e424b3
The
information in this preliminary prospectus supplement is not
complete and may be changed. This preliminary prospectus
supplement and the accompanying prospectus are not an offer to
sell these securities and we are not soliciting an offer to buy
these securities in any jurisdiction where the offer or sale is
not
permitted.
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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-132616
SUBJECT TO
COMPLETION
Preliminary
Prospectus Supplement Dated November 9, 2006
Prospectus Supplement
November , 2006
(To Prospectus dated August 21, 2006)
$
% Notes
due 20
We are offering
$ million
aggregate principal amount
of % Notes due 20 (the
notes). Interest on the notes will be paid
semi-annually in arrears
on and of
each year, beginning
on ,
2007. The notes will mature
on ,
20 . We may redeem some or all of
the notes at any time and from time to time at our option. The
redemption prices are discussed under the heading
Description of Notes Optional Redemption.
The notes will be our senior obligations which, together with
our obligations under our global credit facility and certain of
our other indebtedness, will be secured by a pledge of certain
intercompany loans. The notes will be effectively subordinated
to any of our debt that is secured by assets, other than the
pledged intercompany loans, to the extent of the value of the
assets securing such debt. In addition, except to the extent the
notes become entitled to the benefits of the sharing agreements
described in the accompanying prospectus under Description
of Debt Securities Security and sharing
arrangements, the notes will be effectively subordinated
to the debt and other liabilities, including trade payables, of
our subsidiaries.
Investing in the notes involves risks. See Risk
Factors beginning on page S-2 of this prospectus
supplement and those risk factors incorporated by reference into
this prospectus supplement and the accompanying prospectus from
our Annual Report on
Form 10-K for the
year ended December 31, 2005.
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Public offering price(1)
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Underwriting discount
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Proceeds, before expenses, to ProLogis
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(1) |
Plus accrued interest, if any, from
November , 2007, if
settlement occurs after that date. |
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these notes
or determined if this prospectus supplement or the accompanying
prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
The underwriters expect to deliver the notes in book-entry form
only through the facilities of The Depository Trust Company for
the accounts of its participants, including Clearstream Banking,
societe anonyme, and Euroclear Bank S.A./N.V., as operator of
the Euroclear System, against payment in New York, New York on
November , 2006.
Joint Book-Running Managers
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Banc of America Securities LLC |
Citigroup |
RBS Greenwich Capital |
You should rely only on the information contained or
incorporated by reference in this prospectus supplement and the
accompanying prospectus. We have not, and the underwriters have
not, authorized anyone to provide you with different
information. We are not, and the underwriters are not, making an
offer of these notes in any jurisdiction where the offer is not
permitted. You should not assume that the information contained
in this prospectus supplement or the accompanying prospectus is
accurate as of any date other than the date on the front of this
prospectus supplement. Our business, financial condition,
results of operations and prospects may have changed since that
date.
TABLE OF CONTENTS
Prospectus Supplement
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S-2 |
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S-5 |
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S-6 |
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S-11 |
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S-12 |
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Prospectus |
Where You can Find More Information
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ii |
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Forward-Looking Statements
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iv |
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ProLogis
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1 |
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Ratios
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1 |
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Use of Proceeds
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Description of Debt Securities
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Description of Preferred Shares
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Description of Common Shares
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28 |
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Federal Income Tax Considerations
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31 |
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Plan of Distribution
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Experts
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Legal Matters
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45 |
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References to we, us, and
our in this prospectus supplement and the
accompanying prospectus are to ProLogis and its consolidated
subsidiaries, unless the context otherwise requires.
S-1
RISK FACTORS
Before you decide to invest in the notes, you should consider
the factors set forth below as well as the risk factors
discussed in our Annual Report on
Form 10-K for the
year ended December 31, 2005, which is incorporated by
reference into the accompanying prospectus. See Where You
Can Find More Information in the accompanying
prospectus.
A public trading market for the notes may not develop.
We have not applied and do not intend to apply for listing of
the notes on any securities exchange or any automated quotation
system. As a result, a market for the notes may not develop or,
if one does develop, it may not be sustained. If an active
market for the notes fails to develop or cannot be sustained,
the trading price and liquidity of the notes could be adversely
affected.
The market price of the notes may be volatile.
The market price of the notes will depend on many factors that
may vary over time and some of which are beyond our control,
including:
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our financial performance; |
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the amount of indebtedness we and our subsidiaries have
outstanding; |
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market interest rates; |
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the market for similar securities; |
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competition; and |
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general economic conditions. |
As a result of these factors, you may only be able to sell your
notes at prices below those you believe to be appropriate,
including prices below the price you paid for them.
An increase in interest rates could result in a decrease in
the relative value of the notes.
In general, as market interest rates rise, notes bearing
interest at a fixed rate generally decline in value because the
premium, if any, over market interest rates will decline.
Consequently, if you purchase these notes and market interest
rates increase, the market value of your notes may decline. We
cannot predict the future level of market interest rates.
Ratings of notes may not reflect all risks of an investment
in the notes.
We expect that the notes will be rated by at least one
nationally recognized statistical rating organization. The
ratings of the notes will primarily reflect our financial
strength and will change in accordance with the rating of our
financial strength. Any rating is not a recommendation to
purchase, sell or hold the notes. These ratings do not
correspond to market price or suitability for a particular
investor. In addition, ratings at any time may be lowered or
withdrawn in their entirety. As a result, the ratings of the
notes may not reflect the potential impact of all risks related
to structure and other factors on any trading market for, or
trading value of, your notes.
The notes restrict, but do not eliminate, our ability to
incur additional debt or prohibit us from taking other action
that could negatively impact holders of the notes.
We are restricted from incurring additional indebtedness under
the terms of the notes and the Indenture governing the notes.
However, these limitations are subject to numerous exceptions.
See Description of Debt Securities
Covenants Limitations on incurrence of debt
and Description of Debt Securities
Covenants Debt covenants contained in the Second
Supplemental Indenture in the accompanying prospectus. Our
ability to recapitalize, incur additional debt, secure existing
or future debt or take a number
S-2
of other actions that are not limited by the terms of the
Indenture and the notes, including repurchasing indebtedness or
common or preferred shares or paying dividends, could have the
effect of diminishing our ability to make payments on the notes
when due. Additionally, except as set forth in the accompanying
prospectus under Description of Debt
Securities Covenants Limitations on
incurrence of debt and
Covenants Debt covenants contained
in the Second Supplemental Indenture, the Indenture does
not contain any provisions that would limit our ability to incur
indebtedness or that would afford holders of the notes
protection in the event of a highly leveraged or similar
transaction involving us or in the event of a change of control.
Our financial performance and other factors could adversely
impact our ability to make payments on the notes.
Our ability to make scheduled payments with respect to our
indebtedness, including the notes, will depend on our financial
and operating performance, which, in turn, is subject to
prevailing economic conditions and to financial, business and
other factors beyond our control.
The notes are effectively subordinated to our debt that is
secured by assets, other than the intercompany loans that are
pledged to secure the notes, and to the liabilities of our
subsidiaries.
Pursuant to various pledge agreements, we and certain of our
subsidiaries have pledged specified intercompany loans to Bank
of America, N.A., as collateral agent, for the benefit of the
Credit Parties under and as defined in the Amended
and Restated Security Agency Agreement dated as of
October 6, 2005 (the Security Agency Agreement)
among us, the collateral agent, Bank of America, N.A., as global
administrative agent under our global senior credit facility,
and various other of our creditors. The Credit Parties under the
Security Agency Agreement include the holders of our specified
credit obligations, including, all obligations arising under our
global credit facility, other Designated Senior Debt
specified therein, as well as any of our other senior debt
designated from time to time by us as Designated Senior
Debt in accordance with the Security Agency Agreement. The
notes are included within the definition of Designated
Senior Debt and holders of the notes are entitled to a pro
rata share in the proceeds of the collateral granted under the
pledge agreements.
The notes will be effectively subordinated to any of our debt
that is secured by assets, other than the pledged intercompany
loans, to the extent of the value of the assets securing such
debt. In addition, except to the extent that the notes become
entitled to the benefits of the sharing arrangements described
below, the notes will be effectively subordinated to the debt
and other liabilities, including trade payables, of our
subsidiaries. As of September 30, 2006, on a pro forma
basis, after giving effect to this offering of notes and the
application of the proceeds therefrom, the notes offered hereby
would have ranked:
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equally with approximately $6.6 billion of our debt secured
equally and ratably by the pledged intercompany loans, which
amount includes our guarantee of approximately $2.9 billion
of debt of our subsidiaries; |
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effectively subordinated to approximately $200 million of
our debt that is secured by assets, other than the pledged
intercompany loans, to the extent of the value of the assets
securing such secured debt; and |
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effectively subordinated to approximately $4.2 billion of
debt of our subsidiaries, which includes the approximately
$2.9 billion of debt of our subsidiaries that we have
guaranteed and is subject to the sharing arrangements described
below. |
To the extent the notes become entitled to the benefits of the
sharing arrangements described below, the notes will be entitled
to share ratably in any recoveries received by the holders of
the $2.9 billion of subsidiary debt subject to such
arrangements, so as to effectively eliminate or mitigate the
consequence of any structural subordination of the notes that
might otherwise exist.
The Security Agency Agreement also provides that, upon the
occurrence of a triggering event (which includes bankruptcy or
insolvency events of us or any other borrower under our global
credit facility, the
S-3
acceleration of indebtedness under the global credit facility or
other indebtedness in excess of $50 million and similar
events), the Credit Parties will, subject to certain exceptions
and limitations (including, in the case of the holders of the
notes, the requirements set forth in the following paragraph),
share payments and other recoveries received from us and our
subsidiaries, to be applied toward the credit obligations held
by such Credit Parties in such a manner that all Credit Parties
receive payment of substantially the same percentage of their
respective credit obligations. These sharing arrangements are
intended to eliminate or mitigate structural subordination
issues that otherwise might entitle some Credit Parties (such as
Credit Parties that lend directly to one of our subsidiaries or
that have the benefit of guarantees from one or more of our
subsidiaries) to recover a higher percentage of their credit
obligations than other Credit Parties that do not have the
benefit of such arrangements.
Within 45 days after a triggering event, the collateral
agent will deliver a notice of such event to the trustee. As
promptly as practicable, but in any event within 90 days
after receiving any notice from the collateral agent with
respect to the occurrence of a triggering event, the trustee
will (x) forward such notice to the holders of the notes,
(y) execute and deliver, on behalf of the holders, an
acknowledgment entitling the holders to participate in the
sharing arrangements described in the preceding paragraph and
(z) take such further actions as a majority of the holders
(voting as a single class) may request with respect thereto and
with respect to any rights such holders or the trustee may have
under the Security Agency Agreement; provided that, in the case
of this clause (z), such holders shall have offered the
trustee reasonable security or indemnity against the costs,
expenses and liabilities which might be incurred by it in
compliance with such request or direction. Upon delivery of such
acknowledgment by the trustee, the holders of the notes will be
entitled to participate in the sharing arrangements described in
the preceding paragraph.
The Security Agency Agreement allows us to: (i) designate
our other senior debt as Designated Senior Debt;
(ii) specify which Credit Parties are entitled to vote on
issues arising under the Security Agency Agreement (and the
holders of the notes will be non-voting Credit Parties); and/or
(iii) revoke our designation of the notes as Designated
Senior Debt effective not less than 90 days after
disclosing such revocation (in a footnote or otherwise) in a
Form 10-Q or
Form 10-K filed
with the SEC. In the event that we elect to revoke our
designation of the notes as Designated Senior Debt under the
Security Agency Agreement, the holders of the notes will cease
to be Credit Parties and will no longer be entitled to any
benefit of the security and sharing arrangements contemplated by
the Security Agency Agreement and the related pledge agreements.
In addition, a majority of the voting Credit Parties under the
Security Agency Agreement may elect (a) to release some or
all of the collateral held pursuant to the Security Agency
Agreement and/or (b) under certain circumstances, to defer
payments to Credit Parties pursuant to the sharing arrangements
either (i) generally for various reasons or
(ii) specifically to certain holders of debt (including the
holders of the notes) if the collateral agent or the voting
Credit Parties determine, in their sole discretion, that such
holders might receive more than their share of payments and
other recoveries pursuant to the Security Agency Agreement.
Without notice to or consent of the holders of the notes, the
Security Agency Agreement may be amended by us, the collateral
agent and a majority of the voting Credit Parties, even if such
amendment is adverse to the interests of the holders of the
notes.
The Security Agency Agreement provides that whenever the
majority voting Credit Parties are granted and exercise the
right to make decisions under the Security Agency Agreement,
including decisions with respect to pledged collateral or how
and when recoveries are shared, such decisions will be made in
their sole and complete discretion. The voting Credit Parties
have no obligation or duty (including implied obligations of
reasonableness, good faith or fair dealing) to any holder of
notes and have no obligation or duty to take into consideration
the interests of the holders of the notes when taking any action
or making any determination contemplated by the Security Agency
Agreement. By accepting the benefits of the Security Agency
Agreement, each holder of notes expressly waives and disclaims
any claim or cause of action based upon any vote, decision or
determination (including the giving or withholding of consent)
made by the majority voting Credit Parties in accordance with
the terms of the Security Agency Agreement. Bank of America,
N.A., which acts as the collateral agent under the Security
Agency Agreement and under the various pledge agreements, is
also a voting Credit Party under the Security Agency Agreement
and its interests in such capacity may conflict with the
interests of the holders of the notes.
S-4
Notwithstanding any benefit to which a holder of notes may
become entitled pursuant to the security and sharing
arrangements referred to above, the notes will be effectively
subordinated to: (1) our indebtedness that is secured by
collateral other than the intercompany loans referred to above,
to the extent of the value of such collateral and
(2) liabilities of our subsidiaries that are not subject
to, or are owing to creditors not parties to, the sharing
arrangements.
USE OF PROCEEDS
The net proceeds from the sale of the notes are expected to be
approximately
$ million, after
deducting underwriting discounts and estimated offering
expenses. We will use the net proceeds to repay borrowings under
our global line of credit and for general corporate purposes.
As of September 30, 2006, we had a total commitment of
$3.4 billion under our global line of credit. As of
September 30, 2006, this commitment was reduced by
$83.0 million representing letters of credit outstanding
with the lending banks. We had approximately $2.8 billion
outstanding and an available balance of approximately
$600 million at September 30, 2006. Amounts repaid
under the global line of credit may be reborrowed and we expect
to make additional borrowings under the global line of credit
following this offering for the development and acquisition of
industrial distribution properties and for working capital
purposes. Affiliates of each of the underwriters participating
in this offering are lenders under the global line of credit.
Based on our current public debt ratings, interest on borrowings
under the global line of credit accrues at a variable rate based
upon the interbank offered rate in each respective jurisdiction
which the borrowings are outstanding (other than borrowing in
Chinese renminbi, which is a rate set by the Peoples Bank
of China) plus a margin (resulting in a weighted average
interest rate of 3.47% for borrowings outstanding at
September 30, 2006 using local currency rates). The global
line of credit matures on October 6, 2009, subject to a
12-month extension at
our option for all currencies (other than borrowings in Chinese
renminbi).
S-5
DESCRIPTION OF NOTES
The following description of the terms of the notes, which
are referred to in the accompanying prospectus as the debt
securities, supplements, and to the extent inconsistent
therewith replaces, the description of the general terms and
provisions of the debt securities set forth in the accompanying
prospectus, to which reference is hereby made. As used in this
section, Description of Notes, the terms
we, ours and us refer to
ProLogis and not to any of its subsidiaries.
General
The notes constitute a separate series of debt securities to be
issued pursuant to an Indenture, dated as of March 1, 1995
(the Original Indenture), between us and
U.S. Bank National Association (as successor in interest to
State Street Bank and Trust Company), as trustee. The Indenture
has been supplemented by a First Supplemental Indenture, dated
February 9, 2005, a Second Supplemental Indenture, dated
November 2, 2005, and a Third Supplemental Indenture, dated
November 2, 2005. We collectively refer to the Original
Indenture as amended and supplemented by the First Supplemental
Indenture, Second Supplemental Indenture and Third Supplemental
Indenture as the Indenture. The terms of the notes
include those provisions contained in the Indenture, portions of
which are described in the accompanying prospectus, and those
made part of the Indenture by reference to the Trust Indenture
Act of 1939. The notes are subject to all of these terms, and
holders of notes are referred to the Indenture and the Trust
Indenture Act for a statement of those terms. As of
September 30, 2006, we had $3.0 billion aggregate
principal amount of debt securities outstanding under the
Indenture.
As described in the accompanying prospectus in the section
entitled Description of Debt Securities
Security and sharing arrangements, pursuant to various
pledge agreements, ProLogis and certain of its subsidiaries have
pledged specified intercompany loans to Bank of America, N.A.,
as collateral agent, for the benefit of the Credit Parties under
the Security Agency Agreement. The Credit Parties under the
Security Agency Agreement include the holders of specified
credit obligations of ProLogis, including, all obligations
arising under ProLogis global credit facility, other
Designated Senior Debt specified therein, as well as
any other senior debt of ProLogis designated from time to time
by ProLogis as Designated Senior Debt in accordance
with the Security Agency Agreement. The notes are included
within the definition of Designated Senior Debt and
holders of the notes are entitled to a pro rata share in the
proceeds of the collateral granted under the pledge agreements.
The notes will be effectively subordinated to any of our debt
that is secured by assets, other than the pledged intercompany
loans, to the extent of the value of the assets securing such
debt. In addition, except to the extent that the notes become
entitled to the benefits of the sharing arrangements described
below, the notes will be effectively subordinated to the debt
and other liabilities, including trade payables, of our
subsidiaries. See Risk Factors The notes are
effectively subordinated to our debt that is secured by assets,
other than the intercompany loans that are pledged to secure the
notes, and to the liabilities of our subsidiaries.
The notes will be limited initially to
$ million
aggregate principal amount. We may in the future, without the
consent of holders, issue additional notes on the same terms and
conditions and with the same CUSIP number as the notes being
offered hereby. The notes and any additional notes subsequently
issued under the Indenture would be treated as a single series
for all purposes under the Indenture, including without
limitation, waivers, amendments, redemptions and offers to
purchase.
The Indenture permits us to issue different series of debt
securities from time to time. The notes we are offering will be
a single, distinct series of debt securities. The specific terms
of each other series may differ from those of the notes. The
Indenture does not limit the aggregate amount of debt securities
that may be issued under the Indenture, nor does it limit the
number of other series or the aggregate amount of any particular
series. When we refer to a series of debt
securities, we mean a series of debt securities, such as
each of the series of notes we are offering by means of this
prospectus supplement and the accompanying prospectus, issued
under the Indenture. When we refer to the notes or
these notes, we mean each series of notes we are
offering by means of this prospectus supplement and accompanying
prospectus.
S-6
Reference is made to the section entitled Description of
Debt Securities Covenants in the accompanying
prospectus for a description of the covenants applicable to the
notes. The defeasance and covenant defeasance provisions of the
Indenture described under Description of Debt
Securities Discharge, Defeasance and Covenant
Defeasance in the accompanying prospectus will apply to
the notes. Each of the covenants described in the accompanying
prospectus under the caption Description of Debt
Securities Covenants will be subject to
defeasance.
Except as set forth in the accompanying prospectus under
Description of Debt Securities
Covenants Limitations on incurrence of debt
and Covenants Debt covenants
contained in the Second Supplemental Indenture, the
Indenture does not contain any provisions that would limit our
ability to incur indebtedness or that would afford holders of
the notes protection in the event of a highly leveraged or
similar transaction involving us or in the event of a change of
control.
The notes will be issued only in fully registered form in
minimum denominations of $2,000 and integral multiples of $1,000.
Principal and Interest
The notes will bear interest at the rate
of % per year and will mature
on ,
20 . Interest on the notes will
accrue from November , 2006
and will be payable semi-annually in arrears
on and of
each year, commencing
on ,
2007 (each such date being an interest payment
date), to the persons in whose names the notes are
registered in the security register on the
preceding or ,
whether or not a business day, as the case may be (each such
date being a regular record date). Interest on the
notes will be computed on the basis of a
360-day year consisting
of twelve 30-day months.
If any interest payment date or the maturity date falls on a day
that is not a business day, the required payment shall be made
on the next business day as if it were made on the date the
payment was due and no interest shall accrue on the amount so
payable for the period from and after the interest payment date
or the maturity date, as the case may be, until the next
business day. A business day means any day, other than a
Saturday or Sunday, or legal holidays on which banks in The City
of New York or The City of Boston are not required or authorized
by law or executive order to be closed.
Optional Redemption
The notes will be redeemable in whole at any time or in part
from time to time, at our option, at a redemption price equal to
the greater of:
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100% of the principal amount of the notes to be redeemed; or |
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the sum of the present values of the remaining scheduled
payments of principal and interest on the notes to be redeemed
(exclusive of interest accrued to the date of redemption)
discounted to the date of redemption on a semiannual basis
(assuming a 360-day
year consisting of twelve
30-day months) at the
then current Treasury Rate
plus basis
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In each case we will pay accrued and unpaid interest on the
principal amount being redeemed to the date of redemption.
Comparable Treasury Issue means the United States
Treasury security selected by an Independent Investment Banker
as having a maturity comparable to the remaining term
(Remaining Life) of the notes to be redeemed that
would be utilized, at the time of selection and in accordance
with customary financial practice, in pricing new issues of
corporate debt securities of comparable maturity to the
Remaining Life.
Comparable Treasury Price means, with respect to any
redemption date, (1) the average of the Reference Treasury
Dealer Quotations for such redemption date, after excluding the
highest and lowest Reference Treasury Dealer Quotations, or
(2) if the trustee obtains fewer than four such Reference
Treasury Dealer Quotations, the average of all such quotations.
S-7
Independent Investment Banker means one of the
Reference Treasury Dealers that we appoint to act as the
Independent Investment Banker from time to time.
Reference Treasury Dealer means each of Banc of
America Securities LLC, Citigroup Global Markets Inc. and
Greenwich Capital Markets, Inc., and their successors, and one
other firm that is a primary U.S. Government securities
dealer (each a Primary Treasury Dealer) which we
specify from time to time; provided, however, that if any of
them ceases to be a Primary Treasury Dealer, we will substitute
another Primary Treasury Dealer.
Reference Treasury Dealer Quotations means, with
respect to each Reference Treasury Dealer and any redemption
date, the average, as determined by the trustee, of the bid and
asked prices for the Comparable Treasury Issue (expressed in
each case as a percentage of its principal amount) quoted in
writing to the trustee by such Reference Treasury Dealer at
5:00 p.m., New York City time, on the third business day
preceding such redemption date.
Treasury Rate means, with respect to any redemption
date, the rate per year equal to: (1) the yield, under the
heading which represents the average for the immediately
preceding week, appearing in the most recently published
statistical release designated H.15(519) or any
successor publication which is published weekly by the Board of
Governors of the Federal Reserve System and which establishes
yields on actively traded United States Treasury securities
adjusted to constant maturity under the caption Treasury
Constant Maturities, for the maturity corresponding to the
Comparable Treasury Issue; provided that, if no maturity is
within three months before or after the Remaining Life of the
notes to be redeemed, yields for the two published maturities
most closely corresponding to the Comparable Treasury Issue
shall be determined and the Treasury Rate shall be interpolated
or extrapolated from those yields on a straight line basis,
rounding to the nearest month; or (2) if such release (or
any successor release) is not published during the week
preceding the calculation date or does not contain such yields,
the rate per year equal to the semiannual equivalent yield to
maturity of the Comparable Treasury Issue, calculated using a
price for the Comparable Treasury Issue (expressed as a
percentage of its principal amount) equal to the Comparable
Treasury Price for such redemption date. The Treasury Rate shall
be calculated on the third business day preceding the redemption
date.
Notice of redemption will be mailed at least 30 but not
more than 60 days before the redemption date to each holder
of record of the notes to be redeemed at its registered address.
The notice of redemption for the notes will state, among other
things, the amount of notes to be redeemed, the redemption date,
the redemption price and the place or places that payment will
be made upon presentation and surrender of notes to be redeemed.
Unless we default in payment of the redemption price, interest
will cease to accrue on any notes that have been called for
redemption at the redemption date.
If less than all of the notes within a series are to be redeemed
at our option, we will notify the trustee under the Indenture at
least 45 days prior to the redemption date, or any shorter
period as may be satisfactory to the trustee, of the aggregate
principal amount of the notes of such series to be redeemed and
the redemption date. The trustee will select, in the manner as
it deems fair and appropriate, the notes to be redeemed. Notes
may be redeemed in part in the minimum authorized denomination
for notes or in any integral multiple of such amount.
Book-Entry Procedures
DTC. The Depository Trust Company, New York, New York
(DTC), will act as securities depository for the
notes. The notes will be issued as fully-registered securities
registered in the name of Cede & Co., which is
DTCs nominee. One fully-registered global note will be
issued with respect to the notes. See Description of Debt
Securities Global Securities in the
accompanying prospectus for a description of DTCs
procedures with respect to global notes.
Redemption notices will be sent to DTC. If less than all of the
notes within a series are being redeemed, DTCs practice is
to determine by lot the amount of the interest of each direct
participant in the series to be redeemed.
S-8
Neither DTC nor Cede & Co. will consent or vote with
respect to the notes. Under its usual procedures, DTC mails an
omnibus proxy to us as soon as possible after the record date.
The omnibus proxy assigns Cede & Co.s consenting
or voting rights to those direct participants to whose accounts
the notes are credited on the record date, which are identified
in a listing attached to the omnibus proxy.
We may, at any time, decide to discontinue use of the system of
book-entry transfers through DTC (or a successor securities
depository). In that event, certificates representing the notes
will be printed and delivered.
Beneficial interests in the Global Securities will be
represented through book-entry accounts of financial
institutions acting on behalf of beneficial owners as direct and
indirect participants in DTC. Investors may elect to hold
interests in the Global Securities through DTC either directly
if they are participants in DTC or indirectly through
organizations that are participants in DTC.
Clearstream. Clearstream is incorporated under the laws
of Luxembourg as a professional depositary. Clearstream holds
securities for its participating organizations
(Clearstream Participants) and facilitates the
clearance and settlement of securities transactions between
Clearstream Participants through electronic book-entry changes
in accounts of Clearstream Participants, thereby eliminating the
need for physical movement of certificates. Clearstream provides
Clearstream Participants with, among other things, services for
safekeeping, administration, clearance and establishment of
internationally traded securities and securities lending and
borrowing. Clearstream interfaces with domestic markets in
several countries. As a professional depositary, Clearstream is
subject to regulation by the Luxembourg Monetary Institute.
Clearstream Participants are recognized financial institutions
around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and
certain other organizations, and may include the underwriters.
Indirect access to Clearstream is also available to others, such
as banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a Clearstream
Participant either directly or indirectly.
Distributions with respect to notes held beneficially through
Clearstream will be credited to cash accounts of Clearstream
Participants in accordance with its rules and procedures to the
extent received by DTC for Clearstream.
Euroclear. Euroclear was created in 1968 to hold
securities for participants of Euroclear (Euroclear
Participants) and to clear and settle transactions between
Euroclear Participants through simultaneous electronic
book-entry delivery against payment, thereby eliminating the
need for physical movement of certificates and any risk from
lack of simultaneous transfers of securities and cash. Euroclear
includes various other services, including securities lending
and borrowing and interfaces with domestic markets in several
markets in several countries. Euroclear is operated by Euroclear
Bank S.A./N.V. (the Euroclear Operator), under
contract with Euro-clear Clearance Systems S.C., a Belgian
cooperative corporation (the Cooperative). All
operations are conducted by the Euroclear Operator, and all
Euroclear securities clearance accounts and Euroclear cash
accounts are accounts with the Euroclear Operator, not the
Cooperative. The Cooperative establishes policy for Euroclear on
behalf of Euroclear Participants. Euroclear Participants include
banks (including central banks), securities brokers and dealers
and other professional financial intermediaries and may include
the underwriters. Indirect access to Euroclear is also available
to other firms that clear through or maintain a custodial
relationship with a Euroclear Participant, either directly or
indirectly.
The Euroclear Operator is regulated and examined by the Belgian
Banking Commission.
Links have been established among DTC, Clearstream and Euroclear
to facilitate the initial issuance of the notes sold outside of
the United States and cross-market transfers of the notes
associated with secondary market trading.
Although DTC, Clearstream and Euroclear have agreed to the
procedures provided below in order to facilitate transfers, they
are under no obligation to perform these procedures, and these
procedures may be modified or discontinued at any time.
Clearstream and Euroclear will record the ownership interests of
their participants in much the same way as DTC, and DTC will
record the total ownership of each of the U.S. agents of
Clearstream and Euroclear, as
S-9
participants in DTC. When notes are to be transferred from the
account of a DTC participant to the account of a Clearstream
participant or a Euroclear participant, the purchaser must send
instructions to Clearstream or Euroclear through a participant
at least one day prior to settlement. Clearstream or Euroclear,
as the case may be, will instruct its U.S. agent to receive
notes against payment. After settlement, Clearstream or
Euroclear will credit its participants account. Credit for
the notes will appear on the next day (European time).
Because settlement is taking place during New York business
hours, DTC participants will be able to employ their usual
procedures for sending notes to the relevant U.S. agent
acting for the benefit of Clearstream or Euroclear participants.
The sale proceeds will be available to the DTC seller on the
settlement date. As a result, to the DTC participant, a
cross-market transaction will settle no differently than a trade
between two DTC participants.
When a Clearstream or Euroclear participant wishes to transfer
notes to a DTC participant, the seller will be required to send
instructions to Clearstream or Euroclear through a participant
at least one business day prior to settlement. In these cases,
Clearstream or Euroclear will instruct its U.S. agent to
transfer these notes against payment for them. The payment will
then be reflected in the account of the Clearstream or Euroclear
participant the following day, with the proceeds back valued to
the value date, which would be the preceding day, when
settlement occurs in New York, if settlement is not completed on
the intended value date, that is, the trade fails, proceeds
credited to the Clearstream or Euroclear participants
account will instead be valued as of the actual settlement date.
You should be aware that you will only be able to make and
receive deliveries, payments and other communications involving
the notes through Clearstream and Euroclear on the days when
those clearing systems are open for business. Those systems may
not be open for business on days when banks, brokers and other
institutions are open for business in the United States. In
addition, because of time zone differences there may be problems
with completing transactions involving Clearstream and Euroclear
on the same business day as in the United States.
Same-Day Settlement and Payment
Settlement for the notes will be made by the purchasers in
immediately available funds. All payments of principal and
interest will be made by us in immediately available funds or
the equivalent, so long as DTC continues to make its Same-Day
Funds Settlement System available to us.
S-10
UNDERWRITING
We are offering the notes described in this prospectus
supplement through a number of underwriters. Banc of America
Securities LLC, Citigroup Global Markets Inc. and Greenwich
Capital Markets, Inc. are the representatives of the
underwriters. We have entered into a firm commitment
underwriting agreement with the representatives. Subject to the
terms and conditions of the underwriting agreement, we have
agreed to sell to the underwriters, and each underwriter has
severally agreed to purchase, the aggregate principal amount of
notes listed next to its name in the following table:
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Principal Amount | |
Underwriter |
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of Notes | |
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| |
Banc of America Securities LLC
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$ |
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Citigroup Global Markets Inc.
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|
Greenwich Capital Markets, Inc.
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Total
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$ |
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|
The underwriting agreement is subject to a number of terms and
conditions and provides that the underwriters must buy all of
the notes if they buy any of them. The underwriters will sell
the notes to the public when and if the underwriters buy the
notes from us.
The underwriters have advised us that they propose initially to
offer the notes to the public for cash at the public offering
prices set forth on the cover of this prospectus supplement, and
to certain dealers at such price less concessions not in excess
of % of the principal amount of
the notes. The underwriters may allow, and such dealers may
reallow, a concession not in excess
of % of the principal amount of
the notes to certain other dealers. After the public offering of
the notes, the public offering price and other selling terms may
be changed.
We estimate that our share of the total expenses of the
offering, excluding underwriting discounts, will be
approximately
$ .
We have agreed to indemnify the underwriters against, or
contribute to payments that the underwriters may be required to
make in respect of, certain liabilities, including liabilities
under the Securities Act of 1933.
The notes are a new issue of securities with no established
trading market. The notes will not be listed on any securities
exchange or on any automated dealer quotation system. The
underwriters may make a market in the notes after completion of
the offering, but will not be obligated to do so and may
discontinue any market-making activities at any time without
notice. No assurance can be given as to the liquidity of the
trading market for the notes or that an active public market for
the notes will develop. If an active public market for the notes
does not develop, the market price and liquidity of the notes
may be adversely affected.
In connection with the offering of the notes, certain of the
underwriters may engage in transactions that stabilize, maintain
or otherwise affect the price of the notes. Specifically, the
underwriters may overallot in connection with the offering,
creating a short position. In addition, the underwriters may bid
for, and purchase, the notes in the open market to cover short
positions or to stabilize the price of the notes. Any of these
activities may stabilize or maintain the market price of the
notes above independent market levels, but no representation is
made hereby of the magnitude of any effect that the transactions
described above may have on the market price of the notes. The
underwriters will not be required to engage in these activities,
and may engage in these activities, and may end any of these
activities, at any time without notice.
S-11
In relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive (each, a Relevant
Member State), each underwriter has represented and agreed that
with effect from and including the date on which the Prospectus
Directive is implemented in that Relevant Member State (the
Relevant Implementation Date) it has not made and will not make
an offer of notes to the public in that Relevant Member State
prior to the publication of a prospectus in relation to the
notes which has been approved by the competent authority in that
Relevant Member State or, where appropriate, approved in another
Relevant Member State and notified to the competent authority in
that Relevant Member State, all in accordance with the
Prospectus Directive, except that it may, with effect from and
including the Relevant Implementation Date, make an offer of
notes to the public in that Relevant Member State at any time:
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(a) to legal entities which are authorised or regulated to
operate in the financial markets or, if not so authorised or
regulated, whose corporate purpose is solely to invest in
securities; |
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(b) to any legal entity which has two or more of
(1) an average of at least 250 employees during the last
financial year; (2) a total balance sheet of more than
EUR 43,000,000 and (3) an annual net turnover of more
than EUR 50,000,000, as shown in its last annual or
consolidated accounts; or |
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(c) in any other circumstances which do not require the
publication by the Issuer of a prospectus pursuant to
Article 3 of the Prospectus Directive. |
For the purposes of this provision, the expression an
offer of notes to the public in relation to any
notes in any Relevant Member State means the communication in
any form and by any means of sufficient information on the terms
of the offer and the notes to be offered so as to enable an
investor to decide to purchase or subscribe the notes, as the
same may be varied in that Member State by any measure
implementing the Prospectus Directive in that Member State and
the expression Prospectus Directive means Directive 2003/71/EC
and includes any relevant implementing measure in each Relevant
Member State.
Each underwriter has represented and agreed that:
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(a) it has only communicated or caused to be communicated
and will only communicate or cause to be communicated an
invitation or inducement to engage in investment activity
(within the meaning of Section 21 of the Financial Services
and Markets Act 2000 (FSMA)) received by it in
connection with the issue or sale of the notes in circumstances
in which Section 21(1) of the FSMA would not, if the Issuer
was not an authorised person, apply to the Issuer; and |
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|
(b) it has complied and will comply with all applicable
provisions of the FSMA with respect to anything done by it in
relation to the notes in, from or otherwise involving the United
Kingdom. |
Affiliates of each of the underwriters are lenders under our
global line of credit, and therefore will receive proceeds from
the offering to the extent that the proceeds are used to repay
borrowings under our global line of credit. The underwriters and
certain of their affiliates have provided from time to time, and
may provide in the future, investment and commercial banking
(including acting as a lender under our global credit facility)
and financial advisory services to us and our affiliates in the
ordinary course of business, for which they have received and
may continue to receive customary fees and commissions. In the
ordinary course of their business, the underwriters and their
affiliates may actively trade or hold the securities or our
loans for their own accounts or for the accounts of customers
and, accordingly, may at any time hold long or short positions
in these securities or loans. In addition, from time to time, as
a result of market making activities, the underwriters may own
debt securities issued by us or our affiliates.
LEGAL MATTERS
The validity of the notes will be passed upon for us by Mayer,
Brown, Rowe & Maw LLP, Chicago, Illinois. Certain legal
matters will be passed upon for the underwriters by
Shearman & Sterling LLP, New York, New York.
S-12
DEBT SECURITIES
PREFERRED SHARES
COMMON SHARES
We may offer and sell from time to time debt securities, common
shares of beneficial interest, preferred shares of beneficial
interest and rights to purchase common shares of beneficial
interest covered by this prospectus independently, or together
in any combination that may include other securities set forth
in an accompanying prospectus supplement, in one or more
offerings, for sale directly to purchasers or through
underwriters, dealers or agents to be designated at a future
date. Our outstanding common shares, Series F cumulative
redeemable preferred shares of beneficial interest and
Series G cumulative redeemable preferred shares of
beneficial interest, are listed on the New York Stock Exchange
under the symbols PLD,
PLD-PRF and
PLD-PRG,
respectively. This prospectus provides you with a general
description of the securities we may offer.
Each time securities are sold using this prospectus, we will
provide a supplement to this prospectus or possibly other
offering material containing specific information about the
offering. The supplement or other offering material may also
add, update or change information contained in this prospectus.
This prospectus may not be used to offer or sell any securities
unless accompanied by a prospectus supplement. You should read
this prospectus and any supplement and/or other offering
material carefully before you invest.
We may sell securities to or through underwriters, dealers or
agents. For additional information on the method of sale, you
should refer to the section entitled Plan of
Distribution. The names of any underwriters, dealers or
agents involved in the sale of any securities and the specific
manner in which they may be offered will be set forth in the
prospectus supplement covering the sale of those securities.
This prospectus contains summaries of certain provisions
contained in some of the documents described herein, but
reference is made to the actual documents for complete
information. All of the summaries are qualified in their
entirety by the actual documents. Copies of some of the
documents referred to herein have been filed or will be filed or
incorporated by reference as exhibits to the registration
statement of which this prospectus is a part, and you may obtain
copies of those documents as described below under Where
You Can Find More Information.
These securities have not been approved or disapproved by the
Securities and Exchange Commission or any state securities
commission, nor has the securities and exchange commission or
any state securities commission passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary
is a criminal offense
The date of this Prospectus is August 21, 2006.
TABLE OF CONTENTS
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iv |
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2 |
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24 |
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28 |
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43 |
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i
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the
Securities Exchange Act of 1934, (which we refer to herein as
the Securities Exchange Act) and, in accordance therewith, file
reports, proxy statements and other information with the
Securities and Exchange Commission (which we refer to herein as
the SEC). Such reports, proxy statements and other information
can be inspected and copied at the public reference facilities
maintained by the SEC at 100 F Street NE,
Washington, D.C. 20549. You may obtain information on the
operation of the Public Reference Room by calling
1-800-SEC-0330. This
material can also be obtained from the SECs worldwide web
site at http://www.sec.gov., and all such reports, proxy
statements and other information filed by us with the New York
Stock Exchange may be inspected at the New York Stock
Exchanges offices at 20 Broad Street, New York, New
York 10005. You can also obtain information about us at our web
site, www.prologis.com. Information available on our through our
web site is not intended to constitute part of the prospectus.
We have filed with the SEC a registration statement on
Form S-3 under the
Securities Act of 1933 (which we refer to herein as the
Securities Act) with respect to our securities being offered.
This prospectus, which constitutes part of the registration
statement, does not contain all of the information set forth in
the registration statement. Parts of the registration statement
are omitted from this prospectus in accordance with the rules
and regulations of the SEC. For further information, your
attention is directed to the registration statement. Statements
made in this prospectus concerning the contents of any documents
referred to herein are not necessarily complete, and in each
case are qualified in all respects by reference to the copy of
such document filed with the SEC.
The SEC allows us to incorporate by reference the
information we file with the SEC, which means that we can
disclose important information to you by referring you to those
documents. The information incorporated by reference is an
important part of this prospectus, and information that we file
later with the SEC will automatically update and supersede this
information.
We incorporate by reference the documents listed below:
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(a) |
Our annual report on
Form 10-K for the
year ended December 31, 2005, filed on March 16, 2006; |
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(b) |
Our quarterly reports on Form 10-Q for the fiscal quarters
ended March 31, 2006 and June 30, 2006; |
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(c) |
Our periodic reports on
Form 8-K filed
September 20, 2005, January 10, 2006 March 13,
2006, March 17, 2006, March 21, 2006, March 27,
2006, April 6, 2006, June 2, 2006, and July 3,
2006; |
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(d) |
The description of our common shares contained or incorporated
by reference in our registration statement on
Form 8-A filed
February 23, 1994; |
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(e) |
The description of Series F cumulative redeemable preferred
shares of beneficial interest contained or incorporated by
reference in our registration statement on
Form 8-A filed
November 26, 2003; and |
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(f) |
The description of Series G cumulative redeemable preferred
shares of beneficial interest contained or incorporated by
reference in our registration statement on
Form 8-A filed
December 24, 2003; |
The SEC has assigned file number 1-12846 to the reports and
other information that ProLogis files with the SEC.
All documents subsequently filed (other than any portions of the
respective filings that were furnished, under applicable SEC
rules, rather than filed) by us pursuant to Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act, prior to the
termination of the offering, shall be deemed to be incorporated
by reference into this prospectus.
Any statement contained in a document incorporated or deemed to
be incorporated herein shall be deemed modified or superseded
for purposes of this prospectus to the extent that a statement
contained herein or in any other subsequently filed document
that is deemed to be incorporated herein modifies or supersedes
such statement. Any statement so modified or superseded shall
not be deemed, except as so modified or superseded, to
constitute a part of this prospectus.
ii
You should rely only on the information contained in this
document or to which we have referred you. We have not
authorized anyone to provide you with information that is
inconsistent with information contained in this document or any
document incorporated herein. This prospectus is not an offer to
sell these securities in any state where the offer and sale of
these securities is not permitted. The information in this
prospectus is current as of the date it is mailed to security
holders, and not necessarily as of any later date. If any
material change occurs during the period that this prospectus is
required to be delivered, this prospectus will be supplemented
or amended.
You may request a copy of each of the above-listed ProLogis
documents at no cost, by writing or telephoning us at the
following address or telephone number.
Investor Relations Department
ProLogis
4545 Airport Way
Denver, Colorado 80239
(800) 820-0181
http://ir.prologis.com
iii
FORWARD-LOOKING STATEMENTS
This prospectus, the prospectus supplement, the documents
incorporated by reference in this prospectus and other written
reports and oral statements made from time to time by the
company may contain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements may include:
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(1) |
statements, including our possible or assumed future results of
operations including any forecasts, projections and descriptions
of anticipated cost savings or other synergies referred to in
such statements, and any such statements incorporated by
reference from documents filed with the SEC by us, including any
statements contained in such documents or this prospectus
regarding the development or possible or assumed future results
of operations of our businesses, the markets for our services
and products, anticipated capital expenditures or competition; |
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(2) |
any statements preceded by, followed by or that include the
words believes, expects,
anticipates, intends, plans,
seeks, estimates or similar
expressions; and |
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(3) |
other statements contained or incorporated by reference in this
prospectus regarding matters that are not historical facts. |
Because such statements are subject to risks and uncertainties,
actual results may differ materially from those expressed or
implied by such forward-looking statements. Investors are
cautioned not to place undue reliance on such statements, which
speak only as of the date the statements were made.
Among the factors that could cause actual results to differ
materially are: national, international, regional and local
economic climates, changes in financial markets, interest rates
and foreign currency exchange rates, increased or unanticipated
competition for our properties, risks associated with
acquisitions, maintenance of real estate investment trust
(REIT) status, availability of financing and
capital, changes in demand for developed properties, and other
risks detailed from time to time in the reports filed with the
SEC by us.
Except for their ongoing obligations to disclose material
information as required by the federal securities laws, we do
not undertake any obligation to release publicly any revisions
to any forward-looking statements to reflect events or
circumstances after the date of the filing of this prospectus or
to reflect the occurrence of unanticipated events.
iv
PROLOGIS
We are a REIT that operates a global network of real estate
properties, primarily industrial distribution properties. Our
business strategy is designed to achieve long-term sustainable
growth in cash flow and sustain a high level of return for our
shareholders. We manage our business by utilizing the ProLogis
Operating
System®,
an organizational structure and service delivery system that we
built around our customers. When combined with our international
network of distribution properties, the ProLogis Operating
System enables us to meet our customers distribution space
needs on a global basis. We believe that by integrating
international scope and expertise with a strong local presence
in our markets, we have become an attractive choice for our
targeted customer base, the largest global users of distribution
space.
We are organized under Maryland law and have elected to be taxed
as a REIT under the Internal Revenue Code of 1986, as amended
(the Code). Our world headquarters are located in
Denver, Colorado. Our European headquarters are located in the
Grand Duchy of Luxembourg with our European customer service
headquarters located in Amsterdam, the Netherlands. Our regional
offices in Asia are located in Tokyo, Japan and Shanghai, China.
Our common shares were first listed on the New York Stock
Exchange (NYSE) in March 1994 and now trade under
the ticker symbol PLD. Our Series F cumulative
redeemable preferred shares of beneficial interest and
Series G cumulative redeemable preferred shares of
beneficial interest, are listed on the New York Stock Exchange
under the symbols PLD-PRF and PLD-PRG,
respectively.
RATIOS
For purposes of computing these ratios:
(i) earnings consist of earnings from
continuing operations, excluding income taxes, minority interest
share in earnings and fixed charges, other than capitalized
interest, and (ii) fixed charges consist of
interest on borrowed funds, including amounts that have been
capitalized, and amortization of capitalized debt issuance
costs, debt premiums and debt discounts. The following table
shows our ratio of earnings to fixed charges for each of our
last five fiscal years:
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Six Months Ended |
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June 30, |
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Year Ended December 31, |
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2006 |
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2005 |
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2005 |
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2004 |
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2003 |
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2002 |
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2001 |
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2.6 |
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2.5 |
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2.2 |
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2.3 |
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2.2 |
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2.3 |
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1.6 |
The following table shows our ratio of earnings to combined
fixed charges and preferred share dividends for each of our last
five fiscal years:
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Six Months Ended |
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June 30, |
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Year Ended December 31, |
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2006 |
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2005 |
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2005 |
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2004 |
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2003 |
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2002 |
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2001 |
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2.4 |
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2.2 |
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2.0 |
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2.0 |
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2.0 |
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1.3 |
USE OF PROCEEDS
Unless otherwise described in the applicable prospectus
supplement, the net proceeds from the sale of the offered
securities will be used for the acquisition and development of
additional distribution properties as suitable opportunities
arise, for the repayment of any outstanding indebtedness at such
time as it is due, for capital improvements to properties and
for general corporate purposes.
1
DESCRIPTION OF DEBT SECURITIES
The debt securities are to be issued under an Indenture, dated
as of March 1, 1995, (the Original Indenture)
between us and U.S. Bank National Association (successor in
interest to State Street Bank and Trust Company), as trustee.
The Indenture has been supplemented by a First Supplemental
Indenture dated February 9, 2005, a Second Supplemental
Indenture dated November 2, 2005 and a Third Supplemental
Indenture dated November 2, 2005. We collectively refer to
the Original Indenture as amended and supplemented by the First
Supplemental Indenture, Second Supplemental Indenture and Third
Supplemental Indenture as the Indenture. The
Indenture has been incorporated by reference as an exhibit to
the registration statement of which this prospectus is a part
and is available for inspection at the corporate trust office of
the trustee at 100 Wall Street, Suite 1600, New York, New
York 10005 or as described above under Where You Can Find
More Information. The Indenture is subject to, and
governed by, the Trust Indenture Act of 1939. The statements
made in this prospectus relating to the Indenture and the debt
securities to be issued pursuant to the Indenture are summaries
of some of the provisions of the Indenture and do not purport to
be complete. The statements are subject to and are qualified in
their entirety by reference to all the provisions of the
Indenture and the debt securities. As used in this section,
Description of Debt Securities, the terms
we, our, and us refer to
ProLogis and not to any of its subsidiaries.
General
The debt securities will be our direct, unsubordinated
obligations and will rank equally with all of our other
unsubordinated indebtedness outstanding from time to time,
unless otherwise stated in the prospectus supplement relating to
the series of debt securities being offered. Additionally,
unless otherwise stated in the prospectus supplement, the
holders of the debt securities will be included as Credit
Parties that receive the benefit of the Security Agency
Agreement described below under Security and
Sharing Agreements. The Indenture provides that the debt
securities may be issued without limit as to aggregate principal
amount, in one or more series. Each series may be as established
from time to time in or pursuant to authority granted by a
resolution of our board of trustees or as established in one or
more indentures supplemental to the Indenture. All debt
securities of one series need not be issued at the same time
and, unless otherwise provided, a series may be reopened for
issuances of additional debt securities of that series without
the consent of the holders of the debt securities of that series.
Please refer to the prospectus supplement relating to the series
of debt securities being offered for the specific terms of the
securities, including:
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(1) |
the title of the series of debt securities; |
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(2) |
the aggregate principal amount of the series of debt securities
and any limit on the principal amount; |
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(3) |
the percentage of the principal amount at which the debt
securities of the series will be issued and, if other than the
full principal amount of the debt securities, the portion of the
principal amount of the debt securities payable upon declaration
of acceleration of the maturity of the securities, or the method
by which any portion will be determined; |
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(4) |
the date or dates, or the method by which the date or dates will
be determined, on which the principal of the debt securities of
the series will be payable and the amount of principal payable
on the debt securities; |
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(5) |
the rate or rates at which the debt securities will bear
interest, if any which may be fixed or
variable or the method by which the rate or rates
will be determined; |
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(6) |
the date or dates, or the method by which the date or dates will
be determined, from which any interest will accrue, the interest
payment dates on which any interest will be payable, the regular
record dates for the interest payment dates, or the method by
which the dates will be determined, the person to whom, and the
manner in which, the interest will be payable, and the basis
upon which interest will be calculated if other than that of a
360-day year comprised
of twelve 30-day months; |
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(7) |
the place or places where the principal of and
premium or make-whole amounts, if any and interest
and additional amounts, if any, on the debt securities of the
series will be payable, where the debt |
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securities may be surrendered for registration of transfer or
exchange and where notices or demands to or upon us in respect
of the debt securities and the Indenture may be served; |
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(8) |
the period or periods within which, the price or prices,
including the premium or make-whole amounts, if any, at which,
the currency or currencies in which, and the other terms and
conditions upon which the debt securities of the series may be
redeemed, as a whole or in part, at our option, if we are to
have such an option; |
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(9) |
our obligation, if any, to redeem, repay or purchase the debt
securities of the series pursuant to any sinking fund or
analogous provision or at the option of a holder of the debt
securities, and the period or periods within which, the date or
dates upon which, the price or prices at which, the currency or
currencies, currency unit or units or composite currency or
currencies in which, and the other terms and conditions upon
which the debt securities shall be redeemed, repaid or
purchased, as a whole or in part, pursuant to that obligation; |
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(10) |
if other than United States dollars, the currency or currencies
in which the debt securities of the series are denominated and
payable, which may be a foreign currency or units of two or more
foreign currencies or a composite currency or currencies, and
the terms and conditions relating to the currency; |
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(11) |
whether the amount of payments of principal and
premium or make-whole amounts, if any or interest,
if any, on the debt securities of the series may be determined
with reference to an index, formula or other method, and the
manner in which those amounts will be determined; the index,
formula or method may be, but need not be, based on a currency,
currencies, currency unit or units or composite currency or
currencies; |
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(12) |
whether the principal and premium or make-whole
amounts, if any or interest or additional amounts,
if any, on the debt securities of the series are to be payable,
at our election or at the election of a holder of debt
securities, in a currency or currencies, currency unit or units
or composite currency or currencies, other than that in which
the debt securities are denominated or stated to be payable, the
period or periods within which, and the terms and conditions
upon which, the election may be made, and the time and manner
of, and identity of the exchange rate agent with responsibility
for, determining the exchange rate between the currency or
currencies in which the debt securities are denominated or
stated to be payable and the currency or currencies in which the
debt securities are to be so payable; |
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(13) |
any deletions from, modifications of or additions to the terms
of the series of debt securities with respect to the events of
default or covenants set forth in the Indenture; |
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(14) |
whether the debt securities of the series will be issued in
certificated or book-entry form; |
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(15) |
whether the debt securities of the series will be in registered
or bearer form and, if in registered form, the denominations of
the debt securities if other than $1,000 and any integral
multiple of the debt securities and, if in bearer form, the
denominations of the debt securities if other than $5,000 and
the terms and conditions relating to the debt securities; |
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(16) |
the applicability, if any, of the defeasance and covenant
defeasance provisions of Article Fourteen of the Indenture to
the series of debt securities and any additions to or
substitutions of the provisions; |
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(17) |
if the debt securities of the series are to be issued upon the
exercise of debt warrants, the time, manner and place for the
debt securities to be authenticated and delivered; |
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(18) |
whether and under what circumstances we will pay additional
amounts as contemplated in the Indenture on the debt securities
of the series in respect of any tax, assessment or governmental
charge and, if so, whether we will have the option to redeem the
debt securities rather than pay the additional amounts; and |
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(19) |
any other terms of the series of debt securities not
inconsistent with the provisions of the Indenture. |
We may issue original issue discount securities. Original
issue discount securities refer to debt securities which
may provide that less than the entire principal amount of the
debt securities will be paid if their maturity is accelerated,
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or bear no interest or bear interest at a rate which at the time
of issuance is below market rates. Special U.S. federal income
tax, accounting and other considerations apply to original issue
discount securities and will be described in the applicable
prospectus supplement.
Under the Indenture, in addition to the ability to issue debt
securities with terms different from those of debt securities
previously issued, we will have the ability to reopen a previous
issue of a series of debt securities and issue additional debt
securities of the series without the consent of the holders.
Except as set forth below under
Covenants Limitations on
incurrence of debt, the Indenture does not contain any
other provisions that would limit our ability to incur
indebtedness or that would afford holders of debt securities
protection in the event of a highly leveraged or similar
transaction involving us or in the event of a change of control.
However, our Declaration of Trust restricts beneficial ownership
of our outstanding shares of beneficial interest by a single
person, or persons acting as a group, to 9.8% of such shares,
with exceptions. See Description of Common
Shares Restriction on size of holdings.
Additionally, the articles supplementary relating to the
Series C preferred shares, Series F preferred shares
and Series G preferred shares restrict beneficial ownership
of such shares by a person, or persons acting as a group, to 25%
of the Series C preferred shares, Series F preferred
shares and Series G preferred shares, respectively, with
limited exceptions. Similarly, the articles supplementary for
each other series of preferred shares will contain specific
provisions restricting the ownership and transfer of the
preferred shares. See Description of Preferred
Shares Restrictions on ownership. These
restrictions are designed to preserve our status as a real
estate investment trust under the Code and may act to prevent or
hinder a change of control. Refer to the applicable prospectus
supplement for information with respect to any deletions from,
modifications of or additions to the events of default or
covenants that are described below, including any addition of a
covenant or other provision providing event risk or similar
protection.
Denominations
Unless otherwise described in the applicable prospectus
supplement, the debt securities of any series issued in
registered form will be issuable in denominations of $1,000 and
integral multiples of $1,000. Unless otherwise described in the
applicable prospectus supplement, the debt securities of any
series issued in bearer form will be issuable in denominations
of $5,000.
Principal and interest
Unless otherwise specified in the applicable prospectus
supplement, the principal of and premium or
make-whole amounts, if any and interest on any
series of debt securities will be payable at the corporate trust
office of U.S. Bank National Association, initially located
at 100 Wall Street, Suite 1600, New York, New York
10005; provided that, at our option, payment of interest may be
made by check mailed to the address of the person entitled to
the payment as it appears in the security register or by wire
transfer of funds to the person to an account maintained within
the United States.
If any interest payment date, principal payment date or the
maturity date falls on a day that is not a business day, the
required payment will be made on the next business day as if it
were made on the date the payment was due and no interest will
accrue on the amount so payable for the period from and after
the interest payment date, principal payment date or the
maturity date, as the case may be. Business day
means any day, other than a Saturday, Sunday or holiday, on
which banks in Boston, Massachusetts or New York, New York are
not authorized or required by law or executive order to close.
Any interest not punctually paid or duly provided for on any
interest payment date with respect to a debt security, will
cease to be payable to the holder on the applicable regular
record date and either may be paid to the person in whose name
the debt security is registered at the close of business on a
special record date for the payment of the defaulted interest to
be fixed by the trustee, notice of which will be given to the
holder of the debt security not less than 10 days prior to
the special record date, or may be paid at any time in any other
lawful manner, all as more completely described in the Indenture.
4
Security and sharing arrangements
Pursuant to various pledge agreements, ProLogis and certain of
its subsidiaries have pledged specified intercompany loans to
Bank of America, N.A., as collateral agent, for the benefit of
the Credit Parties under and as defined in the
Security Agency Agreement. The Credit Parties under the Security
Agency Agreement include the holders of specified credit
obligations of ProLogis, including, all obligations arising
under ProLogis global credit facility, certain hedging
obligations of ProLogis, other Designated Senior
Debt specified therein, as well as any other senior debt
of ProLogis designated from time to time by ProLogis as
Designated Senior Debt in accordance with the
Security Agency Agreement. Please refer to the applicable
prospectus supplement relating to the debt securities being
offered for an explanation of whether the debt securities are
included within the definition of Designated Senior
Debt and holders of the debt securities are entitled to a
pro rata share in the proceeds of the collateral granted under
the pledge agreements.
To the extent the notes become entitled to the benefits of the
sharing arrangements described below, the notes will be entitled
to share ratably in any recoveries received by the holders of
the subsidiary debt subject to such arrangements, so as to
effectively eliminate or mitigate the consequence of any
structural subordination of the notes that might otherwise exist.
The Security Agency Agreement also provides that, upon the
occurrence of a triggering event (which includes bankruptcy or
insolvency events of ProLogis or any other borrower under its
global credit facility, the acceleration of indebtedness under
the global credit facility or other indebtedness in excess of
$50 million and similar events), the Credit Parties will,
subject to certain exceptions and limitations (including, in the
case of the holders of the debt securities, the requirements set
forth in the following paragraph), share payments and other
recoveries received from ProLogis and its subsidiaries to be
applied toward the credit obligations held by such Credit
Parties in such a manner that all Credit Parties receive payment
of substantially the same percentage of their respective credit
obligations. These sharing arrangements are intended to
eliminate or mitigate structural subordination issues that
otherwise might entitle some Credit Parties (such as Credit
Parties that lend directly to a subsidiary of ProLogis or that
have the benefit of guarantees from one or more subsidiaries of
ProLogis) to recover a higher percentage of their credit
obligations than other Credit Parties that do not have the
benefit of such arrangements.
Within 45 days after a triggering event, the collateral
agent will deliver a notice of such event to the trustee. As
promptly as practicable, but in any event within 90 days
after receiving any notice from the collateral agent with
respect to the occurrence of a triggering event, the trustee
will (x) forward such notice to holders of the debt
securities, (y) execute and deliver, on behalf of the
holders, an acknowledgment entitling the holders to participate
in the sharing arrangements described in the preceding paragraph
and (z) take such further actions as a majority of the
holders (voting as a single class) may request with respect
thereto and with respect to any rights such holders or the
trustee may have under the Security Agency Agreement; provided
that, in the case of this clause (z), such holders shall
have offered the trustee reasonable security or indemnity
against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction.
Upon delivery of such acknowledgement by the trustee, the
holders of the debt securities will be entitled to participate
in the sharing arrangements described above.
The Security Agency Agreement allows ProLogis to
(i) designate other senior debt of ProLogis as Designated
Senior Debt; (ii) specify which Credit Parties are entitled
to vote on issues arising under the Security Agency Agreement
(and the holders of the debt securities will be non-voting
Credit Parties); and/or (iii) revoke its designation of the
debt securities as Designated Senior Debt effective not less
than 90 days after disclosing such revocation (in a
footnote or otherwise) in a
Form 10-Q or
Form 10-K filed
with the SEC. In the event that ProLogis elects to revoke its
designation of the debt securities as Designated Senior Debt
under the Security Agency Agreement, the holders of the debt
securities will cease to be Credit Parties and will no longer be
entitled to any benefit of the security and sharing arrangements
contemplated by the Security Agency Agreement and the related
pledge agreements. In addition, a majority of the voting Credit
Parties under the Security Agency Agreement may elect
(a) to release some or all of the collateral held pursuant
to the Security Agency Agreement and/or (b) under certain
circumstances, to defer payments to Credit Parties pursuant to
the sharing arrangements either (i) generally for various
reasons or (ii) specifically to certain holders of debt
(including the holders of the debt securities) if the collateral
agent or the voting Credit Parties determine, in their sole
discretion, that such holders might receive more than their
share of payments and other recoveries pursuant to the Security
Agency Agreement. Without notice to or consent of the holders of
the debt securities, the Security Agency Agreement may be
amended by ProLogis, the collateral agent and a majority of the
voting Credit Parties, even if such amendment is adverse to the
interests of the holders of the debt securities.
5
The Security Agency Agreement provides that whenever the
majority voting Credit Parties are granted and exercise the
right to make decisions under the Security Agency Agreement,
including decisions with respect to pledged collateral or how
and when recoveries are shared, such decisions will be made in
their sole and complete discretion. The voting Credit Parties
will have no obligation or duty (including implied obligations
of reasonableness, good faith or fair dealing) to any holder of
debt securities and have no obligation or duty to take into
consideration the interests of the holders of the debt
securities when taking any action or making any determination
contemplated by the Security Agency Agreement. By accepting the
benefits of the Security Agency Agreement, each holder of debt
securities expressly waives and disclaims any claim or cause of
action based upon any vote, decision or determination (including
the giving or withholding of consent) made by the majority
voting Credit Parties in accordance with the terms of the
Security Agency Agreement. Bank of America, N.A., which acts as
the collateral agent under the Security Agency Agreement and
under the various pledge agreements, is also a voting Credit
Party under the Security Agency Agreement and its interests in
such capacity may conflict with the interests of the holders of
the debt securities.
Notwithstanding any benefit to which a holder of notes may
become entitled pursuant to the security and sharing
arrangements referred to above, the notes will be effectively
subordinated to (1) our indebtedness that is secured by
collateral other than the intercompany loans referred to above,
to the extent of the value of such collateral and
(2) liabilities of our subsidiaries that are not subject
to, or are owing to creditors not parties to, the sharing
arrangements.
Investors in Designated Senior Debt should refer to the Security
Agency Agreement for further information regarding the
collateral subject thereto, the sharing arrangements set forth
therein and the restrictions and limitations on the rights of
the holders of the debt securities thereunder. By purchasing a
debt security that falls within the definition of Designated
Senior Debt, each investor will be deemed to acknowledge that
its right to share in the benefits of such collateral and
participate in such sharing arrangements are limited as
described above and as more fully set forth in the Security
Agency Agreement.
Merger, consolidation or sale
We may consolidate with or merge with or into another entity, or
sell, lease or convey all or substantially all of our assets to
another entity, provided that the following three conditions are
met:
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(1) |
After the transaction, we, or a person organized and existing
under the laws of the United States or one of the fifty states
or are the continuing entity. If the continuing entity is an
entity other than us, that entity must also assume our payment
obligations under the Indenture, as well as, the due and
punctual performance and observance of all of the covenants
contained in the Indenture; |
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(2) |
After giving effect to the transaction and treating any
indebtedness which became an obligation of ours or any of our
subsidiaries as a result of the transaction as having been
incurred by us or such subsidiary at the time of such
transaction, an event of default (or an event which, with notice
or lapse of time or both, would become an event of default) has
not occurred under the Indenture. Additionally, the transaction
may not cause an event which, after notice or a lapse of time,
or both, would become an event of default; and |
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The continuing entity delivers an officers certificate and
legal opinion covering (1) and (2) above. |
Covenants
This section describes covenants we make in the Indenture for
the benefit of the holders of the debt securities. The covenants
contained in the Original Indenture, as amended by the First
Supplemental Indenture, are described under the caption
Limitations on incurrence of debt. Additional
covenants are contained in the Second Supplemental Indenture and
that are applicable to debt securities issued on and after
November 2, 2005. These additional covenants are described
below under the caption Debt covenants contained in
the Second Supplemental Indenture.
As explained below, the covenants contained in the Original
Indenture, as amended by the First Supplemental Indenture, apply
to all debt securities issued under the Indenture for so long as
any debt securities issued under the Indenture prior to
November 2, 2005 remain outstanding. Following the
repayment in full of each series of debt
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securities issued under the Indenture prior to November 2,
2005, only the covenants contained in the Second Supplemental
Indenture will be the only covenants limiting our incurrence of
Debt, unless the Indenture is further modified or supplemented.
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Limitations on incurrence of debt |
As noted above, the following covenants will apply to the debt
securities issued under the Indenture but only for so long as
any of our debt securities issued prior to November 2,
2005, the date of the Second Supplemental Indenture, that are
currently outstanding remain outstanding. The covenants provide
that we will not, and will not permit any subsidiary to, incur
any Debt if, immediately after giving effect to the incurrence
of such additional Debt and the application of the proceeds of
the additional Debt, the aggregate principal amount of all our
outstanding Debt and that of our subsidiaries on a consolidated
basis determined in accordance with generally accepted
accounting principles is greater than 60% of the sum (without
duplication) of:
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(1) |
our Total Assets, |
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(2) |
the purchase price of any real estate assets or mortgages
receivable acquired, and |
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the amount of any securities offering proceeds received by us or
any subsidiary since the end of the last calendar quarter,
including those proceeds obtained in connection with the
incurrence of the additional Debt. |
Our Total Assets will be measured at the end of the calendar
quarter covered in our annual report on
Form 10-K or
quarterly report on
Form 10-Q, as the
case may be, most recently filed with the SEC. If such filing is
not permitted under the Securities Exchange Act, we will provide
this information to the trustee, prior to the incurrence of such
additional Debt. To the extent that any real estate assets or
mortgages had been previously included in our Total Assets, or
the proceeds from a securities offering were used to purchase
real estate assets, their accounting will not be duplicated.
In addition to this limitation on the incurrence of Debt, we and
our subsidiaries will not allow our outstanding Debt that is
secured by any mortgage, lien, charge, pledge, encumbrance or
security interest of any kind upon any of our property or the
property of any of our subsidiaries, if the aggregate principal
amount of all of our outstanding Debt and that of our
subsidiaries so secured would be greater than 40% of the sum of
our Total Assets, and the purchase price of real estate or
mortgage receivables acquired, and proceeds from the sale of
securities, determined as described above. This ratio will be
measured immediately after giving effect to the incurrence of
such additional Debt and the application of the proceeds of the
additional Debt. In making this calculation, we are not required
to include the amount of the debt securities issued under the
Indenture if the debt securities are equally and ratably secured
and the mortgage, lien, charge, pledge, encumbrance or security
interest securing the debt securities arises under the Security
Agency Agreement described above under
Security and sharing arrangements.
In addition to these limitations on the incurrence of Debt, no
subsidiary may incur any Unsecured Debt other than intercompany
Debt subordinate to the debt securities; provided, however, that
we or a subsidiary may acquire an entity that becomes a
subsidiary that has Unsecured Debt if the incurrence of such
Debt, including any guarantees of such Debt assumed by us or any
subsidiary, was not intended to evade the restrictions on
incurring Unsecured Debt and the incurrence of such Debt,
including any guarantees of such Debt assumed by us or any
subsidiary, would otherwise be permitted under the Indenture.
We and our subsidiaries may not at any time own Total
Unencumbered Assets equal to less than 150% of the aggregate
outstanding principal amount of our Unsecured Debt and that of
our subsidiaries on a consolidated basis.
In addition to these limitations on the incurrence of Debt, we
will not, and will not permit any subsidiary to, incur any Debt
if the ratio of Consolidated Income Available for Debt Service
to the Annual Service Charge or the four consecutive fiscal
quarters most recently ended prior to the date on which such
additional Debt is to be incurred shall
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have been less than 1.5, on a pro forma basis after giving
effect the incurrence of such Debt and to the application of the
proceeds therefrom, and calculated on the assumption that:
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such Debt and any other Debt incurred by us and our subsidiaries
since the first day of such four-quarter period and the
application of the proceeds therefrom, including to refinance
other Debt, had occurred at the beginning of such period; |
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the repayment or retirement of any other Debt by us and our
subsidiaries since the first day of such four-quarter period had
been incurred, repaid or retired at the beginning of such
period, except that, in making such computation, the amount of
Debt under any revolving credit facility shall be computed based
upon the average daily balance of such Debt during such period; |
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in the case of acquired Debt or Debt incurred in connection with
any acquisition since the first day of such four-quarter period,
the related acquisition had occurred as of the first day of such
period with the appropriate adjustments with respect to such
acquisition being included in such pro forma
calculation; and |
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in the case of any acquisition or disposition by us or our
subsidiaries of any asset or group of assets since the first day
of such four-quarter period, whether by merger, stock purchase
or sale, or asset purchase or sale, such acquisition or
disposition or any related repayment of Debt had occurred as of
the first day of such period with the appropriate adjustments
with respect to such acquisition or disposition being included
in such pro forma calculation. |
For purposes of the foregoing covenants, the following
definitions apply:
Annual Service Charge as of any date means the
maximum amount which is payable in any period for interest on,
and original issue discount of, our or our subsidiaries
Debt and the amount of dividends which are payable in respect of
any Disqualified Stock.
Consolidated Income Available for Debt Service for
any period means earnings from operations (defined as net
earnings, excluding gains and losses on sales of investments,
net, as reflected in our consolidated financial statements),
plus amounts which have been deducted, and minus amounts which
have been added, for the following, without duplication:
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interest on Debt; |
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provision for taxes based on income; |
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amortization of debt discount; |
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provisions for gains and losses on properties and property
depreciation and amortization; |
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the effect of any noncash charge resulting from a change in
accounting principles in determining earnings from operations
for the applicable period and |
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amortization of deferred charges. |
Debt means any of our or our subsidiaries
indebtedness, whether or not contingent, in respect of:
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borrowed money or evidenced by bonds, notes, debentures or
similar instruments to the extent it appears as a liability on
our consolidated balance sheet, |
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indebtedness secured by any mortgage, pledge, lien, charge,
encumbrance or any security interest existing on property that
we own to the extent it appears as a liability on our
consolidated balance sheet, |
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the reimbursement obligations, contingent or otherwise, in
connection with any letters of credit actually issued or amounts
representing the balance deferred and unpaid of the purchase
price of any property or services, except any such balance that
constitutes an accrued expense or trade payable, or all
conditional sale obligations or obligations under any title
retention agreement to the extent it (other than a letter of
credit) appears as a liability on our consolidated balance sheet, |
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the principal amount of all of our and our subsidiaries
obligations with respect to redemption, repayment or other
repurchase of any Disqualified Stock, |
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any lease of property by us or any of our subsidiaries as lessee
which is reflected on our consolidated balance sheet as a
capitalized lease to the extent not otherwise included, any
obligation by us or any of our subsidiaries to be liable for, or
to pay, as obligor, guarantor or otherwise, other than for
purposes of collection in the ordinary course of business, Debt
of another person other than us or any of our subsidiaries. |
Disqualified Stock means, with respect to any
person, any capital stock of such person which by the terms of
such capital stock (or by the terms of any security into which
it is convertible or for which it is exchangeable or
exercisable), upon the happening of any event or otherwise,
(i) matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, (ii) is convertible
into or exchangeable or exercisable for Debt or Disqualified
Stock or (iii) is redeemable at the option of the holder
thereof, in whole or in part, in each case on or prior to the
stated maturity of a series of debt securities.
Encumbrance means any mortgage, pledge, lien,
charge, encumbrance or any security interest existing on
property owned by us or any of our subsidiaries securing
indebtedness for borrowed money, other than a Permitted
Encumbrance.
Permitted Encumbrances means leases, Encumbrances
securing taxes, assessments and similar charges, mechanics liens
and other similar Encumbrances.
Total Assets means, as of any date, the sum of
(i) Undepreciated Real Estate Assets and (ii) all of
our and our subsidiaries other assets, but excluding
accounts receivable and intangibles, determined in accordance
with GAAP.
Total Unencumbered Assets means the sum of our and
our subsidiaries Undepreciated Real Estate Assets and the
value (determined in accordance with generally accepted
accounting principles in the United States (GAAP))
of all our and our subsidiaries other assets, other than
accounts receivable and intangibles, in each case not subject to
an Encumbrance.
Undepreciated Real Estate Assets as of any date
means the cost (original cost plus capital improvements) of our
real estate assets and those of our subsidiaries, before
depreciation and amortization determined on a consolidated basis
in accordance with GAAP.
Unsecured Debt means Debt of the types described in
the first, third and fourth points of the definition of Debt
which is not secured by any mortgage, lien, charge, pledge or
security interest of any kind upon any of or properties or those
of our subsidiaries.
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Debt covenants contained in the Second Supplemental
Indenture |
The Second Supplemental Indenture contains covenants that are
currently in effect, and which are in addition to the covenants
contained in the Original Indenture, as amended by the First
Supplemental Indenture, and described in this prospectus. From
and after the time that no debt securities issued pursuant to
the Indenture prior to November 2, 2005, the date of the
Second Supplemental Indenture, remain outstanding, the covenants
contained in the Second Supplemental Indenture will be the only
covenants limiting our incurrence of Debt, unless the Indenture
is further modified or supplemented.
The covenants contained in the Second Supplemental Indenture
provide that we will not, and will not permit any subsidiary to,
incur any Debt if, immediately after giving effect to the
incurrence of such additional Debt and the application of the
net proceeds of the additional Debt, the aggregate principal
amount of all our outstanding Debt and that of our subsidiaries
on a consolidated basis determined in accordance with generally
accepted accounting principles is greater than 65% of the sum of
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(1) |
our Total Assets, |
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(2) |
the purchase price of any assets or mortgages receivable
acquired, and |
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(3) |
the amount of any securities offering proceeds received by us or
any subsidiary since the end of the last calendar quarter,
including those proceeds obtained in connection with the
incurrence of the additional Debt. |
Our Total Assets will be measured at the end of the calendar
quarter covered in our annual report on
Form 10-K or
quarterly report on
Form 10-Q, as the
case may be, most recently filed with the SEC. If such filing is
not permitted under the Securities Exchange Act, we will provide
this information to the trustee, prior to the incurrence of such
additional Debt. To the extent that any assets or mortgage
receivables had been previously included in our Total Assets, or
the proceeds from a securities offering were used to purchase
assets or mortgage receivables, their accounting will not be
duplicated.
In addition to this limitation on the incurrence of Debt, we and
our subsidiaries will not allow our outstanding Debt that is
secured by an Encumbrance to be greater than 40% of the sum
(without duplication) of our Total Assets, real estate or
mortgage receivables, and proceeds from the sale of securities,
determined as described above. This ratio will be measured
immediately after giving effect to the incurrence of such
additional Debt and the application of the proceeds of the
additional Debt. In making this calculation, we are not required
to include the amount of any Pari Passu Debt.
We and our subsidiaries may not at any time own Total
Unencumbered Assets equal to less than 125% of the aggregate
outstanding principal amount of our Unsecured Debt and that of
our subsidiaries on a consolidated basis.
In addition to these limitations on the incurrence of Debt, we
will not, and will not permit any subsidiary to, incur any
additional Debt if the ratio of Consolidated Income Available
for Debt Service to the Annual Service Charge or the four
consecutive fiscal quarters most recently ended prior to the
date on which such additional Debt is to be incurred shall have
been less than 1.5 to 1.0 on a pro forma basis after giving
effect the incurrence of such Debt and to the application of the
net proceeds therefrom, and calculated on the assumption that:
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the additional Debt had been incurred at the beginning of the
relevant period; and |
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any assets acquired, or to be acquired, with the additional Debt
and projected income from those assets had been acquired at the
beginning of the relevant period. |
For purposes of the covenants described under this caption the
following definitions apply (all other terms used but not
defined have the meanings as described above under
Limitations on incurrence of debt):
Annual Service Charge for any period means interest
expense that is recognized in our consolidated statement of
earnings on, and original issue discount of, our or our
subsidiaries Debt and the amount of dividends which are
payable in respect of any Disqualified Stock.
CDFS means our business segment described in our
annual report on
Form 10-K and
referred to as the corporate distribution facilities
services or CDFS segment (or successor
descriptions).
Consolidated Income Available for Debt Service for
any period means earnings from our operations and from the
operations of our subsidiaries before preferred share dividends
determined in accordance with GAAP plus amounts which have been
deducted, and minus amounts which have been added, for the
following, without duplication:
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losses (gains) from the disposition or impairment of
properties that are not classified in our consolidated financial
statements as (i) gains and losses on dispositions of
CDFS business assets (or successor descriptions) (which
includes dispositions of CDFS properties to property funds in
which we or one of our subsidiaries maintains an interest,
dispositions to third parties under
build-to-suit contracts
and dispositions of land); (ii) discontinued
operations CDFS business assets (or successor
descriptions) (which includes dispositions of CDFS business
properties to third parties); or (iii) gains and losses on
dispositions or impairments of investments in property funds,
other Unconsolidated Affiliates or intangible assets (including
goodwill), in each case to the extent included in our net
earnings and the net earnings of our subsidiaries; |
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losses (gains) resulting from (i) foreign currency
exchange effects of settlement of intercompany Debt and
mark-to-market
adjustments associated with intercompany Debt between us and our
foreign subsidiaries |
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and our foreign Unconsolidated Affiliates, (ii) foreign
currency effects from the remeasurement of third party Debt of
our foreign subsidiaries and our foreign Unconsolidated
Affiliates and
(iii) mark-to-market
adjustments to foreign exchange hedge contracts (or other
derivatives), in each case to the extent included in our net
earnings and the net earnings of our subsidiaries; |
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losses (gains) from early extinguishment of Debt; |
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excess (deficit) of redemption value over carrying value of
preferred shares redeemed; |
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extraordinary losses (extraordinary gains) determined in
accordance with GAAP; and |
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cumulative charges (benefits) from a change in accounting
principle; |
plus all amounts deducted in calculating net earnings in
accordance with GAAP, for interest expense, income taxes,
depreciation and amortization. The foregoing shall be adjusted
accordingly to take into account our interests in our
Unconsolidated Affiliates.
Debt means any of our or our subsidiaries
indebtedness (without duplication), in respect of:
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money or evidenced by bonds, notes, mortgages, debentures or
similar instruments, but excluding any
mark-to-market increase
or decrease in indebtedness due to the purchase accounting
impact of corporate or portfolio acquisitions and from the
remeasurement of intercompany indebtedness of our subsidiaries
or Unconsolidated Affiliates, to the extent it appears as a
liability on our consolidated balance sheet, |
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indebtedness secured by an Encumbrance existing on any of our
property or that of any subsidiary, whether or not such
obligation shall have been assumed by us or any subsidiary;
provided that the amount of any Debt under this clause that has
not been assumed by us or any subsidiary shall be equal to the
lesser of the stated amount of such Debt or the fair market
value of the property securing such Debt, in each case, to the
extent it appears as a liability on our consolidated balance
sheet, |
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the principal amount of all our or any of our subsidiaries
obligations with respect to redemption, repayment or other
repurchase of any Disqualified Stock, |
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any capitalized lease of property by us or any of our
subsidiaries, as lessee, to the extent it appears as a liability
on our consolidated balance sheet, or |
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to the extent not otherwise included, any obligation of ours or
any of our subsidiaries to be liable for, or to pay, as obligor
or guarantor, other than for purposes of collection in the
ordinary course of business, Debt of another person other than
us or any of our subsidiaries, excluding, in each case,
indemnification obligations, capital contribution obligations
and similar obligations that are not required to be reflected on
our consolidated balance sheet. |
Debt shall be adjusted accordingly to take into account our
interests in our Unconsolidated Affiliates by eliminating that
portion of Debt that is not our obligation or the obligation of
our subsidiaries.
Encumbrance means any mortgage, pledge, lien,
charge, encumbrance or any security interest existing on
property owned by us or any of our subsidiaries securing
indebtedness for borrowed money, other than a Permitted
Encumbrance.
GAAP means generally accepted accounting principles
as in effect from time to time in the United States; provided
that if the cumulative effect of changes in generally accepted
accounting principles after December 31, 2004 would result
in our failing to be in compliance with any of the financial
covenants contained in the Indenture, but we would have been in
compliance with any such financial covenant calculated in
accordance with generally accepted accounting principles as
applied in the preparation of our audited financial statements
as at December 31, 2004 (2004 GAAP), then,
solely for purposes of calculating such financial covenant,
GAAP means 2004 GAAP. In the event that we are
required to make any such adjustments in order to so comply with
any of the financial covenants contained in the Indenture, we
will, concurrently with delivery by us to the trustee of any
certificate required by the Indenture as to our compliance with
all conditions and covenants under the Indenture, deliver to the
trustee a summary in reasonable
11
detail of the adjustments made to our publicly filed financial
statements in order to calculate such financial covenant in
accordance with 2004 GAAP.
Pari Passu Debt means any of our or our
subsidiaries unsubordinated Debt that is unsecured, is
secured only by Encumbrances on property that secure the debt
securities issued under the Indenture on an equal and ratable
basis with such Debt or the debt securities provided the debt
securities are equally and ratably secured.
Permitted Encumbrances means
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pledges or deposits made to secure payment of workers
compensation, or to participate in any fund in connection with
workers compensation insurance, unemployment insurance,
pensions, or social security programs, |
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Encumbrances consisting of zoning restrictions, easements, or
other restrictions on the use of real property, provided that
such items do not materially impair the use of such property for
the purposes intended and none of which is violated in any
material respect by existing or proposed structures or land use, |
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Encumbrances imposed by mandatory provisions of law such as for
materialmens, mechanics, warehousemens, and
other like Encumbrances arising in the ordinary course of
business, securing payment of any liability whose payment is not
yet due, |
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Encumbrances for taxes not yet due and payable or for taxes,
assessments, and governmental charges or assessments that are
being contested in good faith by appropriate proceedings
diligently conducted, |
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Encumbrances on properties where we or the applicable subsidiary
is insured against such Encumbrances by title insurance or other
similar arrangements, |
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Encumbrances securing assessments or charges payable to a
property owner association or similar entity, which assessments
are not yet due and payable or are being contested in good faith
by appropriate proceedings diligently conducted, |
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Encumbrances securing assessment bonds and similar facilities
district bonds so long as we or the applicable subsidiary is not
in material default under the terms thereof, |
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Encumbrances granted to us by any of our subsidiaries, |
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leases to tenants of space in properties that are entered into
in the ordinary course of business, |
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any netting or set-off arrangement entered into by us or any of
our subsidiaries in the normal course of its banking
arrangements for the purpose of netting debit and credit
balances, or any set-off arrangement which arises by operation
of law as a result of us or any of our subsidiaries opening a
bank account, |
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any title transfer or retention of title arrangement entered
into by us or any of our subsidiaries in the normal course of
its trading activities on the counterpartys standard or
usual terms, |
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Encumbrances over goods and documents of title to goods arising
out of letter of credit transactions entered into in the
ordinary course of business, and |
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any Encumbrance which secures the Pari Passu Debt. |
Total Assets as of any date means the sum of total
assets, before accumulated depreciation and amortization, as
reflected on our consolidated balance sheet for such date
adjusted accordingly to take into account our interests in our
Unconsolidated Affiliates by eliminating that portion of assets
that are not our or our subsidiaries assets, and property
management and other property fund fees set forth in our
most recent consolidated financial statements for the four
fiscal quarters immediately preceding the relevant determination
divided by 0.08.
Total Unencumbered Assets means Total Assets,
determined on a basis not including any assets that are subject
to an Encumbrance.
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Unconsolidated Affiliate means any entity in which
we, directly or indirectly, hold an ownership interest, the
operations and results of which are not consolidated in our
financial statements included in our annual report on
Form 10-K or
quarterly report on
Form 10-Q or any
entity in which we, directly or indirectly, hold a 50% or less
equity ownership interest notwithstanding that the operations
and results of that entity are consolidated with our operations
and results in our financial statements included in our annual
report on
Form 10-K or
quarterly report on
Form 10-Q.
Unsecured Debt means Debt, including Pari Passu
Debt, which is not otherwise secured by an Encumbrance upon any
of our or our subsidiaries properties.
Except as permitted under Merger,
consolidation or sale, we will do or cause to be done all
things necessary to preserve and keep in full force and effect
our and our subsidiaries existence, rights, both charter
and statutory, and franchises; provided, however, that we will
not be required to preserve any right or franchise if we
determine that the preservation of the right or franchise is no
longer desirable in the conduct of our business and that the
loss of the right or franchise is not disadvantageous in any
material respect to the holders of the debt securities.
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Maintenance of properties |
We will cause all of our properties used or useful in the
conduct of our business or the business of any subsidiary to be
maintained and kept in good condition, repair and working order
and supplied with all necessary equipment and will cause to be
made all necessary repairs, renewals, replacements, betterments
and improvements of our properties, all as in our judgment may
be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all
times; provided, however, that we and our subsidiaries will not
be prevented from selling or otherwise disposing for value our
properties in the ordinary course of business.
We will, and will cause each of our subsidiaries to, keep all of
our insurable properties insured against loss or damage at least
equal to their then full insurable value with financially sound
and reputable insurance companies.
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Payment of taxes and other claims |
We will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, all taxes, assessments
and governmental charges levied or imposed upon us or any
subsidiary or upon our income, profits or property or any
subsidiary and all lawful claims for labor, materials and
supplies which, if unpaid, might by law become a lien upon our
property or any subsidiary; provided, however, that we will not
be required to pay or discharge or cause to be paid or
discharged any such tax, assessment, charge or claim whose
amount, applicability or validity is being contested in good
faith by appropriate proceedings.
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Provision of financial information |
Whether or not we are subject to Section 13 or 15(d) of the
Securities Exchange Act, we will file with the SEC, to the
extent permitted under the Securities Exchange Act, the annual
reports, quarterly reports and other documents which we would
have been required to file with the SEC pursuant to
Section 13 or 15(d) if we were so subject. We will file the
documents with the SEC on or prior to the respective filing
dates by which we would have been required so to file the
documents if we were so subject. We will also in any event
within 15 days of each required filing date transmit to all
holders of debt securities, as their names and addresses appear
in the security register, without cost to such holders, copies
of the annual reports and quarterly reports which we would have
been required to file with the SEC pursuant to Section 13
or 15(d) of the Securities Exchange Act if we were subject to
Section 13 or 15(d). Additionally, we will provide the
trustee with copies of the annual reports, quarterly reports and
other documents which we would have been required to file with
the SEC pursuant to Section 13 or 15(d) of the Exchange Act
if we were subject to such sections. If filing the documents by
us with the SEC is not permitted under the Securities Exchange
Act, we will promptly upon written request and payment of the
reasonable cost of duplication and delivery, supply copies of
such documents to any prospective holder.
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Events of default, notice and waiver
The Indenture provides that the following events are events of
default with respect to any series of debt securities issued
pursuant to it:
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(1) default
in the payment of any installment of interest or additional
amounts payable on any debt security of such series which
continues for 30 days; |
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(2) default
in the payment of the principal, or premium or make-whole
amount, if any, on, any debt security of such series at its
maturity or redemption date; |
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(3) default
in making any sinking fund payment as required for any debt
security of such series; |
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(4) default
in the performance of any other of our covenants contained in
the Indenture, other than a covenant added to the Indenture
solely for the benefit of another series of debt securities
issued under the Indenture, which continues for 60 days
after written notice as provided in the Indenture; |
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(5) default
in the payment of an aggregate principal amount exceeding
$10,000,000 ($50,000,000 with respect to debt securities issued
after the date of the Second Supplemental Indenture, after such
time as any debt securities issued under the Indenture prior to
the date of the Second Supplemental Indenture are no longer
outstanding) under any bond, note or other evidence of
indebtedness or any mortgage, indenture or other instrument
under which such indebtedness is issued or by which such
indebtedness is secured (or any such indebtedness of any of our
subsidiaries, which we have guaranteed), such default having
occurred after the expiration of any applicable grace period and
having resulted in the acceleration of the maturity of such
indebtedness, but only if such indebtedness is not discharged or
such acceleration is not rescinded or annulled within
10 days after written notice as provided in the Indenture; |
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(6) the
entry by a court of competent jurisdiction of one or more
judgments, orders or decrees against us or any of our
subsidiaries in an aggregate amount, excluding amounts fully
covered by insurance, in excess of $10,000,000 ($50,000,000 with
respect to debt securities issued after the date of the Second
Supplemental Indenture after such time as any debt securities
issued under the Indenture prior to the date of the Second
Supplemental Indenture are no longer outstanding) and such
judgments, orders or decrees remain undischarged, unstayed and
unsatisfied in an aggregate amount, excluding amounts fully
covered by insurance, in excess of $10,000,000 ($50,000,000 with
respect to debt securities issued after the date of the Second
Supplemental Indenture after such time as any debt securities
issued under the Indenture prior to the date of the Second
Supplemental Indenture are no longer outstanding) for a period
of 30 consecutive days; |
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(7) events
of bankruptcy, insolvency or reorganization, or court
appointment of a receiver, liquidator or trustee for us or any
significant subsidiary or for all or substantially all of our or
our significant subsidiarys property; and |
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(8) any
other event of default provided with respect to a particular
series of debt securities. |
The term significant subsidiary means each of our significant
subsidiaries, as defined in
Regulation S-X
promulgated under the Securities Act.
If an event of default under the Indenture with respect to a
series of debt securities occurs and is continuing, then in
every such case, unless the principal of all of the debt
securities shall already have become due and payable, the
trustee or the holders of not less than 25% in principal amount
of a series of debt securities may declare the principal and the
make-whole amount on the debt securities to be due and payable
immediately by written notice to us that payment of the debt
securities is due, and to the trustee if given by the holders.
However, at any time after such a declaration of acceleration
with respect to a series of debt securities has been made, but
before a judgment or decree for payment of the money due has
been obtained by the trustee, the holders of not less than a
majority in principal amount of the debt securities may rescind
and annul such declaration and its consequences if we shall have
deposited with the trustee all required payments of the
principal of, and premium or make-whole amount and interest, on
the debt securities, plus fees, expenses, disbursements and
advances of the trustee and all events of default, other than
the nonpayment of accelerated principal, and the make-whole
amount or interest, with respect to debt securities have been
cured or waived as provided
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in the Indenture. The Indenture also provides that the holders
of not less than a majority in principal amount of the debt
securities may waive any past default with respect to such
series and its consequences, except a default in the payment of
the principal of, or premium or make-whole amount or interest
payable on the debt securities or in respect of a covenant or
provision contained in the Indenture that cannot be modified or
amended without the consent of the holder of each outstanding
debt security affected the proposed modification or amendment.
The trustee is required to give notice to the holders of the
debt securities within 90 days of a default under the
Indenture; provided, however, that the trustee may withhold
notice to the holders of the debt securities of any default with
respect to such series, except a default in the payment of the
principal of, or premium or make-whole amount, if any, or
interest payable on the debt securities if the responsible
officers of the trustee consider such withholding to be in the
interest of such holders.
The Indenture provides that no holders of the debt securities
may institute any proceedings, judicial or otherwise, with
respect to the Indenture or for any remedy which the Indenture
provides, except in the case of failure of the trustee, for
60 days, to act after it has received a written request to
institute proceedings in respect of an event of default from the
holders of not less than 25% in principal amount of the
outstanding debt securities, as well as an offer of reasonable
indemnity. This provision will not prevent, however, any holder
of the debt securities from instituting suit for the enforcement
of payment of the principal of, and premium or make-whole
amount, interest on the debt securities at the due date of the
debt securities.
Subject to provisions in the Indenture relating to its duties in
case of default, the trustee is under no obligation to exercise
any of its rights or powers under the Indenture at the request
or direction of any holders of any series of debt securities
then outstanding under the Indenture, unless such holders shall
have offered to the trustee reasonable security or indemnity.
The holders of not less than a majority in principal amount of
the outstanding series of debt securities shall have the right
to direct the time, method and place of conducting any
proceeding for any remedy available to the trustee, or of
exercising any trust or power conferred upon the trustee.
However, the trustee may refuse to follow any direction which is
in conflict with any law or the Indenture, which may involve the
trustee in personal liability or which may be unduly prejudicial
to the holders of the debt securities not joining in the
proceeding.
Within 120 days after the close of each fiscal year, we
must deliver to the trustee a certificate, signed by one of
several specified officers, stating whether or not such officer
has knowledge of any default under the Indenture and, if so,
specifying each such default and the nature and status of the
default.
Modification of the Indenture
Modifications and amendments of the Indenture may be made with
the consent of the holders of not less than a majority in
principal amount of all outstanding debt securities which are
affected by such modification or amendment; provided, however,
that no such modification or amendment may, without the consent
of the holder of each debt security affected by the modification
or amendment:
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(1) |
change the stated maturity of the principal of, or premium or
make-whole amounts, if any, or any installment of principal of
or interest or additional amounts payable on, any such debt
security; |
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(2) |
reduce the principal amount of, or the rate or amount of
interest on, or any premium or make-whole amounts payable on
redemption of, or any additional amounts payable with respect
to, any such debt security, or reduce the amount of principal of
an original issue discount security or make-whole amount, if
any, that would be due and payable upon declaration of
acceleration of the maturity of the security or would be
provable in bankruptcy, or adversely affect any right of
repayment of the holder of any such debt security; |
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(3) |
change the place of payment, or the coin or currency, for
payment of principal of, and premium or make-whole amounts, if
any, or interest on, or any additional amounts payable with
respect to, any such debt security; |
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(4) |
impair the right to institute suit for the enforcement of any
payment on or with respect to any such debt security; |
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(5) |
reduce the above-stated percentage of outstanding debt
securities of any series necessary to modify or amend the
Indenture, to waive compliance with a provisions of the debt
security or defaults and consequences under the Indenture or to
reduce the quorum or voting requirements set forth in the
Indenture; or |
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(6) |
modify any of the provisions relating to modification of the
Indenture or any of the provisions relating to the waiver of
past defaults or covenants, except to increase the required
percentage to effect such action or to provide that other
provisions may not be modified or waived without the consent of
the holder of the effected debt security. |
The holders of not less than a majority in principal amount of
outstanding debt securities have the right to waive our
compliance with covenants in the Indenture.
Modifications and amendments of the Indenture may be made by us
and the trustee without the consent of any holder of debt
securities for any of the following purposes:
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(1) |
to evidence the succession of another person to us as obligor
under the Indenture; |
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(2) |
to add to our covenants for the benefit of the holders of all or
any series of debt securities or to surrender any right or power
conferred upon us in the Indenture; |
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(3) |
to add events of default for the benefit of the holders of all
or any series of debt securities; |
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(4) |
to add or change any provisions of the Indenture to facilitate
the issuance of, or to liberalize terms of, debt securities in
bearer form, or to permit or facilitate the issuance of debt
securities in uncertificated form, provided that such action
shall not adversely affect the interests of the holders of the
debt securities of any series in any material respect; |
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(5) |
to change or eliminate any provisions of the Indenture, provided
that any such change or elimination will become effective only
when there are no debt securities outstanding of any series
created prior to such change which are entitled to the benefit
of that provision; |
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(6) |
to secure the debt securities; |
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(7) |
to establish the form or terms of debt securities of any series
and any related coupons; |
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(8) |
to provide for the acceptance of appointment by a successor
trustee or facilitate the administration of the trust under the
Indenture by more than one trustee; |
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(9) |
to cure any ambiguity, defect or inconsistency in the Indenture
or to make any other changes, provided that in each case, the
action shall not adversely affect the interests of holders of
debt securities of any series in any material respect; |
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(10) |
to close the Indenture with respect to the authentication and
delivery of additional series of debt securities or to qualify,
or maintain qualification of, the Indenture under the Trust
Indenture Act of 1939; or |
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(11) |
to supplement any of the provisions of the Indenture to the
extent necessary to permit or facilitate defeasance and
discharge of any series of such debt securities, provided that
the action shall not adversely affect the interests of the
holders of the debt securities of any series in any material
respect. |
The Indenture provides that in determining whether the holders
of the requisite principal amount of outstanding debt securities
of a series have given any request, demand, authorization,
direction, notice, consent or waiver under the Indenture or
whether a quorum is present at a meeting of holders of debt
securities:
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(1) |
the principal amount of an original issue discount security that
will be deemed to be outstanding shall be the amount of the
principal of the security that would be due and payable as of
the date of the determination upon declaration of acceleration
of the maturity of the debt security; |
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(2) |
the principal amount of a debt security denominated in a foreign
currency that will be deemed outstanding shall be the United
States dollar equivalent, determined on the issue date for the
debt security, of the principal amount, or, in the case of an
original issue discount security, the United States dollar
equivalent on the issue date of the debt security of the amount
determined as provided in (1) above; |
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(3) |
the principal amount of an indexed security that shall be deemed
outstanding will be the principal face amount of the indexed
security at original issuance, unless otherwise provided with
respect to the indexed security pursuant to Section 301 of
the Indenture; and |
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(4) |
debt securities owned by us or any other obligor upon the debt
securities or any of our affiliates or of the other obligor will
be disregarded. |
The Indenture contains provisions for convening meetings of the
holders of debt securities of a series. A meeting may be called
at any time by the trustee, and also, upon request, by us or the
holders of at least 10% in principal amount of the outstanding
debt securities of that series, in any such case upon notice
given as provided in the Indenture.
Except for any consent that must be given by the holder of each
debt security affected by modifications and amendments of the
Indenture, any resolution presented at a meeting or at an
adjourned meeting duly reconvened, at which a quorum is present,
may be adopted by the affirmative vote of the holders of a
majority in principal amount of the outstanding debt securities
of that series; provided, however, that, except as referred to
above, any resolution with respect to any request, demand,
authorization, direction, notice, consent, waiver or other
action that may be made, given or taken by the holders of a
specified percentage, which is less than a majority, in
principal amount of the outstanding debt securities of a series
may be adopted at a meeting or adjourned meeting duly reconvened
at which a quorum is present by the affirmative vote of the
holders of the specified percentage in principal amount of the
outstanding debt securities of that series. Any resolution
passed or decision taken at any meeting of holders of debt
securities of any series duly held in accordance with the
Indenture will be binding on all holders of debt securities of
that series. The quorum at any meeting called to adopt a
resolution, and at any reconvened meeting, will be persons
holding or representing a majority in principal amount of the
outstanding debt securities of a series; provided, however, that
if any action is to be taken at the meeting with respect to a
consent or waiver which may be given by the holders of not less
than a specified percentage in principal amount of the
outstanding debt securities of a series, the persons holding or
representing the specified percentage in principal amount of the
outstanding debt securities of that series will constitute a
quorum.
Notwithstanding the foregoing provisions, if any action is to be
taken at a meeting of holders of debt securities of any series
with respect to any request, demand, authorization, direction,
notice, consent, waiver or other action that the Indenture
expressly provides may be made, given or taken by the holders of
a specified percentage in principal amount of all outstanding
debt securities affected the action, or of the holders of that
series and one or more additional series:
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(1) |
there shall be no minimum quorum requirement for the meeting; and |
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(2) |
the principal amount of the outstanding debt securities of that
series that vote in favor of the request, demand, authorization,
direction, notice, consent, waiver or other action will be taken
into account in determining whether the request, demand,
authorization, direction, notice, consent, waiver or other
action has been made, given or taken under the Indenture. |
Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by the Indenture to be given or
taken by a specified percentage in principal amount of the
holders of any or all series of debt securities may be embodied
in and evidenced by one or more instruments of substantially
similar tenor signed by the specified percentage of holders in
person or by agent duly appointed in writing; and, except as
otherwise expressly provided in the Indenture, the action will
become effective when the instrument or instruments are
delivered to the trustee. Proof of execution of any instrument
or of a writing appointing any the agent will be sufficient for
any purpose of the Indenture and, subject to the Indenture
provisions relating to the appointment of any such agent,
conclusive in favor of the trustee and us, if made in the manner
specified above.
Discharge, defeasance and covenant defeasance
We may discharge various obligations to holders of any series of
debt securities that have not already been delivered to the
trustee for cancellation and that either have become due and
payable or will become due and payable
17
within one year, or that are scheduled for redemption within one
year. The discharge will be completed by irrevocably depositing
with the trustee the funds needed to pay the principal, any
make-whole amounts, interest and additional amounts payable to
the date of deposit or to the date of maturity, as the case may
be.
If the board of trustees has resolved to incorporate the
defeasance provisions into a series of debt securities, we may
take either of the following actions with respect to that series
of debt securities:
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(1) |
We may elect to defease and be discharged from any and all
obligations with respect to that series of debt securities.
However, we would continue to be obligated to pay any additional
amounts resulting from tax events, assessment or governmental
charges with respect to payments on the series of debt
securities and the obligations to register the transfer or
exchange of the series of debt securities. Additionally, we
would remain responsible for replacing temporary or mutilated,
destroyed, lost or stolen debt securities, for maintaining an
office or agency in respect of the series of debt securities and
for holding moneys for payment in trust. |
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(2) |
With respect to the series of debt securities, we may elect to
effect covenant defeasance and be released from our obligations
to fulfill the covenants contained under the heading
Covenants in this prospectus. Further,
we may elect to be released from our obligations with respect to
any other covenant in the Indenture, if our board of trustees
has included such a provision in the series of debt securities
at the time that they are issued. Once we have made this
election, any omission to comply with these obligations shall
not constitute a default or an event of default with respect to
the series of debt securities. In either case, we must
irrevocably deposit the needed funds in trust, with the trustee,
as described above. |
In either case, we must irrevocably deposit the needed funds in
trust, with the trustee.
The trust may only be established if, among other things, we
have delivered an opinion of counsel to the trustee. The opinion
of counsel shall state that the holders of the series of debt
securities will not recognize income, gain or loss for United
States federal income tax purposes as a result of the defeasance
or covenant defeasance and will be subject to United States
federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if the defeasance
or covenant defeasance had not occurred. The opinion of counsel,
in the case of defeasance, must refer to and be based upon a
ruling of the Internal Revenue Service or a change in applicable
United States federal income tax law occurring after the date of
the Indenture.
Unless otherwise provided in the applicable prospectus
supplement, if after we have deposited funds and/or government
obligations to effect defeasance or covenant defeasance with
respect to debt securities of any series and
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the holder of a series of debt securities is entitled to and
elects to receive payment in a currency, currency unit or
composite currency other than that in which the deposit has been
made in respect of the debt security or |
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(2) |
a conversion event occurs in respect of the currency, currency
unit or composite currency in which such deposit has been made, |
the indebtedness represented by the debt security will be deemed
to have been, and will be, fully discharged. The indebtedness
will be satisfied through the payment of the principal of, and
premium or any make- whole amount and interest on, the debt
security as they become due out of the proceeds yielded by
converting the amount so deposited in respect of the debt
security into the currency, currency unit or composite currency
in which the debt security becomes payable as a result of the
holders election or the cessation of usage based on the
applicable market exchange rate.
Conversion event means the cessation of use of:
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a currency, currency unit or composite currency, other than the
European Community Unit or other currency unit, both by the
government of the country which issued such currency and for the
settlement of transactions by a central bank or other public
institutions of or within the international banking community; |
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(2) |
the European Community Unit both within the European Monetary
System and for the settlement of transactions by public
institutions of or within the European Communities; or |
18
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(3) |
any currency unit or composite currency other than the European
Community Unit for the purposes for which it was established. |
Unless otherwise provided in the applicable prospectus
supplement, all payments of principal of, and premium or any
make-whole amount and interest on any debt security that is
payable in a foreign currency that ceases to be used by its
government of issuance shall be made in United States dollars.
In the event we effect covenant defeasance with respect to any
debt securities and the debt securities are declared due and
payable because of the occurrence of any event of default, other
than the events of default that would no longer be applicable
because of the covenant defeasance or an event of default
triggered by an event of bankruptcy or other insolvency
proceeding, the amount of funds on deposit with the trustee,
will be sufficient to pay amounts due on the debt securities at
the time of their stated maturity, but may not be sufficient to
pay amounts due on the debt securities at the time of the
acceleration resulting from the event of default. However, we
would remain liable to make payment of the amounts due at the
time of acceleration.
The applicable prospectus supplement may further describe the
provisions, if any, permitting such defeasance or covenant
defeasance, including any modifications to the provisions
described above, with respect to the debt securities of or
within a particular series.
Registration and transfer
Subject to limitations imposed upon debt securities issued in
book-entry form, the debt securities of any series will be
exchangeable for other debt securities of the same series and of
a like aggregate principal amount and tenor of different
authorized denominations upon surrender of the debt securities
at the corporate trust office of the trustee referred to above.
In addition, subject to the limitations imposed upon debt
securities issued in book-entry form, the debt securities of any
series may be surrendered for conversion or registration of
transfer of the security at the corporate trust office of the
trustee referred to above. Every debt security surrendered for
registration of transfer or exchange will be duly endorsed or
accompanied by a written instrument of transfer. No service
charge will be made for any registration of transfer or exchange
of any debt securities, but we may require payment of a sum
sufficient to cover any tax or other governmental charge payable
in connection therewith. We may at any time designate a transfer
agent, in addition to the trustee, with respect to any series of
debt securities. If we have designated such a transfer agent or
transfer agents, we may at any time rescind the designation of
any such transfer agent or approve a change in the location at
which any such transfer agent acts, except that we will be
required to maintain a transfer agent in each place of payment
for the series.
Neither we nor the trustee will be required to
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issue, register the transfer of or exchange debt securities of
any series during a period beginning at the opening of business
15 days before any selection of debt securities of that
series to be redeemed and ending at the close of business on the
day of mailing of the relevant notice of redemption; |
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(2) |
register the transfer of or exchange any debt security, or
portion of security, called for redemption, except the
unredeemed portion of any debt security being redeemed in
part; or |
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(3) |
issue, register the transfer of or exchange any debt security
which has been surrendered for repayment at the option of the
holder, except the portion, if any, of such debt security not to
be so repaid. |
Global Securities
The debt securities of a series may be issued in whole or in
part in the form of one or more global securities that will be
deposited with, or on behalf of, a depository identified in the
applicable prospectus supplement relating to the series. Global
Securities, if any, are expected to be deposited with The
Depository Trust Company (DTC) as depository. Each
Global Security will be issued:
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only in fully registered form; and |
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without interest coupons. |
19
You may hold your beneficial interests in the Global Securities
directly through DTC if you have an account at DTC, or
indirectly through organizations that have accounts at DTC.
What is a Global Security? A global security is a special type
of indirectly held security in the form of a certificate held by
a depository for the investors in a particular issue of
securities. If we choose to issue the debt securities in the
form of a global security, the ultimate beneficial owners can
only be indirect holders. We do this by requiring that the
Global Securities be registered in the name of a financial
institution we select and by requiring that the debt securities
included in the Global Securities not be transferred to the name
of any other direct holder unless the special circumstances
described below occur. The financial institution that acts as
the sole direct holder of the Global Securities is called the
Depository. Any person wishing to own a debt
security must do so indirectly by virtue of an account with a
broker, bank or other financial institution that in turn has an
account with the Depository.
Except as described below, each Global Security may be
transferred, in whole and not in part, only to DTC, to another
nominee of DTC or to a successor of DTC or its nominee.
Beneficial interests in Global Securities will be represented,
and transfers of such beneficial interests will be made, through
accounts of financial institutions acting on behalf of
beneficial owners either directly as account holders, or
indirectly through account holders, at DTC.
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Special Investor Considerations for Global Securities. |
As an indirect holder, an investors rights relating to
Global Securities will be governed by the account rules of the
investors financial institution and of the Depository,
DTC, as well as general laws relating to securities transfers.
We do not recognize this type of investor as a holder of debt
securities and instead deal only with DTC, the Depository that
holds Global Securities.
An investor in Global Securities should be aware that because
the debt securities are issued only in the form of Global
Securities:
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The investor cannot get debt securities registered in his or her
own name. |
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The investor cannot receive physical certificates for his or her
interest in the debt securities. |
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The investor will be a street name holder and must
look to his or her own bank or broker for payments on the debt
securities and protection of his or her legal rights relating to
the debt securities. |
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The investor may not be able to sell interests in the debt
securities to some insurance companies and other institutions
that are required by law to own their securities in the form of
physical certificates. |
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DTCs policies will govern payments, transfers, exchanges
and other matters relating to the investors interest in
the Global Notes. We and the trustee have no responsibility for
any aspect of DTCs actions or for its records of ownership
interests in the Global Securities. We and the trustee also do
not supervise DTC in any way. |
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Exchanges Among the Global Securities |
Any beneficial interest in one of the Global Securities that is
transferred to a person who takes delivery in the form of an
interest in another Global Security will, upon transfer, cease
to be an interest in such Global Note and become an interest in
the other Global Security and, accordingly, will thereafter be
subject to all transfer restrictions, if any, and other
procedures applicable to beneficial interests in such other
Global Security for as long as it remains such an interest.
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Certain Book-Entry Procedures for the Global Securities |
The descriptions of the operations and procedures of DTC,
Euroclear and Clearstream set forth below are provided solely as
a matter of convenience. These operations and procedures are
solely within the control of the respective settlement systems
and are subject to change by them from time to time. Neither we
nor the underwriters take any responsibility for these
operations or procedures, and investors are urged to contact the
relevant system or its participants directly to discuss these
matters.
20
Beneficial interests in the Global Securities will be
represented through book-entry accounts of financial
institutions acting on behalf of beneficial owners as direct and
indirect participants in DTC. Investors may elect to hold
interests in the Global Securities through DTC either directly
if they are participants in DTC or indirectly through
organizations that are participants in DTC.
Clearstream. Clearstream is incorporated under the laws
of the Grand Duchy of Luxembourg as a professional depositary.
Clearstream holds securities for its participating organizations
(Clearstream Participants) and facilitates the
clearance and settlement of securities transactions between
Clearstream Participants through electronic book-entry changes
in accounts of Clearstream Participants , thereby eliminating
the need for physical movement of certificates. Clearstream
provides Clearstream Participants with, among other things,
services for safekeeping, administration, clearance and
establishment of internationally traded securities and
securities lending and borrowing. Clearstream interfaces with
domestic markets in several countries. As a professional
depositary, Clearstream is subject to regulation by the
Luxembourg Monetary Institute. Clearstream Participants are
recognized financial institutions around the world, including
underwriters, securities brokers and dealers, banks, trust
companies, clearing corporations and certain other
organizations, and may include the underwriters. Indirect access
to Clearstream is also available to others, such as banks,
brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Clearstream Participant
either directly or indirectly.
Distributions with respect to debt securities held beneficially
through Clearstream will be credited to cash accounts of
Clearstream Participants in accordance with its rules and
procedures to the extent received by the U.S. Depositary
for Clearstream.
Euroclear. Euroclear was created in 1968 to hold
securities for participants of Euroclear (Euroclear
Participants) and to clear and settle transactions between
Euroclear Participants through simultaneous electronic
book-entry delivery against payment, thereby eliminating the
need for physical movement of certificates and any risk from
lack of simultaneous transfers of securities and cash. Euroclear
includes various other services, including securities lending
and borrowing and interfaces with domestic markets in several
markets in several countries. Euroclear is operated by Euroclear
Bank S.A./ N.V. (the Euroclear Operator), under
contract with Euro-clear Clearance Systems S.C., a Belgian
cooperative corporation (the Cooperative). All
operations are conducted by the Euroclear Operator, and all
Euroclear securities clearance accounts and Euroclear cash
accounts are accounts with the Euroclear Operator, not the
Cooperative. The Cooperative establishes policy for Euroclear on
behalf of Euroclear Participants. Euroclear Participants include
banks (including central banks), securities brokers and dealers
and other professional financial intermediaries and may include
the underwriters. Indirect access to Euroclear is also available
to other firms that clear through or maintain a custodial
relationship with a Euroclear Participant, either directly or
indirectly.
The Euroclear Operator is regulated and examined by the Belgian
Banking Commission.
DTC has advised us that it is:
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a limited-purpose trust company organized under the New York
State Banking Law; |
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a banking organization within the meaning of the New
York State Banking Law; |
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a member of the Federal Reserve System; |
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a clearing corporation within the meaning of the New
York Uniform Commercial Code, as amended; and |
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a clearing agency registered pursuant to
Section 17A of the Exchange Act. |
DTC was created to hold securities for its participants and
facilitates the clearance and settlement of securities
transactions between participants through electronic book-entry
changes to the accounts of its participants, thereby eliminating
the need for physical transfer and delivery of certificates.
DTCs participants include securities brokers and dealers
(including one or more of the initial purchasers), banks and
trust companies, clearing corporations and certain other
organizations. Indirect access to DTCs system is also
available to other entities such as banks, brokers, dealers and
trust companies (collectively, the Indirect
Participants) that clear through or maintain a custodial
relationship with a
21
participant, either directly or indirectly. Investors who are
not participants may beneficially own securities held by or on
behalf of DTC only through participants or Indirect Participants.
We expect that pursuant to procedures established by DTC
(1) upon deposit of each Global Security, DTC will credit
the accounts of participants designated by the initial
purchasers with an interest in the Global Security and
(2) ownership of the debt securities will be shown on, and
the transfer of ownership thereof will be effected only through,
records maintained by DTC (with respect to the interests of
participants) and the records of participants and the Indirect
Participants (with respect to the interests of persons other
than participants).
The laws of some jurisdictions may require that certain
purchasers of securities take physical delivery of such
securities in definitive form. Accordingly, the ability to
transfer interests in the debt securities represented by a
Global Security to such persons may be limited. In addition,
because DTC can act only on behalf of its participants, who in
turn act on behalf of persons who hold interests through
participants, the ability of a person having an interest in debt
securities represented by a Global Security to pledge or
transfer such interest to persons or entities that do not
participate in DTCs system, or to otherwise take actions
in respect of such interest, may be affected by the lack of a
physical definitive security in respect of such interest.
So long as DTC or its nominee is the registered owner of a
Global Security, DTC or such nominee, as the case may be, will
be considered the sole owner or holder of the debt securities
represented by the Global Note for all purposes under the
Indenture. Owners of beneficial interests in a Global Security
will not be entitled to have debt securities represented by such
Global Security registered in their names, will not receive or
be entitled to receive physical delivery of certificated notes,
and will not be considered the owners or holders thereof under
the Indenture for any purpose, including with respect to the
giving of any direction, instruction or approval to the trustee
thereunder. Accordingly, each holder owning a beneficial
interest in a Global Security must rely on the procedures of DTC
and, if such holder is not a participant or an Indirect
Participant, on the procedures of the participant through which
such holder owns its interest, to exercise any rights of a
holder of debt securities under the Indenture or such Global
Security. We understand that under existing industry practice,
in the event that we request any action of holders of debt
securities, or a holder that is an owner of a beneficial
interest in a Global Security desires to take any action that
DTC, as the holder of such Global Security, is entitled to take,
DTC would authorize the participants to take such action and the
participants would authorize holders owning through such
participants to take such action or would otherwise act upon the
instruction of such holders. Neither we nor the trustee will
have any responsibility or liability for any aspect of the
records relating to or payments made on account of debt
securities by DTC, or for maintaining, supervising or reviewing
any records of DTC relating to such debt securities.
Payments with respect to the principal of, and premium, if any,
additional interest, if any, and interest on, any debt
securities represented by a Global Security registered in the
name of DTC or its nominee on the applicable record date will be
payable by the trustee to or at the direction of DTC or its
nominee in its capacity as the registered holder of the Global
Note representing such debt securities under the Indenture.
Under the terms of the Indenture, we and the trustee may treat
the persons in whose names the debt securities, including the
Global Securities, are registered as the owners hereof for the
purpose of receiving payment thereon and for any and all other
purposes whatsoever. Accordingly, neither we nor the trustee has
or will have any responsibility or liability for the payment of
such amounts to owners of beneficial interests in a Global
Security (including principal, premium, if any, additional
interest, if any, and interest). Payments by the participants
and the Indirect Participants to the owners of beneficial
interests in a Global Security will be governed by standing
instructions and customary industry practice and will be the
responsibility of the participants or the Indirect Participants
and DTC.
Transfers between participants in DTC will be effected in
accordance with DTCs procedures, and will be settled in
same-day funds. Transfers between participants in Euroclear or
Clearstream will be effected in the ordinary way in accordance
with their respective rules and operating procedures. Subject to
compliance with the transfer restrictions applicable to the debt
securities, cross-market transfers between the participants in
DTC, on the one hand, and Euroclear or Clearstream participants,
on the other hand, will be effected through DTC in accordance
with DTCs rules on behalf of Euroclear or Clearstream, as
the case may be, by its respective depositary; however, such
cross-market transactions will require delivery of instructions
to Euroclear or Clearstream, as the case may be, by the
counterparty in such system in accordance with the rules and
procedures and within the established deadlines (Brussels,
Belgium time) of such system. Euroclear or Clearstream, as the
case may be, will, if the transaction meets its settlement
requirements, deliver instructions to DTC to take action to
effect final settlement on its behalf by delivering or receiving
interests in the
22
relevant Global Securities in DTC, and making or receiving
payment in accordance with normal procedures for same-day funds
settlement applicable to DTC. Euroclear participants and
Clearstream participants may not deliver instructions directly
to the depositaries for Euroclear or Clearstream.
Because of time zone differences, the securities account of a
Euroclear or Clearstream participant purchasing an interest in a
Global Security from a participant in DTC will be credited, and
any such crediting will be reported to the relevant Euroclear or
Clearstream participant, during the securities settlement
processing day (which must be a business day for Euroclear and
Clearstream) immediately following the settlement date of DTC.
Cash received in Euroclear or Clearstream as a result of sales
of interests in a Global Security by or through a Euroclear or
Clearstream participant to a participant in DTC will be received
with value on the settlement date of DTC but will be available
in the relevant Euroclear or Clearstream cash account only as of
the business day for Euroclear or Clearstream following
DTCs settlement date.
Although DTC, Euroclear and Clearstream have agreed to the
foregoing procedures to facilitate transfers of interests in
Global Securities among participants in DTC, Euroclear and
Clearstream, they are under no obligation to perform or to
continue to perform such procedures, and such procedures may be
discontinued at any time. Neither we nor the trustee will have
any responsibility for the performance by DTC, Euroclear or
Clearstream or their respective participants or indirect
participants of their respective obligations under the rules and
procedures governing their operations.
A Global Security is exchangeable for definitive Securities in
registered certificated form (Certificated
Securities) if
(1) DTC
(a) notifies the issuer that it is unwilling or unable to
continue as depositary for the Global Securities or (b) has
ceased to be a clearing agency registered under the Exchange
Act, and in each cash the issuer fails to appoint a successor
depositary;
(2) the
issuer, at its option, notifies the trustee in writing that it
elects to cause the issuance of the Certificated
Securities; or
(3) there
shall have occurred and be continuing a default or event of
default with respect to the debt securities.
In all cases, Certificated Securities delivered in exchange for
any Global Security or beneficial interests in Global Securities
will be registered in the names, and issued in any approved
denominations, requested by or on behalf of DTC (in accordance
with its customary procedures).
No personal liability
No past, present or future trustee, officer, employee or
shareholder of ours or any successor to us will have any
liability for any of our obligations under the debt securities
or the Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each holder of
debt securities by accepting the debt securities waives and
releases all such liability. The waiver and release are part of
the consideration for the issue of debt securities.
Trustee
The Indenture provides that there may be more than one trustee,
each with respect to one or more series of debt securities. Any
trustee under the Indenture may resign or be removed with
respect to one or more series of debt securities, and a
successor trustee may be appointed to act with respect to the
series. In the event that two or more persons are acting as
trustee with respect to different series of debt securities,
each such trustee will be a trustee of a trust under the
Indenture separate and apart from the trust administered by any
other trustee. Except as otherwise indicated in this prospectus,
any action described in this prospectus to be taken by the
trustee may be taken by each such trustee with respect to, and
only with respect to, the one or more series of debt securities
for which it is trustee under the Indenture.
23
DESCRIPTION OF PREFERRED SHARES
General
Subject to limitations prescribed by Maryland law and the
declaration of trust, the board of trustees is authorized to
issue, from the authorized but unissued shares of beneficial
interest, preferred shares in series and to establish from time
to time the number of preferred shares to be included in the
series and to fix the designation and any preferences,
conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and
conditions of redemption of the shares of each series, and such
other subjects or matters as may be fixed by resolution of the
board of trustees or one of its duly authorized committees. At
March 1, 2006, 2,000,000 Series C preferred shares
were issued and outstanding, 5,000,000 Series F preferred
shares were issued and outstanding and 5,000,000 Series G
preferred shares were issued and outstanding.
Reference is made to the prospectus supplement relating to the
series of preferred shares being offered in such prospectus
supplement for the specific terms of the series, including:
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the title and stated value of the series of preferred shares; |
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the number of shares of the series of preferred shares offered,
the liquidation preference per share and the offering price of
such preferred shares; |
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(3) |
the dividend rate(s), period(s) and/or payment date(s) or the
method(s) of calculation for those values relating to the
preferred shares of the series; |
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(4) |
the date from which dividends on preferred shares of the series
shall cumulate, if applicable; |
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(5) |
the procedures for any auction and remarketing, if any, for
preferred shares of the series; |
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the provision for a sinking fund, if any, for preferred shares
of the series; |
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(7) |
the provision for redemption, if applicable, of preferred shares
of the series; |
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(8) |
any listing of the series of preferred shares on any securities
exchange; |
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(9) |
the terms and conditions, if applicable, upon which preferred
shares of the series will be convertible into common shares,
including the conversion price, or manner of calculating the
conversion price; |
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(10) |
whether interests in preferred shares of the series will be
represented by global securities; |
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(11) |
any other specific terms, preferences, rights, limitations or
restrictions of the series of preferred shares; |
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(12) |
a discussion of federal income tax considerations applicable to
preferred shares of the series; |
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(13) |
the relative ranking and preferences of preferred shares of the
series as to dividend rights and rights upon liquidation,
dissolution or winding up of our affairs; |
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(14) |
any limitations on issuance of any series of preferred shares
ranking senior to or on a parity with the series of preferred
shares as to dividend rights and rights upon liquidation,
dissolution or winding up of our affairs; and |
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(15) |
any limitations on direct or beneficial ownership and
restrictions on transfer of preferred shares of the series, in
each case as may be appropriate to preserve our status as a real
estate investment trust under the Code. |
Rank
Unless otherwise specified in the applicable prospectus
supplement, the preferred shares of each series will rank with
respect to dividend rights and rights upon liquidation,
dissolution or winding up of our affairs:
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senior to all classes or series of common shares, and to all
equity securities ranking junior to the series of preferred
shares; |
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on a parity with all equity securities issued by us the terms of
which specifically provide that such equity securities rank on a
parity with preferred shares of the series; and |
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junior to all equity securities issued by us the terms of which
specifically provide that such equity securities rank senior to
preferred shares of the series. |
Dividends
Holders of preferred shares of each series shall be entitled to
receive cash dividends at such rates and on such dates as will
be set forth in the applicable prospectus supplement. When and
if declared by the board of trustees, dividends shall be payable
out of our assets legally available for payment of dividends.
Each such dividend shall be payable to holders of record as they
appear on our share transfer books on such record dates as shall
be fixed by the board of trustees.
Dividends on any series of the preferred shares may be
cumulative or noncumulative, as provided in the applicable
prospectus supplement. Dividends, if cumulative, will be
cumulative from and after the date set forth in the applicable
prospectus supplement. If the board of trustees fails to declare
a dividend payable on a dividend payment date on any series of
the preferred shares for which dividends are noncumulative, then
the holders of the series of the preferred shares will have no
right to receive a dividend in respect of the dividend period
ending on such dividend payment date, and we will have no
obligation to pay the dividend accrued for such period, whether
or not dividends on the series are declared payable on any
future dividend payment date.
If preferred shares of any series are outstanding, no full
dividends shall be declared or paid or set apart for payment on
the preferred shares of any other series ranking, as to
dividends, on a parity with or junior to the preferred shares of
the series for any period unless full dividends, including
cumulative dividends if applicable, for the then current
dividend period and any past period, if any, have been or
contemporaneously are declared and paid or declared and a sum
sufficient for the payment of the dividend set apart for such
payment on the preferred shares of the series. When dividends
are not paid in full, or a sum sufficient for the full payment
is not so set apart, upon the preferred shares of any series and
the shares of any other series of preferred shares ranking on a
parity as to dividends with the preferred shares of the series,
all dividends declared upon preferred shares of the series and
any other series of preferred shares ranking on a parity as to
dividends with the preferred shares shall be declared pro rata
so that the amount of dividends declared per share on the
preferred shares of the series and the other series of preferred
shares shall in all cases bear to each other the same ratio that
accrued dividends per share on the preferred shares of the
series and the other series of preferred shares bear to each
other. The pro rata amount shall not include any cumulation in
respect of unpaid dividends for prior dividend periods if the
series of preferred shares does not have a cumulative dividend.
No interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment or payments on
preferred shares of the series which may be in arrears.
Except as provided in the immediately preceding paragraph,
unless full dividends, including cumulative dividends, if
applicable, on the preferred shares of the series have been or
contemporaneously are declared and paid or declared and a sum
sufficient for the payment of the dividend set apart for payment
for the then current dividend period, and any past period, if
any, no dividends shall be declared or paid or set aside for
payment or other distribution shall be declared or made upon the
common shares or any other capital shares ranking junior to or
on a parity with the preferred shares of the series as to
dividends or upon liquidation. Additionally, shares ranking
junior to or in parity with the series of preferred shares may
not be redeemed, purchased or otherwise acquired for any
consideration, except by conversion into or exchange for other
capital shares ranking junior to the preferred shares of the
series as to dividends and upon liquidation. We also may not pay
any money or make any money available for a sinking fund for the
redemption of junior or parity shares. Notwithstanding the
preceding sentences, we may make dividends of common shares or
other capital shares ranking junior to the preferred shares of
the series of preferred shares, although full dividends may not
have been paid or set aside.
Any dividend payment made on a series of preferred shares shall
first be credited against the earliest accrued but unpaid
dividend due with respect to shares of the series which remains
payable.
Redemption
If so provided in the applicable prospectus supplement, the
preferred shares of a series will be subject to mandatory
redemption or redemption at our option, as a whole or in part,
in each case upon the terms, at the times and at the redemption
prices set forth in such prospectus supplement.
25
The prospectus supplement relating to a series of preferred
shares that is subject to mandatory redemption will specify the
number of preferred shares of the series that shall be redeemed
by us in each year commencing after a date to be specified, at a
redemption price per share to be specified, together with an
amount equal to all accrued and unpaid dividends thereon, which
shall not, if the series of preferred shares does not have a
cumulative dividend, include any cumulation in respect of unpaid
dividends for prior dividend periods, to the date of redemption.
The redemption price may be payable in cash or other property,
as specified in the applicable prospectus supplement. If the
redemption price for preferred shares of any series is payable
only from the net proceeds of the issuance of capital shares,
the terms of the series of preferred shares may provide that, if
no such capital shares shall have been issued or to the extent
the net proceeds from any issuance are insufficient to pay in
full the aggregate redemption price then due, preferred shares
of the series shall automatically and mandatorily be converted
into shares of the applicable capital shares pursuant to
conversion provisions specified in the applicable prospectus
supplement.
If full dividends on all preferred shares of any series,
including cumulative dividends if applicable, have not been or
contemporaneously are declared and paid or declared and a sum
sufficient for the payment of the dividend set apart for payment
for the then current dividend period and any past dividends, if
any, we may not redeem preferred shares of any series unless all
outstanding preferred shares of the series are simultaneously
redeemed. This shall not prevent, however, the purchase or
acquisition of preferred shares of the series pursuant to a
purchase or exchange offer made on the same terms to holders of
all outstanding preferred shares of the series, and, unless full
dividends, including cumulative dividends if applicable, on all
preferred shares of any series shall have been or
contemporaneously are declared and paid or declared and a sum
sufficient for the payment of the dividend set apart for payment
for the then current dividend period and any past period, if
any, we will not purchase or otherwise acquire directly or
indirectly any preferred shares of the series, except by
conversion into or exchange for capital shares ranking junior to
the preferred shares of the series as to dividends and upon
liquidation.
If fewer than all of the outstanding preferred shares of any
series are to be redeemed, the number of shares to be redeemed
will be determined by us and such shares may be redeemed pro
rata from the holders of record of preferred shares of the
series in proportion to the number of preferred shares of the
series held by such holders with adjustments to avoid redemption
of fractional shares or by lot in a manner determined by us.
Notice of redemption will be mailed at least 30 days but
not more than 90 days before the redemption date to each
holder of record of preferred shares of any series to be
redeemed at the address shown on our share transfer books. Each
notice shall state:
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(1) |
the redemption date; |
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(2) |
the number of shares and series of the preferred shares to be
redeemed; |
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(3) |
the redemption price; |
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(4) |
the place or places where certificates for such preferred shares
are to be surrendered for payment of the redemption price; |
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(5) |
that dividends on the preferred shares to be redeemed will cease
to accrue on such redemption date; and |
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(6) |
the date upon which the holders conversion rights, if any,
as to such preferred shares shall terminate. |
If fewer than all the preferred shares of any series are to be
redeemed, the notice mailed to each such holder of the series
shall also specify the number of preferred shares to be redeemed
from each such holder. If notice of redemption of any preferred
shares has been given and if the funds necessary for such
redemption have been set aside by us in trust for the benefit of
the holders of any preferred shares so called for redemption,
then from and after the redemption date dividends will cease to
accrue on such preferred shares, and all rights of the holders
of such preferred shares will terminate, except the right to
receive the redemption price.
Liquidation preference
Upon any voluntary or involuntary liquidation, dissolution or
winding up of our affairs, then, before any distribution or
payment shall be made to the holders of any common shares or any
other class or series of shares of
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beneficial interest ranking junior to the series of preferred
shares in the distribution of assets upon any liquidation,
dissolution or winding up, the holders of each series of
preferred shares shall be entitled to receive out of our assets
legally available for distribution to shareholders liquidating
distributions in the amount of the liquidation preference per
share, set forth in the applicable prospectus supplement, plus
an amount equal to all dividends accrued and unpaid thereon,
which shall not include any cumulation in respect of unpaid
dividends for prior dividend periods if the series of preferred
shares does not have a cumulative dividend. After payment of the
full amount of the liquidating distributions to which they are
entitled, the holders of preferred shares of the series will
have no right or claim to any of our remaining assets.
In the event that, upon any such voluntary or involuntary
liquidation, dissolution or winding up, our available assets are
insufficient to pay the amount of the liquidating distributions
on all outstanding preferred shares of the series and the
corresponding amounts payable on all shares of other classes or
series of capital shares ranking on a parity with preferred
shares of the series in the distribution of assets, then the
holders of preferred shares of the series and all other such
classes or series of capital shares shall share ratably in any
such distribution of assets in proportion to the full
liquidating distributions to which they would otherwise be
respectively entitled.
If liquidating distributions shall have been made in full to all
holders of preferred shares of the series, our remaining assets
shall be distributed among the holders of any other classes or
series of capital shares ranking junior to the preferred shares
of the series upon liquidation, dissolution or winding up,
according to their respective rights and preferences and in each
case according to their respective number of shares. For such
purposes, the consolidation or merger of us with or into any
other entity, or the sale, lease or conveyance of all or
substantially all of our property or business, shall not be
deemed to constitute a liquidation, dissolution or winding up of
us.
Voting rights
Holders of the preferred shares of each series will not have any
voting rights, except as set forth below or in the applicable
prospectus supplement or as otherwise required by applicable
law. The following is a summary of the voting rights that,
unless provided otherwise in the applicable prospectus
supplement, will apply to each series of preferred shares.
If six quarterly dividends, whether or not consecutively payable
on the preferred shares of the series or any other series of
preferred shares ranking on a parity with the series of
preferred shares with respect in each case to the payment of
dividends, amounts upon liquidation, dissolution and winding up
are in arrears, whether or not earned or declared, the number of
trustees then constituting the board of trustees will be
increased by two, and the holders of preferred shares of the
series, voting together as a class with the holders of any other
series of shares ranking in parity with such shares, will have
the right to elect two additional trustees to serve on the board
of trustees at any annual meeting of shareholders or a properly
called special meeting of the holders of preferred shares of the
series and other preferred shares ranking in parity with such
shares and at each subsequent annual meeting of shareholders
until all such dividends and dividends for the current quarterly
period on the preferred shares of the series and other preferred
shares ranking in parity with such shares have been paid or
declared and set aside for payment. Such voting rights will
terminate when all such accrued and unpaid dividends have been
declared and paid or set aside for payment. The term of office
of all trustees so elected will terminate with the termination
of such voting rights.
The approval of two-thirds of the outstanding preferred shares
of the series and all other series of preferred shares similarly
affected, voting as a single class, is required in order to
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(1) |
amend the declaration of trust to affect materially and
adversely the rights, preferences or voting power of the holders
of the preferred shares of the series or other preferred shares
ranking in parity with such shares; |
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(2) |
enter into a share exchange that affects the preferred shares of
the series, consolidate with or merge into another entity, or
permit another entity to consolidate with or merge into us,
unless in each such case each preferred share of the series
remains outstanding without a material and adverse change to its
terms and rights or is converted into or exchanged for preferred
shares of the surviving entity having preferences, conversion or
other rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms or conditions of redemption
of the series identical to that of a preferred share of the
series, except for changes that do not materially and adversely
affect the holders of the preferred shares of the series; or |
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(3) |
authorize, reclassify, create, or increase the authorized amount
of any class of shares having rights senior to the preferred
shares of the series with respect to the payment of dividends or
amounts upon liquidation, dissolution or winding up. |
However, we may create additional classes of parity shares and
other series of preferred shares ranking junior to the series of
preferred shares with respect in each case to the payment of
dividends, amounts upon liquidation, dissolution and winding up
junior shares, increase the authorized number of parity shares
and junior shares and issue additional series of parity shares
and junior shares without the consent of any holder of preferred
shares of the series.
Except as provided above and as required by law, the holders of
preferred shares of each series will not be entitled to vote on
any merger or consolidation involving us or a sale of all or
substantially all of our assets.
Conversion rights
The terms and conditions, if any, upon which preferred shares of
any series are convertible into common shares will be set forth
in the applicable prospectus supplement relating to the series.
Such terms will include the number of common shares into which
the preferred shares of the series are convertible, the
conversion price, or manner of calculation of the conversion
price, the conversion period, provisions as to whether
conversion will be at the option of the holders of the preferred
shares of the series or us, the events requiring an adjustment
of the conversion price and provisions affecting conversion in
the event of the redemption of the preferred shares of the
series.
Restrictions on ownership
As discussed below under Description of Common
Shares Restriction on size of holdings, for us
to qualify as a real estate investment trust under the Code, not
more than 50% in value of our outstanding shares of beneficial
interest may be owned by five or fewer individuals at any time
during the last half of any taxable year. Therefore, the
articles supplementary for each series of preferred shares will
contain various provisions restricting the ownership and
transfer of the preferred shares. Except as otherwise described
in the applicable prospectus supplement relating to the relevant
series of preferred shares, the provisions of each articles
supplementary relating to the preferred shares ownership limit
will provide, as in the case of the Series C preferred
shares, Series F preferred shares and Series G
preferred shares, ownership restriction similar to the ownership
restrictions of the series described below.
The preferred shares ownership limit provision will provide
that, subject to the exceptions contained in such articles
supplementary, no person, or persons acting as a group, may
beneficially own more than 25% of the series of preferred shares
outstanding at any time, except as a result of our redemption of
preferred shares. Shares acquired in excess of the preferred
shares ownership limit provision must be redeemed by us at a
price equal to the average daily per share closing sale price
during the 30-day
period ending on the business day prior to the redemption date.
Such redemption is not applicable if a persons ownership
exceeds the limitations due solely to our redemption of
preferred shares; provided that thereafter any additional
preferred shares acquired by such person shall be excess shares.
See Description of Common Shares Restriction
on size of holdings. From and after the date of notice of
such redemption, the holder of the preferred shares thus
redeemed shall cease to be entitled to any distribution, other
than distributions declared prior to the date of notice of
redemption, voting rights and other benefits with respect to
such shares except the right to receive payment of the
redemption price determined as described above. The preferred
shares ownership limit provision may not be waived with respect
to some of our affiliates.
All certificates representing shares of preferred shares will
bear a legend referring to the restrictions described above.
DESCRIPTION OF COMMON SHARES
General
The declaration of trust authorizes us to issue up to
375,000,000 shares of beneficial interest, par value
$0.01 per share, consisting of 362,580,000 common shares,
par value $0.01 per share, 2,300,000 Series C
preferred shares, par value $0.01 per share, 5,060,000
Series F preferred shares, par value $0.01 per share,
and 5,060,000 Series G preferred shares,
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par value $0.01 per share. At March 6, 2006,
approximately 244,562,300 common shares were issued and
outstanding and held of record by approximately
11,100 shareholders.
The following description sets forth general terms and
provisions of the common shares to which any prospectus
supplement may relate, including a prospectus supplement which
provides for common shares issuable pursuant to subscription
offerings or rights offerings or upon conversion of preferred
shares which are offered pursuant to such prospectus supplement
and convertible into common shares for no additional
consideration. The statements below describing the common shares
are in all respects subject to and qualified in their entirety
by reference to the applicable provisions of the declaration of
trust and our bylaws.
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 of our securities. In the
event of a liquidation, dissolution or winding up of our
affairs, the holders of the common shares are entitled to share
ratably in our assets remaining after provision for payment of
all liabilities to creditors and payment of liquidation
preferences and accrued dividends, if any, on the Series C
preferred shares, Series F preferred shares and
Series G 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 C preferred shares, Series F preferred shares
and Series G preferred shares and any other series of
preferred shares which may subsequently be issued by us. See
Description of Preferred Shares.
Transfer agent
The transfer agent and registrar for the common shares is
Computershare Trust Company, 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 declaration of trust restricts beneficial ownership of our
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
our real estate investment trust status under the Code and to
protect the interest of shareholders in takeover transactions by
preventing the acquisition of a substantial block of shares
without the prior consent of the board of trustees. For us to
qualify as a real estate investment trust under the Code, not
more than 50% in value of our 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 our
real estate investment trust status under the Code.
Excess shares of beneficial interest owned by a person or group
of persons in excess of 9.8% of the outstanding shares of
beneficial interest, other than, 30% in the case of shareholders
who acquired shares prior to our initial public offering, are
subject to redemption by us, at our option, upon
30 days notice, at a price equal to the average daily
per share closing sale price during the
30-day period ending on
the business day prior to the redemption date. We may make
payment of the redemption price at any time or times up to the
earlier of five years after the redemption date or liquidation.
We may refuse to effect the transfer of any shares of beneficial
interest which would make the transferee a holder of excess
shares. Shareholders are required to disclose, upon demand of
the board of trustees, such information with respect to their
direct and indirect ownership of shares as the board of trustees
deems necessary to comply with the provisions of the Code
pertaining to qualification, for tax purposes, of real estate
investment trusts, or to comply with the requirements of any
other appropriate taxing authority.
The 9.8% restriction does not apply to acquisitions by an
underwriter in a public offering and sale of shares of
beneficial interest or to any transaction involving the issuance
of shares of beneficial interest in which a majority of the
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board of trustees determines that our eligibility to qualify as
a real estate investment trust for federal income tax purposes
will not be jeopardized or our disqualification as a real estate
investment trust under the Code is advantageous to the
shareholders. The board of trustees has permitted the
shareholders who acquired shares prior to our initial public
offering to acquire up to 30% of the outstanding shares of
beneficial interest.
Trustee liability
The declaration of trust provides that trustees shall not be
individually liable for any obligation or liability incurred by
or on our behalf or by trustees for the benefit and on our
behalf. Under the declaration of trust and Maryland law
governing real estate investment trusts, trustees are not liable
to us or the shareholders for any act or omission except for
acts or omissions which constitute bad faith, willful
misfeasance or gross negligence in the conduct of their duties.
Shareholder liability
Both Maryland statutory law governing real estate investment
trusts organized under the laws of that state and the
declaration of trust provide that shareholders shall not be
personally or individually liable for any debt, act, omission or
obligation of ProLogis or the board of trustees. The declaration
of trust further provides that we shall indemnify and hold each
shareholder harmless from all claims and liabilities to which
the shareholder may become subject by reason of his being or
having been a shareholder and that we will reimburse each
shareholder for all legal and other expenses reasonably incurred
by the shareholder in connection with any such claim or
liability, except to the extent that such claim or liability
arises out of the shareholders bad faith, willful
misconduct or gross negligence and provided that such
shareholder gives us prompt notice of any such claim or
liability and permits us to conduct the defense of the
shareholder. In addition, we are required to, and as a matter of
practice do, insert a clause in our management and other
contracts providing that shareholders assume no personal
liability for obligations entered into on our behalf.
Nevertheless, with respect to tort claims, contractual claims
where shareholder liability is not so negated, claims for taxes
and statutory liability, the shareholders may, in some
jurisdictions, be personally liable to the extent that such
claims are not satisfied by us. Inasmuch as we carry public
liability insurance which we consider adequate, any risk of
personal liability to our shareholders is limited to situations
in which our assets plus our insurance coverage would be
insufficient to satisfy the claims against us and our
shareholders.
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FEDERAL INCOME TAX CONSIDERATIONS
ProLogis intends to operate in a manner that permits it to
satisfy the requirements for qualification and 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 (a) the U.S. federal income tax consequences
to ProLogis and its shareholders of the treatment of ProLogis as
a real estate investment trust and (b) the U.S. federal income
tax consequences of the ownership and disposition of
ProLogis shares. The tax consequences of owning and
disposing of debt securities are not summarized in this
discussion. Since these provisions are highly technical and
complex, each prospective purchaser of debt securities,
preferred shares or common shares is urged to consult his, her
or its own tax advisor with respect to the U.S. federal,
state, local, foreign and other tax consequences of the
purchase, ownership and disposition of the debt securities,
preferred shares or 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, Rowe & Maw LLP, counsel to
ProLogis, ProLogis has been organized and has operated in
conformity with the requirements for qualification as a real
estate investment trust beginning with its taxable year ended
December 31, 2000 through and including its taxable year
ended December 31, 2005, 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
qualification and taxation as a real estate investment trust
commencing with its taxable year ending on December 31,
2006 and each year thereafter.
This opinion is based on representations made by ProLogis as to
factual matters relating to ProLogis organization and its
actual 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, Rowe & Maw LLP 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 U.S. federal
income tax purposes as corporations, are allowed a deduction for
dividends paid to shareholders. This treatment substantially
eliminates the double taxation at both the corporate
and shareholder levels that generally results from the use of
corporations. However, as discussed in greater detail below,
entities, such as ProLogis, remain subject to tax in certain
circumstances even if they qualify as a real estate investment
trust.
If ProLogis fails to qualify as a real estate investment trust
in any year, however, it will be subject to U.S. 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. In addition, ProLogis would not
be obligated to make distributions to shareholders.
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 U.S. federal income taxation that may be
relevant to a prospective shareholder in light of his, her or
its 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
U.S. federal income tax laws.
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The following summary applies only to shareholders who hold
preferred shares or common shares as capital assets. For
purposes of the following summary, a U.S. shareholder is a
beneficial owner of preferred shares or common shares that for
U.S. federal income tax purposes is: a citizen of the
United States or an individual who is a resident of the United
States, a corporation (or other entity treated as a corporation)
created or organized under the laws of the United States or any
political subdivision thereof, an estate, the income of which is
subject to U.S. federal income taxation regardless of its
source, or a trust, if either it is eligible to elect and has
validly elected to continue to be treated as a U.S. person
under prior law or a court within the United States is able to
exercise primary supervision over the administration of the
trust and one or more U.S. persons have the authority to
control all substantial decisions of the trust. A foreign
shareholder is any shareholder that is not a
U.S. shareholder. For U.S. federal income tax
purposes, income earned through a foreign or domestic
partnership or other flow-through entity is attributed to its
owners. Accordingly, if a partnership or other flow-through
entity holds stock, the tax treatment of the shareholder will
generally depend on the status of the partner or other owner and
the activities of the partnership or other entity.
Taxation of ProLogis
In any year in which ProLogis qualifies as a real estate
investment trust, in general it will not be subject to
U.S. federal income tax on that portion of its real estate
investment trust taxable income or capital gain that is
distributed to shareholders. ProLogis may, however, be subject
to U.S. federal income tax at normal corporate rates upon any
taxable income or capital gain not distributed.
A real estate investment trust is permitted 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 shareholders
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 holders credit or refund for the tax
paid by ProLogis.
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% or the 95% gross income
test, multiplied by a fraction intended to reflect
ProLogis profitability. Furthermore, if ProLogis fails to
satisfy the 5% asset test or the 10% vote and value test (and
does not qualify for a de minimis safe harbor) or fails to
satisfy the other asset tests, each of which are discussed
below, and nonetheless maintains its qualification as a real
estate investment trust because certain other requirements are
met, ProLogis will be subject to a tax equal to the greater of
$50,000 or an amount determined (pursuant to regulations
prescribed by the Treasury) by multiplying the highest corporate
tax rate by the net income generated by the assets that caused
the failure for the period beginning on the first date of the
failure to meet the tests and ending on the date (which must be
within 6 months after the last day of the quarter in which
the failure is identified) that ProLogis disposes of the assets
or otherwise satisfies the tests. If ProLogis fails to satisfy
one or more real estate investment trust requirements other than
the 75% or the 95% gross income tests and other than the asset
tests, but nonetheless maintains its qualification as a real
estate investment trust because certain other requirements are
met, ProLogis will be subject to a penalty of $50,000 for each
such failure. 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 nonqualifying income from foreclosure
property, it will be subject to tax on such income from
foreclosure property at the highest corporate rate. ProLogis
will also be subject to a tax of 100% on the amount of any rents
from real property, deductions or excess interest that would be
reapportioned under Internal Revenue Code Section 482 to
one of its taxable REIT subsidiaries in order to
more clearly reflect income of the taxable REIT subsidiary. A
taxable REIT subsidiary is any corporation for which a joint
election has been made by a real estate
32
investment trust and such corporation to treat such corporation
as a taxable REIT subsidiary with respect to such real estate
investment trust. See Other Tax
Considerations Investments in taxable REIT
subsidiaries. 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. To the extent that ProLogis elects to retain and
pay income tax on its long-term capital gain, such retained
amounts will be treated as having been distributed for purposes
of the 4% excise tax. 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 U.S. 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:
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. 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 was held,
actually or constructively, by five or fewer individuals, then
it 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,
her or its 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.
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. Where ProLogis invests in a partnership or limited
liability company taxed as a partnership or disregarded entity,
ProLogis will be deemed to own a proportionate share of the
partnerships or limited liability companys assets.
In addition, when ProLogis owns 100% of a corporation that is
not a taxable REIT subsidiary, it will be deemed to own 100% of
the corporations assets. 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,
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ProLogis is prohibited from owning securities representing more
than 10% of either the vote or value of the outstanding
securities of any issuer other than a qualified real estate
investment trust subsidiary, another real estate investment
trust or a taxable REIT subsidiary. Further, no more than 20% of
the value of ProLogis total assets may be represented by
securities of one or more taxable REIT subsidiaries, and no more
than 5% of the value of ProLogis total assets may be
represented by securities of any non-government issuer other
than a taxable REIT subsidiary.
As discussed above, ProLogis generally may not own more than 10%
by vote or value of any one issuers securities and no more
than 5% of the value of the total assets of ProLogis generally
may be represented by the securities of any issuer. If ProLogis
fails to meet either of these tests at the end of any quarter
and such failure is not cured within 30 days thereafter,
ProLogis would fail to qualify as a real estate investment
trust. After the 30-day
cure period, ProLogis could dispose of sufficient assets to cure
such a violation that does not exceed the lesser of 1% of
ProLogis assets at the end of the relevant quarter or
$10,000,000 if the disposition occurs within 6 months after
the last day of the calendar quarter in which ProLogis
identifies the violation. For violations of these tests that are
larger than this amount and for violations of the other asset
tests described above, where such violations are due to
reasonable cause and not willful neglect, ProLogis can avoid
disqualification as a real estate investment trust, after the
30-day cure period, by
taking steps including the disposition of sufficient assets to
meet the asset test (within 6 months after the last day of
the calendar quarter in which ProLogis identifies the violation)
and paying a tax equal to the greater of $50,000 or an amount
determined (pursuant to Treasury regulations) by multiplying the
highest corporate tax rate by the net income generated by the
non-qualifying assets for the period beginning on the first date
of the failure to meet the tests and ending on the date that
ProLogis disposes of the assets or otherwise satisfies the asset
tests.
There are currently two separate percentage tests relating to
the sources of ProLogis gross income that must be
satisfied for each taxable year. For purposes of these tests,
where ProLogis invests in a partnership or limited liability
company taxed as a partnership or disregarded entity, ProLogis
will be treated as receiving its share of the income and loss of
the partnership or limited liability company, and the gross
income of the partnership or limited liability company will
retain the same character in the hands of ProLogis as it has in
the hands of the partnership or limited liability company. The
two tests are as follows:
1. The 75% Gross Income 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 secured 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 trusts, as well as gain from the sale of
such shares;
(5) abatements and refunds of real property taxes;
(6) income from the operation, and gain from the sale, of
foreclosure property, which means property acquired
at or in lieu of a foreclosure of the mortgage secured by such
property;
(7) commitment fees received for agreeing to make loans
secured by mortgages on real property, or to purchase or lease
real property; and
(8) certain qualified temporary investment income
attributable to the investment of new capital received by
ProLogis in exchange for its shares or certain publicly offered
debt, which income is received or accrued during the one-year
period following the receipt of such capital.
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Rents received from a tenant will not, however, qualify as rents
from real property in satisfying the 75% 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, unless the tenant is a taxable REIT subsidiary of
ProLogis and certain other requirements are met with respect to
the real property being rented. 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 furnish or
render services to tenants, other than through a taxable REIT
subsidiary, or an independent contractor from whom
ProLogis derives no income, except that ProLogis may directly
provide services that 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. 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 (other than the amounts attributable to
the provision of the de minimis impermissible services) 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. If
this 1% threshold is exceeded, none of the amounts received with
respect to that property will qualify as rent from real
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. Furthermore, ProLogis may furnish such
impermissible services to tenants through a taxable REIT
subsidiary and still treat amounts otherwise received with
respect to the property as rent from real property.
2. The 95% Gross Income 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 secured by an interest in
real property are included for purposes of the 95% gross income
test, but not for purposes of the 75% gross income test. Any
income from a hedging transaction that is clearly and timely
identified and hedges indebtedness incurred or to be incurred to
acquire or carry real estate assets will not constitute gross
income, rather than being treated as qualifying income or
non-qualifying income, for purposes of the 95% gross income
test. Income from a hedging transaction that does not meet these
requirements will be treated as non-qualifying income for
purposes of the 95% gross income test.
For purposes of determining whether ProLogis complies with the
75% and 95% gross income tests, gross income does not include
income from prohibited transactions. A prohibited
transaction is a sale of property held primarily for sale
to customers in the ordinary course of a trade or business,
excluding foreclosure property (described below), 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.
Foreclosure property is real property (including interests in
real property) and any personal property incident to such real
property (i) that is acquired by a real estate investment
trust as a result of the real estate investment trust having bid
in the property at foreclosure, or having otherwise reduced the
property to ownership or possession by agreement or process of
law, after there was a default (or default was imminent) on a
lease of the property or a mortgage loan held by the real estate
investment trust and secured by the property, (ii) for
which the related loan or lease was made, entered into or
acquired by the real estate investment trust at a time when
default was not imminent or anticipated and (iii) for which
such real estate investment trust makes an election to treat the
property as foreclosure property. Real estate investment trusts
generally are subject to tax at the maximum corporate tax rate
(currently 35%) on any net income from foreclosure property,
including any gain from the disposition of the foreclosure
property, other than income that would otherwise be qualifying
income for purposes of the 75% gross income test. Any gain from
the sale of property for which a foreclosure property election
has been made will not be subject to the 100% penalty tax on
gains from prohibited transactions described below, even if the
property was held primarily for sale to customers in the
ordinary course of a trade or business.
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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, as modified by the 2004 Act, will generally
be available if:
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(1) |
following ProLogis identification of the failure, it files
a schedule with a description of each item of gross income that
caused the failure in accordance with regulations prescribed by
the Treasury; and |
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(2) |
ProLogis failure to comply was due to reasonable cause and
not due to willful neglect. |
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.
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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 90% 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 90% of its net income after tax, if any, from
foreclosure property, minus the sum of some items of excess
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
90%, 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. A real estate
investment trust is permitted, 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 shareholders
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, her or its tax basis in his, her or its ProLogis
shares by the difference between the amount of income to the
holder resulting from the designation less the
shareholders 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 90% 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 90% 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.
ProLogis generally must make distributions during the taxable
year to which they relate. ProLogis may pay dividends in the
following year in two circumstances. First, ProLogis may declare
and pay dividends in the following year if the dividends are
declared before it timely files its tax return for the year and
if it pays the dividends before the first regular dividend
payment made after such declaration. Second, if ProLogis
declares a dividend in October, November, or December of any
year with a record date in one of these months and pays the
dividend on or before January 31 of the following year, it
will be treated as having paid the dividend on December 31
of the year in which the dividend was declared. To the extent
that ProLogis does not distribute all of its net capital gain or
if it distributes at least 90%, 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.
If ProLogis fails to meet the 90% distribution requirement as a
result of an adjustment to ProLogis tax return by the
Internal Revenue Service, or if ProLogis determines that it has
failed to meet the 90% distribution requirement in a
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prior taxable year, ProLogis may retroactively cure the failure
by paying a deficiency dividend, plus applicable
penalties and interest, within a specified period.
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Tax aspects of ProLogis investments in partnerships |
A portion of ProLogis investments are owned through
various partnerships. ProLogis will include its proportionate
share of (i) each partnerships 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
(ii) 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 U.S. 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.
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.
In the event that ProLogis fails to satisfy one or more
requirements for qualification as a real estate investment
trust, other than the 75% and the 95% gross income tests and
other than the asset tests, each of which is subject to the cure
provisions described above, ProLogis will retain its real estate
investment trust qualification if (i) the violation is due
to reasonable cause and not willful neglect and
(ii) ProLogis pays a penalty of $50,000 for each failure to
satisfy the provision.
Taxation of ProLogis shareholders
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Taxation of U.S. shareholders |
As long as ProLogis qualifies as a real estate investment trust,
distributions made to ProLogis U.S. 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 dividends and will not be eligible for the
dividends-received deduction for corporations. Ordinary
dividends will be taxable to ProLogis domestic
shareholders as ordinary income, except that prior to
January 1, 2011, such dividends will be taxed at the rate
applicable to long-term capital gains to the extent that such
dividends are attributable to dividends received by ProLogis
from non-real estate investment trust corporations (such as
taxable REIT subsidiaries) or are attributable to income upon
which ProLogis has paid corporate income tax (e.g., to the
extent that ProLogis distributes less than 100% of its taxable
income). Distributions and 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 his, her or 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
shareholders shares by the amount of such distribution,
but not below zero, with distributions in excess of the
shareholders 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
37
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. Shareholders may not include in their individual
income tax returns any net operating losses or capital losses of
ProLogis. Instead, ProLogis will generally carry over these
losses for potential offset against its future taxable income.
U.S. 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. In addition, under the so-called wash
sale rules, all or a portion of any loss that a
shareholder realizes upon a taxable disposition of ProLogis
common shares may be disallowed if the shareholder purchases
other common stock within 30 days before or after the
disposition. A non-corporate taxpayer may deduct capital losses
not offset by capital gains against ordinary income only up to a
maximum annual amount of $3,000. A non-corporate taxpayer may
carry forward unused capital losses indefinitely. A corporate
taxpayer must pay tax on its net capital gain at ordinary
corporate rates. A corporate taxpayer may deduct capital losses
only to the extent of capital gains, with unused losses being
carried back three years and forward five years.
Gain from the sale or exchange of shares held for more than one
year is taxed as long-term capital gain. Net long-term capital
gains of non-corporate taxpayers are taxed at a maximum capital
gain rate of 15% for sales or exchanges occurring prior to
January 1, 2011 (and 20% for sales or exchanges occurring
thereafter). Pursuant to Internal Revenue Service guidance,
ProLogis may classify portions of its capital gain dividends as
gains eligible for the 15% (or 20%) maximum 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 advisors with
respect to taxation of capital gains and capital gain dividends
and with regard to state, local and foreign taxes on capital
gains.
Taxable distributions that ProLogis pays and gain from the
disposition of its common shares will not be treated as passive
activity income and, therefore, shareholders generally will not
be able to apply any passive activity losses, such
as losses from certain types of limited partnerships in which
the shareholder is a limited partner, against such income or
gain. In addition, taxable distributions that ProLogis pays and
gain from the disposition of its common shares generally will be
treated as investment income for purposes of the investment
interest limitations. ProLogis will notify shareholders after
the close of its taxable year as to the portions of the
distributions attributable to that year that constitute ordinary
income, return of capital and capital gain.
If a domestic shareholder recognizes a loss upon a subsequent
disposition of ProLogis common shares in an amount that
exceeds a prescribed threshold, it is possible that the
provisions of recently adopted Treasury regulations involving
reportable transactions could apply, with a
resulting requirement to separately disclose the loss generating
transactions to the Internal Revenue Service. While these
regulations are directed towards tax shelters, they
are written quite broadly, and apply to transactions that would
not typically be considered tax shelters. Significant penalties
apply for failure to comply with these requirements. You should
consult your tax advisor concerning any possible disclosure
obligation with respect to the receipt or disposition of
ProLogis common shares, or transactions that might be
undertaken directly or indirectly by ProLogis. Moreover, you
should be aware that ProLogis and other participants in
transactions involving ProLogis (including their advisors) might
be subject to disclosure or other requirements pursuant to these
regulations.
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Information and reporting and 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
shareholders income
38
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.
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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. Social
clubs, voluntary employee benefit associations, supplemental
unemployment benefit trusts, and qualified group legal services
plans that are exempt from taxation under special provisions of
the U.S. federal income tax laws are subject to different
unrelated business taxable income rules, which generally will
require them to characterize distributions that they receive
from ProLogis as unrelated business taxable income.
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. ProLogis believes that it is not a
pension-held real estate investment trust.
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Taxation of foreign shareholders |
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 an
Internal Revenue Service Form W-8BEN with ProLogis or
unless the foreign shareholder files an Internal Revenue Service
Form W-8ECI with ProLogis claiming that the distribution is
effectively connected income. Under applicable
Treasury regulations, foreign shareholders generally have to
provide the Internal Revenue Service Form W-8ECI or
Form W-8BEN beginning January 1, 2000 and every three
years thereafter unless the information on the form changes
before that date. If a distribution is treated as effectively
connected with a foreign shareholders conduct of a
U.S. trade or business, the foreign shareholder generally
will be subject to U.S. federal income tax on the distribution
at graduated rates, in the same manner as domestic shareholders
are taxed on distributions, and also may be subject to the 30%
branch profits tax in the case of a foreign shareholder that is
a corporation.
A foreign shareholder will not incur tax on a distribution in
excess of ProLogis current and accumulated earnings and
profits if the excess portion of the distribution does not
exceed the adjusted tax basis of the shareholders common
shares. Instead, the excess portion of the distribution will
reduce the foreign shareholders adjusted tax basis for its
common shares. A foreign shareholder will be subject to tax on a
distribution that exceeds both ProLogis current and
accumulated earnings and profits and the adjusted tax basis for
its common shares, if the foreign shareholder otherwise would be
subject to tax on gain from the disposition of its common shares
as described herein. Because ProLogis generally cannot determine
at the time it makes a distribution whether or not the
distribution will exceed its current and accumulated earnings
and profits, it generally will withhold tax on the entire amount
of any distribution at the same rate at which it would withhold
on a dividend. However, a foreign shareholder may obtain a
refund of amounts that ProLogis withholds if it is subsequently
determined that a distribution was in excess of ProLogis
current and accumulated earnings and profits.
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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, (FIRPTA). Under
FIRPTA, gains are considered effectively connected with a
U.S. trade or business of the foreign shareholder and are
taxed at the normal graduated rates applicable to
U.S. shareholders. Moreover, gains may be subject to branch
profits tax in the hands of a shareholder that is a foreign
corporation if it is not entitled to treaty relief or exemption.
However, distributions of proceeds attributable to the sale or
exchange by ProLogis of U.S. real property interests will
not be subject to tax under FIRPTA or the branch profits tax,
and will instead be taxed in the same manner as distributions of
cash generated by ProLogis real estate operations other
than the sale or exchange of properties (as described above) if
(i) the distribution is made with regard to a class of
shares that is regularly traded on an established securities
market in the United States and (ii) the recipient
shareholder does not own more than 5% of that class of shares at
any time during the year within which the distribution is
received. ProLogis is required by applicable Treasury
regulations to withhold 35% of any distribution to a foreign
person owning more than 5% of the relevant class of shares that
could be designated by ProLogis as a capital gain dividend; this
amount is creditable against the foreign shareholders
FIRPTA tax liability.
ProLogis will qualify as a domestically controlled
qualified investment entity so long as it qualifies as a
real estate investment trust and 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 qualified investment entity. Under
these circumstances, except as described in the next sentence,
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 persons U.S. trade or
business or, in the case of an individual foreign person, such
person is present within the U.S. for 183 days or more
in such taxable year. Even if ProLogis is a domestically
controlled qualified investment entity, upon a foreign
shareholders disposition of its common shares (subject to
the 5% exception applicable to regularly traded
shares described below), such foreign shareholder may be treated
as having taxable gain from the sale or exchange of a
U.S. real property interest (within the meaning of FIRPTA)
if the foreign shareholder (i) disposes of ProLogis
common shares within a
30-day period preceding
the ex-dividend date of a distribution, any portion of which,
but for the disposition, would have been treated as gain from
the sale or exchange of a U.S. real property interest
(within the meaning of FIRPTA) and (ii) acquires, or enters
into a contract or option to acquire, other common shares of
ProLogis within 30 days after such ex-dividend date.
In the event that ProLogis does not constitute a domestically
controlled qualified investment entity, a foreign
shareholders sale of its common shares nonetheless will
generally not be subject to tax under FIRPTA as a sale of a
U.S. real property interest (within the meaning of FIRPTA)
provided that (i) ProLogis common shares are
regularly traded (as defined by applicable Treasury
Regulations) on an established securities market and
(ii) the selling foreign shareholder held (taking into
account constructive ownership rules) 5% or less of
ProLogis outstanding common shares at all times during a
specified testing period. If gain on a foreign
shareholders sale of ProLogis common shares were
subject to taxation under FIRPTA, the foreign shareholder would
be subject to the same treatment as a domestic shareholder with
respect to such gain (subject to applicable alternative minimum
tax and a special alternative minimum tax in the case of
nonresident alien individuals). In addition, the purchaser of
the common shares could be required to withhold 10% of the
purchase price and remit such amount to the Internal Revenue
Service.
The U.S. federal income taxation of foreign shareholders 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.
Long-term capital gains and qualified dividends
received by an individual are generally subject to
U.S. federal income tax at a maximum rate of 15%. Because
ProLogis is not generally subject to U.S. federal income
tax on the portion of its real estate investment trust taxable
income or capital gains distributed to its shareholders,
ProLogis dividends generally are not eligible for the 15%
maximum tax rate on dividends. As a result, ProLogis
ordinary real estate investment trust dividends continue to be
taxed at the higher tax rates applicable to ordinary income.
However, the 15% maximum tax rate for long-term capital gains
and qualified dividends generally applies to:
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a shareholders long-term capital gains, if any, recognized
on the disposition of ProLogis shares; |
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ProLogis distributions designated as long-term capital
gain dividends (except to the extent attributable to real estate
depreciation, in which case such distributions continue to be
subject to a 25% tax rate); |
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ProLogis distributions attributable to dividends received
by ProLogis from non-real estate investment trust corporations,
such as taxable REIT subsidiaries; and |
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ProLogis distributions to the extent attributable to
income upon which ProLogis has paid corporate income tax (e.g.,
to the extent that ProLogis distributes less than 100% of its
taxable income). |
Without future congressional action, the maximum tax rate on
long-term capital gains will increase to 20% in 2011, and the
maximum rate on dividends will increase to 39.6% in 2011.
Other Tax Considerations
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Investments in taxable REIT subsidiaries |
Several ProLogis subsidiaries have made timely elections to be
treated as taxable REIT subsidiaries of ProLogis. As taxable
REIT subsidiaries of ProLogis, these entities will pay federal
and state income taxes at the full applicable corporate rates on
their income prior to payment of any dividends. ProLogis
taxable REIT subsidiaries 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 a taxable REIT subsidiary of ProLogis is required to
pay federal, state or local taxes, the cash available for
distribution by such taxable REIT subsidiary to its
shareholders, including ProLogis, will be reduced accordingly.
Taxable REIT subsidiaries are subject to full corporate level
taxation on their earnings, but are permitted to engage in
certain types of activities that cannot be performed directly by
real estate investment trusts without jeopardizing their real
estate investment trust status. Taxable REIT subsidiaries are
subject to limitations on the deductibility of payments made to
the associated real estate investment trust that could
materially increase the taxable income of the taxable REIT
subsidiary and are subject to prohibited transaction taxes on
certain other payments made to the associated real estate
investment trust. ProLogis will be subject to a tax of 100% on
the amount of any rents from real property, deductions or excess
interest that would be reapportioned under Section 482 of
the Internal Revenue Code to one of its taxable REIT
subsidiaries in order to more clearly reflect income of the
taxable REIT subsidiary.
Under the taxable REIT subsidiary provision, ProLogis and any
taxable entity in which ProLogis owns an interest are allowed to
jointly elect to treat such entity as a taxable REIT
subsidiary. In addition, if any of ProLogis taxable
REIT subsidiaries owns, directly or indirectly, securities
representing 35% or more of the vote or value of an entity
treated as a corporation for tax purposes, that subsidiary will
also automatically be treated as a taxable REIT subsidiary of
ProLogis. As described above, taxable REIT subsidiary elections
have been made for certain entities in which ProLogis owns an
interest. Additional taxable REIT subsidiary elections may be
made in the future for additional entities in which ProLogis
owns an interest.
ProLogis has previously acquired assets from taxable
C-corporations in carry-over basis transactions, and may acquire
additional assets in such manner in the future. As a result of
such acquisitions, ProLogis could be liable for specified
liabilities that are inherited from such C-corporations. If
ProLogis recognizes gain on the disposition of such assets
during the 10-year
period beginning on the date on which such assets were acquired
by ProLogis, then to the extent of such assets
built-in gains (in other words, the excess of the
fair market value of such assets at the time of the acquisition
by ProLogis over the adjusted basis of such assets, determined
at the time of such acquisition), ProLogis will be subject to
tax on such gain at the highest corporate rate applicable. The
results described above with respect to the recognition of
built-in gain assume that the C-corporation whose assets are
acquired does not make an election to recognize such built-in
gain at the time of such acquisition.
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Affiliated real estate investment trust |
Palmtree Acquisition Corporation is a corporate subsidiary of
ProLogis which intends to qualify as a real estate investment
trust for U.S. federal income tax purposes. Palmtree
Acquisition Corporation therefore needs to satisfy the real
estate investment trust tests discussed in this prospectus. The
failure of Palmtree Acquisition Corporation to qualify as a real
estate investment trust could cause ProLogis to fail to qualify
as a real estate investment trust because ProLogis would then
own more than 10% of the securities of an issuer that was not a
real estate investment trust, a qualified real estate investment
trust subsidiary or a taxable REIT subsidiary. ProLogis believes
that Palmtree Acquisition Corporation has been organized and
operated in a manner that will permit it to qualify as a real
estate investment trust. As a real estate investment trust,
Palmtree Acquisition Corporation will be subject to the built-in
gain rules discussed in the section entitled
Tax on built-in gain above. Palmtree
Acquisition Corporation is the successor of Catellus Development
Corporation, which was a C-corporation that elected to be
treated as a real estate investment trust for U.S. federal
income tax purposes effective January 1, 2004. Therefore,
Palmtree Acquisition Corporation could be subject to a
U.S. federal corporate level tax at the highest regular
corporate rate (currently 35%) on any gain recognized within ten
years of Catellus Development Corporations conversion to a
real estate investment trust from the sale of any assets that
Catellus Development Corporation held at the effective time of
its election to be a real estate investment trust, but only to
the extent of the built-in gain based on the fair market value
of those assets as of the effective date of the real estate
investment trust election. ProLogis does not currently expect
Palmtree Acquisition Corporation to dispose of any assets if
such disposition would result in the imposition of a material
tax liability unless ProLogis can effect a tax-deferred exchange
of the property. However, certain assets are subject to third
party purchase options that may require Palmtree Acquisition
Corporation to sell such assets, and those assets may carry
deferred tax liabilities that would be triggered on such sales.
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Possible legislative or other actions affecting tax
consequences |
Prospective shareholders should recognize that the present
U.S. 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 U.S. 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.
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 U.S. 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.
Various ProLogis subsidiaries and entities in which ProLogis and
its subsidiaries invest 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 ProLogis shareholders will be
reduced accordingly.
You are advised to consult with your own tax advisor
regarding the specific tax consequences to you of the ownership
and sales of ProLogis debt securities, preferred shares and
common shares, including the U.S. federal, state, local,
foreign, and other tax consequences of such purchase and
ownership and of potential changes in applicable tax laws.
42
PLAN OF DISTRIBUTION
We may sell the offered securities to one or more underwriters
for public offering and sale by them or may sell the offered
securities to investors directly or through agents, which agents
may be affiliated with us. Direct sales to investors may be
accomplished through subscription offerings or through
subscription rights distributed to our shareholders. In
connection with subscription offerings or the distribution of
subscription rights to shareholders, if all of the underlying
offered securities are not subscribed for, we may sell such
unsubscribed offered securities to third parties directly or
through agents and, in addition, whether or not all of the
underlying offered securities are subscribed for, we may
concurrently offer additional offered securities to third
parties directly or through agents, which agents may be
affiliated with us. Any underwriter or agent involved in the
offer and sale of the offered securities will be named in the
applicable prospectus supplement.
The distribution of the offered securities may be effected from
time to time in one or more transactions at a fixed price or
prices, which may be changed, or at prices related to the
prevailing market prices at the time of sale, such as an
at the market offering, or at negotiated prices, any
of which may represent a discount from the prevailing market
price. We also may, from time to time, authorize underwriters
acting as our agents to offer and sell the offered securities
upon the terms and conditions set forth in the applicable
prospectus supplement. In connection with the sale of offered
securities, underwriters may be deemed to have received
compensation from us in the form of underwriting discounts or
commissions and may also receive commissions from purchasers of
offered securities for whom they may act as agent. Underwriters
may sell offered securities to or through dealers, and such
dealers may receive compensation in the form of discounts,
concessions or commissions from the underwriters and/or
commissions from the purchasers for whom they may act as agent.
Any underwriting compensation paid by us to underwriters or
agents in connection with the offering of offered securities,
and any discounts, concessions or commissions allowed by
underwriters to participating dealers, will be set forth in the
applicable prospectus supplement. Underwriters, dealers and
agents participating in the distribution of the offered
securities may be deemed to be underwriters, and any discounts
and commissions received by them and any profit realized by them
on resale of the offered securities may be deemed to be
underwriting discounts and commissions, under the Securities
Act. Underwriters, dealers and agents may be entitled, under
agreements entered into with us, to indemnification against and
contribution toward civil liabilities, including liabilities
under the Securities Act. Any such indemnification agreements
will be described in the applicable prospectus supplement.
If so indicated in the applicable prospectus supplement, we will
authorize dealers acting as our agents to solicit offers by
institutions to purchase offered securities from us at the
public offering price set forth in such prospectus supplement
pursuant to delayed delivery contracts providing for payment and
delivery on the date or dates stated in such prospectus
supplement. Each contract will be for an amount not less than,
and the aggregate principal amount of offered securities sold
pursuant to contracts shall be not less nor more than, the
respective amounts stated in the applicable prospectus
supplement. Institutions with whom contracts, when authorized,
may be made include commercial and savings banks, insurance
companies, pension funds, investment companies, educational and
charitable institutions, and other institutions but will in all
cases be subject to our approval.
Contracts will not be subject to any conditions except the
purchase by an institution of the offered securities covered by
its contracts shall not at the time of delivery be prohibited
under the laws of any jurisdiction in the United States to which
such institution is subject, and if the offered securities are
being sold to underwriters, we shall have sold to such
underwriters the total principal amount of the offered
securities less the principal amount of the securities covered
by contracts. Some of the underwriters and their affiliates may
be customers of, engage in transactions with and perform
services for us and our subsidiaries in the ordinary course of
business.
EXPERTS
The consolidated financial statements and related financial
statement schedule of ProLogis as of December 31, 2005 and
2004, and for each of the years in the three-year period ended
December 31, 2005 and ProLogis managements assessment
of the effectiveness of internal control over financial
reporting as of December 31, 2005, have been incorporated
by reference herein in reliance upon the reports of KPMG LLP,
independent registered public accounting firm, incorporated by
reference herein, and upon the authority of said firm as experts
in accounting and auditing.
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The audited historical financial statements and
managements assessment of the effectiveness of internal
control over financial reporting of Catellus Development
Corporation included on pages 2 and 3 of Exhibit 99.2
of ProLogis Current Report on
Form 8-K dated
September 20, 2005 have been so incorporated in reliance on
the report of PricewaterhouseCoopers LLP, an independent
registered public accounting firm, given on the authority of
said firm as experts in auditing and accounting.
With respect to the unaudited interim financial information of
ProLogis for the periods ended June 30, 2006 and 2005, and
March 31, 2006 and 2005, incorporated by reference in this
prospectus, the independent registered public accounting firm
has reported that they applied limited procedures in accordance
with professional standards for a review of such information.
However, their separate reports included in ProLogis
quarterly reports on
Form 10-Q for the
quarters ended June 30, 2006 and March 31, 2006,
incorporated by reference in this prospectus, state that they
did not audit and they do not express an opinion on that interim
financial information. Accordingly, the degree of reliance on
their reports on such information should be restricted in light
of the limited nature of the review procedures applied. The
accountant is 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 their
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.
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LEGAL MATTERS
The validity of the offered securities will be passed upon for
us by Mayer, Brown, Rowe & Maw LLP Chicago, Illinois.
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$
% Notes
due 20
PROSPECTUS SUPPLEMENT
November , 2006
Joint Book-Running Managers
Banc of America Securities
LLC
Citigroup
RBS Greenwich Capital