-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LFN2sio3RORssKk0+WPPlvOdhwQeQs5wHx2PsvSd90VkO6JnF531S/yxJ94vN5w6 OgT974vh5m/mCtcKqZFq9w== 0000950131-99-005118.txt : 19990830 0000950131-99-005118.hdr.sgml : 19990830 ACCESSION NUMBER: 0000950131-99-005118 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 19990827 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROLOGIS TRUST CENTRAL INDEX KEY: 0000899881 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 742604728 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: SEC FILE NUMBER: 333-86081 FILM NUMBER: 99701575 BUSINESS ADDRESS: STREET 1: 14100 EAST 35TH PLACE CITY: AURORA STATE: CO ZIP: 80011 BUSINESS PHONE: 3033759292 MAIL ADDRESS: STREET 1: 14100 EAST 35TH PLACE CITY: AURORA STATE: CO ZIP: 80011 FORMER COMPANY: FORMER CONFORMED NAME: SECURITY CAPITAL INDUSTRIAL TRUST DATE OF NAME CHANGE: 19931228 S-3 1 FORM S-3 As filed with the Securities and Exchange Commission on August 27, 1999 Registration No. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------- FORM S-3 REGISTRATION STATEMENT Under The Securities Act of 1933 -------------- PROLOGIS TRUST (Exact name of registrant as specified in its charter) -------------- 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) -------------- 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 -------------- 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. [_] -------------- CALCULATION OF REGISTRATION FEE - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
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 - ---------------------------------------------------------------------------------------------------------- Common Shares of Beneficial Interest, par value $0.01 per share........................ 32,683 $19.40 $634,050.02 $176.27 - ---------------------------------------------------------------------------------------------------------- Preferred Shares Purchase Rights.............. 32,683 N/A N/A N/A - ----------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- (1) Estimated solely for purposes of determining the registration fee. -------------- 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. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +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 ----------- 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. 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
Page ---- 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
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. 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 2 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. 3 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. 4 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 5 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. 6 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. 7 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. 8 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." 9 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. 10 "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. 11 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 12 . 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. 13 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. 14 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. 15 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 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 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 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 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 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 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 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 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 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 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 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 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 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. 29 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. 30 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; 31 (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. 32 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. 33 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. 34 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. 35 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, 36 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 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.
Number of Common Shares Total Number of Common Which May Be Received Shares Owned Prior Name in Exchange for Units to this Offering ---- ----------------------- ---------------------- 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
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 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 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 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 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:
Selling ProLogis Shareholders --------- ------------ 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 ========= ======
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 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 (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 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.
Signature Title Date --------- ----- ---- /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
II-4
Signature Title Date --------- ----- ---- /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
II-5 EXHIBIT INDEX
Exhibit Description ------- ----------- 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
EX-5.1 2 OPINION OF MAYER BROWN & PLATT VALIDITY OF SHARES 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 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 EX-8.1 3 OPINION OF MAYER BROWN & PLATT TAX MATTERS 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 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. 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 EX-15 4 LETTER REGARDING UNAUDITED FINANCIAL INFORMATION 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 EX-23.1 5 CONSENT OF ARTHUR ANDERSEN LLP, CHICAGO IL 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 EX-23.2 6 CONSENT OF KPMG LLP, STOCKHOLM, SWEDEN 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 EX-99.1 7 AGREEMENT OF LIMITED PARTNERSHIP OF MERIDIAN 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. TABLE OF CONTENTS
Page 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
i 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 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 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. "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 "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 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 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 "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 6 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 7 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 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 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 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. 11 "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. 12 "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. 13 "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 14 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 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 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. 17 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 (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 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 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 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 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. 23 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 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 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 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 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 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 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 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 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 (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 (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 (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 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 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 (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 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 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 40 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 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. 42 (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 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 (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 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 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. 47 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) 48 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 (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 50 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 51 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 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 (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 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 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 (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 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 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 (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 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 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 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 (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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 EXHIBIT I --------- FORM OF LIMITED SEVERAL GUARANTY -------------------------------- 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 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 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 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 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 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 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 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 EXHIBIT 2 --------- FORM OF REGISTRATION RIGHTS AGREEMENT ------------------------------------- 10 EX-99.2 8 REGISTRATION RIGHTS AGREEMENT PROLOGIS & KENDALL EXHIBIT 99.2 ================================================================================ REGISTRATION RIGHTS AGREEMENT (MERIDIAN REALTY PARTNERS, L.P.) MERIDIAN INDUSTRIAL TRUST, INC. and KENDALL ONTARIO I August 20, 1998 ================================================================================ 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 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 "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 "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 (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 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 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 (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 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 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. 10 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 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 (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 (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. 14 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 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 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 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 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 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 -----END PRIVACY-ENHANCED MESSAGE-----