9.2 Fiscal Year.
-----------
The Fiscal Year of the Partnership shall be the calendar year.
9.3 Reports.
-------
(a) As soon as practicable, but in no event later than one hundred twenty
(I 20) days after the close of each Fiscal Year, the General Partner shall cause
to be mailed 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, the General Partner shall
mail to each such Limited Partner an annual report of Meridian for such Fiscal
Year.
(b) As soon as practicable, but in no event later than sixty (60) days
after the close of each calendar quarter (except the last calendar quarter of
each year), the General Partner shall cause to be mailed to each Limited Partner
of record as of the last day of the calendar quarter a report containing
unaudited financial statements of Meridian and the Partnership and such other
information as may be required by applicable law or regulation or as the General
Partner determines to be appropriate.
10. TAX MATTERS
10.1 Preparation of Tax Returns.
--------------------------
The General Partner shall arrange for the preparation and timely failing of
all returns with respect to Partnership income, gains, deductions, losses and
other items required of the Partnership for federal and state income tax
purposes and shall use all reasonable efforts to furnish, within ninety (90)
days of the close of each Fiscal Year, the tax information reasonably required
by Limited Partners for federal and state income tax reporting purposes. The
Limited Partners shall promptly provide the General Partner with such
information relating to the Contributed Properties, including tax basis and
other relevant information, as may be reasonably requested by the General
Partner from time to time.
10.2 Tax Elections.
-------------
Except as otherwise provided herein, the General Partner shall, in its sole
and absolute discretion, determine whether to make any available election
pursuant to the Code, including, but not limited to, the election under Code
Section 754 and the election to use the recurring item" method of accounting
provided under Code Section 461(h) with respect to property taxes imposed on the
Partnership's Properties; provided, however, that, if the "recurring item"
method of accounting is elected with respect to such property taxes, the
Partnership shall pay the applicable property taxes prior to the date provided
in Code Section 461(h) for purposes ,of determining economic performance. The
General Partner shall have the right to seek to revoke any such election
(including, without limitation, any election under Code ' Sections 461(h)
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<PAGE>
and 754) upon the General Partner's determination in its sole and absolute
discretion that such revocation is in the best interests of the Partners.
10.3 Tax Matters Partner.
-------------------
(a) The General Partner shall be the "tax matters partner" of the
Partnership for federal income tax purposes. 'Me tax matters partner shall
receive no compensation for its services in such capacity. All third-party costs
and expenses incurred by the tax matters partner in performing its duties as
such (including legal and accounting fee and expenses) shall be borne by the
Partnership in addition to any reimbursement pursuant to Section 7.4 hereof.
Nothing herein shall be construed to restrict the Partnership from engaging an
accounting firm to assist the tax matters partner in discharging its duties
hereunder, so long as the compensation paid by the Partnership for such services
is reasonable. At the request of any Limited Partner, the General Partner agrees
to consult with such Limited Partner with respect to the preparation and filing
of any returns and with respect to any subsequent audit or litigation relating
to such returns; provided, however, that the filing of such returns shall be in
the sole and absolute discretion of the General Partner.
(b) The tax matters partner is authorized, but not required:
(i) to enter into any settlement with the IRS with respect to any
administrative or judicial proceedings for the adjustment of Partnership items
required to be taken into account by a Partner for income tax purposes (such
administrative proceedings being referred to as a 'tax audit" and such judicial
proceedings being referred to as "judicial review"), and in the settlement
agreement the tax matters partner may expressly state that such agreement shall
bind all Partners, except that such settlement agreement shall not bind any
Partner (A) who (within the time prescribed pursuant to the Code and Treasury
Regulations) files a statement with the IRS providing that the tax matters
partner shall not have the authority to enter into a settlement agreement on
behalf of such Partner or who is a "notice partner" (as defined in Code Section
623 1) or a member of a "notice group" (as defined in Code Section 6223(b)(2));
(ii) in the event that a notice of a final administrative adjustment
at the Partnership level of any item required to be taken into account by a
Partner for tax purposes (a 'final adjustment") is mailed to the tax matters
partner, to seek judicial review of such final adjustment, including the filing
of a petition for readjustment with the United States Tax Court or the United
States Claims Court, or the filing of a complaint for refund with the District
Court of the United States for the district in which the Partnership's principal
place of business is located;
(iii) to intervene in any action brought by any other Partner or
judicial review of a final adjustment;
49
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(iv) to file a request for an administrative adjustment with the IRS
at any time and, if any part of such request is not allowed by the IRS, to file
an appropriate pleading (petition or complaint) for judicial review with respect
to such request;
(v) to enter into an agreement with the IRS to extend the period for
assessing any tax that is attributable to any item required to be taken into
account by a Partner for tax purposes, or an item affected by such item; and
(vi) to take any other action on behalf of the Partners in connection
with any tax audit or judicial review proceeding to the extent permitted by
applicable law or regulations. The taking of any action and the incurring of
any expense by the tax matters partner in connection with any such proceeding,
except to the extent required by law, is a matter in the sole and absolute
discretion of the tax matters partner and the provisions relating to
indemnification of the General Partner set forth in Section 7.7 hereof shall be
fully applicable to the tax matters partner in its capacity as such.
10.4 Withholding.
------------
Each Limited Partner hereby authorizes the Partnership to withhold from or
pay on behalf of or with respect to such Limited Partner any amount of federal,
state, local or foreign taxes that the General Partner determines that the
Partnership is required to withhold or pay with respect to any amount
distributable or allocable to such Limited Partner pursuant to this Agreement,
including, without limitation, any taxes required to be withheld or paid by the
Partnership pursuant to Code Section 1441, Code Section 1442, Code Section 1445
or Code Section 1446. Any amount paid on behalf of or with respect to a Limited
Partner shall constitute a loan by the Partnership to such Limited Partner,
which loan shall be repaid by such Limited Partner within fifteen (15) days
after notice from the General Partner that such payment must be made unless (a)
the Partnership withholds such payment from a distribution that would otherwise
be made to the Limited Partner or (b) the General Partner determines, in its
sole and absolute discretion, that such payment may be satisfied out of the
Available Cash that would, but for such payment, be distributed to the Limited
Partner. Each Limited Partner hereby unconditionally and irrevocably grants to
the Partnership a security interest in such Limited Partner's Partnership
Interest to secure such Limited Partner's obligation to pay to the Partnership
any amounts required to be paid pursuant to this Section 10.4. In the event that
a Limited Partner fails to pay any amounts owed to the Partnership pursuant to
this Section 10.4 when due, the General Partner may, in its sole and absolute
discretion, elect to make the payment to the Partnership on behalf of such
defaulting Limited Partner, and in such event shall be deemed to have loaned
such amount to such defaulting Limited Partner and shall succeed to all rights
and remedies of the Partnership as against such defaulting Limited Partner
(including, without limitation, the right to receive distributions). Any
amounts payable by a Limited Partner hereunder shall bear interest at the base
rate on corporate loans at large United States money center commercial banks, as
published from time to time in the Wall Street Journal, plus four (4) percentage
points (but not higher than the maximum lawful rate) from the date such amount
is due (i.e., fifteen (15) days after demand) until such amount is paid in full.
Each Limited Partner shall take such actions as the Partnership
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<PAGE>
or the General Partner shall request in order to perfect or enforce the security
interest created hereunder.
11. TRANSFERS AND WITHDRAWALS
11.1 Transfer.
--------
(a) No Partnership Interest or any portion thereof or interest therein
shall be subject to the claims of any creditor or of any spouse for alimony or
support, or to legal process, and may not be voluntarily or involuntarily
alienated or encumbered except as may be specifically provided in this
Agreement.
(b) No Partnership Interest shall be Transferred, as a whole or in part,
except in accordance with the terms and conditions set forth in this Article I
1. Any Transfer or purported Transfer of a Partnership Interest not made in
accordance with this Article I I shall be null and void ab initio.
11.2 Transfer of General Partner's Partnership Interest.
---------------------------------------------------
(a) The General Partner may not Transfer any of its General Partner
Interest or withdraw from the Partnership except as provided in Section 11.2(b)
hereof.
(b) Except as otherwise provided herein, the General Partner shall not
withdraw from the Partnership and shall not Transfer all or any portion of its
Partnership Interest without the Consent of the Limited Partners, which Consent
may be given or withheld in the sole and absolute discretion of the Limited
Partners. The General Partner may, without the Consent of the Limited Partners,
Transfer all, but not less than all, of its Partnership Interest to Meridian, to
a Qualified REIT Subsidiary of Meridian, or in connection with a Meridian
Transaction. As a condition to any Meridian Transaction in which the
Partnership Units of the Limited Partners and the Assignees are not redeemed in
accordance with Section 8.8, the Partnership or any successor or acquiring
party, as the case may be, shall make lawful and adequate provision whereby the
Limited Partners and the Assignees shall thereafter have the right, upon the
Redemption of such Persons' Partnership Units, to receive the REIT Shares Amount
if the Cash Amount is not paid in connection with the Redemption. Upon any
Transfer by the General Partner of its entire Partnership Interest pursuant to
the Consent of the Limited Partners or otherwise in accordance with the
provisions of this Section I 1.2(b), and subject to the provisions of Section
12. 1, the transferee shall become a successor General Partner for all purposes
herein, and shall be vested with the powers and rights of the transferor General
Partner, and shall be liable for all obligations and responsible for all duties
of the General Partner, once such transferee has executed such instruments as
may be necessary to effectuate such admission and to confirm the agreement of
such transferee to be bound by all the terms and provisions of this Agreement
with respect to the Partnership Interest so acquired. It is a condition to any
Transfer otherwise permitted hereunder that the transferee assumes, by operation
of law or express agreement, all of the obligations of the transferor General
Partner under this Agreement with respect to such
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Transferred Partnership Interest. Such Transfer shall relieve the transferor
General Partner of its obligations under this Agreement without the Consent of
the Limited Partners and shall cause the transferor General Partner-to cease to
be a General Partner of the Partnership. In the event that the General Partner
withdraws from the Partnership, in violation of this Agreement or otherwise, or
otherwise dissolves or terminates, or upon the bankruptcy of the General
Partner, a Majority In Interest of the Limited Partners may elect to continue
the Partnership business by selecting a successor General Partner in accordance
with the Act.
11.3 Limited Partners' Rights to Transfer.
------------------------------------
(a) General. Prior to the end of the Holding Period, no Limited Partner
-------
shall Transfer all or any portion of its Partnership Interest to any transferee
without the consent of the General Partner, which consent may be withheld in its
sole and absolute discretion; provided, however, that any Limited Partner may,
at any time, without the consent of the General Partner, (i) Transfer all or
part of its Partnership Interest to any Family Member, any Controlled Entity or
any Affiliate, provided that the transferee is, in any such case, a Qualified
Transferee or (ii) pledge (a "Pledge") all or any portion of its Partnership
Interest to a lending institution, that is not an Affiliate of such Limited
Partner, as collateral or security for a bona fide loan or other extension of
credit, and Transfer such pledged Partnership Interest to such lending
institution in connection with the exercise of remedies under such loan or
extension of credit (any Transfer or Pledge permitted by this provision is
hereinafter referred to as a "Permitted Transfer"). After such Holding Period,
each Limited Partner, and each transferee of Partnership Units or Assignee
pursuant to a Permitted Transfer, shall have the right to Transfer all or any
portion of its Partnership Interest to any Person, subject to the provisions of
Section 11.6 hereof and to satisfaction of each of the following conditions:
(i) General Partner Right of First Refusal. The transferring Limited
--------------------------------------
Partner shall give written notice of the proposed Transfer to the General
Partner, which notice shall state (A) the identity of the proposed transferee
and (B) the amount and type of consideration proposed to be received for the
Transferred Partnership Units. The General Partner shall have ten (10) Business
Days upon which to give the Transferring Partner notice of its election to
acquire the Partnership Units on the proposed terms. If it so elects, it shall
purchase the Partnership Units on such terms within ten (10) Business Days after
giving notice of such election; provided that such closing may be deferred to
the extent necessary to effect compliance with any applicable requirements of
law. If the General Partner does not so elect, the Transferring Partner may
Transfer such Partnership Units to a third party, on terms no more favorable to
the transferee than the proposed terms, subject to the other conditions of this
Section 11.3.
(ii) Qualified Transferee. Any Transfer of a Partnership Interest
--------------------
shall be made only to a Qualified Transferee.
(iii) Minimum Transfer Restriction. Any Transferring Partner must
----------------------------
Transfer not less than the lesser of (A) the greater of five thousand (5,000)
Partnership Units (or such lesser number as to which the General Partner has
consented in writing) or one-third (1/3) of the
52
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number of Partnership Units owned by such Transferring Partner as of the
Effective Date or (B) all of the remaining Partnership Units owned by such
Transferring Partner;. provided, however, that, for purposes of determining
compliance with the foregoing restriction, all Partnership Units owned by
Affiliates of a Limited Partner shall be considered to be owned by the Limited
Partner.
(iv) Transferee Agreement to Effect a Redemption. At the option of
-------------------------------------------
the General Partner, which option may be exercised in its sole discretion, any
proposed transferee shall deliver to the General Partner a written agreement
reasonably satisfactory to the General Partner to the effect that the transferee
will, within six (6) months after consummation of the Partnership Units
Transfer, tender its Partnership Units for Redemption in accordance with the
terms of the Redemption rights provided in Section 8.6 hereof.
(v) No Further Transfers. The transferee shall not be permitted to
--------------------
effect any further Transfer of the Partnership Units, other than to the General
Partner.
(vi) Exception for Permitted Transfers. The conditions of Sections
---------------------------------
11-3(a)(i) through 11.3(a)(v) hereof shall not apply in the case of a Permitted
Transfer. It is a condition to any Transfer otherwise permitted hereunder
(whether or not such Transfer is a Permitted Transfer or is effected during or
after the Holding Period) that the transferee assume by operation of law or
express agreement all of the obligations of the transferor Limited Partner under
this Agreement with respect to such Transferred Partnership Interest, and no
such Transfer (other than pursuant to a statutory merger or consolidation
wherein all obligations and liabilities of the transferor Partner are assumed by
a successor corporation by operation of law) shall relieve the transferor
Partner of its obligations under this Agreement without the approval of the
General Partner, in its sole and absolute discretion. It is a further condition
to any Transfer otherwise permitted hereunder (whether or not such Transfer is a
Permitted Transfer or is effected during or after the Holding Period) that the
transferee expressly make the applicable representations and warranties set
forth in Section 3.4 hereof as well as any further representations and
warranties that the General Partner reasonably deems appropriate. Any transferee
of any Transferred Partnership Interest shall be subject to any and all
ownership limitations (including, without limitation, the Ownership Limit)
contained in the Charter that may limit or restrict such transferee's ability to
exercise its Redemption rights. Any transferee, whether or not admitted as a
Substituted Limited Partner, shall take subject to the obligations of the
transferor hereunder. Unless admitted as a Substituted Limited Partner, no
transferee, whether by a voluntary Transfer, by operation of law or otherwise,
shall have any rights hereunder, other than the rights of an Assignee as
provided in Section 11.5 hereof
(b) Incapacity. If a Limited Partner is subject to Incapacity, the
----------
executor, administrator, trustee, committee, guardian, conservator or receiver
of such Limited Partner's estate shall have all the rights of a Limited Partner,
but not more rights than those enjoyed by other Limited Partners, for the
purpose of settling or managing the estate, and such power as the Incapacitated
Limited Partner possessed to Transfer all or any part of its interest in the
Partnership. The Incapacity, of a Limited Partner, in and of itself, shall not
dissolve or terminate the Partnership.
53
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(c) Opinion of Counsel. In connection with any Transfer of a Limited
------------------
Partner Interest, the General Partner shall have the right to receive (at
Partnership expense) an opinion of counsel reasonably satisfactory to it to the
effect that the proposed Transfer may be effected without registration under the
Securities Act and will not otherwise violate any federal or state securities
laws or regulations applicable to the Partnership or the Partnership Interest
Transferred. I& in the opinion of such counsel, such Transfer would require the
filing of a registration statement under the Securities Act or would otherwise
violate any federal or state securities laws or regulations applicable to the
Partnership or the Partnership Units, the General Partner may prohibit any
Transfer otherwise permitted under this Section 11.3 by a Limited Partner of
Partnership Interests.
11.4 Substituted Limited Partners.
----------------------------
(a) No Limited Partner shall have the right to substitute a transferee
(including any transferees pursuant to Transfers permitted by Section 11.3
hereof) as a Limited Partner in its place. A transferee of the interest of a
Limited Partner may be admitted as a Substituted Limited Partner only with the
consent of the General Partner, which consent may be given or withheld by the
General Partner in its sole and absolute discretion. The failure or refusal by
the General Partner to permit a transferee of any such interest to become a
Substituted Limited Partner shall not give rise to any cause of action against
the Partnership or the General Partner. Subject to the foregoing, an Assignee
shall not be admitted as a Substituted Limited Partner until and unless it
furnishes to the General Partner (i) evidence of acceptance, in form and
substance satisfactory to the General Partner, of all the terms, conditions and
applicable obligations of this Agreement, including, without limitation, the
power of attorney granted in Section 2.4 hereof and (ii) such other documents
and instruments as may be required or advisable, in the sole and absolute
discretion of the General Partner, to effect such Assignee's admission as a
Substituted Limited Partner.
(b) A transferee who has been admitted as a Substituted Limited Partner
in accordance with this Article I I shall have all the rights and powers and be
subject to all the restrictions and liabilities of a Limited Partner under this
Agreement.
(c) Upon the admission of a Substituted Limited Partner, the General
Partner shall amend Exhibit A to reflect the name and address of such
---------
Substituted Limited Partner and to eliminate, if necessary, the name and address
of the predecessor of such Substituted Limited Partner. In addition, the
Substituted Limited Partner and the General Partner shall execute a Partner
Schedule with respect to such Substituted Limited Partner, which Partner
Schedule shall supersede, to the extent necessary, the Partner Schedule for the
predecessor of such Substituted Limited Partner.
11.5 Assignees.
---------
If the General Partner, in its sole and absolute discretion, does not
consent to the admission of any permitted transferee under Section 1 1.3 hereof
as a Substituted Limited Partner,
54
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as described in Section 1 1.4 hereof, such transferee shall be considered an
Assignee for purposes of this Agreement. An Assignee shall be entitled to all
the rights of an assignee of a limited partnership interest under the Act,
including the right to receive distributions from the Partnership and the share
of Net Income and Net Loss and other items of income, gain, loss, deduction and
credit of the Partnership attributable to the Partnership Units assigned to such
transferee and the rights to Transfer the Partnership Units provided in and not
precluded by this Article I 1, but shall not be deemed to be a holder of
Partnership Units for any other purpose under this Agreement (other d= as
expressly provided in Section 8.6 hereof), and shall not be entitled to effect a
Consent or vote with respect to such Partnership Units on any matter presented
to the Limited Partners for approval (such right to Consent or vote, to the
extent provided in and not precluded by in tills Agreement or under the Act
fully remaining with the transferor Limited Partner). In the event that any such
transferee desires to make a further assignment of any such Partnership Units,
such transferee shall be subject to all the provisions of this Article I I to
the same extent and in the same manner as any Limited Partner desiring to make
an assignment of Partnership Units.
11.6 General Provisions.
------------------
(a) No Limited Partner may withdraw from the Partnership other than as a
result of a permitted Transfer of all of such Limited Partner's Partnership
Units in accordance with this Article I 1, with respect to which the transferee
becomes a Substituted Limited Partner, or pursuant to a Redemption (or
acquisition by the General Partner) of all of its Partnership Units
under Section 8.6 hereof.
(b) Any Limited Partner who shall Transfer all of its Partnership Units
in a Transfer (i) permitted pursuant to this Article I I where such transferee
was admitted as a Substituted Limited Partner, (ii) pursuant to the exercise of
its rights to effect a Redemption of all of its Partnership Units under Section
8.6 hereof or (iii) to the General Partner, whether or not pursuant to Section
8.6(b) hereof, shall cease to be a Limited Partner.
(c) If any Partnership Unit is Transferred in compliance with the
provisions of this Article I 1, or is redeemed by the Partnership or acquired by
the General Partner pursuant to Section 8.6 hereof, on any day other than the
first day of a Fiscal Year, then Net Income and Net Loss, each item thereof and
all other items of income, gain, loss, deduction and credit attributable to such
Partnership Unit for such Fiscal Year shall be allocated to the transferor
Partner or the Tendering Party, as the case may be, and, in the case of a
Transfer or assignment other than a Redemption, to the transferee Partner
(including, without limitation, the General Partner in the case of an
acquisition of Partnership Units pursuant to Section 8.6 hereof or Assignee, by
taking into account their varying interests during the Fiscal Year in accordance
with Code Section 706(d), using the "daily proration" or "interim closing of the
books" method or another permissible method selected by the General Partner.
Solely for purposes of making such allocations, the General Partner, in its sole
and absolute discretion, may determine that each of such items for the calendar
month in which a Transfer occurs shall be allocated to the transferee Partner or
Assignee and none of such items for the calendar month in which a Transfer or a
55
<PAGE>
Redemption occurs shall be allocated to the transferor Partner or the Tendering
Party, as the case may be, if such Transfer occurs on or before the fifteenth
(15th) day of the month; otherwise such items for such calendar month shall be
allocated to the transferor. All distributions of Available Cash attributable to
such Partnership Unit with respect to which the Partnership Record Date is
before the date of such Transfer, assignment or Redemption shall be made to the
transferor Partner or the Tendering Party, as the case may be, and, in the case
of a Transfer other than a Redemption, all distributions of Available Cash
thereafter attributable to such Partnership Unit shall be made to the transferee
Partner or Assignee.
(d) In addition to any other restrictions on Transfer herein contained,
in no ,event may any Transfer or assignment of a Partnership Interest by any
Partner (including any Redemption, any acquisition of Partnership Units by the
General Partner or any other acquisition of Partnership Units by the
Partnership) be made:
(i) to any person or entity who lacks the legal right, power or
capacity to own a Partnership Interest;
(ii) in violation of applicable law;
(iii) of any component portion of a Partnership Interest, such as
the Capital Account, or rights to distributions, separate and apart from all
other components of a Partnership Interest;
(iv) in the event that such Transfer would cause Meridian to cease
to comply with the REIT Requirements;
(v) if such Transfer would, in the opinion of counsel to the
Partnership or the General Partner, cause a termination of the Partnership, in
either case for federal or state income tax purposes (except as a result of the
Redemption or acquisition by the General Partner of all Partnership Units held
by all Limited Partners);
(vi) if such Transfer would, in the opinion of counsel to the
Partnership or the General Partner, create a significant risk that the
Partnership would either (A) cease to be classified as a partnership or (B) be
classified as a publicly traded partnership, in either case for federal income
tax purposes (except as a result of the Redemption or acquisition by the General
Partner of all Partnership Units held by all Limited Partners);
(vii) if such Transfer would cause the Partnership to become, with
respect to any employee benefit plan subject to Title I of ERISA, a "party-in-
interest" (as defined in ERISA Section 3(14)) or a "disqualified person" (as
defined in Code Section 4975(c));
(viii) if such Transfer would, in the opinion of legal counsel to the
Partnership, cause any portion of the assets of the Partnership to constitute
assets of any employee benefit plan pursuant to Department of Labor Regulations
Section 2510.2-101;
56
<PAGE>
(ix) if such Transfer requires the registration of such Partnership
Interest pursuant to any applicable federal or state securities law;
(x) if such Transfer would cause the Partnership to have more than
five hundred (500) holders of Partnership Interests, including holders who are
Partners or Assignees, or otherwise to become a reporting company under the
Exchange Act; or
(xi) if such Transfer subjects the Partnership to regulation under
the Investment Company Act of 1940, the Investment Advisors Act of 1940 or
ERISA, each as amended.
12. ADMISSION OF PARTNERS
12.1 Admission of Successor General Partner.
--------------------------------------
A successor to all of the General Partner's General Partner Interest
pursuant to Section 11.2 hereof who is proposed to be admitted as a successor
General Partner shall be admitted to the Partnership as the General Partner,
effective immediately prior to such Transfer. Any such successor shall carry on
the business of the Partnership without dissolution. In each case, the admission
shall be subject to the successor General Partner executing and delivering to
the Partnership an acceptance of all of the terms, conditions and applicable
obligations of this Agreement and such other documents or instruments as may be
required to effect the admission.
12.2 Admission of Original Limited Partners.
--------------------------------------
The Persons initially listed on Exhibit A as limited partners of the
Partnership shall be admitted to the Partnership as Limited Partners upon their
execution and delivery of this Agreement.
12.3 Admission of Additional Limited Partners.
----------------------------------------
(a) After the admission to the Partnership of the initial Limited
Partners on the date hereof, a Person (other than an existing Partner) who makes
a Capital Contribution to the Partnership in accordance with this Agreement
shall be admitted to the Partnership as an Additional Limited Partner only upon
furnishing to the General Partner (i) evidence of acceptance, in form and
substance satisfactory to the General Partner, of all of the terms and
conditions of this Agreement, including, without limitation, the power of
attorney granted in Section 2.4 hereof, (ii) a Partner Schedule executed by such
Person and (iii) such other documents or instruments as may be required in the
sole and absolute discretion of the General Partner in order to effect such
Person's admission as an Additional Limited Partner.
(b) Notwithstanding anything to the contrary in this Section 12.3, no
Person shall be admitted as an Additional Limited Partner without the consent of
the General Partner, which consent may be given or withheld in the General
Partner's sole and absolute discretion. The admission of any Person as an
Additional Limited Partner shall become effective on the date
57
<PAGE>
upon which the name of such Person is recorded on the books and records of the
Partnership, following the consent of the General Partner to such admission.
(c) If any Additional Limited Partner is admitted to the Partnership on
any day other than the first day of a Fiscal Year, then Net Income and Net Loss,
each item thereof and all other items of income, gain, loss, deduction and
credit allocable among Partners and Assignees for such Fiscal Year shall be
allocated among such Additional Limited Partner and all other Partners and
Assignees; by taking into account their varying interests during the Fiscal Year
in accordance with Code Section 706(d), using the "daily proration" or "interim
closing of the books' method or another permissible method selected by the
General Partner. Solely for purposes of making such allocations, each of such
items for the calendar month in which an admission of any Additional Limited
Partner occurs shall be allocated among all the Partners and Assignees including
such Additional Limited Partner, in accordance with the principles described in
Section 11.6(c) hereof: All distributions of Available Cash with respect to
which the Partnership Record Date is before the date of such admission shall be
made solely to Partners and Assignees other than the Additional Limited Partner,
and all distributions of Available Cash thereafter shall be made to all the
Partners and Assignees including such Additional Limited Partner.
12.4 Amendment of Agreement and Certificate of Limited Partnership.
-------------------------------------------------------------
For the admission to the Partnership of any Partner, the General Partner
shall take all steps necessary and appropriate under the Act to amend the
records of the Partnership and, if necessary, to prepare as soon as practical an
amendment of Exhibit A and, if required by law, shall prepare and file an
---------
amendment to the Certificate and may for these purposes exercise the power of
attorney granted pursuant to Section 2.4 hereof.
13. DISSOLUTION, LIQUIDATION AND TERMINATION
13.1 Dissolution.
-----------
The Partnership shall not be dissolved by the admission of Substituted
Limited Partners or Additional Limited Partners or by the admission of a
successor General Partner in accordance with tho terms of this Agreement. Upon
the withdrawal of the General Partner, any successor General Partner shall
continue the business of the Partnership without dissolution. However, the
Partnership shall dissolve, and its affairs shall be wound up, upon the first to
occur of any of the following (each a "Liquidating Event"):
(a) the expiration of its term as provided in Section 2.5 hereof;
(b) an event of withdrawal, as defined in the Act (including, without
limitation, bankruptcy), of the sole General Partner unless, within ninety (90)
days after the withdrawal, a Majority In Interest of the' Limited Partners agree
in writing to continue the business of the
58
<PAGE>
Partnership And to the appointment, effective as of the date of withdrawal, of a
successor General Partner,
(c) an election to dissolve the Partnership made by the General Partner,
in its sole and absolute discretion, with or without the Consent of the Limited
Partners;
(d) entry of a decree of judicial dissolution of the Partnership pursuant
to the provisions of the Act;
(e) the occurrence of a Terminating Capital Transaction; or
(f) the Redemption (or acquisition by the General Partner) of all
Partnership Units other than Partnership Units already held by the General
Partner.
13.2 Winding Up.
----------
(a) Upon the occurrence of a Liquidating Event, the Partnership shall
continue solely for the purposes of winding up its affairs in an orderly manner,
liquidating its assets and satisfying the claims of its creditors and Partners.
After the occurrence of a Liquidating Event no Partner shall take any action
that is inconsistent with, or not necessary to or appropriate for, the winding
up of the Partnership's business and affairs. The General Partner or, in the
event that there is no remaining General Partner or the General Partner has
dissolved, become bankrupt within the meaning of the Act or ceased to operate,
any Person elected by a Majority In Interest of the Limited Partners (the
General Partner or such other Person being referred to herein as the
'Liquidator") shall be responsible for overseeing the winding up and dissolution
of the Partnership and shall take full account of the Partnership's liabilities
and property, and the Partnership property shall be liquidated as promptly as is
consistent with obtaining the fair value thereof, and the proceeds therefrom
(which may, to the extent determined by the General Partner, include shares of
stock in the General Partner) shall be applied and distributed in the following
order.
(i) First, to the satisfaction of all of the Partnership's debts
and liabilities to creditors other than the Partners and their Assignees
(whether by payment or the making of reasonable provision for payment thereon;
(ii) Second, to the satisfaction of all of the Partnership's debts
and liabilities to the General Partner (whether by payment or the making of
reasonable provision for payment thereof), including, but not limited to,
amounts due under Section 7.4 hereof;
(iii) Third, to the satisfaction of all of the Partnership's debts
and liabilities to the Limited Partners and any Assignees (whether by payment or
the making of reasonable provision for payment thereof); and
59
<PAGE>
(iv) The balance, if any, to the Unitholders in accordance with and
proportion to their positive Capital Account balances, after giving effect to
all contributions, distributions and allocations for all periods.
The General Partner shall not receive any additional compensation for any
services performed pursuant to this Article 13.
(b) Notwithstanding the provisions of Section 13.2(a) hereof that require
liquidation of the assets of the Partnership, but subject to the order of
priorities set forth therein, if prior to or upon dissolution of the Partnership
the Liquidator determines that an immediate sale of part or all of the
Partnership's assets would be impractical or would cause undue loss to the
Partners, the Liquidator may, in its sole and absolute discretion, defer for a
reasonable time the liquidation of any assets except those necessary to satisfy
liabilities of the Partnership (including to Partners as creditors) and/or
distribute to the Partners, in lieu of cash, as tenants in common and in
accordance with the provisions of Section 13.2(a) hereof, undivided interests in
such Partnership assets as the Liquidator deems not suitable for liquidation.
Any such distributions in kind shall be made only if, in the good faith judgment
of the Liquidator, such distributions in kind are in the best interest of the
Partners, and shall be subject to such conditions relating to the disposition
and management of such properties as the Liquidator deems reasonable and
equitable and to any agreements governing the operation of such properties at
such time.The Liquidator shall determine the fair market value of any property
distributed in kind using such reasonable method of valuation as it may adopt.
(c) If the Partnership is "liquidated" within the meaning of Section
1.7041(b)(2)(ii)(g) of the Treasury Regulations, distributions shall be made
pursuant to this Article 13 to the Unitholders that have positive Capital
Accounts in compliance with Section 1.704l(b)(2)(ii)(b)(2) of the Treasury
Regulations to the extent of, and in proportion to, their positive Capital
Account balances. If any Partner has a deficit balance in its Capital Account
(after giving effect to all contributions, distributions and allocations for all
taxable years, including the year during which such liquidation occurs), such
Partner shall have no obligation to make any contribution to the capital of the
Partnership with respect to such deficit, and such deficit shall not be
considered a debt owed to the Partnership or to any other Person for any purpose
whatsoever. In the sole and absolute discretion of the General Partner or the
Liquidator, a pro rata portion of the distributions that would otherwise be made
to the Partners pursuant to this Article 13 may be withheld or escrowed to
provide a reasonable reserve for Partnership liabilities (contingent or
otherwise) and to reflect the unrealized portion of any installment obligations
owed to the Partnership, provided that such withheld or escrowed amounts shall
be distributed to the General Partner and Limited Partners in the manner and
order of priority set forth in Section 13.2(a) hereof as soon as practicable.
13.3 Notice of Dissolution.
---------------------
In the event that a Liquidating Event occurs or an event occurs that would,
but for
60
<PAGE>
an election or objection by one or more Partners pursuant to Section 13.1
hereof, result in a dissolution of the Partnership, the General Partner shall,
within thirty (30) days thereafter, provide notice thereof to each of the
Limited Partners and, in the General Partner's sole and absolute discretion or
as required by the Act, to all other parties with whom the Partnership regularly
conducts business (as determined in the sole and absolute discretion of the
General Partner), and the General Partner may, or, if required by the Act,
shall, publish notice thereof in a newspaper of general circulation in each
place in which the Partnership regularly conducts business (as determined in the
sole and absolute discretion of the General Partner).
13.4 Cancellation of Certificate of Limited Partnership.
--------------------------------------------------
Upon the completion of the liquidation of the Partnership cash and property
as provided in Section 13.2 hereof, the Partnership shall be terminated, a
certificate of cancellation shall be filed with the Secretary of State of the
State of Delaware, all qualifications of the Partnership as a foreign limited
partnership or association in jurisdictions other than the State of Delaware
shall be canceled, and such other actions as may be necessary to terminate the
Partnership shall be taken.
13.5 Reasonable Time for Winding-Up.
------------------------------
A reasonable time shall be allowed for the orderly winding-up of the
business and affairs of the Partnership and the liquidation of its assets
pursuant to Section 13.2 hereof, to minimize any losses otherwise attendant upon
such winding-up, and the provisions of this Agreement shall remain in effect
among the Partners during the period of liquidation.
14. PROCEDURES FOR ACTIONS AND CONSENTS OF PARTNERS; AMENDMENTS; MEETINGS
14.1 Procedures for Actions and Consents of Partners.
-----------------------------------------------
The actions requiring consent or approval of Limited Partners pursuant to
this Agreement, including Section 7.3 hereof, or otherwise pursuant to
applicable law, are subject to the procedures set forth in this Article 14.
14.2 Amendments.
----------
Amendments to this Agreement may be proposed by the General Partner or by
Limited Partners holding twenty-five percent (25%) or more of the Partnership
Units. Following such proposal, the General Partner shall submit any proposed
amendment to the Limited Partners. The General Partner shall seek the written
consent of the Limited Partners on the proposed amendment or shall call a
meeting to vote thereon and to transact any other business that the General
Partner may deem appropriate. For purposes of obtaining a written consent, the
General Partner may require a response within a reasonable specified time, but
not less than fifteen (I 5) days, and failure to respond in such time period
shall constitute a consent that is consistent with
61
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the General Partner's recommendation with respect to the proposal; provided,
however, that an action shall become effective at such time as requisite
consents are received even if prior to such specified time. Except as provided
elsewhere in this Agreement (including without limitation Sections 7.3(c) and
7.3(d) hereof), a proposed amendment shall be adopted and be effective as an
amendment hereto if it is approved by the General Partner and receives the
Consent of the Limited Partners.
14.3 Meetings of the Partners.
------------------------
(a) Meetings of the Partners may be called by the General Partner and
shall be called upon the receipt by the General Partner of a written request by
a Majority in Interest of the Limited Partners. The call shall state the nature
of the business to be transacted. Notice of any such meeting shall be given to
all Partners not less than ten (10) days nor more than sixty (60) days prior to
the date of such meeting. Partners may vote in person or by proxy at such
meeting. Whenever the vote or Consent of Partners is permitted or required under
this Agreement, such vote or Consent may be given at a meeting of Partners or
may be given in accordance 'with the procedure prescribed in Section 14.3(b)
hereof.
(b) Any action required or permitted to be taken at a meeting of the
Partners may be taken without a meeting if a written consent setting forth the
action so taken is signed by Partners holding a majority of the Partnership
Units (or such other percentage as is expressly required by this Agreement for
the action in question). Such consent may be in one instrument or in several
instruments, and shall have the same force and effect as a vote of Partners
holding a majority of the Partnership Units (or such other percentage as is
expressly required by this Agreement). Such consent shall be filed with the
General Partner. An action so taken shall be deemed to have been taken at a
meeting held on the effective date so certified.
(c) Each Limited Partner may authorize any Person or Persons to act for
him by proxy on all matters in which a Limited Partner is entitled to
participate, including waiving notice of any meeting, or voting or participating
at a meeting. Every proxy must be signed by the Limited Partner or its attorney-
in-fact. No proxy shall be valid after the expiration of eleven (I 1) months
from the date thereof unless otherwise provided in the proxy (or there is
receipt of a proxy authorizing a later date). Every proxy shall be revocable at
the pleasure of the Limited Partner executing it, such revocation to be
effective upon the Partnership's receipt of written notice of such revocation
from the Limited Partner executing such proxy.
(d) Each meeting of Partners shall be conducted by the General Partner or
such other Person as the General Partner may appoint pursuant to such rules for
the conduct of the meeting as the General Partner or such other Person deems
appropriate in its sole and absolute discretion. Without limitation, meetings of
Partners may be conducted in the same manner as meetings of the General
Partner's shareholders and may be held at the same time as, and as part of, the
meetings of the General Partner's shareholders.
15. GENERAL PROVISIONS
62
<PAGE>
15.1 Addresses and Notice.
--------------------
Any notice, demand, request or report required or permitted to be given or
made to a Partner or Assignee under this Agreement shall be in writing and shall
be deemed given or made when delivered in person or when sent by first class
United States mail or by other means of written communication (including by
telecopy, facsimile, or commercial courier service) (a) in the case of a
Partner, to such Partner at the address set forth in Exhibit A (or, if Exhibit A
---------
has not been amended to reflect the address of any such Partner, the Partner
Schedule with respect to such Partner) or such other address of which the
Partner shall notify the General Partner in writing and (b) in the case of an
Assignee, to the address of which such Assignee shall notify the General Partner
in writing.
15.2 Titles and Captions.
-------------------
All article or section titles or captions in this Agreement are for
convenience only. They shall not be deemed part of this Agreement and in no way
define, limit, extend or describe the scope or intent of any provisions hereof.
Except as specifically provided otherwise, references to "Articles" or
"Sections" are to Articles and Sections of this Agreement.
15.3 Pronouns and Plurals.
--------------------
Whenever the context may require, any pronouns used in this Agreement shall
include the corresponding masculine, feminine or neuter forms, and the singular
form of nouns, pronouns and verbs shall include the plural and vice versa.
15.4 Further Action.
---------------
The parties shall execute and deliver all documents, provide all
information and take or refrain from taking action as may be necessary or
appropriate to achieve the purposes of this Agreement.
15.5 Binding Effect.
--------------
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their heirs, executors administrators, successors, legal
representatives and permitted assigns.
15.6 Waiver.
------
(a) No failure by any party to insist upon the strict performance of any
covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon a breach thereof shall constitute waiver of any
such breach or any other covenant, duty, agreement or condition.
63
<PAGE>
(b) The restrictions, conditions and other limitations on the rights and
benefits of the Limited Partners contained in this Agreement, and the
representations, duties, covenants and other requirements of performance or
notice by the Limited Partners, are for the benefit of the Partnership and,
except for an obligation to pay money to the Partnership, may be waived or
relinquished by the General Partner, in its sole and absolute discretion, on
behalf of the Partnership in one or more instances from time to time and at any
time; provided, however, that any such waiver or relinquishment may not made if
it would have the effect of (i) creating liability for any other Limited
Partner, (ii) causing the Partnership to cease to qualify as a limited
partnership, (iii) reducing the amount of cash otherwise distributable to the
Limited Partners, (iv) resulting in the classification of the Partnership as an
association or publicly traded partnership taxable as a corporation or (v)
violating the Securities Act, the Exchange Act or any state "blue sky" or other
securities laws; provided, further, that any waiver relating to compliance with
the Ownership Limit or other restrictions in the Charter shall be made and shall
be effective only as provided in the Charter.
15.7 Time of Essence.
---------------
Time is of the essence of this Agreement.
15.8 Counter-parts.
-------------
This Agreement may be executed in counterparts, all of which together shall
constitute one agreement binding on all the parties hereto, notwithstanding that
all such parties are not signatories to the original or the same counterparts
Each party shall become bound by this Agreement immediately upon affixing its
signature hereto or upon execution of a Partner Schedule.
15.9 Applicable Law.
--------------
This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Delaware, without regard to the principles
of conflicts of law. In the event of a conflict between any provision of this
Agreement and any non-mandatory provision of the Act, the provisions of this
Agreement shall control and take precedence.
15.10 Entire Agreement.
----------------
This Agreement contains all of the understandings and agreements between
and among the Partners with respect to the subject matter of this Agreement and
the rights, interests and obligations of the Partners with respect to the
Partnership.
15.11 Invalidity of Provisions.
------------------------
64
<PAGE>
If any provision of this Agreement is or becomes invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not be affected thereby.
15.12 Limitation to Preserve REIT Status.
----------------------------------
Notwithstanding anything else in this Agreement, to the extent that the
amount paid, credited, distributed or reimbursed by the Partnership to, for or
with respect to any Partner or Assignee that is, or has made an election to
qualify as, a REIT, or that is a Qualified REIT Subsidiary (any of which, a
"REIT Partner"), or its officers, directors, employees or agents, whether as a
reimbursement, fee, expense or indemnity (a "REIT Payment"), would constitute
gross income to the REIT Partner for purposes of Code Section 856(c)(2) or Code
Section 856(c)(3), then, notwithstanding any other provision of this Agreement,
the amount of such REIT Payments, as selected by the General Partner in its
discretion from among items of potential distribution, reimbursement, fees,
expenses and indemnities, shall be reduced for any Fiscal Year so that the REIT
Payments, as so reduced, to, for or with respect to such REIT Partner shall not
exceed the lesser of:
(a) an amount equal to the excess, if any, of (i) four and nine-tenths
percent 0.9%) of the REIT Partner's total gross income (but excluding the amount
of any REIT Payments) for the Fiscal Year that is described in subsections (A)
through (H) of Code Section 856(c)(2) over (ii) the amount of gross income
(within the meaning of Code Section 856(c)(2))
derived by the REIT Partner from sources other than those described in
subsections (A) through
(b) of Code Section 856(c)(2) (but not including the amount of any REIT
Payments); or (b) an amount equal to the excess, if any, of (i) twenty-four
percent (24%) of the REIT Partner's total gross income (but excluding the amount
of any REIT Payments) for the Fiscal Year that is described in subsections (A)
through (1) of Code Section 856(c)(3) over (ii) the amount of gross income
(within the meaning of Code Section 856(c)(3)) derived by the REIT Partner from
sources other than those described in subsections (A) through (I) of Code
Section 856(c)(3) (but not including the amount of any REIT Payments); provided,
however, that REIT Payments in excess of the amounts set forth in clauses (a)
and (b) above may be made if the General Partner, as a condition precedent,
obtains an opinion of tax counsel that the receipt of such excess amounts shall
not adversely affect the REIT Partner's ability to qualify as a REIT. To the
extent that REIT Payments may not be made in a Fiscal Year as a consequence of
the limitations set forth in this Section 15.12, such REIT Payments shall carry
over and shall be treated as arising in the following Fiscal Year. The purpose
of the limitations contained in this Section 15.12 is to prevent any REIT
Partner from failing to qualify as a REIT under the Code by reason of such REIT
Partner's share of items, including distributions, reimbursements, fees,
expenses or indemnities, receivable directly or indirectly from the Partnership,
and this Section 15.12 shall be interpreted and applied to effectuate such
purpose. For purposes of this Section 5.12, determinations with respect to a
REIT Partner that is a Qualified REIT Subsidiary shall be made with respect to
the REIT Partner's shareholder.
65
<PAGE>
15.13 No Partition.
------------
No Partner or any successor-in-interest to a Partner shall have the right
while this Agreement remains in effect to have any property of the Partnership
partitioned, or to file a complaint or institute any proceeding at law or in
equity to have any such property of the Partnership partitioned, and each
Partner, on behalf of itself and its successors and assigns hereby waives any
such right. It is the intention of the Partners that the rights of the parties
hereto and their successors-in interest to Partnership property, as among
themselves, shall be governed by the terms of this Agreement, and that the
rights of the Partners and their successors-in-interest shall be subject to the
limitations and restrictions set forth in this Agreement.
15.14 No Third-Party Rights Created Hereby.
------------------------------------
The provisions of this Agreement are solely for the purpose of defining the
interests of the Partners, interest and no other Person (i.e., a party who is
not a signatory hereto or a permitted successor to such signatory hereto) shall
have any right, power, title or interest by -way of subrogation or otherwise, in
and to the rights, powers, title and provisions of this Agreement No creditor or
other third party having dealings with the Partnership shall have the fight to
enforce the right or obligation of any Partner to make Capital Contributions or
loans to the Partnership or to pursue any other right or remedy hereunder or at
law or in equity. None of the rights or obligations of the Partners herein set
forth to make Capital Contributions or loans to the Partnership shall be deemed
an asset of the Partnership for any purpose by any creditor or other third
party, nor may any such rights or obligations be sold, transferred or assigned
by the Partnership or pledged or encumbered by the Partnership to secure any
debt or other obligation of the Partnership or any of the Partners.
66
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
GENERAL PARTNER:
MIT UNSECURED, INC.
By: /s/ Milton K. Reeder
--------------------------------
Milton K. Reeder
Its: President
LIMITED PARTNERS:
MIT UNSECURED, INC.
By: /s/ Milton K. Reeder
--------------------------------
Milton K. Reeder
Its: President
KENDALL ONTARIO I,
a California general partnership
By: /s/ Charles B. Kendall
--------------------------------
Charles B. Kendall
Its: President
By: /s/ Sam C. Longo, Jr.
-----------------------------------------
Sam C. Longo, Jr.
Its: General Partner
By: /s/ Darla J. Longo
------------------------------------------
Darla J. Longo
Its: General Partner
67
<PAGE>
By: The Evans Family Trust U/A dated 8/27/87
Its: General Partner
By: /s/ Terrence Degan Evans
--------------------------------------------
Terrence Degan Evans, Trustee
By: /s/ Virginia Dawson Evans
--------------------------------------------
Virginia Dawson Evans, Trustee
68
<PAGE>
EXHIBIT A
---------
PARTNERS
--------
Name Address TIN
---- ------- ---
MIT Unsecured, Inc. 455 Market Street, 17th Floor 94-3247220
San Francisco, CA 94105
Attn: Robert A. Dobbin, Esq.
Kendall Ontario I C/O Charles Kendall 95-4032763
Post Office Box 2706
Rancho Santa Fe, CA 92067
Exh. A - 1
<PAGE>
EXHIBIT B
---------
EXAMPLES REGARDING CONVERSION FACTOR
------------------------------------
For purposes of the following examples, it is assumed that (a) the
Conversion Factor in effect on June 30, 2000 is 1.0, (b) July 1, 2000 is the
"Partnership Record Date" for purposes of these examples and (c) prior to the
events described in the examples there are 100 REIT Shares issued and
outstanding.
Example 1:
----------
On the Partnership Record Date, Meridian declares a dividend on its
outstanding REIT Shares in REIT Shares. The amount of the dividend is one REIT
Share paid in respect of each REIT Share owned. Pursuant to paragraph (a) of the
definition of "Conversion Factor," the Conversion Factor shall be adjusted on
the Partnership Record Date, effective immediately after the stock dividend is
declared, as follows:
1.0 x (200 / 100) = 2.0
Accordingly, the Conversion Factor after the stock dividend is declared is 2.0.
Example 2:
----------
On the Partnership Record Date, Meridian distributes options to purchase
REIT Shares to all holders of its REIT Shares. The amount of the distribution is
one option to acquire one REIT Share in respect of each REIT Share owned. The
strike price is $4.00 per share. The Value of a REIT Share on the Partnership
Record Date is $5.00 per share. Pursuant to paragraph (b) of the definition of
"Conversion Factor," the Conversion Factor shall be adjusted on the Partnership
Record Date, effective immediately after the options are distributed, as
follows:
1.0 x ([100 + 100] / [100 + {(100 x $4.00) / $5.00}]) = 1.1111
Accordingly, the Conversion Factor after the options are distributed is 1.1111.
If the options expire or become no longer exercisable, then the retroactive
adjustment specified in paragraph (b) of the definition of "Conversion Factor"
shall apply.
Example 3:
----------
On the Partnership Record Date, Meridian distributes assets to all holders
of its REIT Shares. The amount of the distribution is one asset with a fair
market value (as determined by the General Partner) of $1.00 in respect of each
REIT Share owned. The assets do not relate to assets received by Meridian
pursuant to a pro rata distribution by the Partnership. The Value of a REIT
Share on the Partnership Record Date is $5.00 a share. Pursuant to paragraph
(c) of the
Exh. B - 1
<PAGE>
definition of "Conversion Factor," the Conversion Factor shall be adjusted on
the Partnership Record Date, effective immediately after the assets are
distributed, as follows:
1.0 x ($5.00 / [$5.00 - $1.00]) = 1.25
Accordingly, the Conversion Factor after the assets are distributed is 1.25.
Exh. B - 2
<PAGE>
EXHIBIT C
---------
NOTICE OF REDEMPTION
--------------------
To: MIT Unsecured, Inc.
455 Market Street, 17th Floor
San Francisco, CA 94105
Attn: Robert A. Dobbin, Esq.
The undersigned Limited Partner or Assignee hereby irrevocably tenders for
Redemption ___________ Partnership Units in Meridian Realty Partners, L.P. in
accordance with the terms of the Agreement of Limited Partnership of Meridian
Realty Partners, L.P., dated as of _________, 1998, as amended (the
"Agreement"), and the Redemption rights referred to therein. The undersigned
Limited Partner or Assignee:
(a) undertakes (i) to surrender such Partnership Units and any
certificate therefor at the closing of the Redemption and (ii) to furnish to the
General Partner, prior to the Specified Redemption Date, the documentation,
instruments and information required under Section 8.6(f) of the Agreement;
(b) directs that the certified check representing the Cash Amount
deliverable upon the closing of such Redemption be delivered to the address
specified below;
(c) represents, warrants, certifies and agrees that:
(i) the undersigned Limited Partner or Assignee is a
Qualifying Party,
(ii) the undersigned Limited Partner or Assignee has, and at
the closing of the Redemption will have, good, marketable and unencumbered title
to such Partnership Units, free and clear of the rights or interests of any
other person or entity,
(iii) the undersigned Limited Partner or Assignee has, and at
the closing of the Redemption will have, the full right, power and authority to
tender and surrender such Partnership Units as provided herein, and
(iv) the undersigned Limited Partner or Assignee has obtained
the consent or approval of all Persons, if any, having the right to consent to
or approve such tender and surrender; and
(d) the undersigned acknowledges that the undersigned will continue
to own such Partnership Units until and unless either (i) the Partnership Units
are acquired by the
Exh. C - 1
<PAGE>
General Partner pursuant to Section 8.6(b) of the Agreement or (ii) the
Redemption transaction closes.
All capitalized terms used herein and not otherwise defined shall have the
same meanings
ascribed to them in the Agreement.
Dated:____________________ _________________________________________
Name of Limited Partner or Assignee
_________________________________________
(Signature of Limited Partner or Assignee)
_________________________________________
(Street Address)
_________________________________________
(City) (State) (Zip Code)
Signature Guaranteed by:
_________________________________________
Issue Check Payable to: _________________________________________
Please insert social security
or identifying number: _________________________________________
IN WITNESS WHEREOF, the parties have executed this Notice of Redemption as
of the date indicated below.
Dated:____________, 199__ GENERAL PARTNER:
MIT UNSECURED, INC., as General
Partner of MERIDIAN REALTY
PARTNERS, L.P.
By:_____________________________________
Exh. C - 2
<PAGE>
EXHIBIT D(l)
------------
PARTNER SCHEDULE
----------------
MERIDIAN REALTY PARTNERS, L.P.
-----------------------------
[Original Limited Partner Version]
THIS PARTNER SCHEDULE is executed by MIT Unsecured, Inc., a California
corporation (the "General Partner"), and the party named below (the "Original
Limited Partner") in respect of Meridian Realty Partners, L.P., a Delaware
limited partnership (the "Partnership").
1. NAME AND ADDRESS OF ORIGINAL LIMITED PARTNER:
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
TIN:_____________________________________________________________________
2. CAPITAL CONTRIBUTIONS BY ORIGINAL LIMITED PARTNER
Cash contribution: $___________________
Contributed Properties:
Contributed Property Gross Asset Value Indebtedness Assumed or Taken
Subject to Net Asset Value
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
3. PARTNERSHIP UNITS, PREFERRED RETURN PER UNIT, SPECIFIC ADJUSTMENT FACTOR,
SPECIFIC ADJUSTMENTS, AND HOLDING PERIODS
Partnership Units issued to Original Limited Partner: ____________
Preferred Return Per Unit: ______________
Specific Adjustment Factor: ______________
Exh. D(1) - 1
<PAGE>
Specific Adjustments:
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
Holding Period: The Holding Period for purposes of Section 8.6 of the
Agreement of Limited Partnership shall be ____ days.
Holding Period: The Holding Period For purposes of Section 11.3 of the
Agreement of Limited Partnership shall be ____ days.
4. ADMISSION OF ORIGINAL LIMITED PARTNER
The Original Limited Partner is admitted to the Partnership as an Original
Limited Partner. The General Partner hereby consents to such admission.
5. LIMITED PARTNER DISCLOSURES (SECTION 3.4(e))
Interests in Tenants:
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
REIT Shares Owned and Constructive Owned:
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
6. AGREEMENT
The Original Limited Partner acknowledges receipt of a copy of, and agrees
to be bound by, the Agreement of Limited Partnership for the Partnership. The
Original Limited Partner specifically confirms (a) the representations and
warranties contained in Section 3.4 of such Agreement and (b) the grant of the
power of attorney set forth in Section 2.4 of such Agreement.
Exh. D(1) - 2
<PAGE>
7. ADDITIONAL TERMS AND CONDITIONS
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
IN WITNESS WHEREOF, the parties have executed this Partner Schedule as of
the date indicated below.
Dated:______________, 199__ GENERAL PARTNER:
MIT UNSECURED, INC., as General
Partner of MERIDIAN REALTY
PARTNERS, L.P.
By:_____________________________
ORIGINAL LIMITED PARTNER:
By:_____________________________
Exh. D(1) - 3
<PAGE>
EXHIBIT D(2)
------------
PARTNER SCHEDULE
----------------
MERIDIAN REALTY PARTNERS, L.P.
-----------------------------
[Additional Limited Partner Version]
THIS PARTNER SCHEDULE is executed by MIT Unsecured, Inc., a California
corporation (the "General Partner"), and the party named below (the "Additional
Limited Partner") in respect of Meridian Realty Partners, L.P., a Delaware
limited partnership (the "Partnership").
1. NAME AND ADDRESS OF ADDITIONAL LIMITED PARTNER:
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
TIN:____________________________________________________________________
2. CAPITAL CONTRIBUTIONS BY ADDITIONAL LIMITED PARTNER
Cash contribution: $_______________________
Contributed Properties:
Contributed Property Gross Asset Value Indebtedness Assumed or Taken
Subject to Net Asset Value
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
3. LIMITED PARTNER CLASS, PARTNERSHIP UNITS, PREFERRED RETURN PER UNIT,
SPECIFIC ADJUSTMENT FACTOR, SPECIFIC ADJUSTMENTS, AND HOLDING PERIODS
Limited Partner Class: ________________________
Partnership Units issued to Additional Limited Partner:____________________
Preferred Return Per Unit: $____________________ per quarter
Exh. D(2)-1
<PAGE>
Specific Adjustment Factor: ________________________
Specific Adjustments:
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
Holding Period: The Holding Period for purposes of Section 8.6 of the
Agreement of Limited Partnership shall be ____ days.
Holding Period: The Holding Period For purposes of Section 11.3 of the
Agreement of Limited Partnership shall be ____ days.
4. ADMISSION OF ADDITIONAL LIMITED PARTNER
The Additional Limited Partner is admitted to the Partnership as an
Additional Limited Partner. The General Partner hereby consents to such
admission.
5. LIMITED PARTNER DISCLOSURES (SECTION 3.4(e))
Interests in Tenants:
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
REIT Shares Owned and Constructive Owned:
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
6. AGREEMENT
The Additional Limited Partner acknowledges receipt of a copy of, and
agrees to be bound by, the Agreement of Limited Partnership for the Partnership.
The Additional Limited Partner specifically confirms (a) the representations and
warranties contained in Section 3.4 of such Agreement and (b) the grant of the
power of attorney set forth in Section 2.4 of such Agreement.
Exh. D(2)-2
<PAGE>
7. ADDITIONAL TERMS AND CONDITIONS
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
IN WITNESS WHEREOF, the parties have executed this Partner Schedule as of
the date indicated below.
Dated:______________, 199__ GENERAL PARTNER:
MIT UNSECURED, INC., as General Partner
of MERIDIAN REALTY PARTNERS, L.P.
By:___________________________________
ADDITIONAL LIMITED PARTNER:
By:___________________________________
Exh. D(2)-3
<PAGE>
EXHIBIT D(3)
------------
PARTNER SCHEDULE
----------------
MERIDIAN REALTY PARTNERS, L.P.
-----------------------------
[Substituted Limited Partner Version]
THIS PARTNER SCHEDULE is executed by MIT Unsecured, Inc., a California
corporation (the "General Partner"), and the party named below (the "Substituted
Limited Partner") in respect of Meridian Realty Partners, L.P., a Delaware
limited partnership (the "Partnership").
1. NAME AND ADDRESS OF SUBSTITUTED LIMITED PARTNER:
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
TIN:____________________________________________________________________
2. CAPITAL CONTRIBUTIONS BY PREDECESSOR LIMITED PARTNER
Name of Predecessor: ____________________________________________
Cash contribution: $_______________________
Contributed Properties:
Contributed Property Gross Asset Value Indebtedness Assumed or Taken
Subject to Net Asset Value
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
3. LIMITED PARTNER CLASS, PARTNERSHIP UNITS, PREFERRED RETURN PER UNIT,
SPECIFIC ADJUSTMENT FACTOR, SPECIFIC ADJUSTMENTS, AND HOLDING PERIODS
Limited Partner Class: ________________________
Partnership Units held by
Substituted Limited Partner: ________________________
Exh. D(3)-1
<PAGE>
Preferred Return Per Unit: $____________________ per quarter
Specific Adjustment Factor: ________________________
Specific Adjustments:
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
Holding Period: The Holding Period for purposes of Section 8.6 of the
Agreement of Limited Partnership shall be ____ days.
Holding Period: The Holding Period For purposes of Section 11.3 of the
Agreement of Limited Partnership shall be ____ days.
4. ADMISSION OF SUBSTITUTED LIMITED PARTNER
The Substituted Limited Partner is admitted to the Partnership as an
Substituted Limited Partner. The General Partner hereby consents to such
admission.
5. LIMITED PARTNER DISCLOSURES (SECTION 3.4(e))
Interests in Tenants:
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
REIT Shares Owned and Constructive Owned:
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
6. AGREEMENT
The Substituted Limited Partner acknowledges receipt of a copy of, and
agrees to be bound by, the Agreement of Limited Partnership for the Partnership.
The Substituted Limited Partner specifically confirms (a) the representations
and warranties contained in Section 3.4 of such Agreement and (b) the grant of
the power of attorney set forth in Section 2.4 of such Agreement.
Exh. D(3)-2
<PAGE>
7. ADDITIONAL TERMS AND CONDITIONS
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
IN WITNESS WHEREOF, the parties have executed this Partner Schedule as of
the date indicated below.
Dated:______________, 199__ GENERAL PARTNER:
MIT UNSECURED, INC., as General Partner
of MERIDIAN REALTY PARTNERS, L.P.
By:___________________________________
SUBSTITUTED LIMITED PARTNER:
By:___________________________________
Exh.D(3)-3
<PAGE>
EXHIBIT E
---------
FORM OF PARTNERSHIP UNIT CERTIFICATE
------------------------------------
THE SECURITY EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE -SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE
AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION UNLESS THE TRANSFEROR DELIVERS TO THE PARTNERSHIP AN OPINION OF
COUNSEL SATISFACTORY TO THE PARTNERSHIP TO THE EFFECT THAT THE PROPOSED SALE,
TRANSFER OR OTHER DISPOSITION MAY BE EFFECTED WITHOUT REGISTRATION UNDER THE
SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS. IN
ADDITION, THE LIMITED PARTNERSHIP INTEREST EVIDENCED BY THIS CERTIFICATE MAY BE
SOLD OR OTHERWISE TRANSFERRED ONLY IN COMPLIANCE WITH THE RESTRICTIONS ON
TRANSFER SET FORTH IN THE AGREEMENT OF LIMITED PARTNERSHIP OF MERIDIAN REALTY
PARTNERS, L.P., DATED _____________, 1998, AS AMENDED, A COPY OF WHICH MAY BE
OBTAINED FROM MERIDIAN INDUSTRIAL TRUST, INC., THE GENERAL PARTNER, AT ITS
PRINCIPAL EXECUTIVE OFFICE.
Class _________________
Certificate No.________
MERIDIAN REALTY PARTNERS, L.P.
FORMED UNDER THE LAWS OF THE STATE OF DELAWARE
This certifies that _______________________________________
is the owner of * * * ______________ (_________) * * *
FULLY PAID PARTNERSHIP UNITS, CLASS
OF
MERIDIAN REALTY PARTNERS, L.P.,
transferable on the books of the Partnership in person or by duly authorized
attorney on the surrender of this Certificate properly endorsed. This
Certificate and the Partnership Units Represented hereby are issued and shall be
held subject to all of the provisions of the Agreement of Limited Partnership,
as the same may be amended and/or supplemented from time to time.
Exh. E-1
<PAGE>
IN WITNESS WHEREOF, the undersigned has signed this Certificate.
Dated:_______________ MIT UNSECURED, INC., as General Partner,
of MERIDIAN REALTY PARTNERS, L.P.
By:____________________________________
Exh. E-2
<PAGE>
KENDALL ONTARIO I
-----------------
PARTNER SCHEDULE
----------------
MERIDIAN REALTY PARTNERS, L.P.
-----------------------------
THIS PARTNER SCHEDULE is executed by MIT Unsecured, Inc., a California
corporation (the "General Partner"), and the party named below (the "Original
Limited Partner") in respect of Meridian Realty Partners, L.P., a Delaware
limited partnership (the "Partnership").
1. NAME AND ADDRESS OF ORIGINAL LIMITED PARTNER:
Kendall Ontario I
c/o Charles B. Kendall
Post Office Box 2706
Rancho Santa Fe, CA 92067
Taxpayer Identification Number: 95-4032763
2. CAPITAL CONTRIBUTION BY ORIGINAL LIMITED PARTNER:
Cash Contributed: $ 23,123.53
-----------
Contributed Property:
Contributed Property Gross Asset Value Indebtedness Assumed Net Asset Value
Or Taken Subject To
701 Malaga Place $7,000,000 $6,431,492.01 $600,000
Ontario, CA
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3. PARTNERSHIP UNITS, PREFERRED RETURN PER UNIT, SPECIFIC ADJUSTMENT FACTOR
SPECIFIC ADJUSTMENTS, AND HOLDING PERIODS:
Partnership Units issued to Original Limited Partner: 29,712
Preferred Return Per Unit: $1.0097
Specific Adjustment Factor: ONE
Specific Adjustments: NONE.
1
<PAGE>
Holding Period: The Holding Period for purposes of Section 8.6 of the
Agreement of Limited Partnership shall be ONE YEAR.
Holding Period: The Holding Period for purposes of Section 11.3 of the
Agreement of Limited Partnership shall be ONE YEAR.
4. ADMISSION OF ORIGINAL LIMITED PARTNER:
The Original Limited Partner is admitted to the Partnership as an Original
Limited Partner. The General Partner hereby consents to such admission.
5. LIMITED PARTNER DISCLOSURES (SECTION 3.4(e)):
Interests in Tenants: NONE
REIT Shares Owned and Constructively Owned: NONE
6. AGREEMENT:
The Original Limited Partner acknowledges receipt of a copy of, and agrees
to be bound by, the Agreement of Limited Partnership for the Partnership. The
Original Limited Partner specifically confirms (a) the representations and
warranties contained in Section 3.4 of such Agreement and (b) the grant of the
power of attorney set forth in Section 2.4 of such Agreement.
7. ADDITIONAL TERMS AND CONDITIONS:
(a) Prior to the fifth anniversary of the Partnership's acquisition
of the Property, the Partnership will not dispose of all or any portion of the
Property or any interest therein in a transaction that causes the Original
Limited Partner to recognize taxable income.
(b) At the closing, the Partnership and the partners of the Original
Limited Partner will enter into a Limited Several Guaranty substantially
identical to Exhibit I attached hereto and incorporated herein (the "Guaranty").
Prior to the fifth anniversary of the Partnership's acquisition of the Property,
the Partnership will not permit the indebtedness that is subject to the Guaranty
to be reduced below $2,310,000 and will give the Original Limited Partner a
reasonable opportunity in connection with any refinancing or restructuring of
such indebtedness to assume an economic risk of loss (within the meaning of
Section 1.752-1(a)(1) of the Treasury Regulations) up to $2,310,000 in
connection with such indebtedness.
(c) At the closing, Meridian Industrial Trust, Inc., the parent
corporation of the General Partner, and the Original Limited Partner will enter
into a Registration Rights Agreement substantially identical to Exhibit 2
attached hereto and incorporated herein.
2
<PAGE>
Dated:_______________ GENERAL PARTNER:
MIT UNSECURED, INC., as General Partner,
of MERIDIAN REALTY PARTNERS, L.P.
By: /s/ Milton K. Reeder
----------------------------
Milton K. Reeder
Its: President
ORIGINAL LIMITED PARTNER:
KENDALL ONTARIO I, a California general
partnership
By: /s/ Charles B. Kendall
----------------------------
Charles B. Kendall
Its: Partner
By: /s/ Sam C. Longo, Jr.
----------------------------
Sam C. Longo, Jr
Its: Partner
By: /s/ Darla J. Longo
----------------------------
Darla J. Longo
Its: Partner
By: The Evans Family Trust u/a
August 27, 1987
Its: Partner
By: /s/ Terrence Degan Evans
--------------------------
Terrence Degan Evans, Trustee
By: /s/ Virginia Dawson Evans
--------------------------
Virginia Dawson Evans, Trustee
3
<PAGE>
EXHIBIT I
---------
FORM OF LIMITED SEVERAL GUARANTY
--------------------------------
<PAGE>
LIMITED SEVERAL GUARANTY
This Limited Guaranty ("Guaranty") dated as of August __, 1998 is executed
------------
and delivered by the undersigned (collectively, "the Guarantors"), to Meridian
Industrial Trust, Inc., a Maryland corporation ("Lender").
----------
ARTICLE I
Section 1.1 Definitions. As used in this Guaranty, these terms shall
-----------
have these respective meanings:
Borrower means Meridian Realty Partners, L.P., a Delaware limited
--------
partnership.
Debt means all debt (principal, interest or other) evidenced by the Note
----
and which is then payable by Borrower under the terms thereof.
Deed of Trust means that certain deed of trust on the Property that secures
-------------
the Note.
Note means that certain secured promissory note dated the date hereof in
-----
the principal amount of $2,310,000 executed by Borrower in favor of Lender.
Obligor means any person or entity now or hereafter primarily or
-------
secondarily obligated to pay all or any part of the Debt, including Borrower and
Guarantors.
Person means any person, entity or body.
------
Property means the real property described in Exhibit B.
-------- ---------
ARTICLE 2
Section 2.1 Consideration. For consideration which Guarantors have
-------------
determined will substantially benefit Guarantors directly or indirectly, and for
other good and valuable consideration, the receipt and sufficiency of which
Guarantors hereby acknowledge, Guarantors execute and deliver this Guaranty to
Lender with the intention of being presently and legally bound by its terms.
Section 2.2 Several Obligations. Notwithstanding anything to the
-------------------
contrary contained herein, each Guarantor's liability hereunder shall be limited
to such Guarantor's Pro Rata Share ("Pro Rata Share") of the outstanding balance
of the Debt. Each Guarantor's Pro Rata share shall be as set forth in Exhibit A
attached hereto and incorporated by reference.
2
<PAGE>
ARTICLE 3
Section 3.1 Payment Guaranty. Subject to the limitation set forth in
----------------
Section 2.2, each Guarantor hereby unconditionally guarantees to Lender the
full, prompt and punctual payment of the Debt by Borrower when due at its stated
maturity in accordance with the Note and Deed of Trust, subject to the terms and
conditions thereof. To the fullest extent permitted by applicable law, each
Guarantor waives all rights and defenses of sureties, guarantors, accommodation
parties and/or co-makers. Notwithstanding the foregoing, the liability of each
Guarantor hereunder is and shall be limited as set forth in Section 2.2.
Section 3.2 Obligations Not Affected. The covenants, agreements and
-------------------------
obligations of each Guarantor under this Guaranty shall in no way be released,
diminished, reduced, impaired or otherwise affected by reason of the happening
from time to time of any of the following things, for any reason, whether by
voluntary act, operation of law or order of any competent governmental
authority:
(a) extension of time for payment of any part of the Debt or any other
sums payable under the Note or Deed of Trust, extension of time for performance
of any other obligation under or arising out of or in connection with the Note
or Deed of Trust or change in the manner, place or ocher terms of such payment
or performance;
(b) settlement or compromise of any part or all of the Debt;
(c) renewal, restatement, replacement, cancellation (whether or not
material) of any part of the Note or any obligations under the Note or Deed of
Trust of any obligor or any other party to the Note or Deed of Trust (without
limiting the number of times any of the foregoing may occur); or
(d) taking or acceptance of any security or guaranty for the payment or
performance of any or all of the Debt or the obligations of any obligor.
Notwithstanding the foregoing, neither the Note nor the Deed of Trust may
be amended or modified without the prior written consent of Guarantors.
Section 3.3 Waiver of Certain Rights and Notices. Subject to the
------------------------------------
provisions of Section 2.2, each Guarantor hereby WAIVES and RELEASES all right
to require marshaling of assets and liabilities, sale in inverse order of
alienation, notice of acceptance of this Guaranty and of any liability to which
it applies or may apply, notice of the creation, accrual, renewal, increase,
extension, modification, amendment or rearrangement of any part of the Debt,
presentment, demand for payment, protest, notice of nonpayment, notice of
dishonor, notice of intent to accelerate and notice of acceleration, collection,
suit and the taking of any other action by Lender. Each Guarantor has executed
this Guaranty with the intent of being at risk and bearing the economic risk of
loss with respect to such Guarantor's Pro Rata Share of the Debt; provided,
however, that if a Guarantor makes any payment hereunder, he or she
3
<PAGE>
shall, to the extent of such payment, be subrogated to the rights of Lender to
foreclose on the Property or other collateral, if any, given by Borrower to
secure the Debt.
ARTICLE 4
Each Guarantor severally warrants and represents as follows:
Section 4.1 Authority. Such Guarantor has the full legal right, power
---------
and authority to execute, deliver and perform his or her obligations under this
Guaranty.
Section 4.2 Consents. The execution, delivery and performance of this
--------
Guaranty by such Guarantor does not require (i) any consent of any other Person
or (ii) any consent, license, permit, authorization or other approval of any
court, arbitrator, administrative agency or other governmental authority, or any
notice to, exemption by, any registration, declaration or filing with or the
taking of any other action in respect of, any such court, arbitrator,
administrative agency or other governmental authority.
Section 4.3 No Conflict. Neither the execution or delivery of this
-----------
Guaranty, nor the fulfillment of or compliance with its terms and provisions
will (i) violate any constitutional provision, law or rule, or any regulation,
order or decree of any governmental authority to which such Guarantor is subject
or (ii) conflict with or result in a breach of the terms, conditions or
provisions of, or cause a default under, any agreement, instrument, franchise,
license or concession to which such Guarantor is bound.
Section 4.4 Enforceability. Such Guarantor has duly and validly
--------------
executed, issued and delivered this Guaranty. It is in proper legal form for
prompt enforcement and it is such Guarantor's valid and legally binding
obligation, enforceable in accordance with the terms.
Section 4.5 Limitation of Liability. No Guarantor shall be liable for
-----------------------
any misrepresentation or breach of warranty of any other Guarantor.
ARTICLE 5
Section 5.1 Term. This Guaranty shall terminate and be of no further
----
force or effect upon the earliest of (i) full payment of the Debt and complete
performance of all of the obligations of the obligors under the Note, or (ii)
Guarantor ceases to be a partner of Borrower, or (iii) Borrower sells or
transfers the Property at a time when Borrower is not in default in the
repayment of the Note.
ARTICLE 6
Section 6.1 Binding on Successors, No Assignment by Each Guarantor or
---------------------------------------------------------
Lender. All guaranties, warranties, representations, covenants and agreements
- ------
in this Guaranty shall bind the successors and assigns of each Guarantor and
shall benefit Lender, its successors and
4
<PAGE>
assigns. Neither any Guarantor nor Lender shall assign or delegate any of their
respective obligations or rights under this Guaranty or the Note without the
express prior written consent of the other party; provided however, that Lender
may assign its rights hereunder at any time without the consent of the
Guarantors in connection with any merger, acquisition, consolidation, sale or
contribution of all assets to any Person or other similar transaction with
respect to the Lender.
Section 6.2 Amendments in Writing. The Guaranty shall not be changed
---------------------
orally but shall be changed only by agreement in writing signed by the
Guarantors and Lender. Any waiver or consent with respect to this Guaranty shall
be effective only in the specific instance and for the specific purpose for
which given. No course of dealing between the parties, no usage of trade and no
parole or extrinsic evidence of any nature shall be used to supplement or modify
any of the terms of provisions of this Guaranty.
Section 6.3 Notices Any notice, request or other communication
-------
required or permitted to be given hereunder shall be given in writing by
delivering it against receipt for it, by depositing it with an overnight
delivery service or by delivery service or by depositing it in a receptacle
maintained by the United States Postal Service, postage prepaid, registered or
certified mail, return receipt requested (and if so given, shall be deemed given
on the third business day after mailing) addressed (i) to any Guarantor at the
address of such Guarantor provided on the records of Borrower or (ii) to the
Lender at Meridian Industrial Trust, Inc., 455 Market Street, 17th Floor, San
Francisco, California 94105, Attention: Robert A. Dobbin.
Section 6.4 Gender "Including" is Not Limiting Section Headings. The
---------------------------------------------------
masculine and neuter genders used in this Guaranty each includes the masculine,
feminine and neuter genders, and the singular number includes the plural where
appropriate, and vice versa. Wherever the term "including" or a similar term is
used in this Guaranty, it shall be read as if it were written "Including by way
of example only and without in any way limiting the generality of the clause or
concept referred to." The headings used in this Guaranty are included for
reference only and shall not be considered in interpreting, applying or
enforcing this Guaranty.
Section 6.5 Applicable Law. THIS GUARANTY SHALL BE GOVERNED BY AND
--------------
CONSTRUED IN ACCORDANCE WITH THE APPLICABLE LAWS OF CALIFORNIA AND THE UNITED
STATES OF AMERICA FROM TIME TO TIME IN EFFECT.
Section 6.6 Survival. The representations, covenants and agreements set
--------
forth in this Guaranty shall continue and survive until final termination of
this Guaranty.
Section 6.7 Rights Cumulative; Delay Not Waiver. Lender's exercise of
-----------------------------------
any right, benefit or privilege under the Note, Deed of Trust or any other
instruments or at law or in equity shall not preclude the concurrent or
subsequent exercise of any of Lender's other present and future rights, benefits
or privileges. The remedies provided in this Guaranty are
5
<PAGE>
cumulative and not exclusive of any remedies provided by law, the Note, Deed of
Trust or any other document. No failure by Lender to exercise, and no delay in
exercising, any right under the Note, Deed of Trust or any other instruments
shall operate as a waiver thereof.
Section 6.8 Severability. If any provision of this Guaranty is held to
------------
be illegal, invalid or unenforceable under present or future laws, the legality,
validity and enforceability of the remaining provisions of this Guaranty shall
not be affected thereby, and this Guaranty shall be liberally construed so as to
carry out the intent of the parties. Each waiver in this Guaranty is subject to
the overriding and controlling rule that it shall be effective only if and to
the extent that (i) it is not prohibited by applicable law and (ii) applicable
law neither provides for nor allows any material sanctions to be imposed against
Lender for having bargained for and obtained it.
Section 6.9 Entire Agreement. This Guaranty embodies the entire
----------------
agreement and understanding between Guarantors and Lender with respect to its
subject matter and supersedes all prior conflicting or inconsistent agreements,
consents and understandings relating to such subject matter. Guarantors
acknowledge and agree that there is no oral agreement between any Guarantor and
Lender with respect to the subject matter hereof which has not been incorporated
in this Guaranty.
Section 6.10 Usury Not Intended, Savings Provisions. Notwithstanding any
--------------------------------------
provision to the contrary contained in the Note or Deed of Trust, it is
expressly provided that in no case or event shall the aggregate of any amounts
accrued or paid pursuant to this Guaranty which under applicable laws are or may
be deemed to constitute interest ever exceed the maximum nonusurious interest
rate permitted by applicable California or federal laws, whichever permit the
higher rate. In this connection, Guarantor and Lender stipulate and agree that
it is their common and overriding intent to contract in strict compliance with
applicable usury laws. In furtherance thereof, none of the terms of this
Guaranty shall ever be construed to create a contract to pay, as consideration
for the use, forbearance or detention of money, interest at a rate in excess of
the maximum rate permitted by applicable laws. No Guarantor shall be liable for
interest in excess of the maximum rate permitted by applicable laws. If, for any
reason whatsoever, such interest paid or received during the full term of the
applicable indebtedness produces a rate which exceeds the maximum rate permitted
by applicable laws, Lender shall credit against the principal of such
indebtedness (or, if such indebtedness shall have been paid in full, shall
refund to the payor of such interest) such portion of said interest as shall be
necessary to cause the interest paid to produce a rate equal to the maximum rate
permitted by applicable laws. All sums paid or agreed to be paid to Lender for
the use, forbearance or detention of money shall, to the extent permitted by
applicable law, be amortized, prorated, allocated and spread in equal parts
throughout the full term of the applicable indebtedness, so that the interest
rate is uniform throughout the full term of such indebtedness. The provisions of
this Section shall control all agreements, whether now or hereafter existing
and whether written or oral, between Guarantors and Lender.
THIS GUARANTY is executed as of the date first above written.
6
<PAGE>
GUARANTOR
______________________________________
Charles B. Kendall, Trustee of
______________________________________
______________________________________
______________________________________
Terrence Deagan Evans, Trustee of the
Evans Family Trust U/A dated 8/27/87
______________________________________
Virginia Dawson Evans, Trustee of the
Evans Family Trust U/A dated 8/27/87
______________________________________
Sam C. Longo
______________________________________
Darla S. Longo
Accepted by:
[LENDER]
Meridian Industrial Trust, Inc.,
a Maryland corporation
By:__________________________
Milton K. Reeder
Its. President
7
<PAGE>
EXHIBIT A
---------
PRO RATA SHARE OF EACH GUARANTOR
--------------------------------
Name of Guarantor Pro Rata Share
- ----------------- --------------
Obligation For Debt
-------------------
Charles B. Kendall, 33 1/3%
Trustee of
Terrence Deagan Evans and Virginia Dawson 33 1/3%
Evans, Trustees of the Evans Family Trust,
U/A dated 8/27/87
Sam C. Longo 16 %
Darla J. Longo 16 %
8
<PAGE>
EXHIBIT B
---------
THE LAND REFERRED TO HEREIN IS SITUATED IN THE STATE OF CALIFORNIA, COUNTY OF
SAN BERNARDINO, AND IS DESCRIBED AS FOLLOWS:
PARCEL 2 OF PARCEL MAP NO. 6084, AS SHOWN BY MAP ON FILE IN BOOK 76 PAGE(S) 54
AND 55, OF PARCEL MAPS, RECORDS OF SAN BERNARDINO COUNTY, CALIFORNIA;
EXCEPTING THEREFROM ALL MINERALS AND MINERAL RIGHTS, INTERESTS, AND ROYALTIES,
INCLUDING WITHOUT LIMITING THE GENERALITY THEREOF, ALL OIL, GAS AND OTHER
HYDROCARBON SUBSTANCES AS WELL AS METALLIC OR OTHER SOLID MINERALS, PROVIDED
THAT GRANTOR, ITS SUCCESSORS AND/OR ASSIGNS, SHALL NOT HAVE THE RIGHT TO GO UPON
THE SURFACE OF THE PROPERTY FOR THE PURPOSE OF EXTRACTING SAID OIL, GAS AND
OTHER HYDROCARBON SUBSTANCES AS WELL AS METALLIC OR OTHER SOLID MINERALS, NOR
FOR ANY PURPOSE IN CONNECTION THEREWITH, BUT SHALL HAVE THE RIGHT TO EXTRACT AND
REMOVE SAID OIL, GAS AND OTHER HYDROCARBON SUBSTANCES AS WELL AS METALLIC OR
OTHER SOLID MINERALS BY MEANS OF SLANT-DRILLED WELLS LOCATED ON ADJACENT OR
NEARBY LAND, OR BY ANY OTHER MEANS WHICH SHALL NOT REQUIRE ENTRY UPON THE
SURFACE OF THE PROPERTY, AS RESERVED IN THE DEED FROM SOUTHERN PACIFIC
INDUSTRIAL DEVELOPMENT COMPANY, A CORPORATION, RECORDED JUNE 30, 1986 AS
INSTRUMENT NO. 86-169964 OF OFFICIAL RECORDS.
9
<PAGE>
EXHIBIT 2
---------
FORM OF REGISTRATION RIGHTS AGREEMENT
-------------------------------------
10
<PAGE>
EXHIBIT 99.2
================================================================================
REGISTRATION RIGHTS AGREEMENT
(MERIDIAN REALTY PARTNERS, L.P.)
MERIDIAN INDUSTRIAL TRUST, INC.
and
KENDALL ONTARIO I
August 20, 1998
================================================================================
<PAGE>
REGISTRATION RIGHTS AGREEMENT
-----------------------------
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is entered into as of
the __ day of August, 1998 by and between MERIDIAN INDUSTRIAL TRUST, INC., a
Maryland corporation (the "Company"), and KENDALL ONTARIO I, a California
general partnership (the "Investor").
WHEREAS, Meridian Realty Partners, L.P., a Delaware limited partnership of
which MIT Unsecured, Inc., a wholly-owned subsidiary of the Company, is the sole
general partner (the "Operating Partnership"), and the Investor are parties to
various agreements of even date herewith (the "Concurrent Agreements")
providing, among other things, for the issuance to the Investor of limited
partnership interests ("OP Units") in the Operating Partnership upon the
contribution of certain assets to the Operating Partnership, all of which OP
Units, when surrendered for redemption may be acquired in exchange for shares of
the Company's common stock (the "Common Stock"), subject to certain restrictions
under the agreement of limited partnership of the Operating Partnership (the "OP
Partnership Agreement") and the Company's charter;
WHEREAS, in connection with the foregoing, the Company has agreed to
register for sale by the Investor the shares of Common Stock received by the
Investor in exchange for the OP Units that are surrendered for redemption
(collectively, the "Registrable Shares"); and
WHEREAS, the parties hereto desire to enter into this agreement to evidence
the foregoing agreement of the Company and the mutual covenants of the parties
relating thereto.
1
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and the covenants of the
parties set forth herein and subject to the terms and conditions set forth
herein, the parties hereto hereby agree as follows:
SECTION 1. Certain Definitions. In this Agreement the following terms
-------------------
shall have the following respective meanings:
"Affiliate" shall mean, when used with respect to a specified person,
another person that directly, or indirectly, through one or more
intermediaries, controls or is controlled by or is under common control
with the person specified.
"Commission" means the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"Common Stock" means the common stock of the Company.
"Holders" means (i) the Investor, (ii) each Person holding OP Units as
a result of a Permitted Transfer to that Person of OP Units made by the
Investor in accordance with the provisions of the OP Agreement, and (iii)
each Person holding Registrable Shares as a result of a transfer or
assignment to that person of Registrable Shares made by the Investor in
accordance with this Agreement.
2
<PAGE>
"Indemnified Party" shall have the meaning ascribed to it in Section
4(c) of this Agreement.
"Indemnifying Party" shall have the meaning ascribed to it in Section
5(c) of this Agreement.
"Permitted Transfer" means a transfer of OP Units that is in
compliance with the terms and conditions of the OP Agreement.
"Person" means an individual, corporation, partnership, estate, trust,
association, private foundation, joint stock company or other entity.
The terms "Register", "Registered" and "Registration" refer to a
registration effected by preparing and filing a registration statement or
an amendment to an existing registration statement in compliance with the
Securities Act providing for the sale by the Holders of all Registrable
Shares in accordance with the method or methods of distribution designated
by the Holders, and the declaration or ordering of the effectiveness of
such registration statement or amendment by the Commission.
"Registrable Shares" shall have the meaning ascribed to it in the
recitals to this Agreement.
3
<PAGE>
"Registration Expenses" means all out-of-pocket expenses (excluding
Selling Expenses) incurred by the Company in complying with Section 2
hereof, including, without limitation, the following:
(a) All registration, filing and listing fees;
(b) Fees and expenses of compliance with federal and state securities
or real estate syndication laws (including, without limitation, reasonable
fees and disbursements of counsel in connection with state securities and
real estate syndication qualifications of the Registrable Shares under the
laws of such jurisdictions as the Holders may designate);
(c) Printing (including, without limitation, expense of printing or
engraving certificates for the Registrable Shares in a form eligible for
deposit with Depositary Trust Company and otherwise meeting the
requirements of any securities exchange on which they are listed and of
printing registration statements and prospectuses, messenger, telephone,
shipping and delivery expenses;
(d) Fees and disbursements of counsel for the Company;
(e) Fees and disbursements of all independent public accountants of
the Company (including without limitation the expenses of any annual or
special audit and "cold comfort" letters required by the managing
underwriter);
4
<PAGE>
(f) Securities act liability insurance if the Company so desires;
(g) Fees and expenses of other Persons reasonably necessary in
connection with the registration, including any experts, retained by the
Company;
(h) Fees and expenses incurred in connection with the listing of the
Registrable Shares on each securities exchange on which the securities of
the same class are then listed; and
(i) Fees and expenses associated with any NASD filing required to be
made in connection with the registration statement.
"Rights" shall have the meaning ascribed to it in Section 7(a).
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission thereunder, all as the same shall be in
effect at the relevant time.
"Selling Expenses" means all customary underwriting discounts, selling
commissions and stock transfer taxes applicable to the Registrable Shares.
5
<PAGE>
SECTION 2. Registration.
------------
(a) The Company shall prepare and file with the Commission on or
prior to July 15, 1999 a registration statement on an appropriate form pursuant
to Rule 415 under the Securities Act, or similar rule that may be adopted by the
Commission, or an amendment to the Company's existing registration statement on
Form S-3 (in either case, the "Registration Statement") for the purpose of
effecting a Registration of the Registrable Shares, shall use all commercially
reasonable efforts to effect such Registration on or prior to September 1, 1999
(including, without limitation, the execution of an undertaking to file post-
effective amendments and appropriate qualification under applicable state
securities and real estate syndication laws), and shall keep such Registration
continuously effective under the later of September 1, 2003 or the fourth
anniversary of the date upon which the registration statement used to effect the
Registration is first declared effective by the Commission, so as to permit or
facilitate the sale and distribution of the Registrable Shares in accordance
with the terms of this Agreement; provided, however, that the Company shall not
be obligated to take any action to effect any such Registration, qualification
or compliance pursuant to this Section 2 in any particular jurisdiction (other
than California) in which the Company would be required to execute a general
consent to service of process to effect such Registration, qualification or
compliance unless the Company is already subject to service in such
jurisdiction. The Company and the Investor agree that no offering by the Holders
of Registrable Shares hereunder shall be an underwritten offering.
Notwithstanding the foregoing, the Company shall have the right to defer
such filing (or suspend sales under any filed registration statement or defer
the updating of any filed registration
6
<PAGE>
statement and suspend sales thereunder) for a period of not more than 120 days
during any one-year period ending on September 1 if the Company shall furnish to
the Holders a certificate signed by the President or any other executive officer
or any director of the Company stating that in the judgment of the Company it
would be detrimental to the Company and its shareholders to file such
registration statement at such time (or continue sales under a filed
registration statement) and therefore the Company has elected to defer the
filing of such registration statement (or suspend sales under a filed
registration statement).
(b) The Company shall promptly notify the Holders of the occurrence
of the following events:
(i) The filing with the Commission of the registration
statement, any supplement to the prospectus or any amendment or post-
effective amendment to the registration statement and, with respect to the
registration statement or any post-effective amendment, when the same has
become effective;
(ii) Any request by the Commission for amendments or post-
effective amendments to the registration statement or supplements to the
prospectus or for additional information;
(iii) The issuance by the Commission of any stop order suspending
the effectiveness of the registration statement or the initiation or
threatening of any proceedings for that purpose;
7
<PAGE>
(iv) The suspension of an effective registration statement by
the Company in accordance with the last paragraph of Section 2(a) above;
(v) The Company's receipt of any notification of the suspension
of the qualification of any shares of Common Stock covered by the
registration statement for sale in any jurisdiction or the initiation or
threat of any proceeding for that purpose; and
(vi) The existence of any event, fact or circumstance that
results in the registration statement, the prospectus or any document
incorporated therein by reference containing an untrue statement of
material fact or omitting to state a material fact required to be stated
therein or necessary to make the statements therein not misleading during
the distribution of securities.
The Company shall use its best effort to obtain the withdrawal of any order
suspending the effectiveness of the registration statement or any state
qualification at the earliest possible moment.
(c) The Company shall provide to each Holder, at no cost to the
Holders, promptly upon the effectiveness thereof, five copies of the prospectus
and any post-effective amendment or supplement thereto, together with a copy of
the registration statement and any amendment thereto used to effect the
Registration of the Registrable Shares, each prospectus contained in such
registration statement or post-effective amendment and any amendment or
supplement thereto including financial statements and schedules, all documents
incorporated therein
8
<PAGE>
by reference and all exhibits thereto. The Company shall also provide the
Holders with such other documents as the requesting Holders may reasonably
request necessary to facilitate the disposition of the Registrable Shares
covered by such registration statement. The Company consents to the use of each
prospectus or any supplement thereto by the Holders in connection with the
offering and sale of the shares covered by such registration statement or any
amendment thereto.
(d) The Company shall use its best efforts to cause the shares
covered by the registration statement to be registered with or approved by such
state securities authorities as may be necessary to enable the Holders to
consummate the disposition of such shares pursuant to the plan of distribution
set forth in the registration statement.
(e) If any event, fact or circumstance requiring an amendment to the
registration statement or supplement to the prospectus shall exist, immediately
upon becoming aware thereof the Company shall notify the Holders and, subject to
the provisions of the last paragraph of Section 2(a), prepare and furnish to the
Holders a post-effective amendment to the registration statement or supplement
to the prospectus or any document incorporated therein by reference or file any
other required document so that, as thereafter delivered to the purchasers of
the Registrable Shares, the prospectus will not contain an untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading. Upon receipt of any
notice from the Company of the happening of any event of the kind described in
this Section 2(e), each Holder will immediately discontinue the disposition of
Registrable Shares pursuant to the Registration Statement until the Holder's
receipt of the copies of the supplemented
9
<PAGE>
or amended prospectus contemplated by this Section 2(e) or further notification
from the Company, as applicable, and, if so directed by the Company, the Holder
shall deliver to the Company all copies, other than permanent file copies then
in the Holder's possession, of the most recent prospectus covering such
Registrable shares at the time of receipt of such notice.
(f) The Company shall cause all Registrable Shares covered by the
registration statement to be listed on each securities exchange on which
securities of the same class are then listed.
(g) The Company shall use its best efforts to comply with the
Securities Act and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), including in each case the rules adopted by the Commission
thereunder, and, as soon as reasonably practicable following the end of any
fiscal year during which a registration statement effecting a Registration of
Registrable Shares shall have been effective, to make available to its security
holders an earnings statement satisfying the provisions of Section 11(a) of the
Securities Act.
(h) The Company shall cooperate with the selling Holders to
facilitate the timely preparation and delivery of certificates representing
Registrable Shares to be sold and not bearing any Securities Act legend; and
enable certificates for such Registrable Shares to be issued for such numbers of
shares and registered in such names as the selling Holders may reasonably
request at least two business days prior to any sale of Registrable Shares.
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SECTION 3. Expenses of Registration.
------------------------
The Holders shall bear the first $5,000 of Registration Expenses
incurred in connection with the registration, qualification or compliance
pursuant to Section 2 hereof pro rata in the proportion that the number of
Registrable Shares held by the respective Holder registered thereby bears to the
total number of Registrable Shares owned by all Holders registered thereby. The
Holders shall not be obligated to pay in excess of $5,000 or Registration
Expenses in connection with the registration (and related qualification and
compliance) effected pursuant to this Agreement. All Selling Expenses incurred
by a Holder in connection with the sale of Registrable Shares shall be borne by
such Holder, and no other Holder shall have any responsibility therefor. Each
Holder shall bear the expense of its or his own counsel.
SECTION 4. Indemnification.
----------------
(a) The Company will indemnify each Holder against all expenses,
claims, losses, damages and liabilities (including reasonable legal expenses)
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any registration statement or prospectus, or any
amendment or supplement thereto, or based on any omission (or alleged omission)
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, provided, however, that the Company
will not be liable in any such case to the extent that any such claim, loss,
damage, liability or expense arises out of or is based on any untrue statement
or omission or alleged untrue statement or omission, made in reliance upon and
in conformity with information furnished in writing to the Company by such
Holder for
11
<PAGE>
inclusion therein and provided, further, that the Company will not be liable in
any such case with respect to any such untrue statement or omission made in any
prospectus that is corrected in any amendment or supplement thereto if the
person asserting any such loss, claim, damage or liability purchased shares of
Common Stock from such Holder, but was not sent or given a copy of the
prospectus as amended or supplemented at or prior to the written confirmation of
the sale of such Common Stock to such person in any case where such delivery of
the amended or supplemented prospectus is required by the Securities Act, unless
such failure was a result of noncompliance by the Company with Section 2(e) of
this Agreement.
(b) Each Holder will indemnify the Company, each of its directors and
each of its officers who sign the registration statement, and each person who
controls the Company within the meaning of Section 15 of the Securities Act,
against all claims, losses, damages, and liabilities (including reasonable legal
fees and expenses) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement or prospectus, or any amendment or supplement thereto, or based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such untrue statement (or
alleged untrue statement) or omission (or alleged omission) is made in such
registration statement or prospectus, in reliance upon and in conformity with
information furnished in writing to the Company by such Holder for inclusion
therein.
12
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(c) Each party entitled to indemnification under this Section 4 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, but the
omission to so notify the Indemnifying Party shall not relieve it from any
liability which it may have to the Indemnified Party otherwise than pursuant to
the provisions of this Section 4 and then, only to the extent of the actual
damages suffered by such delay in notification. The Indemnifying Party shall
assume the defense of such action, including the employment of counsel to be
chosen by the Indemnifying Party to be reasonably satisfactory to the
Indemnified Party and payment of expenses. The Indemnified Party shall have the
right to employ its own counsel in any such case, but the legal fees and
expenses of such counsel shall be at the expense of the Indemnifying Party,
unless the employment of such counsel shall have been authorized in writing by
the Indemnified Party in connection with the defense of such action, or the
Indemnifying Party shall not have employed counsel to take charge of the defense
of such action or the Indemnified Party shall have reasonably concluded that
there may be defenses available to it or them which are different from or
additional to those available to the Indemnifying party (in which case the
Indemnifying Party shall not have the right to direct the defense or such action
on behalf of the Indemnified Party), in any of which events such fees and
expenses shall be borne by the Indemnifying Party. No Indemnifying Party, in the
defense of any such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all liability
in respect to such claim or litigation.
13
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(d) If the indemnification provided for in this Section 4 is
unavailable to a party that would have been an Indemnified Party under this
Section in respect of any expenses, claims, losses, damages and liabilities
referred to herein, then each party that would have been an Indemnifying Party
hereunder shall, in lieu of indemnifying such Indemnified Party, contribute to
the amount paid or payable by such Indemnified Party as a result of such
expenses, claims, losses, damages and liabilities in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party on the one
hand and such Indemnified Party on the other in connection with the statement or
omission which resulted in such expenses, claims, losses, damages and
liabilities, as well as any other relevant equitable considerations. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Indemnifying Party or such Indemnified Party and the parties relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and each holder of Registrable Shares agrees
that it would not be just and equitable if contribution pursuant to this section
were determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to above in
this Section 4(d).
(e) No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
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SECTION 5. Information to be Furnished by Holders.
--------------------------------------
Each Holder shall furnish to the Company such information as the
Company may reasonably request in writing (which request shall be submitted a
reasonable period of time in advance of the filing of the registration statement
or amendment or supplement thereto with respect to which the requested
information relates) and as shall be required in connection with the
Registration and related proceedings referred to in Section 2 hereof.
SECTION 6. Additional Representations.
--------------------------
Each Holder of OP Units, upon surrender of any such OP Units for
redemption as provided in the OP Partnership Agreement, shall make such
investment and other representations in connection with (and as a condition to)
the issuance of Common Stock in exchange for such OP Units as the Company or the
Operating Partnership may reasonably request.
SECTION 7. Rule 144 Sales.
--------------
(a) The Company shall file the reports required to be filed by the
Company under the Securities Act and the Exchange Act, so as to enable any
Holder to sell Registrable Shares pursuant to Rule 144 under the Securities Act.
(b) In connection with any sale, transfer or other disposition by any
Holder of any Registrable Shares pursuant to Rule 144 under the Securities Act,
the Company shall cooperate with such Holder to facilitate the timely
preparation and delivery of certificates representing Registrable
15
<PAGE>
Shares to be sold and not bearing and Securities Act legend, and enable
certificates for such Registrable Shares to be for such number of shares and
registered in such names as the selling Holders may reasonably request at least
two business days prior to any sale of Registrable Shares.
SECTION 8. Miscellaneous.
-------------
(a) Governing Law. This Agreement shall be governed in all respects
-------------
by the laws of the State of Delaware.
(b) Amendment. This Agreement may be amended, waived, discharged or
---------
terminated only by a written instrument signed by the parties' signatory hereto.
(c) Notices, Etc. Each notice, demand, request, request for approval,
------------
consent, approval, disapproval, designation or other communication (each of the
foregoing being referred to herein as a notice), required or desired to be given
or made under this Agreement shall be in writing (except as otherwise provided
in this Agreement), and shall be effective and deemed to have been received (i)
when delivered in person, (ii) when sent by facsimile transmission with receipt
acknowledged, (iii) five (5) days after having been mailed by certified or
registered United States mail, postage prepaid, return receipt requested, or
(iv) the next business day after having been sent by a nationally recognized
overnight mail or courier service, receipt requested. Notices shall be addressed
as follows: (a) if to the Investor, at its address set forth below its signature
hereon, or at such other address or to the fax number as the Investor shall have
furnished to the Company in writing, or (b) if to the assignee or transferee of
the Investor, at such address or to the fax number
16
<PAGE>
as such assignee or transferee shall have furnished the Company in writing, or
(c) if to the Company, at the address of its principal executive offices and
addressed to the attention of the President, or at such other adders or to the
fax number as the Company shall have furnished to the Investor and the assignee
or transferee. Any notice or other communication required to be given hereunder
to a Holder in connection with a registration may instead be given to the
designated representative of such Holder.
(d) Counterparts. This Agreement may be executed in counterparts,
------------
both of which together shall constitute one instrument.
(e) Severability. In the event that any provision of this Agreement
------------
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision.
(f) Section Titles. Section titles are for descriptive purposes only
--------------
and shall not control or alter the meaning of the Agreement as set forth in the
text.
(g) Successors and Assigns. This Agreement shall be binding upon the
----------------------
parties hereto and their respective successors and permitted assigns.
(h) Remedies. The Company and the Investor acknowledge that there
--------
would be no adequate remedy at law if any party fails to perform any of its
obligations hereunder, and
17
<PAGE>
accordingly agree that the Company and each Holder, in addition to any other
remedy to which it may be entitled at law or in equity, shall be entitled to
compel specific performance of the obligations or another party under this
Agreement in accordance with the terms and conditions of this Agreement in any
court of the United States or any State thereof having jurisdiction.
(i) Attorneys' Fees. If the Company or any holder brings an action to
---------------
enforce its rights under this Agreement, the prevailing party in the action
shall be entitled to recover its costs and expenses, including without
limitation, reasonable attorneys' fees, incurred in connection with such action,
including any appeal of such action.
(j) Third Party Beneficiaries. Each Holder and each Indemnified
-------------------------
Party, and only such Persons, shall be third party beneficiaries of the
agreements contained in this Registration Rights Agreement.
18
<PAGE>
The foregoing Registration Rights Agreement is hereby executed as of the
date herein written.
THE COMPANY:
MERIDIAN INDUSTRIAL TRUST, INC.
By: /s/ Milton K. Reeder
________________________________
Name: Milton K. Reeder
______________________________
Title: President
_____________________________
Address: 455 Market Street
17th Floor
San Francisco, CA 94105
Telecopy: (415) 284-2840
Attn: Mr. Robert A. Dobbin
S-1
<PAGE>
THE INVESTOR:
KENDALL ONTARIO I
By: /s/ Sam C. Longo, Jr
__________________________________
Sam C. Longo, Jr
By: /s/ Charles B. Kendall
__________________________________
Charles B. Kendall
By: /s/ Darla J. Longo
__________________________________
Darla J. Longo
By: The Evans Family Trust u/t/d
August 27, 1987
By: /s/ Terrance Degan Evans
__________________________________
Terrance Degan Evans, Trustee
By: /s/ Virginia Dawson Evans
__________________________________
Virginia Dawson Evans, Trustee
Title: General Partners
Address: P.O. Box 270
Rancho Santa Fe, CA 92067
Telecopy: (___) ___-____
Attn: Mr. Charles B. Kendall
S-2
