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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
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or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-20047
Corporate Office Properties Trust
(Exact name of registrant as specified in its charter)
Maryland 23-2947217
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Logan Square, Suite 1105, Philadelphia, PA 19103
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 567-1800
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
On August 12, 1998, 9,771,083 shares of the Company's Common Shares of
Beneficial Interest, $0.01 par value, were outstanding.
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Table of Contents
<TABLE>
<CAPTION>
Form 10-Q
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PAGE
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<S> <C> <C>
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements:
Consolidated Balance Sheets as of June 30, 1998 (unaudited) and
December 31, 1997 3
Consolidated Statements of Operations for the three and six
months ended June 30, 1998 and 1997 (unaudited) 4
Consolidated Statements of Cash Flows for the six months ended
June 30, 1998 and 1997 (unaudited) 5
Notes to Consolidated Financial Statements 6
Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 10
PART II: OTHER INFORMATION
Item 1: Legal Proceedings 14
Item 2: Changes in Securities 14
Item 3: Defaults Upon Senior Securities 14
Item 4: Submission of Matters to a Vote of Security Holders 14
Item 5: Other Information 14
Item 6: Exhibits and Reports on Form 8-K 14
SIGNATURES 17
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Corporate Office Properties Trust
Consolidated Balance Sheet
(Dollars in thousands, except share and per share data)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------------------- ---------------------
(unaudited)
<S> <C> <C>
Assets
Land $ 59,169 $ 38,764
Buildings and improvements 234,717 152,945
Furniture, fixtures and equipment 265 140
Less accumulated depreciation (5,479) (3,224)
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Net investments in real estate 288,672 188,625
Cash and cash equivalents 4,914 3,395
Restricted cash 143 --
Tenant accounts receivable 315 78
Deferred rent receivable 1,221 479
Deferred financing costs, net 1,220 857
Prepaid and other assets, net 1,040 100
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Total assets $ 297,525 $ 193,534
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Liabilities and shareholders' equity
Liabilities:
Mortgage loans payable $ 144,417 $ 114,375
Accounts payable and accrued expenses 1,282 932
Rents received in advance and security deposits 1,592 425
Dividends/distributions payable 2,706 1,276
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Total liabilities 149,997 117,008
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Minority interests:
Preferred Units 52,500 52,500
Partnership Units 11,999 12,362
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Total minority interests 64,499 64,862
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Commitments and contingencies -- --
Shareholders' equity:
Common Shares of beneficial interest ($0.01 par value; 45,000,000
authorized, 9,771,083 and 2,266,083 shares, issued and outstanding at June
30, 1998 and December 31, 1997,
respectively) 98 23
Additional paid-in capital 89,287 16,620
Accumulated deficit (6,356) (4,979)
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Total shareholders' equity 83,029 11,664
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Total liabilities and shareholders' equity $ 297,525 $ 193,534
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</TABLE>
See accompanying notes to financial statements.
3
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Corporate Office Properties Trust
Consolidated Statements of Operations
(Dollars in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, June 30,
----------------------------- --------------------------
1998 1997 1998 1997
--------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Revenues
Rental income $ 7,058 $ 626 $ 11,977 $ 1,252
Tenant recoveries and other income 784 6 1,390 13
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Total revenues 7,842 632 13,367 1,265
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Expenses
Property operating 1,645 6 2,544 12
General and administrative 359 90 658 176
Interest expense 2,416 307 4,575 615
Amortization of deferred financing costs 83 3 147 6
Depreciation and other amortization 1,281 139 2,258 278
Reformation costs -- -- 637 --
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Total expenses 5,784 545 10,819 1,087
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Income before minority interests 2,058 87 2,548 178
Minority interests
Preferred Units (853) -- (1,706) --
Partnership Units (276) -- (412) --
- ----------------------------------------------------------------- --------------- ------------- ------------ -------------
Net income $ 929 $ 87 $ 430 $ 178
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Earnings per Share
Basic and Diluted $ 0.12 $ 0.06 $ 0.09 $ 0.13
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</TABLE>
See accompanying notes to financial statements.
4
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Corporate Office Properties Trust
Consolidated Statements of Cash Flows
(Dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the six months ended
June 30,
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1998 1997
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 430 $ 178
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interests 2,118 --
Depreciation and amortization 2,258 278
Amortization of deferred financing costs 147 6
Increase in deferred rent receivable (742) (33)
Increase in tenant accounts receivable and other assets (1,029) (33)
Increase (decrease) in accounts payable, accrued expenses, rents
received in advance and security deposits 1,517 (1)
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Net cash provided by operating activities 4,699 395
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Cash flows from investing activities:
Proceeds from maturity of marketable securities -- 879
Purchase of marketable securities -- (800)
Increase in restricted cash (143) --
Purchases of and additions to investments in real estate (95,836) --
Leasing commissions paid (151) --
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Net cash (used in) provided by investing activities (96,130) 79
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Cash flows from financing activities:
Net proceeds from issuance of Common Shares 72,742 --
Dividends paid (623) (355)
Distributions paid (2,235) --
Proceeds from mortgage loans payable 23,750 --
Repayments of mortgage loans payable (174) (139)
Deferred financing costs (510) --
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Net cash provided by (used in) financing activities 92,950 (494)
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Net increase (decrease) in cash and cash equivalents 1,519 (20)
Cash and cash equivalents
Beginning of period 3,395 258
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End of period $ 4,914 $ 238
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</TABLE>
See accompanying notes to financial statements.
5
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Corporate Office Properties Trust
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(unaudited)
1. Organization and Formation of Company
Corporate Office Properties Trust (formerly Royale Investments, Inc.)
(the "Company") is a self-administered REIT which focuses on the ownership,
acquisition and management of suburban office buildings. The Company was formed
in 1988 as a Minnesota corporation. The Company has qualified as a real estate
investment trust ("REIT") as defined in the Internal Revenue Code (the "Code").
As of June 30, 1998, the Company's portfolio included 31 commercial real estate
properties leased for office and retail purposes.
The Company's operations are conducted primarily through Corporate
Office Properties, L.P. (the "Operating Partnership"), a partnership formed to
own real estate both directly and through subsidiary partnerships and limited
liability companies ("LLCs"). The Company is the sole general partner in the
Operating Partnership and as of June 30, 1998, owned 75.8% of the Operating
Partnership's common partnership units ("Partnership Units"). The general
partner of several of the subsidiary partnerships is Corporate Office Properties
Holdings, Inc. ("COPH"), a wholly owned subsidiary of the Company.
On January 1, 1998, the Company changed its name to Corporate Office
Properties Trust, Inc. On March 16, 1998, the Company was reformed as a Maryland
real estate investment trust and changed its name to Corporate Office Properties
Trust (the "Reformation"). In connection with the Reformation, 45,000,000 common
shares and 5,000,000 preferred shares were authorized and each share of common
stock was exchanged for one common share of beneficial interest, par $0.01
("Common Share") in Corporate Office Properties Trust. All common stock
references in the financial statements have been restated as Common Shares. This
restatement had no effect on net operations or the amounts presented as
shareholders' equity.
2. Summary of Significant Accounting Policies
The financial statements have been prepared by the Company without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
the financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading. In order to conform with
generally accepted accounting principles, management, in preparation of the
Company's financial statements, is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of June 30, 1998 and December 31, 1997, and
the reported amounts of revenues and expenses for the three and six months ended
June 30, 1998 and 1997. Actual results could differ from those estimates.
In the opinion of the Company, all adjustments (consisting solely of
normal recurring matters, except for $637 of costs associated with the
Reformation) necessary to fairly present the financial position of the Company
as of June 30, 1998, the results of its operations for the three and six months
ended June 30, 1998 and 1997 and the cash flows for the six months ended June
30, 1998 and 1997 have been included. The results of operations for such interim
periods are not necessarily indicative of the results for a full year. For
further information, refer to the Company's consolidated financial statements
and footnotes thereto included in the Annual Report on Form 10-K for the year
ended December 31, 1997.
Basis of Presentation
The consolidated financial statements of the Company at June 30, 1998
and December 31, 1997 include the accounts of the Company, the Operating
Partnership (and its subsidiary partnerships and LLCs), and COPH.
6
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All intercompany transactions and balances have been eliminated in
consolidation. Certain amounts from prior periods have been reclassified to
conform to current year presentation. The reclassifications had no effect on net
operations or shareholders' equity.
The Company, as general partner, controls the Operating Partnership;
therefore consolidated financial reporting and accounting have been applied.
Minority interests represent the Partnership Units and preferred partnership
units ("Preferred Units") of the Operating Partnership not owned by the Company,
each of which include certain interests retained by the Chairman of the Board of
Trustees and the President and Chief Executive Officer of the Company ("Retained
Interests").
Earnings Per Share ("EPS")
Pursuant to SFAS No. 128, the Company has computed basic and diluted
EPS for the three and six months ended June 30, 1998 and 1997. The weighted
average common shares outstanding for purposes of basic and diluted EPS
calculations are as follows (in thousands):
<TABLE>
<CAPTION>
Three months Ended June 30, Six Months Ended June 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average common shares-basic 7,628 1,420 4,964 1,420
Assumed conversion of stock options 21 -- 21 --
Conversion of Preferred Units 7,500 -- -- --
Conversion of Common Units 2,582 -- -- --
----- ----- ----- -----
Weighted average common shares-diluted 17,731 1,420 4,985 1,420
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
The diluted EPS computation for the six months ended June 30, 1998 does
not assume conversion of convertible Preferred Units and convertible Partnership
Units since such conversion would have an antidilutive effect on EPS. The
conversion of convertible Preferred Units and convertible Partnership Units into
Common Shares would increase the diluted weighted average common shares
denominator by 7,500,000 and 2,582,000 Common Shares, respectively, for the six
months ended June 30, 1998. Such conversions could potentially dilute EPS in the
future.
Recent Accounting Pronouncements
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131 (`SFAS 131), "Disclosures about Segments of an Enterprise and
Related Information". This statement, effective for financial statements for
fiscal years beginning after December 15, 1997, requires that a public business
enterprise report financial and descriptive information about its reportable
operating segments. Generally, financial information is required to be reported
on the basis that it is used internally for evaluating segment performance and
deciding how to allocate resources to segments. While this statement effects
only financial statement disclosures, the Company currently does not expect
adoption of this Statement to have a material effect on the preparation of its
financial statement presentation or related footnote disclosures. SFAS 131 is
not effective for interim financial statements in the initial year of its
application.
In March 1998, the FASB's Emerging Issues Task Force (the "Task Force")
reached consensus on Emerging Issues Task Force Issue No. 97-11, "Accounting for
Internal Costs Relating to Real Estate Property Acquisitions" ("EITF 97-11").
EITF 97-11, effective March 19, 1998, requires that internal costs of
preacquisition activities incurred in connection with the acquisition of an
operating property should be expensed as incurred. The Company does not incur
significant internal costs from preacquisition activities; therefore the
adoption of EITF 97-11 is not expected to have a material effect on the
Company's consolidated statement of operations.
7
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3. Acquisitions of Real Estate
On April 30, 1998, the Company, through affiliates of the Operating
Partnership, acquired nine multistory office buildings and three office/flex
buildings in the Baltimore/Washington Corridor in Linthicum, Anne Arundel
County, Maryland (the "Airport Square Properties"). The properties were acquired
for cash at an aggregate purchase price of $72,618, including $1,139 in
transaction costs.
On May 28, 1998, the Company, through affiliates of the Operating
Partnership, acquired two multistory office buildings located in Fairfield, New
Jersey (the "Fairfield Properties"). The properties were acquired at an
aggregate price of $29,405, including $605 in transaction costs, paid through
the assumption of debt of $6,465 and proceeds from the Credit Facility, as
defined below (Note 5).
4. Issuance of Shares and Options
In March 1998, options to purchase an aggregate of 45,000 shares were
granted to an officer and four independent Trustees at a grant price of $12.25
per share. Options relating to 20,000 Common Shares vest one year after the date
of grant and options relating to 25,000 Common Shares vest ratably over 3 years
following the date of grant. The options expire ten years after the date of
grant.
In January 1998, options to purchase 2,500 shares were exercised. In
March 1998, options to purchase an additional 2,500 shares were exercised.
On April 27 1998, the Company completed the sale of 7,500,000 Common
Shares to the public at a price of $10.50 per share (the "Offering"). The net
proceeds were contributed to the Operating Partnership in exchange for 7,500,000
Partnership Units. The Operating Partnership used the proceeds to fund
acquisitions.
5. Mortgage Loans Payable
On May 28, 1998, the Company obtained a $100,000 secured revolving
credit facility (the "Credit Facility") initially collateralized by the Airport
Square Properties and one of the Fairfield Properties. The Credit Facility is a
variable rate loan bearing interest at LIBOR plus 175 basis points and provides
for monthly payments of interest only. A fee of 25 basis points per annum on the
unused amount of the Credit Facility will be payable quarterly, in arrears. As
of June 30, 1998, $23,750 was borrowed under the Credit Facility. In addition,
$5,000 of the Credit Facility was issued as a letter of credit, which the
Company posted as a deposit in connection with the Constellation Transaction as,
defined below (Note 9).
On May 28, 1998, the Company assumed $6,465 in debt collateralized by
one of the Fairfield Properties. The debt bears interest at a fixed rate of
8.29% per annum and provides for monthly payments of principal and interest
totaling $56.
6. Dividends and Distributions
The Company declared a dividend on March 16, 1998 of $0.15 per Common
Share, which was paid on April 15, 1998 to shareholders of record as of March
31, 1998. The Company also declared a dividend on June 2, 1998 of $0.15 per
Common Share which was paid on July 15, 1998 to shareholders of record as of
June 30, 1998.
The Company declared distributions to minority interests holding
Partnership Units and Preferred Units of $388 and $853, respectively, which were
paid on April 15, 1998. The Company declared distributions to minority interests
holding Partnership Units and Preferred Units of $387 and $853, respectively,
which were paid on July 15, 1998.
8
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7. Supplemental Information to Statements of Cash Flows
<TABLE>
<CAPTION>
For the six months ended June 30,
-----------------------------------
1998 1997
----------------- -----------------
<S> <C> <C>
Supplemental schedule of non-cash investing and financing activities:
In conjunction with certain property acquisitions the following
assets and liabilities were assumed:
Purchase of real estate $ 6,465 $ --
---------- ----------
Mortgage loans (6,465) --
Proceeds from acquisitions of properties $ -- $ --
---------- ----------
---------- ----------
</TABLE>
8. Commitments and Contingencies
On May 14, 1998, the Company entered into a series of agreements
through affiliates of the Operating Partnership with Constellation Real Estate
Group, Inc. ("Constellation") and certain of its affiliates (the "Constellation
Transaction") to acquire (i) interests in eighteen operating office and retail
properties, (ii) options and rights of first refusal on 91 acres of land and
(iii) certain assets of Constellation's real estate management subsidiary,
including its 75% interest in Constellation Realty Management, LLC, a real
estate management firm. The total purchase price of the Constellation
Transaction is approximately $204,600 to be paid as follows: (i) $107,600 of
cash and/or assumption of debt, (ii) $72,750 of Common Shares (approximately
6,928,000 Common Shares at $10.50 per share) and (iii) $24,250 of Class A
Convertible Preferred Shares (convertible into Common Shares after two years at
the rate of $13.34 per Common Share). A Special Meeting of the shareholders to
vote to approve the Constellation Transaction is scheduled for August 21, 1998.
In connection with the Constellation Transaction, $5,000 of the Credit Facility
was issued as a letter of credit, which the Company posted as a deposit.
Other commitments and contingencies of the Company that existed at
December 31, 1997, are substantially unchanged.
9. Pro Forma Financial Information (Unaudited)
The acquisitions by the Company during 1997 and 1998 were accounted for
by the purchase method. The results of operations for the properties acquired
have been included in the accompanying consolidated statements of operations
from their respective purchase dates through June 30, 1998.
The following pro forma condensed consolidated financial information of
the Company has been prepared as if the all property acquisitions occurring
during 1997 and 1998 had occurred as of the beginning of the period, and
therefore include pro forma adjustments as deemed necessary by management. The
pro forma financial information is unaudited and is not necessarily indicative
of the results of which actually would have occurred if the acquisitions had
occurred on January 1, 1997 and 1998, nor does it purport to represent the
results of operations for future periods.
<TABLE>
<CAPTION>
For the six months ended June 30,
--------------------------------------
1998 1997
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<S> <C> <C>
Pro forma total revenue $ 18,569 $ 16,105
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Pro forma net income $ 1,731 $ 721
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Pro forma earnings per share - Basic and Diluted $ 0.18 $ 0.07
---------- --------
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</TABLE>
9
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ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
(Dollars in thousands, except share and per share data)
This Form 10-Q contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1993 and Section 21E of the Securities
Exchange Act of 1934. The words "believe", "expect", "anticipate", "intend",
"estimate" and other expressions which are predictions of or indicate future
events and trends and which do not relate to historical matters identify
forward-looking statements. The Company's actual results could differ materially
from those set forth in the forward-looking statements. Certain factors that
might cause such a difference include the following: real estate investment
considerations, such as the effect of economic and other conditions in the
market area on cash flows and values; the need to renew leases or release space
upon the expiration of current leases, and the ability of a property to generate
revenues sufficient to meet debt service payments and other operating expenses;
and risks associated with borrowings, such as the possibility that the Company
will not have sufficient funds available to make principal payments on
outstanding debt or outstanding debt may be refinanced at higher interest rates
or otherwise on terms less favorable to the Company.
The following discussion and analysis of the financial condition and
results of operations should be read in conjunction with the accompanying
financial statements and notes thereto.
Overview
The Company's results of operations reflect its growth resulting from
the acquisitions of 10 office properties in October 1997, 12 office properties
in April 1998 and 2 office properties in May 1998. The 1998 acquisitions were
financed with the proceeds from the Offering in April 1998, the proceeds of the
Credit Facility and the assumption of debt in connection with the acquisition of
the Fairfield Properties.
Results of Operations
Comparison of the Six Months Ended June 30, 1998 and 1997: Total
revenues, which include rental income, recoveries from tenants and other income,
increased by $12,102 for the six months ended June 30, 1998 as compared to the
corresponding prior year period. Of this increase, $10,725 results from an
increase in base rents, substantially all of which is attributable to the
effects of the property acquisitions. Tenant recoveries and other income
increased $1,377 due predominantly to tenant recoveries from newly acquired
properties.
Property operating expenses and depreciation and amortization increased
by $4,512 primarily as a result of the effects of the property acquisitions.
Interest expense and amortization of deferred financing costs increased by
$4,101 as a result of debt obtained or assumed in connection with certain of the
Company's acquisitions. General and administrative expenses increased by $482
due to the conversion of the Company from an externally-advised REIT to a
self-administered REIT, which resulted in the addition of certain management and
other staffing functions. The operations for the six months ended June 30, 1998
also included $637 in costs associated with the Reformation on March 16, 1998.
As a result of the above factors, income before minority interests
increased by $2,370. Minority interests represent the portion of the Operating
Partnership which is not owned by the Company. The Company did not have minority
interests in the corresponding prior year period. Earnings per share decreased
by $0.04 per share due to the issuance of Common Shares in October 1997 and in
the Offering of April, 1998 combined with other factors discussed above.
Comparison of the Three Months Ended June 30, 1998 and 1997: Total
revenues, which include rental income, recoveries from tenants and other income,
increased by $7,210 for the three months ended June 30, 1998 as compared to the
corresponding prior year period. Of this increase, $6,432 results from an
increase in base rents, substantially all of which is attributable to the
effects of the property acquisitions. Tenant recoveries and other income
increased $778 due predominantly to tenant recoveries from newly acquired
properties.
10
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Property operating expenses and depreciation and amortization increased
by $2,781 primarily as a result of the effects of the property acquisitions.
Interest expense and amortization of deferred financing costs increased by
$2,189 as a result of debt obtained or assumed in connection with certain of the
Company's acquisitions. General and administrative expenses increased by $269
due to the conversion of the Company from an externally-advised REIT to a
self-administered REIT, which resulted in the addition of certain management and
other staffing functions.
As a result of the above factors, income before minority interests
increased by $1,971. Minority interests represent the portion of the Operating
Partnership which is not owned by the Company. The Company did not have minority
interests in the corresponding period in 1997. Earnings per share increased by
$0.06 per share due to the factors discussed above partially offset by the
effects of the issuance of Common Shares in October, 1997 and the Offering of
April 1998.
Liquidity and Capital Resources
Historically, cash provided from operations represented the primary
source of liquidity to fund distributions, pay debt service and fund working
capital requirements. The Company expects to continue to meet its short-term
capital needs from property cash flow, including all property expenses, general
and administrative expenses, dividend and distribution requirements and
recurring capital improvements and leasing commissions. The Company does not
anticipate borrowing to meet these requirements.
In January 1998, the Company paid dividends of $0.125 per Common Share,
amounting to $282, and distributions to minority interests holding Partnership
Units and Preferred Units totaling $274 and $720, respectively. In April 1998,
the Company paid dividends of $0.15 per Common Share, amounting to $341, and
distributions to minority interests holding Partnership Units and Preferred
Units totaling $388 and $853, respectively. In July 1998, the Company paid
dividends totaling $0.15 per Common Share, amounting to $1,466, and
distributions to minority interests holding Partnership Units and Preferred
Units amounted to $387 and $853, respectively.
On April 27, 1998, the Company completed the sale of 7,500,000 Common
Shares to the public at a price of $10.50 per share. The Company used the
proceeds to acquire 7,500,000 Partnership Units and increase its percentage
interest in the Operating Partnership to approximately 75.8%. Net proceeds from
the Offering were $72,742, which were used principally by the Operating
Partnership on April 30, 1998, to acquire the Airport Square Properties,
consisting of twelve office properties in the Baltimore/Washington corridor
totaling approximately 815,000 net rentable square feet. In connection with the
Offering, the Company's Shares were listed on the New York Stock exchange under
the symbol "OFC".
On May 28, 1998, the Company, through the Operating Partnership,
acquired the Fairfield Properties, two multistory office buildings located in
Fairfield, New Jersey totaling approximately 262,000 net rentable square feet.
On May 28, 1998, the Company obtained a $100,000 senior secured
revolving Credit Facility. The Credit Facility is a variable rate loan bearing
interest at LIBOR plus 175 basis points and provides for monthly payments of
interest only. A fee of 25 basis points per annum on the unused amount of the
Credit Facility is payable quarterly, in arrears. On May 28, 1998, the Company
borrowed $23,750 under the Credit Facility to fund a portion of the Fairfield
Properties' acquisition. The Company intends to utilize the remaining balance of
the Credit Facility for acquisitions, renovations, tenant improvements and
leasing commissions. The Credit Facility is collateralized by the Airport Square
Properties and one of the Fairfield Properties.
On May 28, 1998, also in connection with the Fairfield Properties
acquisition, the Company assumed $6,465 in mortgage debt collateralized by one
of the Fairfield Properties. The loan bears interest at a fixed rate of 8.29%
per annum and provides for monthly payments of principal and interest totaling
$56.
11
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On May 14, 1998, the Company entered into a series of agreements
through affiliates of the Operating Partnership with Constellation and certain
of its affiliates to acquire (i) interests in eighteen operating office and
retail properties, (ii) options and rights of first refusal on 91 acres of land
and (iii) certain assets of Constellation's real estate management subsidiary,
including its 75% interest in Constellation Realty Management, LLC, a real
estate management firm. The total purchase price of the Constellation
Transaction is approximately $204,600 to be paid as follows: (i) $107,600 of
cash and/or assumption of debt, (ii) $72,750 of Common Shares (approximately
6,928,000 Common Shares at $10.50 per share) and (iii) $24,250 of Class A
Convertible Preferred Shares (convertible into Common Shares after two years at
the rate of $13.34 per Common Share). A Special Meeting of the shareholders to
vote to approve the Constellation Transaction is scheduled for August 21, 1998.
This transaction may partially be funded by availability under the Credit
Facility. In addition, the Company is presently negotiating with several lending
institutions regarding additional secured financing to fund the Constellation
Transaction. In connection with the Constellation Transaction, as of June 30,
1998, $5,000 of the Credit Facility was issued as a letter of credit which the
Company posted as a deposit.
To further meet long-term capital needs, the Company is presently
negotiating with several lending institutions regarding additional secured
financing arrangements, which the Company intends to utilize for additional
acquisitions, renovations, tenant improvements and leasing commissions.
Acquisitions may also be financed through net cash provided from operations or
equity issuances. There is no assurance that the Company will be able to obtain
such financing or that such financing will be adequate to fund the Company's
acquisition and capital program.
The Company expects to meet its long term liquidity requirements, such
as property acquisitions, scheduled debt maturities, major renovations,
expansions, and other non-recurring capital improvements through long-term
collateralized indebtedness and the issuance of additional equity securities.
Statement of Cash Flows
During the six months ended June 30, 1998, the Company generated $4,699
in cash flow from operating activities (net of nonrecurring Reformation costs of
$637), an increase of $4,304 compared to the corresponding prior year period.
This increase is due primarily to the effects of the Company's acquisition of
operating properties. Other sources of cash flow consisted of (i) $72,742 in net
proceeds from the Offering and (ii) $23,750 in additional borrowings under the
Company's Credit Facility. During the six months ended June 30, 1998, the
Company's major uses of cash included (i) $95,987 to fund property acquisitions,
tenant improvements, and leasing commissions and (ii) $2,858 to pay dividends to
shareholders and distributions to minority interests holding Partnership Units
and Preferred Units.
Funds From Operations
The Company considers Funds From Operation ("FFO") to be helpful to
investors as a measure of the financial performance of an equity REIT. In
accordance with NAREIT's definition, FFO is defined as net income (loss)
computed in accordance with GAAP, excluding gains (or losses) from debt
restructuring and sales of property, plus real estate-related depreciation and
amortization and afteradjustments for unconsolidated partnerships and joint
ventures and extraordinary and nonrecurring items. FFO does not represent cash
generated from operating activities determined in accordance with GAAP and
should not be considered as an alternative to net income (determined in
accordance with GAAP) as an indication of the Company's financial performance or
to cash flow from operating activities (determined in accordance with GAAP) as a
measure of the Company's liquidity, nor is it indicative of funds available to
fund the Company's cash needs, including its ability to make cash distributions.
Other REITs may not define FFO in accordance with the current NAREIT definition
or may interpret the current NAREIT definition differently from the Company. FFO
for the six months ended June 30, 1998 and 1997, as calculated in accordance
with the NAREIT definition published in March 1995, are summarized in the
following table (in thousands).
12
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income before minority interests ......... $ 2,058 $ 87 $ 2,548 $ 178
-------- -------- -------- --------
Add: Nonrecurring charge
Reformation costs ..................... -- -- 637 --
Add: Real estate related depreciation and
amortization .......................... 1,270 139 2,241 277
Less: Preferred Unit distributions ...... (853) -- (1,706) --
-------- -------- -------- --------
Funds from operations .................... 2,475 226 3,720 455
Add: Preferred Unit distributions ....... 853 -- 1,706 --
Funds from operations assuming
conversion of Preferred Units ......... $ 3,328 $ 226 $ 5,426 $ 455
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average Common Shares/Units
outstanding (1) ....................... 10,210 1,420 7,546 1,420
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average Common Shares/Units
outstanding diluted (2) ............... 17,731 1,420 15,067 1,420
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
- ---------------
(1) Assumes redemption of all Partnership Units, calculated on a weighted
average basis for Common Shares. Includes 282,508 Common Shares
issuable upon redemption of Partnership Units issuable upon the
conversion of the Retained Interests. Excludes the weighted average
effect of the conversion of 186,455 Retained Interests into 186,455
Preferred Units and 1,913,545 Preferred Units, both convertible into an
aggregate of 7,499,940 Partnership Units which are, in turn, redeemable
for
7,499,940 Common Shares.
(2) Assumes redemption of all Partnership Units, calculated on a weighted
average basis for Common Shares. Includes 282,508 Common Shares
issuable upon redemption of Partnership Units issuable upon the
conversion of the Retained Interests. Includes the weighted average
effect of the conversion of 186,455 Retained Interests into 186,455
Preferred Units and 1,913,545 Preferred Units, both convertible into an
aggregate of 7,499,940 Partnership Units which are, in turn, redeemable
for 7,499,940 Common Shares. Includes 70,000 Common Shares for the
assumed conversion of stock options (using the Treasury stock method).
Conversion of convertible Preferred Units and Partnership Units is
assumed in computing the diluted weighted average Common Shares
denominator since such conversion has a dilutive effect on FFO.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
The Company is not currently involved in any material litigation nor,
to the Company's knowledge, is any material litigation currently threatened
against the Company (other than routine litigation arising in the ordinary
course of business, substantially all of which is expected to be covered by
liability insurance).
ITEM 2. Changes In Securities
None.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Submission Of Matters To A Vote Of Security Holders
None.
ITEM 5. Other Information
None.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------------ ------------------------------------------------------------
<S> <C>
2.1 Assignment of Partnership Interests dated as of April 30,
1998 between Airport Square Limited Partnership, Airport
Square Corporation, Camp Meade Corporation and COPT
Airport Square One LLC and COPT Airport Square Two LLC.
(filed with the Company's Current Report on Form 8-K on
May 14, 1998 and incorporated herein by reference).
2.2 Contribution Agreement between the Company and the
Operating Partnership and certain Constellation affiliates
(filed as Exhibit A of the Company's Schedule 14A
Information on June 26, 1998 and incorporated herein by
reference).
2.3 Service Company Asset Contribution Agreement between the
Company and the Operating Partnership and certain
Constellation affiliates (filed as Exhibit B of the
Company's Schedule 14A Information on June 26, 1998 and
incorporated herein by reference).
2.4 Amended and Restated Limited Partnership Agreement of the
Operating Partnership dated March 16, 1998.
10.1 Assignment of Purchase and Sale Agreement dated as of
April 30, 1998 between Aetna Life Insurance Company and
the Operating Partnership. (filed with the Company's
Current Report on Form 8-K on May 14, 1998 and
incorporated herein by reference).
10.2 Assignment of Loan Purchase and Sale Agreement dated as of
April 30, 1998 between Constellation Real Estate, Inc. and
the Operating Partnership. (filed with the Company's
Current Report on Form 8-K on May 14, 1998 and
incorporated herein by reference).
14
<PAGE>
10.3 Purchase and Sale Agreement dated as of April 1, 1998
between Aetna Life Insurance Company and Airport Square
Limited Partnership (filed with the Company's Current
Report on Form 8-K on May 14, 1998 and incorporated herein
by reference).
10.4 Loan Purchase and Sale Agreement dated as of March 13,
1998 between Aetna Life Insurance Company and
Constellation Real Estate, Inc. (filed with the Company's
Current Report on Form 8-K on May 14, 1998 and
incorporated herein by reference).
10.5 Amendment to Loan Purchase and Sale Agreement dated as of
April 16, 1998 between Aetna Life Insurance Company and
Constellation Real Estate, Inc. (filed with the Company's
Current Report on Form 8-K on May 14, 1998 and
incorporated herein by reference).
10.6 Purchase and Sale Agreement dated as of March 4, 1998
between 695 Rt. 46 Realty, LLC, 710 Rt. 46 Realty, LLC and
COPT Acquisitions, Inc. (filed with the Company's Current
Report on Form 8-K on June 10, 1998 and incorporated
herein by reference).
10.7 Letter Amendment to Purchase and Sale Agreement dated as
of March 26, 1998 between 695 Rt. 46 Realty, LLC, 710 Rt.
46 Realty, LLC and COPT Acquisitions, Inc. (filed with the
Company's Current Report on Form 8-K on June 10, 1998 and
incorporated herein by reference).
10.8 Secured Promissory Note dated as of April 29, 1997 between
710 Rt. 46 Realty, LLC and Life Investors Insurance
Company of America (filed with the Company's Current
Report on Form 8-K on June 10, 1998 and incorporated
herein by reference).
10.9 Mortgage and Security Agreement dated as of April 29, 1997
between 710 Rt. 46 Realty, LLC and Life Investors
Insurance Company of America (filed with the Company's
Current Report on Form 8-K on June 10, 1998 and
incorporated herein by reference).
10.10 Senior Secured Revolving Credit Agreement dated as of May
28, 1998 between Corporate Office Properties, L.P.,
Corporate Office Properties Trust, Any Mortgaged Property
Subsidiary and Bankers Trust Company (filed with the
Company's Current Report on Form 8-K on June 10, 1998 and
incorporated herein by reference).
10.11 Option Agreement between the Operating Partnership and
NBP-III, LLC (a Constellation affiliate) (filed as Exhibit
C of the Company's Schedule 14A Information on June 26,
1998 and incorporated herein by reference).
10.12 Option Agreement between the Operating Partnership and
Constellation Gatespring II, LLC (a Constellation
affiliate) (filed as Exhibit D of the Company's Schedule
14A Information on June 26, 1998 and incorporated herein
by reference).
10.13 First Amendment to Option Agreement between the Operating
Partnership and NBP-III, LLC (a Constellation affiliate)
(filed as Exhibit E of the Company's Schedule 14A
Information on June 26, 1998 and incorporated herein by
reference).
10.14 First Amendment to Option Agreement between the Operating
Partnership and Constellation Gatespring II, LLC (a
Constellation affiliate) (filed as Exhibit F of the
Company's Schedule 14A Information on June 26, 1998 and
incorporated herein by reference).
15
<PAGE>
10.15 Development Property Acquisition Agreement between the
Operating Partnership and Constellation Properties, Inc.
(a Constellation affiliate) (filed as Exhibit G of the
Company's Schedule 14A Information on June 26, 1998 and
incorporated herein by reference).
10.16 Development Property Acquisition Agreement between the
Operating Partnership and CPI Piney Orchard Village
Center, Inc. (a Constellation affiliate) (filed as Exhibit
H of the Company's Schedule 14A Information on June 26,
1998 and incorporated herein by reference).
10.17 Amended and Restated Registration Rights Agreement dated
March 16, 1998 for the benefit of certain shareholders of
the Company.
27.1 Financial Data Schedule.
99.1 Press release dated May 15, 1998 regarding the Company's
entrance into a series of agreements through affiliates of
the Operating Partnership with Constellation and certain
Constellation affiliates to acquire real estate properties
and service businesses (filed with the Company's Current
Report on Form 8-K on May 29, 1998 and incorporated herein
by reference).
99.2 Press release dated August 12, 1998 regarding the
Company's earnings for the period ended June 30, 1998
(filed with the Company's Current Report on Form 8-K on
August 12, 1998 and incorporated herein by reference).
</TABLE>
(b) Reports on Form 8-K
During the three months ended June 30, 1998 and through August 7, 1998 the
Company filed the following:
i. a Current Report of Form 8-K filed May 15, 1998 (Reporting under Items 2
and 7) regarding the Company's acquisition through affiliates of the
Operating Partnership of nine multistory office buildings and three
office/flex buildings located in the Baltimore/Washington corridor
adjacent to BWI Airport in Linthicum, Anne Arundel County, Maryland.
ii.a Current Report of Form 8-K filed May 29, 1998 (Reporting under Items 5
and 7) regarding the Company's entrance into a series of agreements
through affiliates of the Operating Partnership with Constellation and
certain Constellation affiliates to acquire real estate properties and
service businesses.
iii. a Current Report of Form 8-K filed June 10, 1998 (Reporting under Items
2, 5 and 7) regarding the Company's acquisition through affiliates of the
Operating Partnership of two multistory office buildings located in
Fairfield, New Jersey and the Company's procurement of a $100,000 secured
credit facility.
iv.a Current Report of Form 8-KA filed July 7, 1998 (Amending Items 2 and 7
as originally filed) regarding the Company's acquisition through
affiliates of the Operating Partnership of two multistory office
buildings located in Fairfield, New Jersey.
v. a Current Report of Form 8-KA filed July 7, 1998 (Amending Items 2 and 7
as originally filed) regarding the Company's acquisition through
affiliates of the Operating Partnership of nine multistory office
buildings and three office/flex buildings located in the
Baltimore/Washington corridor adjacent to BWI Airport in Linthicum, Anne
Arundel County, Maryland.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CORPORATE OFFICE PROPERTIES TRUST
Date August 12, 1998 By: /s/ Clay W. Hamlin, III
-----------------------
Clay W. Hamlin, III
President and Chief Executive Officer
(Principal Executive Officer)
Date August 12, 1998 By: /s/ Thomas D. Cassel
--------------------
Thomas D. Cassel
Vice President - Finance and Treasurer
(Principal Financial and Accounting Officer)
17
<PAGE>
EXHIBIT 2.4
CORPORATE OFFICE PROPERTIES, L.P.
AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE
AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND THE APPLICABLE STATE SECURITIES LAWS PURSUANT TO
A REGISTRATION OR EXEMPTION THEREFROM.
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I - INTERPRETIVE PROVISIONS. . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.1 Certain Definitions. . . . . . . . . . . . . . . . . . . . 1
SECTION 1.2 Rules of Construction. . . . . . . . . . . . . . . . . . . 12
ARTICLE II - CONTINUATION. . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 2.1 Continuation . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 2.2 Name . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 2.3 Place of Business; Registered Office; Registered Agent.. . 13
ARTICLE III - BUSINESS PURPOSE . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 3.1 Business . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 3.2 Authorized Activities. . . . . . . . . . . . . . . . . . . 13
ARTICLE IV - CAPITAL CONTRIBUTION. . . . . . . . . . . . . . . . . . . . . . 13
SECTION 4.1 Capital Contributions. . . . . . . . . . . . . . . . . . . 13
SECTION 4.2 Additional Partnership Interests . . . . . . . . . . . . . 14
SECTION 4.3 No Third Party Beneficiaries . . . . . . . . . . . . . . . 15
SECTION 4.4 Capital Accounts . . . . . . . . . . . . . . . . . . . . . 15
SECTION 4.5 Return of Capital Account; Interest. . . . . . . . . . . . 17
SECTION 4.6 Preemptive Rights. . . . . . . . . . . . . . . . . . . . . 17
ARTICLE V - ALLOCATIONS AND DISTRIBUTIONS. . . . . . . . . . . . . . . . . . 17
SECTION 5.1 Limited Liability. . . . . . . . . . . . . . . . . . . . . 17
SECTION 5.2 Profits, Losses and Distributive Shares. . . . . . . . . . 17
SECTION 5.3 Distributions. . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 5.4 Distributions upon Liquidation . . . . . . . . . . . . . . 24
SECTION 5.5 Amounts Withheld . . . . . . . . . . . . . . . . . . . . . 24
SECTION 5.6 Restricted Distributions.. . . . . . . . . . . . . . . . . 24
ARTICLE VI - PARTNERSHIP MANAGEMENT. . . . . . . . . . . . . . . . . . . . . 25
SECTION 6.1 Management and Control of Partnership Business . . . . . . 25
SECTION 6.2 No Management by Limited Partners; Limitation of
Liability . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 6.3 Limitations on Partners. . . . . . . . . . . . . . . . . . 26
SECTION 6.4 Business with Affiliates . . . . . . . . . . . . . . . . . 26
SECTION 6.5 Compensation; Reimbursement of Expenses. . . . . . . . . . 27
i
<PAGE>
Page
SECTION 6.6 Liability for Acts and Omissions . . . . . . . . . . . . . 27
SECTION 6.7 Indemnification. . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE VII - ADMINISTRATIVE, FINANCIAL AND TAX MATTERS. . . . . . . . . . . 28
SECTION 7.1 Books and Records. . . . . . . . . . . . . . . . . . . . . 28
SECTION 7.2 Annual Audit and Accounting. . . . . . . . . . . . . . . . 29
SECTION 7.3 Partnership Funds. . . . . . . . . . . . . . . . . . . . . 29
SECTION 7.4 Reports and Notices. . . . . . . . . . . . . . . . . . . . 29
SECTION 7.5 Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 7.6 Withholding. . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE VIII - TRANSFER OF PARTNERSHIP INTERESTS; ADMISSION OF PARTNERS . . 31
SECTION 8.1 Transfer by General Partner. . . . . . . . . . . . . . . . 31
SECTION 8.2 Obligations of a Prior General Partner . . . . . . . . . . 31
SECTION 8.3 Successor General Partner. . . . . . . . . . . . . . . . . 31
SECTION 8.4 Restrictions on Transfer and Withdrawal by Limited
Partner.. . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 8.5 Substituted Limited Partner. . . . . . . . . . . . . . . . 33
SECTION 8.6 Timing and Effect of Transfers . . . . . . . . . . . . . . 33
SECTION 8.7 Additional Limited Partners. . . . . . . . . . . . . . . . 34
SECTION 8.8 Amendment of Agreement and Certificate . . . . . . . . . . 34
SECTION 8.9 Pledges. . . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE IX REDEMPTION AND CONVERSION . . . . . . . . . . . . . . . . . . . . 34
SECTION 9.1 Right of Redemption. . . . . . . . . . . . . . . . . . . . 34
SECTION 9.2 Timing of Redemption . . . . . . . . . . . . . . . . . . . 35
SECTION 9.3 Redemption Price . . . . . . . . . . . . . . . . . . . . . 35
SECTION 9.4 Assumption of Redemption Obligation. . . . . . . . . . . . 35
SECTION 9.5 Further Assurances; Certain Representations. . . . . . . . 35
SECTION 9.6 Effect of Redemption . . . . . . . . . . . . . . . . . . . 36
SECTION 9.7 Registration Rights. . . . . . . . . . . . . . . . . . . . 36
SECTION 9.8 Conversion . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 9.9 Redemption Restriction.. . . . . . . . . . . . . . . . . . 37
SECTION 9.10 Special Event.. . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE X - DISSOLUTION AND LIQUIDATION. . . . . . . . . . . . . . . . . . . 38
SECTION 10.1 Term and Dissolution. . . . . . . . . . . . . . . . . . . 38
SECTION 10.2 Liquidation of Partnership Assets.. . . . . . . . . . . . 39
SECTION 10.3 Effect of Treasury Regulations. . . . . . . . . . . . . . 40
SECTION 10.4 Time for Winding-Up . . . . . . . . . . . . . . . . . . . 41
ARTICLE XI - AMENDMENTS AND MEETINGS . . . . . . . . . . . . . . . . . . . . 41
ii
<PAGE>
Page
SECTION 11.1 Amendment Procedure . . . . . . . . . . . . . . . . . . . 41
SECTION 11.2 Meetings and Voting . . . . . . . . . . . . . . . . . . . 42
ARTICLE XII - MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . 43
SECTION 12.1 Title to Property . . . . . . . . . . . . . . . . . . . . 43
SECTION 12.2 Other Activities of Limited Partners and Preferred
Limited Partners. . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 12.3 Power of Attorney . . . . . . . . . . . . . . . . . . . . 43
SECTION 12.4 Notices . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 12.5 Further Assurances. . . . . . . . . . . . . . . . . . . . 45
SECTION 12.6 Titles and Captions . . . . . . . . . . . . . . . . . . . 45
SECTION 12.7 Applicable Law. . . . . . . . . . . . . . . . . . . . . . 45
SECTION 12.8 Binding Agreement . . . . . . . . . . . . . . . . . . . . 45
SECTION 12.9 Waiver of Partition . . . . . . . . . . . . . . . . . . . 45
SECTION 12.10 Counterparts and Effectiveness. . . . . . . . . . . . . . 45
SECTION 12.11 Survival of Representations . . . . . . . . . . . . . . . 45
SECTION 12.12 Entire Agreement. . . . . . . . . . . . . . . . . . . . . 45
SECTION 12.13 Temporary Allocation. . . . . . . . . . . . . . . . . . . 45
SECTION 12.14 Authorization and Consent . . . . . . . . . . . . . . . . 46
SECTION 12.15 Merger . . . . . . . . . . . . . . . . . . . . . . . . . 46
Exhibit 1- . . Schedule of Partners
Exhibit 2- . . Form of Redemption or Conversion Notice
Exhibit 3- . . Form of Registration Rights Agreement
<PAGE>
CORPORATE OFFICE PROPERTIES, L.P.
AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT
The undersigned, being the sole general partner and the
initial Limited Partners of CORPORATE OFFICE PROPERTIES, L.P. (the
"Partnership"), a limited partnership formed under the Delaware Revised
Uniform Limited Partnership Act, do hereby enter into this Partnership
Agreement as of this 16th day of March 1998.
R E C I T A L S:
A. The Partnership was formed pursuant to a Certificate
of Limited Partnership filed on October 10, 1997 with the Secretary of State
of the State of Delaware under the name "FCO, L.P." following the execution
of a Limited Partnership Agreement dated October 14, 1997 (the "Original
Partnership Agreement") among the General Partner's predecessor and the
initial Limited Partners.
B. The Partnership changed its name to Corporate Office
Property, L.P. as of January 1, 1998.
C. The General Partner was reformed as a Maryland real
estate investment trust on the date hereof.
D. The General Partner, the Limited Partners and the
Preferred Limited Partners desire to set forth the understandings and
agreements, including certain rights and obligations, among the Partners (as
hereinafter defined) with respect to the Partnership. This Agreement amends,
restates and supersedes the Original Partnership Agreement in its entirety.
- --------------------------------------------------------------------------------
ARTICLE I - INTERPRETIVE PROVISIONS
- --------------------------------------------------------------------------------
SECTION 1.1 Certain Definitions. The following terms
have the definitions hereinafter indicated whenever used in this Agreement
with initial capital letters:
Act: The Delaware Revised Uniform Limited Partnership
Act, Sections 17-101 to 17 -1111 of the Delaware Code, Title 6, as amended
from time to time.
Additional Limited Partner/Preferred Limited Partner: A
Person admitted to the Partnership as a Limited Partner or Preferred Limited
Partner in accordance with Section 8.7 hereof and who is shown as such on the
books and records of the Partnership in such Person's capacity as a limited
partner of the Partnership.
<PAGE>
2
Adjusted Capital Account: With respect to any Partner,
such Partner's Capital Account maintained in accordance with Section 4.4
hereof, as of the end of the relevant Fiscal Year of the Partnership, after
giving effect to the following adjustments:
(A) Credit to such Capital Account such Partner's share
of Partnership Minimum Gain determined in accordance with Treasury
Regulations Section 1.704-2(g)(1) and such Partner's share of Partner Minimum
Gain determined in accordance with Treasury Regulations Section 1.7042(i)(5).
(B) Debit to such Capital Account the items described in
Treasury Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
The foregoing definition of "Adjusted Capital Account" is
intended to comply with the provisions of Treasury Regulations Sections
1.704-1(b)(2)(ii) and 1.704-2 and shall he interpreted consistently therewith.
Adjusted Capital Account Deficit: With respect to any
Partner, the deficit balance, if any, in that Partner's Adjusted Capital
Account as of the end of the relevant Fiscal Year of the Partnership.
Affiliate: With respect to any referenced Person, (i) a
member of such Person's immediate family; (ii) any Person who directly or
indirectly owns, controls or holds the power to vote ten percent (10%) or
more of the outstanding voting interests or securities of the Person in
question; (iii) any Person ten percent (10%) or more of whose outstanding
interests or securities are directly or indirectly owned, controlled, or held
with power to vote by the Person in question; (iv) any Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with the Person in question; (v) if the Person in question is a
corporation, any executive officer or director of such Person or of any
corporation directly or indirectly controlling such Person: and (vi) if the
Person in question is a partnership, any general partner of the partnership
or any limited partner owning or controlling ten percent (10%) or more of
either the capital or profits interest in such partnership. As used herein,
"control" shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract, or otherwise.
Agreed Value: In the case of any (i) Contributed
Property acquired pursuant to a Contribution Agreement, the value of such
Contributed Property as set forth in or determined pursuant to such
Contribution Agreement or, if no such value is set forth or determined for
such Contributed Property, the portion of the consideration provided for
under such Contribution Agreement allocable to such Contributed Property, as
determined by the General Partner in its reasonable discretion, (ii)
Contributed Property acquired other than pursuant to a Contribution
Agreement, the fair market value of such property at the time of
contribution, as determined by the General Partner using such method of
valuation as it may adopt in its reasonable discretion and (iii) property
distributed to a Partner by the Partnership, the Partnership's Book Value of
such property at the time such property is distributed without taking into
account, in the case of each of (i), (ii) and (iii), the amount of any re-
<PAGE>
3
lated indebtedness assumed by the Partnership (or the Partner in the case of
clause (iii)) or to which the Contributed Property is taken subject.
Agreement: This Limited Partnership Agreement and all
Exhibits attached hereto, as the same may be amended or restated and in
effect from time to time which are hereby incorporated by reference and made
a part of this Agreement.
Assignee: Any Person to whom one or more Partnership
Units or Preferred Units have been Transferred as permitted under this
Agreement but who has not become a Substituted Limited Partner/Preferred
Limited Partner in accordance with the provisions hereof.
Bankruptcy: Either (i) a referenced Person's making an
assignment for the benefit of creditors, (ii) the filing by a referenced
Person of a voluntary petition in bankruptcy, (iii) a referenced Person's
being adjudged insolvent or having entered against such referenced Person an
order for relief in any bankruptcy or insolvency proceeding, (iv) the filing
by a referenced Person of an answer seeking any reorganization, composition,
readjustment, liquidation, dissolution, or similar relief under any law or
regulation, (v) the filing by a referenced Person of an answer or other
pleading admitting or failing to contest the material allegations of a
petition filed against such referenced Person in any proceeding of
reorganization, composition, readjustment, liquidation, dissolution, or for
similar relief under any statute, law or regulation or (vi) a referenced
Person's seeking, consenting to, or acquiescing in the appointment of a
trustee, receiver or liquidator for all or substantially all of such
referenced Person's property (or court appointment of such trustee, receiver
or liquidator). The foregoing is intended to supersede the events listed in
Section 17-402(a)(4) and (5) of the Act.
Book-Tax Disparity: With respect to any item of
Contributed Property, or property the Book Value of which has been adjusted
in accordance with Section 4.4(D), as of the date of determination, the
difference between the Book Value of such property and the adjusted basis of
such property for federal income tax purposes.
Book Value: With respect to any Contributed Property,
the Agreed Value of such property reduced (but not below zero) by all
Depreciation with respect to such property properly charged to the Partners'
Capital Accounts and with respect to any other asset, the asset's adjusted
basis for federal income tax purposes; provided, however, (a) the Book Value
of all Partnership Assets shall be adjusted in the event of a revaluation of
Partnership Assets in accordance with Section 4.4(D) hereof, (b) the Book
Value of any Partnership Asset distributed to any Partner shall be the fair
market value of such asset on the date of distribution as determined by the
General Partner and (c) such Book Value shall be adjusted by the Depreciation
taken into account with respect to such asset for purposes of computing
Profits and Losses.
Capital Account: The account maintained by the
Partnership for each Partner described in Section 4.4 hereof.
Capital Contribution: The total amount of cash or cash
equivalents and the Agreed Value (reduced to take into account the amount of
any related indebtedness assumed by the Partner
<PAGE>
4
ship, or to which the Contributed Property is subject) of Contributed
Property which a Partner contributes or is deemed to contribute to the
Partnership pursuant to the terms of this Agreement.
Cash Payment: The payment to a Redeeming Party of a cash
amount determined by multiplying (i) the number of Partnership Units tendered
for redemption by such Redeeming Party pursuant to a validly proffered
Redemption Notice by (ii) the Unit Value with respect to such Partnership
Units.
Certificate: The Partnership's Certificate of Limited
Partnership filed in the office of the Secretary of State of the State of
Delaware, as amended from time to time.
Code: The Internal Revenue Code of 1986, as amended from
time to time.
Consent: Either the written consent of a Person or the
affirmative vote of such Person at a meeting duly called and held pursuant to
this Agreement, as the case may be, to do the act or thing for which the
consent or vote is required or solicited, or the act of granting such consent
or vote, as the context may require.
Contributed Property: Each property or other asset
(excluding cash and cash equivalents) contributed or deemed contributed to
the Partnership (whether as a result of a Code Section 708 termination or
otherwise). For the avoidance of doubt, the properties and assets held by
the partnership constituting the Contributed Interests (as defined in the
Formation Agreement) shall constitute Contributed Properties to the extent
the Contributed Interests are acquired by the Partnership.
Contribution Agreements: Those certain agreements among
one or more of the Initial Limited Partners (or Persons in which such Initial
Limited Partners have direct or indirect interests) and the Partnership
pursuant to which, inter alia, the Initial Limited Partners (or such
Persons), directly or indirectly contributed property to the Partnership on
October 14, 1997 in exchange for Partnership Units or Preferred Units or are
to contribute property to the Partnership in exchange for Partnership Units
or Preferred Units including, without limitation, the Formation Agreement.
Conversion Factor: The factor (carried out to four
decimal places) applied for converting Partnership Units to REIT Shares,
which shall initially be 1.0; provided, however, in the event that on or
after the date of this Agreement the General Partner (i) declares or pays a
dividend on its outstanding REIT Shares in REIT Shares or makes a
distribution to all holders of its outstanding REIT Shares in REIT Shares,
(ii) subdivides its outstanding REIT Shares or (iii) combines its outstanding
REIT Shares into a
<PAGE>
5
smaller number of REIT Shares, the Conversion Factor shall be adjusted by
multiplying the Conversion Factor by a fraction, the numerator of which shall
be the number of REIT Shares issued and outstanding on the record date
(assuming for such purposes that such dividend, distribution, subdivision or
combination has occurred as of such time), and the denominator of which shall
be the actual number of REIT Shares (determined without the above assumption)
issued and outstanding on the record date for such dividend, distribution,
subdivision or combination; provided, further, in the event that the
Partnership (a) declares or pays a distribution on the outstanding
Partnership Units in Partnership Units or makes a distribution to all
Partners in Partnership Units, (b) subdivides the outstanding Partnership
Units or (c) combines the outstanding Partnership Units into a smaller number
of Partnership Units, the Conversion Factor shall be adjusted by multiplying
the Conversion Factor by a fraction, the numerator of which shall be the
actual number of Partnership Units issued and outstanding on the record date
(determined without giving effect to such dividend, distribution, subdivision
or combination), and the denominator of which shall be the actual number of
Partnership Units (determined after giving effect to such dividend,
distribution, subdivision or combination) issued and outstanding on such
record date. Any adjustment to the Conversion Factor shall become effective
immediately after the effective date of such event retroactive to the record
date, if any, for such event.
COPT: Corporate Office Properties Trust, a Maryland real
estate investment trust.
Depreciation: For each Fiscal Year or other period, an
amount equal to the depreciation, amortization or other cost recovery
deduction allowable with respect to an asset for such year or other period,
except that if the Book Value of an asset differs from its adjusted basis for
federal income tax purposes at the beginning of such year or other period,
Depreciation shall be adjusted as necessary so as to be an amount which bears
the same ratio to such beginning Book Value as the federal income tax
depreciation, amortization, or other cost recovery deduction for such year or
other period bears to the beginning adjusted tax basis; provided, however,
that if the federal income tax depreciation, amortization or other cost
recovery deduction for such year or other period is zero, Depreciation for
such year or other period shall be determined with reference to such
beginning Book Value using any reasonable method approved by the General
Partner.
Distributable Cash: with respect to any period, and
without duplication:
(i) all cash receipts of the Partnership during such period
from all sources;
(ii) less all cash disbursements of the Partnership during
such period. including, without limitation, disbursements for operating
expenses, taxes, debt service (including, without limitation, the payment of
principal, premium and interest), redemption of Partnership Interests and
capital expenditures;
(iii) less amounts added to reserves in the reasonable
discretion of the General Partner;
(iv) plus amounts withdrawn from reserves in the reasonable
discretion of the General Partner.
Distribution Period: The quarterly period commencing on
January 1, April 1, July 1 and October 1 of each year and ending on and
including the day preceding the next Distribution Period Commencement Date
with respect to the Preferred Units.
ERISA: The Employee Retirement Income Security Act of
1976, as amended from time to time.
<PAGE>
6
Fiscal Year: The calendar year or such other twelve (12)
month period designated by the General Partner.
Formation Agreement: The Formation/Contribution
Agreement dated as of September 7, 1997 by and among Royale, H/SIC
Corporation, Strategic Facility Investors, Inc., South Brunswick Investment
Company, LLC, Comcourt Investment Corporation, Gateway Shannon Development
Corporation, Crown Advisors, Inc., Vernon R. Beck and John Parsinen, as the
same has heretofore been and hereafter may at any time be amended, modified
and supplemented and in effect.
General Partner: COPT, and its respective successor(s)
who or which become Successor General Partner(s) in accordance with the terms
of this Agreement, in its capacity as general partner of the Partnership.
General Partner Interest: A Partnership Interest held by
the General Partner that is a general partner interest. A General Partner
Interest may be expressed as a number of Partnership Units.
Involuntary Withdrawal: As to any (i) individual shall
mean such individual's death, incapacity or adjudication of incompetence,
(ii) corporation shall mean its dissolution or revocation of its charter
(unless such revocation is promptly corrected upon notice thereof), (iii)
partnership shall mean the dissolution and commencement of winding up of its
affairs, (iv) trust shall mean the termination of the trust (but not the
substitution of trustees), (v) estate shall mean the distribution by the
fiduciary of the estate's complete interest in the Partnership and (vi)
Partner shall mean the Bankruptcy of such Partner.
IRS: The Internal Revenue Service, which administers the
internal revenue laws of the United States.
Limited Partner: Those Persons listed as such on Exhibit
1 attached hereto and made a part hereof, as such Exhibit may be amended from
time to time, including any Person who becomes a Substituted Limited Partner
or an Additional Limited Partner in accordance with the terms of this
Agreement in such Person's capacity as a limited partner of the Partnership;
provided, however, that such term shall not include the Preferred Limited
Partners.
Limited Partner Interest: A Partnership Interest held by
a Limited Partner that is a limited partner interest. A Limited Partner
Interest may be expressed as a number of Partnership Units.
Nonrecourse Liability: A liability as defined in
Treasury Regulations Section 1.704-2(b)(3).
Notice: A writing containing the information required by
this Agreement to be communicated to a Person and delivered to such Person in
accordance with Section 12.4; provided, however, that any written
communication containing such information actually received by such Person
shall constitute Notice for all purposes of this Agreement.
<PAGE>
7
Partner Minimum Gain: The gain (regardless of character)
which would be realized by the Partnership if property of the Partnership
subject to a partner nonrecourse debt (as such term is defined in Treasury
Regulation Section 1.704-2(b)(4)) were disposed of in full satisfaction of
such debt on the relevant date. The adjusted basis of property subject to
more than one partner nonrecourse debt shall be allocated in a manner
consistent with the allocation of basis for purposes of determining
Partnership Minimum Gain hereunder. Partner Minimum Gain shall be computed
hereunder using the Book Value, rather than the adjusted tax basis, of the
Partnership property in accordance with Treasury Regulations Section
1.704-2(d)(3).
Partner Nonrecourse Deductions: With respect to any
partner nonrecourse debt (as such term is defined in Treasury Regulation
Section 1.704-2(b)(4)), the increase in Partner Minimum Gain during the tax
year plus any increase in Partner Minimum Gain for a prior tax year which has
not previously generated a Partner Nonrecourse Deduction hereunder. The
determination of which Partnership items constitute Partner Nonrecourse
Deductions shall be made in a manner consistent with the manner in which
Partnership Nonrecourse Deductions are determined hereunder.
Partners: The General Partner, the Preferred Limited
Partners and the Limited Partners as a group. The term "Partner" shall mean
a General Partner, a Preferred Limited Partner or a Limited Partner. Such
terms shall be deemed to include such other Persons who become Partners
pursuant to the terms of this Agreement.
Partnership: The Delaware limited partnership referred
to herein as CORPORATE OFFICE PROPERTIES, L.P., as such partnership may from
time to time be constituted.
Partnership Assets: At any particular time, any assets
or property (real or personal, tangible or intangible, choate or inchoate,
fixed or contingent) owned by the Partnership.
Partnership Interest or Interest: As to any Partner,
such Partner's ownership interest in the Partnership and including such
Partner's right to distributions under this Agreement and any other rights or
benefits which such Partner has in the Partnership, together with any and all
obligations of such Person to comply with the terms and provisions of this
Agreement. A Partnership Interest may be expressed as a number of
Partnership Units or Preferred Units.
Partnership Minimum Gain: The aggregate gain (regardless
of character) which would be realized by the Partnership if all of the
property of the Partnership subject to nonrecourse debt (other than partner
nonrecourse debt as such term is defined in Treasury Regulations Section
1.704-2(b)(4)) were disposed of in full satisfaction of such debt and for no
other consideration on the relevant date. In the case of any Nonrecourse
Liability of the Partnership which is not secured by a mortgage with respect
to any specific property of the Partnership, any and all property of the
Partnership to which the holder of said liability has recourse shall be
treated as subject to such Nonrecourse Liability for purposes of the
preceding sentence. Partnership Minimum Gain shall be computed separately
for each Nonrecourse Liability of the Partnership. For this purpose, the
adjusted basis of property subject to two
<PAGE>
8
or more liabilities of equal priority shall be allocated among such
liabilities in proportion to the outstanding balance of such liabilities, and
the adjusted basis of property subject to two or more liabilities of unequal
priority shall be allocated to the liability of inferior priority only to the
extent of the excess, if any, of the adjusted basis of such property over the
outstanding balance of the liability of superior priority. Partnership
Minimum Gain shall be computed hereunder using the Book Value, rather than
the adjusted tax basis, of the Partnership property in accordance with
Treasury Regulations Section 1.704-2(d)(3).
Partnership Nonrecourse Deductions: The amount of
Partnership deductions equal to the increase, if any, in the amount of the
aggregate Partnership Minimum Gain during the tax year (plus any increase in
Partnership Minimum Gain for a prior tax year which has not previously
generated a Partnership Nonrecourse Deduction) reduced (but not below zero)
by the aggregate distributions made during the tax year of the proceeds of a
Nonrecourse Liability of the Partnership which are attributable to an
increase in Partnership Minimum Gain within the meaning of Treasury
Regulations Section 1.704-2(d). The Partnership Nonrecourse Deductions for a
Partnership tax year shall consist first of depreciation or cost recovery
deductions with respect to each property of the Partnership giving rise to
such increase in Partnership Minimum Gain on a pro rata basis to the extent
of each such increase, with any excess made up pro rata of all items of
deduction.
Partnership Unit: A fractional, undivided share of the
Partnership Interests of all Partners (other than the Preferred Limited
Partners) issued pursuant to Section 4.1 hereof.
Percentage Interest: As to any Partner (other than the
Preferred Limited Partners), the percentage in the Partnership, as determined
by dividing the Partnership Units then owned by such Partner by the total
number of Partnership Units then outstanding, as the same may be
automatically adjusted from time to time to reflect the issuance and
redemption of Partnership Units in accordance with this Agreement, without
requiring the amendment of Exhibit 1 to reflect any such issuance or
redemption.
Person: Any individual, partnership, limited liability
company, corporation, trust or other entity.
Preferred Conversion: As described in Section 9.8 hereof.
Preferred Limited Partner: Those Persons listed as such
on Exhibit 1 attached hereto and made a part hereof, as such Exhibit 1 may be
amended from time to time, in their capacity as limited partners in the
Partnership holding Preferred Units, including any Person who becomes a
Substituted Preferred Limited Partner or an Additional Preferred Limited
Partner in accordance with the terms of this Agreement.
Preferred Unit: The Partnership Interest held by a
Preferred Limited Partner that is a preferred limited partner interest in the
Partnership.
Priority Return Amount: For each Distribution Period, an
amount equal to 1.625% of that portion of the Capital Contribution of the
Preferred Limited Partner allocable to each Preferred Unit held by such
Preferred Limited Partner.
<PAGE>
9
Profits and Losses: For each Fiscal Year or other
period, an amount equal to the Partnership's taxable income or loss (as the
case may be) for such year or period, determined in accordance with Code
Section 703(a) (for this purpose, all items of income, gain, loss or
deduction required to be stated separately pursuant to Code Section 703(a)(1)
shall be included in taxable income or loss), with the following adjustments:
(i) Any income of the Partnership that is exempt from
federal income tax and not otherwise taken into account in computing Profits
or Losses pursuant to this definition shall be added to such taxable income
or loss;
(ii) Any expenditures of the Partnership described in
Code Section 705(a)(2)(B) or treated as Code Section
705(a)(2)(B) expenditures pursuant to Treasury Regulations
Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into
account in computing Profits or Losses pursuant to this
definition, shall be subtracted from such taxable income or
loss;
(iii) Gain or loss resulting from any disposition of
Partnership property with respect to which gain or loss is
recognized for federal income tax purposes shall be computed
by reference to the Book Value of the property disposed of
notwithstanding that the adjusted tax basis of such property
differs from such Book Value;
(iv) In lieu of the depreciation, amortization, and other
cost recovery deductions taken into account in computing such
taxable income or loss, there shall be taken into account
Depreciation for such Fiscal Year or other period, computed in
accordance with the definition of "Depreciation" herein; and
(v) In the event that any item of income, gain, loss or
deduction that has been included in the initial computation
of Profit or Loss is subject to the special allocation rules of
Sections 5.2(C) and 5.2(D), Profit or Loss shall be recomputed
without regard to such item.
Recourse Liabilities: The amount of liabilities owed by
the Partnership (other than nonrecourse liabilities and liabilities to which
Partner Nonrecourse Deductions are attributable in accordance with Treasury
Regulations Section 1.704-2(i)).
Redeeming Party: A Limited Partner or Assignee (other
than the General Partner) who tenders Partnership Units for redemption
pursuant to a Redemption Notice.
Redemption Date: The date for redemption of Partnership
Units as set forth in Section 9.2.
Redemption Notice: A Notice to the General Partner by a
Redeeming Party, substantially in the form attached as Exhibit 2, pursuant to
which the Redeeming Party requests the redemption of Partnership Units in
accordance with Article IX.
Redemption Obligation: The obligation of the Partnership
to redeem the Partnership Units as set forth in Section 9. 1 (A).
<PAGE>
10
Redemption Period: The 45-day period immediately
following the filing with the SEC by the General Partner of an annual report
of the General Partner on Form 10-K or a quarterly report of the General
Partner on Form 10-Q or such other period or periods as the General Partner
may otherwise determine fom time to time.
Redemption Price: As defined in Section 9.3 hereof.
Redemption Restriction: A restriction on the ability of
the Partnership to redeem the Partnership Units as set forth in Section 9. 1
(A).
Registration Rights Agreement: An Amended and Restated
Registration Rights Agreement, substantially in the form of Exhibit 3 hereto,
pursuant to which COPT will agree, among other things, to register under the
Securities Act of 1933, as amended, REIT Shares issued in connection with
Share Payments made under Article IX hereof.
REIT: A real estate investment trust, as defined in Code
Section 856.
REIT Charter: The Amended and Restated Declaration of
Trust of COPT filed with the State Department of Assessments and Taxation of
Maryland on March 3, 1998, as the same may have heretofore or may hereafter
be amended or restated and in effect from time to time.
REIT Share: A common share of beneficial interest
representing an ownership interest in the General Partner.
REIT Share Rights: Rights to acquire additional REIT
Shares issued to all holders of REIT Shares, whether in the form of rights,
options, warrants or convertible or exchangeable securities, to the extent
the same have been issued without additional consideration after the initial
acquisition of such REIT Shares.
SEC: The Securities and Exchange Commission.
Share Payment: The payment to a Redeeming Party of a
number of REIT Shares determined by multiplying (i) the number of Partnership
Units tendered for redemption by such Redeeming Party pursuant to a validly
proffered Redemption Notice by (ii) the Conversion Factor. In the event the
General Partner grants any REIT Share Rights on or after the date of this
Agreement and prior to such payment, any Share Payment shall include for the
Redeeming Party such Redeeming Party's ratable share of such REIT Share
Rights other than REIT Share Rights which have expired.
Subsidiary: With respect to any Person, any corporation
or other entity of which a majority of (i) the voting power of the voting
equity securities or (ii) the outstanding equity interests is owned, directly
or indirectly, by such Person.
Substituted Limited Partner/Preferred Limited Partner:
That Person or those Persons admitted to the Partnership as a substitute
Limited Partner or substitute Preferred Limited Partner, in accordance with
the provisions of this Agreement, in such Person's capacity as a limited
<PAGE>
11
partner of the Partnership. A Substituted Limited Partner or Substituted
Preferred Limited Partner, upon admission as such, shall succeed to the
rights, privileges and liabilities of the predecessor in interest as a
Limited Partner or Preferred Limited Partner.
Successor General Partner: Any Person who is admitted to
the Partnership as substitute General Partner pursuant to this Agreement, it
its capacity as a general partner of the Partnership. A Successor General
Partner, upon its admission as such, shall succeed to the rights, privileges
and liabilities of its predecessor in interest as General Partner, in
accordance with the provisions of the Act.
Tax Matters Partner: The General Partner or such other
Partner who becomes Tax Matters Partner pursuant to the terms of this
Agreement.
Terminating Capital Transaction: The sale or other
disposition of all or substantially all of the Partnership Assets or a
related series of transactions that, taken together, result in the sale or
other disposition of all or substantially all of the Partnership Assets.
Transfer: With respect to any Partnership Interest shall
mean a transaction in which a Partner assigns his Partnership Interest to
another Person and includes any sale, assignment, gift, exchange or other
disposition by law or otherwise; provided, however, the redemption of any
Partnership Interest pursuant to Article IX hereof shall not constitute a
"transfer" for purposes hereof.
Treasury Regulations: The Income Tax Regulations
promulgated under the Code, as such regulations may be amended from time to
time.
Unit Value: With respect to any Partnership Unit, the
average of the daily market price for a REIT Share for the ten (10)
consecutive trading days immediately preceding the date of receipt of a
Redemption Notice by the General Partner multiplied by the Conversion Factor.
If the REIT Shares are traded on a securities exchange or the NASDAQ Small
Cap Market or National Market System, the market price for each such trading
day shall be the reported last sale price on such day or, if no sales take
place on such day, the average of the closing bid and asked prices on such
day. If the REIT Shares are not traded on a securities exchange or the
NASDAQ Small Cap Market or National Market System, the market price for each
such trading day shall be determined by the General Partner using any
reasonable method of valuation. If a Share Payment would include any REIT
Share Rights, the value of such REIT Share Rights shall be determined by the
General Partner using any reasonable method of valuation, taking into account
the Unit Value determined hereunder and the factors used to make such
determination and the value of such REIT Share Rights shall be included in
the Unit Value.
SECTION 1.2 Rules of Construction. The following rules
of construction shall apply to this Agreement:
(A) All section headings in this Agreement are for
convenience of reference only and are not intended to qualify the meaning of
any section.
<PAGE>
12
(B) All personal pronouns used in this Agreement,
whether used in the masculine, feminine or neuter gender, shall include all
other genders, the singular shall include the plural, and vice versa, as the
context may require.
(C) Each provision of this Agreement shall be considered
severable from the rest, and if any provision of this Agreement or its
application to any Person or circumstances shall be held invalid and contrary
to any existing or future law or unenforceable to any extent, the remainder
of this Agreement and the application of any other provision to any Person or
circumstances shall not be affected thereby and shall be interpreted and
enforced to the greatest extent permitted by law so as to give effect to the
original intent of the parties hereto.
(D) Unless otherwise specifically and expressly limited
in the context, any reference herein to a decision, determination, act,
action, exercise of a right, power or privilege, or other procedure by the
General Partner shall mean and refer to the decision, determination, act,
action, exercise or other procedure by the General Partner in its sole and
absolute discretion.
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ARTICLE II - CONTINUATION
- --------------------------------------------------------------------------------
SECTION 2.1 Continuation. The Partners hereby continue
the Partnership as a limited partnership under the Act and the Persons listed
on Exhibit I as Partners shall continue as Partners in the Partnership. The
General Partner shall take all action required by law to perfect and maintain
the Partnership as a limited partnership under the Act and under the laws of
all other jurisdictions in which the Partnership may elect to conduct
business, including but not limited to the filing of amendments to the
Certificate with the Delaware Secretary of State, and qualification of the
Partnership as a foreign limited partnership in the jurisdictions in which
such qualification shall be required, as determined by the General Partner.
The General Partner shall also promptly register the Partnership under
applicable assumed or fictitious name statutes or similar laws.
SECTION 2.2 Name. The name of the Partnership is
CORPORATE OFFICE PROPERTIES, L.P. The General Partner may adopt such assumed
or fictitious names as it deems appropriate in connection with the
qualifications and registrations referred to in Section 2.1.
SECTION 2.3 Place of Business; Registered Office;
Registered Agent. The principal office of the Partnership is located at One
Logan Square, Suite 1105, Philadelphia, PA 19103, which office may be
changed to such other place as the General Partner may from time to time
designate. The Partnership may establish offices for the Partnership within
or without the State of Delaware as may be determined by the General Partner.
The address of the Partnership's initial registered office and the initial
registered agent for the Partnership in the State of Delaware is The
Corporation Trust Company, whose address is c/o Corporation Trust Center,
1209 Orange Street, Wilmington, Delaware 19801. The Partnership's registered
office and agent may be changed by the General Partner.
<PAGE>
13
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ARTICLE III - BUSINESS PURPOSE
- --------------------------------------------------------------------------------
SECTION 3.1 Business. The business of the Partnership
shall be (i) conducting any business that may be lawfully conducted by a
limited partnership pursuant to the Act including, without limitation,
acquiring, owning, managing, developing, leasing, marketing, operating and,
if and when appropriate, selling, commercial, industrial, office and net
leased retail properties, (ii) entering into any partnership, joint venture
or other relationship to engage in any of the foregoing or the ownership of
interests in any entity engaged in any of the foregoing, (iii) making loans,
guarantees, indemnities or other financial accommodations and borrowing money
and pledging its assets to secure the repayment thereof, (iv) to do any of
the foregoing with respect to any Affiliate or Subsidiary and (v) doing
anything necessary or incidental to the foregoing; provided, however, that
business of the Partnership shall be limited so as to permit the General
Partner to elect and maintain its status as a REIT (unless the General
Partner determines no longer to qualify as a REIT).
SECTION 3.2 Authorized Activities. In carrying out the
purposes of the Partnership, but subject to all other provisions of this
Agreement, the Partnership is authorized to engage in any kind of lawful
activity, and perform and carry out contracts of any kind, necessary or
advisable in connection with the accomplishment of the purposes and business
of the Partnership described herein and for the protection and benefit of the
Partnership; provided that the General Partner shall not be obligated to
cause the Partnership to take, or refraining from taking, any action which,
in the judgment of the General Partner, (i) could adversely affect the
ability of the General Partner to qualify and continue to qualify as a REIT,
(ii) could subject the General Partner to additional taxes under Code Section
857 or 4981 or (iii) could violate any law or regulation of any governmental
body or agency having jurisdiction over the General Partner or its securities.
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ARTICLE IV - CAPITAL CONTRIBUTION
- --------------------------------------------------------------------------------
SECTION 4.1 Capital Contributions.
(A) Upon the contribution to the Partnership of property
in accordance with a Contribution Agreement, Partnership Units and/or
Preferred Units shall be issued in accordance with, and as contemplated by,
such Contribution Agreement, and the Persons receiving such Partnership Units
and/or Preferred Units shall become Partners and shall be deemed to have made
a Capital Contribution as set forth on Exhibit 1. The Capital Contribution
made by each Partner contributing assets to the Partnership under the
Formation Agreement shall be determined by multiplying the number of
Partnership Units issued to such Partner by $5.50 and by multiplying the
number of Preferred Units issued to such Partner by $25.00. Exhibit I also
sets forth the number of Partnership Units and Preferred Units owned by each
Partner and the Percentage Interest of each Partner as of October 14,
<PAGE>
14
1997, which Percentage Interest shall be adjusted from time to time by the
General Partner to reflect the issuance of additional Partnership Units
and/or Preferred Units, the redemption of Partnership Units, the conversion
of Preferred Units into Partnership Units, additional Capital Contributions
and similar events having an effect on a Partner's Percentage Interest.
Except as set forth in Section 4.2 (regarding issuance of additional
Partnership Units) or Section 7.6 (regarding withholding obligations) of the
Act, no Partner shall be required under any circumstances to contribute to
the capital of the Partnership any amount beyond that sum required pursuant
to this Article IV.
(B) Anything in the foregoing Section 4. 1 (A) or
elsewhere in this Agreement notwithstanding, the Partnership Units held by
the General Partner shall, at all times, be deemed to be general partner
interests in the Partnership and shall constitute the General Partner
Interests.
SECTION 4.2 Additional Partnership Interests.
(A) The Partnership may issue additional limited
partnership interests in the form of Partnership Units or Preferred Units for
any Partnership purpose at any time or from time to time to any Partner or
other Person (other than the General Partner, except in accordance with
Section 4.2(B) below).
(B) The Partnership also may from time to time issue to
the General Partner additional Partnership Interests in such classes and
having such designations, preferences and relative rights (including
preferences and rights senior to the existing Limited Partner Interests) as
shall be determined by the General Partner in accordance with the Act and
governing law. Except as provided in Article IX, any such issuance of
Partnership Units, Preferred Units or Partnership Interests to the General
Partner shall be conditioned upon (i) the undertaking by the General Partner
of a related issuance of its capital stock (with such shares having
designations, rights and preferences such that the economic rights of the
holders of such capital stock are substantially similar to the rights of the
additional Partnership Interests issued to the General Partner) and the
General Partner making a Capital Contribution (a) in an amount equal to the
net proceeds raised in the issuance of such capital stock, in the event such
capital stock is sold for cash or cash equivalents or (b) the property
received in consideration for such capital stock, in the event such capital
stock is issued in consideration for other property or (ii) the issuance by
the General Partner of capital stock under any stock option or bonus plan and
the General Partner making a Capital Contribution in an amount equal to the
exercise price of the option exercised pursuant to such stock option or other
bonus plan.
(C) Except as contemplated by Article IX (regarding
redemptions) or Section 4.2(B), the General Partner shall not issue any (i)
additional REIT Shares, (ii) rights, options or warrants containing the right
to subscribe for or purchase REIT Shares (other than options granted under
the General Partner's Stock Option Plan for Non-Employee Directors, 1998 Long
Term Incentive Plan or any stock option or similar plan for officers,
directors and employees of the General Partner or any of its Affiliates) or
(iii) securities convertible or exchangeable
<PAGE>
15
into REIT Shares (collectively, "Additional REIT Securities") other than to
all holders of REIT Shares, pro rata, unless (x) the Partnership issues to
the General Partner (i) Partnership Interests, (ii) rights, options or
warrants containing the right to subscribe for or purchase Partnership
Interests or (iii) securities convertible or exchangeable into Partnership
Interests such that the General Partner receives an economic interest in the
Partnership substantially similar to the economic interest in the General
Partner represented by the Additional REIT Securities and (y) the General
Partner contributes to the Partnership the net proceeds from, or the property
received in consideration for, the issuance of the Additional REIT Securities
and the exercise of any rights contained in any Additional REIT Securities.
SECTION 4.3 No Third Party Beneficiaries. The
provisions of this Agreement, including the foregoing provisions of this
Article IV, are not intended to be for the benefit of any creditor of the
Partnership or other Person to whom any debts, liabilities or obligations are
owed by (or who otherwise has any claim against) the Partnership or any of
the Partners and no such creditor or other Person shall obtain any right
under any such provision against the Partnership or any of the Partners by
reason of any debt, liability or obligation (or otherwise).
SECTION 4.4 Capital Accounts.
(A) The Partnership shall establish and maintain a
separate Capital Account for each Partner in accordance with Code Section 704
and Treasury Regulations Section 1.7041(b)(2)(iv). The Capital Account of
each Partner shall be credited with:
(1) the amount of all Capital Contributions made to the
Partnership by such Partner in accordance with this Agreement;
plus
(2) all income and gain of the Partnership computed in
accordance with this Section 4.4 and allocated to such Partner
pursuant to Article V (including for purposes of this Section 4.4
(A), income and gain exempt from tax);
and shall be debited with the sum of:
(1) all losses or deductions of the Partnership computed
in accordance with this Section 4.4 and allocated to such Partner pursuant to
Article V;
(2) such Partner's distributive share of expenditures of
the Partnership described in Code Section 705(a)(2)(B); and
(3) all cash and the Agreed Value (reduced to take into
account the amount of any related indebtedness assumed by the Partner, or to
which the distributed property is subject) of any property actually
distributed or deemed distributed by the Partnership to such Partner pursuant
to the terms of this Agreement.
Any reference in any section or subsection of this
Agreement to the Capital Account of a Partner shall be deemed to refer to
such Capital Account as the same may be credited or debited from time to time
as set forth above.
(B) For purposes of computing the amount of any item of
income, gain, deduction or loss to be reflected in the Partners' Capital
Accounts, the determination, recognition and classi-
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16
fication of each such item shall be the same as its determination,
recognition and classification for federal income tax purposes, determined in
accordance with Code Section 703(a), with the following adjustments:
(1) any income, gain or loss attributable to the taxable
disposition of any Partnership Asset shall be determined by treating the
adjusted basis of such property as of the date of such disposition as equal
to the Book Value of such property as of such date;
(2) the computation of all items of income, gain, loss
and deduction shall be made without regard to any Code Section 754 election
that may be made by the Partnership, except to the extent required in
accordance with the provisions of Treasury Regulations Section
1.7041(b)(2)(iv)(m);
(3) in lieu of depreciation, amortization and other cost
recovery deductions taken into account in computing Profit and Loss, there
shall be taken into account Depreciation for such Fiscal Year; and
(4) in the event the Book Value of any Partnership Asset
is adjusted pursuant to Section 4.4(D) below, the amount of such adjustment
shall be treated as gain or loss from the disposition of such asset.
(C) Any transferee of a Partnership Interest shall
succeed to a pro rata portion of the transferor's Capital Account transferred
unless such Transfer causes a Code Section 708 termination of the
Partnership, in which case the Book Value of all Partnership Assets shall be
adjusted immediately prior to the deemed distribution pursuant thereto as
provided in Section 4.4(D).
(D) Consistent with the provisions of Treasury
Regulations Section 1.7041 (b)(2)(iv)(f), (i) immediately prior to the
acquisition of an additional Partnership Interest by any new or existing
Partner in connection with the contribution of money or other property (other
than a de minimis amount) to the Partnership, (ii) immediately prior to the
distribution by the Partnership to a Partner of Partnership property (other
than a de minimis amount) as consideration for a Partnership Interest and
(iii) immediately prior to the liquidation of the Partnership as defined in
Treasury Regulations Section 1.704-1(b)(2)(ii)(g), the Book Value of all
Partnership Assets shall be revalued upward or downward to reflect the fair
market value of each such Partnership Asset as determined by the General
Partner using such reasonable method of valuation as it may adopt unless the
General Partner shall determine that such revaluation is not necessary to
maintain Capital Accounts in accordance with Treasury Regulations Section
1.704-1(b)(2)(iv).
(E) The foregoing provisions of this Section 4.4 are
intended to comply with Treasury Regulations Section 1.704-1(b) and shall be
interpreted and applied in a manner consistent with such Treasury
Regulations. In the event the General Partner shall determine that it is
prudent to modify the manner in which the Partners' Capital Accounts are
computed hereunder in order to comply with such Treasury Regulations, the
General Partner may make such modification if such modification is not likely
to have a material effect on the amount or timing of any distribution to any
Partner
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17
under the terms of this Agreement and the General Partner notifies the other
Partners in writing of such modification prior to making such modification.
SECTION 4.5 Return of Capital Account; Interest. Except
as otherwise specifically provided in this Agreement, (i) no Partner shall
have any right to withdraw or reduce its Capital Contributions or Capital
Account, or to demand and receive property other than cash from the
Partnership in return for its Capital Contributions or Capital Account; (ii)
no Partner shall have any priority over any other Partners as to the return
of its Capital Contributions or Capital Account; (iii) any return of Capital
Contributions or Capital Accounts to the Partners shall be solely from the
Partnership Assets, and no Partner shall be personally liable for any such
return; and (iv) no interest shall be paid by the Partnership on Capital
Contributions or on balances in Partners' Capital Accounts.
SECTION 4.6 Preemptive Rights. No Person shall have any
preemptive or similar rights with respect to the issuance or sale of
additional Partnership Units or Preferred Units.
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ARTICLE V - ALLOCATIONS AND DISTRIBUTIONS
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SECTION 5.1 Limited Liability. For bookkeeping
purposes, the Profits of the Partnership shall be shared, and the Losses of
the Partnership shall be borne, by the Partners as provided in Section 5.2
below; provided, however, that except as required by the Act or as expressly
provided in this Agreement, neither any Limited Partner (in its capacity as a
Limited Partner) nor any Preferred Limited Partner (in its capacity as a
Preferred Limited Partner) shall be personally liable for losses, costs,
expenses, liabilities or obligations of the Partnership in excess of its
Capital Contribution required under Article IV hereof.
SECTION 5.2 Profits, Losses and Distributive Shares.
(A) Profits. After giving effect to the special allocations,
if any, provided in Section 5.2(C) and (D), Profits in each Fiscal Year shall
be allocated in the following order:
(1) First, to the General Partner until the cumulative
Profits allocated to the General Partner under this Section 5.2(A)(1) equal
the cumulative Losses allocated to such Partner under Section 5.2(B)(4);
(2) Second, to the Preferred Limited Partners in the
proportion to the cumulative Losses allocated to such Partners under Section
5.2(B)(3), until the cumulative Profits allocated to such Partners under this
Section 5.2(A)(2) equal the cumulative Losses allocated to such Partners
under Section 5.2(B)(3);
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18
(3) Third, to each Partner in proportion to the cumulative
Losses allocated to such Partner under Section 5.2(B)(2), until the
cumulative Profits allocated to such Partner under this Section 5.2(A)(3)
equal the cumulative Losses allocated to such Partner under Section 5.2(B)(2);
(4) Fourth, to each Partner in proportion to the cumulative
Losses allocated to such Partner under Section 5.2(B)(1), until the
cumulative Profits allocated to such Partner under this Section 5.2(A)(4)
equal the cumulative Losses allocated to such Partner under Section 5.2(B)(1);
(5) Fifth, to the Preferred Limited Partners in an amount
equal to the excess of (x) the Priority Return Amount for each Distribution
Period or portion thereof that ends on or prior to the close of the Fiscal
Year over (y) the cumulative Profits previously allocated under this Section
5.2(B)(5); and
(6) Then, the balance, if any, to the Partners (other than
the Preferred Limited Partners, with respect to their Preferred Units) in
accordance with their respective Percentage Interests.
The allocation of Profits to any Preferred Limited
Partner under Section 5.2(A)(5) shall be appropriately prorated in the case
of Preferred Units that are outstanding for less than all of any Distribution
Period.
(B) Losses. After giving effect to the special allocations,
if any, provided in Section 5.2(C) and (D), Losses in each Fiscal Year shall
be allocated in the following order of priority:
(1) First, to the Partners (other than the Preferred Limited
Partners, with respect to their Preferred Units), in accordance with their
respective Percentage Interests, but not in excess of the positive Capital
Account balance of any Partner prior to the allocation provided for in this
Section 5.2(B)(1);
(2) Second, to the Partners (other than the Preferred Limited
Partners, with respect to their Preferred Units) with positive Adjusted
Capital Account balances prior to the allocation provided for in this Section
5.2(B)(2), in proportion to the amount of such balances until all such
balances are reduced to zero;
(3) Third, to the Preferred Limited Partners in proportion to
their Adjusted Capital Account balances until their Adjusted Capital Accounts
are reduced to zero; and
(4) Thereafter, to the General Partner;
provided, however, that this Section 5.2(B) shall control, notwithstanding
any reallocation or adjustment of taxable income, loss or other items by the
Internal Revenue Service or any other taxing authority.
(C) Special Allocations. Except as otherwise provided in this
Agreement, the following special allocations will be made in the following
order and priority:
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19
(1) Partnership Minimum Gain Chargeback. Notwithstanding any
other provision of this Article V, if there is a net decrease in Partnership
Minimum Gain during any tax year or other period for which allocations are
made, each Partner will be specially allocated items of Partnership income
and gain for that tax year or other period (and, if necessary, subsequent
periods) in an amount equal to such Partner's share of the net decrease in
Partnership Minimum Gain during such tax year or other period determined in
accordance with Treasury Regulations Section 1.7042(g). Allocations pursuant
to the preceding sentence shall be made in proportion to the respective
amounts required to be allocated to each Partner pursuant thereto. The items
to be so allocated shall be determined in accordance with Treasury
Regulations Sections 1.704-2(f)(6) and 1.704-2(j)(2). This Section 5.2(C)(1)
is intended to comply with the minimum gain chargeback requirements set forth
in Treasury Regulations Section 1.704-2(f) and shall be interpreted
consistently therewith, including the exceptions to the minimum gain
chargeback requirement set forth in Treasury Regulations Section 1.704-2(f)
and (3). If the General Partner concludes, after consultation with tax
counsel, that the Partnership meets the requirements for a waiver of the
minimum gain chargeback requirement as set forth in Treasury Regulations
Section 1.704-2(f)(4), the General Partner may take steps reasonably
necessary or appropriate in order to obtain such waiver.
(2) Partner Nonrecourse Debt Minimum Gain Chargeback.
Notwithstanding any other provision of this Section (other than Section
5.2(C)(1) which shall be applied before this Section 5.2(C)(2)), if there is
a net decrease in Partner Minimum Gain during any tax year or other period
for which allocations are made, each Partner with a share of Partner Minimum
Gain determined in accordance with Treasury Regulations Section 1.704-2(i)(5)
shall be specially allocated items of Partnership income and gain for that
period (and, if necessary, subsequent periods) in an amount equal to such
Partner's share of the net decrease in Partner Minimum Gain determined in
accordance with Treasury Regulations Section 1.704-2(i)(4). The items to be
so allocated shall be determined in accordance with Treasury Regulations
Sections 1.704-2(i)(4) and 1.704-2(j)(2)(ii). This Section 5.2(C)(2) is
intended to comply with the minimum gain chargeback requirements of Treasury
Regulations Section 1.704-2(i)(4) and shall be interpreted consistently
therewith, including the exceptions set forth in Treasury Regulations Section
1.704-2(f)(2) and (3) to the extent such exceptions apply to Treasury
Regulations Sections 1.704-2(i)(4). If the General Partner concludes, after
consultation with tax counsel, that the Partnership meets the requirements
for a waiver of the Partner Minimum Gain chargeback requirement set forth in
Treasury Regulation 1.704-2(f), but only to the extent such exception applies
to Treasury Regulations Section 1.704-2(i)(4), the General Partner may take
steps necessary or appropriate to obtain such waiver.
(3) Qualified Income Offset. A Partner who unexpectedly
receives any adjustment, allocation or distribution described in Treasury
Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6) will be specially
allocated items of Partnership income and gain in an amount and manner
sufficient to eliminate, to the extent required by Treasury Regulations
1.704-1(b)(2)(ii)(d), the Adjusted Capital Account Deficit of the Partner as
quickly as possible; provided that an allocation pursuant to this Section
5.2(C)(3) shall be made if and only to the extent that such Partner would
have an Adjusted Capital Account Deficit after all other allocations provided
for in this Article V have been tentatively made as if this Section 5.2(C)(3)
were not contained in this Agreement.
<PAGE>
20
(4) Partnership Nonrecourse Deductions. Partnership
Nonrecourse Deductions for any taxable year or other period for which
allocations are made will be allocated among the Partners in proportion to
their respective Partnership Interests in the Partnership.
(5) Partner Nonrecourse Deductions. Notwithstanding anything
to the contrary in this Agreement, any Partner Nonrecourse Deductions for any
taxable year or other period for which allocations are made will be allocated
to the Partner who bears the economic risk of loss with respect to the
liability to which the Partner Nonrecourse Deductions are attributable in
accordance with Treasury Regulations Section 1.704-2(i).
(6) Code Section 754 Adjustments. To the extent an
adjustment to the adjusted tax basis of any Partnership asset under Code
Section 734(b) or 743(b) is required to be taken into account in determining
Capital Accounts under Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(2)
or (4), the amount of the adjustment to the Capital Accounts will be treated
as an item of gain (if the adjustment increases the basis of the asset) or
loss (if the adjustment decreases the basis of the asset), and the gain or
loss will be specially allocated to the Partners in a manner consistent with
the manner in which their Capital Accounts are required to be adjusted under
Treasury Regulations Section 1.704-1(b)(2)(iv)(m).
(7) Depreciation Recapture. In the event there is any
recapture of Depreciation or investment tax credit, the allocation thereof
shall be made among the Partners in the same proportion as the deduction for
such Depreciation or investment tax credit was allocated.
(8) Interest in Partnership. Notwithstanding any other
provision of this Agreement, no allocation of Profit or Loss (or item of
Profit or Loss) will be made to a Partner if the allocation would not have
"economic effect" under Treasury Regulations Section 1.704-1(b)(2)(ii)(a) or
otherwise would not be in accordance with the Partner's interest in the
Partnership within the meaning of Treasury Regulations Section 1.704-1(b)(3).
(D) Curative Allocations. The allocations set forth in
Section 5.2(C)(1) through (8) (the "Regulatory Allocations") are intended to
comply with certain requirements of Treasury Regulations Sections 1.704-1(b)
and 1.704-2. The Regulatory Allocations may not be consistent with the manner
in which the Partners intend to divide Partnership distributions.
Accordingly, the General Partner is authorized to further allocate Profits,
Losses, and other items among the Partners in a reasonable manner so as to
prevent the Regulatory Allocations from distorting the manner in which
Partnership distributions would be divided among the Partners under Section
5.3, but for application of the Regulatory Allocations. In general, the
reallocation will be accomplished by specially allocating other Profits,
Losses and items of income, gain, loss and deduction, to the extent they
exist, among the Partners so that the net amount of the Regulatory
Allocations and the special allocations to each Partner is zero. The General
Partner may accomplish this result in any reasonable manner that is
consistent with Code Section 704 and the related Treasury Regulations.
(E) Tax Allocations.
<PAGE>
21
(1) Except as otherwise provided in Section 5.2(E)(2),
each item of income, gain, loss and deduction shall be allocated for federal
income tax purposes in the same manner as each correlative item of income,
gain, loss or deduction, is allocated for book purposes pursuant to the
provisions of Section 5.2 hereof.
(2) Notwithstanding anything to the contrary in this
Article V, in an attempt to eliminate any Book-Tax Disparity with respect to
a Contributed Property, items of income, gain, loss or deduction with respect
to each such property shall be allocated for federal income tax purposes
among the Partners as follows:
(a) Depreciation, Amortization and Other Cost Recovery
Items. In the case of each Contributed Property with a Book-Tax
Disparity, any item of depreciation, amortization or other cost
recovery allowance attributable to such property shall be
allocated as follows: (x) first, to Partners (the
"Non-Contributing Partners") other than the Partners who
contributed such property to the Partnership (or are deemed to
have contributed the property pursuant to Section 4.1(A) (the
"Contributing Partners") in an amount up to the book allocation
of such items made to the Non-Contributing Partners pursuant to
Section 5.2 hereof, pro rata in proportion to the respective
amount of book items so allocated to the Non-Contributing
Partners pursuant to Section 5.2 hereof; and (y) any remaining
depreciation, amortization or other cost recovery allowance to
the Contributing Partners in proportion to their Percentage
Interests. In no event shall the total depreciation,
amortization or other cost recovery allowance allocated
hereunder exceed the amount of the Partnership's depreciation,
amortization or other cost recovery allowance with respect to
such property.
(b) Gain or Loss on Disposition. In the event the
Partnership sells or otherwise disposes of a Contributed
Property with a Book-Tax Disparity, any gain or loss recognized
by the Partnership in connection with such sale or other
disposition shall be allocated among the Partners as follows: (x)
first, any gain or loss shall be allocated to the Contributing
Partners in proportion to their Percentage Interests to the
extent required to eliminate any Book-Tax Disparity with respect
to such property; and (y) any remaining gain or loss shall be
allocated among the Partners in the same manner that the
correlative items of book gain or loss are allocated among the
Partners pursuant to Section 5.2 hereof.
(3) In the event the Book Value of a Partnership Asset
(including a Contributed Property) is adjusted pursuant to Section 4.4(D)
hereof, and such asset has not been deemed contributed to a new partnership,
with the contributing partnership then being liquidated pursuant to Code
Section 708 subsequent thereto, all items of income, gain, loss or deduction
in respect of such property shall be allocated for federal income tax
purposes among the Partners in the same manner as provided in Section
5.2(E)(2) hereof to take into account any variation between the fair market
value of the property, as determined by the General Partner using such
reasonable method of valuation as it may adopt, and the Book Value of such
property, both determined as of the date of such adjustment.
<PAGE>
22
(4) The General Partner shall have the authority to
elect alternative methods to eliminate the Book-Tax Disparity with respect to
one or more Contributed Properties, as permitted by Treasury Regulations
Sections 1.704-3 and 1.704-3T, and such election shall be binding on all of
the Partners.
(5) The Partners hereby intend that the allocation of
tax items pursuant to this Section 5.2(E) comply with the requirements of
Code Section 704(c) and Treasury Regulations Sections 1.704-3 and 1.704-3T.
(6) The allocation of items of income, gain, loss or
deduction pursuant to this Section 5.2(E) are solely for federal, state and
local income tax purposes, and the Capital Account balances of the Partners
shall be adjusted solely for allocations of "book" items in respect of
Partnership Assets pursuant to Section 5.2(A), (B), (C), (D) and (F) hereof
(F) Other Allocation Rules. The following rules will
apply to the calculation and allocation of Profits, Losses and other items:
(1) Except as otherwise provided in this Agreement, all
Profits, Losses and other items allocated to the Partners will be allocated
among them in proportion to their Percentage Interests.
(2) For purposes of determining the Profits, Losses or
any other item allocable to any period, Profits, Losses and other items will
be determined on a daily, monthly or other basis, as determined by the
General Partner using any permissible method under Code Section 706 and the
related Treasury Regulations.
(3) Except as otherwise provided in this Agreement, all
items of Partnership income, gain, loss and deduction, and other allocations
not provided for in this Agreement will be divided among the Partners in the
same proportions as they share Profits and Losses; provided that any credits
shall be allocated in accordance with Treasury Regulations Section
1.704-1(b)(4)(ii).
(4) For purposes of Treasury Regulations Section
1.752-3(a), the Partners hereby agree that any nonrecourse liabilities of the
Partnership in excess of the sum of (i) the Partnership Minimum Gain and (ii)
the aggregate amount of taxable gain that would be allocated to the Partners
under Section 704(c) (or in the same manner as Section 704(c) in connection
with a revaluation of Partnership property) if the Partnership disposed of
(in a taxable transaction) all Partnership property subject to one or more
nonrecourse liabilities of the Partnership in full satisfaction of such
liabilities and for no other consideration, shall be allocated among the
Partners in accordance with their respective shares of Profits. The General
Partner shall have discretion in any Fiscal Year to allocate such excess
nonrecourse liabilities among the Partners (a) in a manner reasonably
consistent with allocations (that have substantial economic effect) of some
other significant item of Partnership income or gain or (b) in accordance
with the manner in which it is reasonably expected that the deductions
attributable to the excess nonrecourse liabilities will be allocated.
<PAGE>
23
(G) Partner Acknowledgment. The Partners agree to be
bound by the provisions of this Section 5.2 in reporting their shares of
Partnership income, gain, loss, deduction and credit for income tax purposes.
(H) Regulatory Compliance. The foregoing provisions of
this Section 5.2 relating to the allocation of Profits, Losses and other
items for federal income tax purposes are intended to comply with Treasury
Regulations Sections 1.704-1(b), 1.704-2, 1.704-3 and 1.704-3T and shall be
interpreted and applied in a manner consistent with such Treasury Regulations.
SECTION 5.3 Distributions.
(A) Distributable Cash for each Fiscal Year shall be
distributed in the following order of priority:
(1) First, the General Partner shall cause the Partnership to
distribute to the holder of each Preferred Unit an amount in cash equal to
the cumulative undistributed Priority Return Amount on December 31, March 31,
June 30 and September 30 of each year, commencing on March 31, 1998 (or in
the case of a Preferred Unit with an issuance date after March 31, 1998, on
the first such distribution date following the applicable issuance date);
provided that, if any such distribution date shall be a Saturday, Sunday or
day on which banking institutions in the State of New York are authorized or
obligated by law to close, or a day which is declared a national or New York
State holiday (any of the foregoing, a "Non-business Day"), then such
distribution shall be made on the next succeeding day which is not a
Non-business Day. In any case in which a Preferred Unit is outstanding for
less than all of one or more Distribution Periods, the amount distributable
to the Preferred Limited Partner in respect of such Unit shall be
appropriately adjusted on the basis of a 360 day year consisting of twelve 30
day months.
(2) Second, there shall be distributed with respect to each
Partnership Unit an amount equal on a per Unit basis to the amount (other
than in REIT Shares) distributed by the General Partner on its common shares
during the Fiscal Year (other than a liquidating distribution), except that
the first distribution paid on Units issued on October 15, 1997 shall be pro
rated to reflect the actual portion of the period for which the distribution
is being paid during which such Units were outstanding. To the extent
practicable, distributions under this paragraph shall be made at the same
time as the dividend distributions on the General Partner's common shares.
(3) Third, there shall be distributed to each holder of a
Limited Partner Interest an amount equal to (x) the product of the taxable
income and gain allocated to such holder for the Fiscal Year under Section
5.2(E) and the maximum federal income tax rate plus 7% reduced by (y) the
distributions received by such holder under Section 5.3(A)(2) during the
Fiscal Year. To the extent practicable, distributions under this paragraph
shall be made in sufficient time to permit Limited Partners to pay required
installments of estimated tax and the final tax payment for the taxable year.
(B) After giving effect to Section 5.3(A), the General Partner
shall have the authority to cause the Partnership to make other distributions
from time to time as it determines, including without limitation, distributions
that are sufficient to enable the General Partner to (i) maintain its
<PAGE>
24
status as a REIT, (ii) avoid the imposition of any tax under Code Section 857
and (iii) avoid the imposition of any excise tax under Code Section 4981.
(C) Distributions pursuant to Section 5.3(B) shall be
made pro rata among the Partners of record on the Record Date established by
the General Partner for the distribution, in accordance with their respective
Percentage Interests, without regard to the length of time the record holder
has been such. Notwithstanding the foregoing, the General Partner may pro
rate any distributions pursuant to Section 5.3(A)(2) appropriately in the
case of Partnership Units that are outstanding for less than all of any
Distribution Period.
(D) The General Partner shall use its reasonable efforts
to make distributions to the Partners so as to preclude any distribution or
portion thereof from being treated as part of a sale of property to the
Partnership by a Partner under Section 707 of the Code or the Treasury
Regulations thereunder; provided that the General Partner and the Partnership
shall not have liability to a Limited Partner under any circumstances as a
result of any distribution to a Partner being so treated.
SECTION 5.4 Distributions upon Liquidation.
Notwithstanding any other provision hereof, proceeds of a Terminating Capital
Transaction and other distributions following dissolution of the Partnership
shall be distributed to the Partners in accordance with Section 10.2.
SECTION 5.5 Amounts Withheld. All amounts withheld
pursuant to the Code or any provision of state or local tax law and Section
7.6 of this Agreement with respect to any allocation, payment or distribution
to the General Partner, the Preferred Limited Partners, the Limited Partners
or Assignees shall be treated as amounts distributed to such General Partner,
the Preferred Limited Partners, the Limited Partners or Assignees, as
applicable, pursuant to Section 5.3 of this Agreement.
SECTION 5.6 Restricted Distributions. Notwithstanding
any provision to the contrary contained in this Agreement, the Partnership,
and the General Partner on behalf of the Partnership, shall not make a
distribution to a Partner on account of its interest in the Partnership if
such distribution would violate Section 17-607 of the Act or other applicable
law.
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ARTICLE VI - PARTNERSHIP MANAGEMENT
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SECTION 6.1 Management and Control of Partnership
Business.
(A) Except as otherwise expressly provided or limited by
the provisions of this Agreement, the General Partner shall have full,
exclusive and complete discretion to manage the business and affairs of the
Partnership, to make all decisions affecting the business and affairs of the
Partnership and to take all such action as it deems necessary or appropriate
to accomplish the purposes of the Partnership as set forth herein. Except as
set forth in this Agreement, neither the Limited
<PAGE>
25
Partners nor the Preferred Limited Partners shall have any authority, right,
or power to bind the Partnership, or to manage, or to participate in the
management of the business and affairs of the Partnership in any manner
whatsoever. Such management shall in every respect be the full and complete
responsibility of the General Partner alone as herein provided.
(B) In carrying out the purposes of the Partnership, the
General Partner shall be authorized to take all actions it deems necessary
and appropriate to carry on the business of the Partnership. The Limited
Partners and the Preferred Limited Partners, by execution hereof, agree that
the General Partner is authorized to execute, deliver and perform any
agreement and/or transaction on behalf of the Partnership, without their
further Consent, unless this Agreement expressly provides otherwise.
(C) The General Partner and its Affiliates may acquire
Limited Partner Interests or Preferred Units from Limited Partners or
Preferred Limited Partners who agree so to transfer Limited Partner Interests
or Preferred Units acquired from the Partnership in accordance with Section
4.2(A). Any Limited Partner Interest or Preferred Limited Partner Interest
acquired by the General Partner shall be automatically converted into a
General Partner Interest. Upon acquisition of any Limited Partner Interest
or Preferred Limited Partner Interest by an Affiliate of the General Partner,
such Affiliate shall have all the rights of a Limited Partner or Preferred
Limited Partner, as the case may be.
SECTION 6.2 No Management by Limited Partners;
Limitation of Liability.
(A) Neither the Limited Partners, in their capacity as
Limited Partners, nor the Preferred Limited Partners, in their capacity as
Preferred Limited Partners, shall take part in the day-to-day management,
operation or control of the business and affairs of the Partnership or have
any right, power, or authority to act for or on behalf of or to bind the
Partnership or transact any business in the name of the Partnership. Neither
the Limited Partners, in their capacity as Limited Partners, nor the
Preferred Limited Partners, in their capacity as Preferred Limited Partners,
shall have any rights other than those specifically provided herein or
granted by law where consistent with a valid provision hereof. Any approvals
rendered or withheld by the Limited Partners or the Preferred Limited
Partners pursuant to this Agreement shall be deemed as consultation with or
advice to the General Partner in connection with the business of the
Partnership and, in accordance with the Act, shall not be deemed as
participation by the Limited Partners or the Preferred Limited Partners in
the business of the Partnership and are not intended to create any inference
that the Limited Partners or the Preferred Limited Partners should be
classified as general partners under the Act.
(B) Neither any Limited Partner nor any Preferred
Limited Partner shall have any liability under this Agreement except with
respect to withholding under Section 7104 of the Code, in connection with any
express provision of this Agreement by such Limited Partner or Preferred
Limited Partner or as provided in the Act.
(C) The General Partner shall not take any action which
would subject a Limited Partner (in its capacity as Limited Partner) or a
Preferred Limited Partner (in its capacity as a Preferred Limited Partner) to
liability as a general partner.
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26
(D) No Partner shall take any action that would result
in the Partnership being treated as an association taxable as a corporation,
or as a corporation, for federal income tax purposes.
SECTION 6.3 Limitations on Partners.
(A) No Partner or Affiliate of a Partner shall have any
authority to perform (i) any act in violation of any applicable law or
regulation thereunder, (ii) any act prohibited by Section 6.2(C), or (iii)
any act which is required to be Consented to or ratified pursuant to this
Agreement without such Consent or ratification.
(B) No action shall be taken by a Partner if it would
cause the Partnership to be treated as an association taxable as a
corporation for federal income tax purposes or, without the consent of the
General Partner, as a publicly-traded partnership within the meaning of
Section 7.6 of the Code. A determination of whether such action will have
the above described effect shall be based upon a declaratory judgment or
similar relief obtained from a court of competent jurisdiction, a favorable
ruling from the IRS or the receipt of a written opinion of counsel.
SECTION 6.4 Business with Affiliates.
(A) The General Partner, in its discretion, may cause
the Partnership to transact business with any Partner or its Affiliates for
goods or services reasonably required in the conduct of the Partnership's
business; provided that any such transaction shall be effected only on terms
competitive with those that may be obtained in the marketplace from
unaffiliated Persons. The foregoing proviso shall not apply to transactions
between the Partnership and its Subsidiaries. In addition, neither the
General Partner nor any Affiliate of the General Partner may sell, transfer
or otherwise convey any property to, or purchase any property from, the
Partnership, except (i) on terms competitive with those that may be obtained
in the marketplace from unaffiliated Persons or (ii) where the General
Partner determines, in its sole judgment, that such sale, transfer or
conveyance confers benefits on the General Partner or the Partnership in
respect of matters of tax or corporate or financial structure; provided, in
the case of this clause (ii), such sale, transfer or conveyance is not being
effected for the purpose of materially disadvantaging the Limited Partners.
(B) In furtherance of Section 6.4(A), the Partnership
may lend or contribute to its Subsidiaries on terms and conditions
established by the General Partner.
SECTION 6.5 Compensation; Reimbursement of Expenses. In
consideration for the General Partner's services to the Partnership in its
capacity as General Partner, the Partnership shall pay on behalf of or
reimburse to the General Partner all expenses of the General Partner incurred
in connection with the management of the business and affairs of the
Partnership, including all employee compensation of employees of the General
Partner related to services performed for the Partnership and indemnity or
other payments made pursuant to agreements entered into in furtherance of the
Partnership's business. Except as otherwise set forth in this Agreement, the
General Partner shall be fully and entirely reimbursed by the Partnership for
any and all direct and indirect costs and expenses incurred in connection
with the formation and continuation of the Partnership pursuant to this
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27
Agreement. In addition, the General Partner shall be reimbursed by the
Partnership for all expenses incurred by the General Partner in connection
with issuance of additional Partnership Interests.
SECTION 6.6 Liability for Acts and Omissions.
(A) The General Partner shall not be liable, responsible
or accountable in damages or otherwise to the Partnership or any of the other
Partners for any act or omission performed or omitted in good faith on behalf
of the Partnership and in a manner reasonably believed to be (i) within the
scope of the authority granted by this Agreement and (ii) in the best
interests of the Partnership or the shareholders of the General Partner. In
exercising its authority hereunder, the General Partner may, but shall not be
under any obligation to, take into account the tax consequences to any
Partner of any action it undertakes on behalf of the Partnership. Neither
the General Partner nor the Partnership shall have any liability as a result
of any income tax liability incurred by a Partner as a result of any action
or inaction of the General Partner hereunder in good faith and, by their
execution of this Agreement, the Limited Partners and the Preferred Limited
Partners acknowledge the foregoing.
(B) Unless otherwise prohibited hereunder, the General
Partner shall be entitled to exercise any of the powers granted to it and
perform any of the duties required of it under this Agreement directly or
through any agent. The General Partner shall not be responsible for any
misconduct or negligence on the part of any agent; provided that the General
Partner selected or appointed such agent in good faith.
(C) The General Partner acknowledges that it owes
fiduciary duties both to its shareholders and to the Limited Partners and the
Preferred Limited Partners and it shall use its reasonable efforts to
discharge such duties to each; provided, however, that in the event of a
conflict between the interests of the shareholders of the General Partner and
the interests of the Limited Partners or the Preferred Limited Partners, the
Limited Partners and the Preferred Limited Partners agree that the General
Partner shall discharge its fiduciary duties to the Limited Partners and the
Preferred Limited Partners by acting in the best interests of the General
Partner's shareholders. Nothing contained in the preceding sentence shall be
construed as entitling the General Partner to realize any profit or gain from
any transaction between the General Partner and the Partnership (except in
connection with a distribution in accordance with this Agreement), including
from the lending of money by the General Partner to the Partnership or the
contribution of property by the General Partner to the Partnership, it being
understood that in any such transaction the General Partner shall be entitled
to cost recovery only.
The provisions of this Agreement, to the extent that they
restrict the duties and liabilities of the General Partner otherwise existing
at law or in equity, are agreed by the Partners to replace such other duties
and liabilities of the General Partner.
SECTION 6.7 Indemnification.
(A) The Partnership shall indemnify the General Partner
and each director, officer and shareholder of the General Partner and each
Person (including any Affiliate) designated as an agent by the General
Partner in its reasonable discretion (each, an "Indemnified Party") to the
fullest
<PAGE>
28
extent permitted under the Act (including any procedures set forth therein
regarding advancement of expenses to such Indemnified Party) from and against
any and all losses, claims, damages, liabilities, expenses (including
reasonable attorneys' fees), judgments, fines, settlements and any other
amounts arising out of or in connection with any claims, demands, actions,
suits or proceedings (civil, criminal or administrative) relating to or
resulting (directly or indirectly) from the operations of the Partnership, in
which such Indemnified Party becomes involved, or reasonably believes it may
become involved, as a result of the capacity referred to above.
(B) The Partnership shall have the authority to purchase
and maintain such insurance policies on behalf of the Indemnified Parties as
the General Partner shall determine, which policies may cover those
liabilities the General Partner reasonably believes may be incurred by an
Indemnified Party in connection with the operation of the business of the
Partnership. The right to procure such insurance on behalf of the
Indemnified Parties shall in no way mitigate or otherwise affect the right of
any such Indemnified Party to indemnification pursuant to Section 6.7(A)
hereof.
(C) The provisions of this Section 6.7 are for the
benefit of the Indemnified Parties, their heirs, executors, guardians,
conservators, successors, assigns and administrators and shall not be deemed
to create any rights in or benefit to any other Person.
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ARTICLE VII - ADMINISTRATIVE, FINANCIAL AND TAX MATTERS
- --------------------------------------------------------------------------------
SECTION 7.1 Books and Records. The General Partner
shall maintain at the office of the Partnership full and accurate books of
the Partnership showing all receipts and expenditures, assets and
liabilities, profits and losses, names and current addresses of Partners, and
all other records necessary for recording the Partnership's business and
affairs. Each Limited Partner and Preferred Limited Partner shall have, upon
written demand and at such Limited Partner's or Preferred Limited Partner's
expense, as the case may be, the right to receive true and complete
information regarding Partnership matters to the extent required (and subject
to the limitations) under Delaware law.
SECTION 7.2 Annual Audit and Accounting. The books and
records of the Partnership shall be kept for financial and tax reporting
purposes on the accrual basis of accounting in accordance with generally
accepted accounting principles ("GAAP"). The accounts of the Partnership
shall be audited annually by a nationally recognized accounting firm of
independent public accountants selected by the General Partner (the
"Independent Accountants").
SECTION 7.3 Partnership Funds. The General Partner
shall have responsibility for the safekeeping and use of all funds and assets
of the Partnership, whether or not in its direct or indirect possession or
control. All funds of the Partnership not otherwise invested shall be
deposited in one or more accounts maintained in such banking institutions as
the General Partner shall determine, and withdrawals shall be made only in
the regular course of Partnership business on such signatures as the General
Partner may from time to time determine.
<PAGE>
29
SECTION 7.4 Reports and Notices. The General Partner
shall provide all Partners with the following reports no later than the dates
indicated or as soon thereafter as circumstances permit:
(A) By March 31 of each year, IRS Form 1065 and Schedule
K-1, or similar forms as may be required by the IRS, stating each Partner's
allocable share of income, gain, loss, deduction or credit for the prior
Fiscal Year;
(B) Within ninety (90) days after the end of each of the
first three (3) fiscal quarters, as of the last day of the fiscal quarter, a
report containing unaudited financial statements of the Partnership, or of
the General Partner if such statements are prepared on a consolidated basis
with the General Partner, and such other information as may be legally
required or determined to be appropriate by the General Partner; and
(C) Within one hundred twenty (120) days after the end
of each Fiscal Year, as of the close of the Fiscal Year, an annual report
containing audited financial statements of the Partnership, or of the General
Partner if such statements are prepared on a consolidated basis with the
General Partner, presented in accordance with GAAP and certified by the
Independent Accountants.
SECTION 7.5 Tax Matters.
(A) The General Partner shall be the Tax Matters Partner
of the Partnership for federal income tax matters pursuant to Code Section
6231(a)(7)(A). The Tax Matters Partner is authorized and required to
represent the Partnership (at the expense of the Partnership) in connection
with all examinations of the affairs of the Partnership by any federal,
state, or local tax authorities, including any resulting administrative and
judicial proceedings, and to expend funds of the Partnership for professional
services and costs associated therewith. The Tax Matters Partner shall
deliver to the Limited Partners and Preferred Limited Partners within ten
(10) business days of the receipt thereof a copy of any notice or other
communication with respect to the Partnership received from the IRS (or other
governmental tax authority), or any court, in each case with respect to any
administrative or judicial proceeding involving the Partnership. The
Partners agree to cooperate with each other in connection with the conduct of
all proceedings pursuant to this Section 7.5(A).
(B) The Tax Matters Partner shall receive no
compensation for its services in such capacity. If the Tax Matters Partner
incurs any costs related to any tax audit, declaration of any tax deficiency
or any administrative proceeding or litigation involving any Partnership tax
matter, such amount shall be an expense of the Partnership and the Tax
Matters Partner shall be entitled to full reimbursement therefor.
(C) The General Partner shall cause to be prepared all
federal, state and local income tax returns required of the Partnership at
the Partnership's expense.
(D) Except as set forth herein, the General Partner
shall determine whether to make (and, if necessary, revoke) any tax election
available to the Partnership under the Code or any state tax law; provided,
however, upon the request of any Partner, the General Partner shall make the
elec-
<PAGE>
30
tion under Code Section 754 and the Treasury Regulations promulgated
thereunder. The Partnership shall elect to deduct expenses, if any, incurred
by it in organizing the Partnership in accordance with the provisions of Code
Section 709.
SECTION 7.6 Withholding. Each Partner hereby authorizes
the Partnership to withhold from or pay to any taxing authority on behalf of
such Partner any tax that the General Partner determines the Partnership is
required to withhold or pay with respect to any amount distributable or
allocable to such Partner. Any amount paid to any taxing authority which
does not constitute a reduction in the amount otherwise distributable to such
Partner shall be treated as a loan from the Partnership to such Partner,
which loan shall bear interest at the "prime rate" as published from time to
time in The Wall Street Journal plus two (2) percentage points, and shall be
repaid within ten (10) business days after request for repayment from the
General Partner. The obligation to repay any such loan shall be secured by
such Partner's Partnership Interest and each Partner hereby grants the
Partnership a security interest in his Partnership Interest for the purposes
set forth in this Section 7.6, this Section 7.6 being intended to serve as a
security agreement for purposes of the Uniform Commercial Code with the
Partnership having in respect hereof all of the remedies of a secured party
under the Uniform Commercial Code. Each Partner agrees to take such
reasonable actions as the General Partner may request to perfect and continue
the perfection of the security interest granted hereby. In the event any
Partner fails to repay any deemed loan pursuant to this Section 7.6 the
Partnership shall be entitled to avail itself of any rights and remedies it
may have. Furthermore, upon the expiration of ten (10) business days after
demand for payment, the General Partner shall have the right, but not the
obligation, to make the payment to the Partnership on behalf of the
defaulting Partner and thereupon be subrogated to the rights of the
Partnership with respect to such defaulting Partner.
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ARTICLE VIII - TRANSFER OF PARTNERSHIP INTERESTS; ADMISSION OF
PARTNERS
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SECTION 8.1 Transfer by General Partner. The General
Partner may not voluntarily withdraw or, except as provided in Section 8.2,
Transfer all or any portion of its General Partner Interest. Notwithstanding
the foregoing, the General Partner may pledge its General Partner Interest in
furtherance of the Partnership's business (including without limitation, in
connection with a loan agreement under which the Partnership is a borrower)
without the consent of any Partner.
SECTION 8.2 Obligations of a Prior General Partner.
Upon an Involuntary Withdrawal of the General Partner, the General Partner's
Interest may be transferred to a successor with the Consent of the holders of
a majority of each of the Partnership Units and the Preferred Units, voting
separately. The transferring General Partner shall (i) remain liable for all
obligations and liabilities (other than Partnership liabilities payable
solely from Partnership Assets) incurred by it as General Partner before the
effective date of such event and (ii) pay all costs associated with the
admission of its Successor General Partner. However, such General Partner
shall be free of and held
<PAGE>
31
harmless by the Partnership against any obligation or liability incurred on
account of the activities of the Partnership from and after the effective
date of such event, except as provided in this Agreement.
SECTION 8.3 Successor General Partner. A successor to
all of a General Partner's General Partner Interest who has been approved in
accordance with Section 8.2 shall be admitted as the Successor General
Partner, effective immediately prior to the Transfer. Any such Successor
shall carry on the business of the Partnership without dissolution. In
addition, the following conditions must be satisfied:
(A) The Person shall have accepted and agreed to be
bound by all the terms and provisions of this Agreement by executing a
counterpart thereof and such other documents or instruments as may be
required or appropriate in order to effect the admission of such Person as a
General Partner;
(B) An amendment to this Agreement evidencing the
admission of such Person as a General Partner shall have been executed by all
General Partners and an amendment to the Certificate shall have been filed as
required by the Act; and
(C) Any consent required under Section 11.1(A) shall
have been obtained.
SECTION 8.4 Restrictions on Transfer and Withdrawal by
Limited Partner.
(A) Subject to the provisions of Section 8.4(D), no
Limited Partner or Preferred Limited Partner may Transfer all or any portion
of its Partnership Interest without first obtaining the Consent of the
General Partner, which Consent may be granted or withheld in the sole and
absolute discretion of the General Partner. Any such purported transfer
undertaken without such Consent shall be considered to be null and void ab
initio and shall not be given effect.
(B) No Limited Partner or Preferred Limited Partner may
withdraw from the Partnership other than as a result of a permitted Transfer
(i.e., a Transfer consented to as contemplated by clause (A) above or clause
(D) below or a Transfer pursuant to clause (C) below) of all of such Limited
Partner's or Preferred Limited Partner's Partnership Units pursuant to this
Article VIII or pursuant to a redemption or exchange of all of such Limited
Partner's or Preferred Limited Partner's Partnership Units pursuant to
Article IX. Upon the permitted Transfer or redemption of all of a Limited
Partner's or Preferred Limited Partner's Partnership Interests, such Limited
Partner or Preferred Limited Partner shall cease to be a Limited Partner or
Preferred Limited Partner, as the case may be.
(C) Upon the Involuntary Withdrawal of any Limited
Partner or Preferred Limited Partner (which shall under no circumstance in
and of itself cause the dissolution of the Partnership), the executor,
administrator, trustee, guardian, receiver or conservator of such Limited
Partner's or Preferred Limited Partners estate shall become a Substituted
Limited Partner or Substituted Preferred Limited Partner upon compliance with
the provisions of Section 8.5(A)(l)-(3).
(D) Subject to clause (E) below, a Limited Partner or
Preferred Limited Partner may Transfer, with the Consent of the General
Partner, all or a portion of such Limited Partner's or Pre-
<PAGE>
32
ferred Limited Partner's Partnership Interests to (a) a parent or parents,
spouse, natural or adopted descendant or brother or sister, or a trust
created by such Limited Partner or Preferred Limited Partner for the benefit
of such Limited Partner or Preferred Limited Partner and/or any such
person(s), of which trust such Limited Partner or Preferred Limited Partner
or any such person(s) is a trustee, (b) a corporation controlled by a Person
or Persons named in (a) above, (c) if the Limited Partner or Preferred
Limited Partner is an entity, its beneficial owners, or (d) a family limited
partnership comprised of members of the family of a Limited Partner or a
Preferred Limited Partner, and the General Partner shall grant its Consent to
any Transfer pursuant to this Section 8.4(D) unless such Transfer, in the
reasonable judgment of the General Partner, would cause (or have the
potential to cause) the General Partner to fail to qualify for taxation as a
REIT, in which case the General Partner shall have the sole and absolute
discretion to refuse to permit such Transfer, and any purported Transfer in
violation of this Section 8.4(D) shall be null and void ab initio and shall
not be given effect.
(E) No Transfer of Limited Partnership Interests or
Preferred Limited Partner Partnership Interests shall be made if such
Transfer would (i) in the opinion of Partnership counsel, cause the
Partnership to be terminated for federal income tax purposes or to be treated
as an association taxable as a corporation (rather than a partnership) for
federal income tax purposes; (ii) be effected through an "established
securities market" or a "secondary market (or the substantial equivalent
thereof)" within the meaning of Code Section 7704 and the Treasury
Regulations thereunder; (iii) in the opinion of Partnership counsel, violate
the provisions of applicable securities laws; (iv) violate the terms of (or
result in a default or acceleration under) any law, rule, regulation,
agreement or commitment binding on the Partnership; (v) cause the Partnership
to become, with respect to any employee benefit plan subject to Title I of
ERISA, a "party-in-interest" (as defined in Section 3(14) of ERISA) or a
"disqualified person" (as defined in Section 4975(e) of the Code); (vi) in
the opinion of counsel to the Partnership, cause any portion of the
underlying assets of the Partnership to constitute assets of any employee
benefit plan pursuant to Department of Labor Regulations Section 2510.3-101;
or (vii) result in a deemed distribution to any Partner attributable to a
failure to meet the requirements of Treasury Regulations Section
1.752-2(d)(1), unless such Partner consents thereto.
(F) Prior to the consummation of any Transfer under this
Section 8.4, the transferor and/or the transferee shall deliver to the
General Partner such opinions, certificates and other documents as the
General Partner shall request in connection with such Transfer.
SECTION 8.5 Substituted Limited Partner.
(A) No transferee shall become a Substituted Limited
Partner or Substituted Preferred Limited Partner in place of its assignor
unless and until the following conditions have been satisfied:
(1) The assignor and transferee file a Notice or other
evidence of Transfer and such other information reasonably required by the
General Partner, including, without limitation, names, addresses and
telephone numbers of the assignor and transferee;
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33
(2) The transferee executes, adopts and acknowledges
this Agreement, or a counterpart hereto, and such other documents as may be
reasonably requested by the General Partner, including without limitation,
all documents necessary to comply with applicable tax and/or securities rules
and regulations; and
(3) The assignor or transferee pays all costs and fees
incurred or charged by the Partnership to effect the Transfer and
substitution.
(B) If a transferee of a Limited Partner or Preferred
Limited Partner does not become a Substituted Limited Partner or Substituted
Preferred Limited Partner pursuant to Section 8.5(A), such transferee shall
be an Assignee and shall not have any rights to require any information on
account of the Partnership's business, to inspect the Partnership's books or
to vote or otherwise take part in the affairs of the Partnership (such
Partnership Interests being deemed to have been voted in the same proportion
as all other Partnership Interests held by Limited Partners or Preferred
Limited Partners, as the case may be, have been voted). Such Assignee shall
be entitled, however, to all the rights of an assignee of a limited partner
interest under the Act. Any Assignee wishing to Transfer the Partnership
Units acquired shall be subject to the restrictions set forth in this Article
VIII.
SECTION 8.6 Timing and Effect of Transfers. Unless the
General Partner agrees otherwise, Transfers under this Article VIII may only
be made as of the first day of a fiscal quarter of the Partnership. Upon any
Transfer of a Partnership Interest in accordance with this Article VIII or
redemption of a Partnership Interest in accordance with Article IX, the
Partnership shall allocate all items of Profit and Loss between the assignor
and the transferee in accordance with Section 5.2(F)(2) hereof. The assignor
shall have the right to receive all distributions as to which the Record Date
precedes the date of Transfer and the transferee shall have the right to
receive all distributions thereafter.
SECTION 8.7 Additional Limited Partners. Other than in
accordance with the transactions specified in the Contribution Agreements,
after the initial execution of this Agreement and the admission to the
Partnership of the Initial Limited Partners, any Person making a Capital
Contribution to the Partnership in accordance herewith shall be admitted as
an Additional Limited Partner or Additional Preferred Limited Partner only
(i) with the Consent of the General Partner and (ii) upon execution, adoption
and acknowledgment of this Agreement, or a counterpart hereto, and such other
documents as may be reasonably requested by the General Partner, including
without limitation, the power of attorney required under Section 12.3. Upon
satisfaction of the foregoing requirements, such Person shall be admitted as
an Additional Limited Partner or Additional Preferred Limited Partner
effective on the date upon which the name of such Person is recorded on the
books of the Partnership.
SECTION 8.8 Amendment of Agreement and Certificate.
Upon any admission of a Person as a Partner to the Partnership, the General
Partner shall make any necessary amendment to this Agreement to reflect such
admission and, if required by the Act, to cause to be filed an amendment to
the Certificate.
<PAGE>
34
SECTION 8.9 Pledges. No Limited Partner or Preferred
Limited Partner may pledge, mortgage, hypothecate or encumber any Limited
Partnership Interest or Preferred Limited Partner Partnership Interest,
without first obtaining the Consent of the General Partner, which Consent may
be granted or withheld in the sole and absolute discretion of the General
Partner. Any such purported pledge, mortgage, hypothecation or encumbrance
undertaken without such Consent shall be considered null and void ab initio
and shall not be given effect.
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ARTICLE IX REDEMPTION AND CONVERSION
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SECTION 9.1 Right of Redemption
(A) Subject to compliance with (v) the Act, (w) the
terms and conditions of the REIT Charter,(x) all requirements under the Code
applicable to real estate investment trusts, (y) Title 8 of the Corporations
and Associations Article of the Annotated Code of Maryland, as amended, or
any other law as in effect from time to time and (z) any applicable rule or
policy of any stock exchange or self-regulatory organization (a "Redemption
Restriction"), beginning on September 1, 1998, during each Redemption Period
each Redeeming Party shall have the right to require the Partnership to
redeem all or a portion of the Partnership Units held by such Redeeming Party
by providing the General Partner with a Redemption Notice. A Limited Partner
may invoke its rights under this Article IX with respect to one or more
Partnership Units or all of the Partnership Units held by such Limited
Partner. Upon the General Partner's receipt of a Redemption Notice from a
Redeeming Party, the Partnership shall be obligated (subject to the existence
of any Redemption Restriction) to redeem the Partnership Units from such
Redeeming Party (the "Redemption Obligation").
(B) Upon receipt of a Redemption Notice from a Redeeming
Party, the General Partner shall either (i) cause the Partnership to redeem
the Partnership Units tendered in the Redemption Notice, (ii) assume the
Redemption Obligation, as set forth in Section 9.4, or (iii) provide written
Notice to the Redeeming Party of each applicable Redemption Restriction.
SECTION 9.2 Timing of Redemption. The Redemption
Obligation (or the obligation to provide Notice of an applicable Redemption
Restriction, if one exists) shall mature on the date which is seven (7)
business days after the receipt by the General Partner of a Redemption Notice
from the Redeeming Party (the "Redemption Date").
SECTION 9.3 Redemption Price. On or before the
Redemption Date, the Partnership (or the General Partner if it elects
pursuant to Section 9.4) shall deliver to the Redeeming Party, in the sole
and absolute discretion of the General Partner, either (i) a Share Payment or
(ii) a Cash Payment; provided, however, that a Share Payment shall not be
made, and a Cash Payment shall instead be made in all cases, if, in the sole
and absolute discretion of the General Partner, the making of a Share Payment
would result in a material risk of termination of the General Partner's
status as a
<PAGE>
35
REIT under the Code. In order to enable the Partnership to effect a
redemption by making a Share Payment pursuant to this Section 9.3, the
General Partner in its sole and absolute discretion may issue to the
Partnership the number of REIT Shares required to make such Share Payment in
exchange for the issuance to the General Partner of Partnership Units equal
in number to the quotient of the number of REIT Shares issued and the
Conversion Factor. Any such Partnership Unit redeemed by the Partnership
shall be deemed cancelled.
SECTION 9.4 Assumption of Redemption Obligation. Upon
receipt of a Redemption Notice, the General Partner, in its sole and absolute
discretion, shall have the right to assume the Redemption Obligation of the
Partnership. In such case, the General Partner shall be substituted for the
Partnership for all purposes of this Article IX and, upon acquisition of the
Partnership Units tendered by the Redeeming Party pursuant to the Redemption
Notice shall be treated for all purposes of this Agreement as the owner of
such Partnership Units. Such Partnership Units shall constitute General
Partner Interests. Such exchange transaction shall be treated for federal
income tax purposes by the Partnership, the General Partner and the Redeeming
Party as a sale by the Redeeming Party as seller to the General Partner as
purchaser.
SECTION 9.5 Further Assurances; Certain Representations.
Each party to this Agreement agrees to execute any documents deemed
reasonably necessary by the General Partner to evidence the issuance of any
Share Payment to a Redeeming Party. Each Limited Partner and Preferred
Limited Partner, by executing this Agreement, shall be deemed to have
represented to the General Partner and the Partnership that (i) its
acquisition of its Partnership Interest is or will be made as a principal for
its own account, for investment purposes only and not with a view to the
resale or distribution of such Partnership Interest and (ii) if it shall
receive REIT Shares pursuant to this Article IX other than pursuant to an
effective registration statement under the Securities Act of 1933, as
amended, that its acquisition of such REIT Shares is or will be made as a
principal for its own account, for investment purposes only and not with a
view to the resale or distribution of such REIT Shares and agrees that such
REIT Shares may be bear a legend to the effect that such REIT Shares have not
been so registered and may not be sold other than pursuant to such a
registration statement or an exemption from the registration requirements of
such Act.
SECTION 9.6 Effect of Redemption. Upon the satisfaction
of the Redemption Obligation by the Partnership or the General Partner, as
the case may be, the Redeeming Party shall have no further right to receive
any Partnership distributions in respect of the Partnership Units so redeemed
and shall be deemed to have represented to the Partnership and the General
Partner that the Partnership Units tendered for redemption are not subject to
any liens, claims or encumbrances.
SECTION 9.7 Registration Rights. In the event a Limited
Partner receives REIT Shares in connection with a redemption of Partnership
Units pursuant to this Article IX, such Limited Partner shall be entitled to
have such REIT Shares registered under the Securities Act of 1933, as
amended, as provided in the Registration Rights Agreement.
SECTION 9.8 Conversion. (A) Each Preferred Limited
Partner shall have the right, at any time or from time to time, to convert on
or after October 1, 1999 some or all of its Preferred
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36
Units into Limited Partner Interests, effective upon January 1, April 1, July
1 or October 1 of any year, by providing the General Partner with a
Conversion Notice not less than 30 days prior to the effective date of such
conversion. Upon the effective date of any such conversion, the Preferred
Units which are the subject of such conversion shall be converted, without
necessity of any further action by the General Partner, into Partnership
Units of Limited Partner Interest on the basis of 3.5714 Partnership Units of
Limited Partner Interest for each Preferred Unit being converted plus an
amount in cash equal to the accrued Priority Return Amount in respect of such
Preferred Units. In any case in which the conversion into Limited Partner
Interests under this Section would result in the issuance of a fractional
Limited Partner Interest, the General Partner shall pay the converting
Limited Partner cash in lieu of issuance of a fractional Limited Partner
Interest, with the value of such fractional interest being determined by
reference to the Unit Value applicable on the date of conversion.
(B) In any case in which there is an unpaid Priority
Return Amount with respect to a Preferred Unit that is converted pursuant to
paragraph (A) of this Section, the converting Partner shall continue to have
the right to distributions (and allocations) under Article V and Section 10.2
of this Agreement as if the converting Partner continued to hold the
converted Preferred Unit until the unpaid distributions (and related
allocations) have been paid (or allocated).
SECTION 9.9 Redemption Restriction.
(A) The General Partner shall not take, or cause to be
taken, any action which would cause a Redemption Restriction to exist or
continue.
(B) The General Partner shall, at its cost and expense,
take, or cause to be taken, all such actions that may be necessary or
desirable to mitigate the existence or effect of any Redemption Restriction
and to facilitate and make effective the rights of redemption and conversion
provided in this Article IX.
SECTION 9.10 Special Event.
(A) Notwithstanding any provision of this Agreement to
the contrary, upon the occurrence of a Special Event (whether before or after
September 1, 1998), each Redeeming Party shall immediately have the
unconditional right (irrespective of whether a Redemption Restriction exists
or could thereby be created other than a Redemption Restriction under the
Act) to require the Partnership to redeem all or a portion of the Partnership
Units held by such Redeeming Party by providing the General Partner with a
Redemption Notice. A Limited Partner may invoke its rights under this
Section 9.10 with respect to one or more Partnership Units or all of the
Partnership Units held by such Limited Partner. Any such redemption shall
otherwise be governed by and effected and implemented pursuant to this
Article IX as if no Redemption Restriction existed.
(B) Notwithstanding any provision of this Agreement to
the contrary, upon the occurrence of a Special Event (whether before or after
October 1, 1999), each Preferred Limited Partner shall have the right
effective upon the happening of such Special Event, at any time or from time
to time, to convert some or all of its Preferred Units into Limited Partner
Interests by providing the Gen-
<PAGE>
37
eral Partner with a Conversion Notice. Any such conversion shall otherwise
be governed by and effected and implemented pursuant to this Article IX.
(C) "Special Event" means the occurrence of any of the
following:
(I) any person or group (as such terms are used in
Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended
("Exchange Act")) other than the Permitted Holders, directly or indirectly,
makes an offer to purchase or commences a tender offer for REIT Shares such
that, after acquiring all such REIT Shares offered to be acquired or tendered
for, such person or group would then be the "beneficial owner" (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of 20%
or more of the total number of REIT Shares then issued and outstanding; or
(II) any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act), other than one or more Permitted
Holders, is or becomes the beneficial owner (as defined in clause (C)(1)
above, except that for purposes of this clause (II) such person shall be
deemed to have "beneficial ownership" of all shares that any such person has
the right to acquire, whether such right is exercisable immediately or only
after the passage of time), directly or indirectly, of more than 20% of the
total voting power represented by all the REIT Shares then outstanding; or
(III) during any period of two consecutive
years, individuals who at the beginning of such period constituted the Board
of Trustees of COPT (together with any new directors whose election by such
Board of Trustees or whose nomination for election by the shareholders of
COPT was approved by a vote of 66 2/3% of the directors of COPT then still in
office who were either trustees at the beginning of such period or whose
election or nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board of Trustees of COPT then in
office; or
(IV) the merger or consolidation of COPT with or
into another Person or the merger or consolidation of another Person with or
into COPT, or the sale of all or substantially all the assets of COPT to
another Person (other than a Person that is controlled by the Permitted
Holders in the aggregate), and, in the case of any such merger or
consolidation, the securities of COPT that are outstanding immediately prior
to such transaction and which represent 100% of the aggregate voting power of
the REIT Shares are changed into or exchanged for cash, securities or
property.
(D) "Permitted Holders" means Jay H. Shidler, Clay W.
Hamlin III, Westbrook Real Estate Fund I, L.P. and Westbrook Real Estate Co.
Investment Partnership I, L.P. and any corporation, partnership, trust,
estate or other legal entity controlled by any of the foregoing Persons (or
jointly controlled by Messrs. Shidler and Hamlin).
- --------------------------------------------------------------------------------
ARTICLE X - DISSOLUTION AND LIQUIDATION
- --------------------------------------------------------------------------------
<PAGE>
38
SECTION 10.1 Term and Dissolution. The Partnership
commenced as of October 10, 1997, and shall continue until October 31, 2096,
at which time the Partnership shall dissolve or until dissolution occurs
prior to that date at any time there are no limited partners of the
Partnership and for any one of the following reasons:
(A) An Involuntary Withdrawal or a voluntary withdrawal,
even though in violation of this Agreement, of the General Partner or any
other event that causes the General Partner to cease to be a general partner
under the Act (other than a Transfer to a Successor General Partner in
accordance with Article VIII) unless, within ninety (90) days after such
event a majority of the Limited Partners remaining agree in writing to the
continuation of the Partnership and to the appointment, effective as of the
date of such event, of a Successor General Partner;
(B) Entry of a decree of judicial dissolution of the
Partnership under the Act;
(C) The sale, exchange or other disposition of all or
substantially all of the Partner-ship Assets; or
(D) The affirmative vote of the holders of not less than
two-thirds of the Limited Partner Interests.
For purposes of Sections 10.1 and 10.2, Preferred Units
shall be treated as if they have been converted on the date of any such vote
into Limited Partner Interests pursuant to Section 9.8 and the Preferred
Limited Partners holding such Preferred Units shall be treated as Limited
Partners.
SECTION 10.2 Liquidation of Partnership Assets.
(A) Subject to Section 10.2(E), in the event of
dissolution pursuant to Section 10.1, the Partnership shall continue solely
for purposes of winding up the affairs of, achieving a final termination of,
and satisfaction of the creditors of, the Partnership. The General Partner
(or, if there is no General Partner remaining, any Person elected by a
majority in interest of the Limited Partners (the "Liquidator")) shall be
responsible for oversight of the winding up and termination of the
Partnership. The Liquidator shall obtain a full accounting of the assets and
liabilities of the Partnership and such Partnership Assets shall be
liquidated (including, at the discretion of the Liquidator, in exchange, in
whole or in part, for REIT Shares) as promptly as the Liquidator is able to
do so without any undue loss in value, with the proceeds therefrom applied
and distributed in the following order:
(1) First, to creditors, including partners who are
creditors, in satisfaction of liabilities of the Partnership (whether by
payment or the making of reasonable provision for payment thereof), other
than liabilities for distributions to Partners and former Partners;
(2) Second, to the Preferred Limited Partners in amounts
equal to any unpaid Priority Return Amounts;
<PAGE>
39
(3) Third, to Partners and former Partners in
satisfaction of liabilities for distributions; and
(4) The balance, if any, to the Partners in accordance
with their positive Capital Accounts after giving effect to all
contributions, distributions, and allocations for all periods.
(B) In accordance with Section 10.2(A), the Liquidator
shall proceed without any unnecessary delay to sell and otherwise liquidate
the Partnership Assets; provided, however, that if the Liquidator shall
determine that an immediate sale of part or all of the Partnership Assets
would cause undue loss to the Partners, the Liquidator may defer the
liquidation except (i) to the extent provided by the Act or (ii) as may be
necessary to satisfy the debts and liabilities of the Partnership to Persons
other than the Partners.
(C) If, in the sole and absolute discretion of the
Liquidator, there are Partnership Assets that the Liquidator will not be able
to liquidate, or if the liquidation of such assets would result in undue loss
to the Partners, the Liquidator may distribute such Partnership Assets to the
Partners in-kind, in lieu of cash, as tenants-in-common in accordance with
the priorities set forth in Section 10.2(A). The foregoing notwithstanding,
such in-kind distributions shall only be made if in the Liquidator's good
faith judgment that is in the best interest of the Partners.
(D) Upon the complete liquidation and distribution of
the Partnership Assets, the Partners shall cease to be partners of the
Partnership, and the Liquidator shall execute, acknowledge and cause to be
filed all certificates and notices required by law to terminate the
Partnership. Upon the dissolution of the Partnership pursuant to Section
10.1, the Liquidator shall cause to be prepared, and shall furnish to each
Partner, a statement setting forth the assets and liabilities of the
Partnership. Promptly following the complete liquidation and distribution of
the Partnership Assets, the Liquidator shall furnish to each Partner a
statement showing the manner in which the Partnership Assets were liquidated
and distributed.
(E) Notwithstanding the foregoing provisions of this
Section 10.2, in the event that the Partnership shall dissolve as a result of
the expiration of the term provided for herein or as a result of the
occurrence of an event of the type described in Section 10.1(B) or (C), then
each Limited Partner shall be deemed to have delivered a Redemption Notice on
the date of such dissolution. In connection with each such Redemption
Notice, the General Partner shall have the option, subject to the Act, of
either (i) complying with the redemption procedures contained in Article IX
or (ii) at the request of any Limited Partner, delivering to such Limited
Partner, Partnership property approximately equal in value (after taking into
account the liabilities hereto referred to) the amount otherwise
distributable to such Partner under Section 10.2(A)(4) hereof upon the
assumption by such Limited Partner of such Limited Partner's proportionate
share of the Partnership's liabilities and payment by such Limited Partner
(or the Partnership) of any excess (or deficiency) of the value of the
property so delivered over the amount otherwise distributable to such Partner
under Section 10.2(A)(4). In lieu of requiring such Limited Partner to assume
its proportionate share of Partnership liabilities, the General Partner may,
subject to the Act, deliver to such Limited Partner unencumbered Partnership
property approximately equal in value to the amount otherwise distributable
to such Partner under Section
<PAGE>
40
10.2(A)(4). In furtherance of the foregoing, a Partner may be compelled to
accept a distribution of any asset in kind from the Partnership despite the
fact that the percentage of the assets distributed to him exceeds the
percentage of that asset which is equal to the percentage in which he shares
in distributions from the Partnership.
SECTION 10.3 Effect of Treasury Regulations.
(A) In the event the Partnership is "liquidated" within
the meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)(g) and there
has been a dissolution of the Partnership under Section 10.1 hereof,
distributions shall be made pursuant to this Article X to the General
Partner, the Limited Partners, the Preferred Limited Partners who have
positive Capital Accounts in compliance with Treasury Regulations Section
1.704-1(b)(2)(ii)(b)(2). If any Partner has a deficit balance in its Capital
Account (after giving effect to all contributions (without regard to this
Section 10.3(A)), distributions and allocations), such Partner shall have no
obligation to make any contribution to the capital of the Partnership. Any
deficit restoration obligation pursuant to the provisions hereof shall be for
the benefit of creditors of the Partnership or any other Person to whom any
debts, liabilities, or obligations are owed by (or who otherwise has any
claim against) the Partnership or the General Partner, in its capacity as
general partner of the Partnership.
(B) In the event the Partnership is "liquidated" within
the meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)(g) but there
has been no dissolution of the Partnership under Section 10.1 hereof, then
the Partnership Assets shall not be liquidated, the Partnership's liabilities
shall not be paid or discharged and the Partnership's affairs shall not be
wound up. In the event of such a liquidation there shall be deemed to have
been a distribution of Partnership Assets in kind to the Partners in
accordance with their respective Capital Accounts followed by a
recontribution of the Partnership Assets by the Partners also in accordance
with their respective Capital Accounts.
SECTION 10.4 Time for Winding-Up. Anything in this
Article X notwithstanding, a reasonable time shall be allowed for the orderly
winding-up of the business and affairs of the Partnership and the liquidation
of the Partnership Assets in order to minimize any potential for losses as a
result of such process. During the period of winding-up, this Agreement
shall remain in full force and effect and shall govern the rights and
relationships of the Partners inter se.
- --------------------------------------------------------------------------------
ARTICLE XI - AMENDMENTS AND MEETINGS
- --------------------------------------------------------------------------------
SECTION 11.1 Amendment Procedure.
(A) Amendments to this Agreement may be proposed by the
General Partner. An amendment proposed at any time when the General Partner
holds less than 90% of all Partnership Units will be adopted and effective
only if it receives the Consent of the holders of a majority of each of the
Partnership Units and Preferred Units, voting separately, not then held by
the General Partner
<PAGE>
41
and an amendment proposed at any time when the General Partner holds 90% or
more of all Partnership Units and Preferred Units may be made by the General
Partner without the Consent of any Limited Partner or Preferred Limited
Partner; provided, however, no amendment shall be adopted if it would (i)
convert a Limited Partner's Partnership Interest or Preferred Limited
Partner's Preferred Units into a general partner interest, (ii) increase the
liability of a Limited Partner or a Preferred Limited Partner under this
Agreement, (iii) except as otherwise permitted in this Agreement, alter the
amount or the Partner's rights to distributions set forth in Article V or X,
or the allocations set forth in Article IV, (iv) alter or modify any aspect
of the Partners' rights with respect to redemption of Partnership Units or
conversion of Preferred Units, (v) cause the early termination of the
Partnership (other than pursuant to the terms hereof) or (vi) amend this
Section 11.1(A), in each case without the Consent of each Partner adversely
affected thereby. In connection with any proposed amendment of this
Agreement requiring Consent, the General Partner shall either call a meeting
to solicit the vote of the Partners or seek the written vote of the Partners
to such amendment. In the case of a request for a written vote, the General
Partner shall be authorized to impose such reasonable time limitations for
response, but in no event less than ten (10) days, with the failure to
respond being deemed a vote consistent with the vote of the General Partner.
(B) Notwithstanding the foregoing, amendments may be
made to this Agreement by the General Partner, without the Consent of any
Limited Partner or Preferred Limited Partner, to (i) add to the
representations, duties or obligations of the General Partner or surrender
any right or power granted to the General Partner herein; (ii) cure any
ambiguity, correct or supplement any provision herein which may be
inconsistent with any other provision herein or make any other provisions
with respect to matters or questions arising hereunder which will not be
inconsistent with any other provision hereof; (iii) reflect the admission,
substitution, termination or withdrawal of Partners in accordance with this
Agreement; or (iv) satisfy any requirements, conditions or guidelines
contained in any order, directive, opinion, ruling or regulation of a federal
or state agency or contained in federal or state law. The General Partner
shall reasonably promptly notify the Limited Partners and Preferred Limited
Partners whenever it exercises its authority pursuant to this Section 11.1(B).
(C) Within ten (10) days of the making of any proposal
to amend this Agreement, the General Partner shall give all Partners Notice
of such proposal (along with the text of the proposed amendment and a
statement of its purposes).
SECTION 11.2 Meetings and Voting.
(A) Meetings of Partners may be called by the General
Partner. The General Partner shall give all Partners Notice of the purpose
of such proposed meeting not less than seven (7) days nor more than thirty
(30) days prior to the date of the meeting. Meetings shall be held at a
reasonable time and place selected by the General Partner. Whenever the vote
or Consent of Partners is permitted or required hereunder, such vote or
Consent shall be requested by the General Partner and may be given by the
Partners in the same manner as set forth for a vote with respect to an
amendment to this Agreement in Section 11.1(A).
<PAGE>
42
(B) Any action required or permitted to be taken at a
meeting of the Partners may be taken without a meeting if a written consent
setting forth the action to be taken is signed by the Partners owning
Percentage Interests required to vote in favor of such action, which consent
may be evidenced in one or more instruments (for this purpose Preferred Units
and Preferred Limited Partners shall be treated as provided in Section
10.1(D) in the case of a vote pursuant to such Section). Consents need not be
solicited from any other Partner if the written consent of a sufficient
number of Partners has been obtained to take the action for which such
solicitation was required.
(C) Each Limited Partner and each Preferred Limited
Partner may authorize any Person or Persons, including without limitation the
General Partner, to act for him by proxy on all matters on which a Limited
Partner or a Preferred Limited Partner may participate. Every proxy (i) must
be signed by the Limited Partner, the Preferred Limited Partner or their
attorney-in-fact, (ii) shall expire eleven (11) months from the date thereof
unless the proxy provides otherwise and (iii) shall be revocable at the
discretion of the Limited Partner or Preferred Limited Partner granting such
proxy.
- --------------------------------------------------------------------------------
ARTICLE XII - MISCELLANEOUS PROVISIONS
- --------------------------------------------------------------------------------
SECTION 12.1 Title to Property. All property owned by
the Partnership, whether real or personal, tangible or intangible, shall be
deemed to be owned by the Partnership as an entity, and no Partner,
individually, shall have any ownership of such property. The Partnership may
hold any of its assets in its own name or, in the name of its nominee, which
nominee may be one or more individuals, corporations, partnerships, limited
liability companies, trusts or other entities.
SECTION 12.2 Other Activities of Limited Partners and
Preferred Limited Partners. Except as expressly provided otherwise in this
Agreement or in any other agreement entered into by a Limited Partner or a
Preferred Limited Partner or any Affiliate of a Limited Partner or a
Preferred Limited Partner and the Partnership, the General Partner or any
Subsidiary of the Partnership or the General Partner, any Limited Partner or
Preferred Limited Partner or any Affiliate of any Limited Partner or
Preferred Limited Partner may engage in, or possess an interest in, other
business ventures of every nature and description, independently or with
others, including, without limitation, real estate business ventures, whether
or not such other enterprises shall be in competition with any activities of
the Partnership, the General Partner or any Subsidiary of the Partnership or
the General Partner; and neither the Partnership, the General Partner, any
such Subsidiary nor the other Partners shall have any right by virtue of this
Agreement in and to such independent ventures or to the income or profits
derived therefrom.
SECTION 12.3 Power of Attorney.
(A) Each Partner hereby irrevocably appoints and
empowers the General Partner (which term shall include the Liquidator, in the
event of a liquidation, for purposes of this Section 12.3) and each of their
authorized officers and attorneys-in-fact with full power of substitution as
his
<PAGE>
43
true and lawful agent and attorney-in-fact, with full power and authority in
his name, place and stead to:
(1) make, execute, acknowledge, publish and file in the
appropriate public offices (a) any duly approved amendments to the
Certificate pursuant to the Act and to the laws of any state in which such
documents are required to be filed; (b) any certificates, instruments or
documents as may be required by, or may be appropriate under, the laws of any
state or other jurisdiction in which the Partnership is doing or intends to
do business; (c) any other instrument which may be required to be filed by
the Partnership under the laws of any state or by any governmental agency, or
which the General Partner deems advisable to file; (d) any documents which
may be required to effect the continuation of the Partnership, the admission,
withdrawal or substitution of any Partner pursuant to Article VIII,
dissolution and termination of the Partnership pursuant to Article X, or the
surrender of any rights or the assumption of any additional responsibilities
by the General Partner; (e) any document which may be required to effect an
amendment to this Agreement, to the extent such amendment is permitted by
Section 11.1; and (f) all instruments (including this Agreement and
amendments and restatements hereof) relating to the determination of the
rights, preferences and privileges of any class or series of Partnership
Interests issued pursuant to Section 4.2(B) of this Agreement; and
(2) sign, execute, swear to and acknowledge all voting
ballots, consents, approvals, waivers, certificates and other instruments
appropriate or necessary, in the sole discretion of the General Partner, to
make, evidence, give, confirm or ratify any vote, consent, approval,
agreement or other action which is made or given by the Partners hereunder or
is consistent with the terms of this Agreement and appropriate or necessary,
in the sole discretion of the General Partner, to effectuate the terms or
intent of this Agreement.
(B) Nothing herein contained shall be construed as
authorizing the General Partner to amend this Agreement except in accordance
with Article XI or as may be otherwise expressly provided for in this
Agreement.
(C) The foregoing grant of authority (i) is a special
power of attorney, coupled with an interest, and it shall survive the
disability or Involuntary Withdrawal of any Partner and shall extend to such
Partner's heirs, executors, guardians, conservators, successors, assigns and
personal representatives; (ii) may be exercised by the General Partner for
each and every Partner acting as attorney-in-fact for each and every Partner;
and (iii) shall survive the Transfer by a Limited Partner or Preferred
Limited Partner of all or any portion of its Partnership Interest and shall
be fully binding upon such transferee; except that the power of attorney
shall survive such assignment with respect to the assignor Limited Partner or
Preferred Limited Partner for the sole purpose of enabling the General
Partner to execute, acknowledge and file any instrument necessary to effect
the admission of the transferee as a Substituted Limited Partner or
Substituted Preferred Limited Partner. Each Partner hereby agrees to be
bound by any representations made by the General Partner, acting in good
faith pursuant to such power of attorney. Each Partner shall execute and
deliver to the General Partner, within fifteen (15) days after receipt of the
General Partner's request therefor, such further designa-
<PAGE>
44
tions, powers of attorney and other instruments as the General Partner deems
necessary to effectuate this Agreement and the purposes of the Partnership.
SECTION 12.4 Notices. All notices and other
communications provided for or permitted hereunder shall be made in writing
by hand delivery, registered first-class mail, telex, telecopier, or any
courier guaranteeing overnight delivery, (i) if to a Limited Partner or a
Preferred Limited Partner, at the most current address given by such Limited
Partner or Preferred Limited Partner to the General Partner by means of a
notice given in accordance with the provisions of this Section 12.4, which
address initially is the address contained in the records of the General
Partner or the Partnership, or (ii) if to the General Partner or the
Partnership, Corporate Office Properties Trust, One Logan Square, Suite 1105,
Philadelphia, PA 19103, Attn: President.
All such notices and communications shall be deemed to
have been duly given: at the time delivered by hand, if hand delivered; five
business days after being deposited in the mail, postage prepaid, if mailed;
when answered back, if telexed; or when receipt is acknowledged, if
telecopied.
SECTION 12.5 Further Assurances. The parties agree to
execute and deliver all such documents, provide all such information and take
or refrain from taking any action as may be necessary or desirable to achieve
the purposes of this Agreement and the Partnership.
SECTION 12.6 Titles and Captions. All article or
section titles or captions in this Agreement are solely for convenience and
shall not be deemed to be part of this Agreement or otherwise define, limit
or extend the scope or intent of any provision hereof.
SECTION 12.7 Applicable Law. This Agreement, and the
application or interpretation thereof, shall be governed exclusively by its
terms and by the law of the State of Delaware, without regard to its
principles of conflicts of laws.
SECTION 12.8 Binding Agreement. This Agreement shall be
binding upon the parties hereto, their heirs, executors, personal
representatives, successors and assigns.
SECTION 12.9 Waiver of Partition. Each of the parties
hereto irrevocably waives during the term of the Partnership any right that
it may have to maintain any action for partition with respect to any property
of the Partnership.
SECTION 12.10 Counterparts and Effectiveness. This
Agreement may be executed in several counterparts, which shall be treated as
originals for all purposes, and all so executed shall constitute one
agreement, binding on all of the parties hereto, notwithstanding that all the
parties are not signatory to the original or the same counterpart. Any such
counterpart shall be admissible into evidence as an original hereof against
each Person who executed it. The execution of this Agreement and delivery
thereof by facsimile shall be sufficient for all purposes, and shall be
binding upon any party who so executes.
<PAGE>
45
SECTION 12.11 Survival of Representations. All
representations and warranties herein shall survive the dissolution and final
liquidation of the Partnership.
SECTION 12.12 Entire Agreement. This Agreement (and all
Exhibits hereto) contains the entire understanding among the parties hereto
and supersedes all prior written or oral agreements among them respecting the
within subject matter, unless otherwise provided herein. There are no
representations, agreements, arrangements or understandings, oral or written,
among the Partners hereto relating to the subject matter of this Agreement
which are not fully expressed herein and in said Exhibits.
SECTION 12.13 Temporary Allocation. With respect to the
period from inception of the Partnership through December 31, 2000, in lieu
of the allocation provided by Section 5.2(A)(6), the portion of Profits
resulting from Partnership operations for each fiscal year shall be allocated
(x) 19.8% to the General Partner and (y) 80.2% to all Partners (including the
General Partner, but other than the Preferred Limited Partners) in accordance
with their Percentage Interests. Profits from Partnership operations for a
Fiscal Year shall mean the portion of Partnership Profits in excess of the
amounts allocated pursuant to Sections 5.2(C) and (D) and 5.2(A)(1) through
(5) of this Agreement, but shall not include Profits that arise from sales or
dispositions of Partnership Assets, except in the ordinary course of
business. The foregoing allocation of Profits shall be considered to occur
pursuant to Section 5.2(A) of this Agreement.
SECTION 12.14 Authorization and Consent. The General
Partner, each Limited Partner and each Preferred Limited Partner hereby
authorizes the General Partner, in the name and on behalf of the Partnership,
to execute, deliver and perform the Senior Secured Credit Agreement dated as
of September 30, 1997 ("Credit Agreement") between Royale Investments, Inc.
("Royale") the Partnership, FCO Holdings, Inc., Blue Bell Investment
Company, L.P., South Brunswick Investors, L.P. Comcourt Investors, L.P. and
6385 Flank Drive, L.P., as Loan parties and Bankers Trust Company, as Banker
and each of the Security Documents (as defined in the Credit Agreement) to
which it is to be a party or by which it is to be bound and to execute and
deliver in the name and on behalf of the Partnership such instruments,
agreements and documents and to take or refrain from taking all such action
as it in its sole discretion shall deem necessary, desirable or advisable in
connection with the foregoing and in connection with the Formation Agreement.
SECTION 12.15 Merger. The Partnership may merge with,
or consolidate into, another business entity (as defined in Section 17-211(a)
of the Act) upon approval by the General Partner and the Consent of the
holders of a majority of each of the Partnership Units and the Preferred
Units, voting separately. In accordance with Section 17-211 of the Act
(including Section 17-211(g)), notwithstanding anything to the contrary
contained in this Agreement, an agreement of merger or consolidation approved
by the General Partner and Consented to by the holders of a majority of each
of the Partnership Units and the Preferred Units, voting separately, may (A)
effect any amendment to this Agreement, or (B) effect the adoption of a new
partnership agreement for the Partnership if it is the surviving or resulting
limited partnership of the merger or consolidation. Any amendment to this
Agreement or adoption of a new partnership agreement made pursuant to the
foregoing sentence shall be effective at the effective time or date of the
merger or consolidation. The provisions of this Sec-
<PAGE>
46
tion shall not be construed to limit the accomplishment of a merger or of any
of the matters referred to herein by any other means otherwise permitted by
law.
<PAGE>
47
IN WITNESS WHEREOF, this Agreement has been duly executed
and delivered by the parties hereto as of the day and year first above
written.
General Partner: CORPORATE OFFICE PROPERTIES TRUST,
as sole General Partner of the Partnership
By:
-----------------------------
LIMITED PARTNERS:
SHIDLER EQUITIES, L.P.
By: SHIDLER EQUITIES CORP.
By:
------------------------
Name:
Title:
LBCW LIMITED PARTNERSHIP
By:
------------------------------------
Clay W. Hamlin III, General Partner
- -----------------------------------------
Robert L. Denton
- -----------------------------------------
John E. de B. Blockey, Trustee of
the John E. de B. Blockey
Living Trust dated 9/12/88
- -----------------------------------------
Henry D. Bullock
- -----------------------------------------
Frederick K. Ito
<PAGE>
48
- -----------------------------------------
Jay H. Shidler
- -----------------------------------------
Clay W. Hamlin III
- -----------------------------------------
James K. Davis
TIGER SOUTH BRUNSWICK, L.L.C.
By:
------------------------------------
Name:
Title:
WESTBROOK REAL ESTATE FUND I, L.P.
By: WESTBROOK REAL ESTATE
PARTNERS MANAGEMENT I, L.L.C.
By: WESTBROOK REAL ESTATE
PARTNERS, L.L.C.
By:
-------------------------------------
Name:
Title:
<PAGE>
49
WESTBROOK REAL ESTATE
CO--INVESTMENT PARTNERSHIP T, L.P.
By: WESTBROOK REAL ESTATE
PARTNERS MANAGEMENT I, L.L.C.
By: WESTBROOK REAL ESTATE
PARTNERS L.L.C.
By:
-------------------------------------
Name:
Title:
CHLB PARTNERSHIP
By:
-------------------------------------
Name: Clay W. Hamlin III, General Partner
LGR INVESTMENT FUND, LTD.
By:
-------------------------------------
Name:
- ------------------------------------------
Denise J. Liszewski
- ------------------------------------------
Samuel Tang
<PAGE>
50
- ------------------------------------------
David P. Hartsfield
- ------------------------------------------
Lawrence J. Taff
- ------------------------------------------
Kimberly F. Aquino
<PAGE>
51
<TABLE>
<CAPTION>
Exhibit 1
Schedule Of Partners
-----------------------------------------------------------------------------
No. of Units Percentage Interest Preferred Partnership
Units
-----------------------------------------------------------------------------
<S> <C> <C> <C>
General Partner
Corporate Office . . . . . . . . . . . . . . . . . . . . . . 600,000 20.6946%
Properties Trust
Limited Partners and Pre-
ferred Limited Partners
Jay H. Shidler . . . . . . . . . . . . . . . . . . . . . . . 2,600 0.0897% 126,079
Shidler Equities, L.P. . . . . . . . . . . . . . . . . . . . 582,103 20.0773% 457,826
Clay W. Hamlin, III . . . . . . . . . . . . . . . . . . . . . 5,235 0.1805% 115,334
LBCW Limited Partnership . . . . . . . . . . . . . . . . . . 875,284 30.1894% 663,808
CHLB Partnership . . . . . . . . . . . . . . . . . . . . . . 63,243 2.1813% 41,741
Robert L. Denton . . . . . . . . . . . . . . . . . . . . . . 129,549 4.4683% 85,502
James K. Davis . . . . . . . . . . . . . . . . . . . . . . . 15,368 0.5300% 10,142
John E. deB. Blockey, . . . . . . . . . . . . . . . . . . . . 89,549 3.0886% 59,102
Trustee of the John E. de
B. Blockey Living Trust
dated 9/12/88
Henry D. Bullock . . . . . . . . . . . . . . . . . . . . . . 34,718 1.1975% 22,914
Frederick R. Ito . . . . . . . . . . . . . . . . . . . . . . 17,359 0.5987% 11,457
LGR Investment Fund, Ltd. . . . . . . . . . . . . . . . . . . 80,030 2.7603% 52,820
Tiger South Brunswick, . . . . . . . . . . . . . . . . . . . 2,875 0.0992% 1,898
L.L.C.
Westbrook Real Estate . . . . . . . . . . . . . . . . . . . . 336,121 11.5931% 221,840
Fund I, L.P.
Westbrook Real Estate . . . . . . . . . . . . . . . . . . . 33,299 1.1485% 21,977
Co. Investment Partner-
ship I, L.P.
</TABLE>
<PAGE>
2
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Denise J. Liszewski . . . . . . . . . . . . . . . . . . . . . 10,227 0.3527% 6,750
Samuel Tang . . . . . . . . . . . . . . . . . . . . . . . . . 6,818 0.2352% 4,500
David P. Hartsfield . . . . . . . . . . . . . . . . . . . . . 9,091 0.3136% 6,000
Lawrence J. Taff . . . . . . . . . . . . . . . . . . . . . . 4,091 0.1411% 2,700
Kimberly F. Acquino . . . . . . . . . . . . . . . . . . . . . 1,750 0.0604% 1,155
-------------- ----------- ----------
2,899,310 100.0000% 1,913,545
-------------- ----------- ----------
-------------- ----------- ----------
</TABLE>
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST, L.P.
EXHIBIT 2
TO
LIMITED PARTNERSHIP AGREEMENT
Form of Redemption or Conversion Notice
<PAGE>
Exhibit 2
Redemption [Conversion] Notice
The undersigned hereby irrevocably (i) elects to exercise
its [redemption] [conversion] rights contained in ARTICLE IX of the Limited
Partnership Agreement of Corporate Office Properties, L.P. (the "Partnership
Agreement") with respect to an aggregate of ________ [Partnership Units]
[Preferred Units], (ii) surrenders such [Partnership Units] [Preferred Units]
and all right, title and interest therein and (iii) directs that the
[REIT Shares (or applicable cash amount if so determined by the General Partner
in accordance with the Partnership Agreement)]
[Units of Limited Partner Interest] deliverable upon [redemption][conversion]
of such [Partnership Units] [Preferred Units] be delivered to the address
specified below. Terms used above which are defined in the Partnership
Agreement are used herein are defined therein.
Dated:
Name of Limited Partner or Preferred
Limited Partner:
Social Security or
Federal Employer ID Number:
-------------------------------------------
(Signature of Limited Partner or Preferred
Limited Partner)
-------------------------------------------
(Street Address)
-------------------------------------------
(City) (State)(Zip Code)
Signature Guaranteed by:
-------------------------------------------
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST, L.P.
EXHIBIT 3
TO
LIMITED PARTNERSHIP AGREEMENT
Form of Amended and Restated Registration Rights Agreement
<PAGE>
EXHIBIT 10.17
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
Dated as of March 16, 1998
of
CORPORATE OFFICE PROPERTIES TRUST
for the benefit of
HOLDERS OF PARTNERSHIP UNITS AND PREFERRED UNITS
of
CORPORATE OFFICE PROPERTIES, L.P.
and
HOLDERS OF COMMON SHARES OF BENEFICIAL INTEREST
of
CORPORATE OFFICE PROPERTIES TRUST
<PAGE>
2
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
THIS AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (this
"Agreement") is made and entered into as of March 16, 1998 by Corporate
Office Properties Trust, a Maryland real estate investment trust (the
"Company"), for the benefit of (w) the persons who own limited partnership
units ("Partnership Units") and/or preferred units ("Preferred Units"),
whether owned as of the date hereof or hereafter acquired, of Corporate
Office Properties, L.P., a limited partnership formed under the Delaware
Revised Uniform Limited Partnership Act (the "Partnership"), (x) Vernon Beck,
Robert L. Denton, Clay W. Hamlin III, John Parsinen and Jay H. Shidler, (y)
persons issued common shares of beneficial interest, par value $0.01 per
share of the Company ("Common Shares") in exchange for shares of common
stock, par value $0.01 per share (the "Common Stock"), of Royale Investments,
Inc., a Minnesota corporation ("Royale"), pursuant to the Contribution
Agreement (as defined below), and (z) the respective successors. assigns,
transferees and estates of the persons identified in clauses (w), (x) and (y)
(herein referred to collectively as the "Holders" and individually as a
"Holder"). The Partnership Units and Preferred Units are herein sometimes
collectively called the "Units."
WHEREAS, on October [14], 1997 certain Holders become owners of
Units in connection with the contributions (the "Contributions") of certain
general and limited partnership interests and other assets to the Partnership
pursuant to the Formation/Contribution Agreement dated as of September 7,
1997 by and among the Company, H/SIC Corporation, Strategic Facility
Investors, Inc., South Brunswick Investment Company, LLC, Comcourt investment
Corporation and Gateway Shannon Development Corporation, as the same may at
any time be amended, modified and supplemented and in effect (the
"Contribution Agreement");
WHEREAS, pursuant to the Partnership Agreement (as defined below)
the Holders of Preferred Units have the right to convert them into
Partnership Units as and to the extent set forth in the Partnership Agreement;
WHEREAS, on October [14], 1997, Royale became the sole general
partner of the Partnership and executed a registration rights agreement with
terms substantially the same as this Agreement;
WHEREAS, on October [14], 1997 certain Holders become owners of
shares of Common Stock pursuant to the Contribution Agreement in
consideration of assets transferred to the Company;
WHEREAS, on the date hereof, the Company has succeeded by merger to
all of the rights and obligations of Royale and each share of Common Stock
has been converted into the right to receive one Common Share;
WHEREAS, on the date hereof, the Common Shares are publicly held
and traded and the Company is an issuer which is subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended from time to
time (the "Exchange Act");
WHEREAS, in connection with the foregoing, the Company wishes to
confirm its obligations and has agreed, subject to the terms, conditions and
limitations set forth in this Agreement, to provide the Holders with certain
registration rights in respect of Common Shares either issued (x) pursuant to
the Contribution Agreement or (y) upon redemption of Partnership Units as and
to the extent set forth in that certain Limited Partnership Agreement of the
Partnership dated October 14, 1997 among the sole general and initial limited
<PAGE>
3
partners party thereto, as the same has been, and may be further, amended,
modified or supplemented from time to time and in effect (the "Partnership
Agreement").
NOW, THEREFORE, the Company and the Partnership for the benefit of
the Holders each agrees as follows:
Section 1. Definitions.
As used in this Agreement, the following capitalized defined terms
shall have the following meanings:
Commission: The Securities and Exchange Commission.
Common Shares: Common shares of beneficial interest, $0.01 par
value, of the Company.
Contribution Agreement: As set forth in the preamble.
Contributions: As set forth in the preamble.
Exchange Act: As set forth in the preamble.
Holder or Holders: As set forth in the preamble.
Holders Entitled to Registration Rights: As set forth in Section
2(b).
Indemnitee: A Holder of Registerable Securities covered by a
registration statement filed with the Commission as provided in this
Agreement pursuant to Sections 2, 4 or 5 hereof.
Majority Holders: At any time, Holders of Registrable Securities,
Preferred Units then convertible into Partnership Units and Partnership Units
then redeemable for Registrable Securities who, if all such Preferred Units
were converted and all such Partnership Units were so redeemed, would then
hold a majority of the Registrable Securities.
Minimum Registrable Amount: At any date of determination,
Registrable Securities having an aggregate fair market value of at least $3
million.
NASD: The National Association of Securities Dealers, Inc.
Partnership: As set forth in the preamble.
Partnership Agreement: As set forth in the preamble.
Partnership Units: As set forth in the Partnership Agreement.
Person: Any individual, partnership, corporation, limited
liability company, trust or other legal entity.
Preferred Units: As set forth in the Partnership Agreement.
<PAGE>
4
Prospectus: A prospectus included in a Registration Statement,
including any preliminary prospectus, and any such prospectus as amended or
supplemented by any prospectus supplement with respect to the terms of the
offering of any portion of the Registrable Securities covered by such
Registration Statement, and by all other amendments and supplements to such
prospectus, including post-effective amendments, and in each case including
all material incorporated by reference therein.
Registrable Securities: The Shares, excluding (i) Shares as to
which a Registration Statement shall have become effective under the
Securities Act pursuant to Section 2, 3 or 4 of this Agreement and which
shall have been disposed of under such Registration Statement, (ii) Shares
sold or otherwise distributed pursuant to Rule 144 under the Securities Act
and (iii) Shares as to which registration under the Securities Act is not
required to permit the sale thereof to the public.
Sale Period: The 45-day period immediately following the filing
with the Commission by the Company of an annual report of the Company on Form
10-K or a quarterly report of the Company on Form 10-Q or such other period
as the Company may determine from time to time.
Securities Act: The Securities Act of 1933, as amended from time
to time.
Shares: The Common Shares issued to Holders of Partnership Units
upon redemption of their Partnership Units pursuant to the Partnership
Agreement or to Holders pursuant to the Contribution Agreement.
Shelf Registration: A "shelf" registration of the Registrable
Securities under Rule 415 under the Securities Act.
Shelf Registration Statement: Shall mean a "shelf" registration
statement of the Company and any other entity required to be a registrant
with respect to such shelf registration statement pursuant to the
requirements of the Securities Act which covers all of the Registrable
Securities then issued and outstanding or which may thereafter be issued in
redemption of any Partnership Units (including, without limitation, Units
issuable upon conversion of Preferred Units) on an appropriate form under
Rule 415 under the Securities Act, or any similar rule that may be adopted by
the Commission, and all amendments and supplements to such registration
statement, including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all materials
incorporated by reference therein.
Units: Preferred Units and Partnership Units, collectively.
Section 2. Shelf Registration Under the Securities Act.
(a) Filing of Shelf Registration Statement. By August [14], 1998
and by each March 31 after such initial filing, the Company shall cause to be
filed a Shelf Registration Statement covering the sale by the then Holders of
all of the Registrable Securities then held by them in accordance with the
terms hereof and will use its reasonable best efforts to cause each such
Shelf Registration Statement to be declared effective by the Commission as
soon as reasonably practicable. The Company agrees to use its reasonable
best efforts to keep each such Shelf Registration Statement continuously
effective under the Securities Act until such time as the aggregate number of
Registrable Securities covered by all such Shelf Registration Statements and
then outstanding (computed for this purpose as if all outstanding Preferred
Units have been converted into Partnership Units and all thereafter
outstanding Partnership Units have been redeemed for Common Shares) is less
than 5% of the then outstanding Common Shares (computed as aforesaid and
including, without limitation, Common Shares issuable in respect of Retained
Interests (as defined in the Contribution Agreement)), and further agrees
<PAGE>
5
to supplement or amend each such Shelf Registration Statement, if and as
required by the rules, regulations or instructions applicable to the
registration form used by the Company for such Shelf Registration Statement
or by the Securities Act or by any other rules and regulations thereunder for
a Shelf Registration. Each Holder who sells Shares as part of any such Shelf
Registration shall be deemed to have agreed to all of the terms and
conditions of this Agreement and to have agreed to perform any an all
obligations of a Holder hereunder.
(b) Inclusion in Shelf Registration Statement. Not later than 30
days prior to filing the Shelf Registration Statement with the Commission,
the Company shall notify each then Holder of Registrable Securities
(including any Person who is then entitled to become a Holder pursuant to the
Partnership Agreement by reason of owning Units or Preferred Units,
including, without limitation, Persons holding Retained Interests) ("Holders
Entitled to Registration Rights") of its intention to make such filing and
request advice from each such Holder as to whether such Holder desires to
have Registrable Securities held by it or which it is entitled to receive not
later than the last day of the first Sale Period occurring in whole or in
part after the date of such notice included in the Shelf Registration
Statement at such time; provided, however, that the Company shall not be
required to so notify any such Holder in respect of Registrable Securities
previously registered pursuant to a Shelf Registration Statement filed in
accordance with this Section 2 which such Holder could then dispose of
pursuant to such Registrable Securities. Any such Holder who is so notified
and does not provide the information reasonably requested by the Company in
connection with the preparation of the Shelf Registration Statement as
promptly as practicable after receipt of such notice, but in no event later
than 20 days thereafter, shall not be entitled to have its Registrable
Securities included in such Shelf Registration Statement at the time it
becomes effective, but shall have the right thereafter to deliver to the
Company a Registration Notice as contemplated by Section 3(b).
Section 3. Shelf Registration Procedures.
In connection with the obligations of the Company with respect to
each Shelf Registration Statement pursuant to Section 2 hereof, the Company
shall:
(a) prepare and file with the SEC, within the time period set forth
in Section 2(a) hereof, a Shelf Registration Statement, which Shelf
Registration Statement (i) shall be available for the sale of the
Registrable Securities covered thereby in accordance with the intended
method or methods of distribution by the selling Holders thereof and (ii)
shall comply as to form in all material respects with the requirements of
the applicable form and include all financial statements required by the
Commission to be filed therewith.
(b) subject to the last three sentences of this Section 3(b) and to
Section 3(i) hereof, (i) prepare and file with the Commission such
amendments and post-effective amendments to such Shelf Registration
Statement as may be necessary to keep such Shelf Registration Statement
effective for the applicable period; (ii) cause each Prospectus to be
supplemented by any required prospectus supplement, and as so supplemented
to be filed pursuant to Rule 424 or any similar rule that may be adopted
under the Securities Act; (iii) respond promptly to any comments received
from the Commission with respect to such Shelf Registration Statement, or
any amendment, post-effective amendment or supplement relating thereto; and
(iv) comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such Shelf Registration
Statement during the applicable period in accordance with the intended
method or methods of distribution by the selling Holders thereof.
Notwithstanding anything to the contrary contained herein, the Company
shall not be required to take any of the actions described in clauses (i),
(ii) or (iii) above with respect to a particular Holder of Registrable
Securities unless and until the Company has received either a written
notice (a "Registration No-
<PAGE>
6
tice") from such Holder that it intends to make offers or sales under such
Shelf Registration Statement as specified in such Registration Notice or a
written response from such Holder of the type contemplated by Section 2(b);
provided, however, that the Company shall have 7 business days to prepare
and file any such amendment or supplement after receipt of a Registration
Notice. Once a Holder has delivered such a written response or a
Registration Notice to the Company, such Holder shall promptly provide to
the Company such information as the Company reasonably requests in order to
identify such Holder and the method of distribution in a post-effective
amendment to such Shelf Registration Statement or a supplement to a
Prospectus. Offers or sales under such Shelf Registration Statement may be
made only during a Sale Period. Such Holder also shall notify the Company
in writing upon completion of such offer or sale or at such time as such
Holder no longer intends to make offers or sales under such Shelf
Registration Statement.
(c) furnish to each Holder of Registrable Securities that has
delivered a Registration Notice to the Company, without charge, as many
copies of each applicable Prospectus, including each preliminary
Prospectus, and any amendment or supplement thereto and such other
documents as such Holder may reasonably request, in order to facilitate
the public sale or other disposition of the Registrable Securities;
the Company consents to the use of such Prospectus, including each
preliminary Prospectus, by each such Holder of Registrable
Securities in connection with the offering and sale of the Registrable
Securities covered by such Prospectus or the preliminary Prospectus.
(d) use its reasonable best efforts to register or qualify the
Registrable Securities covered thereby by the time such Shelf Registration
Statement is declared effective by the Commission under all applicable
state securities or "blue sky" laws of such jurisdictions as any Holder
of Registrable Securities covered by such Shelf Registration Statement
shall reasonably request in writing, keep each such registration or
qualification effective during the period such Shelf Registration
Statement is required to be kept effective or during the period offers
or sales are being made by a Holder that has delivered a Registration
Notice to the Company, whichever is shorter, and do any and all
other acts and things which may be reasonably necessary or advisable to
enable such Holder to consummate the disposition in each such
jurisdiction of such Registrable Securities then owned by such Holder
(after giving effect to the redemption of Partnership Units then held
by such Holder); provided, however, that the Company shall not be
required (i) to qualify generally to do business in any jurisdiction
or to register as a broker or dealer in such jurisdiction where it would
not be required so to qualify or register but for this Section
3(d), (ii) to subject itself to taxation in any such jurisdiction or (iii)
to submit to the general service of process in any such jurisdiction.
(e) notify each Holder when such Shelf Registration Statement has
become effective and notify each Holder of Registrable Securities that has
delivered a Registration Notice to the Company promptly and, if requested
by such Holder, confirm such advice in writing (i) when any post-effective
amendments and supplements to such Shelf Registration Statement become
effective, (ii) of the issuance by the Commission or any state securities
authority of any stop order suspending the effectiveness of such Shelf
Registration Statement or the initiation of any proceedings for that
purpose, (iii) if the Company receives any notification with respect to
the suspension of the qualification of the Registrable Securities for sale
in any jurisdiction or the initiation of any proceeding for such purpose and
(iv) of the happening of any event during the period such Shelf Registration
Statement is effective as a result of which such Shelf Registration
Statement or a related Prospectus contains any untrue statement of a
material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein (in the case of the
Prospectus, in light of the circumstances under which they were made) not
misleading.
<PAGE>
7
(f) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of such Shelf Registration Statement
at the earliest possible moment.
(g) furnish to each Holder of Registrable Securities covered
thereby that has delivered a Registration Notice to the Company, without
charge, at least one conformed copy of such Shelf Registration Statement
and any post-effective amendment thereto (without documents incorporated
therein by reference or exhibits thereto, unless requested).
(h) cooperate with the selling Holders of Registrable Securities
covered thereby to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold and not
bearing any Securities Act legend; and enable certificates for such
Registrable Securities to be issued for such numbers of shares and
registered in such names as the selling Holders may reasonably request
at least two business days prior to any sale of Registrable Securities.
(i) subject to the last three sentences of Section 3(b) hereof,
upon the occurrence of any event contemplated by Section 3(e)(iv)
hereof, use its reasonable best efforts promptly to prepare and file a
supplement or prepare, file and obtain effectiveness of a post-effective
amendment to such Shelf Registration Statement or a related Prospectus
or any document incorporated therein by reference or file any other
required document so that, as thereafter delivered to the purchasers of
the Registrable Securities, such Prospectus will not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(j) make available for inspection by representatives of the
Holders of the Registrable Securities and any counsel or accountant
retained by such Holders, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the
respective officers, directors and employees of the Company to supply
all information reasonably requested by any such representative, counsel
or accountant in connection with such Shelf Registration Statement;
provided, however, that such records, documents or information which the
Company determines in good faith to be confidential, and notifies such
representatives, counsel or accountants in writing that such records,
documents or information are confidential, shall not be disclosed by the
representatives, counsel or accountants unless (i) the disclosure of
such records, documents or information is necessary to avoid or correct
a material misstatement or omission in such Shelf Registration
Statement, (ii) the release of such records, documents or information is
ordered pursuant to a subpoena or other order from a court of competent
jurisdiction or (iii) such records, documents or information have been
generally made available to the public otherwise than in violation of
this Agreement.
(k) a reasonable time prior to the filing of any Prospectus, any
amendment to such Shelf Registration Statement or amendment or
supplement to a Prospectus, provide copies of such document (not
including any documents incorporated by reference therein unless
requested) to the Holders of Registrable Securities that have provided a
Registration Notice to the Company.
(l) use its reasonable best efforts to cause all Registrable
Securities to be listed on any securities exchange on which similar
securities issued by the Company are then listed.
(m) obtain a CUSIP number for all Registrable Securities, not
later than the effective date of such Shelf Registration Statement.
<PAGE>
8
(n) otherwise use its reasonable efforts to comply with all
applicable rules and regulations of the Commission and make available to
its security holders, as soon as reasonably practicable, an earnings
statement covering at least 12 months which shall satisfy the provisions
of Section 11(a) of the Securities Act and Rule 158 thereunder.
(o) use its reasonable best efforts to cause the Registrable
Securities covered by such Shelf Registration Statement to be registered
with or approved by such other governmental agencies or authorities as
may be necessary by virtue of the business and operations of the Company
to enable Holders that have delivered Registration Notices to the
Company to consummate the disposition of such Registrable Securities.
The Company may require each Holder of Registrable Securities to
furnish to the Company in writing such information regarding the
proposed distribution by such Holder of such Registrable Securities as
the Company may from time to time reasonably request in writing.
In connection with and as a condition to the Company's obligations
with respect to any Shelf Registration Statement pursuant to Section 2
hereof and this Section 3, each Holder agrees with the Company that:
(i) it will not offer or sell its Registrable Securities under a
Shelf Registration Statement until (A) it has either (1) provided a
Registration Notice pursuant to Section 3(b) hereof or (2) had Registrable
Securities included in such Shelf Registration Statement at the time it
became effective pursuant to Section 2(b) hereof and (B) it has received
copies of the supplemented or amended Prospectus contemplated by Section
3(b) hereof and receives notice that any post-effective amendment has
become effective;
(ii) upon receipt of any notice from the Company of the happening
of anv event of the kind described in Section 3(b)(iv) hereof, such
Holder will forthwith discontinue disposition of Registrable Securities
pursuant to such Shelf Registration Statement until such Holder receives
copies of the supplemented or amended Prospectus contemplated by Section
3(i) hereof and receives notice that any post-effective amendment has
become effective, and, if so directed by the Company, such Holder will
deliver to the Company (at the expense of the Company) all copies in its
possession, other than permanent file copies then in such Holder's
possession, of the Prospectus covering such Registrable Securities
current at the time of receipt of such notice;
(iii) all offers and sales under such Shelf Registration Statement
shall be completed within forty-five (45) days after the first date on
which offers or sales can be made pursuant to clause (i) above, and upon
expiration of such forty-five (45) day period the Holder will not offer
or sell its Registrable Securities under the Shelf Registration
Statement until it has again complied with the provisions of clauses
(i)(A)(1) and (B) above, except that if the applicable Registration
Notice was delivered to the Company at a time which was not part of a
Sale Period, such forty-five (45) day period shall be the next
succeeding Sale Period;
(iv) if the Company determines in its good faith judgment, after
consultation with counsel, that the filing of a Shelf Registration
Statement under Section 2 hereof or the use of any Prospectus would
require the disclosure of important information which the
<PAGE>
9
Company has a bona fide business purpose for preserving as confidential
or the disclosure of which would impede the Company's ability to
consummate a significant transaction, upon written notice of such
determination by the Company, the rights of the Holders to offer, sell
or distribute any Registrable Securities pursuant to a Shelf
Registration Statement or Prospectus or to require the Company to take
action with respect to the registration or sale of any Registrable
Securities pursuant to a Shelf Registration Statement (including any
action contemplated by this Section 3) will be suspended until the date
upon which the Company notifies the Holders in writing that suspension
of such rights for the grounds set forth in this paragraph is no longer
necessary; provided, however, that the Company may not suspend such
rights for an aggregate period of more than 90 days in any 12-month
period; and
(v) in the case of the registration of any underwitten equity
offering proposed by the Company (other than any registration by the
Company on Form S-8, or a successor or substantially similar form, of
(i) an employee stock option, stock purchase or compensation plan or of
securities issued or issuable pursuant to any such plan or (ii) a
dividend reinvestment plan), such Holder will agree, if requested in
writing by the managing underwriter or underwriters administering such
offering, not to effect any offer, sale or distribution of any
Registrable Securities (or any option or right to acquire Registrable
Securities) (each, a "Transfer") during the period commencing on the
10th day prior to the expected effective date (which date shall be
stated in such notice) of the registration statement covering such
underwritten primary equity offering or, if such offering shall be a
"take-down" from an effective shelf registration statement, the 10th day
prior to the expected commencement date (which date shall be stated in
such notice) of such offering, and ending on the date specified by such
managing underwriter in such written request to such Holder; provided,
however, that no Holder shall be required to agree not to Transfer its
Registrable Securities for a period of time which is longer than the
greater of 90 days or the period of time for which any senior executive
of the Company is required so to agree in connection with such offering.
Nothing in this paragraph shall be read to limit the ability of any
Holder to redeem its Partnership Units for Common Shares in accordance
with the Partnership Agreement.
Section 4. Piggyback Registration.
(a) Right to Piggyback. Whenever on or after August [14], 1998
(x) the Company proposes to register any Common Shares (or securities
convertible into or exchangeable or exercisable for such Common Shares) under
the Securities Act for its own account or the account of any shareholder of
the Company (other than offerings pursuant to employee plans, or noncash
offerings in connection with a proposed acquisition, exchange offer,
recapitalization or similar transaction) and (y) the registration form may be
used for the registration of Registrable Securities (a "Piggyback
Registration"), the Company will give prompt written notice to all of the
Holders of Common Shares or Units outstanding on the date hereof (the
"Original Holders") of its intention to effect such a registration and will,
subject to Section 4(b) and Section 10 hereof, include in such registration
all Registrable Securities with respect to which such Original Holders
request in writing to be so included within 20 days after the receipt of the
Company's notice; provided, however, that the Company shall not be required
to give such notice or to effect such registration in respect of any
Registerable Securities which have been, or are in the process of being,
registered pursuant to any Shelf Registration Statement.
(b) Priority. If a registration pursuant to this Section 4
involves an underwritten offering and the managing underwriter advises the
Company in good faith that in its opinion the number of securities requested
to be included in such registration exceeds the number which can be sold in
such offering without
<PAGE>
10
having an adverse effect on such offering, including the price at which such
securities can be sold, then the Company will be required to include in such
registration the maximum number of shares that such underwriter advises can
be so sold, allocated (x) first, to the securities the Company proposes to
sell, (y) second, among the Common Shares requested to be included in such
registration by the Original Holders (other than Registrable Securities
previously registered pursuant to a Shelf Registration Statement filed in
accordance with Section 2 hereof under which such Original Holder could then
dispose of such Registrable Securities), considered in the aggregate (if such
registration was initiated by the Company), and any other shareholder of the
Company with Common Shares eligible for registration, pro rata, on the basis
of the number of Common Shares such holder requests be included in such
registration, and (z) third, among other securities, if any, requested and
otherwise eligible to be included in such registration.
(c) Nothing contained herein shall prohibit the Company from
determining, at any time, not to file a registration statement or, if filed,
to withdraw such registration or terminate or abandon the registration
related thereto.
Section 5. Requested Registration.
(a) Right to Request Registration. Upon the written request of
Original Holders owning 6% or more of the outstanding Registrable Securities
then owned in the aggregate by such Holders (the "Requesting Holders")
(computed for these purposes as if all Preferred Units have been converted
into Partnership Units and thereafter all outstanding Partnership Units have
been redeemed for Common Shares), requesting that the Company effect the
registration under the Securities Act of at least the Minimum Registration
Amount, the Company shall use its best efforts to effect, as expeditiously as
possible, following the prompt (but in no event later than 15 days following
the receipt of such written request) delivery of notice to all Original
Holders, the registration under the Securities Act of such number of shares
of Registrable Securities owned by the Requesting Holders and requested by
the Requesting Holders to be so registered (subject to Section 5(c) hereof),
together with (x) all other Common Shares entitled to registration, and (y)
securities of the Company which the Company elects to register and offer for
its own account; provided, however, that the Company shall not be required to
(i) subject to Section 5(b) below, effect more than a total of three such
registrations pursuant to this Agreement, (ii) file a registration statement
relating to a registration request pursuant hereto within a period of six
months after the effective date of any other registration statement of the
Company requested hereunder (other than pursuant to Section 2) or pursuant to
which the Requesting Holders shall have been given an opportunity to
participate pursuant to Section 4 hereof and which opportunity they declined
or which registration statement under Section 4 hereof included shares of
Registrable Securities owned by Holders Entitled to Registration Rights (so
long as such registration statement became and was effective for sufficient,
time to permit the sales contemplated thereby) or (iii) file a registration
statement relating to the registration of Registerable Securities which are
already being registered pursuant to a Shelf Registration Statement; provided
further, that the Company shall not be required to file a registration
statement relating to an offering of Common Shares on a delayed or continuous
basis pursuant to Rule 415 (or any successor rule to similar effect)
promulgated under the Securities Act if the Company is not, at the time,
eligible to register Common Shares on Form S-3 (or a successor form).
Notwithstanding the foregoing, if the Board of Directors of the
Company determines in its good faith judgment, (x) after consultation with a
nationally recognized investment banking fim, that there will be an adverse
effect on a then contemplated public offering of the Company's securities,
(y) that the disclosures that would be required to be made by the Company in
connection with such registration would be materially harmful to the Company
because of transactions then being considered by, or other events then
concerning, the Company, or (z) the registration at the time would require
the inclusion of pro forma or other information, which requirements the
Company is reasonably unable to comply with, then the Company may defer the
filing (but not
<PAGE>
11
the preparation) of the registration statement which is required to effect
any registration pursuant to this Section 5 for a reasonable period of time,
but not in excess of 90 calendar days (or any longer period agreed to by the
Holders Entitled to Registration Rights), provided that at all times the
Company is in good faith using all reasonable efforts to file such
registration statement as soon as practicable.
(b) Effective Registration. A registration requested pursuant to
this Section 5 shall not be deemed to have been effected (and, therefore, not
requested for purposes of Section 5(a) above) (w) unless the registration
statement relating thereto has become effective under the Securities Act, (x)
if after it has become effective such registration is interfered with by any
stop order, injunction or other order or requirement of the Commission or
other governmental agency or court for any reason other than a
misrepresentation or an omission by a Holder and, as a result thereof, the
shares of Registrable Securities requested to be registered cannot be
completely distributed in accordance with the plan of distribution, (y) if
the conditions to closing specified in the purchase agreement or underwriting
agreement entered into in connection with such registration are not satisfied
or waived other than by reason of some act or omission by a participating
Holder or (z) if with respect to what would otherwise be deemed the third, or
last, request under Section 5(a) hereof, less than all of the Common Shares
that the Original Holders requested be registered were actually registered
due to the operation of Section 5(c) hereof; provided that clause (z) above
may not be invoked by the Original Holders unless (I) such request includes
at least the Minimum Registration Amount or (II) if such request includes an
amount that is less than the Minimum Registration Amount, Rule 144 under the
Securities Act is not available to the Original Holders for the sale of all
of the Common Shares owned by the Original Holders; and provided further that
clause (z) above may be invoked only at the request of Original Holders
meeting the foregoing requirements and owning more than 10% of the shares of
Registrable then owned (computed as aforesaid) in the aggregate by the
Original Holders.
(c) Priority. If a requested registration pursuant to this
Section 5 involves an underwritten offering and the managing underwriter
shall advise the Company that in its opinion the number of securities
requested to be included in such registration exceeds the number which can be
sold in such offering without having an adverse effect on such offering,
including the price at which such securities can be sold, then the Company
will be required to include in such registration the maximum number of shares
that such underwriter advises can be so sold, allocated (x) first, among all
Common Shares requested by the Original Holders to be included in such
registration, pro rata on the basis of the number of Common Shares then owned
by each of them (or, if such holder requests that less than all of the Common
Shares owned by such holder be included in such registration, such lesser
number of shares) (y) second, to any securities requested to be included in
such registration by any other shareholder of the Company having registration
rights and (z) third, to any securities the Company proposes to sell.
Section 6. Registration Procedures. If and whenever the
Company is required to use its best efforts to effect or cause the
registration of any Registrable Securities under the Securities Act as
provided in this Agreement pursuant to Section 4 or 5 hereof, the Company
shall:
(a) prepare and file with the Commission as expeditiously as
possible but in no event later than 90 days after receipt of a request
for registration with respect to such Registrable Securities, a
registration statement on any form for which the Company then qualifies
or which counsel for the Company shall deem appropriate, which form
shall be available for the sale of the Registrable Securities in
accordance with the intended methods of distribution thereof, and use
its best efforts to cause such registration statement to become
effective; provided that before filing with the Commission a
registration statement or prospectus or any amendments or supplements
thereto, including documents incorporated by reference after the initial
filing of any registration statement, the Company shall (x) fur-
<PAGE>
12
nish to each participating Holder and to one firm of attorneys selected
collectively by the participating Holders and the holders of other
securities covered by such registration statement, but in no event to
more than one such counsel for all such selling securityholders, copies
of all such documents proposed to be filed, which documents shall be
subject to the review of the participating Holders and such counsel, and
(y) notify the participating Holders of any stop order issued or
threatened by the Commission and take all reasonable actions required to
prevent the entry of such stop order or to remove it if entered;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for a period of not less than 180 days or such
shorter period which shall terminate when all Registrable Securities
covered by such registration statement have been sold (but not before
the expiration of the 90-day period referred to in Section 4(3) of the
Securities Act and Rule 174, or any successor thereto, thereunder, if
applicable), and comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such
registration statement during such period in accordance with the
intended methods of disposition by the sellers thereof set forth in such
registration statement;
(c) furnish, without charge, to the participating Holders and each
underwriter, if any, such number of copies of such registration
statement, each amendment and supplement thereto (including one
conformed copy to each participating Holder and one signed copy to each
managing underwriter and in each case including all exhibits thereto),
and the prospectus included in such registration statement (including
each preliminary prospectus), in conformity with the requirements of the
Securities Act, and such other documents as the participating Holders
may reasonably request in order to facilitate the disposition of the
Registrable Securities registered thereunder;
(d) use its best efforts to register or qualify such Registrable
Securities covered by such registration statement under such other
securities or blue sky laws of such jurisdiction as the participating
Holders, and the managing underwriter, if any, reasonably requests and
do any and all other acts and things which may be reasonable necessary
or advisable to enable the participating Holders and each underwriter,
if any, to consummate the disposition in such jurisdiction of the
Registrable Securities registered thereunder; provided that the Company
shall not be required to (x) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for
this Section 6(d), (y) subject itself to taxation in any such
jurisdiction or (z) consent to general service of process in any such
jurisdiction;
(e) use its best efforts to cause the Registrable Securities
covered by such registration statement to be registered with or approved
by such insurance regulatory authorities may be necessary by virtue of
the business and operations of the Company to enable the participating
Holders and other holders, if any, of securities covered by such
registration statement to consummate the disposition of Registrable
Securities registered thereunder;
(f) immediately notify the managing underwriter, if any, and the
participating Holders at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of
any event which comes to the Company's attention if as a result of such
event the prospectus included in such registration statement contains an
untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading, and the Company shall promptly prepare and
furnish to the participating Holders and any
<PAGE>
13
other holder of securities covered by such registration statement and
prospectus a supplement or amendment to such prospectus so that as
thereafter delivered, such prospectus shall not contain an untrue
statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading; provided, however, that if the Company determines in good
faith that the disclosure that would be required to be made by the
Company would be materially harmful to the Company because of
transactions then being considered by, or other events then concerning,
the Company, or a supplement or amendment to such prospectus at such
time would require the inclusion of pro forma or other information,
which requirement the Company is reasonably unable to comply with, then
the Company may defer for a reasonable period of time, not to exceed 90
days, furnishing to the participating Holders and any other holder of
securities covered by such registration statement and prospectus a
supplement or amendment to such prospectus; provided, further, that at
all times the Company is in good faith using all reasonable efforts to
file such amendment as soon as practicable,
(g) use its best efforts to cause all such securities being
registered to be listed on each securities exchange on which similar
securities issued by the Company are then listed, and enter into such
customary agreements including a listing application and indemnification
agreement in customary form (provided that the applicable listing
requirements are satisfied), and to provide a transfer agent and
register for such Registrable Securities covered by such registration
statement no later than the effective date of such registration
statement;
(h) make available for inspection by any of the participating
Holders and any holder of securities covered by such registration
statement, any underwriter participating in any distribution pursuant to
such registration statement, and any attorney, accountant or other agent
retained by such persons (collectively, the "Inspectors"), all financial
and other records of the Company and its subsidiaries (collectively,
"Records"), if any, as shall be reasonably necessary to enable them to
exercise their due diligence responsibility, and cause the Company's and
its subsidiaries' officers, directors and employees to supply all
information and respond to all inquiries reasonably requested by any
such Inspector in connection with such registration statement.
Notwithstanding the foregoing, the Company shall have no obligation to
disclose any Records to the Inspector in the event the Company
determines that such disclosure is reasonably likely to have an adverse
effect on the Company's ability to assert the existence of an
attorney-client privilege with respect thereto;
(i) if requested, use its best efforts to obtain a "cold comfort"
letter and a "bring-down cold comfort" letter from the Company's
independent public accountants in customary form and covering such
matters of the type customarily covered by such letters;
(j) enter into a form of underwriting agreement that contains
customary terms and provisions for similar securities offerings;
(k) make available senior management personnel to participate in,
and cause them to cooperate with the underwriters in connection with,
"road show" and other customary marketing activities, including
"one-on-one" meetings with prospective purchasers of the Registrable
Securities; and
(l) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, an earnings
statement covering a period of at least 12 months, beginning with the
first month after the effective date of the registration statement (as
the term "effective date" is defined in Rule 158(c) under the Securities
<PAGE>
14
Act), which earnings statement shall satisfy the provisions of Section
11 (a) of the Securities Act and Rule 158 thereunder.
It shall be a condition precedent to the obligation of the Company to
take any action pursuant to this Agreement in respect of Registrable
Securities which are to be registered at the request of any of the
participating Holders that the participating Holders shall fumish to the
Company such information regarding the securities held by the participating
Holders and the intended method of disposition thereof as the Company shall
reasonably request and as shall be required in connection with the action
taken by the Company.
Each of the Holders agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 6(f)
hereof, the Holders shall discontinue disposition of Registrable Securities
pursuant to the registration statement covering such Registrable Securities
until receipt of the copies of the supplemented or amended prospectus
contemplated by Section 6(f) hereof or until otherwise notified by the
Company, and, if so directed by the Company, the participating Holders shall
deliver to the Company (at the Company's expense) all copies (including,
without limitation, any and all drafts), other than permanent file copies,
then in any participating Holder's possession, of the prospectus covering
such Registrable Securities at the time of receipt of such notice. In the
event the Company shall give any such notice, the period specified in Section
6(b) hereof shall be extended by the greater of (x) three months of (y) the
number of days during the period from and including the date of the giving of
such notice pursuant to Section 6(f) hereof to and including the date when
each of the participating Holders shall have received the copies of the
supplemented or amended prospectus contemplated by, Section 6(f) hereof.
Section 7. Selection or Underwriters. If any offering pursuant to a
registration statement is to be an underwritten offering, the Company will
select a managing underwriter or underwriters to administer the offering,
provided that in the case of a registration statement pursuant to Section 5
hereof, the Original Holders holding more than 50% of the shares of
Registrable Securities held by the Original Holders to be included in such
underwritten offering shall select the managing underwriter or underwriters,
subject to the consent of the Company which consent shall not be unreasonably
withheld or delayed.
Section 8. Registration Expenses. The Company shall pay, in
connection with any registration pursuant to Section 2, 4 or 5, the following
registration expenses incurred in connection therewith: (i) all Commission,
stock exchange or NASD registration and filing fees, (ii) all fees and
expenses of compliance with securities or blue sky laws (including reasonable
fees and disbursements of counsel in connection with the blue sky
qualifications of the Registrable Securities), (iii) printing expenses, (iv)
internal expenses (including without limitation, all salaries and expenses of
its officers and employees performing legal or accounting duties), (v) the
fees and expenses incurred in connection with the listing of the Registrable
Securities on any national securities exchange or interdealer quotation
system, (vi) the reasonable fees and disbursements of counsel for the Company
and customary fees and expenses for independent certified public accountants
retained by the Company (including the expenses of any comfort letters or
costs associated with the delivery by independent certified public
accountants of a comfort letter or comfort letters), (vii) the reasonable
fees and disbursements of not more than one firm of attorneys acting as legal
counsel for (x) all of the selling shareholders, collectively, in respect of
a registration pursuant to Section 4 hereof or (y) all of the participating
Holders, collectively, in respect of a registration pursuant to Section 5
hereof, (viii) the fees and expenses of any registrar and transfer agent for
the Common Shares, (ix) the underwriting fees, discounts and commissions
applicable to any Common Shares sold for the account of the Company and (x)
all expenses of any Person in preparing or assisting in preparing, word
processing, printing and distributing any registration statement, prospectus,
certificates and other documents relating to the performance of and
compliance with this Agreement. Except as otherwise provided in clause (ix)
<PAGE>
15
of this Section 8, the Company shall have no obligation to pay any
underwriting fees, discounts or commissions attributable to the sale of
Registrable Securities.
Section 9. Indemnification; Contribution.
(a) The Company agrees to indemnify and hold harmless each
Indemnitee from and against any and all losses, claims, damages, liabilities
and expenses (including reasonable costs of investigation) arising out of or
based upon any untrue statement or alleged untrue statement of a material
fact contained in any prepricing prospectus, registration statement or
prospectus or in any amendment or supplement thereto, or arising out of or
based upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages, liabilities or
expenses arise out of or are based upon any untrue statement or omission or
alleged untrue statement or omission which has been made therein or omitted
therefrom in reliance upon and in conformity with the information relating to
a participating Holder furnished in writing to the Company by or on behalf of
a participating Holder expressly for use in connection therewith. The
foregoing indemnity agreement shall be in addition to any liability which the
Company may otherwise have.
(b) If any action, suit or proceeding shall be brought against an
Indemnitee in respect of which indemnity may be sought against the Company,
such Indemnitee shall promptly notify the Company, and the Company shall
assume the defense thereof, including the employment of counsel and payment
of all fees and expenses. The Indemnitee shall have the right to employ
separate counsel in any such action, suit or proceeding and to participate in
the defense thereof, but the fees and expenses of such counsel shall be at
the expense of such Indemnitee unless (x) the Company has agreed in writing
to pay such fees and expenses, (y) the Company has failed to assume the
defense and employ counsel, or (z) the named parties to any such action, suit
or proceeding (including any impleaded parties) include both such Indemnitee
and the Company, and such Indemnitee shall have been advised by its counsel
that representation of such Indemnitee and the Company by the same counsel
would be inappropriate under applicable standards of professional conduct
(whether or not such representation by the same counsel has been proposed)
due to actual or potential differing interests between them (in which case
the Company shall not have the right to assume the defense of such action,
suit or proceeding on behalf of such Indemnitee). It is understood, however,
that the Company shall, in connection with any one such action, suit or
proceeding or separate but substantially similar or related actions, suits or
proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses
of only one separate firm of attorneys (in addition to any local counsel) at
any time for all such Indemnitees not having actual or potential differing
interests among themselves, and that all such fees and expenses shall be
reimbursed as they are incurred. The Company shall not be liable for any
settlement of any such action, suit or proceeding effected without its
written consent, but if settled with such written consent, or if there be a
final judgment for the plaintiff in any such action, suit or proceeding, the
Company agrees to indemnify and hold harmless such Indemnitee, to the extent
provided in the preceding paragraph, from and against any loss, claim,
damage, liability or expense by reason of such settlement or judgment.
(c) Each of the participating Holders, severally and not jointly,
agree to indemnify and hold harmless the Company, its directors, its officers
who sign the registration statement, and any person who controls the Company
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act, to the same extent as the foregoing indemnity from the Company
to an Indemnitee, but only with respect to information relating to such
Holder furnished in writing by or on behalf of such Holder expressly for use
in the registration statement, prospectus or any prepricing prospectus, or
any
<PAGE>
16
amendment or supplement thereto. If any action, suit or proceeding shall be
brought against the Company, any of its directors, any such officer, or any
such controlling person based on the registration statement, prospectus or
any prepricing prospectus, or any amendment or supplement thereto, and in
respect of which indemnity may be sought against any Holder pursuant to this
Section 9(c), such Holder shall have the rights and duties given to the
Company by Section 9(b) hereof (except that if the Company shall have assumed
the defense thereof such Holder shall not be required to do so, but may
employ separate counsel therein and participate in the defense thereof, but
the fees and expenses of such counsel shall be at the Holder's expense), and
the Company, its directors, any such officer, and any such controlling person
shall have the rights and duties given to an Indemnitee by Section 9(b)
hereof. The foregoing indemnity agreement shall be in addition to any
liability which the participating Holders may otherwise have.
(d) If the indemnification provided for in this Section 9 is
unavailable to an indemnified party under paragraphs (a) or (c) hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein. then an indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages, liabilities or expenses in
such proportion as is appropriate to reflect the relative fault of the
Company and of the participating Holders in connection with the statements or
omissions that resulted in such losses, claims, damages, liabilities or
expenses. The relative fault of the Company on the one hand and a
participating Holder on the other hand shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on the one hand or by such
participating Holder on the other hand and the parties' relative intent,
knowledge, access or information and opportunity to correct or prevent such
statement or omission.
(e) The Company and the participating Holders agree that it would
not be just and equitable if contribution pursuant to this Section 9 were
determined by a pro rata allocation or by any other method of allocation that
does not take account of the equitable considerations referred to in Section
9(d) hereof. The amount paid or payable by an indemnified party as a result
of the losses, claims, damages, liabilities and expenses referred to in
Section 9(d) hereof shall be deemed to include, subject to the limitations
set forth above, any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating any claim or defending any
such action, suit or proceeding. Notwithstanding the provisions of this
Section 9, no participating Holder shall be required to contribute any amount
in excess of the amount by which the proceeds to such participating Holder
exceeds the amount of any damages which such participating Holder has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
(f) No indemnifying party shall, without the prior written consent
of the indemnified party, effect any settlement of any pending or threatened
action, suit or proceeding in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder by
such indemnified party, unless such settlement includes an unconditional
release of such indemnified party from all liability on claims that are the
subject matter of such action, suit or proceeding.
(g) Any losses, claims, damages, liabilities or expenses for which
an indemnified party is entitled to indemnification or contribution under
this Section 9 shall be paid by the indemnifying party to the indemnified
party as such losses, claims, damages, liabilities or expenses are incurred.
The indemnity and contribution agreements contained in this Section 9 shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of an Indemnitee, the Company, its
directors or officers, or any person controlling the Company, and (ii) any
termination of this Agreement.
Section 10. Participation in Underwritten Registrations. An
Original Holder may not participate in any underwritten offering pursuant to
Section 4 or 5 hereof unless such Holder (i) agrees to sell its
<PAGE>
17
Registrable Securities on the basis provided in any underwriting arrangements
which, to the extent applicable solely to the participating Original Holders,
are approved by the participating Original Holders in their reasonable
discretion or which, to the extent applicable to the Company and the
participating Original Holders, are approved by the Company in its reasonable
discretion and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents (including
lock-up agreements) reasonably required under the terms of such underwriting
arrangements which are not inconsistent with the terms of this Agreement.
Section 11. Other Registration Rights. The Company agrees that
it shall not enter into any agreement which provides registration rights to
any Person that are inconsistent with the provisions contained in this
Agreement. If the Company does become a party to such an agreement, the
Company agrees that to the extent that the provisions of such agreement
conflict with this Agreement, the provisions of this Agreement shall control.
Section 12. Rule 144 Sales.
(a) The Company covenants that it will file the reports required
to be filed by the Company under the Securities Act and the Exchange Act, so
as to enable any Holder to sell Registrable Securities pursuant to Rule 144
under the Securities Act.
(b) In connection with any sale, transfer or other disposition by
any Holder of any Registrable Securities pursuant to Rule 144 under the
Securities Act, the Company shall cooperate with such Holder to facilitate
the timely preparation and delivery of certificates representing Registrable
Securities to be sold and not bearing any Securities Act legend, and enable
certificates for such Registrable Securities to be for such number of shares
and registered in such names as the selling Holders may reasonably request at
least two business days prior to any sale of Registrable Securities.
Section 13. Miscellaneous.
(a) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions
hereof may not be given without the written consent of the Company and
Holders constituting Majority Holders; provided, however, that no amendment,
modification or supplement or waiver or consent to the departure with respect
to the provisions of Sections 1 through 12, inclusive, hereof or which would
impair the rights of any Holder under such provisions, shall be effective as
against any Holder of Registrable Securities, Preferred Units or Partnership
Units unless consented to in writing by such Holder of Registrable
Securities, Preferred Units or Partnership Units. Notice of any amendment,
modification or supplement to this Agreement adopted in accordance with this
Section 13(a) shall be provided by Company to each Holder of Registrable
Securities, Preferred Units or Partnership Units at least thirty (30) days
prior to the effective date of such amendment, modification or supplement.
(b) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand delivery, registered
first-class mail, telex, telecopier or any courier guaranteeing overnight
delivery, (i) if to a Holder, at the most current address given by such
Holder to the Company by means of a notice given in accordance with the
provisions of this Section 13(b), which address initially is, with respect to
each Holder, the address set forth in the Partnership Agreement, or (ii) if
to the Company, at One Logan Square, Suite 1105, Philadelphia, Pennsylvania.
<PAGE>
18
All such notices and communications shall be deemed to have been
duly given: at the time delivered by hand, if personally delivered; five
business days after being deposited in the mail, postage prepaid, if mailed;
when answered back, if telexed; when receipt is acknowledged, if telecopied;
or at the time delivered if delivered by an air courier guaranteeing
overnight delivery.
(c) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors, assigns and transferees of
each of the Company and the Holders, including without limitation and without
the need for an express assignment, subsequent Holders. If any successor,
assignee or transferee of any Holder shall acquire Registrable Securities, in
any manner, whether by operation of law or otherwise, such Registrable
Securities shall be held subject to all of the terms of this Agreement, and
by taking and holding such Registrable Securities such Person shall be
entitled to receive the benefits hereof and shall be conclusively deemed to
have agreed to be bound by all of the terms and provisions hereof.
(d) Headings. The headings in this Agreement are for the
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(e) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE WITHOUT GIVING
EFFECT TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
(f) Specific Performance. The Company and the Holders acknowledge
that there would be no adequate remedy at law if any party fails to perform
any of its obligations hereunder, and accordingly agree that the Company and
each Holder, in addition to any other remedy to which it may be entitled at
law or in equity, shall be entitled to compel specific performance of the
obligations of another under this Agreement in accordance with the terms and
conditions of this Agreement in any court of the United States or any State
thereof having jurisdiction.
(g) Entire Agreement. This Agreement is intended by the Company
as a final expression of its agreement and is intended to be a complete and
exclusive statement of the agreement and understanding of the Company in
respect of the subject matter contained herein. This Agreement supersedes
all prior agreements and understandings of the Company with respect to such
subject matter.
IN WITNESS WHEREOF, the Company has executed this Agreement as of
the date first written above.
CORPORATE OFFICE PROPERTIES TRUST
By:
-----------------------------
Name:
Title:
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 4,914
<SECURITIES> 0
<RECEIVABLES> 315
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,624
<PP&E> 294,151
<DEPRECIATION> (5,479)
<TOTAL-ASSETS> 297,525
<CURRENT-LIABILITIES> 5,580
<BONDS> 144,417
0
0
<COMMON> 0
<OTHER-SE> 147,528
<TOTAL-LIABILITY-AND-EQUITY> 297,525
<SALES> 0
<TOTAL-REVENUES> 13,367
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 8,362<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,575
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 430
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09
<FN>
<F1>Reflects nonrecurring Reformation costs of $637 associated with the Reformation
of the Company as a Maryland Trust.
</FN>
</TABLE>
