<PAGE>
As filed with the Securities and Exchange Commission on July 31, 1998
REGISTRATION STATEMENT NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------
CORPORATE OFFICE PROPERTIES TRUST
(Exact name of Registrant as specified in its charter)
One Logan Square
Suite 1105
Philadelphia, PA 19103
(215) 567-1800
(Address, including zip code, and telephone number, including area code of
Registrant's principal executive offices)
------------------
Clay W. Hamlin, III
President and Chief Executive Officer
One Logan Square
Suite 1105
Philadelphia, PA 19103
(215) 567-1800
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------
Copy to:
JOHN F. BALES, ESQ.
MORGAN, LEWIS & BOCKIUS LLP
2000 One Logan Square
Philadelphia, PA 19103
(215) 963-5478
-----------------
Approximate date of commencement of proposed sale to the public: From
time to time after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. /X/
If this form is used to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
If delivery of the Prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of Shares Amount to be Proposed Maximum Proposed Maximum Amount of
Being Registered Registered Offering Price Per Share(1) Aggregate Offering Price(1) Registration Fee
---------------- ------------ --------------------------- --------------------------- ----------------
<S> <C> <C> <C> <C>
Common Shares of
Beneficial Interest, par 10,081,758 $8.46875 $85,379,888 $25,187
value $.01 per share
</TABLE>
- -------------------
(1) Estimated solely for purposes of determining the registration fee
pursuant to Rule 457(c) based on the average of the high and low sales
prices on the New York Stock Exchange on July __, 1998.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION B(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell nor the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
PRELIMINARY PROSPECTUS DATED JULY __, 1998
SUBJECT TO COMPLETION
PROSPECTUS
10,081,758 SHARES
CORPORATE OFFICE PROPERTIES TRUST
COMMON SHARES OF BENEFICIAL INTEREST
(PAR VALUE $.0l PER SHARE)
-------------------
This Prospectus relates primarily to 9,481,758 Common Shares which
Corporate Office Properties Trust may issue to certain investors who have the
right to receive either cash or Common Shares in exchange for limited
partnership interests these investors now hold. One or more of these investors
may offer and sell all or a portion of their Common Shares, along with 600,000
Common Shares which certain of these investors already own, for a total of
10,081,758 Common Shares.
Corporate Office Properties Trust is registering the 10,081,758 Common
Shares pursuant to its obligations under a registration rights agreement, but
the registration of those Common Shares does not necessarily mean that any of
those Common Shares will be offered or sold by these investors.
See "Risk Factors" beginning on page 3 for certain factors relevant to
an investment in the common shares.
The Common Shares are listed on the New York Stock Exchange under the
symbol "OFC." To ensure that Corporate Office Properties Trust maintains its
qualification as a real estate investment trust, ownership by any person is
limited to 9.8% of the lesser of the number or value of outstanding Common
Shares, with certain exceptions.
--------------------------
Neither the Securities and Exchange Commission nor
any state securities commission has approved or
disapproved of these securities or passed upon
the accuracy or adequacy of the prospectus.
Any representation to the contrary
is a criminal offense.
--------------------------
The investors referred to above from time to time may offer and sell
the Common Shares directly or through agents or broker-dealers on terms to be
determined at the time of sale. To the extent required, the names of any agent
or broker dealer and applicable commissions or discounts and any other required
information with respect to any particular offer will be set forth in an
accompanying Prospectus Supplement. See "Plan of Distribution."
The investors referred to above and any agents or broker-dealers that
participate with them in the distribution of the Common Shares may be deemed to
be "underwriters" within the meaning of the Securities Act of 1933, as amended
(the "Securities Act"), and any commission received by them and any profit on
the resale of the Common Shares may be deemed to be underwriting commissions or
discounts under the Securities Act. See "Registration Rights" for a description
of certain indemnification arrangements between Corporate Office Properties
Trust and these investors.
Corporate Office Properties Trust will not receive any proceeds from
either the issuance or the sale of the Common Shares by the investors referred
to above but has agreed to bear certain expenses of registration of such shares
under federal and state securities laws.
The date of this Prospectus is July ___,1998
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements contained elsewhere in this Prospectus.
Unless the context otherwise requires, the "Company" refers to Corporate Office
Properties Trust and its predecessors and, where applicable, Corporate Office
Properties, L.P., a Delaware limited partnership which the Company controls as
its sole general partner (the "Operating Partnership"), and other subsidiaries.
This Prospectus, including the information incorporated by reference
herein, contains "forward-looking statements" relating to, without limitation,
future economic performance, and plans and objectives of management. The words
"believe," "expect," "anticipate,""estimate," and other similar expressions
which are predictions or indicate future events and trends and which do not
relate to historical matters may identify forward-looking statements. The
Company's actual results may differ significantly from the results discussed in
such forward-looking statements. Certain risk factors that might cause such a
difference are discussed in the section entitled "Risk Factors" beginning on
page 3 of this Prospectus. Prospective investors should carefully consider such
risk factors in conjunction with the other information contained or incorporated
by reference in this Prospectus before making a decision to purchase any Common
Shares. The Company cautions the reader, however, that such risk factors may not
be exhaustive.
The Company
General. The Company is a self-administered REIT which focuses
principally on the ownership, acquisition and management of suburban office
properties in strong and growing submarkets in the United States. The Company
currently owns interests in 24 suburban office properties in Maryland,
Pennsylvania and New Jersey containing approximately 2.6 million rentable
square feet (the "Office Properties"). The Company also owns seven retail
properties located in the Midwest containing approximately 370,000 rentable
square feet (the "Retail Properties" and, together with the Office
Properties, the "Properties"). As of June 30, 1998, the Properties were over
97% leased. In addition, the Company has options to purchase 44.3 acres of
land contiguous to certain of the Office Properties owned by related parties.
Substantially all of the Company's business pertaining to the Office
Properties is conducted through, and all of the Company's interest in the Office
Properties are held by or through, the Operating Partnership. The Company holds
Units in the Operating Partnership representing a 75.8% economic interest in the
Operating Partnership after giving effect to certain interests (the "Retained
Interests") which are required to be contributed to the Operating Partnership in
November 2000. The Company controls the Operating Partnership in its capacity as
the sole general partner.
The Company was organized in 1988 and elected to be taxed as a REIT
commencing with its taxable year ended on December 31, 1992. The Company
believes that it was organized and has operated in a manner that permits it to
satisfy the requirements for taxation as a REIT under the applicable provisions
of the Internal Revenue Code of 1986, as amended (the "Code"), and intends to
continue to operate in such a manner. If the Company qualifies for taxation as a
REIT, the Company generally will not be subject to federal income tax on its
taxable income that is distributed to its shareholders. A REIT is subject to a
number of organizational and operational requirements, including a requirement
that it currently distribute at least 95% of its annual taxable income
(excluding net capital gains).
The Company's executive offices are located at One Logan Square, Suite
1105, Philadelphia, Pennsylvania 19103 and its telephone number is (215)
567-1800.
The Formation Transactions. On October 14, 1997, the Company completed
certain transactions (the "Formation Transactions") constituting the acquisition
by the Company of an interest in the Operating Partnership formed to acquire the
Office Properties.
Pursuant to the Formation Transactions, the Company became the sole
General Partner of the Operating Partnership, and the Operating Partnership
acquired all of the limited partnership interests in limited partnerships
holding the Office Properties (collectively, the "Properties Partnerships")
except for certain limited partnership interests retained by Shidler Equities,
L.P., a limited partnership controlled by Mr. Jay H. Shidler, Chairman of the
Board of the Company, and his spouse, and certain limited partnership interests
retained by Mr. Clay W. Hamlin, III, the President, Chief Executive Officer and
a trustee of the Company. These limited partnership interests held by Messrs.
Shidler and Hamlin constitute the Retained
<PAGE>
Interests. The Retained Interests are required to be contributed to the
Operating Partnership in November 2000 in consideration for the issuance to the
holders thereof of Units in the Operating Partnership. See "The Selling
Shareholders."
Pursuant to the Formation Transactions, in exchange for partnership
interests in various of the Properties Partnerships Messrs. Shidler and Hamlin
each acquired 300,000 Common Shares (the "Formation Shares") and certain
investors, including Messrs. Shidler and Hamlin, acquired certain limited
partnership units and/or preferred units (the "Acquired Units") of limited
partnership interest ("Units") in the Operating Partnership. Pursuant to a
registration rights agreement entered into as part of the Formation
Transactions, the holders of the Acquired Units have the right to tender the
Acquired Units to the Company for cash redemption, and the Company may, in its
sole and absolute discretion, exchange the tendered Acquired Units for Common
Shares (the "Redemption Shares"). The Formation Shares and the Redemption Shares
are hereinafter referred to together as the "Registered Shares" and the holders
thereof who offer and sell Registered Shares pursuant hereto are hereinafter
referred to as the "Selling Shareholders."
RECENT DEVELOPMENTS
On May 15, 1998, the Company and certain entities affiliated with
Constellation Real Estate Group, Inc. ("Constellation") signed an agreement
whereby the Company will acquire certain real commercial properties in the
Baltimore, Maryland - Washington, D.C. area, along with a majority interest
in a commercial property management company. Constellation is a wholly-owned
indirect subsidiary of Baltimore Gas and Electric Company. In exchange,
Constellation will receive Common Shares and cash and the Company will assume
certain Constellation debt. A special meeting of shareholders of the Company
has been set for August 21, 1998, to consider and vote to approve this
transaction (the "Constellation Transactions").
Constellation will contribute up to 18 commercial office and retail
properties with a total square footage of 1.4 million square feet. Of the
total, 196,000 square feet at two locations is currently under construction.
In addition to the office properties, Constellation will contribute certain
options and first refusal rights pursuant to which, over the next five years,
the Company may acquire 91 additional acres of undeveloped land contiguous to
the office properties being contributed. If the Company exercises its rights
to acquire all of the undeveloped land, the Company anticipates building an
additional 1.7 million square feet of office space. In addition to the real
property, Constellation will contribute its 75% ownership interest in
Constellation Management, LLC. Constellation Management, LLC provides
property and asset management services for a portfolio of 146 properties
comprising 14.8 million square feet in the suburban Baltimore, Northern
Virginia and Philadelphia areas.
The Company will pay Constellation consideration valued at
approximately $204.6 million, of which amount $107.6 million will be paid in the
form of cash or assumption of debt. The balance of the consideration will
consist of approximately 6,928,000 Common Shares and approximately 969,900
Series A Convertible Preferred Shares.
If approved, the Constellation Transactions will be consummated at
several closings. The closings for substantially all the properties and assets
to be acquired other than the Development Properties are expected to be
completed within 45 to 90 days after the special meeting of shareholders. The
closing for each of the Development Properties is contingent upon the
achievement of certain net operating income levels by July 1, 1999, and neither
closing is expected to occur in any event prior to the first quarter of 1999.
As a result of the Constellation Transactions, Constellation will have
the right, so long as it maintains certain levels of share ownership in the
Company, to designate up to two members of the Board of Trustees. Constellation
will own approximately 41.5% of the Company's Common Shares outstanding upon
closing of the Constellation Transactions, and as such will have the power to
prevent certain actions that require the approval of the holders of two thirds
of the Common Shares. Constellation, as holder of certain preferred shares in
the Company (the "Preferred Shares"), will be entitled to receive an annual
preferred, cumulative dividend payment of $1.375 per Preferred Share, equal to a
rate of 5.5% based on the $25.00 per share liquidation preference attributable
to the Preferred Shares, redeemable for Common Shares after 2 years
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at the rate of $13.34 per Common Share. Additionally, in order to fulfill its
obligation to close on two retail properties which are part of the Constellation
Transactions (the "Development Properties"), the Company must obtain financing
commitments prior to the date of any such closing in amounts up to approximately
$25.6 million.
RISK FACTORS
An investment in the Common Shares involves various risks. Prospective
investors should carefully consider the following information in conjunction
with the other information contained in this Prospectus before making a decision
to purchase the Common Shares offered hereby.
Real Estate Investment Risks
General Risks. Real property investments are subject to varying degrees
of risk. The yields available from equity investments in real estate depend in
large part on the amount of rental income earned and capital appreciation
generated, as well as property operating and other expenses incurred. If the
Properties do not generate revenues sufficient to meet operating expenses of the
Operating Partnership and the Company, including debt service, tenant
improvements, leasing commissions and other capital expenditures, the Operating
Partnership or the Company may have to borrow additional amounts to cover fixed
costs, and the Company's financial performance and ability to make distributions
to its shareholders may be adversely affected.
The Company's revenues and the value of the Properties may be adversely
affected by a number of factors, including (i) the national, state and local
economic climate and real estate conditions (such as oversupply of or reduced
demand for space and changes in market rental rates), (ii) the perceptions of
prospective tenants of the attractiveness, convenience and safety of the
Properties, (iii) the ability of the Company to provide adequate management,
maintenance and insurance, (iv) the ability to collect all rent from tenants on
a timely basis, (v) the expense of periodically renovating, repairing and
reletting spaces and (vi) increasing operating costs (including real estate
taxes and utilities) to the extent that such increased costs cannot be passed
through to tenants. Certain significant costs associated with investments in
real estate (such as mortgage payments, real estate taxes, insurance and
maintenance costs) generally are not reduced when circumstances cause a
reduction in rental revenues from the property and vacancies result in loss of
the ability to receive tenant reimbursements of operating costs customarily
borne by commercial real estate tenants. In addition, real estate values and
income from properties are also affected by such factors as compliance with laws
applicable to real property, including environmental and tax laws, interest rate
levels and the availability of financing. Furthermore, the amount of available
rentable square feet of commercial property is often affected by market
conditions and may therefore fluctuate over time.
Tenant Defaults and Bankruptcy. Substantially all of the Company's
income is derived, directly or through distributions from the Operating
Partnership, from rental income from properties. The distributable cash flow and
ability to make expected distributions to shareholders would be adversely
affected if any of the Company's largest tenants or a significant number of the
Company's tenants failed to meet their lease obligations. Tenants may seek the
protection of the bankruptcy laws, which could result in delays in rental
payments or in the rejection and termination of such tenant's lease and thereby
cause a reduction in the Company's cash flow and the amounts available for
distributions to its shareholders. No assurance can be given that tenants will
not file for bankruptcy protection in the future or, if any tenants file, that
they will affirm their leases and continue to make rental payments in a timely
manner. In addition, a tenant, from time to time, may experience a downturn in
its business, which may weaken its financial condition and result in the failure
to make rental payments when due. If tenant leases are not affirmed following
bankruptcy, or if a tenant's financial condition weakens, the Company's results
of operations and the amounts available for distribution to its shareholders may
be adversely affected.
Operating Risks. The Properties will be subject to operating risks
common to commercial real estate in general, any and all of which may adversely
affect occupancy and rental rates. The Properties will be subject to increases
in operating expenses such as cleaning, electricity, heating, ventilation and
air conditioning, maintenance, insurance and administrative costs, and other
general costs associated with security, landscaping, repairs and maintenance.
While the Company's current tenants generally are obligated to pay a portion of
these escalating costs, there can be no assurance that
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tenants will agree to pay all or a portion of such costs upon renewal or that
new tenants will agree to pay such costs. If operating expenses increase, the
local rental market may limit the extent to which rents may be increased to meet
increased expenses without decreasing occupancy rates. While the Company
implements cost-saving incentive measures at each of its properties, the
Company's results of operations and ability to make distributions to
shareholders could be adversely affected if operating expenses increase without
a corresponding increase in revenues, including tenant reimbursements of
operating costs. In addition, when tenant leases expire, the Company may incur
significant retenanting costs for leasing commissions and tenant improvements.
Competition; Risk of Not Meeting Targeted Level of Leasing Activity,
Acquisitions and Development. Numerous commercial properties compete with the
Properties in attracting tenants to lease space, and additional properties can
be expected to be built in the markets in which the Properties are located. The
number and quality of competitive commercial properties in a particular area
will have a material effect on the Company's ability to lease space at its
current properties or at newly acquired properties and on the rents charged.
Some of these competing properties may be newer or better located than the
Properties. In addition, the commercial real estate market is highly competitive
particularly within the Mid-Atlantic region in which the Company presently
operates. There are a significant number of buyers of commercial property,
including other publicly traded commercial REITs, many of which have significant
financial resources. This situation has resulted in increased competition in
acquiring attractive commercial properties. Accordingly, it is possible that the
Company may not be able to meet its targeted level of property acquisitions and
developments due to such competition or other factors which may have an adverse
effect on the Company's expected growth in operations.
Possible Environmental Liabilities. Under various federal, state and
local environmental laws, ordinances and regulations, a current or previous
owner or operator of real property may be liable for the costs of removal or
remediation of hazardous or toxic substances on, under or in such property. Such
laws often impose liability whether or not the owner or operator knew of, or was
responsible for, the presence of such hazardous or toxic substances. In
addition, the presence of hazardous or toxic substances, or the failure to
remediate such property properly, may adversely affect the owner's ability to
borrow using such real property as collateral. Persons who arrange for the
disposal or treatment of hazardous or toxic substances may also be liable for
the costs of removal or remediation of hazardous substances at the disposal or
treatment facility, whether or not such facility is or ever was owned or
operated by such person. Certain environmental laws and common law principles
could be used to impose liability for release of and exposure to hazardous
substances, including asbestos-containing materials into the air, and third
parties may seek recovery from owners or operators of real properties for
personal injury or property damage associated with exposure to released
hazardous substances. As the owner of real properties, the Company may be
potentially liable for any such costs.
Effect of Americans with Disabilities Act Compliance on Cash Flow and
Distributions. Under the Americans with Disabilities Act of 1990 (the "ADA"),
all public accommodations and commercial facilities are required to meet certain
federal requirements related to access and use by disabled persons. Existing
commercial properties generally are subject to provisions requiring that
buildings be made accessible to people with disabilities. Compliance with the
ADA requirements could require removal of access barriers, and non-compliance
could result in imposition of fines by the U.S. government or an award of
damages to private litigants. While the amounts of such compliance costs, if
any, are not currently ascertainable, they are not expected to have a material
effect on the Company.
Risks Associated with Illiquidity of Real Estate. Equity real estate
investments are relatively illiquid. Such illiquidity will tend to limit the
ability of the Company to vary its portfolio promptly in response to changes in
economic or other conditions. In addition, the Code limits the ability of a REIT
to sell properties held for fewer than four years, which may affect the
Company's ability to sell properties without adversely affecting returns to
holders of Common Shares.
Risks Associated with Acquisition, Development and Construction
Activities. The Company intends to acquire existing commercial properties to the
extent that they can be acquired on advantageous terms and meet the Company's
investment criteria. Acquisitions of such properties entail general investment
risks associated with any real estate investment, including the risk that
investments will fail to perform in accordance with expectations or that
estimates of the costs of improvements to bring an acquired property up to the
Company's standards may prove inaccurate.
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The Company also intends to grow in part through the selective
development, redevelopment and construction of commercial properties, including
build-to-suit properties and speculative development, as suitable opportunities
arise. Additional risks associated with such real estate development and
construction activities include the risk that the Company may abandon
development activities after expending significant resources to determine their
feasibility; the construction cost of a project may exceed original estimates;
occupancy rates and rents at a newly completed property may not be sufficient to
make the property profitable; financing may not be available on favorable terms
for development of a property; and the construction and lease up of a property
may not be completed on schedule (resulting in increased debt service and
construction costs). Development activities are also subject to risks relating
to inability to obtain, or delays in obtaining, necessary zoning, land-use,
building occupancy and other required governmental permits and authorizations.
If any of the above occur, the Company's results of operations and ability to
make distributions to shareholders could be adversely affected. In addition, new
development activities, regardless of whether they are ultimately successful,
may require a substantial portion of management's time and attention.
Real Estate Financing Risks
The Company intends to continue to operate in the near term with higher
debt levels than most other REITs. The Declaration of Trust by which the Company
is governed does not limit the amount of indebtedness that the Company may
incur. In addition, as a result of, among other things, the annual income
distribution requirements applicable to REITs under the Code, the Company will
be required to rely on borrowings, either directly or through the Operating
Partnership, and other external sources of financing to fund the costs of new
property acquisitions, capital expenditures and other items. Accordingly, the
Company and the Operating Partnership will be subject to real estate financing
risks, including changes from period to period in the availability of such
financing, the risk that the Company's or the Operating Partnership's cash flow
may not be sufficient to cover both required debt service payments and
distributions to shareholders and the risk that indebtedness secured by
properties will not be able to be refinanced or that the terms of such
refinancing will not be as favorable as the terms of existing indebtedness. Each
of the Properties, whether directly owned or owned through the Operating
Partnership, has been mortgaged to collateralize indebtedness. If the Company or
the Operating Partnership becomes unable to meet its required mortgage payment
obligations, the property or properties subject to such mortgage indebtedness
could be foreclosed upon by or otherwise transferred to the mortgagee, with a
consequent loss of income and asset value to the Company.
In addition, to the extent the Operating Partnership was unable to meet
its debt service obligations, cash distributions to the Company could be reduced
or eliminated. Certain documentation pertaining to the financing of the
Properties contains provisions that could restrict the ability of the Operating
Partnership to make distributions to the Company. Not only does this
documentation specifically limit certain distributions and contain financial
covenants the practical effect of which may restrict cash to be distributed by
the Operating Partnership, but in the event of a default by the Operating
Partnership, the lender under this documentation could require the Operating
Partnership to significantly curtail or eliminate all distributions. Any
indebtedness incurred in the future by the Operating Partnership may contain
similar limitations and covenants. There can be no assurance that the lenders
under the existing indebtedness or such future indebtedness would grant waivers
of these provisions. Any reduction in distributions from the Operating
Partnership could require the Company to reduce distributions to shareholders or
incur debt to maintain the current level of distributions.
As of June 30, 1998, the Company has borrowed $23.8 million under its
$100 million revolving credit facility. To complete the Constellation
Transactions, exclusive of the Development Properties, the Company will require
a total of approximately $73.1 million in cash, which, if other financing is not
obtained, is expected to be funded from the revolving credit facility. The
aggregate purchase price for the Development Properties is approximately $25.6
million. Assuming that closings occur as to both Development Properties, the
Company will require financing commitments in addition to those currently
available. Management is confident it will be able to obtain such financing, on
reasonable terms, as may be necessary to close on the Development Properties.
The Company and Constellation are currently seeking to finance certain of the
Constellation Properties simultaneous with the initial closing of the
Constellation Transactions. Although management believes appropriate financing
will be available to the Company to complete the Constellation Transactions,
there can be no assurance that such financing will be available on acceptable
terms, if at all.
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Possible Changes in Policies Without Shareholder Approval; No Limitation on Debt
The Company's investment, financing and distribution policies, and its
policies with respect to all other activities, including growth, capitalization
and operations, will be determined by the Board of Trustees. Although the
Company's Board of Trustees has no present intention to do so, these policies
may be amended or revised at any time and from time to time at the discretion of
the Board of Trustees without a vote of the Company's shareholders. A change in
these policies could adversely affect the Company's financial condition, results
of operations or the market price of the Common Shares. The organizational
documents of the Company do not contain any limitation on the amount of
indebtedness the Company may incur.
Risk of Inability to Sustain Distribution Level
The Company intends to make regular quarterly cash distributions to its
shareholders. However, the level of distributions is based on a number of
assumptions, including assumptions relating to future operations of the Company.
These assumptions concern, among other matters, continued property occupancy and
profitability of tenants, distributions received from the Operating Partnership,
the amount of future capital expenditures and expenses relating to the
Properties, the level of leasing activity and future rental rates, the strength
of the commercial real estate market, competition, the costs of compliance with
environmental and other laws, the amount of uninsured losses and decisions by
the Company to reinvest rather than distribute cash available for distribution.
A number of the assumptions described above are beyond the control of the
Company. Accordingly, no assurance can be given that the Company will be able to
maintain its distribution level.
Reliance on Major Tenants
Upon consummation of the Constellation Transactions, two major tenants
will account for approximately 29.5% of the Company's total annualized revenue
as of June 30, 1998 on a pro forma basis, one of which is the federal government
which leases space for the Department of Defense and the Department of Treasury
in two of the Constellation Properties pursuant to two leases. In the event one
or more of these tenants experience financial difficulties, or default on their
obligation to make rental payments to the Company, or if the Department of
Defense elects to terminate its lease and the space cannot be re-let on
satisfactory terms, the Company's financial performance and ability to make
expected distributions to shareholders would be materially adversely affected.
Lack of Geographical Diversity
All of the Office Properties are located in the Mid-Atlantic region of
the United States. As a result, the Company does not have the benefits of
portfolio geographic diversity and is subject to any issues selectively
affecting this region. Therefore, in the long term, based upon the properties
currently owned directly or indirectly by the Company, the Company's financial
performance and ability to make expected distributions to shareholders is
dependent upon the Mid-Atlantic marketplace. There can be no assurance as to the
stability or growth conditions of that market.
Effects of Ownership Limit, Classified Board and Power to Issue Additional
Shares
Potential Effects of Ownership Limitation. For the Company to maintain
its qualification as a REIT under the Code, not more than 50% in value of the
outstanding shares of beneficial interest of the Company may be owned, directly
or indirectly, by five or fewer persons (as defined in the Code to include
certain entities) at any time during the last half of any taxable year. See
"Federal Income Tax Considerations--Taxation of the Company." The Amended and
Restated Declaration of Trust of the Company (the "Declaration of Trust")
authorizes the Board of Trustees, subject to certain exceptions, to take such
actions as may be necessary or desirable to preserve its qualification as a REIT
and to limit any person to direct or indirect ownership of no more than (i) 9.8%
of the Company's number of issued and outstanding shares of beneficial interest,
or (ii) 9.8% of the total equity value of such shares of beneficial interest
(the "Ownership Limit"). The Board of Trustees, upon such conditions as the
Board of Trustees, in its sole discretion (which may include receipt of an
appropriate ruling from the Internal Revenue Service (the "Service") or an
opinion of counsel), may exempt a proposed
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transferee from the Ownership Limit. However, the Board of Trustees may not
grant an exemption from the Ownership Limit to any proposed transferee whose
ownership, direct or indirect, of shares of beneficial interest of the Company
in excess of the Ownership Limit would result in the termination of the
Company's status as a REIT. The Board of Trustees has exempted the Common Shares
issued in the Formation and Constellation Transactions from the Ownership Limit,
as well as the Common Shares to be issued following redemption or conversion of
the Units issued in the Formation Transactions. A transfer of Common Shares in
violation of the above limits may result in the constructive transfer of the
Common Shares to a trust administered for charitable purposes and/or trigger the
Company's right to repurchase such Common Shares. The foregoing restrictions on
transferability and ownership will continue to apply until the Board of Trustees
determines that it is no longer in the best interests of the Company to attempt
to qualify, or to continue to qualify, as a REIT. The Ownership Limit may have
the effect of delaying, deferring or preventing a change in control of the
Company or other transaction that might involve a premium over the then
prevailing market price for the Common Shares or other attributes that the
shareholders may consider to be desirable. See "Description of Common
Shares--Restrictions on Transfer."
Potential Effects of Staggered Elections of Trustees. The Board of
Trustees is divided into three classes of Trustees. The terms of the first,
second and third classes of the Trustees will expire in 1999, 2000 and 2001,
respectively. Beginning in 1999, Trustees of each class will be chosen for
three-year terms upon the expiration of their current terms, and one class of
Trustees will be elected by the shareholders each year. The staggered terms of
the Trustees may reduce the possibility of a tender offer or an attempt to
change control of the Company, even though a tender offer or change in control
might be considered by the shareholders to be desirable. See "Description of
Common Shares--Classification of Board, Vacancies and Removal of Trustees."
Potential Effects of Issuance of Additional Shares; Other Matters. The
Declaration of Trust authorizes the Board of Trustees to (i) amend the
Declaration of Trust, without shareholder approval, to increase or decrease the
aggregate number of shares of beneficial interest of any class, including Common
Shares, that the Company has the authority to issue, (ii) cause the Company to
issue additional authorized but unissued Common Shares or preferred shares of
beneficial interest, par value $0.01 per share (the "Preferred Shares"), and
(iii) classify or reclassify any unissued Common Shares and Preferred Shares and
to set the preferences, rights and other terms of such classified or
unclassified shares. See "Description of Common Shares--General." The Company
also is likely to issue a substantial number of Common Shares (or through the
Operating Partnership, Units redeemable or exchangeable for Common Shares) in
connection with acquisitions. In addition, the Board of Trustees will be
authorized pursuant to these provisions to establish a class or series of shares
of beneficial interest that could, depending on the term of such series, delay,
defer or prevent a change in control of the Company or other transaction that
might involve a premium over the then prevailing market price for the Common
Shares or other attributes that the shareholders may consider to be desirable.
The Declaration of Trust, the Bylaws of the Trust and Maryland law also contain
other provisions that may have the effect of delaying, deferring or preventing a
change in control of the Company or other transaction that might involve a
premium over the then prevailing market price for the Common Shares or other
attributes that the shareholders may consider to be desirable.
Holders of Units in the Operating Partnership have the right to cause
the Operating Partnership to redeem their Units on the occurrence of certain
events, including a transaction resulting in a group becoming the beneficial
owner of 20% or more of the Common Shares (other than Permitted Holders, as
defined in the Operating Partnership Agreement, which include Messrs. Shidler
and Hamlin) or a merger or consolidation involving the Company. The Company has
the option to deliver cash or Common Shares in satisfaction of such redemption
obligation. This redemption provision may have the effect of delaying, deferring
or preventing a change in control of the Company or other transaction that might
involve a premium over the then prevailing market price for the Common Shares or
other attributes that the shareholders may consider to be desirable. In
addition, there is no limit on the ability of the Operating Partnership to issue
additional Units, which Units may be convertible or redeemable for Common
Shares. Existing shareholders will have no preemptive right to acquire any such
equity securities, and any such issuance of equity securities could result in
dilution of an existing shareholder's investment in the Company.
The issuance of Common Shares or Preferred Shares discussed above could
have a dilutive effect on shareholders.
7
<PAGE>
Tax Risks
Failure to Qualify as a REIT. The Company was organized and has
operated, and intends to operate, so as to qualify as a REIT for federal income
tax purposes. If the Company were to fail to qualify as a REIT for any taxable
year, the Company would not be allowed a deduction for distributions to its
shareholders in computing its taxable income and would be subject to federal
income tax (including any applicable minimum tax) on its taxable income at
regular corporate rates and may also be subject to increased state and local
taxes. Unless entitled to relief under certain Code provisions, the Company also
would be disqualified from treatment as a REIT for the four taxable years
following the year during which qualification was lost. As a result, cash
available for distribution would be reduced for each of the years involved.
Although management intends to operate the Company in a manner designed to meet
the REIT qualification requirements, it is possible that future economic,
market, legal, tax or other considerations may cause the Board of Trustees to
revoke the REIT election. Even if the Company qualifies as a REIT, it will be
subject to certain state and local taxes on its income and property, and may be
subject to certain federal taxes.
In the Formation Transactions, the transfers of partnership interests
to the Operating Partnership relating to the Properties located in Pennsylvania
were structured as transfers of 89% of the capital interests with the remaining
interests to be acquired by the Operating Partnership not later than December
2000. This structure is intended to comply with informal advice from the
Pennsylvania Department of Revenue that such transfers are not subject to
Pennsylvania real estate transfer taxes. However, the Company has not obtained a
formal ruling from the Pennsylvania Department of Revenue on this issue. If the
Pennsylvania Department of Revenue were to successfully challenge this
structure, or the remaining interests were required to be transferred for
financing or other purposes prior to October 14, 2000, the Operating Partnership
would be subject to Pennsylvania state and local transfer taxes of approximately
$2.7 million.
REIT Minimum Distribution Requirements; Possible Incurrence of
Additional Debt. In order to qualify as a REIT, the Company generally will be
required each year to distribute to its shareholders at least 95% of its net
taxable income (excluding any net capital gains). In addition, the Company will
be subject to a 4% nondeductible excise tax on the amount, if any, by which
certain distributions paid by it with respect to any calendar year are less than
the sum of (i) 85% of its ordinary income for that year, (ii) 95% of its capital
gain net income for that year and (iii) 100% of its undistributed taxable income
from prior years. The Company intends to make distributions to its shareholders
to comply with the 95% distribution requirement and to avoid the nondeductible
excise tax. The Company's income will consist primarily of its share of the
income of the Operating Partnership and, to a significantly lesser extent, from
the properties it owns directly, and the cash available for distribution by the
Company to its shareholders will consist of its share of cash distributions from
the Operating Partnership and, to a significantly lesser extent, cash flow from
the properties it owns directly together with funds available to it from
borrowings. Differences in timing between (i) the actual receipt of income and
actual payment of deductible expenses and (ii) the inclusion of such income and
deduction of such expenses in arriving at taxable income of the Company could
require the Company, directly or indirectly through the Operating Partnership,
to borrow funds on a short-term basis to meet the 95% distribution requirement
and to avoid the nondeductible excise tax.
Conflicts of Interest
Risks Relating to Structure. The Company currently owns the Retail
Properties directly and its interest in the Office Properties indirectly through
its interests in the Operating Partnership and the Properties Partnerships. See
"The Company--The Formation Transactions". Messrs. Shidler and Hamlin, Trustees
of the Company, are limited partners of the Operating Partnership ("Limited
Partners") and are limited partners in certain of the Properties Partnerships.
Certain Trustees also own Preferred Units (as defined in the Operating
Partnership Agreement) which receive a priority return to the Partnership Units
(as defined in the Operating Partnership Agreement) held by the Company and
other limited partners, and it is anticipated that additional Preferred Units
will be issued in the future. As a result, there are basically two pools of
assets in which the Company has differing interests and conflicts of interest
may arise concerning, among other things, the allocation of resources (financial
or otherwise) between asset pools, assets sales and the reduction of
indebtedness.
8
<PAGE>
The Company, as the general partner (the "General Partner") of the
Operating Partnership, may have fiduciary duties to the Limited Partners, the
discharge of which may conflict with interests of the Company's shareholders.
Pursuant to the Operating Partnership Agreement, however, the Limited Partners
have acknowledged that the Company is acting both on behalf of the Company's
shareholders and, in its capacity as General Partner, on behalf of the Limited
Partners. The Limited Partners have agreed that the Company will discharge its
fiduciary duties to the Limited Partners by acting in the best interests of the
Company's shareholders. Limited Partners will also have the right to vote on
amendments to the Operating Partnership Agreement, many of which will require
the vote of holders (other than the Company) of a majority of the Partnership
Units and the Preferred Units, voting separately, and individually to approve
certain amendments that will adversely affect their rights. These voting rights
may be exercised in a manner that conflicts with the interests of the Company's
shareholders.
In addition, distributions from the Operating Partnership and income
from the Retail Properties may not be sufficient to both pay the Company's
current overhead expenses and maintain the current level of distributions to
shareholders. To the extent that there is a mismatch between expenses and
shareholder distributions, on the one hand, and Operating Partnership
distributions and rental income, on the other hand, the Company would be
required to seek discretionary distributions or loans from the Operating
Partnership, to incur additional indebtedness in order to fund operating
expenses and distributions or to decrease shareholder distributions.
Alternatively, the Company may seek to issue additional Common Shares, although
the proceeds from such issuance would be required to be contributed to the
Operating Partnership absent a waiver by the Limited Partners.
Risks Related to Outside Investments. Mr. Shidler, the Chairman of the
Board of Trustees, also has interests in a number of other real estate
investments, including First Industrial, a REIT, of which he is Chairman of the
Board of Directors. As a result, Mr. Shidler will only spend a portion of his
time on the Company's business. Instances may arise in which Mr. Shidler's
interests with respect to his overall activities, or a given investment
opportunity, may be inconsistent with the interests of the Company. Mr. Hamlin,
President, Chief Executive Officer and a Trustee, also has interests in a number
of other real estate investments, including First Industrial and TriNet and
other REITs. Although Mr. Hamlin has entered into an employment agreement with
the Company, which requires that he devote his full business time to the affairs
of the Company and contains a non-compete clause, there can be no assurance that
instances would not arise which present conflicts of interest.
Entities controlled by Mr. Shidler and Mr. Hamlin also own undeveloped
property contiguous to certain of the Properties. Although all such entities
have granted the Company an option to acquire these properties at a discount to
fair market value, there can be no assurance that the Company will acquire these
properties. These properties could be developed and compete with the Company for
tenants.
Possible Adverse Effect of Shares Available for Future Sale on Price of Common
Shares
Sales of a substantial number of Common Shares, or the perception that
such sales could occur, could adversely affect the prevailing market price of
the Common Shares. Sales or issuances of Common Shares could have a dilutive
effect on existing shareholders. In addition to the Common Shares currently
outstanding, Partnership Units (excluding Partnership Units owned by the
Company) and Preferred Units were outstanding which were convertible under
certain circumstances into an aggregate of 2,299,310 and 6,834,035 Common
Shares, respectively. Holders of the Retained Interests were also entitled, as
of December 31, 1997, to receive Partnership Units convertible into 282,508
Common Shares and Preferred Units redeemable into Common Units which in turn are
convertible into 665,905 Common Shares. See "The Company--The Formation
Transactions." Subject to compliance with the Operating Partnership Agreement,
the holders of the Partnership Units (the "Unit Holders") have the right to
require the Operating Partnership to redeem all or a portion of such Partnership
Units beginning on September 1, 1998 for cash. The Operating Partnership has the
option to pay such redemption price in Common Shares, which option it currently
anticipates exercising in the event any Units are redeemed, subject to the
limitations in the Operating Partnership Agreement. Each Preferred Unit is
convertible into 3.5714 Partnership Units, subject in turn to the right of
redemption referred to above, beginning on October 1, 1999. Upon the issuance of
Common Shares in satisfaction of the Operating Partnership's redemption
obligations, the Common Shares may be sold in
9
<PAGE>
the public market pursuant to shelf registration statements which the Company is
obligated to file on behalf of the Unit Holders or pursuant to any available
exemptions from registration.
The Company intends to cause the Operating Partnership to offer
additional Preferred Units and Partnership Units in exchange for property or
otherwise. Existing shareholders will have no preemptive right to acquire any
such equity securities, and any such issuance of equity securities could result
in dilution of an existing shareholder's investment in the Company. No
prediction can be made concerning the effect that future sales of any of such
Common Shares will have on the market prices of shares.
Control of Management; Limits on Change of Control
Trustees and executive officers of the Company, as a group,
beneficially owned, as of June 30, 1998, approximately 9.4% of the total
outstanding Common Shares (approximately 5.2% assuming issuance of Common Shares
in satisfaction of the redemption obligations with respect to the Partnership
Units and the Preferred Units owned and to be owned, following contribution of
the Retained Interests to the Operating Partnership in exchange for Units, by
such group, which Common Shares may be issued beginning September 1, 1998 (in
the case of the Partnership Units) and October 1, 1999 (in the case of the
Preferred Units)). The Company currently expects that, if permitted under the
Operating Partnership Agreement provisions designed to maintain the Company's
REIT status, in the event of any redemption, it will elect to deliver Common
Shares for such Units. Accordingly, such Trustees and executive officers will
have substantial influence on the Company, which influence might not be
consistent with the interests of all other shareholders, and may in the future
have a substantially greater influence on the outcome of any matters submitted
to the Company's shareholders for approval following redemption of the Units.
This significant ownership interest by Trustees and executive officers may have
the effect of delaying, deferring or preventing a change in control of the
Company or other transaction that might involve a premium over the then
prevailing market price for the Common Shares or other attributes that the
shareholders may consider to be desirable.
Upon closing of the Constellation Transactions, certain of
Constellation's senior management personnel will be employed by the Company in
senior management positions, and the Board of Trustees will be increased by two
members, to a total of nine, by the addition of two Trustees which Constellation
will appoint. Upon closing of the Constellation Transactions, Constellation will
own approximately 41.5% of the Common Shares to be outstanding after the
Constellation Transactions (approximately 26.5% assuming issuance of Common
Shares in exchange for all Acquired Units being tendered).
Dependence on Key Personnel
The Company is dependent on the efforts of its trustees and executive
officers, including the Company's Chairman of the Board of Trustees, Mr.
Shidler, the Company's President and Chief Executive Officer, Mr. Hamlin.
Although Mr. Hamlin has entered into an employment agreement with the Company,
there can be no assurance that he will not elect to terminate his agreement. The
loss of any of their services could have an adverse effect on the operations of
the Company.
Risks Associated With Acquired Units
Tax Consequences of Exchange of Acquired Units. The exchange of the
Acquired Units held by a limited partner of the Operating Partnership
(individually, a "Limited Partner" and collectively, the "Limited Partners") for
Redemption Shares will be treated for tax purposes as a sale of such Acquired
Units by such Limited Partner. Such a sale will be fully taxable to the Limited
Partner and such Limited Partner will be treated as recognizing gain or loss for
income tax purposes in an amount equal to the difference between the "amount
realized" by the Limited Partner in the exchange and the Limited Partner's
adjusted tax basis in the Acquired Units exchanged. Generally, the amount
realized by the Limited Partner on such an exchange will be equal to the fair
market value of the Redemption Shares received in the exchange plus any
reduction in the Limited Partner's share of liabilities of the Operating
Partnership as a result of the exchange. It is possible that the amount of gain
recognized or even the tax liability resulting from such gain could exceed the
value of the
10
<PAGE>
Redemption Shares received upon such exchange. In addition, the ability of the
Limited Partner to sell a substantial number of Redemption Shares in order to
raise cash to pay tax liabilities associated with the exchange of Acquired Units
may be restricted and, as a result of fluctuations in the share price, the price
such holder receives for such shares may not equal the value of the Acquired
Units at the time of exchange.
Unit and Share Ownership Differences. If a Limited Partner of the
Operating Partnership exchanges his or her Acquired Units for Redemption Shares,
such Limited Partner will become a shareholder of the Company rather than a
Limited Partner in the Operating Partnership. Although the nature of an
investment in Common Shares is similar in certain respects to an investment in
Acquired Units, there are also differences between ownership of Acquired Units
and ownership of Common Shares relating to, among other things, form of
organization, permitted investments, policies and restrictions, management
structure, compensation and fees, investor rights and federal income taxation.
USE OF PROCEEDS
The Company will not receive any of the proceeds of the sale of the
Registered Shares offered hereby.
THE SELLING SHAREHOLDERS
The Selling Shareholders are only those persons who receive Redemption
Shares upon exchange of their Acquired Units or received Formation Shares in
connection with the Formation Transactions. In connection with the Formation
Transactions, the Company agreed to file a registration statement with the
Securities and Exchange Commission covering the resale of the Registered Shares
issued to each Selling Shareholder and to indemnify each Selling Shareholder
against claims made against them arising out of, among other things, statements
made in such registration statement, of which this Prospectus is a part.
11
<PAGE>
The following table provides the names of and the maximum number of
Registered Shares that may be owned and offered from time to time under this
Prospectus by each Selling Shareholder. The maximum number of Registered Shares
constitutes the amount of securities each Selling Shareholder held prior to this
offering. Because the Selling Shareholders may sell some, none or all of their
Registered Shares pursuant to this Prospectus, no estimate can be given as to
the number and percentage of Common Shares that will be held by each Selling
Shareholders after this offering.
<TABLE>
<CAPTION>
Units(1) Common Retained Interest(2) Total(1)(2)(3)
------------------------------- ---------------------------- ----------------
Preferred Common Shares Preferred Common Common Units
-------------- ------------- ------------ ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Jay H. Shidler (4) 126,079 2,600 300,000 -- -- 452,879
Shidler Equities L.P. 457,826 582,103 -- 153,003 231,823 2,995,440
Clay W. Hamlin, III (4) 115,334 5,235 300,000 33,452 50,685 587,294
LBCW Limited Partnership 663,808 875,284 -- 3,246,008
CHLB Partnership 41,741 63,243 212,317
Robert L. Denton 85,502 129,549 434,911
James K. Davis (4) 10,142 15,368 51,589
John E. de B. Blockey, 59,102 89,549 300,626
Trustee of the
John E. de B. Blockey Trust
Henry D. Bullock 22,914 34,718 116,553
Frederick K. Ito 11,457 17,359 58,277
LGR Investment Fund, Ltd. 52,820 80,030 268,671
Tiger South Brunswick, L.L.C. 1,898 2,875 9,654
Westbrook Real Estate 221,840 336,121 1,128,400
Fund I, L.P.
Westbrook Real Estate
Co-Inv Partnership I. L.P. 21,977 33,299 111,788
Samuel Tang 4,500 6,818 22,889
Denise J. Liszewski (4) 6,750 10,227 34,334
David P. Hartsfield (4) 6,000 9,091 30,519
Lawrence J. Taff 2,700 4,091 13,734
Kimberly F. Aquino 1,155 1,750 5,875
-------------- ------------- ------------ ------------ ------------ ----------------
1,913,545 2,299,310 600,000 186,455 282,508 10,081,758
-------------- ------------- ------------ ------------ ------------ ----------------
-------------- ------------- ------------ ------------ ------------ ----------------
</TABLE>
- --------------------
(1) All Common Units outstanding are redeemable September 1, 1998. All
Preferred Units outstanding may be converted to Common Units and
redeemed October 1, 1999. See "Risk Factors--Possible Adverse Effect
of Shares Available for Future Sale on Price of Common Shares."
(2) Shares attributable to the Retained Interests will be issued upon
tender of the Retained Interests in November, 2000. See
"Company--Formation Transactions."
(3) "Total Common Units" assumes conversion of all Preferred Units for
Common Units and redemption of all Common Units for Common Shares.
(4) Jay H. Shidler is Chairman of the Board of Trustees. Clay W. Hamlin,
III is a Trustee and President and Chief Executive Officer. James K.
Davis is Vice President, Acquisitions. Denise Liszewski is Vice
President, Administration. David P. Hartsfield is Vice President,
Operations and Development.
12
<PAGE>
Registration Rights
The Company has granted to the Selling Shareholders certain
registration rights. The Company is obligated to file a shelf registration
statement with respect to the Common Shares issuable upon conversion or
redemption of the Units and Common Shares issued in the Formation Transaction
(the "Registerable Securities"). The Company has made such filing and this
Prospectus constitutes a part of that shelf registration statement.
The Company agrees to use its reasonable best efforts to keep the
registration statement of which this Prospectus is a part continuously effective
under the Securities Act until such time as the aggregate number of Registerable
Securities outstanding (computed for this purpose as if all outstanding
Preferred Units have been converted into Common Units and all thereafter
outstanding. Common Units have been redeemed or exchanged for Common Shares) is
less than 5% of the aggregate number of Registerable Securities outstanding on
the date hereof (after giving effect to the Constellation Transactions), and
further agrees to supplement or amend the registration statement, if and as
required by the Securities Act or the rules and regulations thereunder. The
Company has agreed to pay the expenses incurred in connection with the
registration of the Registered Shares, but the Company has no obligation to pay
any underwriting fees, discounts or commissions attributable to the sale of the
Registered Shares by the Selling Shareholders.
The Company has agreed to indemnify the Selling Shareholders against
certain liabilities, including liabilities under the Securities Act of 1933.
PLAN OF DISTRIBUTION
The Company is registering the Registered Shares pursuant to the
Company's obligations under a registration rights agreement, but the
registration of the Registered Shares does not necessarily mean that any of the
Registered Shares will be offered or sold by the Selling Shareholders hereunder.
The distribution of the Registered Shares may be effected from time to
time in one or more underwritten transactions at a fixed price or prices, which
may be changed, or at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices. Any such
underwritten offering may be on a "best efforts" or a "firm commitment" basis.
In connection with any such underwritten offering, underwriters or agents may
receive compensation in the form of discounts, concessions or commissions from
the Selling Shareholders. Underwriters may sell the Registered Shares to or
through dealers, and such dealers may receive compensation in the form of
discounts, concessions or commissions from the underwriters and/or commissions
from the purchasers for whom they may act as agents.
The Selling Shareholders and any underwriters, dealers or agents that
participate in the distribution of the Registered Shares may be deemed to be
"underwriters" within the meaning of the Securities Act, and any profit on the
sale of the Registered Shares by them and any discounts, commissions or
concessions received by any such underwriters, dealers or agents might be deemed
to be underwriting discounts and commissions under the Securities Act.
At a time a particular offer of Registered Shares is made by the
Selling Shareholders, a Prospectus Supplement, if required, will be distributed
that will set forth the name and names of any underwriters, dealers or agents
and any discounts, commissions and other terms constituting compensation from
the Selling Shareholders and any other required information.
The sale of Registered Shares by the Selling Shareholders may also be
effected from time to time by selling Registered Shares directly to purchasers
or to or through broker-dealers. In connection with any such sale, any such
broker-dealer may act as agent for the Selling Shareholders or may purchase from
the Selling Shareholders all or a portion of the Registered Shares as principal,
and may be made pursuant to any of the methods described below. Such sales may
be made on the New York Stock Exchange ("NYSE") or other exchanges on which the
Common Shares are then traded, in the over- the counter market, in negotiated
transactions or otherwise at prices and at terms then prevailing or at prices
related to the then-current market prices or at prices otherwise negotiated.
13
<PAGE>
The Registered Shares may also be sold in one or more of the following
transactions: (a) block transactions (which may involve crosses) in which a
broker-dealer may sell all or a portion of such shares as agent but may position
and resell all or a portion of the block as principal to facilitate the
transaction; (b) purchases by any such broker-dealer as principal and resale by
such broker-dealer for its own account pursuant to a Prospectus Supplement; (c)
a special offering, an exchange distribution or a secondary distribution in
accordance with applicable NYSE or other stock exchange rules; (d) ordinary
brokerage transactions and transactions in which any such broker-dealer solicits
purchasers; (e) sales "at the market" to or through a market maker or into an
existing trading market, on an exchange or otherwise, for such shares; and (f)
sales in other ways not involving market makers or established trading markets,
including direct sales to purchasers. In effecting sales, broker-dealers engaged
by the Selling Shareholders may arrange for other broker-dealers to participate.
Broker-dealers will receive commissions or other compensation from the Selling
Shareholders in amounts to be negotiated immediately prior to the sale that will
not exceed those customary in the types of transactions involved. Broker-dealers
may also receive compensation from purchasers of the Registered Shares which is
not expected to exceed that customary in the types of transactions involved.
In order to comply with the securities laws of certain states, if
applicable, the Registered Shares may be sold only through registered or
licensed brokers or dealers.
All expenses incident to the offering and sale of the Registered
Shares, other than commissions, discounts and fees of underwriters,
broker-dealers or agents, shall be paid by the Company. The Company has agreed
to indemnify the Selling Shareholders against certain losses, claims, damages,
actions, liabilities, costs and expenses, including liabilities under the
Securities Act. See "Registration Rights."
DESCRIPTION OF COMMON SHARES
The following summary of the terms of the shares of beneficial interest
of the Company does not purport to be complete and is subject to and qualified
in its entirety by reference to the Declaration of Trust and the Bylaws of the
Company, copies of which are exhibits to the registration statement of which
this Prospectus is a part.
General
The Declaration of Trust provides that the Company may issue up to
45,000,000 Common Shares and 5,000,000 Preferred Shares. As of June 30, 1998,
there were 9,771,083 Common Shares and no Preferred Shares issued and
outstanding. As permitted by Title 8 of the Corporations and Associations
Article of the Annotated Code of Maryland, as amended (the "Maryland REIT Law"),
the Declaration of Trust contains a provision permitting the Board of Trustees,
without any action by the shareholders of the Company, to amend the Declaration
of Trust to increase or decrease the aggregate number of shares of beneficial
interest or the number of shares of any class of shares of beneficial interest
that the Company has authority to issue. The Company believes that the power of
the Board of Trustees to issue additional shares of beneficial interest will
provide the Company with increased flexibility in structuring possible future
financings and acquisitions and in meeting other needs that might arise. The
additional shares of beneficial interest, possibly including Common Shares, will
be available for issuance without further action by the Company's shareholders,
unless action by the shareholders is required by applicable law or the rules of
any stock exchange or automated quotation system on which the Company's
securities may be listed or traded. Although the Board of Trustees currently has
no intention of doing so, it could authorize the Company to issue a class or
series of shares that could, depending on the terms of such class or series,
delay, defer or prevent a change in control of the Company or other transaction
that might involve a premium over the then prevailing market price for the
Common Shares or other attributes that the shareholders may consider to be
desirable.
Both the Maryland REIT Law and the Declaration of Trust provide that no
shareholder of the Company will be personally liable for any obligation of the
Company solely as a result of such shareholder's status as a shareholder of the
Company. The Declaration of Trust provides that the Company shall have the
power, to the maximum extent permitted by Maryland law in effect from time to
time, to obligate itself to indemnify, and to pay or reimburse reasonable
expenses in advance of a final disposition of a proceeding to, any shareholder
or any former shareholder from and against any claim
14
<PAGE>
or liability to which such person may become subject or which such person may
incur by reason of his status as a present or former shareholder of the Company.
The Bylaws of the Company obligate it, to the maximum extent permitted by
Maryland law, to indemnify any shareholder or any former shareholder (including,
without limitation, any individual who, while a shareholder and at the request
of the Company, serves or has served another real estate investment trust,
corporation, partnership, joint venture, trust, employee benefit plan or any
other enterprise as a trustee, director, officer, partner, employee or agent of
such real estate investment trust, corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise) who has been successful, on
the merits or otherwise, in the defense of a proceeding to which he was made a
party by reason of being a shareholder, against reasonable expenses incurred by
him in connection with the proceeding. Inasmuch as the Company carries public
liability insurance which it considers adequate, any risk of personal liability
to shareholders is limited to situations in which the Company's assets plus its
insurance coverage would be insufficient to satisfy the claims against the
Company and its shareholders.
Common Shares
All Common Shares offered hereby will be duly authorized, fully paid
and nonassessable. Subject to the preferential rights of any other shares or
series of beneficial interest and to the provisions of the Declaration of Trust
regarding the restriction on transfer of Common Shares, holders of Common Shares
are entitled to receive dividends on such shares if, as and when authorized and
declared by the Board of Trustees out of assets legally available therefor and
to share ratably in the assets of the Company legally available for distribution
to its shareholders in the event of its liquidation, dissolution or winding-up
after payment of, or adequate provision for, all known debts and liabilities of
the Company.
Subject to the provisions of the Declaration of Trust regarding
restrictions on transfer of shares of beneficial interest, each outstanding
Common Share entitles the holder thereof to one vote on all matters submitted to
a vote of shareholders, including the election of Trustees, and, except as
provided with respect to any other class or series of shares of beneficial
interest, the holders of such Common Shares possess the exclusive voting power.
There is no cumulative voting in the election of Trustees, which means that the
holders of a majority of the outstanding Common Shares can elect all of the
Trustees then standing for election and the holders of the remaining shares will
not be able to elect any Trustees.
Holders of Common Shares have no preference, conversion, sinking fund,
redemption or appraisal rights and have no preemptive rights to subscribe for
any securities of the Company. Subject to the provisions of the Declaration of
Trust regarding the restriction on transfer of Common Shares, the Common Shares
have equal dividend, distribution, liquidation and other rights.
Under the Maryland REIT Law, a Maryland real estate investment trust
generally cannot amend its declaration of trust or merge unless approved by the
affirmative vote of shareholders holding at least two-thirds of the shares
entitled to vote on the matter unless a lesser percentage (but not less than a
majority of all the votes entitled to be cast on the matter) is set forth in the
real estate investment trust's declaration of trust. The Declaration of Trust
provides for approval by a majority of the votes cast by holders of Common
Shares entitled to vote on the matter in all situations permitting or requiring
action by the shareholders, except with respect to: (i) the election of Trustees
(which requires a plurality of all the votes cast at a meeting of shareholders
of the Company at which a quorum is present), (ii) the removal of Trustees
(which requires the affirmative vote of the holders of two-thirds of the
outstanding shares of beneficial interest of the Company entitled to vote
generally in the election of Trustees, which action can only be taken for cause
by vote at a shareholder meeting), (iii) the merger or sale (or other
disposition) of all or substantially all of the assets of the Company (which
requires the affirmative vote of the holders of two-thirds of the outstanding
shares of beneficial interest entitled to vote on the matter), (iv) the
amendment of the Declaration of Trust by shareholders (which requires the
affirmative vote of two-thirds of all the votes entitled to be cast on the
matter) and (v) the termination of the Company (which requires the affirmative
vote of two-thirds of the outstanding shares of beneficial interest entitled to
be cast on the matter). As allowed under the Maryland REIT Law, the Declaration
of Trust permits (a) the Trustees by a two-thirds vote to amend the Declaration
of Trust from time to time to qualify as a real estate investment trust under
the Code or the Maryland REIT Law without the approval of the shareholders and
(b) the Trustees by a majority vote, without any action by the shareholders
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<PAGE>
of the Company, to amend the Declaration of Trust to increase or decrease the
aggregate number of shares of beneficial interest or the number of shares of any
class of shares of beneficial interest that the Company has authority to issue.
Classification or Reclassification of Common Shares or Preferred Shares
The Declaration of Trust authorizes the Board of Trustees to classify
any unissued Preferred Shares and to reclassify any unissued Common Shares and
any previously classified but unissued Preferred Shares of any series from time
to time in one or more series, as authorized by the Board of Trustees. Prior to
issuance of classified or reclassified shares of each class or series, the Board
of Trustees is required by the Maryland REIT Law and the Declaration of Trust to
set for each class or series, subject to the provisions of the Declaration of
Trust regarding the restriction on transfer of shares of beneficial interest,
the terms, the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends or other distributions, qualifications
and terms or conditions of redemption for each such class or series. Such
rights, powers, restrictions and limitations could include the right to receive
specified dividend payments and payments on liquidation prior to any payments
being made to the holders of the Common Shares. Thus, the Board of Trustees
could authorize the issuance of Preferred Shares with terms and conditions which
could have the effect of delaying, deferring or preventing a change in control
of the Company or other transaction that might involve a premium over the then
prevailing market price for Common Shares or other attributes that the
shareholders may consider to be desirable. As of the date hereof, no Preferred
Shares are issued or outstanding.
Preferred Shares
In connection with the Constellation Transactions, the Board of
Trustees has authorized the Series A Convertible Preferred Shares which will
constitute the non-voting convertible preferred shares to be issued to
Constellation in the Constellation Transactions, as follows:
Voting Rights. Except as set forth below and as required by applicable
law, the Preferred Shares do not entitle the holder thereof to any vote. If an
amendment to the Company's Declaration of Trust or a reclassification of
Preferred Shares would amend, alter or repeal any of the rights, preferences or
powers of the Preferred Shares, then the affirmative vote of holders of
two-thirds of the outstanding Preferred Shares, voting as a separate class,
would be required for its adoption. As discussed under "Recent Developments",
Constellation has the right to designate up to two members of the Board of
Trustees depending on Constellation's ownership percentage of outstanding
Shares. This right is set forth as a term of the Preferred Shares, such that so
long as Constellation holds any Preferred Shares (and it owns the requisite
amount of Common Shares), Constellation will have the right to designate up to
two Trustees.
Dividends. Holders of Preferred Shares will be entitled to cumulative
dividends, payable quarterly and in preference to dividends payable on Common
Shares, accruing from the date of issue, when, as and if declared by the Board
of Trustees out of funds legally available therefor, at the annual rate of
$1.375 per share, which is 5.5% of the $25.00 liquidation preference of the
Preferred Shares.
Liquidation. In the event of any liquidation, dissolution or winding up
of the Company's affairs, voluntary or otherwise, holders of Preferred Shares
will be entitled to receive, out of the assets of the Company legally available
for distribution to its shareholders, the sum of $25.00 for each Preferred
Share, plus an amount equal to all dividends accrued and unpaid on each such
Preferred Share up to the date fixed for distribution, before any distribution
may be made to holders of the Company's Common Shares.
Conversion. The Preferred Shares are convertible, beginning two years
after the closing of the Constellation Transaction, into Common Shares on the
basis of 1.8748 Common Shares for each Preferred Shared at $13.34 per Common
Share (subject to adjustment upon certain events, such as dividends paid in
Common Shares). Notwithstanding the foregoing, Preferred Shares held by
Constellation may not be converted into Common Shares if after such conversion
Constellation and its affiliates would own 45% or more of the Company's
outstanding Common Shares.
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Restrictions on Transfer
For the Company to qualify as a REIT under the Code, its shares of
beneficial interest generally must be beneficially owned by 100 or more persons
during at least 335 days of a taxable year of twelve months or during a
proportionate part of a shorter taxable year. Also, not more than 50% of the
value of the outstanding shares of beneficial interest may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities) at any time during the last half of a taxable year (other than
the first year for which an election to be a REIT has been made).
The Declaration of Trust, subject to certain exceptions, contains
certain restrictions on the number of shares of beneficial interest of the
Company that a person may own. The Declaration of Trust provides that no person
may own, or be deemed to own by virtue of the attribution provisions of the
Code, more than 9.8% (the "Aggregate Share Ownership Limit") of the number or
value of the outstanding shares of beneficial interest of the Company. In
addition, the Declaration of Trust prohibits any person from acquiring or
holding, directly or indirectly, Common Shares in excess of 9.8% (in value or in
number of shares, whichever is more restrictive) of the aggregate of the
outstanding Common Shares (the "Common Share Ownership Limit").
The Board of Trustees, in its sole discretion, may exempt a proposed
transferee from the Aggregate Share Ownership Limit and the Common Share
Ownership Limit (an "Excepted Holder"). However, the Board of Trustees may not
grant such an exemption to any person if such exemption would result in the
Company being "closely held" within the meaning of Section 856(h) of the Code or
otherwise would result in the Company failing to qualify as a REIT. In order to
be considered by the Board of Trustees as an Excepted Holder, a person also must
not own, directly or indirectly, an interest in a tenant of the Company (or a
tenant of any entity owned or controlled by the Company) that would cause the
Company to own, directly or indirectly, an interest in a tenant of the Company
(or a tenant of any entity owned or controlled by the Company) that would cause
the Company to own, directly or indirectly, more than a 9.9% interest in such a
tenant. The person seeking an exemption must represent to the satisfaction of
the Board of Trustees that it will not violate the two aforementioned
restrictions. The person also must agree that any violation or attempted
violation of any of the foregoing restrictions will result in the automatic
transfer of the shares of stock causing such violation to the Share Trust (as
defined below). The Aggregate Share Ownership Limit and the Common Share
Ownership Limit do not apply to the Common Shares issued in the Constellation
and Formation Transactions, as well as Common Shares to be issued following
redemption or conversion of Units issued in the Constellation and Formation
Transactions. The Board of Trustees may require a ruling from the Service or an
opinion of counsel, in either case in form and substance satisfactory to the
Board of Trustees, in its sole discretion, in order to determine or ensure the
Company's status as a REIT.
The Declaration of Trust further prohibits (a) any person from
beneficially or constructively owning shares of beneficial interest of the
Company that would result in the Company being "closely held" under Section
856(h) of the Code or otherwise cause the Company to fail to qualify as a REIT
and (b) any person from transferring shares of beneficial interest of the
Company if such transfer would result in shares of beneficial interest of the
Company being owned by fewer than 100 persons. Any person who acquires or
attempts or intends to acquire beneficial or constructive ownership of shares of
beneficial interest of the Company that will or may violate any of the foregoing
restrictions on transferability and ownership, or any person who would have
owned shares of the beneficial interest of the Company that resulted in a
transfer of shares to the Share Trust (as hereinafter defined), is required to
give notice immediately to the Company and provide the Company with such other
information as the Company may request in order to determine the effect of such
transfer on the Company's status as a REIT. The foregoing restrictions on
transferability and ownership will not apply if the Board of Trustees determines
that it is no longer in the best interests of the Company to attempt to qualify,
or to continue to qualify, as a REIT.
If any transfer of shares of beneficial interest of the Company occurs
which, if effective, would result in any person beneficially or constructively
owning shares of beneficial interest of the Company in excess or in violation of
the above transfer or ownership limitations (a "Prohibited Owner"), then that
number of shares of beneficial interest of the Company, the beneficial or
constructive ownership of which otherwise would cause such person to violate
such limitations (rounded to the nearest whole share), shall be automatically
transferred to a trust (the "Share Trust") for the exclusive benefit of one
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<PAGE>
or more charitable beneficiaries (the "Charitable Beneficiary"), and the
Prohibited Owner shall not acquire any rights in such shares. Such automatic
transfer shall be deemed to be effective as of the close of business on the
Business Day (as defined in the Declaration of Trust) prior to the date of such
violative transfer. Shares of beneficial interest held in the Share Trust shall
be issued and outstanding shares of beneficial interest of the Company. The
Prohibited Owner shall not benefit economically from ownership of any shares of
beneficial interest held in the Share Trust, shall have no rights to dividends
and shall not possess any other rights attributable to the shares of beneficial
interest held in the Share Trust. The trustee of the Share Trust (the "Share
Trustee") shall have all voting rights and rights to dividends or other
distributions with respect to shares of beneficial interest held in the Share
Trust, which rights shall be exercised for the exclusive benefit of the
Charitable Beneficiary. Any dividend or other distribution paid prior to the
discovery by the Company that shares of beneficial interest have been
transferred to the Share Trust shall be paid by the recipient of such dividend
or distribution to the Share Trustee upon demand, and any dividend or other
distribution authorized but unpaid shall be paid when due to the Share Trustee.
Any dividend or distribution so paid to the Share Trustee shall be held in the
Share Trust for the Charitable Beneficiary. The Prohibited Owner shall have no
voting rights with respect to shares of beneficial interest held in the Share
Trust and, subject to Maryland law, effective as of the date that such shares of
beneficial interest have been transferred to the Share Trust, the Share Trustee
shall have the authority (at the Share Trustee's sole discretion) (i) to rescind
as void any vote cast by a Prohibited Owner prior to the discovery by the
Company that such shares have been transferred to the Share Trust and (ii) to
recast such vote in accordance with the desires of the Share Trustee acting for
the benefit of the Charitable Beneficiary. However, if the Company has already
taken irreversible trust action, then the Share Trustee shall not have the
authority to rescind and recast such vote.
Within 20 days of receiving notice from the Company that shares of
beneficial interest of the Company have been transferred to the Share Trust, the
Share Trustee shall sell the shares of beneficial interest held in the Share
Trust to a person, designated by the Share Trustee, whose ownership of the
shares will not violate the ownership limitations set forth in the Declaration
of Trust. Upon such sale, the interest of the Charitable Beneficiary in the
shares sold shall terminate and the Share Trustee shall distribute the net
proceeds of the sale to the Prohibited Owner and to the Charitable Beneficiary
as follows. The Prohibited Owner shall receive the lesser of (i) the price paid
by the Prohibited Owner for the shares or, if the Prohibited Owner did not give
value for the shares in connection with the event causing the shares to be held
in the Share Trust (e.g., a gift, devise or other such transaction), the Market
Price (as defined in the Declaration of Trust) of such shares on the day of the
event causing the shares to be received by the Share Trustee and (ii) the price
per share received by the Share Trustee from the sale or other disposition of
the Common Shares held in the Share Trust. Any net sale proceeds in excess of
the amount payable to the Prohibited Owner shall be paid immediately to the
Charitable Beneficiary. If, prior to the discovery by the Company that shares of
beneficial interest have been transferred to the Share Trust, such shares are
sold by a Prohibited Owner, then (i) such shares shall be deemed to have been
sold on behalf of the Share Trust and (ii) to the extent that the Prohibited
Owner received an amount for shares that exceeds the amount that such Prohibited
Owner was entitled to receive pursuant to the aforementioned requirement, such
excess shall be paid to the Share Trustee upon demand.
In addition, shares of beneficial interest of the Company held in the
Share Trust shall be deemed to have been offered for sale to the Company, or its
designee, at a price per share equal to the lesser of (i) the price per share in
the transaction that resulted in such transfer to the Share Trust (or, in the
case of a devise or gift, the Market Price at the time of such devise or gift)
and (ii) the Market Price on the date the Company, or its designee, accepts such
offer. The Company shall have the right to accept such offer until the Share
Trustee has sold the shares of beneficial interest held in the Share Trust. Upon
such a sale to the Company, the interest of the Charitable Beneficiary in the
shares sold shall terminate and the Share Trustee shall distribute the net
proceeds of the sale to the Prohibited Owner.
All certificates representing Common Shares will bear a legend
referring to the restrictions described above.
Every owner of more than 5% (or such other percentage as required by
the Code or the regulations promulgated thereunder) of all classes or series of
the Company's shares of beneficial interest, including Common Shares, within 30
days after the end of each taxable year, is required to give written notice to
the Company stating the name and address of such owner, the number of shares of
each class and series of shares of beneficial interest of the Company which the
owner
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<PAGE>
beneficially owns and a description of the manner in which such shares are held.
Each such owner shall provide to the Company such additional information as the
Company may request in order to determine the effect, if any, of such beneficial
ownership on the Company's status as a REIT and to ensure compliance with the
Aggregate Share Ownership Limit. In addition, each shareholder shall upon demand
be required to provide to the Company such information as the Company may
request, in good faith, in order to determine the Company's status as a REIT and
to comply with the requirements of any taxing authority or governmental
authority or to determine such compliance.
These ownership limitations could delay, defer or prevent a change in
control of the Company or other transaction that might involve a premium over
the then prevailing market price for the Common Shares or other attributes that
the shareholders may consider to be desirable.
Classification of Board, Vacancies and Removal of Trustees
The Declaration of Trust provides for a staggered Board of Trustees.
The Company presently has seven Trustees divided into three classes, with terms
of three years each and with one class to be elected at each annual meeting of
shareholders. Upon consummation of the Constellation Transactions, the number of
Trustees will increase to nine, with Constellation appointing two additional
Trustees. At each annual meeting of shareholders of the Company, commencing in
1999, successors of the class of Trustees whose term expires at that annual
meeting will be elected for a three-year term. The Bylaws of the Company (the
"Bylaws") provide that a majority of Trustees may establish, increase or
decrease the number of Trustees. The Bylaws also permit the Trustees of the
Company to fill vacancies in the Board of Trustees. The Bylaws provide that any
vacancy on the Board of Trustees shall be filled by a majority of the remaining
Trustees. Any individual so elected Trustee will hold office for the unexpired
term of the Trustee he is replacing.
The Declaration of Trust provides that a Trustee may be removed at any
time only for cause upon the affirmative vote of at least two-thirds, rather
than a simple majority, of the votes entitled to be cast in the election of
Trustees, but only by a vote taken at a shareholder meeting. This provision,
when coupled with the provision in the Bylaws authorizing the Board of Trustees
to fill vacant trusteeships, precludes shareholders from removing incumbent
trustees, except upon the existence of cause for removal and a substantial
affirmative vote, and filling the vacancies created by such removal with their
own nominees.
With a classified Board of Trustees, it will generally take holders of
a majority of the voting power two annual meetings of shareholders to elect a
majority of the Board of Trustees. As a result, a classified board may delay,
defer or prevent a change in control of the Company or other transaction that
might involve a premium over the then prevailing market price for the Common
Shares or other attributes that the shareholders may consider to be desirable.
In addition, because under the Declaration of Trust a Trustee may be removed
only for cause by the affirmative vote of the holders of two thirds of the
outstanding shares entitled to vote in the election of Trustees, the classified
Board of Trustees would delay shareholders who do not agree with the policies of
the Board of Trustees from replacing a majority of the Board of Trustees for two
years, unless they can demonstrate that the trustee should be removed for cause
and obtain the requisite vote.
Advance Notice of Nominations and New Business
The Bylaws provide that (i) with respect to an annual meeting of
shareholders, nominations of persons for election to the Board of Trustees and
the proposal of business to be considered by shareholders may be made only (a)
pursuant to the Company's notice of the meeting, (b) by the Board of Trustees or
(c) by a shareholder who is entitled to vote at the meeting and has complied
with the advance notice procedures set forth in the Bylaws and (ii) with respect
to special meetings of shareholders, only the business specified in the
Company's notice of meeting may be brought before the meeting of shareholders
and nominations of persons for election to the Board of Trustees may be made
only (a) pursuant to the Company's notice of the meeting, (b) by the Board of
Trustees or (c) provided that the Board of Trustees has determined that Trustees
shall be elected at such meeting, by a shareholder who is entitled to vote at
the meeting and has complied with the advance notice provisions set forth in the
Bylaws.
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Changes in Control Pursuant to Maryland Law
Certain Business Combinations. Under the MGCL, as applicable to
Maryland real estate investment trusts, certain business combinations (including
certain mergers, consolidations, share exchanges and asset transfers and certain
issuances and reclassifications of equity securities) between a Maryland real
estate investment trust and any person who beneficially owns ten percent or more
of the voting power of the trust's shares or an affiliate of the trust who, at
any time within the two-year period prior to the date in question, was the
beneficial owner of ten percent or more of the voting power of the then
outstanding voting shares of such trust (an "Interested Shareholder"), or an
affiliate of such an Interested Shareholder, are prohibited for five years after
the most recent date on which the Interested Shareholder becomes an Interested
Shareholder. Thereafter, any such business combination must be recommended by
the board of trustees of such trust and approved by the affirmative vote of at
least (i) 80% of the votes entitled to be cast by holders of outstanding voting
shares of beneficial interest of the trust and (ii) two-thirds of the votes
entitled to be cast by holders of voting shares of the trust other than shares
held by the Interested Shareholder with whom (or with whose affiliate) the
business combination is to be effected, unless, among other conditions, the
trust's common shareholders receive a minimum price (as defined in the MGCL) for
their shares and the consideration is received in cash or in the same form as
previously paid by the Interested Shareholder for its shares. These provisions
of Maryland law do not apply, however, to business combinations that are
approved or exempted by the board of trustees of the trust prior to the time
that the Interested Shareholder becomes an Interested Shareholder. The Board of
Trustees has opted out of this statute by resolution.
Control Share Acquisitions. The MGCL, as applicable to Maryland real
estate investment trusts, provides that Control Shares (as defined below) of a
Maryland real estate investment trust acquired in a control share acquisition
(as defined below) have no voting rights except to the extent approved by a vote
of two-thirds of the votes entitled to be cast on the matter, excluding shares
of beneficial interest owned by the acquiror, by officers or by trustees who are
employees of the trust. Control Shares are voting shares of beneficial interest
which, if aggregated with all other such shares of beneficial interest
previously acquired by the acquiror or in respect of which the acquiror is able
to exercise or direct the exercise of voting power (except solely by virtue of a
revocable proxy), would entitle the acquiror to exercise voting power in
electing trustees within one of the following ranges of voting power: (i) one-
fifth or more but less than one-third, (ii) one-third or more but less than a
majority or (iii) a majority or more of all voting power. Control Shares do not
include shares the acquiring person is then entitled to vote as a result of
having previously obtained shareholder approval. A control share acquisition
means the acquisition of Control Shares, subject to certain exceptions.
A person who has made or proposes to make a control share acquisition,
upon satisfaction of certain conditions (including an undertaking to pay
expenses), may compel the board of trustees of the trust to call a special
meeting of shareholders to be held within 50 days of demand to consider the
voting rights of the shares. If no request for a meeting is made, the trust may
itself present the question at any shareholders' meeting.
If voting rights are not approved at the meeting or if the acquiring
person does not deliver an acquiring person statement as required by the
statute, then, subject to certain conditions and limitations, the trust may
redeem any or all of the Control Shares (except those for which voting rights
have previously been approved) for fair value, determined without regard to the
absence of voting rights for the Control Shares, as of the date of the last
control share acquisition by the acquiror or of any meeting of shareholders at
which the voting rights of such shares are considered and not approved. If
voting rights for Control Shares are approved at a shareholders' meeting and the
acquiror becomes entitled to vote a majority of the shares entitled to vote, all
other shareholders may exercise appraisal rights. The fair value of the shares
as determined for purposes of such appraisal rights may not be less than the
highest price per share paid by the acquiror in the control share acquisition.
The control share acquisition statute does not apply (a) to shares
acquired in a merger, consolidation or share exchange if the trust is a party to
the transaction or (b) to acquisitions approved or exempted by the declaration
of trust or bylaws of the trust. The Bylaws contain a provision exempting from
the control share acquisition statute any and all acquisitions by any person of
the Company's shares of beneficial interest. The Board of Trustees may, however,
amend the Bylaws at any time to eliminate such provision, either prospectively
or retroactively.
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Possible Antitakeover Effect of Certain Provisions of Maryland Law
and of the Declaration of Trust and the Bylaws
The provisions of the Declaration of Trust on classification of the
Board of Trustees, the removal of Trustees and the restrictions on the transfer
of shares of beneficial interest and the advance notice provisions of the Bylaws
could have the effect of delaying, deferring or preventing a change in control
of the Company or other transaction that might involve a premium over the then
prevailing market price for the Common Shares or other attributes that the
shareholders may consider desirable.
EXPERTS
The financial statements and schedules incorporated by reference in
this Prospectus and the registration statement of which this Prospectus is a
part have been audited by PricewaterhouseCoopers LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.
LEGAL MATTERS
The validity of the Common Shares offered hereby are being passed upon
for the Company by Morgan, Lewis & Bockius LLP.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files under Exchange Act file number 1-12590 reports and
other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549; Midwest
Regional office, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511; and Northeast Regional Office, 7 World Trade Center, Suite
1300, New York, New York 10048. Copies of such material can be obtained at the
prescribed rates from the Public Reference Section of the Commission at its
principal office in Washington, D.C. In addition, the Company files such
material electronically with the Commission, and the Commission maintains a Web
site (http://www.sec.gov) that contains reports proxy and information statements
and other information regarding registrants (including the Company) that file
electronically with the Commission. The Common Shares are listed on the NYSE and
such reports, proxy statements and other information concerning the Company can
also be inspected at the office of the New York Stock Exchange, 20 Broad Street,
New York, New York 10005.
The Company has filed with the Commission a registration statement on
Form S-3 under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Registered Shares. For further information with respect to
the Company and the Registered Shares, reference is made to the Registration
Statement and exhibits thereto. Statements contained in this Prospectus as to
the contents of any contract or other documents are not necessarily complete,
and, in each instance, reference is made to the copy of such contract or
documents filed as an exhibit to the registration statement, each such statement
being qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, filed by the Company with the Commission
pursuant to Section 13 and Section 14 of the Securities Exchange Act of 1934
(the "Exchange Act") (File No. 1-13274), are incorporated herein by reference:
(a) the Annual Report on Form 10-K for the year ended December 31, 1997, (b) the
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, (c) the
Current Reports on Forms 8-K and 8-K/A filed May 14, 1998, May 29, 1998, June
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10, 1998, and July 7, 1998, (d) the Proxy Statement/Prospectus dated February
11, 1998, and (e) the Proxy Statement dated July 22, 1998.
In addition, all documents subsequently filed with the Commission by
the Company pursuant to Sections 13(a) and 13(c), Section 14 and Section 15(d)
of the Exchange Act prior to the filing of a post-effective amendment hereto
that indicates that all securities offered hereunder have been sold or that
deregisters all securities then remaining unsold, shall be deemed to be
incorporated by reference in this registration statement and to be a part hereof
from the date of filing of such documents.
Any statement contained herein or in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein, in any applicable Prospectus Supplement or in any other
document subsequently filed with the Commission which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
To the extent that this prospectus incorporates documents by reference
which are not presented herein or delivered herewith, copies of such documents
(except the exhibits to such documents unless they are specifically incorporated
by reference in such documents) are available on request. Requests for such
copies should be directed to Janet Point, One Logan Square, Suite 1105,
Philadelphia, Pennsylvania 19103, or by telephone at 215-567-1800.
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PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses in connection with the issuance and distribution of the
securities being registered are set forth in the following table (all amounts
except the registration fee are estimated):
<TABLE>
<S> <C>
Registration fee -- Securities and Exchange Commission....................... $
Accountants' fees and expenses...............................................
Legal fees and expenses .....................................................
Miscellaneous................................................................
TOTAL........................................................................ $
---------
---------
</TABLE>
All expenses in connection with the issuance and distribution of the
securities being offered shall be borne by the Company.
ITEM 15. INDEMNIFICATION OF TRUSTEES AND OFFICERS.
The Maryland REIT Law permits a Maryland real estate investment
trust to include in its declaration of trust a provision limiting the
liability of its trustees and officers to the trust and its shareholders for
money damages except for liability resulting from (i) actual receipt of an
improper benefit or profit in money, property or services or (ii) active and
deliberate dishonesty established by a final judgment as being material to
the cause of action. The Declaration of Trust contains such a provision
limiting such liability to the maximum extent permitted by Maryland law.
The Declaration of Trust authorizes the Company, to the maximum
extent permitted by Maryland law, to obligate itself to indemnify and to pay
or reimburse reasonable expenses in advance of final disposition of a
proceeding to (a) any present or former Trustee or officer or (b) any
individual who, while a Trustee of the Company and at the request of the
Company, serves or has served another real estate investment trust,
corporation, partnership, joint venture, trust, employee benefit plan or any
other enterprise as a trustee, director, officer, partner, employee or agent
of such entity from and against any claim or liability to which such person
may become subject or which such person may incur by reason of service in
such capacity. The Bylaws obligate the Company, to the maximum extent
permitted by Maryland law, to indemnify and to pay or reimburse reasonable
expenses in advance of final disposition of a proceeding to (i) any present
or former Trustee or officer who is made a party to the proceeding by reason
of his service in that capacity or (ii) any such Trustee or officer who, at
the request of the Company, serves or has served another real estate
investment trust, corporation, partnership, joint venture, trust, employee
benefit plan or any other enterprise as a trustee, director, officer,
partner, employee or agent of such entity and who is made a party to the
proceeding by reason of his service in that capacity against any claim or
liability to which he may become subject by reason of his or her status as a
present or former Trustee or officer of the Company. The Declaration of Trust
and the Bylaws also permit the Company to provide indemnification to any
person who served a predecessor of the Company in any of the capacities
described above and to any employee or agent of the Company or a predecessor
of the Company. The Bylaws require the Company to indemnify a trustee or
officer who has been successful, on the merits or otherwise, in the defense
of any proceeding to which he is made a party by reason of his service in
that capacity.
The Maryland REIT Law permits a Maryland real estate investment
trust to indemnify, and to advance expenses to, its trustees and officers, to
the same extent as permitted by the MGCL for directors and officers of
Maryland corporations. The MGCL permits a corporation to indemnify its
present and former directors and officers, among others, against judgments,
penalties, fines, settlements and reasonable expenses actually incurred by
them in connection with any proceeding to which they may be made a party by
reason of their service in those or other capacities unless it is established
that (i) the act or omission of the director or officer was material to the
matter giving rise to the proceeding and (a) was committed in bad faith or
(b) was the result of active and deliberate dishonesty, (ii) the director or
officer actually received
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<PAGE>
an improper personal benefit in money, property or services or (iii) in the
case of any criminal proceeding, the director or officer had reasonable cause
to believe that the act or omission was unlawful. However, under the MGCL, a
Maryland corporation may not indemnify for an adverse judgment in a suit by
or in the right of the corporation or for a judgment of liability on the
basis that personal benefit was improperly received, unless in either case a
court orders indemnification and then only for expenses. In addition, the
MGCL permits a corporation to advance reasonable expenses to a director or
officer upon the corporation's receipt of (a) a written affirmation by the
director or officer of his good faith belief that he has met the standard of
conduct necessary for indemnification by the corporation and (b) a written
undertaking by him or on his behalf to repay the amount paid or reimbursed by
the corporation if it shall ultimately be determined that the standard of
conduct was not met. Under the MGCL, rights to indemnification and expenses
are nonexclusive, in that they need not be limited to those expressly
provided by statute.
The Maryland REIT Law and the Bylaws may permit indemnification for
liabilities arising under the Securities Act or the Securities Exchange Act
of 1934, as amended. The Board of Trustees has been advised that, in the
opinion of the Commission, indemnification for liabilities arising under the
Securities Act or the Exchange Act is contrary to public policy and is
therefore unenforceable, absent a decision to the contrary by a court of
appropriate jurisdiction.
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<PAGE>
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ------------
<S> <C>
2.2 Formation/Contribution Agreement dated September 7, 1997, as amended, by and among the
Company and certain subsidiary corporations and partnerships regarding the Transactions
(filed with the Company's Current Report on Form 8-K on October 29, 1997 and incorporated
herein by reference).
2.4 Limited Partnership Agreement of the Operating Partnership dated October 14, 1997 (filed
with the Company's Current Report on Form 8-K on October 29, 1997 and incorporated
herein by reference).
3.1 Amended and Restated Declaration of Trust of Registrant (filed with the Registrant's
Registration Statement on Form S-4 (Commission File No. 333-45649) and incorporated
herein by reference).
3.2 Bylaws of Registrant (filed with the Registrant's Registration Statement on Form S-4
(Commission File No. 333-45649) and incorporated herein by reference).
4.1 Form of certificate for the Registrant's Common Shares of Beneficial Interest, $0.01 par value
per share (filed with the Registrant's Registration Statement on Form S-4 (Commission File
No. 333-45649) and incorporated herein by reference).
5.1 Opinion of Morgan, Lewis & Bockius LLP regarding the legality of the securities being
registered hereby.*
8.1 Opinion of Morgan, Lewis & Bockius LLP as to certain tax matters.*
10.1 Clay W. Hamlin III Employment Agreement dated October 14, 1997 with the Operating
Partnership (filed with the Company's Current Report on Form 8-K on October 29, 1997, and
incorporated herein by reference).
10.2 Registration Rights Agreement dated October 14, 1997, as amended, for the benefit of certain
shareholders of the Registrant (filed with the Company's Current Report on Form 8-K on
October 29, 1997, and incorporated herein by reference).
10.5 Corporate Office Properties Trust 1998 Long Term Incentive Plan (filed with the Registrant's
Registration Statement on Form S-4 (Commission File No. 333-45649) and incorporated
herein by reference).
10.6 Stock Option Plan for Directors (filed with Royale Investments, Inc.'s Form 10-KSB for the
year ended December 31, 1993 (Commission File No. 0-20047) and incorporated herein by
reference).
10.14 Thomas D. Cassel Employment Agreement dated October 20, 1997 with the Operating
Partnership (filed with the Registrant's 1997 Annual Report on Form 10-K and incorporated
herein by reference).
21.1 Subsidiaries of Registrant (filed with the Registrant's 1997 Annual Report on Form 10-K and
incorporated herein by reference).
23.1 Consent of Morgan Lewis & Bockius LLP (included in Exhibit 5.1).*
23.2 Consent of PricewaterhouseCoopers LLP.*
24.1 Powers of attorney (included on signature page to the Registration Statement).
</TABLE>
- -----------
* - To be filed by Amendment.
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
25
<PAGE>
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the
most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
Registration Statement or any material change to such
information in the Registration Statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do
not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in
periodic reports filed with the Securities and Exchange
Commission by the Registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered that remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for the purpose
of determining any liability under the Securities Act of 1933, each filing of
the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in this Registration Statement shall be deemed
to be a new registration statement relating to the securities offered herein and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
26
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Philadelphia, State of Pennsylvania on July 31,
1998.
CORPORATE OFFICE PROPERTIES TRUST
By: /s/ Clay W. Hamlin, III
-------------------------------------
Name: Clay W. Hamlin, III
Title: President and Chief Executive Officer
By: /s/ Thomas D. Cassel
-------------------------------------
Name: Thomas D. Cassel
Title: Vice President, Finance
27
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and
directors of Corporate Office Properties Trust hereby severally constitute Clay
W. Hamlin, III and Thomas D. Cassel, and each of them singly, our true and
lawful attorneys with full power to them, and each of the singly, to sign for us
and in our names in the capacities indicated below, the registration statement
filed herewith and any and all amendments to said registration statement, and
generally to do all such things in our names and in our capacities as officers
and directors to enable Corporate Office Properties Trust to comply with the
provisions of the Securities Act of 1933, as amended, and all requirements of
the Securities and Exchange Commission, hereby ratifying and confirming our
signatures as they may be signed by our said attorneys, or any of them, to said
registration statement and any and all amendments thereto.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ Jay H. Shidler
- ----------------------------- Chairman of the Board and Trustee July 31, 1998
Jay H. Shidler
/s/ Clay W. Hamlin, III
- ----------------------------- President and Chief Executive Officer, Trustee July 31, 1998
Clay W. Hamlin, III (Principal Executive Officer)
/s/ Thomas D. Cassel
- ----------------------------- Vice President, Finance July 31, 1998
Thomas D. Cassel (Principal Accounting and Financial Officer)
/s/Vernon R. Beck
- ----------------------------- Vice Chairman of the Board and Trustee July 31, 1998
Vernon R. Beck
/s/ Kenneth D. Wethe
- ----------------------------- Trustee July 31, 1998
Kenneth D. Wethe
/s/ Allen C. Gehrke
- ----------------------------- Trustee July 31, 1998
Allen C. Gehrke
- ----------------------------- Trustee July __, 1998
William H. Walton, III
- ----------------------------- Trustee July __, 1998
Kenneth S. Sweet, Jr.
</TABLE>
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