<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 8-K
----------------
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 28, 1998
CORPORATE OFFICE PROPERTIES TRUST
---------------------------------
(Exact name of registrant as specified in its charter)
Maryland 0-20047 23-2947217
-------- ------- ----------
(State or other jurisdiction of (Commission (IRS Employer
incorporation) File Number) Identification Number)
401 City Avenue, Suite 615
Bala Cynwyd, PA 19004
---------------------
(Address of principal executive offices)
One Logan Square, Suite 1105
Philadelphia, PA 19103
----------------------
(Former address of principal executive offices)
(610) 538-1800
--------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Item 1. Changes in Control of Registrant
On September 28, 1998, Corporate Office Properties Trust (the
"Company"), through affiliates of Corporate Office Properties, L.P. (the
"Operating Partnership"), completed a number of transactions (collectively, the
"Completed Transactions") pursuant to agreements with affiliates of
Constellation Real Estate Group, Inc. (collectively, "Constellation"), a
wholly-owned indirect subsidiary of Baltimore Gas and Electric Company ("BGE"),
to acquire certain real property, a mortgage and certain other assets owned by
Constellation. Consideration for the Completed Transactions consisted of a
combination of cash, assumption of debt, Common Shares of Beneficial Interest,
par value $.01 per share ("Common Shares") and non-voting Series A Convertible
Preferred Shares of Beneficial Interest ("Preferred Shares"). Upon consummation
of the Completed Transactions, Constellation became holder of approximately 39%
of the Company's outstanding Common Shares. Constellation also was able to
designate two new trustees to the Company's Board of Trustees as a right set
forth under the terms of the Preferred Shares. Given its position as the largest
common shareholder in the Company along with its presence on the Board of
Trustees, Constellation will have a significant influence on the Company.
The Completed Transactions are discussed in greater detail in Item 2.
Item 2. Acquisition or Disposition of Assets
On September 28, 1998, the Company, through affiliates of the Operating
Partnership, and pursuant to agreements with Constellation to acquire real
estate properties and service businesses, settled on the Completed Transactions.
Pursuant to the Completed Transactions, the Company acquired from Constellation
the following:
(i) Title to one operating office property;
(ii) 100% of the ownership interests in entities which own a total
of ten operating properties (nine office properties and one
retail property);
(iii) A 75% ownership interest in one entity which holds a mortgage
on a retail property owned by persons not affiliated with
either the Company or Constellation;
(iv) A 75% ownership interest in Corporate Realty Management, LLC
(CRM), formerly Constellation Realty Management, LLC, a real
estate management services entity; and
(v) Certain equipment, furniture and other assets related to
Constellation Real Estate, Inc. (CRE).
Items (i)-(iii) above are referred to herein as the "Constellation
Properties," and items (iv) and (v) are referred to herein as the "Constellation
Service Companies." The Constellation Properties comprise, in the aggregate,
approximately one million rentable square feet of office space and approximately
250,000 rentable square feet of retail space in a total of ten office properties
and two retail properties.
2
<PAGE>
Terms of the mortgage referred to in (iii) above are such that the mortgagee has
virtually the same economic risks and rewards as if it owned the land and
improvements directly.
Ownership in items (iv) and (v) above were transferred from the Company
to Corporate Office Management, Inc. ("COMI"), a newly formed corporation, in
exchange for indebtedness and 95% of the capital stock consisting of 1% of the
voting common stock in COMI and all of the non-voting common stock in COMI.
The following table sets forth certain historical information relating to
each of the Constellation Properties as of September 30, 1998:
3
<PAGE>
CONSTELLATION PROPERTIES
<TABLE>
<CAPTION>
Percentage of
Percentage Total Rental Total Rental Major Tenants
Year Built/ Rentable Leased as of Total Rental Revenue of Revenue per (10% or more
Property Locations (all in Maryland) Renovated Sq. Ft Sept. 30, 1998 Revenue Occupied Sq.Ft. Occupied Sq.Ft.Rentable Sq.Ft.)
(1) (2) (3) (4)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OFFICE PROPERTIES:
One National Business Park 1990 240,336 100.00% $4,523,256 23.15% $18.82 U.S. Department of
Defense (100%)
131 National Business Parkway 1990 68,900 100.00% 1,189,305 6.09% 17.26 e.spire
Communications
(35%)
TASC, Inc. (28%)
Lockheed Martin
Technical (23%)
Intel Corporation
(14%)
133 National Business Parkway 1996 88,666 90.60% 1,413,399 7.23% 17.60 e.spire
Communications
(67%)
Applied Signal
Technology (23%)
141 National Business Parkway 1990 86,964 98.42% 1,419,603 7.27% 16.59 Stanford
Telecommunications
(46%)
J.G. Van Dyke &
Associates (20%)
Harris Data
Services(14%)(6)
Electronic Data
Systems (10%)
One Constellation Centre 1988-1989 181,236 100.00% 3,508,818 17.96% 19.36 U.S. Department of
Treasury (47%)
Constellation
Properties, Inc.
(27%)
NRL Federal Credit
Union (10%)
Lakeview at the Greens I 1986 69,194 91.29% 1,029,846 5.27% 16.30 Great West Life &
Annuity (17%)
Laurel Consulting
Group (15%)
Moore USA, Inc.
(11%)
Lakeview at the Greens II 1988 71,870 88.70% 1,101,908 5.64% 17.29 Sky Alland
Research, Inc.
(22%)
Greenman-Pedersen,
Inc. (15%)
Three Centre Park 1987 53,635 100.00% 954,035 4.88% 15.10 COMI (25%)
National
Association of
Credit Management
(20%)
Reap/REMAX, Inc.
(16%)
H.C. Copeland
Associates (11%)
Brandon I 1982 38,513 97.42% 210,643 1.08% 5.61 Rapid Response
(50%)
BGE (19%)
Brown's Wharf (5) 1989 103,670 98.26% 1,562,031 8.00% 15.33 JHIEPGO
Corporation (27%)
Lista's (14%)
--------- ----------- --------
TOTAL OFFICE PROPERTIES 1,002,984 97.34% $16,912,844 86.57% $17.32
--------- ----------- --------
RETAIL PROPERTIES:
Cranberry Square 1991 119,609 100.00% 1,865,010 9.54% 15.59 Giant Food (47%)
Staples, Inc.(20%)
Toy Works (10%)
Tred Avon 1977/1997 129,140 92.09% 759,704 3.89% 6.39 Peebles (27%)
Acme Markets (22%)
--------- ----------- --------
TOTAL RETAIL PROPERTIES 248,749 95.89% $2,624,714 13.43% $11.00
--------- ----------- --------
TOTAL CONSTELLATION
---------
PROPERTIES 1,251,733 97.05% $19,537,558 100.00% $16.08
--------- ----------- --------
--------- ----------- --------
</TABLE>
(1) The percentage is based on all leases in effect as of September 30, 1998.
(2) Total Rental Revenue is the monthly contractual base rent as of Sept. 30,
1998 multiplied by 12 plus the estimated annualized expense reimbursements under
existing leases.
(3) This percentage is based on the property's rental revenue to Constellation
Properties' Total Rental Revenue.
(4) This represents the property's annualized base rent divided by the
respective property's leased square feet as of September 30, 1998.
(5) This predominately office property contains 75,998 square feet of office
space and 27,672 square feet of retail space.
(6) Harris Data Services Corp. is a subtenant for GTE Government Systems.
4
<PAGE>
The following schedule sets forth lease expirations for the
Constellation Properties for the period October 1, 1998 to December 31, 1998 and
annually thereafter, assuming that none of the tenants exercise renewal options:
CONSTELLATION PROPERTIES
SCHEDULE OF LEASE EXPIRATIONS
<TABLE>
<CAPTION>
Total Rental
Rentable Revenue of Percentage
Square Percentage Total Rental Expiring Of Total
Number of Footage Of Total Revenue of Leases Per Rental
Year of Leases Of Leases Leased Expiring Rentable Revenue
Expiration Expiring Expiring Square Feet Leases (1) Square Feet (1) Expiring (1)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
October 1, 1998 -
December 31, 1998 7 37,330 3.07% $ 535,608 $ 14.35 2.74%
1999 28 72,690 5.98% 1,034,920 14.24 5.30%
2000 25 159,554 13.14% 2,499,523 15.67 12.79%
2001 26 157,960 13.00% 2,351,618 14.89 12.05%
2002 10 68,273 5.62% 725,833 10.63 3.72%
2003 25 285,367 23.49% 4,967,179 17.41 25.42%
2004 5 42,415 3.49% 707,835 16.69 3.62%
2005 1 24,255 2.00% 414,423 17.09 2.12%
2006 1 12,330 1.01% 150,934 12.24 0.77%
2007 - - 0.00% - - 0.00%
2008 (2) 3 269,341 22.18% 4,934,084 18.32 25.25%
2009 and Thereafter 4 85,343 7.02% 1,215,601 14.24 6.22%
--- ------- ------- ------------ -------
TOTALS 135 1,214,858 100.00% $ 19,537,558 $ 16.08 100.00%
--- --------- ------- ------------ -------
--- --------- ------- ------------ -------
</TABLE>
(1) Total Rental Revenue is the monthly contractual base rent as of
September 30, 1998 multiplied by 12, plus the estimated
annualized expense reimbursements under existing leases.
(2) One tenant with 240,336 square feet and remitting $4,523,256 of
annualized September 30, 1998 total rental revenue leases space
under a one year lease with 14 consecutive automatic one year
renewals. This lease has been presented as expiring in the year
2008 in the above table.
Constellation also granted to the Company certain options and rights of
first refusal to purchase undeveloped land totaling 91 acres in three locations
adjacent to certain of the Constellation Properties with aggregate office
development potential of approximately 1.7 million square feet at September 30,
1998. In addition, a significant number of those persons previously employed by
CRE engaged in the operation of the Constellation Properties became employees of
affiliates of the Company.
The Constellation Properties and the Constellation Service Companies
were acquired for aggregate values of $143.6 million and $2.5 million,
respectively. The total consideration of the Completed Transactions consisted of
(i) $59.6 million in debt of the Constellation Properties assumed, (ii)
6,182,634 Common Shares in the Company (issued at $10.50 per share) and (iii)
865,566 Preferred Shares in the Company (issued at $25.00 per share). Of the
Constellation Properties debt assumed, $1.5 million was paid down at the closing
of the Completed Transactions using proceeds from the Company's secured
revolving credit facility. In addition, the Company expects to pay down an
additional $27.7 million of the assumed debt with the proceeds of an $85
million, 10 year loan from Teachers Insurance and Annuity Association of America
(the "TIAA Loan"), a loan anticipated to close by October 21, 1998. The TIAA
Loan is expected to bear interest at a fixed-rate of 6.89% and provide for
monthly payments of
5
<PAGE>
principal and interest based on a 25-year amortization schedule. The TIAA Loan
is expected to be cross-collateralized by seven of the Constellation Properties
acquired in the Completed Transactions and two additional Properties to be
acquired by the Company from Constellation at a later date (see Item 5). The
Company can provide no assurance that financing under the TIAA Loan will be
available at the terms disclosed above.
The following schedule presents the material terms of the assumed debt
which will not be repaid from the TIAA Loan proceeds:
<TABLE>
<CAPTION>
Lender Amount Interest Maturity
------ Assumed Rate Terms Date
------- ---- ----- ----
<S> <C> <C> <C> <C>
Security Life of Denver Insurance Co. $ 9,555,574 7.5% Monthly Principal and 10/31/05
Interest of $73,899
NationsBank, N.A. 9,514,066 LIBOR + Monthly Principal of 1/15/99
2% $35,253 Plus Interest
Mercantile-Safe Deposit and Trust Co. 8,437,989 Prime + Monthly Principal and 7/01/99
1/2% Interest of $65,922
Provident Bank of Maryland 2,927,680 LIBOR + Monthly Principal of 9/01/00
----------- 1.75% $6,780 Plus Interest
$30,435,309
-----------
-----------
</TABLE>
The material terms of the Preferred Shares follow:
The Preferred Shares are convertible after the Standstill Period
described below into Common Shares on the basis of 1.8748 Common Shares for each
Preferred Share (subject to adjustment upon certain events, such as dividends
paid in Common Shares). The "Standstill Period" is defined as the period ending
on the earliest of (i) two years after the issuance of the Preferred Shares,
(ii) a change of control or liquidation of the Trust or (iii) a date established
by the Board of Trustees. Upon conversion, the holders of Preferred Shares are
entitled to all accrued and unpaid dividends. 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 but Constellation may tender its
Preferred Shares (for conversion at a later date when that ownership test is
satisfied) and upon such tender begin to receive dividends on Common Shares into
which the Preferred Shares would have been converted but for that ownership
test.
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 or create a class of shares senior to 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. During
the Standstill Period described above, the affirmative vote of two-thirds of the
outstanding Preferred Shares will also be required prior to consummation of any
transaction where the Trust would issue its Common Shares with an aggregate
market price in excess of $50 million at a price per share less than $9.50,
subject to adjustment upon the occurrence of certain events. 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
6
<PAGE>
Common Shares), Constellation will have the right to designate up to two
Trustees. If the Trust fails to pay two consecutive quarterly dividends payments
on the Preferred Shares, then the holders of the Preferred Shares would be
entitled to elect two additional members to the Board of Trustees.
Holders of Preferred Shares are 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.
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.
In connection with the Completed Transactions, the Company's Board of
Trustees was expanded from a composition of seven to nine Trustees. The two new
Trustees, designated by Constellation pursuant to its right as the holder of
Preferred Shares, are Edward A. Crooke, Chairman of Constellation Enterprises,
Inc. and Vice Chairman of BGE and Steven D. Kesler, President of Constellation
Investments, Inc. and new President of Constellation Real Estate Group, Inc. Mr.
Crooke will be a Class III Trustee whose term expires in 2001, and Mr. Kesler
will be a Class II Trustee whose term expires in 2000. If any member of the
Board of Trustees designated by Constellation shall withdraw for any reason,
Constellation shall have the right to designate such withdrawing Trustee's
replacement. Thereafter, Constellation shall be entitled to designate two
Trustees as long as it owns any Preferred Shares and at least 30% of the
Company's outstanding Common Shares, and shall be entitled to designate one
Trustee as long as it owns any Preferred Shares and less than 30% but more than
15% of the outstanding Common Shares. The foregoing calculations are to include
as outstanding the Common Shares owned by Constellation as well as the Common
Shares issuable upon conversion of Preferred Shares owned by Constellation.
Jay H. Shidler remains as Chairman and Clay W. Hamlin, III remains as
Chief Executive Officer of the Company. Randall M. Griffin, formerly President
of Constellation Real Estate Group, Inc. ("CREG"), has become President and
Chief Operating Officer of the Company. In addition, Roger A. Waesche, Jr.,
formerly Senior Vice President of Finance of CRE and John H. Gurley, formerly
Vice President and General Counsel of CRE, as well as certain other officers of
CRE, have assumed positions with the Company similar to those held by them with
CRE.
The Company's headquarters remains in Pennsylvania. Acquisition and
capital market activities will be conducted out of the suburban Philadelphia
office. The Company also occupies a portion of the space previously occupied by
CRE in Columbia, Maryland (in a building which was acquired by the Company),
where the CRE personnel who became employees of affiliates of the Company will
perform the Company's operations, asset management, property management,
development, construction and accounting functions.
7
<PAGE>
Item 5. Other Events
On September 28, 1998, the Company through affiliates of the Operating
Partnership, closed on the Completed Transactions pursuant to agreements with
Constellation to acquire real estate properties and service businesses. Certain
property acquisitions covered under the agreements between the Company and
Constellation as approved by shareholders of the Company pursuant to its July
22, 1998 proxy statement and related special meeting of shareholders were not
completed on September 28, 1998 (collectively, the "Pending Transactions"). The
Pending Transactions include the following:
(i) Acquisition of 100% of the ownership interests in entities which
own two newly-constructed operating office properties;
(ii) Acquisition of 100% ownership interest in an entity which owns a
retail property (on which construction is nearing completion); and
(iii)Acquisition of 100% ownership interests in entities which own two
office properties currently under construction.
The acquisitions in Items (i) and (iii) above are anticipated to occur
by the end of 1998. The acquisition described in Item (ii) above is anticipated
to occur in early 1999.
The property covered under the acquisition agreements between the
Company and Constellation as approved by shareholders of the Company pursuant to
its July 22, 1998 proxy statement also included a 60% ownership interest in an
entity which owns a retail property currently under construction. The agreement
to acquire this property was terminated at the election of the Company by mutual
agreement with Constellation; therefore, this acquisition will not occur.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Businesses Acquired
The combined financial statements of the businesses acquired will
be filed by amendment.
(b) Pro Forma Financial Information
The pro forma condensed consolidated financial statements of the
Company will be filed by amendment.
(c) Exhibits
8
<PAGE>
Exhibits
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
2.1 Contribution Agreement, dated May 14, 1998, between the Company, the
Operating Partnership and certain Constellation affiliates (filed as Exhibit
A of the Company's Schedule 14A Information on June 26, 1998, and
incorporated herein by reference).
2.2 Service Company Contribution Agreement, dated May 14, 1998, between the
Company, the Operating Partnership and certain Constellation affiliates
(filed as Exhibit B of the Company's Schedule 14A Information on June 26,
1998, and incorporated herein by reference).
2.3 First Amendment to Contribution Agreement, dated July 16, 1998, between
Constellation Properties, Inc. and certain entities controlled by
Constellation Properties, Inc.
2.4 Second Amendment to Contribution Agreement, dated September 28, 1998, between
Constellation Properties, Inc. and certain entities controlled by
Constellation Properties, Inc.
2.5 First Amendment to Amended and Restated
Limited Partnership Agreement of Corporate
Office Properties Limited Partnership, dated
September 28, 1998.
4.1 Articles Supplementary of Corporate Office Properties Trust Series A
Convertible Preferred Shares, dated September 28, 1998.
10.1 Option Agreement, dated May 14, 1998, between the Operating Partnership and
NBP-III, LLC (a Constellation affiliate) (filed as Exhibit C of the Company's
Schedule 14 A Information on June 26, 1998, and incorporated herein by
reference).
10.2 Option Agreement, dated May 14, 1998, between the Operating Partnership and
Constellation Gatespring II, LLC (a Constellation affiliate) (filed as
Exhibit D of the Company's Schedule 14 A Information on June 26, 1998 and
incorporated herein by reference).
10.3 First Amendment to Option Agreement, dated June 22, 1998, between the
Operating Partnership and NBP-III, LLC (a Constellation affiliate) (filed as
Exhibit E of the Company's Schedule 14A Information on June 26, 1998 and
incorporated herein by reference).
10.4 First Amendment to Option Agreement, dated June 22, 1998, between the
Operating Partnership and Constellation Gatespring II, LLC (a Constellation
affiliate) (filed as Exhibit F of the Company's Schedule 14 A Information on
June 26, 1998 and incorporated herein by reference).
10.5 Development Property Acquisition Agreement, dated May 14, 1998, between the
Operating Partnership and CPI Piney Orchard Village Center, Inc. (a
Constellation affiliate) (filed as Exhibit H of the Company's Schedule 14A
Information on June 26, 1998, and incorporated herein by reference).
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
10.6 Amended and Restated Deed of Trust Note, dated October 6, 1995, between
Cranberry-140 Limited Partnership and Security Life of Denver Insurance
Company.
10.7 Loan Modification Agreement, dated September
28, 1998, between Cranberry-140 Limited
Partnership and Security Life of Denver
Insurance Company.
10.8 Promissory Note, dated September 15, 1995, between Tred Lightly Limited
Liability Company and Provident Bank of Maryland.
10.9 Allonge to Promissory Note, dated September 28, 1998, between Tred Lightly
Limited Liability Company and Provident Bank of Maryland.
10.10 Third Loan Modification and Extension Agreeement, dated November 12, 1997,
between St. Barnabus Limited Partnership, Constellation Properties, Inc. and
NationsBank, N.A.
10.11 Fourth Loan Modification Agreement dated September 28, 1998 between St.
Barnabus Limited Partnership, Constellation Properties, Inc. and NationsBank,
N.A.
10.12 Deed of Trust Note, dated September 20, 1988,
between Brown's Wharf Limited Partnership and
Mercantile-Safe Deposit and Trust Company.
10.13 Extension Agreement and Allonge to Deed of Trust Note, dated July 1, 1994,
between Brown's Wharf Limited Partnership and Mercantile-Safe Deposit and
Trust Company.
10.14 Employment Agreement, dated September 28, 1998 between Corporate Office
Management, Inc. and Randall M. Griffin.
10.15 Employment Agreement, dated September 28, 1998 between Corporate Office
Management, Inc. and Roger A. Waesche, Jr.
10.16 Employment Agreement, dated September 28, 1998 between Corporate Realty
Management, LLC and Michael D. Kaiser.
10.17 Consulting Services Agreement, dated April 28,
1998 between the Company and Net Lease Finance
Corp., doing business as Corporate Office
Services.
10.18 Project Consulting and Management Agreement, dated September 28, 1998,
between Constellation Properties, Inc. and COMI.
10.19 Option Agreement, dated September 28, 1998,
between Jolly Acres Limited Partnership and Arbitrage Land Limited Partnership
and the Operating Partnership.
10.20 Right of First Refusal Agreement, dated September 28, 1998, between Constellation
Properties, Inc. and the Operating Partnership.
10.21 Right of First Refusal Agreement, dated September 28, 1998, between 257 Oxon,
LLC and the Operating Partnership.
99.1 Press Release dated May 15, 1998 regarding the Company's entrance into a
series of agreements through affiliates of the Operating Partnership with
Constellation and certain Constellation affiliates to acquire real estate
properties and service businesses (filed with the Company's Current report on
Form 8-K on May 29, 1998, and incorporated herein by reference).
99.2 Press Release, dated July 22, 1998, regarding
the Company establishing a date for a special
shareholders meeting to consider Constellation
transaction.
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
99.3 Press release, dated August 21, 1998, announcing the shareholders approval of
the Constellation transaction.
99.4 Definitive Proxy Statement for August 21, 1998 Special Meeting of
Shareholders.
99.5 Press Release dated September 29, 1998 regarding the Company's closing of the
Constellation Transaction.
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: October 13, 1998
CORPORATE OFFICE PROPERTIES TRUST
By: /s/ Clay W. Hamlin, III
----------------------------
Name: Clay W. Hamlin, III
Title: Chief Executive Officer
By: /s/ Randall M. Griffin
----------------------------
Name: Randall M. Griffin
Title: President and
Chief Operating Officer
11
<PAGE>
Exhibit 2.3
FIRST AMENDMENT TO CONTRIBUTION AGREEMENT
THIS FIRST AMENDMENT TO CONTRIBUTION AGREEMENT ("First Amendment") is made
and executed as of this 16th day of July, 1998 by and between CORPORATE OFFICE
PROPERTIES TRUST and CORPORATE OFFICE PROPERTIES, L.P. (collectively, the
"Buyer") and the Sellers listed on the signature page to this First Amendment
and defined in the Contribution Agreement (collectively, the "Sellers" and each
individually, a "Seller").
A. Sellers and Buyer entered into a Contribution Agreement dated May 14,
1988 pursuant to which Sellers agreed to contribute a property known as Brandon
and certain interests in Entities which own certain real estate and a mortgage
in Maryland to the Buyer in exchange for cash, the assumption of certain debt,
and Common Shares and Convertible Preferred Shares (the "Contribution
Agreement"). Capitalized terms used, but not defined, in this First Amendment
shall have the meanings given to such terms in the Contribution Agreement.
B. Sellers and Buyer desire to amend the Contribution Agreement as set forth
in this First Amendment.
NOW, THEREFORE, in consideration of the agreements contained herein and
intending to be legally bound hereby, Sellers and Buyer agree as follows:
1. Section 6.1 of the Contribution Agreement is hereby deleted in its
entirety and the following Section 6.1 is substituted in its place:
"6.1 First Closing. The assignment and transfer of the Interests, the
conveyance of Brandon, and the other transactions contemplated
herein with respect to all Sellers except the NBP 135 Sellers and
the Woodlands Sellers (the "First Closing") shall be consummated
on the date (the "First Closing Date"), after the shareholders of
the REIT have approved all of the transactions contemplated by
this Agreement, specified by Buyer on not less than seven (7) days
notice to Sellers (the "Buyer's Closing Notice"), provided that
the First Closing Date shall not be sooner than September 14,
1998, unless mutually agreed upon by Sellers and Buyer, or later
than forty-five (45) days after the shareholders of the REIT have
approved all of the transactions contemplated by this Agreement.
Sellers shall have the right to postpone the First Closing to a
date that is up to five (5) days after the First Closing Date
specified in Buyer's Closing Notice by giving Buyer notice of such
postponement. If the shareholders of the REIT have
<PAGE>
not approved the transactions contemplated by this Agreement by
October 30, 1998, this Agreement shall terminate and become null
and void, the Letter of Credit shall be returned to the Buyer, and
the parties shall be released from all liability or obligation to
the other. The Closing shall take place at the offices of Saul,
Ewing, Remick & Saul LLP, Centre Square West, 1500 Market Street,
38th Floor, Philadelphia, Pennsylvania 19102, or at such other
place as may mutually agreed upon by the parties.
2. This First Amendment may be executed in counterparts, each of
which shall constitute an original, but all of which together shall constitute
one and the same document. Delivery of executed copies of this First Amendment
by facsimile transmission shall be deemed effective to amend the Agreement. Each
party transmitting such facsimile agrees to promptly deliver an original
executed copy of this First Amendment to the other party by recognized overnight
courier.
3. As amended by this First Amendment, the Contribution Agreement
shall remain in full force and effect.
[SIGNATURES APPEAR ON FOLLOWING PAGES]
2
<PAGE>
IN WITNESS WHEREOF, and intending to be legally bound hereby, Sellers and
Buyer have executed this First Amendment on the day and year first above
written.
BUYER:
CORPORATE OFFICE PROPERTIES, L.P.
By: Corporate Office Properties Trust, its
sole general partner
By:
---------------------------------------
Clay W. Hamlin, III
President and Chief Executive Officer
WITNESS SELLERS:
CONSTELLATION PROPERTIES, INC., a
Maryland corporation
- ---------------------------- By:
---------------------------------------
Randall M. Griffin
President
NBP-I LIMITED PARTNERSHIP, a Maryland
limited partnership
By: Constellation Properties, Inc., a Maryland
corporation, General Partner
- ---------------------------- By:
---------------------------------------
Randall M. Griffin
President
[SIGNATURES CONTINUED ON NEXT PAGE]
3
<PAGE>
NBP-II LIMITED PARTNERSHIP, a Maryland
limited partnership
By: Constellation Properties, Inc., a Maryland
corporation, General Partner
- ---------------------------- By:
---------------------------------------
Randall M. Griffin
President
NBP-IV, LLC, a Maryland limited liability
company
By: CPI National Business Park, IV, Inc., a
Maryland corporation, Member
- ---------------------------- By:
---------------------------------------
Randall M. Griffin
President
ST. BARNABAS LIMITED PARTNERSHIP, a Maryland
limited partnership
By: Constellation Properties, Inc., a Maryland
corporation, General Partner
- ---------------------------- By:
---------------------------------------
Randall M. Griffin
President
By: CPO Constellation Centre, Inc., a Maryland
corporation, General Partner
- ---------------------------- By:
---------------------------------------
Randall M. Griffin
President
[SIGNATURES CONTINUED ON NEXT PAGE]
4
<PAGE>
LAUREL TOWER ASSOCIATES LIMITED
PARTNERSHIP, a Maryland limited partnership
By: Constellation Properties, Inc., a Maryland
corporation, General Partner
- ---------------------------- By:
---------------------------------------
Randall M. Griffin
President
By: CPO Laurel Towne, Inc., a Maryland
corporation, General Partner
- ---------------------------- By:
---------------------------------------
Randall M. Griffin
President
THREE CENTRE PARK ASSOCIATES
LIMITED PARTNERSHIP, a Maryland limited
partnership
By: Constellation Properties, Inc., a Maryland
corporation, General Partner
- ---------------------------- By:
---------------------------------------
Randall M. Griffin
President
By: CPO Three Centre Park, Inc., a Maryland
corporation, General Partner
- ---------------------------- By:
---------------------------------------
Randall M. Griffin
President
[SIGNATURES CONTINUED ON NEXT PAGE]
5
<PAGE>
BROWN'S WHARF LIMITED PARTNERSHIP, a Maryland
limited partnership
By: Constellation Properties, Inc., a Maryland
corporation, General Partner
- ---------------------------- By:
---------------------------------------
Randall M. Griffin
President
By: CPI Brown's Wharf, Inc., a Maryland
corporation, General Partner
- ---------------------------- By:
---------------------------------------
Randall M. Griffin
President
CRANBERRY-140 LIMITED PARTNERSHIP,
a Maryland limited partnership
By: Constellation Properties, Inc., a Maryland
corporation, General Partner
- ---------------------------- By:
---------------------------------------
Randall M. Griffin
President
TRED LIGHTLY LIMITED LIABILITY
COMPANY, a Maryland limited company
By: CPI Tred Avon, Inc., a Maryland
corporation, Member
- ---------------------------- By:
---------------------------------------
Randall M. Griffin
President
[SIGNATURES CONTINUED ON NEXT PAGE]
6
<PAGE>
CONSTELLATION GATESPRING, LLC, a Maryland
limited partnership
By: CPI Gatespring, Inc., a Maryland
corporation, Member
- ---------------------------- By:
---------------------------------------
Randall M. Griffin
President
7
<PAGE>
Exhibit 2.4
SECOND AMENDMENT TO CONTRIBUTION AGREEMENT
THIS SECOND AMENDMENT TO CONTRIBUTION AGREEMENT ("Second Amendment") is
made and executed as of this 28th day of September, 1998 by and between
CORPORATE OFFICE PROPERTIES TRUST and CORPORATE OFFICE PROPERTIES, L.P.
(collectively, the "Buyer") and the Sellers listed on the signature page to this
Second Amendment and as defined in the Contribution Agreement (collectively, the
"Sellers" and each individually, a "Seller").
A. Sellers and Buyer entered into a Contribution Agreement dated May
14, 1988, as amended on July 16, 1998 by a First Amendment to Contribution
Agreement (the "Contribution Agreement"), pursuant to which Sellers agreed to
contribute a property known as Brandon and certain interests in Entities which
own certain real estate and a mortgage in Maryland to the Buyer in exchange for
cash, the assumption of certain debt, and Common Shares and Convertible
Preferred Shares. Capitalized terms used, but not defined, in this Second
Amendment shall have the meanings given to such terms in the Contribution
Agreement.
B. Sellers and Buyer desire to amend the Contribution Agreement as set
forth in this Second Amendment.
NOW, THEREFORE, in consideration of the agreements contained herein and
intending to be legally bound hereby, Sellers and Buyer agree as follows:
1. Exhibit "TIF Agreement" is hereby deleted from the Contribution
Agreement, and Exhibit "TIF Agreement" attached hereto and made a part hereof,
is hereby attached to and made part of the Contribution Agreement as Exhibit
"TIF Agreement".
2. Buyer hereby elects to convert all of the Satisfied Indebtedness to
Assumed Indebtedness pursuant to Section 1.83 of the Contribution Agreement.
Sellers and CREG shall be released from all future liability under such
converted Assumed Indebtedness.
3. Pursuant to Section 11.1.4 of the Contribution Agreement, Sellers
have elected to transfer certain partnership and limited liability company
interests prior to Closing as shown in Exhibit "Interest Changes" attached
hereto and made a part hereof. Except as shown on Exhibit "Interest Changes",
there have been no changes in the composition of any Entity between May 14, 1998
and the date hereof. Sellers represent and warrant that certified copies of all
documents necessary to effectuate the transfers shown on Exhibit "Interest
Changes" will be delivered to Buyer on or before the First Closing.
4. The term "Development Management Agreement" is hereby deleted from
Section 1.31 of the Contribution Agreement, and the term "Project Consulting and
Management Agreement" is substituted in its place. The term "Development
Management Agreement" is hereby deleted wherever it appears in Section 5.7 of
the Contribution Agreement, and the term "Project Consulting and Management
Agreement" is hereby substituted in its place. Exhibit "Development Management
Agreement" is hereby deleted from the Contribution Agreement, and Exhibit
"Projects Consulting and Management Agreement" attached hereto and made a part
<PAGE>
hereof, is hereby attached to and made part of the Contribution Agreement as
Exhibit "Project Management and Consulting Agreement".
5. The first sentence of Section 6.2.1 of the Contribution Agreement is
amended by changing "December 31, 1998" to "March 31, 1999". The second sentence
of Section 6.2.2 is revised by adding at the end thereof the following language:
"; provided, however, that notwithstanding the foregoing,
Buyer and Sellers shall consummate the Woodlands Closing
simultaneously with the closing of the first financing
transaction by Buyer for all or any portion of the Projects
transferred to Buyer at the First Closing. In the event of
such a simultaneous closing of a financing transaction with
the Woodlands Closing, the Woodlands Gross Value shall be
$17,600,000, and shall not be reduced pursuant to Section
3.2.5; and Sellers shall, from time to time, reimburse Buyer,
within seven (7) days after presentation of a bill therefor,
for all interest payments with respect to financing on the
Woodlands I Project from the date of the Woodlands Closing
until October 21, 1998."
6. Exhibit "Option Projects" to the Contribution Agreement is hereby
deleted from the Contribution Agreement, and Exhibit "Option Projects" attached
hereto and made a part hereof, is hereby attached to and made part of the
Contribution Agreement as Exhibit "Option Projects". All references in the
Contribution Agreement to the Option Project identified as "Annapolis Exchange"
are deleted.
7. Exhibit "Projects" to the Contribution Agreement is hereby amended
by adding to the reference for One Constellation Centre the following:
"Unit 5, Constellation Centre Condominium
vacant land
30,495 sq. ft. tract"
and by changing the reference to Constellation Centre - Nations Bank Parcel from
"25,933 sq. ft. tract" to "47,701 sq. ft. tract".
8. The address for notices to Buyer is hereby changed as follows:
Corporate Office Properties Trust
401 City Avenue, Suite 615
Bala Cynwyd, PA 19004-1126
Attention: Clay W. Hamlin, III
President and Chief Executive Officer
2
<PAGE>
Copies of notices to Buyer shall still be sent as set forth in the Contribution
Agreement.
IN WITNESS WHEREOF, and intending to be legally bound hereby, Sellers
and Buyer have executed this Second Amendment on the day and year first above
written.
BUYER:
CORPORATE OFFICE PROPERTIES, L.P.
By: Corporate Office Properties Trust,
its sole general partner
By:
-----------------------------------
Clay W. Hamlin, III
President and Chief Executive Officer
SELLERS:
CONSTELLATION PROPERTIES, INC.,
a Maryland corporation
By:
-----------------------------------
Dan R. Skowronski
Secretary
CPI NATIONAL BUSINESS PARK I, INC.,
a Maryland corporation
By:
-----------------------------------
Dan R. Skowronski
Secretary
CPI NATIONAL BUSINESS PARK II, INC.,
a Maryland corporation
By:
-----------------------------------
Dan R. Skowronski
Secretary
3
<PAGE>
[SIGNATURES CONTINUED ON NEXT PAGE]
CPI NATIONAL BUSINESS PARK IV, INC.,
a Maryland corporation
By:
-----------------------------------
Dan R. Skowronski
Secretary
CPO CONSTELLATION CENTRE, INC.,
a Maryland corporation
By:
-----------------------------------
Dan R. Skowronski
Secretary
CPO LAUREL TOWER, INC.,
a Maryland corporation
By:
-----------------------------------
Dan R. Skowronski
Secretary
CPO THREE CENTRE PARK, INC.,
a Maryland corporation
By:
-----------------------------------
Dan R. Skowronski
Secretary
CPI BROWN'S WHARF, INC.,
a Maryland corporation
By:
-----------------------------------
Dan R. Skowronski
Secretary
4
<PAGE>
[SIGNATURES CONTINUED ON NEXT PAGE]
CPI PARTNER, INC., a Maryland corporation
By:
-----------------------------------
Dan R. Skowronski
Secretary
CPI TRED AVON, INC., a Maryland corporation
By:
-----------------------------------
Dan R. Skowronski
Secretary
CPI GATESPRING, INC., a Maryland corporation
By:
-----------------------------------
Dan R. Skowronski
Secretary
5
<PAGE>
EXHIBIT "TIF AGREEMENT "
INDEMNIFICATION AGREEMENT
(National Business Park--TIF)
THIS INDEMNIFICATION AGREEMENT ("Agreement") is made this day of
September, 1998 by CONSTELLATION PROPERTIES, INC. ("CPI") in favor of CORPORATE
OFFICE PROPERTIES L.P. ("COPLP"); CPI being sometimes referred to as
"Indemnitor" and COPLP, and its successors and assigns, being sometimes referred
to as "Indemnitee."
WITNESSETH
WHEREAS, CPI, through various related and affiliated entities, has
developed and continues to develop the "National Business Park", which is
located in Annapolis Junction, Anne Arundel County, Maryland (the "Park");
WHEREAS, in connection with the development of the Park, CPI
determined, in conjunction with the County Council of Anne Arundel County,
Maryland, that in order to most efficiently and effectively develop the
necessary infrastructure and public improvements in and around the vicinity of
the Park, that Anne Arundel County would (i) impose tax incremental financing on
certain properties located in the County, including, among others, the Park, and
(ii) create a Special Tax District which included the Park pursuant to the
authority granted to the County Council by Article 6, Title 4A, Section 4A-101
et seq. of the Anne Arundel County Code;
WHEREAS, the Special Tax District pertaining to the Park is commonly
referred to as the "NBP Special Tax District" and was approved by the County
Council of Anne Arundel County on March 4, 1998, in Bill No. 15-98;
WHEREAS, as of the date hereof, COPLP has (i) acquired an ownership
interest in several of the NBP Properties described as Lot 3B (commonly referred
to as the "Tower" or "One National Business Park"), Lot 6AR (known as "131
National Business Park"), Lot 6-BR (known as "133 National Business Park"), Lot
7A (known as "135 National Business Park") and Lot 7B (known as "141 National
Business Park") and (ii) will acquire an interest in Lot 11 (known as "134
National Business Park") pursuant to the terms of that certain Option Agreement
dated May 14, 1998 by and between NBP-III, LLC and COPLP;
<PAGE>
WHEREAS, One National Business Park, 131 National Business Park, 133
National Business Park, 135 National Business Park and 141 National Business
Park and 134 National Business Park are referred to collectively herein as the
"COPLP Properties";
WHEREAS, CPI does not anticipate that there will be any increase in the
taxes or assessments levied on the COPLP Properties as a result of the tax
incremental financing or the creation of the NBP Tax District, as compared to
the taxes or assessments that would be levied on the COPLP Properties if the tax
incremental financing or the NBP Tax District did not exist;
WHEREAS, in consideration of COPLP acquiring an ownership interest in
the COPLP Properties, to the extent that the taxes and/or assessments levied on
the COPLP Properties as a result of the creation and continued existence of the
tax incremental financing and/or the NBP Tax District exceed those taxes and/or
assessments which would be levied if the tax incremental financing and/or NBP
Tax District did not exist (the "Tax Differential"), CPI has agreed to indemnify
and hold COPLP harmless from and against any additional taxes and/or assessments
resulting from the Tax Differential which are levied on the COPLP Properties in
which COPLP or any affiliates or subsidiary acquires an ownership interest.
NOW THEREFORE, it is mutually agreed, as follows:
1. Incorporation of Recitals. The Recitals shall be deemed to be an
integral part of this Agreement.
2. Indemnification.
2.1 Indemnitor hereby indemnifies Indemnitee and undertakes to hold it
harmless from the Tax Differential and shall reimburse Indemnitee within
forty-five (45) days after receipt from Indemnitee of a written notice
identifying the amount of the Tax Differential and reasonable supporting
documentation ("Indemnitee's Request").
2.2 Indemnitor shall notify Indemnitee in writing within thirty (30)
days after receipt of Indemnitee's Request of any objections to the Indemnitee's
Request (the "Objection Notice"). If Indemnitor delivers an Objection Notice
within the thirty (30) day period, Indemnitor shall have the right to extend the
forty-five (45) day period for payment for an additional period of forty-five
(45) days (resulting in payment being required within ninety (90) days after the
date of Indemnitee's Request) to permit the Indemnitor to evaluate the cause for
the Tax Differential with the appropriate officials of Anne Arundel County.
2
<PAGE>
2.3 If Indemnitor determines, in conjunction with Anne Arundel County,
that the Tax Differential claimed by the Indemnitor was not computed accurately,
Indemnitor shall notify the Indemnitee in writing on or before that day which is
sixty (60) days after the date of Indemnitee's Request of the accurate amount of
the Tax Differential, if any, together with reasonable supporting documentation
which is either prepared by Anne Arundel County or obtained from its records.
2.4 Any claims made by Indemnitee under the terms of this Agreement
shall be made within three (3) years after the date of that the Tax Differential
is assessed or levied.
3. Term. The term of this Agreement shall be from the date hereof to
that date which is twenty (20) calendar years after the date hereof ("Term").
Indemnitee shall have no further rights to deliver an Indemnitee's Request after
the expiration of the Term.
4. Binding Nature. This Agreement and all duties and rights hereunder
shall run with the land and shall be binding on Indemnitor's successors and
assigns and shall inure to the benefit of Indemnitee's successors and assigns.
5. Miscellaneous.
(a) Notices. Any notice required by the terms hereof shall be given in
writing at the address set forth below by any of the following means: (a)
personal service, (b) electronic communication, whether by facsimile, telex,
telegram or telecopy, (c) registered or certified United State mail, postage
prepaid, return receipt requested, or (d) by nationally recognized overnight
delivery service, as follows:
CPI: Constellation Properties, Inc.
8815 Centre Park Drive, Suite 100
Columbia, Maryland 21045
Attn: President
With a copy to: Constellation Properties, Inc.
250 West Pratt Street, 24th Floor
Baltimore, Maryland 21201
Attn: General Counsel
COPLP: Corporate Office Properties, L.P.
8815 Centre Park Drive, Suite 400
Columbia, Maryland 21045
Attn: General Counsel
3
<PAGE>
With a copy to: Corporate Office Properties L.P.
Corporate Office Properties Trust
401 City Avenue, Suite 615
Bala Cynwyd, PA 19004-1126
Attention: Clay W. Hamlin, III
President and Chief Executive
Officer
Such address(es) may be changed by either party by notice to the other
in the manner provided above. Any notice sent (i) pursuant to subsection (a)
shall be deemed received upon personal service, (ii) pursuant to subsection (b)
shall be deemed received upon dispatch by electronic means, (iii) pursuant to
subsection (c) shall be deemed received three (3) days following deposit in the
United States mail, and (iv) pursuant to subsection (d) shall be deemed received
one (1) business day after delivery to the nationally recognized overnight
delivery service.
(b) Applicable Law. The formation of this Agreement and the respective
rights and obligations of the parties under this Agreement shall be construed in
accordance with the laws of the State of Maryland.
(c) Captions. The captions of the Agreement are for convenience
purposes only and shall have no effect on its construction or interpretation.
(d) Counterparts. This Agreement may be executed simultaneously in one
or more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
(e) Entire Agreement.This Agreement, together with any exhibits
attached hereto, represents the entire agreement between Owner and Manager and
all prior agreements and negotiations have been merged herein. This Agreement
may not be changed or terminated orally.
(f) Severability. Each provision of this Agreement is intended to be
severable. If any term or provision of this Agreement shall be determined by a
court of competent jurisdiction to be illegal or invalid for any reason
whatsoever, that provision shall be severed from this Agreement and shall not
affect the validity of the remainder of this Agreement.
(g) Attorney's Fees. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorney's fees, costs and necessary disbursements in
addition to any other relief to which such may be entitled.
4
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement to be
effective on the day and year first set forth above.
ATTEST: CONSTELLATION PROPERTIES, INC.
By:
- ------------------------------- -------------------------------------
Dan R. Skowronski, Secretary
ATTEST: CORPORATE OFFICE PROPERTIES L.P.
By: Corporate Office Properties Trust,
its sole general partner
By:
- ------------------------------- -------------------------------------
Clay W. Hamlin, III
President and Chief Executive
Officer
5
<PAGE>
STATE OF COUNTY OF ,TO WIT:
------------ -------------------
I HEREBY CERTIFY, that on this day of , 1998, before
--- -----------
me, undersigned Notary Public of said State, personally appeared
, who acknowledged himself to be the
- --------------------------- ---------------
of Constellation Properties, Inc., a Maryland corporation, known to me or
satisfactorily proven to be the person whose name is subscribed to the within
instrument, and acknowledged that he executed the same for the purposes
therein contained as the duly authorized of said corporation
----------------
by signing the name of the corporation himself as .
------------------------
IN WITNESS WHEREOF, I have set my hand and Notarial Seal, the day and
year first above written.
------------------------------------
Notary Public
My commission expires:
STATE OF COUNTY OF ,TO WIT:
------------ -------------------
I HEREBY CERTIFY, that on this day of , 1998,
---- ------------
before me, undersigned Notary Public of said State, personally appeared
CLAY W. HAMLIN, III, known to me or satisfactorily proven to be the person
whose name is subscribed to the within instrument, who acknowledged himself
to be the President and Chief Executive Officer of Corporate Office Proerties
Trust, general partner of Corporate Office Properties L.P., a limited
partnership and acknowledged that he executed the same for the purposes
therein contained as the duly authorized President and Chief Executive
Officer of said general partner of said limited partnership by signing the
name of the corporation by himself as President and Chief Executive Officer.
IN WITNESS WHEREOF, I have set my hand and Notarial Seal, the day and
year first above written.
-----------------------------------
Notary Public
My commission expires:
-------------
6
<PAGE>
ATTORNEY CERTIFICATION
THE UNDERSIGNED, an attorney admitted to practice before the Court of
Appeals of Maryland, hereby certifies that the above instrument was prepared by
me or under my supervision.
-----------------------------------
John Harris Gurley, Attorney-at-Law
7
<PAGE>
EXHIBIT "INTEREST CHANGES"
<TABLE>
<CAPTION>
Type of Interest Original % Closing %
---------------- ---------- ---------
<S> <C> <C> <C>
PARTNERSHIPS
Brown's Wharf Limited Partnership
Constellation Properties, Inc. GP 0.4 0.4
LP 39.6 98.6
CPI Brown's Wharf, Inc. GP 0.6 0.6
LP 59.4 0.4
NBP-II Limited Partnership
Constellation Properties, Inc. GP 2.0 2.0
LP 2.94 78.0
CPI National Business Park
II, Inc. GP 0.0 0.0
LP 95.06 20.0
LIMITED LIABILITY COMPANIES
Tred Lightly Limited Liability Company
Constellation Properties, Inc. Member 0.0 75.0
CPI Tred Avon, Inc. Member 75.0 0.0
TA Associates Member 25.0 25.0
Limited Partnership
</TABLE>
<PAGE>
EXHIBIT "PROJECT CONSULTING AND MANAGEMENT AGREEMENT"
PROJECT CONSULTING AND MANAGEMENT AGREEMENT
THIS PROJECT CONSULTING AND MANAGEMENT AGREEMENT (hereinafter the
"Agreement") is made as of the _____ day of ________, 1998, by and between
CONSTELLATION PROPERTIES, INC. (hereinafter "Owner"), and CORPORATE OFFICE
MANAGEMENT, INC., a Maryland Corporation (hereinafter "Manager").
W I T N E S S E T H:
WHEREAS, Owner through its various subsidiaries and affiliates is the
owner of a portfolio of properties and projects (both vacant land and buildings
in construction) located in the Central Maryland area (hereinafter the
"Properties"), the exact locations and designations of the Properties being
known by the parties hereto;
WHEREAS, Owner is managing its ownership of the Properties, including
the planning and development of the Properties for residential, commercial and
industrial uses; and
WHEREAS, Owner and Manager acknowledge and agree that the following
projects are included, among others, within the Properties and are currently in
various stages of development by the Owner through the specified subsidiaries
and affiliates: (i) NBP IV, LLC is the owner of an office building known as 135
National Business Parkway which project is nearing completion; needing only
certain interior, elevator and exterior landscaping work to be completed; (ii)
Constellation Gatespring, LLC is the owner of an office building project known
as Woodlands One which project is nearing completion; (iii) Piney Orchard
Village Center, LLC is the owner of a retail strip project known as Piney
Orchard Village Center which project is under construction with completion
scheduled for completion December 31, 1998; and (iv) Constellation Springfield,
LLC is the owner of 60% LLC interest in another entity (Fran-Spring TSA, LLC)
which is the owner of a retail shopping center in Springfield, Virginia, which
project is under construction with completion scheduled for December 31, 1998 (
the foregoing items (i) through (iv) collectively referred to herein as the
"Under Development Projects").
WHEREAS, Owner desires to employ Manager to provide ongoing planning,
management and consulting services with respect to the management of Owner's
Properties, including management of the completion of development of the Under
Development Projects;
WHEREAS, Owner desires to employ Manager as set forth herein and
Manager is willing to manage same in accordance with the terms set forth herein.
NOW, THEREFORE, in consideration of the sums of money to be paid by
Owner to Manager, and in further consideration of the mutual covenants contained
herein, the parties hereto agree as follows:
<PAGE>
1. Recitals. Each party represents to the other that the recitals set
forth above contain no material misrepresentation of fact.
2. Employment of Manager. Owner hereby retains Manager, and Manager
hereby agrees, to provide to Owner consulting services and general management
and administration services with respect to the Properties and to initiate, and
thereafter, to diligently coordinate, supervise and pursue all steps necessary
to implement development plans for the various Properties upon such schedules as
are reasonably approved from time to time by Owner, upon the terms and
conditions, and for the term and compensation hereinafter set forth.
3. Term. The term of this Agreement, and of the employment of Manager
by Owner pursuant hereto, shall be for the period commencing as of the date
hereof and ending on the date that is the last day of the month that is eighteen
(18) months after the date of this Agreement ("Term").
4. Services. Subject to the direction and control of Owner, the
consulting, development, management and administrative services to be rendered
by Manager shall, when appropriate, include, but not be limited to, each of the
following services:
(a) Preliminary site analysis and project planning.
(b) Coordinate and manage the process of securing preliminary approval
of the land use plans and the preliminary engineering criteria.
(c) Assist Owner in retaining appropriate consultants related to the
various Properties including, but not limited to, landscape architect, civil
engineer, architect, traffic consultant, soil engineer, attorney, accountant,
marketing consultant, appraiser and surveyor and thereafter, act as Owner's
representative's contact with such consultants regarding the development of the
Properties.
(d) Act as Owner's representative and liaison with community and other
civic groups in connection with the development of the Properties.
(e) Assist in the preparation of cost line budgets and cash flow
projections for the development of the Properties.
(f) Prepare and monitor compliance with development schedules approved
by Owner.
(g) Coordinate the securing of all appropriate and necessary
governmental approvals relating to the development plans for the Properties.
(h) Consult with respect to the management of the Properties which are
not in development at any one time.
2
<PAGE>
(i) Consult with engineers, lenders and attorneys the securing of all
permits and the posting of all security required for the development of the
Properties.
(j) Consult with respect to the issuance of all construction bid
documents, provide analysis of bids and recommendations on awards of contracts,
and assist in the issuance of contracts for all construction work.
(k) Assist in the coordination of construction activities relating to
the Project by visiting the site during critical phases of construction and by
meeting with County officials, inspectors, contractors, subcontractors and
construction supervisors.
(l) Coordinate land development documentation with marketing programs
including, but not limited to, the preparation of any homeowner's association
documents, cross-easements, declarations of covenants and restrictions and deeds
to governmental bodies for roads, recreation spaces and open spaces.
(m) Advise on the status of all construction/building permits and the
release of all security posted in connection with the development of the
Properties.
(n) Provide advice on the overall marketing and publicity program for
the Properties including advertising, signage, promotional brochures and model
homes parks.
(o) Meet regularly with designated representatives of Owner and furnish
summary reports on at least a monthly basis reflecting the status of overall
development.
With regard to the above enumerated services to be performed by Manager
hereunder it is agreed that the parties will regularly consult and mutually and
reasonably agree upon the scope, timing, order of importance and overall
direction of the services.
Notwithstanding anything herein to the contrary, with respect to the
Under Development Projects, Manager shall provide all those management services
reasonably required by Owner (or Owner's subsidiary or affiliate which holds
title to each of the Under Development Projects) in connection with bringing
each of the Under Development Projects to completion as evidenced by the
obtaining for each Under Development Project of a certificate of use and
occupancy or similar governmental permit. The work of Manager shall generally be
described as the performance of all those managerial and oversight functions
reasonably required so as to bring each Under Development Project to physical
completion on a timely basis and in line with budgeted costs.
5. Costs and Expenses. Owner shall pay, and Manager shall have no
responsibility whatsoever for, the payment of any independent costs or
out-of-pocket expenses incurred in connection with the work to be performed by
it hereunder. Manager shall be responsible only for its own overhead expenses
incurred in the performance of its obligations under this Agreement. Manager
shall not authorize or incur outside costs in excess of $5,000 for
3
<PAGE>
any one item or service without the prior written approval of Owner.
Notwithstanding anything herein to the contrary, with regard to the Under
Development Projects, in performing its management services hereunder Manager
shall use its good faith, commercially reasonable efforts to consult with Owner
to save costs and to bring each Under Development Project to completion at a
cost within prior approved budgeted sums. Under no circumstances shall Manager
authorize or permit additional costs above budget or changes to any Under
Development Project that would increase costs without same being approved in
advance and in writing by the Owner of the particular Under Development Project.
6. Owner's Responsibility. Owner shall:
(a) Reimburse Manager for all independent costs and out-of-pocket
expenses properly incurred and approved (if required) by Owner in accordance
with the terms hereof.
(b) Pay to Manager for its services as rendered hereunder the total sum
of $2,000,000. This sum shall be paid as follows on a monthly basis:
(i) $250,000 per month from the date hereof through the last day of the
third (3rd) calendar month after the date hereof;
(ii) $150,000 per month from the first day of the fourth (4th) calendar
month after the date hereof through the last day of the sixth (6th) calendar
month after the date hereof;
(iii) $100,000 per month from the first day of the seventh (7th)
calendar month after the date hereof through the last day of the tenth (10th)
calendar month after the date hereof;
(iv) $50,000 per month from the first day of the eleventh (11th)
calendar month after the date hereof through the last day of the eighteenth
(18th) calendar month after the date hereof.
(c) Indemnify and hold Manager and all of its officers, agents,
servants and employees, harmless from and against any claims, actions, damages,
losses and expenses (including attorney's fees) of any kind whatsoever arising
out of or in connection with the work and services performed by Manager
hereunder, except Owner shall not be liable under this clause if said liability
shall arise by reason of the gross negligence or intentional misconduct of
Manager. Owner agrees that it will have Manager added as a named insured on the
public liability policies acquired by the various owners of the Properties.
(d) Cooperate with Manager in expediting the performance of its work
hereunder. Owner shall cooperate with Manager by (i) providing information, (ii)
providing funds required pursuant to invoices from and contract with providers
of services and suppliers of materials with respect to the various Properties,
(iii) rendering decisions on matters affecting the
4
<PAGE>
development of the various Properties, all within the timeframes and in the form
reasonably recommended by Manager.
7. Limitation on Manager's Responsibility. It is expressly understood
and agreed between the parties hereto, that notwithstanding anything to the
contrary in this Agreement, (i) Manager does not warrant, or guarantee the
performance of any professional or contractor employed in connection with the
Properties or warrant or guarantee the performance of under any construction
contracts relating to the Properties. Moreover the consulting development,
management and administrative services rendered by Manager hereunder will
involve recommendations as to how the various Properties might be developed and
estimates made by Manager as part of its development management services, and
the assumptions upon which they are based, represent Manager's judgment based
upon available information as of the date of preparation. No such
recommendation, estimate or assumption is intended to constitute a warranty,
guarantee or promise by Manager that the stated objectives can be achieved in
the manner described. Manager shall not be liable to Owner if any of Owner's
objectives with respect to the Properties are not achieved either in whole or in
part or in a timely manner or otherwise.
8. Default. If either party to this Agreement defaults in the
performance of its obligations under this Agreement after notice and opportunity
to cure set forth below in Section 8, the non-defaulting party shall have all
rights and remedies available to it at law or in equity on account of such
default, provided, however, that Owner shall not have the right to seek the
remedy of termination of this Agreement unless and until Manager has been given
the notice and opportunity to cure set forth below in this Section 8, and
thereafter, a court of competent jurisdiction has rendered a final,
non-appealable decision holding that the Manager has committed a material breach
of this Agreement. Anything contained in this Agreement to the contrary
notwithstanding, any act or omission which would otherwise be a default under
this Agreement by either party shall not be a default unless the non-defaulting
party shall have given the defaulting party notice of such alleged default, and
the defaulting party shall have failed to cure such alleged default within
thirty (30) days after such notice, or if the alleged default is one which
cannot with due diligence be cured within thirty (30) days, the defaulting party
shall have failed to commence curing such default within such thirty (30) day
period.
9. Notices. All notices required or provided for in this Agreement, if
hand delivered shall be deemed to have been given and received on the date hand
delivered to the party receiving same. If the United States mails are used,
notices shall be sent certified or registered mail, return receipt requested,
postage prepaid, and shall be deemed to have been given and received on the
second (2nd) business day from the date deposited in the United States mails
addressed as follows:
5
<PAGE>
If to Owner:
Constellation Properties, Inc.
Attention: Mr. Steven S. Koren
8815 Centre Park Drive - Suite 100
Columbia, MD 21045
and
Dan R. Skowronski, Esquire
Constellation Holdings, Inc.
250 W. Pratt Street
23rd Floor
Baltimore, MD 21201
If to Manager:
Corporate Office Management, Inc.
Attention: Mr. Dan R. Skowronski
8815 Centre Park Drive - Suite 400
Columbia, MD 21045
and
Mr. Clay W. Hamlin, III
Corporate Office Properties Trust
401 City Avenue. Suite 615
Bala Cynwyd, PA 19004
Each party shall have the right to designate a different address,
provided the party's new address is contained in a written notice to the other
party.
10. Miscellaneous.
(a) This Agreement contains the final understanding of the terms and
provisions between the parties and supersedes any prior agreement among the
parties.
(b) This Agreement shall be interpreted under the laws of the State of
Maryland.
(c) If any provision of this Agreement is found to be unenforceable or
void, the remaining provisions of this Agreement shall be enforceable between
the parties.
(d) This Agreement may not be assigned by either party hereto without
the consent of the other party, which shall not be unreasonably withheld or
delayed, except that either party may assign to a subsidiary or affiliate of it
without the prior written consent of the other party.
6
<PAGE>
(e) Nothing in the provisions of this Agreement shall be deemed in any
way to create between the parties hereto any relationship of partnership, joint
venture or association, and the parties hereto hereby disclaim the existence
thereof.
(f) Each party hereto warrants and represents that the person who has
signed this Agreement on its behalf is duly authorized to so sign, and this
Agreement is the legal, valid and binding agreement of such party, enforceable
against such party, in accordance with its terms.
(g) Manager agrees that it will not disclose confidential information
furnished to it by Owner as a consequence of its employment under this
Agreement.
IN WITNESS WHEREOF, the parties hereto sign and seal this Agreement on
the day and year first above written.
WITNESS CONSTELLATION PROPERTIES, INC.
By: (SEAL)
- ---------------------------- ----------------------------------
CORPORATE OFFICE MANAGEMENT, INC.
By: (SEAL)
- ---------------------------- ----------------------------------
7
<PAGE>
EXHIBIT "OPTION PROJECTS"
All documents listed below are attached.
1. National Business Park
5 Year Option and Right of First Refusal
2. Brown's Wharf adjacent land - Right of First Refusal
3. Constellation Centre Unit 2 and 7 - Right of First Refusal
<PAGE>
Exhibit 2.5
FIRST AMENDMENT
TO
AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT
OF
CORPORATE OFFICE PROPERTIES, L.P.
THIS AMENDMENT (the "Amendment") to the Amended and Restated Limited
Partnership Agreement of Corporate Office Properties, L.P., a Delaware
limited partnership (the "Partnership") is made and entered into as of
September 28, 1998, by and among the undersigned parties.
Recitals
A. The Partnership is a limited partnership organized under the
Delaware Revised Uniform Limited Partnership Act (the "Act") and governed by
that certain Amended and Restated Limited Partnership Agreement dated as of
March 16, 1998 (the "Partnership Agreement").
B. The sole general partner of the Partnership is Corporate Office
Properties Trust, a real estate investment trust formed under the laws of the
State of Maryland (the "General Partner").
C. The General Partner and the Partnership have entered into that
certain Contribution Agreement and Service Company Asset Contribution
Agreement (the "Constellation Agreements") with Constellation Real Estate
Group, Inc. ("CREG") and certain partnerships and other entities affiliated
with CREG (collectively, "Constellation"), pursuant to which Constellation
will contribute certain real property, partnership and membership interests
in certain entities which hold real property or mortgages secured by real
property and certain other assets (the "Constellation Assets") to or for the
benefit of the General Partner, subject to certain liabilities, in exchange
for the issuance by the General Partner of approximately 6,928,000 Common
Shares of Beneficial Interest in the General Partner ("REIT Shares") and
approximately 969,900 Series A Convertible Preferred Shares of Beneficial
Interest in the General Partner ("Series A Preferred REIT Shares").
D. As required under Sections 4.2(B) and (C) of the Partnership
Agreement, the General Partner intends to transfer the Constellation Assets
(or cause them to be transferred) to or for the benefit of the Partnership in
exchange for additional Partnership Interests in the Partnership having
designations, rights and preferences substantially similar to the economic
rights of the holders of the REIT Shares and Series A Preferred REIT Shares
issued by the General Partner in exchange for the Constellation Assets.
E. The parties desire to amend the Partnership Agreement to provide
for the contribution of the Constellation Assets by the General Partner to
the Partnership in exchange for additional Partnership Interests in the
Partnership in accordance with
<PAGE>
Section 4.2(B) of the Partnership Agreement, and for such other matters as
set forth below. Unless otherwise defined herein, all capitalized terms used
in this Amendment shall have the same meanings as set forth in the
Partnership Agreement.
NOW THEREFORE, in consideration of the foregoing and of the mutual
premises set forth herein, the parties hereto, intending to be legally bound
hereby, hereby amend the Partnership Agreement as follows, effective as of
the date set forth above:
1. The foregoing recitals to this Amendment are hereby incorporated
in and made a part of this Amendment.
2. Section 1.1 of the Partnership Agreement is amended by amending
and restating the terms "Partnership Unit," "Preferred Limited Partner,"
"Preferred Unit" and "Priority Return Amount" in their entirety and by adding
the following additional defined terms:
"Initial Limited Partners: Those Persons initially admitted to
the Partnership as Limited Partners in connection with the
contribution of property to the Partnership in accordance with
the Formation Agreement and the other Contribution Agreements.
Initial Preferred Unit: One of the Preferred Units previously
issued or to be issued after the date hereof to the Initial
Limited Partners of the Partnership in connection with the
contribution of the Contributed Property in accordance with
the Contribution Agreements, and any other Preferred Unit
issued after the date hereof with the same rights and
preferences.
Partnership Unit: A fractional, undivided share of the
Partnership Interests (other than Partnership Interests
represented by Preferred Units) of all the Partners heretofore
or hereafter admitted to the Partnership pursuant to Section
4.1 or 4.2 hereof.
Preferred Limited Partner: Those Persons listed as such on
Exhibit 1 attached hereto and made a part hereof, as such
Exhibit 1 may be amended from time to time, in their capacity
as limited partners in the Partnership holding Preferred
Units, including any Person who becomes a Substituted
Preferred Limited Partner or an Additional Preferred Limited
Partner in accordance with the terms of this Agreement and
including the General Partner, but only in its capacity as the
holder of Preferred Units.
Preferred Unit: A portion of the Partnership Interest held by
a Limited Partner or the General Partner that represents a
unit of preferred interest in the Partnership, including an
Initial Preferred Unit, a Series A Preferred Unit and a unit
of any other class or series of preferred interest in the
2
<PAGE>
Partnership that may be issued to a Partner in the future in
accordance with Section 4.2(A) or (B).
Priority Return Amount: For each Distribution Period, an
amount equal to (i) for each Partner holding Initial Preferred
Units, 1.625% times the number of Initial Preferred Units held
by such Partner times $25.00, (ii) for each Partner holding
Series A Preferred Units, 1.375% times the number of Series A
Preferred Units held by such Partner times $25.00 and (iii)
for each Partner holding a class of Preferred Units issued
after the date hereof, such amount as determined by the
General Partner in accordance with Section 4.2(A) or (B),
whichever is applicable. For all purposes of this Agreement,
the holders of Initial Preferred Units, the Series A Preferred
Units and any future classes or series of Preferred Units
shall be entitled to allocations and distributions with
respect to Priority Return Amounts on a pari passu basis. In
the case of any Preferred Units issued during a Distribution
Period, the Priority Return Amount attributable to such
Preferred Units for such Distribution Period shall be pro
rated to reflect the portion of such Distribution Period
during which such Preferred Units were outstanding.
Series A Preferred Unit: One of the Preferred Units to be
issued to the General Partner in connection with the
contribution of the Constellation Assets to the Partnership by
the General Partner, and any other Preferred Unit issued after
the date hereof with the same rights and preferences."
3. (a) Upon acquisition of the Constellation Assets from
Constellation under the Constellation Agreements, the General Partner shall
contribute the Constellation Assets to the Partnership, provided that certain
Constellation Assets may, at the direction of the General Partner, be
conveyed directly to the Partnership or to one or more limited liability
companies owned and controlled by the Partnership. The Constellation Assets
shall be accepted subject to existing liabilities, as the same may be
modified by the General Partner and/or the Partnership.
(b) Upon the contribution of the Constellation Assets to
the Partnership by the General Partner, and in accordance with Section 4.2(B)
of the Partnership Agreement, the Partnership shall issue to the General
Partner (i) a number of Partnership Units equal to the number of REIT Shares
issued by the General Partner to Constellation under the Constellation
Agreements and (ii) a number of Series A Preferred Units equal to the number
of Series A Preferred REIT Shares issued by the General Partner to
Constellation under the Constellation Agreements.
(c) For purposes of the Partnership Agreement, including the
maintenance of Capital Accounts, the General Partner shall be treated as making
a Capital Contribution equal the sum of (i) $10.50 times the number of
Partnership Units issued to the General Partner, plus (ii) $25.00 times the
number of Series A Preferred Units issued
3
<PAGE>
to the General Partner. For purposes of the Partnership Agreement, the
initial Agreed Value of the Constellation Assets shall equal the sum of the
foregoing Capital Contribution made by the General Partner plus the aggregate
amount of liabilities assumed by the Partnership in connection with such
contribution or to which the Constellation Assets are subject.
(d) The General Partner shall amend Exhibit 1 to the
Partnership Agreement to reflect the issuance of additional Partnership Units
and Series A Preferred Units to the General Partner, and shall also amend
Exhibit 1 to reflect the different classes of Preferred Stock held by the
respective Partners.
4. (a) That portion of the Constellation Assets acquired by the
General Partner from Constellation under that certain Service Company Asset
Contribution Agreement (the "Service Assets") shall, immediately following
their contribution to the Partnership by the General Partner, be contributed
by the Partnership to Corporate Office Management, Inc., a Maryland
corporation ("COMI"), in exchange for cash of $24,750 (or such other amount
as determined by the General Partner), one or more promissory notes in the
aggregate principal amount of $2,005,000, 10 shares of Class A Voting Stock
of COMI and 18,800 shares of Class B Non-Voting Common Stock of COMI.
(b) The Constellation Assets other than the Service Assets may
be held directly by the Partnership, or through such partnerships, limited
liability companies or other entities owned and controlled by the Partnership
as the General Partner may determine.
5. Section 5.2(C) of the Partnership Agreement is amended to add
the following paragraph thereto:
"(9) In the event that during any taxable year any Preferred
Units are converted, pursuant to Section 9.8(A), into
Partnership Units prior to a distribution having been made
under Section 5.3(A) of an unpaid Priority Return Amount with
respect to such Preferred Units, there shall be allocated to
the Partner who held such converted Preferred Units items of
loss and deduction in an amount equal to the excess of (a)
allocations previously made with respect to such converted
Preferred Units pursuant to Section 5.2(A)(5) over (b) the
Priority Return Amount previously distributed or remaining to
distributed with respect to such converted Preferred Units
pursuant to Sections 5.3(A), 9.8(A) and 9.8(B)."
6. Section 5.3(A)(2) of the Partnership Agreement is amended and
restated to read as follows:
"(2) Second, there shall be distributed with respect to each
Partnership Unit an amount equal on a per Unit basis to the
amount distributed (other than in REIT Shares) by the General
Partner on its common shares during
4
<PAGE>
the Fiscal Year (other than a liquidating distribution),
except that (i) the first distribution paid to a Limited
Partner with respect to newly issued Partnership Units shall
be pro rated to reflect the actual portion of the Distribution
Period for which the distribution is being paid during which
such Partnership Units were outstanding, and (ii) the first
distribution made to the General Partner with respect to
Partnership Units newly issued to the General Partner pursuant
to Section 4.2(B) hereof shall be pro rated to the same extent
(if any) by which the first dividends payable on the REIT
Shares newly issued by the General Partner are subject to
proration. To the extent practicable, distributions under this
paragraph shall be made at the same time as the dividend
distributions made by the General Partner on its REIT Shares."
7. Section 9.8(A) of the Partnership Agreement is amended and
restated to read as follows:
"(A) (1) Each Limited Partner holding Preferred Shares shall
have the right, at any time or from time to time, to convert
on or after October 1, 1999 some or all of its Preferred Units
into Partnership Units, effective upon January 1, April 1,
July 1 or October 1 of any year, by providing the General
Partner with a Conversion Notice not less than 30 days prior
to the effective date of such conversion. Upon the effective
date of any such conversion, the Preferred Units which are the
subject of such conversion shall be converted, without
necessity of any further action by the General Partner, into
that number of Partnership Units the Limited Partner is
entitled to receive on such conversion plus an amount of cash
equal to the accrued Priority Return Amount in respect of such
Preferred Units.
(2) In the case of Initial Preferred Units, each
Initial Preferred Unit may be converted into Partnership Units
on the basis of 3.5714 Partnership Units for each Initial
Preferred Unit being converted.
(3) Other classes of Preferred Units, if any, issued
to Limited Partners after the date hereof shall be convertible
into Partnership Units on such terms as may be agreed by the
Partnership and the holder of such Preferred Units, and the
right to convert such Preferred Units shall be subject to such
further restrictions and limitations as may be agreed upon.
(4) At such time as any Series A Preferred REIT
Shares issued by the General Partner are converted into REIT
Shares by the holder thereof, an equal number of Series A
Preferred Units held by the General Partner shall
automatically be converted into a number of Partnership Units
equal to the number of REIT Shares issued by the General
Partner upon the conversion of such Series A Preferred REIT
Shares.
5
<PAGE>
(5) In any case in which the conversion into
Partnership Units under this Section 9.8(A) would result in
the issuance of a fractional Partnership Unit, the General
Partner shall pay the converting Partner cash in lieu of
issuance of a fractional Partnership Unit, with the value of
such fractional interest being determined by reference to the
Unit Value applicable on the date of conversion.
8. Section 9.8(B) of the Partnership Agreement is amended to add the
following sentence at the end thereof:
"Notwithstanding anything to the contrary in this Section
9.8(B) or Section 5.3(A)(1) hereof, in any case in which there
is an unpaid Priority Return Amount with respect to a Series A
Preferred Unit that is converted pursuant to Section 9.3(A)
hereof, the converting Partner shall be entitled to
distributions (and allocations) under Article V and Section
10.2 of this Agreement to the same extent and in the same
amount as the holder of the Series A Preferred REIT Shares
with respect to which such Series A Preferred Units are being
converted is entitled to receive dividends from the General
Partner upon the conversion of such Series A Preferred REIT
Shares."
9. Clause (iii) of Section 11.1(B) of the Partnership
Agreement, relating to amendments that may be made to the Partnership
Agreement without the consent of any Limited Partner, shall be amended and
restated as follows:
"(iii) reflect the admission, substitution, termination or
withdrawal of Partners in accordance with this Agreement
(including the issuance of Partnership Units and Preferred
Units to a Partner (including the General Partner) in
accordance with the requirements of Section 4.2(A) or (B)
hereof, and the designation of the preferences and rights of
any such Preferred Units),"
(Remainder of Page Intentionally Left Blank)
6
<PAGE>
10. This Amendment may be executed in several counterparts, which
shall be treated as originals for all purposes, and all so executed shall
constitute one amendment, and shall be binding and effective when a
counterpart of this Amendment has been executed by the General Partner and
that number of Limited Partners whose consent is required to this Amendment
under Section 11.1 of the Partnership Agreement.
IN WITNESS WHEREOF, this Amendment has been duly executed and
delivered by the parties hereto as of the day and year first above written.
GENERAL PARTNER:
CORPORATE OFFICE PROPERTIES TRUST
By:
-----------------------------------------
LIMITED PARTNERS:
SHIDLER EQUITIES, L.P.
By: SHIDLER EQUITIES CORP.
By:
-----------------------------------------
Name:
Title:
- --------------------------------------------
Jay H. Shidler
LBCW LIMITED PARTNERSHIP
By: /s/ Clay W. Hamlin, III
-----------------------------------------
Clay W. Hamlin, III, General Partner
CHLB PARTNERSHIP
By: /s/ Clay W. Hamlin, III
-----------------------------------------
Clay W. Hamlin, III, General Partner
7
<PAGE>
/s/ Clay W. Hamlin, III
- --------------------------------------------
Clay W. Hamlin, III
LGR INVESTMENT FUND, LTD.
By:
-----------------------------------------
Name:
- --------------------------------------------
Robert L. Denton
- --------------------------------------------
John E. de B. Blockey, Trustee of the
John E. de B. Blockey Living Trust
dated 9/12/88
- --------------------------------------------
Henry D. Bullock
- --------------------------------------------
Frederick K. Ito
/s/ James K. Davis
- --------------------------------------------
James K. Davis
/s/ Denise J. Liszewski
- --------------------------------------------
Denise J. Liszewski
- --------------------------------------------
Samuel Tang
/s/ David P. Hartsfield
- --------------------------------------------
David P. Hartsfield
8
<PAGE>
/s/ Lawrence J. Taff
- --------------------------------------------
Lawrence J. Taff
/s/ Kimberly F. Aquino
- --------------------------------------------
Kimberly F. Aquino
TIGER SOUTH BRUNSWICK, L.L.C.
By:
-----------------------------------------
Name:
Title:
WESTBROOK REAL ESTATE FUND T, L.P.
By: WESTBROOK REAL ESTATE PARTNERS
MANAGEMENT T., L.L.C.
By:
-----------------------------------------
Name:
Title:
WESTBROOK REAL ESTATE CO. INVESTMENT
PARTNERSHIP T., L.P.
By: WESTBROOK REAL ESTATE PARTNERS
MANAGEMENT I, L.L.C.
By:
------------------------------------------
Name:
Title:
9
<PAGE>
Exhibit 4.1
ARTICLES SUPPLEMENTARY
OF
CORPORATE OFFICE PROPERTIES TRUST
SERIES A CONVERTIBLE PREFERRED SHARES
ARTICLE ONE
CORPORATE OFFICE PROPERTIES TRUST (the "Trust"), pursuant to the
provisions of Section 8-203(b) of Title 8 of the Corporations and
Associations Article of the Annotated Code of Maryland, as amended (the
"Maryland REIT Law"), hereby files these Articles Supplementary classifying
its Series A Convertible Preferred Shares of Beneficial Interest of the Trust
(the "Articles") prior to the issuance of any shares of Series A Convertible
Preferred Shares of Beneficial Interest, such series of unissued shares
having been established by a resolution duly adopted by all necessary action
on the part of the Trust and the Board of Trustees of the Trust (the "Board
of Trustees"), as provided for in the Amended and Restated Declaration of
Trust, as amended (the "Declaration of Trust").
ARTICLE TWO
The name of the Trust is Corporate Office Properties Trust.
ARTICLE THREE
Pursuant to the authority conferred upon the Board of Trustees by the
Declaration of Trust and Section 8-203(a)(6) of the Maryland REIT Law, the
Board of Trustees adopted a resolution establishing the Series A Convertible
Preferred Shares of Beneficial Interest of the Trust and designating the
series and fixing and determining the preferences, limitations, and relative
rights thereof, as set forth in the true and correct copy of the resolution
attached hereto as Exhibit A (the "Designating Resolution").
ARTICLE FOUR
The Designating Resolution was adopted effective as of September 28,
1998.
ARTICLE FIVE
The Designating Resolution has been duly adopted by all necessary action on
the part of the Trust.
<PAGE>
IN WITNESS WHEREOF, the undersigned officer has executed these Articles
effective as of September 28, 1998.
CORPORATE OFFICE PROPERTIES TRUST
By:
-------------------------------------
Clay W. Hamlin, III
President and Chief Executive Officer
Attest:
- ----------------------------------
Name: Denise Liszewski
Title: Assistant Secretary
2
<PAGE>
EXHIBIT A
DESIGNATING RESOLUTION
BOARD OF TRUSTEES
CORPORATE OFFICE PROPERTIES TRUST
September 28, 1998
AUTHORIZATION OF SERIES A CONVERTIBLE PREFERRED SHARES
OF BENEFICIAL INTEREST
WHEREAS, the Board of Trustees of Corporate Office Properties Trust (the
"Trust") has deemed it to be in the best interest of the Trust and its
shareholders for the Trust to establish a series of preferred shares pursuant to
the authority granted to the Board of Trustees in the Amended and Restated
Declaration of Trust, as amended (the "Declaration of Trust"), of the Trust:
NOW, THEREFORE, BE IT RESOLVED, that, pursuant to the authority vested in
the Board of Trustees by the Declaration of Trust, a series of preferred shares
is hereby established, and the terms of the same shall be as follows:
Section 1. Number of Shares and Designation. This series of Preferred
Shares of Beneficial Interest shall be designated as Series A Convertible
Preferred Shares of Beneficial Interest, $.01 par value per share (the "Series A
Preferred Shares") and up to 1,025,000 shall be the number of such Preferred
Shares of Beneficial Interest constituting such series.
Section 2. Definitions. For purposes of the Series A Preferred Shares,
the following terms shall have the meanings indicated:
"Affiliate" shall mean, with respect to a particular Person, any other
Person controlling, controlled by or under common control with such
particular Person, including any directors and majority-owned entities of
that Person and of its other Affiliates.
"Change of Control" shall mean (i) a sale or other transfer of more than
50% of the then outstanding Common Shares to an Unrelated Third Party or
its Affiliates, (ii) a merger or consolidation of the Trust with an
Unrelated Third Party where the Trust is not the surviving entity, (iii)
the sale of all or substantially all of the assets of the Trust or (iv) the
voluntary or involuntary liquidation, dissolution and winding up of the
Trust.
"Common Shares" shall mean Common Shares of Beneficial Interest, $.01 par
value per share, of the Trust or such shares of the Trust's capital shares
into
<PAGE>
which such Common Shares of Beneficial Interest shall be reclassified.
"Common Share Dilution Price" shall have the meaning set forth in Section
8(c).
"Constellation" shall mean Constellation Real Estate Group, Inc. or any of
its Affiliates.
"Conversion Rate" shall mean 1.8748 Common Shares for each Series A
Preferred Share, subject to adjustment as provided in paragraph (f) of
Section 6 hereof.
"Current Market Price" of publicly traded Common Shares or any other class
or series of capital shares or other security of the Trust or of any
similar security of any other issuer for any day shall mean the last
reported sales price, regular way settlement on such day, or, if no sale
takes place on such day, the average of the reported closing bid and asked
prices regular way on such day, in either case as reported on the New York
Stock Exchange ("NYSE") or, if such security is not listed or admitted for
trading on the NYSE, on the principal national securities exchange on which
such security is listed or admitted for trading or, if not listed or
admitted for trading on any national securities exchange, on the National
Market of the National Association of Securities Dealers, Inc. Automated
Quotations System ("NASDAQ") or, if such security is not quoted on such
National Market, the average of the closing bid and asked prices on such
day in the over-the-counter market as reported by NASDAQ or, if bid and
asked prices for such security on such day shall not have been reported
through NASDAQ, the average of the bid and asked prices on such day as
furnished by any NYSE member firm regularly making a market in such
security selected for such purpose by the Chief Executive Officer or the
Trustees or if any class or series of securities are not publicly traded,
the fair value of the shares of such class as determined reasonably and in
good faith by the Trustees.
"Declaration of Trust" shall have the meaning set forth in the Preamble.
"Dilutive Transaction" shall have the meaning set forth in Section 8(c).
"Junior Shares" shall mean the Common Shares and any other class or series
of capital shares of the Trust over which the Series A Preferred Shares
have preference or priority in the payment of dividends or in the
distribution of assets on any liquidation, dissolution or winding up of the
Trust.
"Person" shall mean any individual, firm, partnership, corporation or other
entity and shall include any successor (by merger or otherwise) of such
entity.
"Series A Preferred Shares" shall have the meaning set forth in Section 1
hereof.
2
<PAGE>
"Standstill Period" shall mean the period ending on the earliest of (i)
September 28, 2000, (ii) five business days prior to the effective date of
any Change of Control or (iii) a date established by resolution of the
Board of Trustees.
"Tendered Non-Converted Shares" shall have the meaning set forth in Section
6(a).
"Trading Day", as to any Common Shares, shall mean any day on which such
Common Shares are traded on the NYSE or, if such Common Shares are not
listed or admitted for trading on the NYSE, on the principal national
securities exchange on which such Common Shares are listed or admitted or,
if such Common Shares are not listed or admitted for trading on any
national securities exchange, on the National Market of NASDAQ or, if such
Common Shares are not quoted on such National Market, in the Common Shares
market in which such Common Shares are traded.
"Transaction" shall have the meaning set forth in paragraph (d) of Section
6 hereof.
"Transfer Agent" means Norwest Banks (or its Affiliates) or any U.S. bank
with aggregate capital, surplus and undivided profits, as shown on its last
published report, of at least $30,000,000 as may be designated by the
Trustees or their designee as the transfer agent for the Series A Preferred
Shares.
"Trust" shall have the meaning set forth in the Preamble.
"Trustees" shall mean the Trustees of the Trust or any committee authorized
by such Trustees to perform any of its responsibilities with respect to the
Series A Preferred Shares.
"Unrelated Third Party" shall mean a Person other than the Trust or any
Affiliate of the Trust and other than Constellation.
"45% Ceiling Requirement" shall have the meaning set forth in Section 6(a).
Section 3. Dividends. Except as provided in paragraph (a) of
Section 6, the holders of each Series A Preferred Share shall be entitled to
receive cumulative dividends and distributions payable from the date of
issuance of such Series A Preferred Stock quarterly and in preference and
priority to the dividends and distributions payable on each Junior Share,
when, as and if declared by the Board of Trustees of the Trust out of funds
legally available therefor, at the annual rate of $1.375 per share.
Cumulative dividends will accrue whether or not there are profits, surplus or
other funds of the Trust legally available for payment of dividends. The
record and payment dates for the Common Shares, if any, shall be the same as
the record and
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payment dates for the Series A Preferred Shares. If such cumulative
dividends in respect of any prior or current quarterly dividend period shall
not have been declared and paid or if there shall not have been a sum
sufficient for the payment thereof set apart, the deficiency shall first be
fully paid before (i) any dividend or other distribution (other than
dividends payable in Common Shares) shall be paid or declared and set apart
with respect to the Junior Shares or (ii) any Junior Shares shall be
repurchased or redeemed by the Trust. Dividends shall be payable pro rata
for partial quarterly periods. In the event that any Series A Preferred
Share is converted into Common Shares pursuant to Section 6 below, holders of
Series A Preferred Shares whose conversion is deemed effective before the
close of business on a dividend payment record date will not be entitled to
receive any portion of the dividend payable on such Series A Preferred Shares
on the corresponding dividend payment date for the current quarter to which
that record date pertains but will, however, be entitled to receive the
entire dividend for such quarterly period payable, if any, on the Common
Shares issuable upon conversion provided that any conversion of Series A
Preferred Shares becomes effective prior to the close of business on the
record date for such dividend payable on such Common Shares. A holder of
Series A Preferred Shares on a dividend payment record date who (or whose
transferee) tenders such shares for conversion into Common Shares after such
dividend payment record date will be entitled to receive the dividend payable
on such Series A Preferred Shares on the corresponding dividend payment date.
Except as provided above, the Trust will pay at the time of conversion all
accrued and unpaid dividends, whether or not declared, on converted Series A
Preferred Shares.
Section 4. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of the
Trust, whether voluntary or involuntary, before any payment or distribution
of the assets of the Trust (whether capital or surplus) shall be made to or
set apart for the holders of Junior Shares, the holders of Series A Preferred
Shares shall be entitled to receive $25.00 per Series A Preferred Share plus
an amount equal to all accrued and unpaid dividends thereon to the date fixed
for distribution whether or not declared; but such holders shall not be
entitled to any further payment. Until the holders of the Series A Preferred
Shares have been paid the liquidation preference in full, no payment will be
made to any holder of Junior Shares upon the liquidation, dissolution or
winding up of the Trust. If, upon any liquidation, dissolution or winding up
of the Trust, the assets of the Trust, or proceeds thereof, distributable
among the holders of Series A Preferred Shares shall be insufficient to pay
in full the preferential amount aforesaid, then such assets, or the proceeds
thereof, shall be distributed among the holders of Series A Preferred Shares
ratably in the same proportion as the respective amounts that would be
payable on such Series A Preferred Shares if all amounts payable thereon were
paid in full. For the purposes of this Section 4, (i) a consolidation or
merger of the Trust with one or more corporations or (ii) a statutory share
exchange shall not be deemed to be a liquidation, dissolution or winding up,
voluntary or involuntary, of the Trust. A sale or
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transfer of all or substantially all of the Trust's assets shall be deemed to
be a liquidation, dissolution or winding up of the Trust.
(b) Upon any liquidation, dissolution or winding up of the Trust, after
payment shall have been made in full to the holders of Series A Preferred
Shares, as provided in this Section 4, any other series or class or classes
of Junior Shares shall, subject to the respective terms thereof, be entitled
to receive any and all assets remaining to be paid or distributed, and the
holders of the Series A Preferred Shares shall not be entitled to share
therein.
Section 5. Shares To Be Retired. All Series A Preferred Shares
which shall have been issued and reacquired in any manner by the Trust shall
be restored to the status of authorized, but unissued Preferred Shares,
without designation as to series. The Trust may also retire any unissued
Series A Preferred Shares, and such shares shall then be restored to the
status of authorized but unissued Preferred Shares, without designation as to
series.
Section 6. Conversion.
Holders of Series A Preferred Shares shall have the right to convert all
or a portion of such shares into Common Shares, as follows:
(a) Subject to and upon compliance with the provisions of this Section
6, a holder of Series A Preferred Shares shall have the right, at such
holder's option, at any time after the end of the Standstill Period to
convert such shares, in whole or in part, into the number of fully paid and
nonassessable shares of authorized but previously unissued Common Shares
obtained by multiplying the Conversion Rate by the number of Series A
Preferred Shares to be converted by surrendering such shares to be converted,
such surrender to be made in the manner provided in paragraph (b) of this
Section 6; provided, however, that no holder of such shares shall convert
such shares if such holder and its Affiliates would hold after such
conversion 45% or more of the outstanding Common Shares (the "45% Ceiling
Requirement"). If such conversion would exceed the 45% Ceiling Requirement,
then upon surrendering the Series A Preferred Share certificates pertaining
to such excess Common Shares as provided in paragraph (b) of this Section 6,
the holder shall continue to be a holder of Series A Preferred Shares (the
"Tendered Non-Converted Shares") pertaining to such excess Common Shares
except that, in lieu of the dividends otherwise payable on such Tendered
Non-Converted Shares (but not in lieu of accrued and unpaid dividends
applicable to quarterly periods prior to such delivery) the holder of
Tendered Non-Converted Shares shall receive the dividends on the Common
Shares into which such Tendered Non-Converted Shares would have been
convertible but for the 45% Ceiling Requirement, and such Tendered
Non-Converted Shares shall convert thereafter to Common Shares without
further action by such holder as of the last day of each calendar quarter to
the extent then permitted by the 45% Ceiling Requirement.
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(b) In order to exercise the conversion right, the holder of each
Series A Preferred Share to be converted shall surrender the certificate
representing such shares, duly endorsed or assigned to the Trust or in blank,
at the office of the Transfer Agent, accompanied by written notice to the
Trust that the holder thereof elects to convert such Series A Preferred
Shares. Unless the shares issuable on conversion are to be issued in the
same name as the name in which such Series A Preferred Shares are registered,
each share surrendered for conversion shall be accompanied by instruments of
transfer, in form reasonably satisfactory to the Trust, duly executed by the
holder or such holder's duly authorized attorney and an amount sufficient to
pay any transfer or similar tax (or evidence reasonably satisfactory to the
Trust demonstrating that such taxes have been paid) as required by paragraph
(j) of this Section 6. As promptly as practicable after the surrender of
certificates for Series A Preferred Shares as aforesaid, the Trust shall
issue and shall deliver at such office to such holder, or send on such
holder's written order, a certificate or certificates for the number of full
Common Shares issuable upon the conversion of such Series A Preferred Shares
in accordance with provisions of this Section 6, and any fractional interest
in respect of a Common Share arising upon such conversion shall be settled as
provided in paragraph (c) of this Section 6. If all Series A Preferred
Shares evidenced by any certificate are not converted, the Trust shall issue
and deliver at such office to such holder a certificate for the remaining
Series A Preferred Shares not converted. Each conversion shall be deemed to
have been effected immediately prior to the close of business on the date on
which the certificates for Series A Preferred Shares shall have been
surrendered and such notice received by the Trust as aforesaid, and the
Person or Persons in whose name or names any certificate or certificates for
Common Shares shall be issuable upon such conversion shall be deemed to have
become the holder or holders of record of the shares represented thereby at
such time on such date unless the share transfer books of the Trust shall be
closed on that date, in which event such Person or Persons shall be deemed to
have become such holder or holders of record at the close of business on the
next succeeding day on which such transfer books are open, provided that such
closure of the share transfer books shall not delay the date on which such
Person shall become a holder of such shares by more than two business days.
(c) No fractional Common Share or scrip representing fractions of a
Common Share shall be issued upon conversion of the Series A Preferred
Shares. Instead of any fractional interest in a Common Share that would
otherwise be deliverable upon the conversion of Series A Preferred Shares,
the Trust shall pay to the holder of such share an amount in cash based upon
the Current Market Price of the Common Shares on the Trading Day immediately
preceding the date of conversion. If more than one share shall be
surrendered for conversion at one time by the same holder, the number of full
Common Shares issuable upon conversion thereof shall be computed on the basis
of the aggregate number of Series A Preferred Shares so surrendered.
(d) If the Trust shall be a party to any transaction (including without
limitation
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a merger, consolidation, statutory share exchange or reclassification
of the Common Shares (each of the foregoing being referred to herein as a
"Transaction"), in each case as a result of which Common Shares shall be
converted into the right to receive shares, securities or other property
(including cash or any combination thereof), each Series A Preferred Share which
is not converted into the right to receive shares, securities or other property
in connection with such Transaction shall thereupon be convertible into the kind
and amount of shares, securities and other property (including cash or any
combination thereof) receivable upon such consummation by a holder of that
number of Common Shares into which one Series A Preferred Share was convertible
immediately prior to such Transaction. The Trust shall not be a party to any
Transaction unless the terms of such Transaction are consistent with the
provisions of this paragraph (d), and it shall not consent or agree to the
occurrence of any Transaction until the Trust has entered into an agreement with
the successor or purchasing entity, as the case may be, for the benefit of the
holders of the Series A Preferred Shares that will contain provisions enabling
the holders of the Series A Preferred Shares that remain outstanding after such
Transaction to convert into the consideration received by holders of Common
Shares at the Conversion Rate. The provisions of this paragraph (d) shall
similarly apply to successive Transactions.
(e) If there shall be any reclassification of the Common Shares or any
consolidation or merger to which the Trust is a party and for which approval
of any shareholders of the Trust is required, or a statutory share exchange,
or the voluntary or involuntary liquidation, dissolution and winding up of
the Trust, then the Trust shall cause to be mailed to each holder of Series A
Preferred Shares at such holder's address as shown on the records of the
Trust, as promptly as possible, but at least 15 days prior to the applicable
date hereinafter specified, a notice stating the date on which such
reclassification, consolidation, merger, statutory share exchange or
liquidation, dissolution and winding up is expected to become effective, and
the date as of which it is expected that holders of Common Shares of record
shall be entitled to exchange their Common Shares for securities or other
property, if any, deliverable upon such event. Failure to give or receive
such notice or any defect therein shall not affect the legality or validity
of the proceedings described in this Section 6.
(f) (i) In the event the Trust should at any time or from time to
time after the date of issuance of the Series A Preferred Shares fix a record
date for the effectuation of a split or subdivision of the outstanding Common
Shares or the determination of holders of Common Shares entitled to receive a
dividend or other distribution payable in additional Common Shares without
payment of any consideration by such holder for the additional Common Shares,
then, as of such record date (or the date of such dividend distribution,
split or subdivision if no record date is fixed), the Conversion Rate shall
be appropriately increased so that the number of Common Shares issuable on
conversion of each Series A Preferred Share shall be increased in proportion
to such increase of outstanding Common Shares and the Common Shares Dilution
Price shall be correspondingly decreased. If the number of Common Shares
outstanding at any time after the date of issuance of the Series A Preferred
Shares is decreased by a
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combination of the then outstanding Common Shares, then, following the record
date of such combination (or the date of such combination if no record date
is fixed), the Conversion Rate for the Series A Preferred Shares shall be
appropriately decreased so that the number of shares of Common Stock issuable
on conversion of each Series A Preferred Share shall be decreased in
proportion to such decrease in outstanding Common Shares and the Common Share
Dilution Price shall be correspondingly increased. Whenever the Conversion
Rate and Common Share Dilution Price are adjusted as herein provided, the
Trust shall promptly file with the Transfer Agent an officer's certificate
setting forth the Conversion Rate and Common Share Dilution Price after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment which certificate shall be conclusive evidence of the correctness
of such adjustment absent manifest error. Promptly after delivery of such
certificate, the Trust shall prepare a notice of such adjustment setting
forth the adjusted Conversion Rate and Common Share Dilution Price and the
effective date such adjustment becomes effective and shall mail such notice
of such adjustment to each holder of Series A Preferred Shares at such
holder's last address as shown on the share records of the Trust.
(ii) In the event the Trust at any time, or from time to time,
shall make or issue, or fix a record date for the determination of holders of
Common Shares entitled to receive, a dividend or other distribution payable
in securities of the Trust other than Common Shares, then and in each such
event, provision shall be made so that the holders of Series A Preferred
Shares shall receive upon conversion thereof, in addition to the number of
Common Shares receivable thereupon, the amount of securities of the Trust
which they would have received had their Series A Preferred Shares been
converted into Common Share on the date of such event and had thereafter,
during the period from the date of such event to and including the date of
conversion, retained such securities receivable by them as aforesaid during
such period, giving application to all adjustments called for during such
period under this Section 6(f) with respect to the rights of the holders of
Series A Preferred Shares.
(g) In any case in which paragraph (f) of this Section 6 provides that
an adjustment shall become effective on the day next following the record
date for an event, the Trust may defer until the occurrence of such event (A)
issuing to the holder of any Series A Preferred Share converted after such
record date and before the occurrence of such event the additional Common
Shares issuable upon such conversion by reason of the adjustment required by
such event over and above the Common Shares issuable upon such conversion
before giving effect to such adjustment and (B) paying to such holder any
amount of cash in lieu of any fraction pursuant to paragraph (c) of this
Section 6; provided, however, that the holder of such Series A Preferred
Shares shall be entitled to such additional Common Shares and cash, as
applicable, upon such event.
(h) There shall be no adjustment of the Conversion Rate in case of the
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issuance of any capital shares of the Trust, including issuance in connection
with a reorganization, acquisition or other similar transaction except as
specifically set forth in this Section 6. If any action or transaction would
require adjustment of the Conversion Rate pursuant to more than one paragraph
of this Section 6, only one adjustment shall be made and such adjustment
shall be the amount of adjustment that has the highest absolute value to the
holder of Series A Preferred Shares.
(i) The Trust shall at all times reserve and keep available, free from
preemptive rights, out of the aggregate of its authorized but unissued Common
Shares solely for the purpose of effecting conversion of the Series A
Preferred Shares, the full number of Common Shares deliverable upon the
conversion of all outstanding Series A Preferred Shares not theretofore
converted into Common Shares. For purposes of this paragraph (i), the number
of Common Shares that shall be deliverable upon the conversion of all
outstanding Series A Preferred Shares shall be computed as if at the time of
computation all such outstanding shares were held by a single holder. The
Trust covenants that any Common Shares issued upon conversion of the Series A
Preferred Shares shall be validly issued, fully paid and non-assessable. The
Trust shall list the Common Shares required to be delivered upon conversion
of the Series A Preferred Shares, prior to such delivery, upon each national
securities exchange, if any, upon which the outstanding Common Shares are
listed at the time of such delivery.
(j) The Trust will pay any and all documentary stamp or similar issue
or transfer taxes payable in respect of the issue or delivery of Common
Shares or other securities or property on conversion of Series A Preferred
Shares pursuant hereto; provided, however, that the Trust shall not be
required to pay any tax that may be payable in respect of any transfer
involved in the issue or delivery of Common Shares or other securities or
property in a name other than that of the holder of the Series A Preferred
Shares to be converted, and no such issue or delivery shall be made unless
and until the Person requesting such issue or delivery has paid to the Trust
the amount of any such tax or established, to the reasonable satisfaction of
the Trust, that such tax has been paid.
Section 7. Additional Parity and Junior Shares. Without vote or
consent of the holders of Series A Preferred Shares, the Trust may issue any
class or series of capital shares of the Trust with voting rights, if any, as
determined by the Trust which may rank:
(a) on a parity with the Series A Preferred Shares, as to the payment
of dividends and as to distribution of assets upon liquidation, dissolution
or winding up, whether or not the dividend rates, dividend payment dates or
redemption or liquidation prices per share thereof be different from those of
the Series A Preferred Shares, if the holders of such class of Shares or
series and the Series A Preferred Shares shall be entitled to the receipt of
dividends and of amounts distributable upon liquidation, dissolution or
winding up in proportion to their respective amounts of accrued and
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unpaid dividends per share or liquidation preferences, without preference or
priority one over the other;
(b) junior to the Series A Preferred Shares, as to the payment of
dividends or as to the distribution of assets upon liquidation, dissolution
or winding up, if such Shares or series shall be Common Shares or other
Junior Shares; and
(c) prior or senior to the Series A Preferred Shares as to the payment
of dividends or distributions of assets upon liquidation, dissolution or
winding up; provided, however, that the vote of the holders of Series A
Preferred Shares required by paragraph (b) of Section 8 has been obtained,
where applicable.
Section 8. Voting.
(a) Except as otherwise provided in paragraphs (b) and (c) of this
Section 8, the holders of Series A Preferred Shares shall have no right to
vote on any matter to be voted on by the shareholders of the Trust
(including, without limitation, any election or removal of a Trustee), and
the Series A Preferred Shares shall not be included in the number of shares
voting or entitled to vote on such matters.
(b) So long as any Series A Preferred Shares are outstanding, in
addition to any other vote or consent of shareholders required by law or by
the Declaration of Trust, the affirmative vote of at least 66 2/3% of the
votes entitled to be cast by the holders of the Series A Preferred Shares at
the time outstanding, acting as a single class, given in person or by proxy,
either in writing without a meeting or by vote at any meeting called for the
purpose, shall be necessary for (i) an increase in the number of authorized
shares of Series A Preferred Shares, (ii) effecting or validating any
amendment, alteration or repeal of any of the provisions of these Articles,
the Declaration of Trust or the Bylaws of the Trust that adversely affects
the voting powers, rights or preferences of the holders of the Series A
Preferred Shares or (iii) consummating a Dilutive Transaction (as defined in
paragraph (c) below) during the Standstill Period. So long as not less than
100,000 Series A Preferred Shares are outstanding excluding in such
calculation the Tendered Non-Converted Shares, the affirmative vote of at
least 66 2/3% of the votes entitled to be cast by the holders of the Series A
Preferred Shares at the time outstanding (including the Tendered
Non-Converted Shares), acting as a single class, given in person or by proxy,
either in writing or without a meeting or by vote at any meeting called for
the purpose, shall be necessary to create or authorize any class or series of
capital shares of the Trust ranking prior or senior to the Series A Preferred
Shares (or any class or series of partnership units of Corporate Office
Properties, L.P. of which the Trust is the general partner ranking prior or
senior to the Series A Preferred Units to be issued to the Trust in
connection with the issuance of the Series A Preferred Shares to
Constellation) as to the payment of dividends or as to distributions of
assets upon liquidation, dissolution or winding up. Notwithstanding the
foregoing provisions of this paragraph (b) of Section 8,
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any amendment of the provisions of the Declaration of Trust (or the
partnership agreement of Corporate Office Properties, L.P.) so as to
authorize or create, or to increase the authorized amount of, any Junior
Shares (or units of partnership interest with or without voting rights junior
as to the payment of dividends and as to asset distributions to the Series A
Units) or any shares of any class with or without voting rights ranking on a
parity with the Series A Preferred Shares (or Series A Preferred Units) shall
not be deemed to adversely affect the voting powers, rights or preferences of
the holders of Series A Preferred Shares (or Series A Preferred Units). For
the purpose of this paragraph, the holder of Series A Preferred Shares shall
have the right to one vote for each such Series A Preferred Share.
(c) For the purpose of paragraph (b) above, the term "Dilutive
Transaction" shall mean any transaction or series of related transactions
during the Standstill Period in which the Trust shall issue or sell Common
Shares with an aggregate then Current Market Price in excess of $50.0 million
with a Common Share price per share less than the Common Share Dilution
Price. The term "Common Share Dilution Price" shall mean $9.50 per share,
subject to adjustment as provided in paragraph (f) of Section 6. For the
purpose of calculating the aggregate Current Market Price of the Common
Shares, securities convertible into Common Shares or warrants, rights or
options to purchase Common Shares at a price less than the Common Share
Dilution Price shall be deemed to have been converted or exercised, as the
case may be, into an additional number of Common Shares at the time of the
Dilutive Transaction, and the Trust shall be deemed to have issued or sold
such additional number of Common Shares at the time of, and in connection
with, the Dilutive Transaction.
(d) So long as any Series A Preferred Shares are owned of record and
beneficially by Constellation and Constellation also owns of record and
beneficially at least 30% of the outstanding Common Shares, Constellation
shall be entitled to vote for and elect two members of the Board of Trustees.
So long as any Series A Preferred Shares are owned of record and
beneficially by Constellation and Constellation also owns of record and
beneficially less than 30% but more than 15% of the outstanding Common
Shares, Constellation shall be entitled to vote for and elect one member of
the Board of Trustees. In determining the percentage of the outstanding
Common Shares for the purposes of this paragraph, the Common Shares issuable
upon conversion of any Series A Preferred Shares owned by Constellation shall
be deemed outstanding. If any member of the Board of Trustees so elected by
Constellation shall withdraw or be removed from the Board for any reason,
Constellation shall have the right to elect the replacement for such member.
Constellation shall have the right to remove a Trustee elected by
Constellation for any reason at any time. The term of office of any Trustee
elected by Constellation pursuant to this paragraph shall expire on the date
that Constellation no longer holds of record and beneficially any Series A
Preferred Shares and the percentage of Common Shares required to elect that
Trustee as provided in this paragraph. If two Trustees have been elected by
Constellation and the term of one Trustee expires by operation of the
preceding sentence, the Board of Trustees may
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determine which Trustee shall have completed service on the Board absent a
determination by Constellation.
(e) If the Trust shall fail at any time or from time to time to pay
when due two consecutive quarterly dividend payments on the Series A
Preferred Shares, then the holders of the Series A Preferred Shares shall be
entitled to elect two additional members to the Board of Trustees of the
Trust to serve until all accrued and unpaid dividends on the Preferred Shares
have been paid in full.
Section 9. Record Holders. The Trust and the Transfer Agent may
deem and treat the record holder of any Series A Preferred Share as the true
and lawful owner thereof for all purposes, and neither the Trust nor the
Transfer Agent shall be affected by any notice to the contrary.
Ratification and Authorization
RESOLVED, that any and all acts and deeds of any officer or Trustee
taken prior to the date hereof on behalf of the Trust with regard to the
foregoing resolutions are hereby approved, ratified and confirmed in all
respects as and for the acts and deeds of the Trust.
FURTHER RESOLVED, that the officers of the Trust be, and each of them
hereby is, severally and without the necessity for joinder of any other
Person, authorized, empowered and directed to execute and deliver any and all
such further documents and instruments and to do and perform any and all such
further acts and deeds that may be necessary or advisable to effectuate and
carry out the purposes and intents of the foregoing resolutions, including,
but not limited to, the filing of Articles Supplementary pursuant to Maryland
REIT Law with the State Department of Assessments and Taxation of Maryland,
setting forth the designations, preferences, limitations and rights of Series
A Preferred Shares pursuant to Section 8-203(b) of the Maryland REIT Law, all
such actions to be performed in such manner, and all such documents and
instruments to be executed and delivered in such form, as the officer
performing or executing the same shall approve, the performance or execution
thereof by such officer to be conclusive evidence of the approval thereof by
such officer and by the Board of Trustees.
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Exhibit 10.6
AMENDED AND RESTATED DEED OF TRUST NOTE
THIS AMENDED AND RESTATED DEED OF TRUST NOTE ("this Agreement") is made
and entered into as of this 6th day of October, 1995 by and between SECURITY
LIFE OF DENVER INSURANCE COMPANY, a Colorado corporation (together with its
participants, successors and assigns, "the Lender"), and CRANBERRY- 140
LIMITED PARTNERSHIP, a Maryland limited partnership ("the Borrower").
RECITALS
R-1. The Lender is the holder of that certain note issued by the Borrower
to The Bank of Baltimore dated March 11, 1991 ("the Existing Note").
R-2. As the holder of the Existing Note, the Lender is the beneficiary
under each of the documents securing the Existing Note (collectively, "the
Existing Loan Documents"), including, but not limited to, that certain Deed
of Trust and Security Agreement dated March 11, 1991 and recorded among the
Land Records of Carroll County, Maryland in Liber 1250 at folios 621 et seq.
granted by the Borrower to Larry S. Lindenmeyer and Alan H. Herbst, Trustees
("the Existing Deed of Trust").
R-3. Immediately prior to the endorsement of the Existing Note to the
Lender, the Borrower repaid a portion of the principal amount evidenced
thereby, so that the total principal amount currently outstanding under the
Existing Note is Ten Million and 00/100 Dollars ($10,000,000.00). The parties
agree to (i) reduce the amount of the debt evidenced by the Existing Note to
reflect such reduced principal amount and (ii) amend and restate entirely all
of the terms and provisions of the Existing Note.
NOW, THEREFORE, FOR AND IN CONSIDERATION of the premises herein
contained, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto for themselves,
their respective successors and assigns, do hereby covenant and agree as
follows:
Article I. Indebtedness Evidenced by Note. By the provisions of the
Existing Note, the original maximum principal sum of the debt evidenced
thereby is Fourteen Million Nine Hundred Thousand and 00/100 Dollars
($14,900,000.00). Immediately prior to the endorsement of the Existing Note
to the Lender, the Borrower repaid a portion of the principal amount
evidenced thereby, so that the total principal amount currently outstanding
under the Existing Note is Ten Million and 00/100 Dollars ($10,000,000.00).
From and after the date hereof, the indebtedness evidenced by the Existing
Note as reduced, amended and restated by this Agreement shall be in the
principal sum of Ten Million and 00/100 Dollars ($10,000,000.00), together
with interest thereon as provided herein.
<PAGE>
Article II. No Substitution or Novation. Neither this Agreement nor
anything contained herein shall be construed as a substitution or novation of
the indebtedness evidenced by the Existing Note. The Existing Note shall
remain in full force and effect, as hereby reduced, amended and restated.
Article III. No Inconsistencies. The Borrower agrees that as to any
inconsistencies between the terms and provisions of this Agreement and the
terms and provisions of the Existing Note, the terms and provisions contained
herein shall prevail and be controlling.
Article IV. Modified and Restated Text. All of the terms and provisions
of the Existing Note are hereby increased, amended and restated in their
entirety to read as follows:
MODIFIED AND RESTATED TEXT:
$10,000,000.00 Baltimore, Maryland
October 6, 1995
FOR VALUE RECEIVED, the undersigned, CRANBERRY-140 LIMITED PARTNERSHIP, a
Maryland limited partnership ("the Borrower"), hereby promises to pay to the
order of SECURITY LIFE OF DENVER INSURANCE COMPANY, a Colorado corporation
("the Lender;" the Lender, its participants and any assignee or other lawful
owner of this Amended and Restated Deed of Trust Note being hereinafter
called "the Holder"), the principal amount of TEN MILLION AND 00/100 DOLLARS
($10,000,000.00) ("the Principal Sum"), together with interest on the unpaid
balance of the Principal Sum at the rate or rates hereinafter set forth.
UPON THE TERMS which are hereinafter set forth:
1. Definitions; rules of construction.
1.1. The following terms, when used in this Note, shall have the
definitions provided in this Section 1:
"Business Day" means a day other than a Saturday, Sunday or legal
holiday observed as such by the Holder.
"Default Rate" means an annual interest rate equal to the lesser of
the Regular Rate plus four percent (4%) per annum, or the maximum interest
rate
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permitted under the applicable law of the State.
"Indenture" means the Amended and Restated Deed of Trust and
Security Agreement of even date (and recorded or intended to be recorded
among the land records of Carroll County, Maryland) by and among the
Borrower, the Lender and Raymond G. Truitt and Alan W. Adamson, Trustees,
covering, inter alia, all of those parcels of real property, situate and
lying in Carroll County, Maryland, which are described therein.
"Maturity Date" means the final and absolute due date hereof
(whether by exercise of the Holder's rights under subsection 4.2 hereof,
acceleration, declaration, extension or otherwise), which, in the absence of
such exercise, acceleration, declaration, extension or other cause for the
maturity hereof, shall be October 31, 2020.
"Monthly Payment" means an amount equal to Seventy-Three Thousand
Eight Hundred Ninety-Nine and 12/100 Dollars ($73,899.12).
"Note" means this Amended and Restated Deed of Trust Note.
"Payment Address" means the office of the Holder or such other place
as the Holder may from time to time designate in writing.
"Regular Rate" means an annual interest rate equal to seven and
fifty/one hundredths percent (7.50%) per annum.
"State" means the State of Maryland.
1.2. Any capitalized term used herein and not otherwise defined
herein, including, but not limited to, "Security Documents," "Event of
Default," "Indebtedness," "Condemnation," "Casualty," "Property," "Awards,"
"Casualty Proceeds," "Rents" and "Tax and Insurance Escrow" shall have the
meaning given to those terms in the Indenture.
1.3. The rules of construction set forth in subsection 1.2 of the
Indenture are incorporated herein as a part hereof.
2. Interest Rate. Interest shall accrue on the outstanding unpaid
balance of the Principal Sum at the Regular Rate, from and after the date
hereof through and until the date of repayment in full of the Principal Sum.
3. Payments. This Note shall be payable in the following manner:
(a) Interest only on the unpaid balance of the Principal Sum shall
be payable on the first day of the first full calendar month immediately
following the date
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hereof.
(b) Principal and interest shall be paid on the unpaid balance of
the Principal Sum in regular monthly installments, based on a twenty-five
(25) year amortization schedule, in the amount of the Monthly Payment,
together with one-twelfth (1/12th) of the Assessments and insurance
premiums to be deposited in the Tax and Insurance Escrow, beginning on
the first day of the second calendar month immediately following the date
hereof, and continuing on the first day of each succeeding month until
the Maturity Date, at which time all sums due hereunder, whether
principal, interest, prepayment premiums, fees or other sums, shall be
due and payable in full.
4. Maturity.
4.1. This Note shall mature and the entire unpaid balance of the
Principal Sum, and all accrued and unpaid interest thereon shall be due and
payable on the scheduled Maturity Date.
4.2. Notwithstanding any provisions of this Note to the contrary,
the Holder reserves the right to declare the entire amount of outstanding
principal and all unpaid accrued interest thereon to be immediately due and
payable on any one of the following dates (each hereinafter called a "Call
Date" and collectively "the Call Dates") (which Call Date shall, upon notice
from the Holder in accordance with the terms hereof, thereupon be the
Maturity Date hereunder, subject to the Holder's rights of acceleration
hereunder):
(i) Ten (10) years from the due date of the first installment
of principal and interest;
(ii) every fifth (5th) anniversary thereafter of the date
specified in subpart (i) (i.e., following the fifteenth
[15th], twentieth [20th] and twenty-fifth [25th] loan years).
Such right shall be exercised by the Holder, in its sole and absolute
discretion, by giving written notice to the Borrower at least six (6) months
prior to the Call Date on which payment of all principal and interest shall
be due and payable in accordance with such notice. The exercise of such right
by the Holder shall not relieve the Borrower of its obligation to make
scheduled payments hereunder, or to pay any other sums due and owing
hereunder, between the date of such notice and the payment date stated in
such notice. The exercise of such right by the Holder shall result in the
Principal Sum not being fully amortized by the payment of the Monthly
Payments hereunder prior to the Maturity Date and the Borrower shall be
obligated to make a "balloon payment" on the Maturity Date.
5. Calculation of Interest. Interest shall be calculated on the basis of
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a 360-day year factor applied to twelve (12) 30-day months.
6. Manner of Payment. The Borrower shall make all payments of principal
of and interest on this Note during regular business hours at the Payment
Address, and in coin or currency of the United States of America which at the
time of such payment is legal tender for the payment of public and private
debts (provided, however, that any payment of principal of or interest on
this Note received by the Holder at the Payment Address after twelve o'clock
noon, local time at the Payment Address, on any day shall be deemed to have
been received by the Holder on the next Business Day thereafter, and shall
bear interest accordingly. Any such payment tendered other than in coin or
currency shall be accepted by the Holder subject to collection, and interest
shall continue to accrue on the unpaid balance of the Principal Sum as if
such payment had not been made, until the next Business Day on which, on or
before twelve o'clock noon, local time at the Payment Address, funds in coin
or currency are, on account of such payment, available to the Holder for its
immediate use.
7. Application of Payments. All payments made hereunder shall be
applied first to late charges or other sums owing to the Holder, next to
accrued interest, and then to principal, or, in such other order or
proportion as the Holder, in its sole discretion, may determine.
8. Default Interest Rate; Late Payments.
8.1. If any payment hereunder is not paid within fifteen (15) days
after the date when due and payable, such payment shall continue as an
obligation of the Borrower, with interest thereon at the Default Rate from
the date the payment was due until paid in full. From and after the Maturity
Date, the entire unpaid balance of the Principal Sum and all unpaid interest
accrued thereon at such maturity shall bear interest at the Default Rate.
Interest at the Default Rate shall be payable with the payment of the overdue
amount, and otherwise shall be compounded monthly on the first day of each
and every calendar month until paid in full.
8.2. In addition, the Borrower shall pay (a) a late charge in an
amount equal to four percent (4%) of any Monthly Payment which is not paid
within fifteen (15) days after the date when due and payable, and (b) all
reasonable and actual costs of enforcement or collection, including
reasonable attorneys' fees, if the Holder consults an attorney with respect
to enforcement thereof or any other right of the Holder with respect hereto
after default or if this Note is referred to an attorney for collection after
default. The late charge shall be payable to the Holder as additional
interest and not as a penalty.
9. Waivers. The Borrower hereby waives all applicable exemption rights,
whether under any state constitution, homestead laws or otherwise, valuation
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and appraisement, presentment of this Note for payment, protest and demand,
dishonor and notice of protest, demand or dishonor and nonpayment under this
Note, and agrees that, without giving notice to or obtaining the consent of the
Borrower or any other person, the Holder may extend the time of payment, release
any party liable for any obligation hereunder, release any of the security for
this Note, accept other security therefor, and otherwise modify the terms of
payment of any or all of the debt evidenced by this Note, with or without having
been requested to do so by any other person liable hereon, and such consent
shall not alter or diminish the liability of the Borrower or any other person
hereunder, except if and to the extent that the Holder may otherwise agree with,
respectively, the Borrower or such other person, expressly and in writing;
provided, however, that in no event shall any such change increase the
obligations of the Borrower hereunder unless and until such change is agreed to
in writing by Borrower. THE BORROWER, BY ITS EXECUTION OF THIS NOTE, AND THE
HOLDER, BY ITS ACCEPTANCE HEREOF, EACH HEREBY VOLUNTARILY AND INTENTIONALLY
WAIVE ANY RIGHT EACH MAY HAVE TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER, OR IN CONNECTION WITH
THIS NOTE OR ANY OF THE OTHER SECURITY DOCUMENTS.
10. Prepayment.
10.1. No prepayment of the Principal Sum of this Note shall be allowed
prior to the 12th month of the anniversary of the date of this Note. Beginning
with the 13th month from the anniversary of the date of this Note, the Principal
Sum of this Note may be prepaid in whole but not in part, on any interest
payment date herein, provided that: (1) not later than sixty (60) days prior to
such prepayment, the Borrower delivers written notice to the Holder that the
Borrower intends to prepay this Note in full on the date specified in such
notice; and (2) the Borrower pays to the Holder at the time of such prepayment,
a sum, which together with the amount prepaid shall be sufficient to invest in a
U.S. Treasury obligation for the remaining term of the Loan to produce the same
effective yield to maturity as the Loan ("the Prepayment Premium") calculated in
accordance with the following provisions of this subsection 10.1. The Prepayment
Premium shall be the greater of the following calculations:
(i) The sum of (a) the present value of the scheduled Monthly
Payment on the Loan from the date of prepayment to the
earlier of the scheduled Maturity Date or the next applicable
Call Date, and (b) the present value of the amount of
principal and interest due on the earlier of the scheduled
Maturity Date or the next applicable Call Date (assuming all
scheduled Monthly Payments due prior to the scheduled
Maturity Date or the next applicable Call Date were made when
due); minus (c) the outstanding balance of the Principal Sum
as of the date of prepayment. The present values described in
(a) and (b) are computed on a monthly basis as of the date of
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prepayment, discounted at a rate equal to (1) the rate of the
U.S. Treasury Note closest in maturity to the remaining term
of the Loan calculated based on the earlier of the scheduled
Maturity Date or the next applicable Call Date (as such rate
is reported in the Wall Street Journal on the fifth Business
Day preceding the date of prepayment) plus (2) 40 basis
points; or
(ii) One percent (1%) of the then outstanding balance of the
Principal Sum.
Notwithstanding the foregoing, however, in the event of acceleration of this
Note at any time (other than as the result of the Holder's election to
accelerate the Maturity Date in accordance with subsection 4.2 above, in which
event no Prepayment Premium shall apply) and subsequent involuntary or voluntary
prepayment, the Prepayment Premium shall be payable, however, in no event shall
it exceed an amount equal to the excess, if any, of (i) interest calculated at
the highest applicable rate permitted by applicable law, as construed by courts
having jurisdiction thereof, on the balance of the Principal Sum of this Note
from time to time outstanding from the date thereof to the date of such
acceleration, over (ii) interest theretofore paid and earned on this Note. Any
prepaid amounts specified in such notice shall become due and payable at the
time provided in such notice. Under no circumstances shall the Prepayment
Premium ever be less than zero. The amount of prepayment shall never be less
than the full amount of the then outstanding principal and interest of this
Note.
10.2. Notwithstanding the provisions of subsection 10.1, if the
Borrower is entitled to obtain the Partial Release as defined in Section 11.4(b)
of the Indenture, then the Holder agrees to accept the Partial Release Principal
Repayment Amount required to be paid thereunder without imposition of the
Prepayment Premium.
10.3. Notwithstanding the provisions of subsection 10.1, the Prepayment
Premium shall not apply to any prepayment resulting from the application of
Casualty Proceeds or Condemnation Awards under the Indenture to payment of the
Principal Sum or any part thereof.
11. Payment of Costs. If, after any Event of Default, the Holder retains an
attorney with respect to any enforcement action which the Holder may be entitled
to take, including but not limited to, any suit or action is instituted to
collect any or all of the Principal Sum, any interest accrued thereon or any
other sum falling due under the provisions of this Note, or if this Note is
placed in the hands of an attorney for collection, the Borrower hereby agrees to
pay all reasonable and actual costs thereby incurred by the Holder, including
that of attorneys' fees, all of which shall be added to and become part of the
debt evidenced hereby.
12. Security. This Note is given to evidence a loan in the amount of the
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Principal Sum made to the Borrower by the Lender (the Borrower's receipt of
which from the Lender is hereby acknowledged), and is secured by the
Indenture. The Indenture contains a more particular description of the real
and personal property, equipment and fixtures covered by the Indenture,
provisions for the acceleration of the maturity of this Note upon the
occurrence of certain Events of Default enumerated in the Indenture, and
provisions setting forth the rights of the Holder in respect of such
security, all of which are incorporated in this Note by reference.
13. Acceleration. Upon the occurrence of any Event of Default, the unpaid
balance of the Principal Sum, together with all accrued and unpaid interest and
all other sums evidenced hereby or secured by the Indenture, including the
prepayment fee described in Section 10, shall at the Holder's option become
immediately due and payable.
14. Applicable Law. This Note shall be construed, interpreted and enforced
in accordance with the laws of the State as the same are in effect from time to
time.
15. Joint and Several Liability. If there exists more than one Borrower,
all liabilities and obligations under this Note and the Indenture shall be joint
and several with respect to the Borrowers.
16. Excess Interest. Nothing herein contained, nor any transaction related
thereto, shall be construed or so operate as to require the Borrower to pay
interest at a greater rate than the maximum allowed by law. Should any interest
or other charges paid or payable by the Borrower in connection with this Note,
or any other document delivered in connection herewith, result in the
computation or earning of interest in excess of the maximum allowed by
applicable state or federal law, then any and all such excess shall be and the
same is hereby waived by the Holder, and any and all such excess paid shall be
credited automatically against and in reduction of the balance due under this
Note, and the portion of said excess which exceeds the balance due under this
Note shall be paid by the Holder to the Borrower.
17. Time of the Essence. The Borrower agrees that time is strictly of the
essence hereof.
18. Notices. Any notices required to be given hereunder shall be given in
the manner set forth for notices in the Indenture.
19. Extensions. The Maturity Date and/or any other date by which payment is
required to be made hereunder may be extended by the Holder from time to time in
its sole discretion, without in any way altering or impairing the Borrower's
liability hereunder.
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20. Estoppel Certificate. The Borrower agrees to furnish to the Lender at
any time and from time to time, within fifteen (15) days after written request
therefor, a written estoppel certificate, duly executed and acknowledged,
setting forth the amount which the Borrower then believes to be due under this
Note, and whether any claim, offset or defense then exists hereunder.
21. Assignability. This Note may be assigned by the Lender or any
subsequent Holder at any time and from time to time, and shall inure to the
benefit of and be enforceable by the Lender and its successors and assigns and
any other person to whom the Holder may grant an interest in the Borrower's
obligations to the Lender, and shall be binding and enforceable against the
Borrower and the Borrower's successors and assigns. The Holder shall have the
right to assign, participate, syndicate or transfer any or all of its investment
in the Loan, including sales through one or more private placements or publicly
registered offerings. The Borrower shall, without expense to the Borrower,
cooperate with the Lender to effect such transactions, provide such information,
including non-confidential financial information, which information may be
divulged to third parties as may be necessary, and execute documentation as
requested by the Holder in connection therewith, including amendments or
restatements of the Security Documents so long as such amendments or
restatements do not (i) alter the essential business terms thereof or (ii) in
any way increase the liability of Borrower thereunder. The Holder shall provide
written notice to the Borrower following any transfer of all of the Holder's
investment in the Loan if such transfer also includes the servicing of the Loan.
22. Invalidity of Any Part. If any provision or part of any provision of
this Note shall be for any reason held invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision hereof, and this Note shall be construed as if such provision or
part thereof had never been contained herein, but only to the extent of its
invalidity, illegality or unenforceability.
23. Confession of Judgment. SUBJECT TO THE PROVISIONS OF SECTION 24, UPON
AN EVENT OF DEFAULT, AND FOLLOWING FIVE (5) DAYS PRIOR WRITTEN NOTICE WITH
RESPECT TO ANY EVENT OF DEFAULT FOR WHICH WRITTEN NOTICE IS NOT OTHERWISE
REQUIRED TO BE GIVEN TO THE BORROWER BY THE HOLDER, THE BORROWER HEREBY APPOINTS
AND AUTHORIZES ANY ATTORNEY OF ANY COURT OF RECORD TO BE THE BORROWER'S TRUE AND
LAWFUL ATTORNEY-IN-FACT, AND IN THE BORROWER'S NAME AND STEAD, TO ACKNOWLEDGE
SERVICE OF ANY AND ALL LEGAL PAPERS ON ANY KIND OF SUIT BROUGHT FOR COLLECTION
OF THIS OBLIGATION AND TO APPEAR FOR THE BORROWER IN ANY COURT OF COMPETENT
JURISDICTION IN THE STATE AND TO ACKNOWLEDGE AND CONFESS JUDGMENT AGAINST THE
BORROWER AND IN FAVOR OF THE HOLDER OF THIS NOTE FOR THE ENTIRE PRINCIPAL AMOUNT
OF THIS NOTE THEN REMAINING UNPAID WITH INTEREST THEREON THEN ACCRUED AND
9
<PAGE>
UNPAID, TOGETHER WITH REASONABLE ATTORNEYS' FEES, WHICH SHALL BE NOT LESS THAN
$10,000, AND COURT COSTS, AND THE BORROWER HEREBY WAIVES THE RIGHT OF APPEAL AND
STAY OF EXECUTION.
24. Limitation of Liability. Subject to the terms of the next succeeding
paragraph of this Section 24 and notwithstanding anything to the contrary
otherwise contained in this Note, it is agreed that the promise of the Borrower
to pay the principal indebtedness and the interest on this Note shall be for the
sole purpose of establishing the existence of an indebtedness; the Holder's
source of satisfaction of said indebtedness and of the Borrower's other
obligations hereunder and under the Security Documents is limited solely to (a)
the Property (b) rents, issues and profits from the Property received by the
Borrower and (c) any separate agreements guaranteeing the payment of the amounts
due hereunder and under the Security Documents and the Borrower's performance
hereunder and under the Security Documents; the Holder shall not seek to procure
payment out of any other assets of the Borrower, or to procure any judgment
against the Borrower for any amount which is or may be payable under this Note,
the Indenture or any of the other Security Documents or for any deficiency
remaining after foreclosure of the Indenture; provided, however, that nothing
herein contained shall be deemed to be a release or impairment of said
indebtedness or the security therefore intended by the Indenture, or be deemed
to preclude the Holder from foreclosing the Indenture or from enforcing any of
the Holder's rights thereunder, or in any way or manner affecting the Holder's
rights and privileges under any of the Security Documents or any separate
agreements guaranteeing the Borrower's payment and performance hereunder and
under the Security Documents.
Notwithstanding the foregoing limitation of liability provision, it is
expressly understood and agreed that the Borrower, and Constellation Real Estate
Group, Inc. shall be jointly and severally liable for the payment to the Holder
of:
(i) the misapplication of all rents, security deposits, or other
income, issues, profits and revenues derived from the
Property after an Event of Default, provided that any rents
collected more than one (1) month in advance as of the time
of the Event of Default shall be considered to have been
collected after the Event of Default;
(ii) any loss due to fraud or misrepresentation to the Holder by
the Borrower (or by any of its general partners, by any of
the general partners of any of its general partners or any of
its or their agents, if applicable);
(iii) the misapplication of (a) proceeds paid under any insurance
policies by reason of damage, loss or destruction to any
portion of the Property to the full extent of such misapplied
proceeds, or
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(b) proceeds or awards resulting from the condemnation or
other taking in lieu of condemnation of any portion of the
Property, to the full extent of such misapplied proceeds or
awards;
(iv) any loss due to waste of the Property or any portion thereof,
and all reasonable and actual costs including reasonable
attorney's fees, incurred by the Holder to protect the
Property and any other security for the indebtedness
evidenced by this Note or to enforce such Note, the
Indenture, and any of the other Security Documents;
(v) any taxes, assessments and insurance premiums for which the
Borrower is liable under this Note, the Indenture or any of
the other Security Documents and which are paid by the
Holder, including any recordation tax or other charge
resulting from the purchase, amendment and restatement of the
Existing Note and the Existing Deed of Trust;
(vi) any loss arising under the hazardous substance
indemnification and hold harmless agreement and the
Borrower's hazardous substances covenants, warranties and
representations provisions contained in the Environmental
Indemnity Agreement of even date herewith by the Borrower and
Constellation Real Estate Group, Inc. to and for the benefit
of the Holder; and
(vii) all reasonable and actual costs and fees including without
limitation reasonable attorney fees incurred by the Holder in
the enforcement of subparagraphs (i) - (vi) above.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed, sealed
and delivered by its duly authorized officers or representatives as of the day
and year first written above.
WITNESS: CRANBERRY-140 LIMITED PARTNERSHIP,
Maryland limited partnership
By: Constellation Properties, Inc.,
a Maryland corporation, its general
partner
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- -------------------------------
By: (SEAL)
------------------------------
Name:
Title:
The Borrower
Article V. Effect of this Agreement. Nothing in the provisions of this
Agreement shall be deemed in any way to affect the priority of the Existing Deed
of Trust over any other lien, security interest, charge, encumbrance or
conveyance, or to release or change the liability of any person who is now or
hereafter primarily or secondarily liable under or on account of the Existing
Note.
Article VI. Ratification and Confirmation. The Existing Note, as reduced,
amended and restated in accordance with the provisions of Article IV of this
Agreement, is hereby ratified and confirmed in all respects by the Borrower.
Article VII. Due Authorization and Consideration. The Borrower hereby
represents, warrants and covenants to the Holder that the Existing Note and this
Agreement are the valid, binding and legally enforceable obligations of the
Borrower enforceable in accordance with their respective terms; that fair
consideration has been given for the Existing Note and this Agreement; that the
execution, ensealing and delivery of this Agreement by the Borrower has been
duly and validly authorized in all respects by the Borrower; and that the
persons who executed the Existing Note and who are executing this Agreement on
behalf of the Borrower have each been duly authorized so to do.
Article VIII. No Offsets, etc. The Borrower hereby represents, warrants and
covenants to the Holder that there are no offsets, counterclaims or defenses at
law or in equity against this Agreement, the Existing Note or the Existing Loan
Documents, that, except as set forth herein, the Existing Note has not been
modified or amended in any manner whatsoever, and that the Borrower had and has
full power, authority and legal right to execute the Existing Note and this
Agreement and to observe and perform all of the terms and conditions of the
Existing Note and this Agreement on the Borrower's part to be observed or
performed.
Article IX. Severability. If any term, covenant or condition of this
Agreement shall be held to be invalid, illegal or unenforceable in any respect,
this Agreement shall be construed without such provision.
Article X. Successors and assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
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and assigns hereunder.
Article XI. Amendment. This Agreement may be amended by and only by an
instrument executed and delivered by each party hereto.
Article XII. Effectiveness. This Agreement shall become effective upon and
only upon its execution and delivery by each party hereto.
IN WITNESS WHEREOF, each party hereto has executed and ensealed
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this Agreement, or caused it to be executed and ensealed by its duly authorized
representative, as of the day and year first above written.
WITNESS or ATTEST: SECURITY LIFE OF DENVER INSURANCE
COMPANY, a Colorado corporation
By: (SEAL)
------------------------------
Name:
Title:
- Lender-
[SIGNATURES CONTINUE ON PAGE 14]
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<PAGE>
[SIGNATURES CONTINUED FROM PAGE 13]
WITNESS: CRANBERRY-140 LIMITED PARTNERSHIP, a
Maryland limited partnership
By: Constellation Properties, Inc., a
Maryland corporation, its sole general
partner
By: (SEAL)
------------------------------
Name:
Title:
THIS IS TO CERTIFY that this is the Amended and Restated Deed of Trust Note
described in and secured by a certain Amended and Restated Deed of Trust and
Security Agreement, bearing even date herewith, by and among Cranberry-140
Limited Partnership, as grantor, Security Life of Denver Insurance Company, as
beneficiary and Raymond G. Truitt and Alan W. Adamson, as trustees; the Amended
and Restated Deed of Trust Note and the Amended and Restated Deed of Trust and
Security Agreement having been executed by Cranberry-140 Limited Partnership in
my presence.
----------------------------------
Notary Public
My Commission Expires:
------------------
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Exhibit 10.7
LOAN MODIFICATION AGREEMENT
THIS LOAN MODIFICATION AGREEMENT (this "Agreement") is made and entered into
as of the 28th day of September, 1998, by and among CRANBERRY- 140 LIMITED
PARTNERSHIP, a Maryland limited partnership (the "Borrower"), and SECURITY LIFE
OF DENVER INSURANCE COMPANY, a Colorado corporation ("Lender").
RECITALS
R-1. Borrower is justly indebted to the Lender for a real estate mortgage
loan in the original principal amount of Ten Million and 00/100 Dollars
($10,000,000.00) ("the Loan"). The Loan is evidenced by an Amended and Restated
Deed of Trust Note in the original principal amount of Ten Million and 00/100
Dollars ($10,000,000.00) dated October 6, 1995, executed and delivered by
Borrower, as maker, to and in favor of the Lender, as holder (as modified on the
date hereof, the "Note").
R-2. The indebtedness evidenced by the Note is secured by (a) that certain
Amended and Restated Deed of Trust and Security Agreement, executed October 6,
1995, by Borrower for the benefit of Lender, and recorded October 10, 1995, in
Deed Book 1732, Page 262 of the Land Records of Carroll County, Maryland, (as
modified on the date hereof, the "Deed of Trust"), and (b) that certain Amended
and Restated Assignment of Leases and Rents, executed October 6, 1995, by
Borrower for the benefit of Lender and recorded on October 10, 1995, in Deed
Book 1732, Page 318 of the Land Records of Carroll County, Maryland (as modified
on the date hereof, the "Lease Assignment").
R-3. Borrower has requested that Lender permit the transfer of the
partnership interests in Borrower from Constellation Properties, Inc. and CPI
Partner, Inc. (collectively, the "Existing Partners") to Corporate Office
Properties, L.P. and COPT Columbia, LLC ("the Transfer"), and the subsequent
conversion of Borrower into a Maryland limited liability company ("the
Conversion") and that Lender not declare a default under the Deed of Trust as a
result of the Transfer or the Conversion.
R-4. Lender has agreed to waive its right to declare a default under the
terms of the Deed of Trust as a result of the Transfer or the Conversion,
subject to the terms and conditions herein contained.
R-5. Capitalized terms not otherwise defined herein shall have the meaning
ascribed to such term in the Deed of Trust.
NOW, THEREFORE, FOR AND IN CONSIDERATION of the foregoing, and other good
and valuable consideration, the receipt and sufficiency of which are hereby
<PAGE>
acknowledged by the undersigned, the parties hereby agree as follows:
1. Incorporation of Recitals. The Recitals set forth hereinabove are
hereby incorporated as a substantive part of this Agreement.
2. Security Documents. As used herein, the term "Security Documents" shall
mean this Agreement, the Note, the Deed of Trust, the Lease Assignment, the
Environmental Indemnity Agreement (subject to the release of Constellation Real
Estate Group, Inc., as set forth in Section 13 below), the New Environmental
Indemnity, the New Guaranty and any other instrument or document now or
hereafter evidencing, securing or otherwise relating to the indebtedness
evidenced by the Note, as each may be amended on the date hereof.
3. Ratification of Obligations. Borrower hereby expressly ratifies and
confirms its obligations under the Security Documents. All of the provisions of
the Security Documents are incorporated herein by reference and shall continue
in full force and effect. Lender and Borrower agree that it is their intention
that nothing herein shall be construed to extinguish, release or discharge or
constitute, create or effect a novation of, or an agreement to extinguish, any
of the obligations, indebtedness and liabilities of any party under the
provisions of the Security Documents.
4. Representations and Warranties. Borrower hereby represents, warrants
and agrees as follows:
(a) Each of the representations and warranties of Borrower contained in
the Security Documents are true and correct as of the date hereof, and
Borrower's execution and delivery of this Agreement to Lender shall
constitute its representation and warranty that such is the case.
(b) The execution and delivery of this Agreement does not violate,
conflict with, or result in a breach or default under any limited
partnership agreement, articles of incorporation, operating agreement,
bylaws, or any other agreement by which Borrower is bound. Borrower has been
duly authorized and has all requisite authority to consummate this
transaction, and no other approvals or consents are necessary for the
consummation of this transaction by Borrower.
(c) Borrower is a limited partnership, validly existing and in good
standing under the laws of the State of Maryland.
(d) Borrower has provided to Lender copies of each document pursuant to
which Borrower's partnership interests are to be transferred and the copy of
each such document provided to Lender is a true and complete copy of the
original of such document.
5. New Environmental Indemnity and New Guaranty.
2
<PAGE>
(a) Simultaneously with the execution and delivery of this Agreement,
Corporate Office Properties, L.P. ("COPLP") shall execute and deliver to
Lender (i) an Environmental Indemnification Agreement (the "New
Environmental Indemnity") subject to the terms, provisions, and limitations
set forth in the New Environmental Indemnity, and (ii) a Guaranty Agreement
(the "New Guaranty") of certain obligations of Borrower subject to the
terms, provisions, and limitations set forth in the New Guaranty.
(b) Any and all references to "guarantor" or "guarantors" under the
Security Documents shall hereinafter be deemed to refer to and include
COPLP.
6. No Additional Advances. Notwithstanding any provisions of the Note, the
Deed of Trust or any other Security Document to the contrary, Borrower hereby
acknowledges and agrees that no additional Loan proceeds are to be advanced to
Borrower and that the Lender has no additional funding obligations under the
Loan.
7. Effect of this Agreement on Note. The provisions in this Agreement
modifying the Note shall be deemed to be a part of the Note, as fully and
completely as if these provisions were set forth at length in the body of the
Note.
8. Modification of Security Documents.
(a) Note. In the Note:
(1) In the 2nd line of the 2nd paragraph of Section 24, the words
"Constellation Real Estate Group, Inc." are deleted and replaced with
the words "Corporate Office Properties, L.P.".
(2) In the 5th line of Section 24(vi), the words "Constellation
Real Estate Group, Inc." are deleted and replaced with the words
"Corporate Office Properties, L.P.".
(b) Deed of Trust. In the Deed of Trust:
(1) The term "Environmental Indemnity Agreement" shall henceforth
mean the existing Environmental Indemnity Agreement dated October 6,
1995 executed by Borrower to and for the benefit of Lender (the
"Original Environmental Indemnity") and the New Environmental
Indemnity, as defined herein.
(2) The term "Guaranty" shall henceforth mean the New Guaranty, as
defined herein.
(3) The term "Management Agreement" shall henceforth mean any
3
<PAGE>
agreement executed by Borrower for the management of all or any portion of the
Property.
(4) In the 8th line of Section 21.2, the words "Constellation Real
Estate Group, Inc." are hereby deleted and replaced with the words "Corporate
Office Properties, L.P.".
(5) In the 2nd line of the 2nd paragraph of Section 29, the words
"Constellation Real Estate Group, Inc." are hereby deleted and replaced with the
words "Corporate Office Properties, L.P.".
(6) In the 5th line of Section 29(vi), the words "Constellation Real
Estate Group, Inc." are deleted and replaced with the words "Corporate Office
Properties, L.P.".
(7) Section 11.3 is deleted in its entirety.
(c) Lease Assignment. In the Lease Assignment:
(1) In the 2nd line of the 2nd paragraph of Section 10, the words
"Constellation Real Estate Group, Inc." are hereby deleted and replaced
with the words "Corporate Office Properties, L.P.".
(2) In the 5th line of Section 10(vi), the words "Constellation
Real Estate Group, Inc." are deleted and replaced with the words
"Corporate Office Properties, L.P.".
9. Notice. So long as Borrower holds legal title to the Property, all
notices required or permitted by the Security Documents to be given to the
mortgagor under the Deed of Trust or to the maker under the Note shall be given
in writing and delivered in the manner provided in the Security Documents,
respectively, addressed to Borrower, until further notice, as follows:
Cranberry-140 Limited Partnership
c/o Corporate Office Properties Trust
8815 Centre Park Drive, Suite 400
Columbia, Maryland 21045
Attn: President
with a copy to:
Cranberry-140 Limited Partnership
c/o Corporate Office Properties Trust
8815 Centre Park Drive, Suite 400
4
<PAGE>
Columbia, Maryland 21045
Attn: General Counsel
10. Transfer Fee. Simultaneously with the closing of the assignment and
assumption contemplated herein, Borrower shall deliver to Lender, in immediately
available funds, a cashier's check or wire in the sum of $95,696.63 as a
transfer fee (the "Transfer Fee"). The Transfer Fee shall not reduce the
outstanding principal balance under the Note.
11. Additional Events of Default. In addition to those events of default
specifically set forth heretofore in the Security Documents, the failure of
Borrower or COPLP to comply with the terms and provisions of any covenant or
agreement contained herein shall constitute an Event of Default under the Deed
of Trust and shall entitle Lender to exercise all rights and remedies provided
for in the Security Documents.
12. Consent by Lender. Lender joins in the execution of this Agreement for
the purposes of:
(a) waiving its right to declare an event of default under the terms of
the Security Documents as a result of the Transfer; however, the foregoing
waiver shall not amend or modify the Security Documents as to any future
sale, transfer or conveyance of the partnership interests or any portion
thereof or interest therein;
(b) acknowledging that the Transfer represents the one-time transfer
referenced in Section 11.3 of the Deed of Trust;
(c) effecting certain releases as more fully described herein;
(d) consenting to the modifications to the Security Documents as more
particularly set forth herein.
13. Release of Original Guarantor. Subject to the satisfaction of the
Conditions Precedent contained in Section 14 below, Lender hereby releases and
discharges Constellation Real Estate Group, Inc. ("CREG") and the Existing
Partners, and their respective successors, stockholders, officers, directors,
and employees from all obligations, claims, demands, expenses and liabilities
which the Lender has or hereafter may have with respect to or arising under the
Loan, regardless of whether such obligations, claims, demands, expenses and
liabilities arise in their capacity as guarantors, obligors, promisors, or as
partners of any limited partnership. The foregoing release shall specifically
include those obligations of CREG arising under (i) the Guaranty Agreement dated
October 6, 1995 executed by CREG to and for the benefit of Lender and (ii) the
Environmental Indemnity Agreement dated October 6, 1995 and executed by Borrower
and CREG for the benefit of Lender.
5
<PAGE>
14. Conditions Precedent.
(i) The following shall be conditions precedent to the effectiveness of this
Agreement:
(a) Documents. On or before the date hereof, Borrower and COPLP (as the
case may be) shall have executed and delivered to Lender this Agreement, the
New Guaranty, the New Environmental Indemnity, a General Certificate of
Borrower and Guarantor, a UCC-3 Financing Statement Amendment reflecting the
new ownership of Borrower, and all other agreements required by Lender to
effect the transactions contemplated herein, each in form and substance
acceptable to Lender.
(b) Opinion. On or before the date hereof, Lender shall receive an
opinion of Borrower's and COPLP's counsel as to the continued enforceability
of the Security Documents and such other matters as are required by Lender,
in form and substance acceptable to Lender.
(c) Confirmation of Authority. On or before the date hereof, Borrower
and COPLP shall deliver to Lender evidence satisfactory to Lender of their
existence, good standing, authority to do business in Maryland and
resolutions respecting its authority to consummate the transactions provided
for herein, each in form and substance acceptable to Lender.
(d) Payment of Transfer Fee and Attorneys' Fees. On or before the date
hereof, Borrower shall deliver the Transfer Fee to Lender and pay all
attorneys' fees and expenses incurred in connection with the transactions
contemplated herein.
(e) No Default. There shall be no Event of Default continuing under the
Security Documents at the time of closing.
(ii) By its execution and delivery of this Agreement, the Lender hereby
confirms that the conditions precedent contained in Section 14(i) have been
satisfied.
15. Provisions Regarding Conversion to LLC. Lender hereby consents to the
Conversion of Borrower to a limited liability company (the "LLC"), upon the
satisfaction of the following conditions:
(a) Prior to the Conversion, Borrower shall provide to Lender, for
Lender's review and approval:
(1) the proposed form of LLC Articles of Organization and
Operating Agreement ("LLC Organizational Documents");
6
<PAGE>
(2) the proposed form of confirmatory deed conveying the Property
from Borrower to the LLC (the "Confirmatory Deed); and
(3) a proforma title endorsement evidencing the record transfer of
the Property to the LLC and assuring the Lender of no loss of priority
of its Deed of Trust as a result of such transfer (the "Title
Endorsement").
(b) Upon Lender's approval of the form of LLC Organizational Documents,
the form of Confirmatory Deed, and the form of Title Endorsement, the LLC
and Lender shall enter into an Loan Assumption and Ratification Agreement
with Lender in the form attached hereto as Exhibit A.
16. Absence and Waiver of Claims. Borrower hereby affirms that there has
been no occurrence to date of any event or fact which would give rise to any
claim or any right of setoff, counterclaim or any other defense to the rights of
Lender under the Security Documents and to the extent such claim, right or
defense has arisen, Borrower hereby waives and releases such claim, right or
defense.
17. Payment of Lender's Expenses. Borrower (i) agrees to pay all costs
incurred by Lender in connection with its entry into this Agreement, including
but not limited to, reasonable attorneys' fees, and (ii) acknowledges that the
provisions of this Agreement shall not be effective to modify the Security
Documents unless and until its obligation to reimburse Lender for said expenses
has been satisfied.
18. No Amendment. Except as may be amended or modified hereby, the Security
Documents shall otherwise remain in full force and effect.
19. Counterparts. This Agreement may be executed in multiple counterparts,
which, when taken together, shall constitute the whole.
20. Trustees. Raymond G. Truitt and Jon M. Laria, the trustees under the
Deed of Trust, join in the execution of this Agreement to acknowledge the
modifications and amendments contained hereinabove.
21. Binding Effect; Governing Law. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their successors and assigns, and
shall be governed by the law of the State of Maryland.
22. Further Assurances. Borrower agrees to execute and deliver such
additional instruments as may be reasonably requested by Lender in furtherance
of the terms of this Agreement.
7
<PAGE>
[SIGNATURES APPEAR ON THE FOLLOWING PAGE.]
8
<PAGE>
IN WITNESS WHEREOF, Borrower and Lender have caused this Agreement to be
executed as of the day and year first above written.
BORROWER:
WITNESS: CRANBERRY-140 LIMITED PARTNERSHIP, a
Maryland limited partnership
By: COPT Columbia, LLC, a Maryland
limited liability company, its general
partner
By: Corporate Office Properties, L.P.,
a Delaware limited partnership,
its sole member
By: Corporate Office
Properties Trust, a
Maryland trust company,
its general partner
- --------------------------
By: (SEAL)
-------------------------
Name: Clay W. Hamlin, III
Title:
LENDER:
WITNESS: SECURITY LIFE OF DENVER INSURANCE
COMPANY, a Colorado corporation
- --------------------------
By: (SEAL)
--------------------------
Name:
Title:
---------------------------(SEAL)
RAYMOND G. TRUITT, Trustee
---------------------------(SEAL)
JON M. LARIA, Trustee
9
<PAGE>
[NOTARY BLOCKS BEGIN ON FOLLOWING PAGE]
10
<PAGE>
STATE OF : COUNTY OF : TO WIT:
I HEREBY CERTIFY that on this ____ day of __________, 1998, before me, a
Notary Public for the state and county aforesaid, personally appeared CLAY W.
HAMLIN, III, known to me or satisfactorily proven to be the person whose name is
subscribed to the foregoing instrument, who acknowledged that he is the
______________ of CORPORATE OFFICE PROPERTIES TRUST, a Maryland trust company,
the general partner of CORPORATE OFFICE PROPERTIES, L.P., a Delaware limited
partnership, the sole member of COPT COLUMBIA, LLC, a Maryland limited liability
company, the general partner of CRANBERRY-140 LIMITED PARTNERSHIP, a Maryland
limited partnership, and that he has been duly authorized to execute, and has
executed, the foregoing instrument on behalf of the said entity for the purposes
therein set forth, and that the same is its act and deed.
IN WITNESS WHEREOF, I have set my hand and Notarial Seal, the day and year
first above written.
-------------------------------
Notary Public
My commission expires on .
----------------
STATE OF : COUNTY OF : TO WIT:
I HEREBY CERTIFY that on this ____ day of _______________, 1998, before me,
a Notary Public for the state and county aforesaid, personally appeared
_______________________________, known to me or satisfactorily proven to be the
person whose name is subscribed to the foregoing instrument, who acknowledged
that he is the _____________ of SECURITY LIFE OF DENVER INSURANCE COMPANY, a
Colorado corporation, that he has been duly authorized to execute, and has
executed, the foregoing instrument on behalf of the said entity for the purposes
therein set forth, and that the same is its act and deed.
IN WITNESS WHEREOF, I have set my hand and Notarial Seal, the
day and year first above written.
-------------------------------
Notary Public
My commission expires on .
----------------
11
<PAGE>
STATE OF : COUNTY OF : TO WIT:
I HEREBY CERTIFY that on this ________ day of _______, 199__, before me, a
Notary Public for the state and county aforesaid, personally appeared RAYMOND G.
TRUITT, known to me or satisfactorily proven to be the person whose name is
subscribed to the foregoing instrument, who acknowledged that he has executed,
the foregoing instrument for the purposes therein set forth.
IN WITNESS WHEREOF, I have set my hand and Notarial Seal, the day and year
first above written.
-------------------------------
Notary Public
My commission expires on .
----------------
STATE OF : COUNTY OF : TO WIT:
I HEREBY CERTIFY that on this ________ day of _______, 199__, before me, a
Notary Public for the state and county aforesaid, personally appeared JON M.
LARIA, known to me or satisfactorily proven to be the person whose name is
subscribed to the foregoing instrument, who acknowledged that he has executed,
the foregoing instrument for the purposes therein set forth.
IN WITNESS WHEREOF, I have set my hand and Notarial Seal, the day and year
first above written.
-------------------------------
Notary Public
My commission expires on .
----------------
12
<PAGE>
Exhibit A
Form of Loan Assumption and Ratification Agreement
13
<PAGE>
Exhibit 10.8
$3,650,000.00
PROMISSORY NOTE
From
TRED LIGHTLY LIMITED LIABILITY COMPANY,
A Maryland Limited Liability Company,
Borrower
To The Order Of
PROVIDENT BANK OF MARYLAND,
A Maryland Banking Corporation,
Lender
Dated As Of September 15th, 1995
<PAGE>
Baltimore, Maryland $3,650,000.00
September 15, 1995
PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned TRED LIGHTLY LIMITED LIABILITY
COMPANY, a Maryland limited liability company ("BORROWER"), promises to pay
to the order of PROVIDENT BANK OF MARYLAND, a Maryland banking corporation
("LENDER"), at the LENDER'S offices at 114 East Lexington Street, Baltimore,
Maryland 21201, or at such other places as the holder of this Promissory Note
may from time to time designate, the principal sum of Three Million Six
Hundred Fifty Thousand Dollars ($3,650,000.00), together with interest
thereon at the rate or rates hereafter specified and any and all other sums
which may be owing to the holder of this Promissory Note by the BORROWER
pursuant to this Promissory Note. The following terms shall apply to this
Promissory Note.
1. Interest Rate. For the period beginning on the date hereof and
continuing until the date upon which all principal sums hereunder have been
repaid in full by the BORROWER, and subject generally to the terms of Section
8.2 hereof, the outstanding principal balance of this Promissory Note shall
bear interest at the annual rates hereafter described in this Section.
1.1 Interest Based on Libor Rate. Subject to the terms of Section
1.2 below, the interest rate shall be adjusted on the first day of each three
(3) month period hereafter described (each of which is defined herein as an
"INTEREST PERIOD").
(a) The first INTEREST PERIOD shall begin on the date of funding under
this Promissory Note and run through the day before the first day
of the next INTEREST PERIOD.
(b) Each INTEREST PERIOD after the first INTEREST PERIOD shall begin on
the day that is three (3) month(s) after the first day of the
preceding INTEREST PERIOD and shall run through the day before the
first day of the next INTEREST PERIOD; provided that: (i) any
INTEREST PERIOD which begins on the last day of a calendar month
(or on a day for which there is no numerically corresponding day in
the calendar month in which the INTEREST PERIOD ends) shall,
subject to clause (ii) below, run through the day before the last
day of the calendar month in which the INTEREST PERIOD ends; and
(ii) no INTEREST PERIOD shall extend beyond the final maturity date
of this Promissory Note.
For the first INTEREST PERIOD, the interest rate shall be the fixed annual
rate of eight and 375/1000ths percent (8.375%). The interest rate shall be
adjusted on the first day of each subsequent
<PAGE>
INTEREST PERIOD to equal the rate obtained by adding two hundred fifty (250)
basis points to the "LIBOR RATE" (as hereafter defined). As used herein, the
term "LIBOR RATE" means, for each INTEREST PERIOD, the weighted average
(rounded upwards, if necessary, to the nearest one-hundredth of one percent
[0.01%]) of the Eurodollar London Interbank Offered Rates (at approximately
11:00 a.m. London time, on the date which is [i] two days prior to the first
day of the INTEREST PERIOD if the first day of the INTEREST PERIOD is a
"BUSINESS DAY" (hereafter defined), or [ii] two days prior to the last
BUSINESS DAY before the first day of the INTEREST PERIOD if the first day of
the INTEREST PERIOD is not a BUSINESS DAY) for a period equal in duration to
the INTEREST PERIOD, as reported by Bloomberg Business News or any other
source selected by the LENDER in the LENDER's sole discretion, as such rate
is adjusted in accordance with the LENDER's standard practices for reserves
and other requirements. As used herein, the term "BUSINESS DAY" means any
day other than a Saturday, a Sunday or a day on which commercial banks in
Baltimore, Maryland, are required or authorized to be closed.
1.2. Interest Based on Prime Rate. After the date hereof, the
BORROWER may elect, on one (1) occasion only, to convert the interest rate
payable on this Promissory Note from the rate described in Section 1.1 to
that fluctuating annual rate of interest at all times equal to the rate
obtained by adding one-half of one percentage point (1/2%) to the "PRIME
RATE" of the LENDER. As used herein, the term "PRIME RATE" shall mean the
floating rate of interest announced by the LENDER from time to time as its
prime commercial lending rate of interest, it being understood that such
announced rate bears no inference, implication, representation, or warranty
that such announced rate is charged to any particular customer of customers
of the LENDER. Changes in the interest rate shall be made immediately to
reflect any and all fluctuations in the PRIME RATE. Once elected, the rate
described in this Section 1.2 shall remain in effect until this Promissory
Note has been repaid in full. Such election, if made, must be made effective
as of the first day after the conclusion of the then current INTEREST PERIOD.
Written notice of the rate election must be delivered to the LENDER in
writing not later than two (2) BUSINESS DAYS prior to the effective date of
such election.
2. Calculation Of Interest. Interest shall be calculated on the basis
of a three hundred sixty (360) days per year factor applied to the actual
days on which there exists an unpaid balance hereunder.
3. Repayment. The BORROWER shall make a payment of accrued and unpaid
interest only on September 1, 1995, for interest accrued between the date of
funding and such date. Thereafter, on the first calendar day of each of the
next fifty-nine (59) succeeding months, the BORROWER shall pay monthly
principal installments of Six Thousand Eight Hundred Seventy Dollars ($6,870.00)
each. Payments of all accrued and unpaid interest and any late charges
2
<PAGE>
shall be due on the scheduled payment date for each principal installment
hereunder. On September 1, 2000, all sums due hereunder that remain unpaid,
including principal, interest, charges and fees, shall be paid in full.
4. Late Payment Charge. If any payment due hereunder, including any
final installment, is not received by the holder within fifteen (15) calendar
days after its due date (other than a balloon payment of principal due upon
the maturity date of this Promissory Note), the BORROWER shall pay a late
payment charge equal to five percent (5%) of the amount then due. The late
payment charge shall be due whether or not the holder declares this
Promissory Note in default or accelerates and demands immediate payment of
the sums due hereunder. The existence of the right by the holder to receive a
late payment charge shall not constitute a grace period or provide any right
in the BORROWER to make a payment other than on its due date.
5. Application Of Payments. All payments made hereunder shall be
applied first to late payment charges or other sums owed to the holder, next
to accrued interest, and then to principal, or in such other order or
proportion as the holder, in the holder's sole discretion, may elect from
time to time.
6. Voluntary Prepayment. The BORROWER may prepay the unpaid balance of
this Promissory Note from time to time in whole or in part, without premium
or additional interest. All prepayments under the LOAN shall be applied to
the outstanding principal balance in the inverse order of scheduled
maturities.
7. Mandatory Prepayment/Deposit of Additional Collateral. In the event
that, at any time and from time to time during the term of this Promissory
Note, the LENDER shall determine, in its sole and absolute discretion, that
the outstanding principal balance due under this Promissory Note equals or
exceeds:
(a) seventy-five percent (75%) of the value of the "REAL PROPERTY"
(as defined in Section 11 hereof) at such time, or
(b) eighty-five percent (85%) of the BORROWER'S "adjusted basis"
(hereafter defined) with respect to the "ASSIGNED LOANS" (as
defined in Section 11 hereof) from time to time,
then, within ten (10) calendar days after demand by the LENDER, the BORROWER
shall be obligated to either furnish additional collateral acceptable to the
LENDER in the LENDER'S sole and absolute discretion, or make a partial
repayment of principal hereunder, in either case sufficient to restore ratios
which are not in excess of the respective seventy-five percent (75%) and
eighty-five (85%) ratios described in this Section. As used in this Section,
the term "adjusted basis" is defined as the initial purchase price paid
3
\<PAGE>
by the BORROWER to acquire the ASSIGNED LOANS from the SELLER, less the
cumulative amortization paid on the ASSIGNED LOANS since the date of the
BORROWER'S acquisition of the ASSIGNED LOANS, plus one hundred percent (100%)
of the value of actual capital improvements made to the REAL PROPERTY from
time to time using additional loan advances made by the BORROWER to "TA" (as
defined in Section 11 hereof) under the ASSIGNED LOANS.
8. Rights Upon Default. Upon a default in the payment of any sum due
hereunder which remains uncured for five (5) calendar days after written
notice from the LENDER, or a default in the performance of any of the
covenants, conditions or terms of the "PLEDGE AGREEMENT" (hereafter defined),
or any other agreement or document executed by or on behalf of the BORROWER
for the benefit of the LENDER or any holder (collectively with the PLEDGE
AGREEMENT, "LOAN DOCUMENTS"), and the expiration of any applicable cure
period, in addition to all other rights or remedies available cure period, in
addition to all other rights or remedies available to the holder under the
LOAN DOCUMENTS or under applicable law, the holder of this Promissory Note
shall have the following rights:
8.1. Acceleration. The holder of this Promissory Note, in the
holder's sole discretion and without notice or demand, may declare the entire
unpaid principal balance plus accrued interest and all other sums due
hereunder immediately due and payable. Reference is made to the LOAN
DOCUMENTS for further and additional rights on the part of the holder to
declare the entire unpaid principal balance plus accrued interest and all
other sums due hereunder immediately due and payable.
8.2. Default Interest Rate. The holder of this Promissory Note, in
the holder's sole discretion and without notice or demand, may raise the rate
of interest accruing on the unpaid principal balance by two (2) percentage
points above the rate of interest otherwise applicable, independent of
whether the holder elects to accelerate the unpaid principal balance as a
result of such default, unless prior to the imposition of the default rate of
interest, the BORROWER cures such event to the satisfaction of the holder
hereof. If the default rate of interest is imposed by the holder, the default
rate shall remain in effect unless the default is cured to the holder's
satisfaction and the holder in writing agrees to reinstate the regular
interest rate. Any individual waiver of the holder's right to impose the
default rate of interest shall not be considered a waiver of this section or
any future right of the holder to impose the default rate of interest
pursuant to this Section.
8.3. Confession of Judgment. The BORROWER authorizes any attorney
admitted to practice before any court of record in the United States to
appear on behalf of the BORROWER in any court in one or more proceedings, or
before any clerk thereof or prothonotary or other court official, and to
confess judgment against the BORROWER in favor of the holder of this
Promissory Note, without prior notice or opportunity of the BORROWER for prior
4
<PAGE>
hearing, in the full amount due on this Promissory Note (including principal,
accrued interest and any and all charges, fees and costs) plus attorneys'
fees equal to ten percent (10%) of the amount due, plus court costs
(provided, however, that the maximum amount of attorneys' fees which the
LENDER shall be entitled to collect in full satisfaction of the attorneys'
fees judgment shall not exceed the lesser of (i) the face amount of the
attorneys' fees awarded in the confessed judgment, or (ii) the actual
attorneys' fees paid by the LENDER to its attorneys at their customary and
standard hourly rates for all services rendered to the LENDER in connection
with obtaining, enforcing, and collecting the confessed judgment and in
proceedings and matters related thereto, including any bankruptcy
proceedings, together with the reasonable out-of-pocket fees and expenses
incurred by such attorneys and reimbursed to them by the LENDER). The LENDER
shall furnish the BORROWER with five (5) calendar days' prior written notice
of its intention to proceed under this Section, but the BORROWER shall
otherwise not be entitled to prior notice or any opportunity for prior
hearing. The BORROWER agrees and consents that venue and jurisdiction shall
be proper in the Circuit Court of any County of the State of Maryland or of
Baltimore City, Maryland, or in the United States District Court for the
District of Maryland. The BORROWER waives the benefit of any and every
statute, ordinance, or rule of court which may be lawfully waived conferring
upon the BORROWER any right or privilege of exemption, homestead rights, stay
of execution, or supplementary proceedings, or other relief from the
enforcement or immediate enforcement of a judgment or related proceedings on
a judgment. The authority and power to appear for and enter judgment against
the BORROWER shall not be exhausted by one or more exercises thereof, or by
any imperfect exercise thereof, and shall not be extinguished by any judgment
entered pursuant thereto; such authority and power may be exercised on one or
more occasions from time to time, in the same or different jurisdictions, as
often as the holder shall deem necessary, convenient, or proper.
9. Interest Rate After Judgment. If judgment is entered against the
BORROWER on this Promissory Note, the amount of the judgment entered (which
may include principal, interest, fees, and costs) shall bear interest at the
higher of the maximum interest rate imposed upon judgments by applicable law
or the above described default interest rate, to be determined on the date of
the entry of the judgment.
10. Expenses of Collection And Attorneys' Fees. Should this Promissory
Note be referred to an attorney for collection, whether or not judgment has
been confessed or suit has been filed, the BORROWER shall pay all of the
holder's reasonable costs, fees and expenses, including reasonable attorneys'
fees, resulting from such referral.
11. Security. This Promissory Note is secured, inter alia, by a
certain Pledge and Security Agreement of even date herewith ("PLEDGE
AGREEMENT") from the BORROWER to the LENDER, whereby the
5
<PAGE>
BORROWER has assigned to the LENDER two (2) certain mortgage loans hereafter
described (the "ASSIGNED LOANS") and all loan documents executed in connection
therewith, including the right to receive and retain all principal, interest,
insurance proceeds and other sums of any kind payable under or with respect
to the ASSIGNED LOANS, and to exercise all rights and remedies provided to
the holder of the ASSIGNED LOANS. The ASSIGNED LOANS are respectively
evidenced by the following:
(a) a certain Amended and Restated First Deed of Trust Note
dated August 4, 1992 (effective as of July 1, 1992), in the
original face amount of Four Million Four Hundred Thousand
Dollars ($4,400,000.00), from TA Associates Limited
Partnership, a Maryland limited partnership formerly known as
Marlboro Road Limited Partnership ("TA"), to the order of
Maryland National Bank, a national banking association, as
amended and as assigned on this date to the BORROWER; and
(b) a certain Amended and Restated Second Deed of Trust Note dated
August 4, 1992 (effective as of July 1, 1992), in the original
face amount of Five Million Six Hundred Thousand Dollars
($5,600,000.00), from TA to the order of Maryland National
Bank, a national banking association, as amended and as
assigned on this date to the BORROWER.
The ASSIGNED LOANS are secured by first and second liens on a certain
13.091-acre (more or less) parcel of land improved with a 129,784 square foot
one-story strip shopping center and a separate free-standing building,
located at the intersection of Route 322 and Marlboro Road in Easton,
Maryland, and known generally as the "Tred Avon Shopping Center" (the "REAL
PROPERTY").
12. Waiver of Protest. The BORROWER, and all parties to this
Promissory Note, whether maker, indorser, or guarantor, waive presentment,
notice of dishonor and protest.
13. Extensions of Maturity. All parties to this Promissory Note,
whether maker, indorser, or guarantor, agree that the maturity of this
Promissory Note, or any payment due hereunder, may be extended at any time or
from time to time without releasing, discharging, or affecting the liability
of such party.
14. Manner and Method of Payment. All payments called for in this
Promissory Note shall be made in lawful money of the United States of
America. If made by check, draft, or other payment instrument, such check,
draft, or other payment instrument shall represent immediately available
funds. In the holder's discretion, any payment made by a check, draft, or
other payment instrument shall not be considered to have been made until such
time as the funds represented thereby have been collected by the holder.
Should any payment date fall on a non-BUSINESS DAY, the BORROWER shall make
the payment on the next succeeding BUSINESS DAY.
6
<PAGE>
15. Notices. Any notice or demand required or permitted by or in
connection with this Promissory Note shall be given in the manner specified
in the PLEDGE AGREEMENT for the giving of notices under the PLEDGE AGREEMENT.
Notwithstanding anything to the contrary, all notices and demands for
payment from the holder actually received in writing by the BORROWER shall be
considered to be effective upon the receipt thereof by the BORROWER
regardless of the procedure or method utilized to accomplish delivery therof
to the BORROWER.
16. Assignability. This Promissory Note may be assigned by the
LENDER or any holder at any time or from time to time.
17. Joint And Several Liability. If more than one person or
entity is executing this Promissory Note as a BORROWER, all liabilities
under this Promissory Note shall be joint and several with respect to each of
such persons or entities.
18. Binding Nature. This Promissory Note shall inure to the
benefit of and be enforceable by the LENDER and the LENDER's successors and
assigns and any other person to whom the LENDER or any holder may grant an
interest in the BORROWER'S obligations hereunder, and shall be binding and
enforceable against the BORROWER and the BORROWER'S successors and assigns.
19. Invalidity Of Any Part. If any provision or part of any
provision of this Promissory Note shall for any reason be held invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Promissory
Note and this Promissory Note shall be construed as if such invalid, illegal
or unenforceable provision or part thereof had never been contained herein,
but only to the extent of its invalidity, illegality, or unenforceability.
20. Choice Of Law. The laws of the State of Maryland (excluding,
however, conflict of law principles) shall govern and be applied to
determine all issues relating to this Promissory Note and the rights and
obligations of the parties hereto, including the validity, construction,
interpretation, and enforceability of this Promissory Note and its various
provisions and the consequences and legal effect of all transactions and
events which resulted in the issuance of this Promissory Note or which
occurred or were to occur as a direct or indirect result of this Promissory
Note having been executed.
21. Consent To Jurisdiction; Agreement As To Venue. The BORROWER
irrevocably consents to the non-exclusive jurisdiction of the courts of the
State of Maryland and of the United States District Court for the District of
Maryland, if a basis for federal jurisdiction exists. The BORROWER agrees
that venue shall be proper in any circuit court of the State of Maryland
selected by the LENDER or in the United States District Court for the
District of Maryland if a basis for federal jurisdiction exists and waives
7
<PAGE>
any right to object to the maintenance of a suit in any of the state or
federal courts of the State of Maryland on the basis of improper venue or of
inconvenience of forum.
22. Unconditional Obligations. The BORROWER's obligations under this
Promissory Note shall be the absolute and unconditional duty and obligation
of the BORROWER and shall be independent of any rights of set-off, recoupment
or counterclaim which the BORROWER might otherwise have against the holder
of this Promissory Note, and the BORROWER shall pay absolutely the payments
of principal, interest, fees and expenses required hereunder, free of any
deductions and without abatement, diminution or set-off.
23. Seal and Effective Date. This Promissory Note is an instrument
executed under seal and is to be considered effective and enforceable as of
the date set forth on the first page hereof, independent of the date of
actual execution and delivery.
24. Tense; Gender; Defined Terms; Section Headings. As used herein, the
singular includes the plural and the plural includes the singular. A
reference to any gender also applies to any other gender. Defined terms are
entirely capitalized throughout. The section headings are for convenience
only and are not part of this Promissory Note.
25. Waiver of Jury Trial. The BORROWER (by execution of this Promissory
Note) and the LENDER (by acceptance of this Promissory Note) agree that any
suit, action, or proceeding, whether claim or counterclaim, brought or
instituted by or against the BORROWER or the LENDER, or any successor or
assign of the BORROWER or the LENDER, on or with respect to this Promissory
Note or any of the other LOAN DOCUMENTS, or which in any way relates,
directly or indirectly to the obligations of the BORROWER to the LENDER under
this Promissory Note or any of the other LOAN DOCUMENTS, or the dealings of
the parties with respect thereto, shall be tried only by a court and not by a
jury. THE BORROWER AND THE LENDER HEREBY EXPRESSLY WAIVE ANY RIGHT TO A TRIAL
BY JURY IN ANY SUCH SUIT, ACTION, OR PROCEEDING. The BORROWER and the LENDER
acknowledge and agree that this provision is a specific and material aspect
of the agreement between the parties and that the LENDER would not enter into
the transaction with the BORROWER if this provision were not part of their
agreement.
(Signature Page Follows.)
<PAGE>
IN WITNESS WHEREOF, the BORROWER has duly executed this Promissory Note
under seal as of the date first above written.
WITNESS/ATTEST: BORROWER:
TRED LIGHTLY LIMITED LIABILITY COMPANY,
a Maryland limited liability company
By: Constellation Properties, Inc.,
a Maryland corporation,
Managing Member
By: /s/ Roger A. Waesche, Jr. (seal)
-----------------------------------
Name: ROGER A. WAESCHE, JR
-----------------------------------
Title: Vice President
-----------------------------------
ACKNOWLEDGMENT
STATE OF MARYLAND, COUNTY OF Howard , TO WIT:
----------
I HEREBY CERTIFY that on this 15 day of September, 1995, before me,
------
the undersigned Notary Public of the State of Maryland, in and for the County
of Howard , personally appeared Roger A. Waesche, Jr. , and
---------- --------------------------
acknowledged himself to be the Vice President of Constellation Properties,
------------------
Inc., a Maryland corporation, which is the Managing Member of TRED LIGHTLY
LIMITED LIABILITY COMPANY, a Maryland limited liability company, and that he,
being authorized so to do, executed the foregoing instrument for the purposes
therein contained in the capacity therein described, as his act and deed.
IN WITNESS MY Hand and Notarial Seal.
/s/ M. G. Power
-------------------------------------
NOTARY PUBLIC
My Commission Expires:
6/1/98
- ----------------------
<PAGE>
EXHIBIT 10.9
ALLONGE TO $3,650,000 PROMISSORY NOTE ("NOTE")
DATED SEPTEMBER 15, 1995
FROM TRED LIGHTLY LIMITED LIABILITY COMPANY
TO PROVIDENT BANK OF MARYLAND, AS AMENDED
September 28, 1998
1. The following modifications are hereby made to the Note:
a. The words "two hundred fifty (250) basis points", located in the
fourth and fifth lines of the fourth paragraph of Section 1.1 of
the Note are hereby deleted in their entirety and the following is
hereby inserted in lieu thereof:
"one hundred seventy-five basis points"
b. The words "seventy-five percent (75%)" located in the fifth and
seventeenth lines of Section 7 of the Note are hereby deleted in
their entirety and the following is hereby inserted in lieu
thereof:
"sixty percent (60%)"
c. The following Section 26 is hereby added to the Note, immediately
following Section 25 on page 8 of the Note:
Section 26. Limitation of Liability. Notwithstanding anything
herein to the contrary and except as otherwise set forth below,
Borrower's liability under the Loan Documents shall be enforceable
only out of the property encumbered by the Loan Documents, and
Borrower shall have no personal liability under the Loan Documents
to Lender, and Lender shall have no right to seek a deficiency
judgment against Borrower. Notwithstanding the foregoing, Borrower
shall be fully and personally liable to Lender: (a) for failure to
pay taxes, assessments or other charges which create liens or
encumbrances on the Real Property or any part thereof; (b) for
fraud or misrepresentation by Borrower, or the failure of Borrower
to disclose any material fact in connection with the Loan or the
Assigned Loans, (c) misrepresentation or misapplication of (i) any
security deposits of tenants held by Borrower or its agents, (ii)
rents collected for more than one month in advance, (iii) rents
and other revenues from the Real Property received or applicable
to the period after the occurrence of an
<PAGE>
Event of Default, (iv) insurance proceeds or condemnation awards
or (v) payments made under the Assigned Loans; (d) for any breach
of or default under any environmental representation or warranty
of Borrower set forth in any of the other Loan Documents; or (e)
for waste in connection with the Real Property. Nothing in this
paragraph shall be deemed to be a release or impairment of the
Note or of the liens and security interests created pursuant to
the provisions of the Pledge Agreement or the other Loan
Documents; be deemed to be a release or impairment of any of
Lender's rights and remedies set forth in this Note, the Pledge
Agreement, the other Loan Documents, at law, in equity, by statute
(or regulation) or otherwise; be deemed to prejudice the rights of
Lender or a waiver as to a condition of this Note, the Pledge
Agreement, and the other Loan Documents or to secure a judgment
against persons or entities who have agreed or who may hereafter
agree to be liable for the payment of the obligations evidenced
herein or by the other Loan Documents, or any of them, whether by
guaranty or otherwise; or be deemed to prejudice the right of
Lender to pursue any remedies against Borrower or any other
parties pursuant to the Loan Documents."
2. To the extent the terms of this Allonge conflict with any terms of any
of the other loan documents executed in connection with the Note, the terms
hereof shall control.
3. The Lender hereby irrevocably, unconditionally and completely releases
and forever discharges the Existing Guarantors (defined below) and CPI Tred
Avon, Inc. ("Tred Avon") and their stockholders, officers, directors and
employees from all obligations, claims, demands, expenses and/or liabilities
whatsoever, in law or in equity, which the Lender has or hereafter may have with
respect to or arising under the loan evidenced by the Note (the "Loan"),
including without limitation those obligations arising under the Guaranty
Agreement dated September 15, 1995 from the Existing Guarantors in favor of the
Lender and the other loan documents executed in connection with the Loan and
regardless of whether such obligations, claims, demands, expenses and/or
liabilities arise in their capacity as guarantors, obligors, promisors or as
partners of any limited partnership or member of any limited liability company.
For this purpose, Existing Guarantors shall mean Constellation Properties, Inc.
and Constellation Real Estate Group, Inc.
4. This Allonge, upon execution by the parties hereto, shall be attached
to and shall become part of the Note. The terms of this Allonge are subject to a
prepayment of the outstanding principal balance of the Note by the amount of
$475,000. Except as modified by this Allonge, all terms of the Note shall remain
in full force and effect, and are hereby confirmed and ratified by the parties
hereto.
2
<PAGE>
IN WITNESS WHEREOF, the Lender and the Borrower have caused this Allonge to
$3,650,000 Promissory Note to be executed under seal all as of the day and year
first written above.
WITNESS: PROVIDENT BANK OF MARYLAND
/s/ Illegible
- ---------------------------- By: /s/ Frances M. Teller (SEAL)
---------------------------------------
Frances M. Teller,
Vice President
<PAGE>
TRED LIGHTLY LIMITED LIABILITY
COMPANY, a Maryland limited liability company
By: COPT Columbia, LLC,
a Maryland limited liability company
By: Corporate Office Properties, L.P.,
a Delaware limited partnership,
Its Sole Member
By: Corporate Office Properties
Trust, General Partner
/s/ Illegible
- ---------------------------- By: /s/ Clay W. Hamlin, III (SEAL)
---------------------------------------
Clay W. Hamlin, III
President and
Chief Executive Officer
STATE OF MARYLAND :
: to wit:
County OF Howard :
- ----------- ------------
I HEREBY CERTIFY that on this 28 day of September, 1998 before me,
-- ---------
a Notary Public for the state and city/county aforesaid, personally appeared
Clay W. Hamlin, III, known to me or satisfactorily proven to be the person whose
name is subscribed to the foregoing instrument, who acknowledged that he is the
President and Chief Executive Officer of Corporate Office Properties Trust, the
general partner of Corporate Office Properties, L.P., the sole member of COPT
Columbia, LLC, a Managing Member of Tred Lightly Limited Liability Company, that
he has been duly authorized to execute, and has executed, such instrument in the
capacity stated above for the purposes therein set forth, and that the same is
its act and deed.
IN WITNESS WHEREOF, I have set my hand and Notarial Seal, the day and year
first above written.
/s/ Pamela Goodman
----------------------------------
Notary Public
My Commission expires:
-------------------------------------
4
<PAGE>
STATE OF MARYLAND :
: to wit:
COUNTY OF BALTIMORE :
I HEREBY CERTIFY that on this 28 day of September, 1998 before me,
-- ----------
a Notary Public for the state and county/city aforesaid, personally appeared
Frances M. Teller, a Vice President of Provident Bank of Maryland known to me or
satisfactorily proven to be the person whose name is subscribed to the foregoing
instrument, who acknowledged that she executed, such instrument in the capacity
stated above for the purposes therein set forth, and that the same is her act
and deed.
IN WITNESS WHEREOF, I have set my hand and Notarial Seal, the day and year
first above written.
/s/ Janine L. Smith
----------------------------------
Notary Public
My Commission expires:
-------------------------------
5
<PAGE>
Exhibit 10.10
THIRD LOAN MODIFICATION AND EXTENSION AGREEMENT
THIS THIRD LOAN MODIFICATION AND EXTENSION AGREEMENT (this "Agreement")
is made this 12th day of November, 1997, but shall be effective as of the
15th day of January, 1998, by and among ST. BARNABAS LIMITED PARTNERSHIP, a
Maryland limited partnership, (hereinafter referred to as the "Borrower");
CONSTELLATION PROPERTIES, INC., a Maryland corporation, (hereinafter referred
to as the "Guarantor"); and NATIONSBANK, N.A., a national banking association
and successor-by-merger to Maryland National Bank, (hereinafter referred to
as the "Lender").
INTRODUCTORY STATEMENT
A. On August 31, 1988, the Lender extended to the Borrower a credit
facility in the original principal amount of $30,245,000 (hereinafter
referred to as the "Loan") to finance the development by the Borrower of
approximately 25.03 acres of land located on Oxen Hill Road in Prince
George's County, Maryland and known generally as "Constellation Center". The
terms of the Loan have previously been modified pursuant to the terms of,
among other things, a Loan Modification Agreement and Amendment dated May 28,
1993 executed by and between the Borrower and the Lender and a Second Loan
Modification Agreement and Amendment dated January 14, 1995 executed by and
among the Borrower, the Guarantor and the Lender (hereinafter referred to as
the "Modification Agreements").
B. The Loan is currently evidenced by (i) an Amended and Restated
Promissory Note dated January 12, 1995 executed by the Borrower, as maker, in
favor of the Lender, as payee, in the principal amount of $12,024,849.58
(such Amended and Restated Promissory Note, together with all modifications
thereto, extensions or renewals thereof and substitutions therefor being
hereinafter referred to as the "Office Project Note") and (ii) an Amended and
Restated Promissory Note dated January 12, 1995 executed by the Borrower, as
maker, in favor of the Lender, as payee, in the principal amount of
$568,388.86 (such Amended and Restated Promissory Note, together with all
modifications thereto, extensions or renewals thereof and substitutions
therefor being hereinafter referred to as the "Bank Facility Note"; the
Office Project Note and the Bank Facility Note being hereinafter sometimes
referred to individually as a "Note" and collectively as the "Notes").
C. The Loan is currently secured by, among other things, the lien of a
Deed of Trust dated December 31, 1986 executed by the Borrower, as grantor,
in favor of Mark A. Merino and Joseph V. Prado, as trustees, for the benefit
of the Lender covering the Borrower's interest in the real property known as
"Constellation Center" and duly recorded among the Land Records of Prince
George's County, Maryland in Liber 6596, Folio 884, as amended (i) by a First
Amendment to Deed of Trust dated April 20, 1987 executed by and between,
among others, the Borrower and the Lender and duly recorded among the Land
Records of Prince George's County, Maryland in Liber 6655, folio 206, (ii) by
a Second Amendment to Deed of Trust dated August 31, 1988 executed by and
between, among others, the Borrower and the Lender and duly recorded among
the Land Records of Prince George's County, Maryland in Liber 7077, folio
586, (iii) by a Third Amendment to Deed of Trust dated September 27, 1991
executed by and between, among others, the Borrower and the Lender and duly
recorded among the Land Records of Prince George's County, Maryland in Liber
8080, folio 912, and (iv) by a Fourth Amendment to Deed of Trust dated
January 12, 1995 executed by and between, among others, the Borrower and the
Lender and duly recorded among the Land Records of Prince George's County,
Maryland in Liber 10013, folio 313 (such Deed of Trust,
<PAGE>
together with all modifications thereto, extensions or renewals thereof and
substitutions therefor being hereinafter referred to as the "Deed of Trust";
all real and personal property currently remaining subject to the lien of the
Deed of Trust being hereinafter collectively referred to as the "Property").
D. The payment and performance of all of the obligations of the Borrower
to the Lender under the Loan were unconditionally and irrevocably guaranteed by
the Guarantor pursuant to the terms of a certain Guaranty dated September 27,
1991 executed by the Guarantor in favor of the Lender (such Guaranty, together
with all modifications thereto, extensions or renewals thereof and substitutions
therefor being hereinafter referred to as the "Guaranty").
E. On this date the Borrower continues to be the owner of the Property
and the Borrower and the Guarantor acknowledge and agree that the Deed of Trust
constitutes a valid and subsisting first lien on the Borrower's fee simple
interest in the Property for the aggregate outstanding principal balance of the
Notes and interest thereon, all in accordance with the terms, covenants,
conditions and warranties of the Deed of Trust and the Notes secured thereby,
and that all of the other provisions of the same are in full force and effect.
F. Pursuant to the terms of the Notes, the Loan is scheduled to mature on
January 15, 1998, and the Borrower has requested that the Lender extend the
maturity thereof.
G. In order to induce the Lender to agree to the Borrower's request
hereinabove set forth, and upon the express condition that the lien of the Deed
of Trust remains a valid and subsisting first lien on the Property and that the
execution and delivery of this Agreement shall not impair the lien thereof, the
parties hereto have agreed to execute and deliver this Agreement to modify the
terms of repayment of the Loan as hereinafter more particularly set forth.
AGREEMENTS
NOW, THEREFORE, in consideration of the premises and for the sum of One
Dollar ($1.00) and other good and valuable consideration, the receipt and
sufficiency whereof are hereby acknowledged, the parties hereto, for themselves,
their respective successors and assigns do hereby mutually covenant and agree as
follows:
1. Incorporation of Recitals. The parties hereto acknowledge and agree
that the recitals hereinabove set forth are true and correct in all respects and
that the same are incorporated herein and made a part hereof.
2. Outstanding Obligations. The parties hereto acknowledge and agree
(a) that the outstanding principal balance of the Office Project Note as of
October 31, 1997 is $10,910,701.58, (b) that the outstanding principal
balance of the Bank Facility Note as of October 31, 1997 is $495,019.86, (c)
that interest on the unpaid principal balance of each of the Notes has been
paid through September 30, 1997, and (d) that the unpaid principal balance of
each of the Notes, together with accrued and unpaid interest thereon, is due
and owing subject to the terms of repayment hereinafter set forth, without
defense or offset.
3. Confirmation of Lien. The Borrower and the Guarantor hereby
acknowledge and agree that the Property is and shall remain in all respects
subject to the lien, charge and encumbrance of the Deed of Trust, and nothing
herein contained, and nothing done pursuant hereto, shall adversely affect or
be construed to adversely affect the lien, charge or encumbrance of, or
warranty of title in, or conveyance effected by the Deed of Trust, or the
priority thereof over other liens, charges, encumbrances or conveyances, or
to release or adversely affect the liability of any party or parties
whomsoever who may now or hereafter be liable under or on account of the Loan
or any of the Loan Documents (as hereinafter defined), nor shall anything
herein contained or done in pursuance hereof adversely affect or be construed
to adversely affect any other security or instrument held by the Lender as
security for or
2
<PAGE>
evidence of the indebtedness evidenced and secured thereby.
4. Continuation of Loan Terms. Except as otherwise expressly set
forth below, the outstanding principal balance of the Notes shall continue to
bear interest and to be repaid on the terms and subject to the conditions set
forth in the Notes and the other documents evidencing and securing the Loan
(this Agreement, the Notes, the Deed of Trust, the Guaranty, the Modification
Agreements and all such other documents, whether currently existing or
hereafter executed, and all modifications thereto, extensions or renewals
thereof and substitutions therefor being hereinafter collectively referred to
as the "Loan Documents"). All capitalized terms used but not defined in this
Agreement shall have the meaning given to such terms in the Loan Documents.
5. Interest. Except as otherwise expressly set forth below, interest
shall continue to accrue and be payable on the Loan at the rate or rates set
forth in the Notes. Notwithstanding the foregoing, provided that no default
or event of default shall have occurred hereunder or under any of the other
Loan Documents, upon the satisfaction by the Borrower of each of the
conditions hereinafter set forth, as determined by the Lender in its sole but
reasonable discretion, in the event that the Borrower exercises its option to
further extend the maturity of the Loan in accordance with the terms of
Paragraph 7 below, and satisfies each of the conditions precedent thereto as
more particularly set forth in Paragraph 7 hereof, the Borrower's option to
elect to fix the interest rate under the Notes at the "Fixed LIBOR Rate" (as
described and defined in the Notes) shall be reduced to the Adjusted LIBOR
Rate (as defined in the Notes) plus two hundred (200) basis points per annum.:
(a) The Borrower shall have furnished to the Lender a current
certified rent roll covering the Property, along with executed copies of each
and every lease referenced therein, which shall demonstrate that not less
than ninety percent (90%) of all of the leaseable space within the Property
shall then be leased to, and occupied by, bona fide, third-party tenants
acceptable to the Lender in all respects and who or which shall have
commenced the payment of rent under such leases (hereinafter referred to
collectively as "Qualified Leases"); and
(b) The Borrower shall have achieved a ratio of Projected Net
Operating Income to Debt Service (both as hereinafter defined), on an
annualized basis, equal to not less than 1.25 to 1.0. For the purposes
hereof, the term "Projected Net Operating Income" shall mean (i) the sum of
(1) gross rental income estimated by the Lender to be realized by the
Borrower over the twelve (12) month period immediately following the date
when tested by the Lender from Qualified Leases of the Property (with no
credit for any free rent and with such further adjustment as the Lender may
require to reflect extraordinary tenant concessions) for the period in
question, (2) common area maintenance charges estimated by the Lender to be
received by the Borrower during the period in question by the tenants under
such Qualified Leases, and (3) tenant reimbursements of Projected Operating
Expenses (as hereinafter defined) estimated by the Lender to be received by
the Borrower during such period, less (ii) Projected Operating Expenses
estimated by the Lender to be incurred by the Borrower during the period in
question. In determining Projected Net Operating Income, no deduction or
adjustment will be made for depreciation, depletion or amortization of
assets. The term "Projected Operating Expenses" shall mean all costs and
expenses estimated by the Lender to be incurred by the Borrower in connection
with the Property for such period, including without limitation, a management
fee for the Property equal to not less than three percent (3%) of gross
rents, plus an adjustment, if determined to be necessary by the Lender, to
reflect costs and expenses not historically paid by the Borrower but which
would customarily be paid by owners of similar properties in like locations.
The term "Debt Service" shall mean the annual principal and interest payments
required to fully amortize the Loan in equal monthly installments of
principal and interest based on a 20 year mortgage amortization schedule
computed at a hypothetical fixed interest rate equal to the greater of (i)
250 basis points per annum in excess of the then current rate on 7 year
United States Treasury Notes, as reported in the Federal Reserve Statistical
Release H.15(519) (the "Release") for December 31, 1998 or if such day is not
a business day, then for the first immediately preceding day for
3
<PAGE>
which the Release reports such rate, or (ii) nine percent (9%) per annum.
6. Amortization and Maturity. Principal and interest shall be due and
payable under the Loan as follows:
(a) Commencing on the first day of February, 1998 and continuing
on the same day of each and every month thereafter to maturity (as the same
may be further extended in accordance with the terms of Paragraph 7 below),
(i) principal shall continue to be due and payable under the Office Project
Note in equal monthly installments of $33,053, together with accrued and
unpaid interest on the outstanding principal balance of the Office Project
Note, and (ii) principal shall continue to be due and payable under the Bank
Facility Note in equal monthly installments of $2,200, together with accrued
and unpaid interest on the outstanding principal balance of the Bank Facility
Note; and
(b) Unless the maturity of the Loan shall be further extended or
unless sooner paid, the Loan shall mature and the entire principal balance of
the Notes, together with all accrued and unpaid interest thereon, shall be
due and payable on January 15, 1999.
7. Extension Option. The Borrower shall have one (1) option to further
extend the maturity of the Loan, for a period of twelve (12) additional
months, upon the express condition for the exercise of such extension option
that each and all of the following conditions precedent shall have been
fulfilled or complied with to the complete satisfaction of the Lender in its
sole and absolute discretion:
(a) The Borrower shall have given the Lender at least thirty (30)
days prior written notice of its intention to extend;
(b) The Borrower shall have paid to the Lender, at the time the
notice required by subparagraph (a) above is given, an extension fee in an
amount equal to one-quarter of one percent (1/4%) of the sum of (i) the then
outstanding principal balance of the Office Project Note, and (ii) the then
outstanding principal balance of the Bank Facility Note;
(c) No default or event of default shall have occurred hereunder
or under any of the other Loan Documents;
(d) The Borrower shall have furnished to the Lender a current
certified rent roll covering the Property dated not more than thirty (30)
days prior to the commencement of such extension term, along with executed
copies of each and every lease referenced therein, which shall demonstrate
that, at the time of the exercise by the Borrower of such extension option,
not less than ninety percent (90%) of all of the leaseable space within the
Property shall then be leased to, and occupied by, bona fide, third-party
tenants acceptable to the Lender in all respects under Qualified Leases and
who or which shall have commenced the payment of rent thereunder such leases
(hereinafter referred to collectively as "Qualified Leases"); and
(e) At the time of the exercise by the Borrower of such extension
option, the Borrower shall have achieved a ratio of Projected Net Operating
Income to Debt Service (both as hereinafter defined), on an annualized basis,
equal to not less than 1.25 to 1.0, which shall be measured as of December
31, 1998 on an historical basis based upon the preceding twelve (12) month
results. For the purposes hereof, the term "Net Operating Income" shall mean
(i) the sum of (1) gross rental income from Qualified Leases of the Property
(with no credit for any free rent and with such further adjustment as the
Lender may require to reflect extraordinary tenant concessions) for the
period in question, (2) common area maintenance charges actually paid to the
Borrower during the period in question by the tenants under such Qualified
Leases, and (3) tenant reimbursements of Operating Expenses (as hereinafter
defined) actually received by the Borrower during such period, less (ii)
Operating Expenses
4
<PAGE>
for the period in question. In determining Net Operating Income, no
deduction or adjustment will be made for depreciation, depletion or
amortization of assets. The term "Operating Expenses" shall mean all costs
and expenses incurred in connection with the Property for such period,
including without limitation, a management fee for the Property equal to not
less than three percent (3%) of gross rents, plus an adjustment, if
determined to be necessary by the Lender, to reflect costs and expenses not
paid by the Borrower but which would customarily be paid by owners of similar
properties in like locations. The term "Debt Service" shall mean the annual
principal and interest payments required to fully amortize the Loan in equal
monthly installments of principal and interest based on a 20 year mortgage
amortization schedule computed at a hypothetical fixed interest rate equal to
the greater of (i) 250 basis points per annum in excess of the then current
rate on 7 year United States Treasury Notes, as reported in the Federal
Reserve Statistical Release H.15(519) (the "Release") for December 31, 1998
or if such day is not a business day, then for the first immediately
preceding day for which the Release reports such rate, or (ii) nine percent
(9%) per annum.
8. Late Charges and Default Interest. In the event that any payment
due under the Loan is not received by the Lender within fifteen (15) days
after the date such payment is due (inclusive of the date when due), the
Borrower shall pay to the Lender on demand a late charge equal to four
percent (4%) of such payment. Moreover, upon the occurrence of an event of
default hereunder, under the Notes or under any of the other Loan Documents
(beyond any applicable period to cure), the unpaid principal balance of the
Notes shall bear interest thereafter until such event of default is cured at
a rate which is at all times equal to four percent (4%) per annum in excess
of the rate or rates of interest otherwise payable under the Loan.
9. Prepayment. The Borrower shall have the right to prepay the Loan
in full or in part, at any time and from time to time, upon ten (10) days
prior written notice to the Lender. With respect to any portion of the Loan
that is bearing interest at a Floating Rate (as defined in the Notes), such
portion of the Loan may be prepaid in full or in part without premium or
penalty. If any portion of the Loan bearing interest at a Fixed Rate (as
defined in the Notes) is prepaid in full or in part for any reason
whatsoever, other than as a result of the application of insurance or
condemnation proceeds in accordance with the terms of the Deed of Trust, the
Borrower shall pay to the Lender a prepayment fee calculated in accordance
with the terms of the Notes. All payments made on account of the Loan shall
be applied first to any late charges then due hereunder, second to the
payment of any prepayment penalty then due in accordance with the terms of
the Notes, third to the payment of all accrued and unpaid interest then due
under the Loan and the remainder, if any, shall be applied to the unpaid
principal balance of the Loan, with application first made to all principal
installments then due under the Loan, next to the outstanding principal
balance due at maturity and thereafter to the unpaid principal installments
in the inverse order of maturity.
10. Extension Fees and Expenses. In consideration of the Lender's
agreement to modify and extend the Loan and in addition to the payments of
principal and interest required above, the Borrower shall pay to the Lender
upon the execution and delivery of this Agreement a non-refundable extension
fee in the amount of $28,249.91. In addition, the Borrower and the Guarantor
covenant and agree to pay all other fees, costs, charges and expenses
incurred by the Lender in connection with the preparation of this Agreement
and the modification of the Loan, including without limitation, the Lender's
reasonable attorneys' fees and all recording costs.
11. Additional Events of Default. In addition to those events of
default specifically enumerated in the Notes, the Deed of Trust, and/or any
of the other Loan Documents, the failure of the Borrower or the Guarantor to
comply with the terms of any covenant or agreement contained herein shall
constitute an event of default and shall entitle the Lender to exercise all
rights and remedies provided in the Notes and the Deed of Trust, as well as
all other rights and remedies provided to the Lender under the terms of any
of the other Loan Documents as a result of the occurrence of the same.
12. Release of Claims. The Borrower and the Guarantor, for
themselves and for each of their
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respective successors and assigns, hereby release and waive all claims and/or
defenses they now or hereafter may have against the Lender and its successors
and assigns on account of any occurrence relating to the Loan, the Loan
Documents and/or the Property which accrued prior to the date hereof,
including, but not limited to, any claim that the Lender (a) breached any
obligation to the Borrower and/or the Guarantor in connection with the Loan,
(b) was or is in any way involved with the Borrower and/or the Guarantor as a
partner, joint venturer, or in any other capacity whatsoever other than as a
lender, (c) failed to fund any portion of the Loan or any other sums as
required under any document or agreement in reference thereto, or (d) failed
to timely respond to any offers to cure any defaults under any document or
agreement executed by the Borrower, the Guarantor or any third party or
parties in favor of the Lender. This release and waiver shall be effective
as of the date of this Agreement and shall be binding upon the Borrower and
the Guarantor and each of their respective successors and assigns, and shall
inure to the benefit of the Lender and its successors and assigns. The term
"Lender" as used herein shall include, but shall not be limited to, its
present and former officers, directors, employees, agents and attorneys.
13. Ratification of Guaranty. The Guarantor hereby covenants and
agrees with the Lender that the execution of this Agreement does not and
shall not in any manner affect its obligations and liabilities under the
Guaranty and that the Guaranty remains in full force and effect. The
Guarantor hereby unconditionally and irrevocably guarantees to the Lender the
due and punctual payment and performance of all obligations of the Borrower
arising out of or connected with this Agreement as if the same were set forth
fully in the Guaranty at the time of the execution thereof.
14. Continuing Agreements; Novation. Except as expressly modified
hereby, the parties hereto ratify and confirm each and every provision of the
Notes, the Deed of Trust, the Guaranty and each of the other Loan Documents
as if the same were set forth herein. In the event that any of the terms and
conditions in the Notes or in any of the other Loan Documents conflict in any
way with the terms and provisions hereof, the terms and provisions hereof
shall prevail. The parties hereto covenant and agree that the execution of
this Agreement is not intended to and shall not cause or result in a novation
with regard to the Notes, the Deed of Trust, the Guaranty and/or the other
Loan Documents and that the existing indebtedness of the Borrower to the
Lender evidenced by the Notes is continuing, without interruption, and has
not been discharged by a new agreement.
15. Entire Agreement. NO STATEMENTS, AGREEMENTS OR
REPRESENTATIONS, ORAL OR WRITTEN, WHICH MAY HAVE BEEN MADE TO THE BORROWER OR
THE GUARANTOR OR TO ANY EMPLOYEE OR AGENT OF THE BORROWER OR THE GUARANTOR,
EITHER BY THE LENDER OR BY ANY EMPLOYEE, AGENT OR BROKER ACTING ON THE
LENDER'S BEHALF, WITH RESPECT TO THE MODIFICATION AND EXTENSION OF THE LOAN,
SHALL BE OF ANY FORCE OR EFFECT, EXCEPT TO THE EXTENT STATED IN THIS
AGREEMENT, AND ALL PRIOR AGREEMENTS AND REPRESENTATIONS WITH RESPECT TO THE
MODIFICATION AND EXTENSION OF THE LOAN ARE MERGED HEREIN.
16. Captions. The captions herein set forth are for convenience
only and shall not be deemed to define, limit or describe the scope or intent
of this Agreement.
17. Governing Law. The provisions of this Agreement shall be
construed, interpreted and enforced in accordance with the laws of the State
of Maryland as the same may be in effect from time to time.
18. Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original.
It shall not be necessary that the signature of, or on behalf of, each party,
or that the signatures of the persons required to bind any party, appear on
more than one counterpart.
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IN WITNESS WHEREOF, the parties have executed this Agreement under seal
as of the date first above written.
WITNESS OR ATTEST: ST. BARNABAS LIMITED PARTNERSHIP
By: Constellation Properties, Inc.,
General Partner
- ------------------------------------
By (SEAL)
---------------------------- Roger A. Waesche, Jr.
Vice President
WITNESS OR ATTEST: By: CPO Constellation Centre, Inc.,
General Partner
- ------------------------------------
By (SEAL)
---------------------------- Roger A. Waesche, Jr.
Vice President
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WITNESS OR ATTEST: CONSTELLATION PROPERTIES, INC.
- --------------------------------------
By (SEAL
--------------------------------
Roger A. Waesche, Jr.
Vice President
WITNESS: NATIONSBANK, N.A.
- ----------------------------------------
By (SEAL)
--------------------------------
Louis O. Kiang
Vice President
STATE OF MARYLAND, __________ OF __________, TO WIT:
I HEREBY CERTIFY, that on this ______ day of ______________, 1997 before
me, the undersigned Notary Public of said State, personally appeared Roger A.
Waesche, Jr., who acknowledged himself to be a Vice President of
Constellation Properties, Inc., a Maryland corporation and General Partner of
St. Barnabas Limited Partnership, a Maryland limited partnership, known to me
(or satisfactorily proven) to be the person whose name is subscribed to the
within instrument, and acknowledged that he executed the same for the
purposes therein contained as the duly authorized Vice President of said
corporation by signing the name of the corporation by himself as Vice
President.
WITNESS my hand and Notarial Seal.
----------------------------
Notary Public
My Commission Expires:
8
<PAGE>
STATE OF MARYLAND, __________ OF __________, TO WIT:
I HEREBY CERTIFY, that on this ______ day of ______________, 1997 before
me, the undersigned Notary Public of said State, personally appeared Roger A.
Waesche, Jr., who acknowledged himself to be a Vice President of CPO
Constellation Centre, Inc., a Maryland corporation and General Partner of St.
Barnabas Limited Partnership, a Maryland limited partnership, known to me (or
satisfactorily proven) to be the person whose name is subscribed to the
within instrument, and acknowledged that he executed the same for the
purposes therein contained as the duly authorized Vice President of said
corporation by signing the name of the corporation by himself as Vice
President.
WITNESS my hand and Notarial Seal.
----------------------------
Notary Public
My Commission Expires:
STATE OF MARYLAND, __________ OF __________, TO WIT:
I HEREBY CERTIFY, that on this ______ day of ______________, 1997 before
me, the undersigned Notary Public of said State, personally appeared Roger A.
Waesche, Jr., who acknowledged himself to be a Vice President of
Constellation Properties, Inc., a Maryland corporation, known to me (or
satisfactorily proven) to be the person whose name is subscribed to the
within instrument, and acknowledged that he executed the same for the
purposes therein contained as the duly authorized Vice President of said
corporation by signing the name of the corporation by himself as Vice
President.
WITNESS my hand and Notarial Seal.
----------------------------
Notary Public
My Commission Expires:
STATE OF MARYLAND, __________ OF __________, TO WIT:
I HEREBY CERTIFY, that on this ______ day of ______________, 1997,
before me, the undersigned Notary Public of said State, personally appeared
Louis O. Kiang, who acknowledged himself to be a Vice President of
NationsBank, N.A., a national banking association, known to me (or
satisfactorily proven) to be the person whose name is subscribed to the
within instrument, and acknowledged that he executed the same for the
purposes therein contained as the duly authorized Vice President of said Bank
by signing the name of the Bank by himself as Vice President.
9
<PAGE>
WITNESS my hand and Notarial Seal.
----------------------------
Notary Public
My Commission Expires:
10
<PAGE>
Exhibit 10.11
FOURTH LOAN MODIFICATION AGREEMENT
- ----------------------------------
THIS FOURTH LOAN MODIFICATION AGREEMENT (this "Agreement") is made this
28th day of September, 1998, by and among ST. BARNABAS LIMITED PARTNERSHIP, a
Maryland limited partnership, (hereinafter referred to as the "Borrower");
CONSTELLATION PROPERTIES, INC., a Maryland corporation, (hereinafter referred to
as the "Existing Guarantor"); CORPORATE OFFICE PROPERTIES, L.P., a Delaware
limited partnership, (hereinafter referred to as the "Substitute Guarantor") and
NATIONSBANK, N.A., a national banking association and successor-by-merger to
Maryland National Bank, (hereinafter referred to as the "Lender").
INTRODUCTORY STATEMENT
----------------------
A. On August 31, 1988, the Lender extended to the Borrower a credit facility
in the original principal amount of $30,245,000 (hereinafter referred to as the
"Loan") to finance the development by the Borrower of approximately 25.03 acres
of land located on Oxen Hill Road in Prince George's County, Maryland and known
generally as "Constellation Center". The terms of the Loan have previously been
modified pursuant to the terms of, among other things, (i) a Loan Modification
Agreement and Amendment dated May 28, 1993 executed by and between the Borrower
and the Lender, (ii) a Second Loan Modification Agreement and Amendment dated
January 14, 1995 executed by and among the Borrower, the Existing Guarantor and
the Lender and (iii) a Third Loan Modification and Extension Agreement dated
November 12, 1997 executed by and among the Borrower, the Existing Guarantor and
the Lender (hereinafter referred to as the "Modification Agreements").
B. The Loan and the Borrower's obligations to the Lender with respect
thereto (hereinafter referred to collectively as the "Obligations") are
currently evidenced by (i) an Amended and Restated Promissory Note dated January
12, 1995 executed by the Borrower, as maker, in favor of the Lender, as payee,
in the principal amount of $12,024,849.58 (such Amended and Restated Promissory
Note, together with all modifications thereto, extensions or renewals thereof
and substitutions therefor being hereinafter referred to as the "Office Project
Note") and (ii) an Amended and Restated Promissory Note dated January 12, 1995
executed by the Borrower, as maker, in favor of the Lender, as payee, in the
principal amount of $568,388.86 (such Amended and Restated Promissory Note,
together with all modifications thereto, extensions or renewals thereof and
substitutions therefor being hereinafter referred to as the "Bank Facility
Note"; the Office Project Note and the Bank Facility Note being hereinafter
sometimes referred to individually as a "Note" and collectively as the "Notes").
<PAGE>
C. The Loan and the Obligations are currently secured by, among other
things, the lien of a Deed of Trust dated December 31, 1986 executed by the
Borrower, as grantor, in favor of Mark A. Merino and Joseph V. Prado, as
trustees, for the benefit of the Lender covering the Borrower's interest in the
real property known as "Constellation Center" and duly recorded among the Land
Records of Prince George's County, Maryland in Liber 6596, Folio 884, as amended
(i) by a First Amendment to Deed of Trust dated April 20, 1987 executed by and
between, among others, the Borrower and the Lender and duly recorded among the
Land Records of Prince George's County, Maryland in Liber 6655, folio 206, (ii)
by a Second Amendment to Deed of Trust dated August 31, 1988 executed by and
between, among others, the Borrower and the Lender and duly recorded among the
Land Records of Prince George's County, Maryland in Liber 7077, folio 586, (iii)
by a Third Amendment to Deed of Trust dated September 27, 1991 executed by and
between, among others, the Borrower and the Lender and duly recorded among the
Land Records of Prince George's County, Maryland in Liber 8080, folio 912, and
(iv) by a Fourth Amendment to Deed of Trust dated January 12, 1995 executed by
and between, among others, the Borrower and the Lender and duly recorded among
the Land Records of Prince George's County, Maryland in Liber 10013, folio 313
(such Deed of Trust, together with all modifications thereto, extensions or
renewals thereof and substitutions therefor being hereinafter referred to as the
"Deed of Trust"; all real and personal property currently remaining subject to
the lien of the Deed of Trust being hereinafter collectively referred to as the
"Property").
D. The payment and performance of all of the Obligations of the Borrower to
the Lender are unconditionally and irrevocably guaranteed by the Existing
Guarantor pursuant to the terms of a certain Guaranty dated September 27, 1991
executed by the Existing Guarantor in favor of the Lender (such Guaranty,
together with all modifications thereto, extensions or renewals thereof and
substitutions therefor being hereinafter referred to as the "Guaranty").
E. On this date the Borrower continues to be the owner of the Property and
the Borrower, the Existing Guarantor and the Substitute Guarantor acknowledge
and agree that the Deed of Trust constitutes a valid and subsisting first lien
on the Borrower's fee simple interest in the Property for the aggregate
outstanding principal balance of the Notes and interest thereon, all in
accordance with the terms, covenants, conditions and warranties of the Deed of
Trust and the Notes secured thereby, and that all of the other provisions of the
same are in full force and effect.
F. The Existing Guarantor and the Substitute Guarantor have now entered into
one or more agreements pursuant to which the ownership interests in the Borrower
have been or shall be transferred to the Substitute Guarantor or to other
entities related to or affiliated with the Substitute Guarantor and the
Borrower, the Existing Guarantor and the Substitute Guarantor have requested
that the Lender (i) consent to such transfers and (ii) release the Existing
Guarantor from all Obligations arising out of or connected with the Loan,
including without limitation, those obligations arising out of the Guaranty.
G. In order to induce the Lender to agree to the foregoing requests and upon
the express condition that the lien of the Deed of Trust remains a valid and
subsisting first lien on the Property, and that the execution and delivery of
this Agreement shall not impair the lien thereof, the parties hereto have agreed
to execute and deliver this Agreement to modify the terms of repayment of the
Obligations as hereinafter more particularly set forth.
AGREEMENTS
NOW, THEREFORE, in consideration of the premises and for the sum of One
Dollar ($1.00) and other good and valuable consideration, the receipt and
sufficiency whereof are hereby acknowledged, the parties hereto, for themselves,
their respective heirs, personal representatives, successors and assigns do
hereby mutually covenant and agree as follows:
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1. Incorporation of Recitals. The parties hereto acknowledge and agree
that the recitals hereinabove set forth are true and correct in all respects and
that the same are incorporated herein and made a part hereof.
2. Outstanding Obligations. The parties hereto acknowledge and agree (a)
that the outstanding principal balance of the Loan, as of the date hereof, but
prior to the application of the required principal curtailment referred to in
Paragraph 6 below, is $11,017,938.44 (consisting of the outstanding principal
balance of $10,547,118.58 under the Office Project Note and the outstanding
principal balance of $470,819.86 under the Bank Facility Note), (b) that
interest on the unpaid principal balance of each of the Notes has been paid
through August 31, 1998, and (c) that the unpaid principal balance of each of
the Notes, together with accrued and unpaid interest thereon, is due and owing
subject to the terms of repayment hereinafter set forth, without defense or
offset.
3. Confirmation of Lien. The parties hereto hereby acknowledge and agree
that the Property is and shall remain in all respects subject to the lien,
charge and encumbrance of the Deed of Trust, and that nothing herein contained,
and nothing done pursuant hereto, shall adversely affect or be construed to
adversely affect the lien, charge or encumbrance of, or warranty of title in, or
conveyance effected by the Deed of Trust, or the priority thereof over other
liens, charges, encumbrances or conveyances, or except as otherwise expressly
set forth in Paragraph 8 below, to release or adversely affect the liability of
any party or parties whomsoever who may now or hereafter be liable under or on
account of the Obligations or any of the Loan Documents (as hereinafter
defined), nor shall anything herein contained or done in pursuance hereof
adversely affect or be construed to adversely affect any other security or
instrument held by the Lender as security for or evidence of the indebtedness
evidenced and secured thereby.
4. Continuation of Loan Terms. Except as otherwise expressly set forth
below, the outstanding principal balance of the Notes shall continue to bear
interest and to be repaid on the terms and subject to the conditions set forth
in the Notes and the other documents evidencing and securing the Obligations
(this Agreement, the Notes, the Deed of Trust, the Guaranty, the Modification
Agreements and all such other documents, whether currently existing or hereafter
executed, and all modifications thereto, extensions or renewals thereof and
substitutions therefor being hereinafter collectively referred to as the "Loan
Documents").
5. Assumption by the Substitute Guarantor of the Existing Guarantor's
Obligations. In consideration of the agreement by the Lender to release the
Existing Guarantor from all of its obligations under the Loan and the Loan
Documents, the Substitute Guarantor hereby agrees to assume and be responsible
for all of the obligations of the Existing Guarantor under the Loan and the Loan
Documents, including without limitation, those obligations arising under or
relating to the Guaranty. Thus, the Substitute Guarantor hereby (a) guarantees
to the Lender the due and punctual payment of the principal balance of the Notes
and all interest thereon and all other sums and charges at any time owing to the
Lender under the terms of the Notes, as and when the same shall be due and
payable, whether on any installment payment date or at the stated or accelerated
maturity, all according to the terms of the Notes, and (b) covenants, promises
and agrees to pay and perform each and all of the other Obligations, covenants
and agreements in the Loan Documents to be paid and/or performed by the Existing
Guarantor, at the time, in the manner and in all respects as therein provided
and to be bound by each and all of the terms and provisions of the Guaranty and
each of the other Loan Documents, if any, executed by the Existing Guarantor, as
though such instruments and agreements had originally been made, executed and
delivered by the Substitute Guarantor. From and as of the date hereof, the term
"Guarantor" in each of the Loan Documents shall mean and refer in each instance
to the Substitute Guarantor, and whenever the Existing Guarantor shall be
referred to in the Loan Documents, whether by name or by reference to any
2
<PAGE>
defined term, such provision or provisions shall be deemed to refer to, or to
include, as the case may be, the Substitute Guarantor.
6. Required Principal Curtailment. In further consideration of the
agreement of the Lender to release the Existing Guarantor from all of the
Obligations under the Loan and the Loan Documents, the Borrower shall pay or
cause to be paid to the Lender, on the date of the execution and delivery of
this Agreement, a mandatory principal curtailment on the Loan in an amount equal
to not less than $1,000,000, which sum shall be applied to the balances due
under the Notes in such order or manner as the Lender may determine in its sole
discretion.
7. Release of Extension Option. Notwithstanding anything contained herein
or in any of the other Loan Documents to the contrary, unless sooner paid, the
Loan shall mature and the entire principal balance of the Loan, together with
all accrued and unpaid interest thereon, shall be due and payable on January 15,
1999. The extension option provided to the Borrower pursuant to the terms of the
Third Loan Modification and Extension Agreement dated November 12, 1997 is
hereby deleted and shall be of no further force or effect.
8. Release of the Existing Guarantor. In consideration of the assumption
by the Substitute Guarantor of the obligations and liabilities of the Existing
Guarantor under the Loan and the execution and delivery of this Agreement by the
parties hereto, the Lender hereby irrevocably, unconditionally and completely
releases and forever discharges the Existing Guarantor and CPO Constellation
Centre, Inc. and their respective officers, directors, stockholders and
employees from all obligations, claims, demands, expenses and/or liabilities
whatsoever, at law or in equity, which the Lender has or hereafter may have with
respect to, or arising under, the Loan, including without limitation, those
obligations arising under the Guaranty and the other Loan Documents and
regardless of whether such obligations, claims, demands, expenses and/or
liabilities arise in their capacity as guarantors, obligors, promisors or as
partners of any limited partnership or member of any limited liability company.
9. Consent of the Borrower. By its execution hereof, the Borrower hereby
consents to the release by the Lender of the Existing Guarantor from, and the
assumption by the Substitute Guarantor of, all of the obligations of the
Existing Guarantor under the Loan and the Loan Documents.
10. Acknowledgements of the Substitute Guarantor. The Substitute Guarantor
hereby acknowledges and agrees, for the benefit of the Lender, as follows:
(a) That, the Substitute Guarantor (i) has sufficient knowledge and
experience in financial and business matters, including the ownership and
development of real property, to be able to evaluate the risks and merits of
its agreements with respect to the Loan, the Property, the Borrower and all
other material parties to this transaction and (ii) is able to bear the
economic risks associated with its assumption of the Obligations under the
Loan Documents;
(b) That, the Substitute Guarantor has made its own inquiry and
analysis with respect to the project which is the subject of the Loan, the
Loan and the security therefor, the Borrower and all other material parties
and factors affecting the Loan and the Obligations arising under the Loan
Documents. The Substitute Guarantor understands that no offering statement,
offering circular or other prospectus containing material information with
respect to the foregoing has been or will be issued in connection therewith;
(c) That, the Substitute Guarantor hereby (i) waives any claim or
defense that it now or hereafter may have against the Lender alleging that it
was not supplied with or did not have access to information, including
financial statements and other financial information, which may have been
necessary to make its decision with respect to the Property and/or its
assumption of the Obligations under the Loan Documents and (ii) acknowledges
that it has had the opportunity to ask questions and receive
3
<PAGE>
answers from knowledgeable individuals, including without limitation,
attorneys, accountants and engineers, concerning the Borrower, the Property,
the Loan and the security therefor; and
(d) That, the Substitute Guarantor acknowledges and represents that
it has not sought from the Lender or received from the Lender or looked to or
relied upon the Lender or any agent of the Lender for any information with
respect to the Borrower, the Property, the Loan or the security therefor, and
that the Lender has not supplied the Substitute Guarantor with any
information relating to the foregoing.
11. Fees and Expenses. In consideration of the Lender's agreement to modify
the Loan and in addition to the payments of principal and interest required
above, the Borrower and/or the Substitute Guarantor shall pay to the Lender upon
the execution and delivery of this Agreement all fees, costs, charges and
expenses incurred by the Lender in connection with the preparation of this
Agreement and the modification of the Loan, including without limitation, the
Lender's reasonable attorneys' fees and all recording costs.
12. Additional Events of Default. In addition to those events of default
specifically enumerated in the Notes, the Deed of Trust and/or any of the other
Loan Documents, the failure of the Borrower or the Substitute Guarantor to
comply with the terms of any covenant or agreement contained herein shall
constitute an event of default and shall entitle the Lender to exercise all
rights and remedies provided in the Notes and the Deed of Trust, as well as all
other rights and remedies provided to the Lender under the terms of any of the
other Loan Documents as a result of the occurrence of the same.
13. Release of Claims. The Borrower and the Existing Guarantor for
themselves and for each of their respective heirs, personal representatives,
successors and assigns, hereby release and waive all claims and/or defenses they
now or hereafter may have against the Lender and its successors and assigns on
account of any occurrence relating to the Obligations, the Loan Documents,
and/or the Property which accrued prior to the date hereof, including, but not
limited to, any claim that the Lender (a) breached any obligation to the
Borrower or the Existing Guarantor in connection with the Loan, (b) was or is in
any way involved with the Borrower and/or the Existing Guarantor as a partner,
joint venturer, or in any other capacity whatsoever other than as a lender, (c)
failed to fund any portion of the Loan or any other sums as required under any
document or agreement in reference thereto, or (d) failed to timely respond to
any offers to cure any defaults under any document or agreement executed by the
Borrower, the Existing Guarantor or any third party or parties in favor of the
Lender; but expressly excluding any claim of gross negligence, intentional
misconduct or fraud on the part of the Lender of which neither the Borrower nor
the Existing Guarantor is actually aware as of the date hereof. This release and
waiver shall be effective as of the date of this Agreement and shall be binding
upon the Borrower and the Existing Guarantor and each of their respective heirs,
personal representatives, successors and assigns, and shall inure to the benefit
of the Lender and its successors and assigns. The term "Lender" as used herein
shall include, but shall not be limited to, its present and former officers,
directors, employees, agents and attorneys.
14. Service of Process. (a) The Substitute Guarantor hereby irrevocably
designates and appoints John Harris Gurley, as its authorized agent to accept
and acknowledge on its behalf service of any and all process that may be served
in any suit, action, or proceeding instituted in connection with the Loan and/or
the Loan Documents. If such agent shall cease so to act, the Substitute
Guarantor shall irrevocably designate and appoint without delay another such
agent in the State of Maryland satisfactory to the Lender and shall promptly
deliver to the Lender evidence in writing of such agent's acceptance of such
appointment and its agreement that such appointment shall be irrevocable.
(b) The Substitute Guarantor hereby consents to process being served
in any suit, action, or proceeding instituted in connection with the Loan
and/or the Loan Documents by (i) the mailing of a copy thereof by certified
mail, postage prepaid, return receipt requested, to it at its address
4
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designated below and (ii) serving a copy thereof upon the agent, if any,
hereinabove designated and appointed by the Substitute Guarantor as the
Substitute Guarantor's agent for service of process. The Substitute Guarantor
irrevocably agrees that such service shall be deemed in every respect to be
effective service of process in any such suit, action, or proceeding. Nothing
herein shall affect the right of the Lender to serve process in any other
manner permitted by law.
15. Notices. Any notice, demand, request or other communication which the
Lender may desire to give to the Substitute Guarantor with respect to the Loan
shall be deemed to have been properly given if in writing and delivered by hand,
sent by overnight courier or mailed by certified mail, postage prepaid,
addressed as follows:
Corporate Office Properties Trust
8815 Centre Park Drive, Suite 400
Columbia, Maryland 21045
Attn: General Counsel
16. Waiver of Trial by Jury. The Borrower, the Substitute Guarantor and the
Lender hereby jointly and severally waive trial by jury in any action or
proceeding to which the Borrower and/or the Substitute Guarantor and the Lender
may be parties, arising out of or in any way pertaining to (a) the Loan, (b) the
Loan Documents, or (c) the Property. It is agreed and understood that this
waiver constitutes a waiver of trial by jury of all claims against all parties
to such actions or proceedings, including claims against parties who are not
parties to this Agreement. This waiver is knowingly, willingly and voluntarily
made by the Borrower and the Substitute Guarantor, and the Borrower and the
Substitute Guarantor hereby represent that no representations of fact or opinion
have been made by any individual to induce this waiver of trial by jury or to in
any way modify or nullify its effect. The Borrower and the Substitute Guarantor
further represent that they have been represented in the signing of this
Agreement and in the making of this waiver by independent legal counsel,
selected of their own free will, and that they have had the opportunity to
discuss this waiver with counsel.
17. Continuing Agreements; Novation. Except as expressly modified hereby,
the parties hereto ratify and confirm each and every provision of the Notes, the
Deed of Trust, the Guaranty and each of the other Loan Documents as if the same
were set forth herein. In the event that any of the terms and conditions in the
Notes or in any of the other Loan Documents conflict in any way with the terms
and provisions hereof, the terms and provisions hereof shall prevail. The
parties hereto covenant and agree that the execution of this Agreement is not
intended to and shall not cause or result in a novation with regard to the Notes
and/or the other Loan Documents and that the existing indebtedness of the
Borrower to the Lender evidenced by the Notes is continuing, without
interruption, and has not been discharged by a new agreement.
18. Entire Agreement. NO STATEMENTS, AGREEMENTS OR REPRESENTATIONS, ORAL OR
WRITTEN, WHICH MAY HAVE BEEN MADE TO THE BORROWER, THE EXISTING GUARANTOR OR THE
SUBSTITUTE GUARANTOR OR TO ANY EMPLOYEE OR AGENT OF THE BORROWER, THE EXISTING
GUARANTOR OR THE SUBSTITUTE GUARANTOR, EITHER BY THE LENDER OR BY ANY EMPLOYEE,
AGENT OR BROKER ACTING ON THE LENDER'S BEHALF, WITH RESPECT TO THE MODIFICATION
OF THE LOAN, SHALL BE OF ANY FORCE OR EFFECT, EXCEPT TO THE EXTENT STATED IN
THIS AGREEMENT OR IN ANY OTHER AGREEMENT EXECUTED IN CONNECTION HEREWITH, AND
ALL PRIOR AGREEMENTS AND REPRESENTATIONS WITH RESPECT TO THE MODIFICATION OF THE
LOAN ARE MERGED HEREIN AND THEREIN.
19. Captions. The captions herein set forth are for convenience only and
shall not be deemed to define, limit or describe the scope or intent of this
Agreement.
5
<PAGE>
20. Governing Law. The provisions of this Agreement shall be construed,
interpreted and enforced in accordance with the laws of the State of Maryland as
the same may be in effect from time to time.
21. Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original. It
shall not be necessary that the signature of, or on behalf of, each party, or
that the signatures of the persons required to bind any party, appear on more
than one counterpart.
IN WITNESS WHEREOF, the parties have executed this Agreement under seal as
of the date first above written.
WITNESS: ST. BARNABAS LIMITED PARTNERSHIP
By: COPT Columbia, LLC
General Partner
By: Corporate Office Properties, L.P.
Sole Member
By: Corporate Office Properties Trust
General Partner
- ------------------------------ By (SEAL)
-------------------------
Clay W. Hamlin, III
President
WITNESS: CONSTELLATION PROPERTIES, INC.
- ------------------------------ By (SEAL)
---------------------------------
Dan R. Skowronski
Secretary
6
<PAGE>
WITNESS: CORPORATE OFFICE PROPERTIES, L.P.
By: Corporate Office Properties Trust
General Partner
- ------------------------------ By (SEAL)
---------------------------------
Clay W. Hamlin, III
President
WITNESS: NATIONSBANK, N.A.
- ------------------------------ By (SEAL)
---------------------------------
Louis O. Kiang
Vice President
STATE OF MARYLAND, __________ OF __________, TO WIT:
I HEREBY CERTIFY, that on this ______ day of ______________, 1998, before
me, the undersigned Notary Public of said State, personally appeared Clay W.
Hamlin, III, who acknowledged himself to be the President of Corporate Office
Properties Trust, a Maryland real estate investment trust and a general partner
of Corporate Office Properties, L.P., a Delaware limited partnership and the
sole member of COPT Columbia LLC, a Maryland limited liability company and the
general partner of St. Barnabas Limited Partnership, a Maryland limited
partnership, known to me (or satisfactorily proven) to be the person whose name
is subscribed to the within instrument, and acknowledged that he executed the
same for the purposes therein contained as the duly authorized President of said
real estate investment trust by signing the name of the real estate investment
trust by himself as President.
WITNESS my hand and Notarial Seal.
-----------------------------
Notary Public
My Commission Expires:
STATE OF MARYLAND, __________ OF __________, TO WIT:
I HEREBY CERTIFY, that on this ______ day of ______________, 1998, before
me, the undersigned Notary Public of said State, personally appeared Dan R.
Skowronski, who acknowledged himself to be the Secretary of Constellation
Properties, Inc., a Maryland corporation, known to me (or satisfactorily proven)
to be the person whose name is subscribed to the within instrument, and
acknowledged that he executed the same for the purposes therein contained as the
duly authorized Secretary of said corporation by signing the name of the
corporation by himself as Secretary .
7
<PAGE>
WITNESS my hand and Notarial Seal.
-----------------------------
Notary Public
My Commission Expires:
STATE OF MARYLAND, __________ OF __________, TO WIT:
I HEREBY CERTIFY, that on this ______ day of ______________, 1998, before
me, the undersigned Notary Public of said State, personally appeared Clay W.
Hamlin, III, who acknowledged himself to be the President of Corporate Office
Properties Trust, a Maryland real estate investment trust and a general partner
of Corporate Office Properties, L.P., a Delaware limited partnership, known to
me (or satisfactorily proven) to be the person whose name is subscribed to the
within instrument, and acknowledged that he executed the same for the purposes
therein contained as the duly authorized President of said real estate
investment trust by signing the name of the real estate investment trust by
himself as President.
WITNESS my hand and Notarial Seal.
-----------------------------
Notary Public
My Commission Expires:
8
<PAGE>
STATE OF MARYLAND, __________ OF __________, TO WIT:
I HEREBY CERTIFY, that on this ______ day of ______________, 1998, before
me, the undersigned Notary Public of said State, personally appeared Louis O.
Kiang, who acknowledged himself to be a Vice President of NationsBank, N.A., a
national banking association, known to me (or satisfactorily proven) to be the
person whose name is subscribed to the within instrument, and acknowledged that
he executed the same for the purposes therein contained as the duly authorized
Vice President of said Bank by signing the name of the Bank by himself as Vice
President.
WITNESS my hand and Notarial Seal.
-----------------------------
Notary Public
My Commission Expires:
9
<PAGE>
Exhibit 10.12
COPY
DEED OF TRUST NOTE
$11,800,000.00 Baltimore, Maryland
September 20, 1988
FOR VALUE RECEIVED, BROWN'S WHARF LIMITED PARTNERSHIP, a Maryland limited
partnership (the "Borrower"), promises to pay to the order of MERCANTILE-SAFE
DEPOSIT AND TRUST COMPANY, a Maryland banking corporation (the "Bank"), at
its principal office in Baltimore, Maryland, or at such other place or to
such other party as the holder hereof may from time to time designate, the
principal sum of ELEVEN MILLION EIGHT HUNDRED THOUSAND DOLLARS
($11,800,000.00) or so much thereof as may be advanced by Bank to Borrower
pursuant to the terms of a Building Loan Agreement of even date herewith (the
"Building Loan Agreement") with interest on the unpaid principal balance from
the date of this Deed of Trust Note, until paid, at either of the interest
rates as follows:
(1) A rate of one quarter of one percent (.25%) per annum in
excess of the Prime Rate. "Prime Rate" means the prime commercial
lending rate of the Bank as publicly announced to be in effect from
time to time. The Prime Rate is not necessarily the lowest rate of
interest charged by the Bank for commercial or other types of
loans. It is understood that the Prime Rate is only one of the
bases for computing interest on loans made by the Bank and that by
basing interest on the Prime Rate, the Bank has not committed to
charge and the Borrower has not in any way bargained for interest
based on a lower or the lowest rate at which the Bank may now or
in the future make loans to other borrowers. Any change in the rate
of interest as a result of a change in the Prime Rate shall be
effective as of the date of the change in the Prime Rate; or,
(2) On the condition that Bank be given five (5) business days
notice of Borrower's choice, Borrower may fix the rate of interest
for each advance, under the Building Loan Agreement, after ninety
(90) days from the date on which said Advance was made for a period
of three (3) months, six (6) months or one (1) year. The rate of
interest for the three (3) month period shall be one and three
quarters percent (1.75%) in excess of the three (3) month "CD Rate"
(as hereinafter defined); the rate of interest for the six (6)
month period shall be one and three quarters percent (1.75%) in
excess of the six (6) month CD
<PAGE>
Rate; the rate of interest for the one (1) year period shall be one
and three quarters percent (1.75%) in excess of the one (1) year
CD Rate. "CD Rate" means the rate for Certificates of Deposit
appearing in the Wall Street Journal, Eastern Edition, plus a CD
Reserve Requirement (as hereinafter defined), and shall be average
negotiable rates paid by major New York banks on primary new issues
of negotiable Certificates of Deposit usually on amounts of
$1,000,000.00 and more; the minimum unit is $100,000.00. "CD
Reserve Requirement" shall, on any day mean that percentage
(expressed as a decimal fraction) which is in effect on such day,
as provided by the Board of Governors of the Federal Reserve System
(or any successor governmental body) for determining the maximum
reserve requirements (including without limitation, basic,
supplemental, marginal and emergency reserves) under Regulation D
applicable to 3-month non-personal time deposits in units of
$100,000.00 or more (issued by member banks of the Federal Reserve
Bank of New York having time deposits exceeding $1,000,000,000.00)
rounded to the next highest .01 of one percent. Each determination
by Lender of the CD Reserve Requirement shall, in the absence of
manifest error, be conclusive and binding.
In all instances in which the CD Rate does not apply (including
instances where no CD Rate election notice is given), the rate of interest to
be paid hereunder shall be that set forth in the paragraph numbered 1 above.
Except when the loan evidenced hereby shall bear interest at a CD
Rate, the interest rate in effect from time to time shall be reduced to the
Prime Rate when all of the following shall occur:
(1) when (a) Bank has approved the form lease for the "Project,"
defined in the Building Loan Agreement, which approval shall not be
unreasonably withheld, and (b) Bank has approved the creditworthiness of each
tenant. Leases submitted to the Bank for approval shall be deemed to be
approved unless Bank notifies Borrower to the contrary within fifteen (15)
days of submittal; and
(2) when leases (approved as provided above) have been executed
which provide for (i) rents of at least Fifteen Dollars ($15.00) absolutely
net or Eighteen Dollars ($18.00) gross per square foot for at least 70%
(73,430 square feet) of the Project, and (ii) terms of at least five (5)
years for at least 80% (83,920 square feet) of the Project; and
Page 2 of 6 Pages
<PAGE>
(3) when the leases have been executed by the tenant and
collaterally assigned to Bank; and
(4) when the tenants have executed and delivered estoppel letters
and subordination, non-disturbance and attornment agreements.
Payments of accrued interest only shall be due and payable in
consecutive monthly installments commencing October 1, 1988, and continuing on
the first day of each month thereafter until September 20, 1995, at which
time the entire unpaid balance of principal and any accrued but unpaid
interest, if not sooner paid, shall be due and payable in full.
All payments hereunder shall be applied first to the payment of
interest and any balance, if any, to the payment of principal. Interest shall
be charged, calculated on the basis of a 360 day year factor applied to
actual days. Interest and principal shall be payable in lawful money of the
United States, which shall be legal tender in payment of all debts and dues,
public and private at the time of payment.
"Loan Year" means any twelve (12) consecutive month period
commencing October 1, 1988 and on each yearly anniversary thereof.
Upon the occurrence of an "Event of Default" (as defined
hereinafter), the entire unpaid principal balance shall bear interest
thereafter at the rate of one percent (1%) per annum in excess of the then
applicable interest rate due hereunder until such "Event of Default" is cured.
The principal sum may be prepaid in whole or in part at any time
after ten (10) days prior written notice, without payment of premium or
penalty therefor.
Borrower shall pay to Bank a loan origination Fee in the amount of
one percent (1%) of the Loan, or One Hundred Eighteen Thousand Dollars
($118,000.00), which shall be paid as follows: Fifty Nine Thousand Dollars
($59,000.00) shall be paid upon the execution of this Deed of Trust Note, and
Fifty Nine Thousand Dollars ($59,000.00) shall be paid on the earlier to
occur of the commencement of the third (3rd) Loan Year, or the payment, in
full, of this Deed of Trust Note.
This Deed of Trust Note is secured by a Deed of Trust and Security
Agreement of even date herewith from the Borrower to Herbert B. Williams and
Bruce D. McLean, Trustees, and recorded among the Land Records of Baltimore
City, Maryland (the "Deed of Trust").
Page 3 of 6 Pages
<PAGE>
All notices, requests and demands upon the respective parties hereto
shall be in writing and shall be sent by hand delivery or Federal Express or
other commercial courier addressed as follows or to such other address as the
respective party may designate by a notice to the others:
if to the Bank
Mercantile-Safe Deposit & Trust Company
Two Hopkins Plaza
Baltimore, Maryland 21201
Attention: Herbert B. Williams
Senior Vice President
if to the Borrower
Brown's Wharf Limited Partnershipj
c/o CPI Brown's Wharf, Inc.
250 West Pratt Street
Baltimore, Maryland 21201-2423
Attention: Secretary, 23rd Floor
With copies to
Constellation Holdings, Inc.
250 West Pratt Street
Baltimore, Maryland 21201-2423
Attention: General Counsel, 23rd Floor
and
Historical Developers of Pennsylvania, Inc.
201 North Broad Street
Philadelphia, Pennsylvania 19107
Attention: President
All such notices shall be deemed to have been given one (1) business day
after the date on which the same was sent or upon receipt, whichever shall
first occur.
The happening of any one or more of the following events shall
constitute an Event of Default under this Note:
(a) The Borrower fails to make any payment within five (5)
days of the date when due; or
(b) The Borrower fails to perform or comply with any other
covenant, term or condition of this Agreement, and such failure continues
uncured for 30 days after written notice thereof from the Bank to the
Borrower; or
Page 4 of 6 Pages
<PAGE>
(c) An Event of Default (as defined therein) shall have occurred
and be continuing under the Deed of Trust. Guaranty, or Building Loan
Agreement; or
(d) Any representation or warranty made by the Borrower in this
Note proves to have been incorrect or misleading in any material respect
either on the date when made or on the date reaffirmed pursuant to the terms
of this Note.
It is expressly agreed that upon the happening of an Event of Default
hereunder or under any of the Loan Documents, the entire unpaid balance of
the principal sum due hereunder, plus all accrued interest shall, at the
option of the holder hereof, at once become and be due and payable.
Upon the occurrence of an Event of Default hereunder and if this Note is
collected by an attorney, the Borrower agrees to pay all costs of collection,
including reasonable and verifiable attorney's fees.
The maker and endorsers hereof jointly and severally, and all others who
may become liable for all or any part of this obligation severally, waive
demand, notice of presentment for payment, notice of protest and notice of
the dishonor and non-payment.
Borrower stipulates and warrants that the purpose of the loan evidenced
hereby is for the purpose of a business or commercial investment within the
meaning of Sections 12-101(c) and 12-103(e) of the Commercial Law Article of
the Annotated Code of Maryland. Borrower further stipulates that all loan
proceeds will be used for said purposes.
Borrower also covenants and agrees that in the event that any sum
required hereunder or under said Deed of Trust should not be received by the
holder hereof within ten (10) days from its due date, a late charge of five
cents ($.05) for each One Dollar ($1.00) so overdue may, in addition to any
other remedies provided for hereunder, be charged for the purpose of
defraying expenses incident to handling such delinquent payments.
In the event that any provision (or any part of any provision)
contained in this Note shall for any reason be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision (or remaining part of
the affected provision) of this Note, but this Note shall be construed as if
such invalid, illegal or unenforceable provision (or part thereof) had never
been contained herein but only to the extent it is invalid, illegal or
unenforceable. All words beginning with a capital letter and not defined
herein shall have the meaning provided in the Deed of Trust.
Borrower covenants and agrees that this Deed of Trust Note shall be
governed by and construed in accordance with the laws of the State of
Maryland.
WITNESS: BROWN'S WHARF LIMITED PARTNERSHIP
By: CPI Brown's Wharf, Inc.,
a general partner
/s/ By: /s/
- -------------------------- ------------------------------------
Treasurer/Assistant Secretary
By: HISTORICAL DEVELOPERS OF
PENNSYLVANIA, INC., doing
Attest: business in Maryland as
Historical Real Estate
Developers, Inc.,
a general partner
/s/ By: /s/
- -------------------------- ------------------------------------
Assistant Secretary Vice President
<PAGE>
Exhibit 10.13
EXTENSION AGREEMENT AND ALLONGE TO DEED OF TRUST NOTE
THIS EXTENSION AGREEMENT AND ALLONGE TO DEED OF TRUST NOTE (this
"Allonge") is made this 1st day of July, 1994, by and between BROWN'S WHARF
LIMITED PARTNERSHIP, a Maryland limited partnership (the "Borrower") and
MERCANTILE-SAFE DEPOSIT AND TRUST COMPANY, a Maryland banking corporation
(the "Bank").
RECITALS
A. On September 20, 1988, the Bank made a construction loan to the
Borrower in the original principal amount of Eleven Million Eight Hundred
Thousand and 00/100 Dollars ($11,800,000.00) (the "Loan") or so much as may
be advanced pursuant to the terms of a Building Loan Agreement of even date
therewith by and between the Borrower and the Bank (the "Loan Agreement").
B. The Loan is evidenced by a Deed of Trust Note of even date
therewith from the Borrower to the Bank (the "Original Note"). The Original
Note is secured by a Deed of Trust and Security Agreement of even date
therewith from the Borrower, as grantor, to Herbert B. Williams and Bruce D.
McClean, trustees for the benefit of the Bank and recorded among the Land
Records of Baltimore City at Liber 1841, folio 110 (the "Original Deed of
Trust"). The Original Deed of Trust encumbers certain real property located
in Baltimore City, Maryland and more particularly described therein (the
"Property").
C. Repayment of the Loan is guaranteed by a Guaranty dated
September 20, 1988, executed by Constellation Properties, Inc., a Maryland
corporation ("CPI") (the "Original CPI Guaranty") and a Guaranty dated
October 21, 1992, executed by Constellation Real Estate Group, Inc., a
Maryland corporation ("CRE") (the "Original CRE Guaranty"). CPI and CRE are
hereinafter sometimes collectively referred to as the "Guarantor". CPI is a
general partner of the Borrower.
D. The Original Note is also secured by an Assignment of Lessor's
Interest in Leases and Guarantees dated September 20, 1988 (the "Original
Assignment of Leases"). The Original Note, the Original Deed of Trust, the
Original CPI Guaranty, the Original CRE Guaranty, the Original Assignment of
Leases, the Loan Agreement, Financing Statements, together with any and all
other documents evidencing or securing the Loan, are hereinafter sometimes
collectively referred to as the "Original Loan Documents".
<PAGE>
E. At the request of the Borrower and Guarantor, the Bank has
agreed to modify the maturity date, the interest rate and other terms and
conditions of the Loan. In return, CPI, as the owner of several adjacent
parcels of land, has agreed to grant the Bank a lien on approximately six (6)
acres more or less, of additional property located in Baltimore City,
Maryland (the "Additional Collateral").
F. The Bank has requested, and the Borrower and Guarantor have
agreed, that (a) the Borrower and Guarantor execute and deliver (i) this
Allonge, (ii) a Supplemental Deed of Trust, Assignment of Rents, and Security
Agreement; (iii) Amendments to Financing Statements; (iv) a Supplemental
Assignment of Lessor's Interest in Leases and Guarantees (the "Supplemental
Assignment"); (v) a Certificate of Borrower and Guarantor; (vi) a
Reaffirmation of CPI Guaranty; and (vii) a Reaffirmation of CRE Guaranty; and
that (b) CPI execute and deliver (i) an Indemnity Deed of Trust, Assignment
of Rents, and Security Agreement; (ii) an Indemnity Assignment of Rents; and
(iii) Indemnity Financing Statements (collectively, together with any and all
other documents evidencing or securing the modification, the "Modification
Documents").
G. The Original Note and this Allonge are hereinafter sometimes
collectively referred to as the "Note." The Original Deed of Trust and the
Supplemental Deed of Trust are hereinafter sometimes collectively referred to
as the "Deed of Trust." The Original CPI Guaranty and the Reaffirmation of
CPI Guaranty are hereinafter sometimes collectively referred to as the "CPI
Guaranty." The Original CRE Guaranty and the Reaffirmation of CRE Guaranty
are hereinafter sometimes collectively referred to as the "CRE Guaranty." The
Original Assignment of Leases and the Supplemental Assignment are hereinafter
sometimes collectively referred to as the "Assignment of Leases." The
Original Loan Documents and the Modification Documents are hereinafter
sometimes collectively referred to as the "Loan Documents" and individually
as a "Loan Document."
NOW, THEREFORE, for and in consideration of the Recitals hereinabove
set forth, which are incorporated into the body of this Allonge, the Bank's
agreement to extend the maturity date of the Loan, CPI's agreement to grant
to the Additional Collateral, and other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties agree as
follows:
1. Amendment of Original Note. The provisions of the Original
Note are hereby amended in the following manner:
Page 2 of 9 Pages
<PAGE>
1.1 Interest Rate. The interest rate provisions of pages 3 through
6 of the Original Note are deleted and the following is inserted as if
originally set forth therein:
FOR VALUE RECEIVED, the Borrower promises to pay to the order
of the Bank, at its principal office in Baltimore, Maryland,
or at such other place or to such other party as the holder
hereof may from time to time designate, the principal sum of
ELEVEN MILLION EIGHT HUNDRED THOUSAND AND 00/100 DOLLARS
($11,800,000.00), with interest on the unpaid principal
balance from the date of this Note, until paid, at the rate of
one half percent (0.5%) per annum in excess of the Prime Rate
(as hereinafter defined).
1.2 Prime Rate. The following is inserted as if originally set
forth in the Original Note:
Prime Rate. "Prime Rate" means the prime commercial lending
rate of the Bank as publicly announced to be in effect from
time to time. The Prime Rate is not necessarily the lowest
rate of interest charged by the Bank for commercial or other
types of loans. It is understood that the Prime Rate is only
one of the bases for computing interest on loans made by the
Bank and that by basing interest on the Prime Rate, the Bank
has not committed to charge and the Borrower has not in any
way bargained for interest based on a lower or the lowest rate
at which the Bank may now or in the future make loans to other
borrowers. Any change in the rate of interest as a result of
a change in the Prime Rate shall be effective as of the date
of the change in the Prime Rate.
1.3 Repayment and Maturity Date of Loan. The first unnumbered
paragraph on page 3 of the Original Note is deleted and the following is
inserted as if originally set forth therein:
The loan shall be repaid on a fifteen (15) year schedule of
one hundred seventy-nine (179) consecutive installments of
Sixty Five Thousand Nine Hundred Twenty One and 79/100 Dollars
($65,921.79) in principal together with any and all accrued
interest
Page 3 of 9 Pages
<PAGE>
thereon commencing August 1, 1994, and continuing on the first
day of each month thereafter until June 1, 2009, and a payment
on July 1, 2009, at which time the entire unpaid balance of
principal and any accrued but unpaid interest, if not sooner
paid, shall be due and payable in full; provided, however,
that the entire unpaid principal and any accrued but unpaid
interest, if not sooner paid, shall be due and payable on July
1, 1999, or July 1, 2004, at the Bank's sole and absolute
discretion if the Bank provides the Borrower with written
notice no later than April 1, 1999, or April 1, 2004, as the
case may be, of its intention to call this Note (the "Call").
Any change in the rate of interest as a result of a change in
the Prime Rate shall be effective as of the date of the change
in the Prime Rate.
1.4 Loan Extension Fee. The sixth full paragraph of the Original
Note is deleted and the following is inserted as if originally set forth
therein:
Loan Extension Fee. Borrower has paid to Bank a loan
extension fee in the amount of one half percent (0.5%) of the
principal amount of the Loan, or Fifty-Nine Thousand and
00/100 Dollars ($59,000.00)
1.5 Notices. This notice provision appearing on page 4 of the
Original Note is deleted and the following is inserted as if originally set
forth therein:
Notices. All notices, requests and demands upon the
prospective parties hereto shall be in writing and shall be
sent by hand delivery or Federal Express or other commercial
courier addressed as follows, or to such other address as the
respective party may designate by notice to the others:
if to the Bank: Mercantile-Safe Deposit and Trust
Company
2 Hopkins Plaza, Suite 200
Baltimore, Maryland 21201
Attn: Nicholas C. Richardson
Assistant Vice President
Page 4 of 9 Pages
<PAGE>
if to the Borrower: Brown's Wharf Limited Partnership
c/o Constellation Real Estate, Inc.
8815 Centre Park Drive
Columbia, Maryland 21045
Attn: General Counsel
with copy to: Constellation Real Estate Group, Inc.
250 West Pratt Street
Baltimore, Maryland 21201-2423
Attn: Corporate Secretary
Twenty-Third Floor
All such notices shall be deemed to have been given one business
day after the date on which the same was sent or upon receipt, which ever
shall first occur.
1.6 Default. The Section of the Original Note, commencing at the
second full paragraph on page 4 and continuing on carry-over paragraphs (c)
and (d) on page 5 is hereby deleted and the following is inserted as if
originally set forth therein:
Default.
The happening of any one or more of the following events shall
constitute an Event of Default under this Note:
(a) The Borrower fails to make any payment within five (5) days of
the date when due; or
(b) The Borrower fails to perform or comply with any other
covenant, term or condition of the Note, the Deed of Trust, or any
other Loan Document and such failure continues uncured for thirty
(30) days after written notice thereof from the Bank to the
Borrower; or
(c) An Event of Default (as defined therein) shall have occurred
and be continuing under the Deed of Trust, the CRE Guaranty, the
CPI Guaranty, the Loan Agreement, any of the Original Loan
Documents or any of the Modification Documents; or
Page 5 of 9 Pages
<PAGE>
(d) Any representation or warranty made by the Borrower in this
Note proves to have been incorrect or misleading in any material
respect either on the date when made or on the date reaffirmed
pursuant to the terms of this Note; or
(e) The Borrower shall fail to pay the entire principal and
outstanding interest within five (5) days after due if the Bank
exercises the Call.
It is expressly agreed that upon the happening of an Event of
Default hereunder or under any of the Loan Documents, the entire
unpaid balance of the principal sum due hereunder, plus all accrued
interest shall, at the option of the holder hereof, at once become
and be due and payable.
Upon the occurrence of an Event of Default hereunder and if
this Note is collected by an attorney, the Borrower agrees to pay
all costs of collection, including reasonable and verifiable
attorney's fees.
1.7 Mutual Waiver of Jury Trial. The Original Note is amended by
adding the following as if originally set forth therein:
Mutual Waiver of Jury Trial.
The holder of this Note and Borrower each, on behalf of itself and
its successors and assigns, waives to the fullest extent permitted
by law all right to trial by jury of any and all claims between
them arising under this Note, the Amended and Restated Deed of
Trust, the Loan Agreement, or any other documents and agreements
executed in connection, directly or indirectly, with this loan
transaction, and any and all claims arising under common law or
under any statute of any state or the United States of America,
whether any such claims be now existing or hereafter arising, now
known or unknown. In making this waiver, the holder of this Note
and Borrower acknowledge and agree that any and all claims made by
the holder of this Note against Borrower and all
Page 6 of 9 Pages
<PAGE>
claims made by the Borrower against the holder of this
Note shall be heard by a judge of a court of proper
jurisdiction and shall not be heard by a jury. The holder
of this Note and Borrower acknowledge and agree that this
waiver of trial by jury is a material element of the
consideration for this transaction. The holder of this
Note and Borrower, with advice of counsel, each
acknowledges that it is knowingly and voluntarily waiving
a legal right by agreeing to this waiver provision.
2. Outstanding Indebtedness. As of July 1, 1994, the principal
balance outstanding under the Loan is Eleven Million Eight Hundred Thousand
and 00/100 Dollars ($11,800,000.00). Accrued and unpaid interest on the Loan
through July 1, 1994 is Seventy-two thousand seven hundred thirty-nine
dollars and 73 cents ($72,739.73), with interest accruing at the rate of
$2424.66 per diem.
3. No Set-offs, etc. The Borrower hereby acknowledges that as of
the date hereof, the Borrower has no sets-offs, defenses, claims, or
counterclaims against the Bank as pertains to (a) the Borrower's obligation
to pay the indebtedness evidenced by the Note or (b) the enforcement of any
of the other Original Loan Documents, or the Modification Documents. The
Borrower further acknowledges that the Bank has promptly, properly and
completely performed all obligations, if any, imposed on it by the Original
Note and the Original Loan Documents.
4. Release. The Borrower hereby releases, acquits, and forever
discharges the Bank and its affiliates, officers, directors, attorneys,
agents, employees and representatives from any and all claims, demands,
suits, contracts, agreements, accounts, defenses, offsets against the Loan,
and liabilities of any kind of character which the Borrower ever had, now
has, or may hereafter have against the Bank, its affiliates, officers,
directors, attorneys, agents, employees, and representatives arising prior to
the date hereof; provided, however, that such release shall not include any
claims arising from the gross negligence or misconduct of the Bank.
5. No Novation. The Borrower and the Bank expressly agree that
nothing contained in this Allonge shall in any way be construed as a
substitution, replacement, or novation of the indebtedness evidenced by the
Original Note and by this Allonge, which indebtedness shall remain in full
force and effect as confirmed, modified, amended and restated herein. The
Original Loan Documents and the Modification Documents
Page 7 of 9 Pages
<PAGE>
remain in full force and effect and there exists no oral modification thereto.
6. Effect of this Allonge. Except as expressly modified herein
and in the Modification Documents, all other terms and conditions set forth
in the Original Loan Documents are hereby ratified and confirmed and remain
in full force and effect.
7. Attachment of Allonge to Original Note. This Allonge is (a)
being physically attached to the Original Note simultaneously with the entry
into this Allonge by the parties hereto to evidence the modifications to the
terms of the Original Note set forth herein, and (b) upon such attachment
shall be deemed to be part of the Original Note, as fully and completely as
if its provisions were set forth at length in the Note.
8. Effectiveness. This Allonge shall become effective on, and
only on, its execution and delivery by each party hereto.
IN WITNESS WHEREOF, the Borrower and the Bank have executed and
ensealed this Allonge, intending it to be a sealed instrument, the day and
year first-above written.
WITNESS: BORROWER
BROWN'S WHARF LIMITED PARTNERSHIP, a
Maryland limited partnership
By: CPI BROWN'S WHARF, INC., a
Maryland corporation, its
general partner
/s/ By: /s/ Roger A. Waesche, Jr. (SEAL)
- -------------- -----------------------------
Name: Roger A. Waesche, Jr.
Title: Vice President
By: CONSTELLATION PROPERTIES, Inc.,
a Maryland corporation, its
general partner
/s/ By: /s/ Roger A. Waesche, Jr. (SEAL)
- -------------- -----------------------------
Name: Roger A. Waesche, Jr.
Title: Vice President
Page 8 of 9 Pages
<PAGE>
BANK
----
MERCANTILE-SAFE DEPOSIT AND TRUST
COMPANY, a Maryland banking
corporation
/s/ Courtney G. Carpenter By: /s/ Nicholas C. Richardson (SEAL)
- ------------------------- -----------------------------
Name: Nicholas C. Richardson
Title: Assistant Vice President
Page 9 of 9 Pages
<PAGE>
Exhibit 10.14
EMPLOYMENT AGREEMENT
RANDALL M. GRIFFIN
This Employment Agreement (this "Agreement"), is made and entered into as of the
28th day of September, 1998 (the "Effective Date"), by and between
Corporate Office Management, Inc., a Maryland Corporation (the "Employer"), and
a subsidiary of Corporate Office Properties Trust ("COPT"), and Randall M.
Griffin (the "Executive").
RECITALS
A. The Employer desires to employ the Executive as an officer of the Employer
for a specified term, and the Executive is willing to accept such employment
upon the terms and conditions hereinafter set forth.
B. The Employer recognizes that circumstances may arise in which a change of
control of the Employer, through acquisition or otherwise, may occur, thereby
causing uncertainty of employment without regard to the competence or past
contributions of the Executive, and that such uncertainty may result in the loss
of valuable services of the Executive. Accordingly, the Employer and the
Executive wish to provide reasonable security to the Executive against changes
in the employment relationship in the event of any such change of control.
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter contained, it is covenanted and agreed by and between the
parties hereto as follows:
AGREEMENTS
1. POSITION AND DUTIES. The Employer hereby employs the Executive as the
President and Chief Operating Officer of the Employer, or in such other capacity
as shall be mutually agreed between the Employer and the Executive. During the
period of the Executive's employment hereunder, the Executive shall devote his
best efforts and full business time, energy, skills and attention to the
business and affairs of the Employer. The Executive's duties and authority shall
consist of and include all duties and authority customarily performed and held
by persons holding equivalent positions with business organizations similar in
nature and size to the Employer, as such duties and authority are reasonably
defined, modified and delegated from time to time by the Board of Directors of
the Employer (the "Board"). The Executive shall have the powers necessary to
perform the duties assigned to him, and shall be provided such supporting
services, staff, secretarial and other assistance, office space and
accouterments as shall be reasonably necessary and appropriate in the light of
such assigned duties.
2. COMPENSATION. As compensation for the services to be provided by the
Executive hereunder, the Executive shall receive the following compensation and
other benefits:
(a) BASE SALARY. The Executive shall receive an aggregate annual minimum "Base
Salary" at the rate
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of Two Hundred Seventy Thousand dollars ($270,000) per annum, payable in
periodic installments in accordance with the regular payroll practices of the
Employer. Such Base Salary shall be subject to review annually by the
Compensation Committee of the Board during the term hereof, in accordance with
the Employer's established compensation policies.
(b) PERFORMANCE BONUS. The Executive shall receive an annual cash "Performance
Bonus," payable within ninety (90) days after the end of the fiscal year of the
Employer which shall be determined by the Board based upon the recommendation of
the Compensation Committee thereof.
(c)STOCK OPTIONS. Executive shall be entitled to stock options as determined by
the Compensation Committee and the Board.
(d) BENEFITS. The Executive shall be entitled to all perquisites extended to
similarly situated executives, as such are stated in the Employer's Executive
Perquisite Policy (the "Perquisite Policy") promulgated for the Board by the
Compensation Committee of the Board, and which Perquisite Policy is hereby
incorporated by reference, as amended from time to time. In addition, the
Executive shall be entitled to participate in all plans and benefits generally,
from time to time, accorded to employees of the Employer ("Benefit Plans"), all
as determined by the Board from time to time based upon the input of its
Compensation Committee. Executive shall also receive additional benefits as
follows:
(i) a one thousand dollar ($1,000) per month automobile allowance; and
(ii) four thousand dollars ($4,000) per year for personal financial planning and
personal income tax preparation.
(e) WITHHOLDING. The Employer shall be entitled to withhold, from amounts
payable to the Executive hereunder, any federal, state or local withholding or
other taxes or charges which it is from time to time required to withhold. The
Employer shall be entitled to rely upon the opinion of its independent
accountants, with regard to any question concerning the amount or requirement of
any such withholding.
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<PAGE>
3. TERM AND TERMINATION.
(a) BASIC TERM. The Executive's employment hereunder shall be for a continuous
and self-renewing three (3) year term, commencing as of the Effective Date,
unless terminated by either party, with or without cause, effective as of the
first (1st) business day after written notice to that effect is delivered to the
other party.
(b) PREMATURE TERMINATION.
(i) In the event of the termination of the employment of the Executive under
this Agreement by the Employer for any reason other than expiration of the term
hereof or a "for-cause" termination in accordance with the provisions of
paragraph (d) of this Section 3, then notwithstanding any actual or allegedly
available alternative employment or other mitigation of damages by or available
to the Executive, the Executive shall be entitled to a "Lump Sum Payment" equal
to the sum of: (w) his monthly Base Salary then payable, multiplied by the
remaining number of months or partial months until expiration of the Basic Term
or renewal term, if any, (but not less than 18 months), and an annualized and
proportional amount equal to the average of the two (2) most recent annual
Performance Bonuses that the Executive received; For purposes of calculating the
Lump Sum Payment amounts due, the Executive's employment with the Employer shall
be agreed to have commenced on October 1, 1998. In the event of a termination
governed by this subparagraph (b)(i) of Section 3, the Employer shall also: (y)
notwithstanding the vesting schedule otherwise applicable, fully vest all of
Executive's options outstanding under any option or stock incentive plan herein
after established by Employer ("Option Plan") and allow a period of eighteen
(18) months following the termination of employment for the Executive to
exercise any such options; and (z) continue for the Executive (provided that
such items are not available to him by virtue of other employment secured after
termination) the perquisites, plans and benefits provided under the Employer's
Perquisite Policy and Benefit Plans as of and after the date of termination,
[all items in (z) being collectively referred to as "Post-Termination
Perquisites and Benefits"], for the lesser of the number of full months the
Executive has theretofore been employed by the Employer (but not less than
twelve (12) months)or twenty four (24) months following such termination. The
payments and benefits provided under (w), (x), (y) and (z) above by the Employer
shall not be offset against or diminish any other compensation or benefits
accrued as of the date of termination.
(ii) Payment to the Executive under this Section 3(b) will be made monthly over
twelve (12) months, unless mutually agreed by the parties to minimize the
Executives' tax burden in any year.
(c) CONSTRUCTIVE TERMINATION. If at any time during the term of this Agreement,
except in connection with a "for-cause" termination pursuant to paragraph (d) of
this Section 3, the Executive is Constructively Discharged (as hereinafter
defined), then the Executive shall have the right, by written notice to the
Employer given within one hundred and twenty (120) days of such Constructive
Discharge, to terminate his services hereunder, effective as of thirty (30) days
after such notice, and the Executive shall have no rights or obligations under
this Agreement other than as provided in Section 5 hereof. The Executive shall
in such event be entitled to a Lump Sum Payment of Base Salary and Performance
Bonus compensation as well as all of the Post-Termination Prerequisites and
Benefits, as if such termination of his employment had been effectuated pursuant
to paragraph (b) of this Section 3.
For purposes of this Agreement, the Executive shall be deemed to have been
"Constructively Discharged" upon the occurrence of any one of the following
events:
(i) The Executive is not re-elected to, or is removed from, the position with
the Employer set forth in Section 1 hereof, other than as a result of the
Executive's election or appointment to positions of equal or superior scope and
responsibility; or
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<PAGE>
(ii) The Executive shall fail to be vested by the Employer with the powers,
authority and support services normally attendant to any of said offices; or
(iii) The Employer shall notify the Executive that the employment of the
Executive will be terminated or materially modified in the future or that the
Executive will be Constructively Discharged in the future; or
(iv) The Employer changes the primary employment location of the Executive to a
place that is more than fifty (50) miles from the primary employment location,
8815 Centre Park Drive, Columbia, Maryland 21045, as of the Effective Date of
this Agreement; or
(v) The Employer otherwise commits a material breach of its obligations under
this Agreement.
(d) TERMINATION FOR CAUSE. The employment of the Executive and this Agreement
may be terminated "for-cause" as hereinafter defined. Termination "for-cause"
shall mean the termination of employment on the basis or as a result of: (i) the
Executive's death or his permanent disability, which latter term shall mean the
Executive's inability, as a result of physical or mental incapacity,
substantially to perform his duties hereunder for a period of either six (6)
consecutive months, or one hundred and twenty (120) business days within a
consecutive twelve (12) month period; (ii) a material violation by the Executive
of any applicable material law or regulation respecting the business of the
Employer; (iii) the Executive being found guilty of, or being publicly
associated with, to the Employer's detriment, a felony or an act of dishonesty
in connection with the performance of his duties as an officer of the Employer,
or the Executive's commission of an act which in the opinion of a reasonable
third party disqualifies the Executive from serving as an officer or director of
the Employer; or (iv) the willful or negligent failure of the Executive to
perform his duties hereunder in any material respect. The Executive shall be
entitled to at least thirty (30) days' prior written notice of the Employer's
intention to terminate his employment for any cause (except the Executive's
death), specifying the grounds for such termination, affording the Executive a
reasonable opportunity to cure any conduct or act (if curable) alleged as
grounds for such termination, and a reasonable opportunity to present to the
Board his position regarding any dispute relating to the existence of such
cause.
(e) TERMINATION UPON DEATH. In the event payments are due and owing under this
Agreement at the death of the Executive, such payments shall be made to such
beneficiary, designee or fiduciary as Executive may have designated in writing,
or failing such designation, to the executor or administrator of his estate, in
full settlement and satisfaction of all claims and demands on behalf of the
Executive. Such payments shall be in addition to any other death benefits of the
Employer made available for the benefit of the Executive, and in full settlement
and satisfaction of all payments provided for in this Agreement.
(f) TERMINATION UPON DISABILITY. The Employer may terminate the Executive's
employment after the Executive is determined to be disabled under the current
Employer program or by a physician engaged by the Employer and reasonably
approved by the Executive. In the event of a dispute regarding the Executive's
"disability," such dispute shall be resolved through arbitration as provided in
paragraph (d) of Section 9 hereof, except that the arbitrator appointed by the
American Arbitration Association shall be a duly licensed medical doctor. The
Executive shall be entitled to the compensation and benefits provided for under
this Agreement during any period of incapacitation occurring during the term of
this Agreement, and occurring prior to the establishment of the Executive's
"disability" during which the Executive is unable to work due to a physical or
mental infirmity. Notwithstanding anything contained in this Agreement to the
contrary, until the date specified in a notice of termination relating to the
Executive's disability, the Executive shall be entitled to return to his
positions with the Employer as set forth in this Agreement, in which event no
disability of the Executive will be deemed to have occurred.
(g) TERMINATION UPON CHANGE OF CONTROL.
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<PAGE>
(i) In the event of a Change in Control (as defined below) of the Employer and
the termination of the Executive's employment by Executive or by the Employer
under either 1 or 2 below, the Executive shall, be entitled to a Lump Sum
Payment equal to the sum of: (w) his monthly Base Salary then payable,
multiplied by thirty-six (36); plus (x) three (3) times the average of the three
(3) most recent annual Performance Bonuses that the Executive received;
provided, however, that if the Executive has been employed by the Employer for
fewer than three (3) years, then the amount set forth in (x) above shall be
equal to three (3) times the average of the annual Performance Bonuses that the
Executive has theretofore received from the Employer. The Employer shall also:
(y) notwithstanding the vesting schedule otherwise applicable, fully vest all of
Executive's options outstanding under any Option Plan and allow a period of
eighteen (18) months following the termination of employment of the Executive
for the Executive's exercise of such options; and (z) continue for the Executive
(provided that such items are not available to him by virtue of other employment
secured after termination) all of the perquisites, plans and benefits provided
under paragraph (c) of Section 2, for 18 months following such termination. The
payments and benefits provided under (w), (x), (y) and (z) above by the Employer
shall not be offset against or diminish any other compensation or benefits
accrued as of the date of termination. The following shall constitute
termination under this paragraph:
1. The Executive terminates his employment under this Agreement pursuant to a
written notice to that effect delivered to the Board within six (6) months after
the occurrence of the Change in Control.
2. Executive's employment is terminated, including Constructively Discharged, by
the Employer or its successor either in contemplation of or after Change in
Control, other than on a for-cause basis.
(ii) For purposes of this paragraph, the term "Change in Control" shall mean the
following occurring after the date of this Agreement:
1. The consummation of the acquisition by any person (as such term is defined in
Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the
"1934 Act") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the 1934 Act) of forty percent (40%) or more of the combined
voting power embodied in the then-outstanding voting securities of COPT or the
Employer; or
2. Approval by the stockholders of the Employer of: (1) a merger or
consolidation of the Employer, if the stockholders of COPT or the Employer
immediately before such merger or consolidation do not, as a result of such
merger or consolidation, own, directly or indirectly, more than fifty percent
(50%) of the combined voting power of the then outstanding voting securities of
the entity resulting from such merger or consolidation in substantially the same
proportion as was represented by their ownership of the combined voting power of
the voting securities of COPT or the Employer outstanding immediately before
such merger or consolidation; or (2) a complete or substantial liquidation or
dissolution, or an agreement for the sale or other disposition, of all or
substantially all of the assets of COPT or the Employer.
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur
solely because forty percent (40%) or more of the combined voting
then-outstanding securities is acquired by: (1) a trustee or other fiduciary
holding securities under one or more employee benefit plans maintained for
employees of the entity; or (2) any corporation or other entity which,
immediately prior to such acquisition, is owned directly or in directly the
stockholders of the Employer in the same proportion as their ownership of stock
in COPT or the Employer immediately prior to such acquisition.
(iii) If it is determined, in the opinion of the Employer's independent
accountants, in consultation with the Employer's independent counsel, that any
amount payable to the Executive by the Employer under this Agreement, or any
other plan or agreement under which the Executive participates or is a party,
would constitute an "Excess Parachute Payment" within the meaning of Section
280G of the Internal Revenue Code of 1986, as amended (the "Code") and be
subject to the excise tax imposed by Section 4999 of the
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Code (the "Excise Tax"), the Employer shall pay to the Executive a "grossing-up"
amount equal to the amount of such Excise Tax and all federal and state income
or other taxes with respect payment of the amount of such Excise Tax, including
all such taxes with respect to any such grossing-up amount. If at a later date,
the Internal Revenue Service assesses a deficiency against the Executive for the
Excise Tax which is greater than that which was determined at the time such
amounts were paid, the Employer shall pay to the Executive the amount of such
unreimbursed Excise Tax plus any interest, penalties and professional fees or
expenses, incurred by the Executive as a result of such assessment, including
all such taxes with respect to any such additional amount. The highest marginal
tax rate applicable to individuals at the time of payment of such amounts will
be used for purposes of determining the federal and state income and other taxes
with respect thereto. The Employer shall withhold from any amounts paid under
this Agreement the amount of any Excise Tax or other federal, state or local
taxes then required to be withheld. Computations of the amount of any
grossing-up supplemental compensation paid under this subparagraph shall be made
by the Employer's independent accountants, in consultation with the Employer's
independent legal counsel. The Employer shall pay all accountant and legal
counsel fees and expenses.
4. CONFIDENTIALITY AND LOYALTY. The Executive acknowledges that heretofore or
hereafter during the course of his employment he has produced and received, and
may hereafter produce, receive and otherwise have access to various materials,
records, data, trade secrets and information not generally available to the
public (collectively, "Confidential Information") regarding the Employer and its
subsidiaries and affiliates. Accordingly, during and subsequent to termination
of this Agreement, the Executive shall hold in confidence and not directly or
indirectly disclose, use, copy or make lists of any such Confidential
Information, except to the extent that such information is or thereafter becomes
lawfully available from public sources, or such disclosure is authorized in
writing by the Employer, required by law or by any competent administrative
agency or judicial authority, or otherwise as reasonably necessary or
appropriate in connection with the performance by the Executive of his duties
hereunder. All records, files, documents, computer diskettes, computer programs
and other computer-generated material, as well as all other materials or copies
thereof relating to the Employer's business, which the Executive shall prepare
or use, shall be and remain the sole property of the Employer, shall not be
removed from the Employer's premises without its written consent, and shall be
promptly returned to the Employer upon termination of the Executive's employment
hereunder. The Executive agrees to abide by the Employer's reasonable policies,
as in effect from time to time, respecting confidentiality and the avoidance of
interests conflicting with those of the Employer.
5. NON-COMPETITION COVENANT.
(a) RESTRICTIVE COVENANT. The Employer and the Executive have jointly reviewed
the tenant lists, property submittals, logs, broker lists, and operations of the
Employer, and have agreed that as an essential ingredient of and in
consideration of this Agreement and the payment of the amounts described in
Sections 2 and 3 hereof, the Executive hereby agrees that, except with the
express prior written consent of the Employer, for a period equal to the lesser
of the number of full months the Executive has at any time been employed by the
Employer or twenty-four (24) months after the termination of the Executive's
employment with the Employer (the "Restrictive Period"), he will not directly or
indirectly compete with the business of the Employer, including, but not by way
of limitation, by directly or indirectly owning, managing, operating,
controlling, financing, or by directly or indirectly serving as an employee,
officer or director of or consultant to, or by soliciting or inducing, or
attempting to solicit or induce, any employee or agent of Employer to terminate
employment with Employer and become employed by any person, firm, partnership,
corporation, trust or other entity which owns or operates a business similar to
that of the Employer (the "Restrictive Covenant"). For purposes of this
subparagraph (a), a business shall be considered "similar" to that of the
Employer if it is engaged in the acquisition, development, ownership, operation,
management or leasing of suburban office property (i) in any geographic market
or submarket in which the Employer owns more than 750,000 s.f. of properties
either as of the date hereof or as of the date of termination of the Executive's
employment. If the Executive violates the Restrictive Covenant and the Employer
brings legal action for injunctive or other relief, the
6
<PAGE>
Employer shall not, as a result of the time involved in obtaining such relief,
be deprived of the benefit of the full period of the Restrictive Covenant.
Accordingly, the Restrictive Covenant shall be deemed to have the duration
specified in this paragraph (a) computed from the date the relief is granted but
reduced by the time between the period when the Restrictive Period began to run
and the date of the first violation of the Restrictive Covenant by the
Executive. In the event that a successor of the Employer assumes and agrees to
perform this Agreement or otherwise acquires the Employer, this Restrictive
Covenant shall continue to apply only to the primary service area of the
Employer as it existed immediately before such assumption or acquisition and
shall not apply to any of the successor's other offices or markets. The
foregoing Restrictive Covenant shall not prohibit the Executive from owning,
directly or indirectly, capital stock or similar securities which are listed on
a securities exchange or quoted on the National Association of Securities
Dealers Automated Quotation System which do not represent more than five percent
(5%) of the outstanding capital stock of any corporation.
(b) REMEDIES FOR BREACH OF RESTRICTIVE COVENANT. The Executive acknowledges that
the restrictions contained in Sections 4 and 5 of this Agreement are reasonable
and necessary for the protection of the legitimate proprietary business
interests of the Employer; that any violation of these restrictions would cause
substantial injury to the Employer and such interests; that the Employer would
not have entered into this Agreement with the Executive without receiving the
additional consideration offered by the Executive in binding himself to these
restrictions; and that such restrictions were a material inducement to the
Employer to enter into this Agreement. In the event of any violation or
threatened violation of these restrictions, the Employer shall be relieved of
any further obligations under this Agreement, shall be entitled to any rights,
remedies or damages available at law, in equity or otherwise under this
Agreement, and shall be entitled to preliminary and temporary injunctive relief
granted by a court of competent jurisdiction to prevent or restrain any such
violation by the Executive and any and all persons directly or indirectly acting
for or with him, as the case may be, while awaiting the decision of the
arbitrator selected in accordance with paragraph (d) of Section 9 of this
Agreement, which decision, if rendered adverse to the Executive, may include
permanent injunctive relief to be granted by the court.
6. INTERCORPORATE TRANSFERS. If the Executive shall be voluntarily transferred
to an affiliate of the Employer, such transfer shall not be deemed to terminate
or modify this Agreement, and the employing corporation to which the Executive
shall have been transferred shall, for all purposes of this Agreement, be
construed as standing in the same place and stead as the Employer as of the date
of such transfer. For purposes hereof, an affiliate of the Employer shall mean
any corporation or other entity directly or indirectly controlling, controlled
by, or under common control with the Employer. The Employer shall be secondarily
liable to the Executive for the obligations hereunder in the event the affiliate
of the Employer cannot or refuses to honor such obligations. For all relevant
purposes hereof, the tenure of the Executive shall be deemed to include the
aggregate term of his employment by the Employer or its affiliate.
7. INTEREST IN ASSETS. Neither the Executive nor his estate shall acquire
hereunder any rights in funds or assets of the Employer, otherwise than by and
through the actual payment of amounts payable hereunder; nor shall the Executive
or his estate have any power to transfer, assign (except into a trust for
purposes of estate planning), anticipate, hypothecate or otherwise encumber in
advance any of said payments; nor shall any of such payments be subject to
seizure for the payment of any debt, judgment, alimony, separate maintenance or
be transferable by operation of law in the event of bankruptcy, insolvency or
otherwise of the Executive.
8. INDEMNIFICATION.
(a) The Employer shall provide the Executive (including his heirs, personal
representatives, executors and administrators), during the term of this
Agreement and thereafter throughout all applicable limitations periods, with
coverage under the Employer's then-current directors' and officers' liability
insurance policy, at the Employer's expense.
(b) In addition to the insurance coverage provided for in paragraph (a) of this
Section 8, the Employer shall defend, hold harmless and indemnify the Executive
(and his heirs,
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<PAGE>
executors and administrators) to the fullest extent permitted under applicable
law, and subject to the requirements, limitations and specifications set forth
in the Bylaws and other organizational documents of the Employer, against all
expenses and liabilities reasonably incurred by him in connection with or
arising out of any action, suit or proceeding in which he may be involved by
reason of his having been an officer of the Employer (whether or not he
continues to be an officer at the time of incurring such expenses or
liabilities), such expenses and liabilities to include, but not be limited to,
judgments, court costs and attorneys' fees and the cost of reasonable
settlements.
(c) In the event the Executive becomes a party, or is threatened to be made a
party, to any action, suit or proceeding for which the Employer has agreed to
provide insurance coverage or indemnification under this Section 8, the Employer
shall, to the full extent permitted under applicable law, advance all expenses
(including the reasonable attorneys' fees of the attorneys selected by Employer
and approved by Executive for the representation of the Executive), judgments,
fines and amounts paid in settlement (collectively "Expenses") incurred by the
Executive in connection with the investigation, defense, settlement, or appeal
of any threatened, pending or completed action, suit or proceeding, subject to
receipt by the Employer of a written undertaking from the Executive covenanting:
(i) to reimburse the Employer for all Expenses actually paid by the Employer to
or on behalf of the Executive in the event it shall be ultimately determined
that the Executive is not entitled to indemnification by the Employer for such
Expenses; and (ii) to assign to the Employer all rights of the Executive to
insurance proceeds, under any policy of directors' and officers' liability
insurance or otherwise, to the extent of the amount of Expenses actually paid by
the Employer to or on behalf of the Executive.
9. GENERAL PROVISIONS.
(a) SUCCESSORS; ASSIGNMENT. This Agreement shall be binding upon and inure to
the benefit of the Executive, the Employer and his and its respective personal
representatives, successors and assigns, and any successor or assign of the
Employer shall be deemed the "Employer" hereunder. The Employer shall require
any successor to all or substantially all of the business and/or assets of the
Employer, whether directly or indirectly, by purchase, merger, consolidation,
acquisition of stock, or otherwise, by an agreement in form and substance
satisfactory to the Executive, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent as the Employer would be
required to perform if no such succession had taken place.
(b) ENTIRE AGREEMENT; MODIFICATIONS. This Agreement constitutes the entire
agreement between the parties respecting the subject matter hereof, and
supersedes all prior negotiations, undertakings, agreements and arrangements
with respect thereto, whether written or oral. Except as otherwise explicitly
provided herein, this Agreement may not be amended or modified except by written
agreement signed by the Executive and the Employer.
(c) ENFORCEMENT AND GOVERNING LAW. The provisions of this Agreement shall be
regarded as divisible and separate; if any of said provisions should be declared
invalid or unenforceable by a court of competent jurisdiction, the validity and
enforceability of the remaining provisions shall not be affected thereby. This
Agreement shall be construed and the legal relations of the parties hereto shall
be determined in accordance with the laws of the State of Maryland as it
constitutes the situs of the corporation and the employment hereunder, without
reference to the law regarding conflicts of law.
(d) ARBITRATION. Except as provided in paragraph (b) of Section 5, any dispute
or controversy arising under or in connection with this Agreement or the
Executive's employment by the Employer shall be settled exclusively by
arbitration, conducted by a single arbitrator sitting in Baltimore, MD in
accordance with the rules of the American Arbitration Association (the "AAA")
then in effect. The arbitrator shall be selected by the parties from a list of
eleven (11) arbitrators provided by the AAA, provided that no arbitrator shall
be related to or affiliated with either of the parties. No later than ten (10)
days after the list of proposed arbitrators is received by the parties, the
parties, or their respective representatives, shall meet at a mutually
convenient location in Baltimore, Maryland, or telephonically. At that meeting,
the
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party who sought arbitration shall eliminate one (1) proposed arbitrator and
then the other party shall eliminate one (1) proposed arbitrator. The parties
shall continue to alternatively eliminate names from the list of proposed
arbitrators in this manner until each party has eliminated five (5) proposed
arbitrators. The remaining arbitrator shall arbitrate the dispute. Each party
shall submit, in writing, the specific requested action or decision it wishes to
take, or make, with respect to the matter in dispute, and the arbitrator shall
be obligated to choose one (1) party's specific requested action or decision,
without being permitted to effectuate any compromise or "new" position;
provided, however, that the arbitrator is authorized to award amounts not in
dispute during the pendency of any dispute or controversy arising under or in
connection with this Agreement. The Employer shall bear the cost of all counsel,
experts or other representatives that are retained by both parties, together
with all costs of the arbitration proceeding, including, without limitation, the
fees, costs and expenses imposed or incurred by the arbitrator. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; including,
if applicable, entry of a permanent injunction under paragraph (b) of Section 5.
(e) PRESS RELEASES AND PUBLIC DISCLOSURE. Any press release or other public
communication by either the Executive or the Employer with any other person
concerning the terms, conditions or circumstances of Executive's employment, or
the termination of such employment, shall be subject to prior written approval
of both the Executive and the Employer, subject to the proviso that the Employer
shall be entitled to make requisite and appropriate public disclosure of the
terms of this Agreement, without the Executive's consent or approval, as
required under applicable statutes, and the rules and regulations of the
Securities and Exchange Commission and the Stock Exchange on which the shares of
Employer may from time to time be listed.
(f) WAIVER. No waiver by either party at any time of any breach by the other
party of, or compliance with, any condition or provision of this Agreement to be
performed by the other party, shall be deemed a waiver of any similar or
dissimilar provisions or conditions at the same time or any prior or subsequent
time.
(g) NOTICES. Notices given pursuant to this Agreement shall be in writing, and
shall be deemed given when received, and, if mailed, shall be mailed by United
States registered or certified mail, return receipt requested, postage prepaid.
Notices to the Employer shall be addressed to the principal headquarters of the
Employer, Attention: Chairman. Notices to the Executive shall be sent to the
address set forth below the Executive's signature on this Agreement, or to such
other address as the party to be notified shall have given to the other.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
Corporate Office Management, Inc., a Maryland corporation
By:
---------------------------- ----------------------------
Clay W. Hamlin, III, CEO Randall M. Griffin
Corporate Office Properties, L.P., a Delaware
limited partnership by its general partner,
Corporate Office Properties Trust
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By:
----------------------------
Clay W. Hamlin, III, CEO
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Exhibit 10.15
EMPLOYMENT AGREEMENT
ROGER A. WAESCHE, JR.
This Employment Agreement (this "Agreement"), is made and entered into as of the
28th day of September, 1998 (the "Effective Date"), by and between
Corporate Office Management, Inc., a Maryland Corporation (the "Employer"), and
a subsidiary of Corporate Office Properties Trust ("COPT"), and Roger A Waesche,
Jr. (the "Executive").
RECITALS
A. The Employer desires to employ the Executive as an officer of the Employer
for a specified term, and the Executive is willing to accept such employment
upon the terms and conditions hereinafter set forth.
B. The Employer recognizes that circumstances may arise in which a change of
control of the Employer, through acquisition or otherwise, may occur, thereby
causing uncertainty of employment without regard to the competence or past
contributions of the Executive, and that such uncertainty may result in the loss
of valuable services of the Executive. Accordingly, the Employer and the
Executive wish to provide reasonable security to the Executive against changes
in the employment relationship in the event of any such change of control.
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter contained, it is covenanted and agreed by and between the
parties hereto as follows:
AGREEMENTS
1. POSITION AND DUTIES. The Employer hereby employs the Executive as
the Senior Vice President-Finance of the Employer, or in such other capacity
as shall be mutually agreed between the Employer and the Executive. During
the period of the Executive's employment hereunder, the Executive shall
devote his best efforts and full business time, energy, skills and attention
to the business and affairs of the Employer. The Executive's duties and
authority shall consist of and include all duties and authority customarily
performed and held by persons holding equivalent positions with business
organizations similar in nature and size to the Employer, as such duties and
authority are reasonably defined, modified and delegated from time to time by
the Board of Directors of the Employer (the "Board"). The Executive shall
have the powers necessary to perform the duties assigned to him, and shall be
provided such supporting services, staff, secretarial and other assistance,
office space and accouterments as shall be reasonably necessary and
appropriate in the light of such assigned duties.
2. COMPENSATION. As compensation for the services to be provided by the
Executive hereunder, the Executive shall receive the following compensation and
other benefits:
(a) BASE SALARY. The Executive shall receive an aggregate annual minimum "Base
Salary" at the rate of One Hundred and Fifty Thousand dollars ($150,000) per
annum, payable in periodic installments in accordance with the regular payroll
practices of the Employer. Such Base Salary shall be subject to review annually
by the Compensation Committee of the Board during the term hereof, in accordance
with the Employer's established compensation policies.
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(b) PERFORMANCE BONUS. The Executive shall receive an annual cash "Performance
Bonus," payable within ninety (90) days after the end of the fiscal year of the
Employer which shall be determined by the Board based upon the recommendation of
the Compensation Committee thereof.
(c)STOCK OPTIONS. Executive shall be entitled to stock options as determined by
the Compensation Committee and the Board.
(d) BENEFITS. The Executive shall be entitled to all perquisites extended to
similarly situated executives, as such are stated in the Employer's Executive
Perquisite Policy (the "Perquisite Policy") promulgated for the Board by the
Compensation Committee of the Board, and which Perquisite Policy is hereby
incorporated by reference, as amended from time to time. In addition, the
Executive shall be entitled to participate in all plans and benefits generally,
from time to time, accorded to employees of the Employer ("Benefit Plans"), all
as determined by the Board from time to time based upon the input of its
Compensation Committee. Executive shall also receive additional benefits as
follows:
(i) a six hundred and twenty-five dollar ($625.00) per month automobile
allowance; and
(e) WITHHOLDING. The Employer shall be entitled to withhold, from amounts
payable to the Executive hereunder, any federal, state or local withholding or
other taxes or charges which it is from time to time required to withhold. The
Employer shall be entitled to rely upon the opinion of its independent
accountants, with regard to any question concerning the amount or requirement of
any such withholding.
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3. TERM AND TERMINATION.
(a) BASIC TERM. The Executive's employment hereunder shall be for a continuous
and self-renewing two (2) year term, commencing as of the Effective Date, unless
terminated by either party, with or without cause, effective as of the first
(1st) business day after written notice to that effect is delivered to the other
party.
(b) PREMATURE TERMINATION.
(i) In the event of the termination of the employment of the Executive under
this Agreement by the Employer for any reason other than expiration of the term
hereof or a "for-cause" termination in accordance with the provisions of
paragraph (d) of this Section 3, then notwithstanding any actual or allegedly
available alternative employment or other mitigation of damages by or available
to the Executive, the Executive shall be entitled to a "Lump Sum Payment" equal
to the sum of: (w) his monthly Base Salary then payable, multiplied by the
remaining number of months or partial months until expiration of the Basic Term
or renewal term, if any, (but not less than 18 months), and an annualized and
proportional amount equal to the average of the two (2) most recent annual
Performance Bonuses that the Executive received; For purposes of calculating the
Lump Sum Payment amounts due, the Executive's employment with the Employer shall
be agreed to have commenced on October 1, 1998. In the event of a termination
governed by this subparagraph (b)(i) of Section 3, the Employer shall also: (y)
notwithstanding the vesting schedule otherwise applicable, fully vest all of
Executive's options outstanding under any option or stock incentive plan herein
after established by Employer ("Option Plan") and allow a period of eighteen
(18) months following the termination of employment for the Executive to
exercise any such options; and (z) continue for the Executive (provided that
such items are not available to him by virtue of other employment secured after
termination) the perquisites, plans and benefits provided under the Employer's
Perquisite Policy and Benefit Plans as of and after the date of termination,
[all items in (z) being collectively referred to as "Post-Termination
Perquisites and Benefits"], for the lesser of the number of full months the
Executive has theretofore been employed by the Employer (but not less than
twelve (12) months)or eighteen (18) months following such termination. The
payments and benefits provided under (w), (x), (y) and (z) above by the Employer
shall not be offset against or diminish any other compensation or benefits
accrued as of the date of termination.
(ii) Payment to the Executive under this Section 3(b) will be made monthly over
twelve (12) months, unless mutually agreed by the parties to minimize the
Executives' tax burden in any year.
(c) CONSTRUCTIVE TERMINATION. If at any time during the term of this Agreement,
except in connection with a "for-cause" termination pursuant to paragraph (d) of
this Section 3, the Executive is Constructively Discharged (as hereinafter
defined), then the Executive shall have the right, by written notice to the
Employer given within one hundred and twenty (120) days of such Constructive
Discharge, to terminate his services hereunder, effective as of thirty (30) days
after such notice, and the Executive shall have no rights or obligations under
this Agreement other than as provided in Section 5 hereof. The Executive shall
in such event be entitled to a Lump Sum Payment of Base Salary and Performance
Bonus compensation as well as all of the Post-Termination Prerequisites and
Benefits, as if such termination of his employment had been effectuated pursuant
to paragraph (b) of this Section 3.
For purposes of this Agreement, the Executive shall be deemed to have been
"Constructively Discharged" upon the occurrence of any one of the following
events:
(i) The Executive is not re-elected to, or is removed from, the position with
the Employer set forth in Section 1 hereof, other than as a result of the
Executive's election or appointment to positions of equal or superior scope and
responsibility; or
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(ii) The Executive shall fail to be vested by the Employer with the powers,
authority and support services normally attendant to any of said offices; or
(iii) The Employer shall notify the Executive that the employment of the
Executive will be terminated or materially modified in the future or that the
Executive will be Constructively Discharged in the future; or
(iv) The Employer changes the primary employment location of the Executive to a
place that is more than fifty (50) miles from the primary employment location,
8815 Centre Park Drive, Columbia Maryland 21045, as of the Effective Date of
this Agreement; or
(v) The Employer otherwise commits a material breach of its obligations under
this Agreement.
(d) TERMINATION FOR CAUSE. The employment of the Executive and this Agreement
may be terminated "for-cause" as hereinafter defined. Termination "for-cause"
shall mean the termination of employment on the basis or as a result of: (i) the
Executive's death or his permanent disability, which latter term shall mean the
Executive's inability, as a result of physical or mental incapacity,
substantially to perform his duties hereunder for a period of either six (6)
consecutive months, or one hundred and twenty (120) business days within a
consecutive twelve (12) month period; (ii) a material violation by the Executive
of any applicable material law or regulation respecting the business of the
Employer; (iii) the Executive being found guilty of, or being publicly
associated with, to the Employer's detriment, a felony or an act of dishonesty
in connection with the performance of his duties as an officer of the Employer,
or the Executive's commission of an act which in the opinion of a reasonable
third party disqualifies the Executive from serving as an officer or director of
the Employer; or (iv) the willful or negligent failure of the Executive to
perform his duties hereunder in any material respect. The Executive shall be
entitled to at least thirty (30) days' prior written notice of the Employer's
intention to terminate his employment for any cause (except the Executive's
death), specifying the grounds for such termination, affording the Executive a
reasonable opportunity to cure any conduct or act (if curable) alleged as
grounds for such termination, and a reasonable opportunity to present to the
Board his position regarding any dispute relating to the existence of such
cause.
(e) TERMINATION UPON DEATH. In the event payments are due and owing under this
Agreement at the death of the Executive, such payments shall be made to such
beneficiary, designee or fiduciary as Executive may have designated in writing,
or failing such designation, to the executor or administrator of his estate, in
full settlement and satisfaction of all claims and demands on behalf of the
Executive. Such payments shall be in addition to any other death benefits of the
Employer made available for the benefit of the Executive, and in full settlement
and satisfaction of all payments provided for in this Agreement.
(f) TERMINATION UPON DISABILITY. The Employer may terminate the Executive's
employment after the Executive is determined to be disabled under the current
Employer program or by a physician engaged by the Employer and reasonably
approved by the Executive. In the event of a dispute regarding the Executive's
"disability," such dispute shall be resolved through arbitration as provided in
paragraph (d) of Section 9 hereof, except that the arbitrator appointed by the
American Arbitration Association shall be a duly licensed medical doctor. The
Executive shall be entitled to the compensation and benefits provided for under
this Agreement during any period of incapacitation occurring during the term of
this Agreement, and occurring prior to the establishment of the Executive's
"disability" during which the Executive is unable to work due to a physical or
mental infirmity. Notwithstanding anything contained in this Agreement to the
contrary, until the date specified in a notice of termination relating to the
Executive's disability, the Executive shall be entitled to return to his
positions with the Employer as set forth in this Agreement, in which event no
disability of the Executive will be deemed to have occurred.
(g) TERMINATION UPON CHANGE OF CONTROL.
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(i) In the event of a Change in Control (as defined below) of the Employer and
the termination of the Executive's employment by Executive or by the Employer
under either 1 or 2 below, the Executive shall, be entitled to a Lump Sum
Payment equal to the sum of: (w) his monthly Base Salary then payable,
multiplied by twenty-four (24); plus (x) two (2) times the average of the two
(2) most recent annual Performance Bonuses that the Executive received;
provided, however, that if the Executive has been employed by the Employer for
fewer than two (2) years, then the amount set forth in (x) above shall be equal
to two (2) times the average of the annual Performance Bonuses that the
Executive has theretofore received from the Employer. The Employer shall also:
(y) notwithstanding the vesting schedule otherwise applicable, fully vest all of
Executive's options outstanding under any Option Plan and allow a period of
eighteen (18) months following the termination of employment of the Executive
for the Executive's exercise of such options; and (z) continue for the Executive
(provided that such items are not available to him by virtue of other employment
secured after termination) all of the perquisites, plans and benefits provided
under paragraph (c) of Section 2, for 18 months following such termination. The
payments and benefits provided under (w), (x), (y) and (z) above by the Employer
shall not be offset against or diminish any other compensation or benefits
accrued as of the date of termination. The following shall constitute
termination under this paragraph:
1. The Executive terminates his employment under this Agreement pursuant to a
written notice to that effect delivered to the Board within six (6) months after
the occurrence of the Change in Control.
2. Executive's employment is terminated, including Constructively Discharged, by
the Employer or its successor either in contemplation of or after Change in
Control, other than on a for-cause basis.
(ii) For purposes of this paragraph, the term "Change in Control" shall mean the
following occurring after the date of this Agreement:
1. The consummation of the acquisition by any person (as such term is defined in
Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the
"1934 Act") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the 1934 Act) of forty percent (40%) or more of the combined
voting power embodied in the then-outstanding voting securities of COPT or the
Employer; or
2. Approval by the stockholders of the Employer of: (1) a merger or
consolidation of the Employer, if the stockholders of COPT or the Employer
immediately before such merger or consolidation do not, as a result of such
merger or consolidation, own, directly or indirectly, more than fifty percent
(50%) of the combined voting power of the then outstanding voting securities of
the entity resulting from such merger or consolidation in substantially the same
proportion as was represented by their ownership of the combined voting power of
the voting securities of COPT or the Employer outstanding immediately before
such merger or consolidation; or (2) a complete or substantial liquidation or
dissolution, or an agreement for the sale or other disposition, of all or
substantially all of the assets of COPT or the Employer.
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur
solely because forty percent (40%) or more of the combined voting
then-outstanding securities is acquired by: (1) a trustee or other fiduciary
holding securities under one or more employee benefit plans maintained for
employees of the entity; or (2) any corporation or other entity which,
immediately prior to such acquisition, is owned directly or in directly the
stockholders of the Employer in the same proportion as their ownership of stock
in COPT or the Employer immediately prior to such acquisition.
(ii) If it is determined, in the opinion of the Employer's independent
accountants, in consultation with the Employer's independent counsel, that any
amount payable to the Executive by the Employer under this Agreement, or any
other plan or agreement under which the Executive participates or is a party,
would constitute an "Excess Parachute Payment" within the meaning of Section
280G of the Internal Revenue Code of 1986, as amended (the "Code") and be
subject to the excise tax imposed by Section 4999 of the
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Code (the "Excise Tax"), the Employer shall pay to the Executive a "grossing-up"
amount equal to the amount of such Excise Tax and all federal and state income
or other taxes with respect payment of the amount of such Excise Tax, including
all such taxes with respect to any such grossing-up amount. If at a later date,
the Internal Revenue Service assesses a deficiency against the Executive for the
Excise Tax which is greater than that which was determined at the time such
amounts were paid, the Employer shall pay to the Executive the amount of such
unreimbursed Excise Tax plus any interest, penalties and professional fees or
expenses, incurred by the Executive as a result of such assessment, including
all such taxes with respect to any such additional amount. The highest marginal
tax rate applicable to individuals at the time of payment of such amounts will
be used for purposes of determining the federal and state income and other taxes
with respect thereto. The Employer shall withhold from any amounts paid under
this Agreement the amount of any Excise Tax or other federal, state or local
taxes then required to be withheld. Computations of the amount of any
grossing-up supplemental compensation paid under this subparagraph shall be made
by the Employer's independent accountants, in consultation with the Employer's
independent legal counsel. The Employer shall pay all accountant and legal
counsel fees and expenses.
4. CONFIDENTIALITY AND LOYALTY. The Executive acknowledges that heretofore or
hereafter during the course of his employment he has produced and received, and
may hereafter produce, receive and otherwise have access to various materials,
records, data, trade secrets and information not generally available to the
public (collectively, "Confidential Information") regarding the Employer and its
subsidiaries and affiliates. Accordingly, during and subsequent to termination
of this Agreement, the Executive shall hold in confidence and not directly or
indirectly disclose, use, copy or make lists of any such Confidential
Information, except to the extent that such information is or thereafter becomes
lawfully available from public sources, or such disclosure is authorized in
writing by the Employer, required by law or by any competent administrative
agency or judicial authority, or otherwise as reasonably necessary or
appropriate in connection with the performance by the Executive of his duties
hereunder. All records, files, documents, computer diskettes, computer programs
and other computer-generated material, as well as all other materials or copies
thereof relating to the Employer's business, which the Executive shall prepare
or use, shall be and remain the sole property of the Employer, shall not be
removed from the Employer's premises without its written consent, and shall be
promptly returned to the Employer upon termination of the Executive's employment
hereunder. The Executive agrees to abide by the Employer's reasonable policies,
as in effect from time to time, respecting confidentiality and the avoidance of
interests conflicting with those of the Employer.
5. NON-COMPETITION COVENANT.
(a) RESTRICTIVE COVENANT. The Employer and the Executive have jointly
reviewed the tenant lists, property submittals, logs, broker lists, and
operations of the Employer, and have agreed that as an essential ingredient of
and in consideration of this Agreement and the payment of the amounts described
in Sections 2 and 3 hereof, the Executive hereby agrees that, except with the
express prior written consent of the Employer, for a period equal to the lesser
of the number of full months the Executive has at any time been employed by the
Employer or twenty-four (24) months after the termination of the Executive's
employment with the Employer (the "Restrictive Period"), he will not directly or
indirectly compete with the business of the Employer, including, but not by way
of limitation, by directly or indirectly owning, managing, operating,
controlling, financing, or by directly or indirectly serving as an employee,
officer or director of or consultant to, or by soliciting or inducing, or
attempting to solicit or induce, any employee or agent of Employer to terminate
employment with Employer and become employed by any person, firm, partnership,
corporation, trust or other entity which owns or operates a business similar to
that of the Employer (the "Restrictive Covenant"). For purposes of this
subparagraph (a), a business shall be considered "similar" to that of the
Employer if it is engaged in the acquisition, development, ownership, operation,
management or leasing of suburban office property (i) in any geographic market
or submarket in which the Employer owns more than 750,000 s.f. of properties
either as of the date hereof or as of the date of termination of the Executive's
employment. If the Executive violates the Restrictive Covenant and the Employer
brings legal action for injunctive or other relief, the
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Employer shall not, as a result of the time involved in obtaining such relief,
be deprived of the benefit of the full period of the Restrictive Covenant.
Accordingly, the Restrictive Covenant shall be deemed to have the duration
specified in this paragraph (a) computed from the date the relief is granted but
reduced by the time between the period when the Restrictive Period began to run
and the date of the first violation of the Restrictive Covenant by the
Executive. In the event that a successor of the Employer assumes and agrees to
perform this Agreement or otherwise acquires the Employer, this Restrictive
Covenant shall continue to apply only to the primary service area of the
Employer as it existed immediately before such assumption or acquisition and
shall not apply to any of the successor's other offices or markets. The
foregoing Restrictive Covenant shall not prohibit the Executive from owning,
directly or indirectly, capital stock or similar securities which are listed on
a securities exchange or quoted on the National Association of Securities
Dealers Automated Quotation System which do not represent more than five percent
(5%) of the outstanding capital stock of any corporation.
(b) REMEDIES FOR BREACH OF RESTRICTIVE COVENANT. The Executive acknowledges that
the restrictions contained in Sections 4 and 5 of this Agreement are reasonable
and necessary for the protection of the legitimate proprietary business
interests of the Employer; that any violation of these restrictions would cause
substantial injury to the Employer and such interests; that the Employer would
not have entered into this Agreement with the Executive without receiving the
additional consideration offered by the Executive in binding himself to these
restrictions; and that such restrictions were a material inducement to the
Employer to enter into this Agreement. In the event of any violation or
threatened violation of these restrictions, the Employer shall be relieved of
any further obligations under this Agreement, shall be entitled to any rights,
remedies or damages available at law, in equity or otherwise under this
Agreement, and shall be entitled to preliminary and temporary injunctive relief
granted by a court of competent jurisdiction to prevent or restrain any such
violation by the Executive and any and all persons directly or indirectly acting
for or with him, as the case may be, while awaiting the decision of the
arbitrator selected in accordance with paragraph (d) of Section 9 of this
Agreement, which decision, if rendered adverse to the Executive, may include
permanent injunctive relief to be granted by the court.
6. INTERCORPORATE TRANSFERS. If the Executive shall be voluntarily
transferred to an affiliate of the Employer, such transfer shall not be
deemed to terminate or modify this Agreement, and the employing corporation
to which the Executive shall have been transferred shall, for all purposes of
this Agreement, be construed as standing in the same place and stead as the
Employer as of the date of such transfer. For purposes hereof, an affiliate
of the Employer shall mean any corporation or other entity directly or
indirectly controlling, controlled by, or under common control with the
Employer. The Employer shall be secondarily liable to the Executive for the
obligations hereunder in the event the affiliate of the Employer cannot or
refuses to honor such obligations. For all relevant purposes hereof, the
tenure of the Executive shall be deemed to include the aggregate term of his
employment by the Employer or its affiliate.
7. INTEREST IN ASSETS. Neither the Executive nor his estate shall acquire
hereunder any rights in funds or assets of the Employer, otherwise than by and
through the actual payment of amounts payable hereunder; nor shall the Executive
or his estate have any power to transfer, assign (except into a trust for
purposes of estate planning), anticipate, hypothecate or otherwise encumber in
advance any of said payments; nor shall any of such payments be subject to
seizure for the payment of any debt, judgment, alimony, separate maintenance or
be transferable by operation of law in the event of bankruptcy, insolvency or
otherwise of the Executive.
8. INDEMNIFICATION.
(a) The Employer shall provide the Executive (including his heirs, personal
representatives, executors and administrators), during the term of this
Agreement and thereafter throughout all applicable limitations periods, with
coverage under the Employer's then-current directors' and officers' liability
insurance policy, at the Employer's expense.
(b) In addition to the insurance coverage provided for in paragraph (a) of
this Section 8, the Employer shall defend, hold harmless and indemnify the
Executive (and his heirs,
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executors and administrators) to the fullest extent permitted under applicable
law, and subject to the requirements, limitations and specifications set forth
in the Bylaws and other organizational documents of the Employer, against all
expenses and liabilities reasonably incurred by him in connection with or
arising out of any action, suit or proceeding in which he may be involved by
reason of his having been an officer of the Employer (whether or not he
continues to be an officer at the time of incurring such expenses or
liabilities), such expenses and liabilities to include, but not be limited to,
judgments, court costs and attorneys' fees and the cost of reasonable
settlements.
(c) In the event the Executive becomes a party, or is threatened to be made a
party, to any action, suit or proceeding for which the Employer has agreed to
provide insurance coverage or indemnification under this Section 8, the
Employer shall, to the full extent permitted under applicable law, advance
all expenses (including the reasonable attorneys' fees of the attorneys
selected by Employer and approved by Executive for the representation of the
Executive), judgments, fines and amounts paid in settlement (collectively
"Expenses") incurred by the Executive in connection with the investigation,
defense, settlement, or appeal of any threatened, pending or completed
action, suit or proceeding, subject to receipt by the Employer of a written
undertaking from the Executive covenanting: (i) to reimburse the Employer for
all Expenses actually paid by the Employer to or on behalf of the Executive
in the event it shall be ultimately determined that the Executive is not
entitled to indemnification by the Employer for such Expenses; and (ii) to
assign to the Employer all rights of the Executive to insurance proceeds,
under any policy of directors' and officers' liability insurance or
otherwise, to the extent of the amount of Expenses actually paid by the
Employer to or on behalf of the Executive.
9. GENERAL PROVISIONS.
(a) SUCCESSORS; ASSIGNMENT. This Agreement shall be binding upon and inure to
the benefit of the Executive, the Employer and his and its respective personal
representatives, successors and assigns, and any successor or assign of the
Employer shall be deemed the "Employer" hereunder. The Employer shall require
any successor to all or substantially all of the business and/or assets of the
Employer, whether directly or indirectly, by purchase, merger, consolidation,
acquisition of stock, or otherwise, by an agreement in form and substance
satisfactory to the Executive, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent as the Employer would be
required to perform if no such succession had taken place.
(b) ENTIRE AGREEMENT; MODIFICATIONS. This Agreement constitutes the entire
agreement between the parties respecting the subject matter hereof, and
supersedes all prior negotiations, undertakings, agreements and arrangements
with respect thereto, whether written or oral. Except as otherwise explicitly
provided herein, this Agreement may not be amended or modified except by written
agreement signed by the Executive and the Employer.
(c) ENFORCEMENT AND GOVERNING LAW. The provisions of this Agreement shall be
regarded as divisible and separate; if any of said provisions should be declared
invalid or unenforceable by a court of competent jurisdiction, the validity and
enforceability of the remaining provisions shall not be affected thereby. This
Agreement shall be construed and the legal relations of the parties hereto shall
be determined in accordance with the laws of the State of Maryland as it
constitutes the situs of the corporation and the employment hereunder, without
reference to the law regarding conflicts of law.
(d) ARBITRATION. Except as provided in paragraph (b) of Section 5, any dispute
or controversy arising under or in connection with this Agreement or the
Executive's employment by the Employer shall be settled exclusively by
arbitration, conducted by a single arbitrator sitting in Baltimore, MD in
accordance with the rules of the American Arbitration Association (the "AAA")
then in effect. The arbitrator shall be selected by the parties from a list of
eleven (11) arbitrators provided by the AAA, provided that no arbitrator shall
be related to or affiliated with either of the parties. No later than ten (10)
days after the list of proposed arbitrators is received by the parties, the
parties, or their respective representatives, shall meet at a mutually
convenient location in Baltimore, Maryland, or telephonically. At that meeting,
the
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party who sought arbitration shall eliminate one (1) proposed arbitrator and
then the other party shall eliminate one (1) proposed arbitrator. The parties
shall continue to alternatively eliminate names from the list of proposed
arbitrators in this manner until each party has eliminated five (5) proposed
arbitrators. The remaining arbitrator shall arbitrate the dispute. Each party
shall submit, in writing, the specific requested action or decision it wishes to
take, or make, with respect to the matter in dispute, and the arbitrator shall
be obligated to choose one (1) party's specific requested action or decision,
without being permitted to effectuate any compromise or "new" position;
provided, however, that the arbitrator is authorized to award amounts not in
dispute during the pendency of any dispute or controversy arising under or in
connection with this Agreement. The Employer shall bear the cost of all counsel,
experts or other representatives that are retained by both parties, together
with all costs of the arbitration proceeding, including, without limitation, the
fees, costs and expenses imposed or incurred by the arbitrator. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; including,
if applicable, entry of a permanent injunction under paragraph (b) of Section 5.
(e) PRESS RELEASES AND PUBLIC DISCLOSURE. Any press release or other public
communication by either the Executive or the Employer with any other person
concerning the terms, conditions or circumstances of Executive's employment, or
the termination of such employment, shall be subject to prior written approval
of both the Executive and the Employer, subject to the proviso that the Employer
shall be entitled to make requisite and appropriate public disclosure of the
terms of this Agreement, without the Executive's consent or approval, as
required under applicable statutes, and the rules and regulations of the
Securities and Exchange Commission and the Stock Exchange on which the shares of
Employer may from time to time be listed.
(f) WAIVER. No waiver by either party at any time of any breach by the other
party of, or compliance with, any condition or provision of this Agreement to be
performed by the other party, shall be deemed a waiver of any similar or
dissimilar provisions or conditions at the same time or any prior or subsequent
time.
(g) NOTICES. Notices given pursuant to this Agreement shall be in writing, and
shall be deemed given when received, and, if mailed, shall be mailed by United
States registered or certified mail, return receipt requested, postage prepaid.
Notices to the Employer shall be addressed to the principal headquarters of the
Employer, Attention: Chairman. Notices to the Executive shall be sent to the
address set forth below the Executive's signature on this Agreement, or to such
other address as the party to be notified shall have given to the other.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
Corporate Office Management, Inc., a Maryland Corporation
By: __________________________ _____________________
Clay W. Hamlin, III, CEO Roger A. Waesche, Jr.
Corporate Office Properties, L.P., a Delaware
limited partnership by its general partner,
Corporate Office Properties Trust
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By: ___________________________
Clay W. Hamlin, III, CEO
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Exhibit 10.16
EMPLOYMENT AGREEMENT
MICHAEL D. KAISER
This Employment Agreement (this "Agreement"), is made and entered into as of
the 28th day of September, 1998 (the "Effective Date"), by and
between Corporate Realty Management, LLC., a Maryland LLC (the "Employer"),
and Corporate Office Management Inc. ("COMI"), a subsidiary of Corporate
Office Properties Trust ("COPT"), and Michael D. Kaiser (the "Executive").
RECITALS
A. The Employer desires to employ the Executive as an officer of the Employer
for a specified term, and the Executive is willing to accept such employment
upon the terms and conditions hereinafter set forth.
B. The Employer recognizes that circumstances may arise in which a change of
control of the Employer, through acquisition or otherwise, may occur, thereby
causing uncertainty of employment without regard to the competence or past
contributions of the Executive, and that such uncertainty may result in the
loss of valuable services of the Executive. Accordingly, the Employer and
the Executive wish to provide reasonable security to the Executive against
changes in the employment relationship in the event of any such change of
control.
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter contained, it is covenanted and agreed by and between
the parties hereto as follows:
AGREEMENTS
1. POSITION AND DUTIES. The Employer hereby employs the Executive as the
President of the Employer, or in such other capacity as shall be mutually
agreed between the Employer and the Executive. During the period of the
Executive's employment hereunder, the Executive shall devote his best efforts
and full business time, energy, skills and attention to the business and
affairs of the Employer. The Executive's duties and authority shall consist
of and include all duties and authority customarily performed and held by
persons holding equivalent positions with business organizations similar in
nature and size to the Employer, as such duties and authority are reasonably
defined, modified and delegated from time to time by the Board of
Managers/Directors of the Employer (the "Board"). The Executive shall have
the powers necessary to perform the duties assigned to him, and shall be
provided such supporting services, staff, secretarial and other assistance,
office space and accouterments as shall be reasonably necessary and
appropriate in the light of such assigned duties.
2. COMPENSATION. As compensation for the services to be provided by the
Executive hereunder, the Executive shall receive the following compensation
and other benefits:
(a) BASE SALARY. The Executive shall receive an aggregate annual minimum
"Base Salary" at the rate of One Hundred and Thirty-Two Thousand dollars
($132,000) per annum, payable in periodic installments in accordance with the
regular payroll practices of the Employer. Such Base Salary shall be subject
to review annually by the Compensation Committee of the Board during the term
hereof, in accordance with the Employer's established compensation policies.
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(b) PERFORMANCE BONUS. The Executive shall receive an annual cash "Performance
Bonus," payable within ninety (90) days after the end of the fiscal year of the
Employer which shall be determined by the Board based upon the recommendation of
the Compensation Committee thereof.
(c) STOCK OPTIONS. Executive shall be entitled to stock options as determined
by the Compensation Committee and the Board.
(d) BENEFITS. The Executive shall be entitled to all perquisites extended to
similarly situated executives, as such are stated in the Employer's Executive
Perquisite Policy (the "Perquisite Policy") promulgated for the Board by the
Compensation Committee of the Board, and which Perquisite Policy is hereby
incorporated by reference, as amended from time to time. In addition, the
Executive shall be entitled to participate in all plans and benefits
generally, from time to time, accorded to employees of the Employer ("Benefit
Plans"), all as determined by the Board from time to time based upon the
input of its Compensation Committee. Executive shall also receive additional
benefits as follows:
(i) a seven hundred and fifty dollar ($750.00) per month automobile allowance
payable in cash part of the Executive's regular payroll or applied as a
credit toward a leased vehicle, at the direction of the Executive and
approved by the Employer; and
(e) WITHHOLDING. The Employer shall be entitled to withhold, from amounts
payable to the Executive hereunder, any federal, state or local withholding
or other taxes or charges which it is from time to time required to withhold.
The Employer shall be entitled to rely upon the opinion of its independent
accountants, with regard to any question concerning the amount or requirement
of any such withholding.
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3. TERM AND TERMINATION.
(a) BASIC TERM. The Executive's employment hereunder shall be for a
continuous and self-renewing two (2) year term, commencing as of the
Effective Date, unless terminated by either party, with or without cause,
effective as of the first (1st) business day after written notice to that
effect is delivered to the other party.
(b) PREMATURE TERMINATION.
(i) In the event of the termination of the employment of the Executive under
this Agreement by the Employer for any reason other than expiration of the
term hereof or a "for-cause" termination in accordance with the provisions of
paragraph (d) of this Section 3, then notwithstanding any actual or allegedly
available alternative employment or other mitigation of damages by or
available to the Executive, the Executive shall be entitled to a "Lump Sum
Payment" equal to the sum of: (w) his monthly Base Salary then payable,
multiplied by the remaining number of months or partial months until
expiration of the Basic Term or renewal term, if any, (but not less than 18
months), and an annualized and proportional amount equal to the average of
the two (2) most recent annual Performance Bonuses that the Executive
received; For purposes of calculating the Lump Sum Payment amounts due, the
Executive's employment with the Employer shall be agreed to have commenced on
October 1, 1998. In the event of a termination governed by this subparagraph
(b)(i) of Section 3, the Employer shall also: (y) notwithstanding the
vesting schedule otherwise applicable, fully vest all of Executive's options
outstanding under any option or stock incentive plan herein after established
by Employer ("Option Plan") and allow a period of eighteen (18) months
following the termination of employment for the Executive to exercise any
such options; and (z) continue for the Executive (provided that such items
are not available to him by virtue of other employment secured after
termination) the perquisites, plans and benefits provided under the
Employer's Perquisite Policy and Benefit Plans as of and after the date of
termination, [all items in (z) being collectively referred to as
"Post-Termination Perquisites and Benefits"], for the lesser of the number of
full months the Executive has theretofore been employed by the Employer (but
not less than twelve (12) months)or eighteen (18) months following such
termination. The payments and benefits provided under (w), (x), (y) and (z)
above by the Employer shall not be offset against or diminish any other
compensation or benefits accrued as of the date of termination.
(ii) Payment to the Executive under this Section 3(b) will be made monthly
over twelve (12) months, unless mutually agreed by the parties to minimize
the Executives' tax burden in any year.
(c) CONSTRUCTIVE TERMINATION. If at any time during the term of this
Agreement, except in connection with a "for-cause" termination pursuant to
paragraph (d) of this Section 3, the Executive is Constructively Discharged
(as hereinafter defined), then the Executive shall have the right, by written
notice to the Employer given within one hundred and twenty (120) days of such
Constructive Discharge, to terminate his services hereunder, effective as of
thirty (30) days after such notice, and the Executive shall have no rights or
obligations under this Agreement other than as provided in Section 5 hereof.
The Executive shall in such event be entitled to a Lump Sum Payment of Base
Salary and Performance Bonus compensation as well as all of the
Post-Termination Prerequisites and Benefits, as if such termination of his
employment had been effectuated pursuant to paragraph (b) of this Section 3.
For purposes of this Agreement, the Executive shall be deemed to have been
"Constructively Discharged" upon the occurrence of any one of the following
events:
(i) The Executive is not re-elected to, or is removed from, the position with
the Employer set forth in Section 1 hereof, other than as a result of the
Executive's election or appointment to positions of equal or superior scope
and responsibility; or
(ii) The Executive shall fail to be vested by the Employer with the powers,
authority and support services normally attendant to any of said offices; or
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(iii) The Employer shall notify the Executive that the employment of the
Executive will be terminated or materially modified in the future or that the
Executive will be Constructively Discharged in the future; or
(iv) The Employer changes the primary employment location of the Executive to
a place that is more than fifty (50) miles from the primary employment
location, 8815 Centre Park Drive, Columbia Maryland 21045, as of the
Effective Date of this Agreement; or
(v) The Employer otherwise commits a material breach of its obligations under
this Agreement.
(vi) The Employer seeks protection under U.S. Bankruptcy codes.
(d) TERMINATION FOR CAUSE. The employment of the Executive and this
Agreement may be terminated "for-cause" as hereinafter defined. Termination
"for-cause" shall mean the termination of employment on the basis or as a
result of: (i) the Executive's death or his permanent disability, which
latter term shall mean the Executive's inability, as a result of physical or
mental incapacity, substantially to perform his duties hereunder for a period
of either six (6) consecutive months, or one hundred and twenty (120)
business days within a consecutive twelve (12) month period; (ii) a material
violation by the Executive of any applicable material law or regulation
respecting the business of the Employer; (iii) the Executive being found
guilty of, or being publicly associated with, to the Employer's detriment, a
felony or an act of dishonesty in connection with the performance of his
duties as an officer of the Employer, or the Executive's commission of an act
which in the opinion of a reasonable third party disqualifies the Executive
from serving as an officer or director of the Employer; or (iv) the willful
or negligent failure of the Executive to perform his duties hereunder in any
material respect. The Executive shall be entitled to at least thirty (30)
days' prior written notice of the Employer's intention to terminate his
employment for any cause (except the Executive's death), specifying the
grounds for such termination, affording the Executive a reasonable
opportunity to cure any conduct or act (if curable) alleged as grounds for
such termination, and a reasonable opportunity to present to the Board his
position regarding any dispute relating to the existence of such cause.
(e) TERMINATION UPON DEATH. In the event payments are due and owing under
this Agreement at the death of the Executive, such payments shall be made to
such beneficiary, designee or fiduciary as Executive may have designated in
writing, or failing such designation, to the executor or administrator of his
estate, in full settlement and satisfaction of all claims and demands on
behalf of the Executive. Such payments shall be in addition to any other
death benefits of the Employer made available for the benefit of the
Executive, and in full settlement and satisfaction of all payments provided
for in this Agreement.
(f) TERMINATION UPON DISABILITY. The Employer may terminate the Executive's
employment after the Executive is determined to be disabled under the current
Employer program or by a physician engaged by the Employer and reasonably
approved by the Executive. In the event of a dispute regarding the
Executive's "disability," such dispute shall be resolved through arbitration
as provided in paragraph (d) of Section 9 hereof, except that the arbitrator
appointed by the American Arbitration Association shall be a duly licensed
medical doctor. The Executive shall be entitled to the compensation and
benefits provided for under this Agreement during any period of
incapacitation occurring during the term of this Agreement, and occurring
prior to the establishment of the Executive's "disability" during which the
Executive is unable to work due to a physical or mental infirmity.
Notwithstanding anything contained in this Agreement to the contrary, until
the date specified in a notice of termination relating to the Executive's
disability, the Executive shall be entitled to return to his positions with
the Employer as set forth in this Agreement, in which event no disability of
the Executive will be deemed to have occurred.
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(g) TERMINATION UPON CHANGE OF CONTROL.
(i) In the event of a Change in Control (as defined below) of the Employer
and the termination of the Executive's employment by Executive or by the
Employer under either 1 or 2 below, the Executive shall, be entitled to a
Lump Sum Payment equal to the sum of: (w) his monthly Base Salary then
payable, multiplied by twenty-four (24); plus (x) two (2) times the average
of the two (2) most recent annual Performance Bonuses that the Executive
received; provided, however, that if the Executive has been employed by the
Employer for fewer than two (2) years, then the amount set forth in (x) above
shall be equal to two (2) times the average of the annual Performance Bonuses
that the Executive has theretofore received from the Employer. The Employer
shall also: (y) notwithstanding the vesting schedule otherwise applicable,
fully vest all of Executive's options outstanding under any Option Plan and
allow a period of eighteen (18) months following the termination of
employment of the Executive for the Executive's exercise of such options; and
(z) continue for the Executive (provided that such items are not available to
him by virtue of other employment secured after termination) all of the
perquisites, plans and benefits provided under paragraph (c) of Section 2,
for 18 months following such termination. The payments and benefits provided
under (w), (x), (y) and (z) above by the Employer shall not be offset against
or diminish any other compensation or benefits accrued as of the date of
termination. The following shall constitute termination under this paragraph:
1. The Executive terminates his employment under this Agreement pursuant to
a written notice to that effect delivered to the Board within six (6) months
after the occurrence of the Change in Control.
2. Executive's employment is terminated, including Constructively
Discharged, by the Employer or its successor either in contemplation of or
after Change in Control, other than on a for-cause basis.
(ii) For purposes of this paragraph, the term "Change in Control" shall mean
the following occurring after the date of this Agreement:
1. The consummation of the acquisition by any person (as such term is
defined in Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as
amended (the "1934 Act") of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the 1934 Act) of forty percent (40%) or more of the
combined voting power embodied in the then-outstanding voting securities of
COPT or the Employer; or
2. Approval by the stockholders of the Employer of: (1) a merger or
consolidation of the Employer, if the stockholders of COPT or the Employer
immediately before such merger or consolidation do not, as a result of such
merger or consolidation, own, directly or indirectly, more than fifty percent
(50%) of the combined voting power of the then outstanding voting securities
of the entity resulting from such merger or consolidation in substantially
the same proportion as was represented by their ownership of the combined
voting power of the voting securities of COPT or the Employer outstanding
immediately before such merger or consolidation; or (2) a complete or
substantial liquidation or dissolution, or an agreement for the sale or other
disposition, of all or substantially all of the assets of COPT or the
Employer.
Notwithstanding the foregoing, a Change in Control shall not be deemed to
occur solely because forty percent (40%) or more of the combined voting
then-outstanding securities is acquired by: (1) a trustee or other fiduciary
holding securities under one or more employee benefit plans maintained for
employees of the entity; or (2) any corporation or other entity which,
immediately prior to such acquisition, is owned directly or in directly the
stockholders of the Employer in the same proportion as their ownership of
stock in COPT or the Employer immediately prior to such acquisition.
(ii) If it is determined, in the opinion of the Employer's independent
accountants, in consultation with the Employer's independent counsel, that any
amount payable to the Executive by the Employer under this Agreement, or any
other plan or agreement under which the Executive participates or is a party,
would
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constitute an "Excess Parachute Payment" within the meaning of Section 280G
of the Internal Revenue Code of 1986, as amended (the "Code") and be subject
to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"), the
Employer shall pay to the Executive a "grossing-up" amount equal to the
amount of such Excise Tax and all federal and state income or other taxes
with respect payment of the amount of such Excise Tax, including all such
taxes with respect to any such grossing-up amount. If at a later date, the
Internal Revenue Service assesses a deficiency against the Executive for the
Excise Tax which is greater than that which was determined at the time such
amounts were paid, the Employer shall pay to the Executive the amount of such
unreimbursed Excise Tax plus any interest, penalties and professional fees or
expenses, incurred by the Executive as a result of such assessment, including
all such taxes with respect to any such additional amount. The highest
marginal tax rate applicable to individuals at the time of payment of such
amounts will be used for purposes of determining the federal and state income
and other taxes with respect thereto. The Employer shall withhold from any
amounts paid under this Agreement the amount of any Excise Tax or other
federal, state or local taxes then required to be withheld. Computations of
the amount of any grossing-up supplemental compensation paid under this
subparagraph shall be made by the Employer's independent accountants, in
consultation with the Employer's independent legal counsel. The Employer
shall pay all accountant and legal counsel fees and expenses.
4. CONFIDENTIALITY AND LOYALTY. The Executive acknowledges that heretofore
or hereafter during the course of his employment he has produced and
received, and may hereafter produce, receive and otherwise have access to
various materials, records, data, trade secrets and information not generally
available to the public (collectively, "Confidential Information") regarding
the Employer and its subsidiaries and affiliates. Accordingly, during and
subsequent to termination of this Agreement, the Executive shall hold in
confidence and not directly or indirectly disclose, use, copy or make lists
of any such Confidential Information, except to the extent that such
information is or thereafter becomes lawfully available from public sources,
or such disclosure is authorized in writing by the Employer, required by law
or by any competent administrative agency or judicial authority, or otherwise
as reasonably necessary or appropriate in connection with the performance by
the Executive of his duties hereunder. All records, files, documents,
computer diskettes, computer programs and other computer-generated material,
as well as all other materials or copies thereof relating to the Employer's
business, which the Executive shall prepare or use, shall be and remain the
sole property of the Employer, shall not be removed from the Employer's
premises without its written consent, and shall be promptly returned to the
Employer upon termination of the Executive's employment hereunder. The
Executive agrees to abide by the Employer's reasonable policies, as in effect
from time to time, respecting confidentiality and the avoidance of interests
conflicting with those of the Employer.
5. NON-COMPETITION COVENANT.
(a) RESTRICTIVE COVENANT. The Employer and the Executive have jointly reviewed
the tenant lists, property submittals, logs, broker lists, and operations of
the Employer, and have agreed that as an essential ingredient of and in
consideration of this Agreement and the payment of the amounts described in
Sections 2 and 3 hereof, the Executive hereby agrees that, except with the
express prior written consent of the Employer, for a period equal to the
lesser of the number of full months the Executive has at any time been
employed by the Employer or twenty-four (24) months after the termination of
the Executive's employment with the Employer (the "Restrictive Period"), he
will not directly or indirectly compete with the then existing business of
the Employer, including, but not by way of limitation, by directly or
indirectly owning, managing, operating, controlling, financing, or by
directly or indirectly serving as an employee, officer or director of or
consultant to, or by soliciting or inducing, or attempting to solicit or
induce, any employee or agent of Employer to terminate employment with
Employer and become employed by any person, firm, partnership, corporation,
trust or other entity which owns or operates a business similar to that of
the Employer (the "Restrictive Covenant"). For purposes of this subparagraph
(a), a business shall be considered "similar" to that of the Employer if it
is engaged in the acquisition, development, ownership, operation, management
or leasing of suburban office property (i) in any geographic market or
submarket in which the Employer owns more than 750,000 s.f. of properties
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either as of the date hereof or as of the date of termination of the
Executive's employment. However, it is expressly understood that this
restriction shall apply only to the operations of the Employer as of the date
of termination of this agreement. If the Executive violates the Restrictive
Covenant and the Employer brings legal action for injunctive or other relief,
the Employer shall not, as a result of the time involved in obtaining such
relief, be deprived of the benefit of the full period of the Restrictive
Covenant. Accordingly, the Restrictive Covenant shall be deemed to have the
duration specified in this paragraph (a) computed from the date the relief is
granted but reduced by the time between the period when the Restrictive
Period began to run and the date of the first violation of the Restrictive
Covenant by the Executive. In the event that a successor of the Employer
assumes and agrees to perform this Agreement or otherwise acquires the
Employer, this Restrictive Covenant shall continue to apply only to the
primary service area of the Employer as it existed immediately before such
assumption or acquisition and shall not apply to any of the successor's other
offices or markets. The foregoing Restrictive Covenant shall not prohibit
the Executive from owning, directly or indirectly, capital stock or similar
securities which are listed on a securities exchange or quoted on the
National Association of Securities Dealers Automated Quotation System which
do not represent more than five percent (5%) of the outstanding capital stock
of any corporation.
(b) REMEDIES FOR BREACH OF RESTRICTIVE COVENANT. The Executive acknowledges
that the restrictions contained in Sections 4 and 5 of this Agreement are
reasonable and necessary for the protection of the legitimate proprietary
business interests of the Employer; that any violation of these restrictions
would cause substantial injury to the Employer and such interests; that the
Employer would not have entered into this Agreement with the Executive
without receiving the additional consideration offered by the Executive in
binding himself to these restrictions; and that such restrictions were a
material inducement to the Employer to enter into this Agreement. In the
event of any violation or threatened violation of these restrictions, the
Employer shall be relieved of any further obligations under this Agreement,
shall be entitled to any rights, remedies or damages available at law, in
equity or otherwise under this Agreement, and shall be entitled to
preliminary and temporary injunctive relief granted by a court of competent
jurisdiction to prevent or restrain any such violation by the Executive and
any and all persons directly or indirectly acting for or with him, as the
case may be, while awaiting the decision of the arbitrator selected in
accordance with paragraph (d) of Section 9 of this Agreement, which decision,
if rendered adverse to the Executive, may include permanent injunctive relief
to be granted by the court.
6. INTERCORPORATE TRANSFERS. If the Executive shall be voluntarily
transferred to an affiliate of the Employer, such transfer shall not be
deemed to terminate or modify this Agreement, and the employing corporation
to which the Executive shall have been transferred shall, for all purposes of
this Agreement, be construed as standing in the same place and stead as the
Employer as of the date of such transfer. For purposes hereof, an affiliate
of the Employer shall mean any corporation or other entity directly or
indirectly controlling, controlled by, or under common control with the
Employer. The Employer shall be secondarily liable to the Executive for the
obligations hereunder in the event the affiliate of the Employer cannot or
refuses to honor such obligations. For all relevant purposes hereof, the
tenure of the Executive shall be deemed to include the aggregate term of his
employment by the Employer or its affiliate.
7. INTEREST IN ASSETS. Neither the Executive nor his estate shall acquire
hereunder any rights in funds or assets of the Employer, otherwise than by
and through the actual payment of amounts payable hereunder; nor shall the
Executive or his estate have any power to transfer, assign (except into a
trust for purposes of estate planning), anticipate, hypothecate or otherwise
encumber in advance any of said payments; nor shall any of such payments be
subject to seizure for the payment of any debt, judgment, alimony, separate
maintenance or be transferable by operation of law in the event of
bankruptcy, insolvency or otherwise of the Executive.
8. INDEMNIFICATION.
(a) The Employer shall provide the Executive (including his heirs, personal
representatives, executors and
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administrators), during the term of this Agreement and thereafter throughout
all applicable limitations periods, with coverage under the Employer's
then-current directors' and officers' liability insurance policy, at the
Employer's expense.
(b) In addition to the insurance coverage provided for in paragraph (a) of
this Section 8, the Employer shall defend, hold harmless and indemnify the
Executive (and his heirs, executors and administrators) to the fullest extent
permitted under applicable law, and subject to the requirements, limitations
and specifications set forth in the Bylaws and other organizational documents
of the Employer, against all expenses and liabilities reasonably incurred by
him in connection with or arising out of any action, suit or proceeding in
which he may be involved by reason of his having been an officer of the
Employer (whether or not he continues to be an officer at the time of
incurring such expenses or liabilities), such expenses and liabilities to
include, but not be limited to, judgments, court costs and attorneys' fees
and the cost of reasonable settlements.
(c) In the event the Executive becomes a party, or is threatened to be made a
party, to any action, suit or proceeding for which the Employer has agreed to
provide insurance coverage or indemnification under this Section 8, the
Employer shall, to the full extent permitted under applicable law, advance
all expenses (including the reasonable attorneys' fees of the attorneys
selected by Employer and approved by Executive for the representation of the
Executive), judgments, fines and amounts paid in settlement (collectively
"Expenses") incurred by the Executive in connection with the investigation,
defense, settlement, or appeal of any threatened, pending or completed
action, suit or proceeding, subject to receipt by the Employer of a written
undertaking from the Executive covenanting: (i) to reimburse the Employer for
all Expenses actually paid by the Employer to or on behalf of the Executive
in the event it shall be ultimately determined that the Executive is not
entitled to indemnification by the Employer for such Expenses; and (ii) to
assign to the Employer all rights of the Executive to insurance proceeds,
under any policy of directors' and officers' liability insurance or
otherwise, to the extent of the amount of Expenses actually paid by the
Employer to or on behalf of the Executive.
9. GENERAL PROVISIONS.
(a) SUCCESSORS; ASSIGNMENT. This Agreement shall be binding upon and inure to
the benefit of the Executive, the Employer and his and its respective
personal representatives, successors and assigns, and any successor or assign
of the Employer shall be deemed the "Employer" hereunder. The Employer shall
require any successor to all or substantially all of the business and/or
assets of the Employer, whether directly or indirectly, by purchase, merger,
consolidation, acquisition of stock, or otherwise, by an agreement in form
and substance satisfactory to the Executive, expressly to assume and agree to
perform this Agreement in the same manner and to the same extent as the
Employer would be required to perform if no such succession had taken place.
(b) ENTIRE AGREEMENT; MODIFICATIONS. This Agreement constitutes the entire
agreement between the parties respecting the subject matter hereof, and
supersedes all prior negotiations, undertakings, agreements and arrangements
with respect thereto, whether written or oral. Except as otherwise
explicitly provided herein, this Agreement may not be amended or modified
except by written agreement signed by the Executive and the Employer.
(c) ENFORCEMENT AND GOVERNING LAW. The provisions of this Agreement shall be
regarded as divisible and separate; if any of said provisions should be
declared invalid or unenforceable by a court of competent jurisdiction, the
validity and enforceability of the remaining provisions shall not be affected
thereby. This Agreement shall be construed and the legal relations of the
parties hereto shall be determined in accordance with the laws of the State
of Maryland as it constitutes the situs of the corporation and the employment
hereunder, without reference to the law regarding conflicts of law.
(d) ARBITRATION. Except as provided in paragraph (b) of Section 5, any dispute
or controversy arising under or in connection with this Agreement or the
Executive's employment by the Employer shall be settled exclusively by
arbitration, conducted by a single arbitrator sitting in Baltimore, MD in
accordance with the rules of the American Arbitration Association (the "AAA")
then in effect. The arbitrator shall be
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selected by the parties from a list of eleven (11) arbitrators provided by
the AAA, provided that no arbitrator shall be related to or affiliated with
either of the parties. No later than ten (10) days after the list of
proposed arbitrators is received by the parties, the parties, or their
respective representatives, shall meet at a mutually convenient location in
Baltimore, Maryland, or telephonically. At that meeting, the party who
sought arbitration shall eliminate one (1) proposed arbitrator and then the
other party shall eliminate one (1) proposed arbitrator. The parties shall
continue to alternatively eliminate names from the list of proposed
arbitrators in this manner until each party has eliminated five (5) proposed
arbitrators. The remaining arbitrator shall arbitrate the dispute. Each
party shall submit, in writing, the specific requested action or decision it
wishes to take, or make, with respect to the matter in dispute, and the
arbitrator shall be obligated to choose one (1) party's specific requested
action or decision, without being permitted to effectuate any compromise or
"new" position; provided, however, that the arbitrator is authorized to award
amounts not in dispute during the pendency of any dispute or controversy
arising under or in connection with this Agreement. The Employer shall bear
the cost of all counsel, experts or other representatives that are retained
by both parties, together with all costs of the arbitration proceeding,
including, without limitation, the fees, costs and expenses imposed or
incurred by the arbitrator. Judgment may be entered on the arbitrator's
award in any court having jurisdiction; including, if applicable, entry of a
permanent injunction under paragraph (b) of Section 5.
(e) PRESS RELEASES AND PUBLIC DISCLOSURE. Any press release or other public
communication by either the Executive or the Employer with any other person
concerning the terms, conditions or circumstances of Executive's employment,
or the termination of such employment, shall be subject to prior written
approval of both the Executive and the Employer, subject to the proviso that
the Employer shall be entitled to make requisite and appropriate public
disclosure of the terms of this Agreement, without the Executive's consent or
approval, as required under applicable statutes, and the rules and
regulations of the Securities and Exchange Commission and the Stock Exchange
on which the shares of Employer may from time to time be listed.
(f) WAIVER. No waiver by either party at any time of any breach by the other
party of, or compliance with, any condition or provision of this Agreement to
be performed by the other party, shall be deemed a waiver of any similar or
dissimilar provisions or conditions at the same time or any prior or
subsequent time.
(g) NOTICES. Notices given pursuant to this Agreement shall be in writing, and
shall be deemed given when received, and, if mailed, shall be mailed by
United States registered or certified mail, return receipt requested, postage
prepaid. Notices to the Employer shall be addressed to the principal
headquarters of the Employer, Attention: Chairman. Notices to the Executive
shall be sent to the address set forth below the Executive's signature on
this Agreement, or to such other address as the party to be notified shall
have given to the other.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
Corporate Realty Management, LLC.
a Maryland LLC.
By: ------------------------ ------------------------
Randall M. Griffin, CEO Michael D. Kaiser
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Corporate Office Management, Inc.,
a Maryland Corporation
By:
--------------------------
Clay W. Hamlin, III, CEO
Corporate Office Properties, L.P.,
a Delaware limited partnership by
its general partner, Corporate Office
Properties Trust
By:
--------------------------
Clay W. Hamlin, III, CEO
PAGE 1
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Exhibit 10.17
CONSULTING SERVICES AGREEMENT
THIS CONSULTING SERVICES AGREEMENT (the "Agreement"), is made and
entered into as of April 28, 1998 (the "Effective Date"), by and between
Corporate Office Properties Trust, formerly known as Royale Investments, Inc.
(the "Company"), with offices at One Logan Square, Suite 1105, Philadelphia, PA
19103, and Net Lease Finance Corp., a Delaware corporation, d/b/a Corporate
Office Services with offices at 134 Eaton Way, Cherry Hill, New Jersey 08003
(the "Consultant").
RECITALS
A. The Company desires to engage Consultant, on a non-exclusive basis,
to identify investment opportunities relating to the acquisition of certain
types of real estate assets.
B. The Consultant is willing to make such investment opportunities
available to the Company pursuant to a right of first refusal and other rights
as contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises and of the covenants
and agreements hereinafter contained, it is covenanted and agreed by and between
the parties hereto as follows:
AGREEMENTS
1. Engagement of Consultant. The Company hereby engages the Consultant, and the
Consultant hereby accepts such engagement, to provide consulting services upon
the terms and conditions of this Agreement.
2. Services.
(a) Consulting Services. During the term of this Agreement, the
Consultant shall devote such time, energy, skills and attention to the business
and affairs of the Company and its Affiliates (as hereinafter defined) as are
reasonably required in the performance of consulting services to the Company
with respect to advising the Company's management concerning, and assisting in
the identification, analysis, structuring, negotiation of terms and closing of
Investment Opportunities (as hereinafter defined) for the Company and any
Affiliate thereof designated by the Company involving Covered Transactions (as
hereinafter defined) (hereinafter collectively referred to as the "Services").
Certain employees of Consultant approved by the Company shall be assigned to
perform services for the Company (collectively and individually, the
"Employee"). With respect to Services provided to the Company, the Consultant
shall cause such Employee to be subject to the orders, directives and investment
and underwriting policies as in effect from time to time of the Company's CEO
or, in his absence, the Chairman of the Board, and to those of the Company's
Board of Directors or such committee as it shall designate, and as are
communicated by the Company to the Consultant. For purposes of this Agreement,
"Investment Opportunities" means those business opportunities that relate to the
acquisition of real estate assets, and the assets and/or equity or debt
securities of companies and other entities owning or having interests, including
without
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limitation, operating partnership interests, in such real estate assets.
"Covered Transactions" means transactions that involve real estate assets for
use primarily as offices, medical offices, office flex and related commercial
properties, and such classes of real estate assets or properties as may be
specified by the Company from time to time as fitting within the investment
polices of the Company then in effect, as such investment policies may be
formulated by the CEO and the Board of Directors or by such person or committee
as he or it shall delegate, and which shall be communicated to the Consultant on
a current basis, and Covered Transactions may include other types of real estate
assets primarily in the context of a mixed-use portfolio (the "Other Assets").
For purposes of this Agreement, the term "Affiliate" shall mean any legal entity
which is now or hereafter fifty percent (50%) or more owned and controlled,
directly or indirectly, by the Company, or which owns, directly or indirectly,
fifty percent (50%) or more of the voting stock or securities or voting rights
of the Company.
(b) Change of Name; License of Trade Name. The Company and/or the
Consultant, as mutually agreed upon, shall promptly following execution of this
Agreement, file or cause to be filed a change of name registration or equivalent
filing with the New Jersey Secretary of State, and in such other jurisdictions,
if any, in which the Company or the Consultant is required to do so, registering
"Corporate Office Services, Inc." as the official name of the Consultant (the
"Trade Name"). The Company hereby grants the Consultant an exclusive license in
and to the Trade Name solely for use in connection with the performance of the
Services hereunder, which license shall be revocable by the Company at any time,
with or without cause.
(c) Exclusivity as to Covered Transactions; Right of First Refusal.
During the term of this Agreement, the Consultant shall identify to the Company
Investment Opportunities in respect of Covered Transactions, subject to the
provisions of this paragraph (c) and subparagraph (f). If the Company does not
enter into a contract with respect to any such Investment Opportunity within
twelve (12) months following the Consultant's advice thereof (the "Exclusive
Period"), or if the Company's CEO advises the Consultant in writing at any time
that it is not interested in pursuing such Investment Opportunity, then in
either such case the Consultant shall have the right thereafter to pursue such
Investment Opportunity for its own account or to identify and pursue same on
behalf of any other third party. In the event the assets and/or securities
involved in such Investment Opportunity are thereafter acquired by the
Consultant or by a third party on whose behalf the Consultant is acting, the
Consultant shall pay the Company fifty percent (50%) of an amount equal to the
dollar value of all fees, commissions, and/or other compensation received by the
Consultant with respect to such Investment Opportunity. In the event that,
during the term of this Agreement, the Consultant fails to identify to the
Company an Investment Opportunity in respect of a Covered Transaction prior to
identifying such Investment Opportunity to any other third party, and the
Consultant thereafter receives compensation from such third party with respect
thereto, then the Consultant shall pay the Company as liquidated damages an
amount equal to the dollar value of all fees, commissions and/or other
compensation received, directly or indirectly, by the Consultant with respect
thereto and the Company shall have the right to setoff against the compensation
hereunder the amount of such fees, commissions and/or other compensation. Any
amounts payable hereunder by the Consultant to the Company shall be payable
within
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thirty (30) days following the Consultant's receipt of such fees, commissions
and/or other compensation.
(d) Excluded Activities. The Company hereby acknowledges that the
Consultant has substantial experience and contacts involving real estate assets
that are not within the scope of Covered Transactions, including, without
limitation, those real estate assets for use primarily as non-office industrial
properties, retail properties, residential real estate and shopping centers, and
which may result in the Consultant having Investment Opportunities with respect
to such real estate assets and any other opportunities not involving real estate
assets (collectively, "Excluded Activities"). The Company acknowledges further
that, except as hereinafter expressly stated, the Consultant shall not have any
obligation, either express or implied, to the Company with respect to any
Investment Opportunity involving real estate assets that are involved in the
Excluded Activities, nor shall it be a breach of any fiduciary obligation
involving a corporate opportunity or otherwise for the Consultant to pursue such
Investment Opportunity for its own account or to identify and pursue same on
behalf of any other third party; provided, however, that Consultant shall be
obligated to advise the Company after the consummation of the Excluded Activity
of the nature of such Excluded Activity and furnish the Company on a
confidential basis such documentation as the Company shall reasonably request to
assure itself, based on its own evaluation thereof, that such Investment
Opportunity involves real estate assets that are not within the scope of Covered
Transactions and that no Employee was involved in the pursuit of such Excluded
Activity. When and if the Company broadens its investment policies to encompass
one or more classes of real estate assets other than those stated above as being
within the scope of Covered Transactions, such class(es) of real estate shall
thereafter be deemed to be a Covered Transaction which the Consultant and its
Employees shall be authorized to identify and pursue hereunder, and which shall
be subject to the Company's right of first refusal as set forth in Section 2(b)
hereof as fully as if such class(es) of real estate assets had been included
within the scope of Covered Transactions on the Effective Date of this
Agreement; provided, however, that the specified Excluded Activities and
transactions with the persons and entities set forth on Exhibit A shall not
become Covered Transactions by operation of this paragraph (d) or otherwise.
(e) Coordination of Services. The Consultant shall use diligent efforts
to assure that its activities in connection with any Investment Opportunity that
it has a right to pursue, either for its own account or on behalf of a third
party, pursuant to paragraphs (c) or (d) of this Section 2, do not interfere
with its performance of Services hereunder. Notwithstanding anything to the
contrary contained in this Agreement, Consultant shall not, without the express
written consent of the Company, permit Employee to pursue any Investment
Opportunities involving Excluded Activities or non-Company business which are
not competitive with the Company or do not interfere with or detract from the
performance of Employee's duties.
(f) Prior Contacts and Prior Services. The Company understands that,
prior to the Effective Date of this Agreement, Employees of Consultant were
performing brokerage, finder and referral services for such persons and/or
companies as are listed on Exhibit A hereto (collectively, "Prior Contacts") and
that such Employee may be entitled to commissions, fees and/or other
compensation from these Prior Contacts and for the services previously performed
as provided in such Exhibit A ("Prior Services"). The Company therefore agrees
that the
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Consultant shall permit such Employee to receive and retain for its own benefit
any commissions, fees and/or other compensation due to such Employee now or in
the future from these Prior Contacts and for the Prior Services as set forth on
Exhibit A, whether or not otherwise a Covered Transaction or otherwise an
"Excluded Activity". In the event that any brokerage, finder or referral
opportunities should be presented to the Consultant or any Employee in the
future, whether by the Prior Contacts or otherwise, which would otherwise be
Covered Transactions, the Consultant shall present such opportunities to the
Company for approval, and if the Company declines to pursue such opportunities,
the Consultant may pursue same for its own account or that of others, and any
commissions, fees or other compensation earned from such opportunities shall be
paid directly to the Company, with fifty percent (50%) of such amounts being
paid to the Consultant by the Company as special referral compensation.
(g) Expenses, Facilities. The Consultant shall be reimbursed by the
Company promptly for all reasonable travel expenses, long distance telephone
charges and the pro rata share attributable to the Services performed by the
Consultant for the Company for the cost of support services, office space and
accouterments as shall be reasonably necessary and appropriate for the
performance of the Services for the Company incurred solely in the performance
of the Services hereunder. Whenever reasonably practical, the Company shall pay
in advance for the costs of airplane travel and hotel charges for Employee of
Consultant performing services for the Company. The Consultant shall be solely
responsible for maintaining at its sole cost and expense its support services,
office space and accouterments (subject to appropriate reimbursement as
described above) and for providing its employees such medical, pension or other
benefits, if any, as it shall solely determine.
3. Compensation. As full compensation for the services to be provided for the
Consultant hereunder, the Consultant shall receive the following payments:
(a) Incentive Compensation.
(i) The Consultant shall earn incentive compensation
("Incentive Compensation") at and subject to the
closing of each Covered Transaction by the Company or
an Affiliate, including any Covered Transaction which
rises to the level of or otherwise becomes a Change
in Control (as hereinafter defined), equal to thirty
(30) basis points times the Total Value (as
hereinafter defined in Section 3(c) below) of such
Covered Transaction, including any Operating
Partnership Units, or other debt or equity securities
issued by the Company or an Affiliate (hereafter
"OPU's") and transferred or exchanged by the Company
or an Affiliate pursuant to such Covered Transaction,
which amounts shall be paid within thirty (30) days
after the closing of such Covered Transaction.
Notwithstanding the foregoing, if all or any part of
the ownership interest in a Covered Transaction is
purchased by any one or all of: Clay W. Hamlin; Jay
H. Shidler; or any Affiliate or either of them as
defined under the Securities Act of 1933 and the
Securities Exchange Act of 1934, as amended, or any
entity fifty percent (50%) or
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more owned and controlled, directly or indirectly, by
either or both of Messrs. Hamlin and Shidler
(collectively, the "Enumerated Parties"), then the
percentage of the Total Value (as hereinafter
defined), up to 100% thereof, deemed to have been
acquired by the Company shall include the percentage
purchased by such aforementioned Enumerated Parties,
as if such Total Value had been acquired directly and
solely by the Company.
(ii) An Investment Opportunity of the Company or an
Affiliate involving Other Assets shall give rise to
Incentive Compensation on the same basis as a Covered
Transaction, except that the value of the Other
Assets shall not initially be included within Total
Value. The amount of the value excluded from the
calculation of Total Value shall be equal to that
portion of the value allocated to such Other Assets
in the transaction documents, or if not so allocated,
the allocation of value shall be that allocated by
the Company in its internal documents for purposes of
analysis of the value of such transaction. If neither
of the above shall be applicable, the value of such
Other Assets shall be as mutually agreed upon between
the Chief Investment Officer of the Consultant and
the CEO of the Company or, failing such mutual
agreement, determined by Arbitration or by a mutually
agreed upon consultant as to such value, subject to
the following: If, within a period of one (1) year
following the closing of the Covered Transaction in
question the Company fails to dispose of the Other
Assets that were part of the relevant Covered
Transaction, then the Consultant shall be paid
Incentive Compensation and entitled to the Incentive
Amount (pursuant to paragraph 3(b) hereof) which
would otherwise have been payable to Consultant with
respect to such undisposed of Other Assets.
Notwithstanding the foregoing, if the class of assets
represented by the Other Assets becomes, during the
one (1) year period in question, a class of assets
designated by the Company as being within the scope
of Covered Transactions, then the value of the Other
Assets shall be included in the Total Value
irrespective of any disposition.
(b) Deferred Compensation. In addition to Incentive Compensation under
paragraph 3(a), Consultant shall be entitled to additional deferred monetary
compensation in connection with each Covered Transaction with respect to which
it is entitled to Incentive Compensation under paragraph 3(a) hereof. Such
deferred compensation, if any, shall be an amount (the "Incentive Amount") equal
to the product of the Common Stock Appreciation Percentage (as hereinafter
defined) times the Base Amount described below. Payment of the Incentive Amount
may be requested by Consultant to be paid in a lump sum payment or in a series
of payments by giving one or more Exercise Notices as described in Section
3(b)(ii)(E) below. Consultant shall be entitled to transfer to an Employee
Consultant's rights hereunder relating to the Incentive Amount.
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(i) The Base Amount. At the Closing Date (as hereinafter
defined) for each Covered Transaction with respect to
which the Consultant is entitled to receive Incentive
Compensation under paragraph 3(a), the Base Amount
for each Covered Transaction shall be established.
The Base Amount is equal to 30 basis points times the
Total Value of the Covered Transaction. The Base
Amount shall be adjusted retroactively as of the
Transaction Date (as hereinafter defined) for any
increase in the Total Value of the Covered
Transaction arising from the inclusion of Other
Assets in the Total Value of the Covered Transaction
by operation of paragraphs 3(a) and 3(c) hereof.
(ii) Definitions.
(A) The Transaction Date shall mean the business
day prior to the earliest of (y) a public
announcement of the Covered Transaction, or
(z) the execution of a definitive contract
with respect to the Covered Transaction.
(B) For purposes of this paragraph, the Common
Stock of the Company shall mean a share of
the voting common stock of the Company, no
par value and the price of the Common Stock
of the Company as of the Transaction Date or
the Notice Date (as hereinafter defined),
shall be equal to the weighted average of
the closing prices of the Common Stock of
the Company on the five (5) trading days
proceeding the respective date.
(C) For purposes of this paragraph, the "Common
Stock Appreciation Percentage" shall mean
the percentage by which the value of the
Common Stock of the Company on the Notice
Date (as hereinafter defined) exceeds the
value of the Common Stock of the Company on
the Transaction Date, which percentage shall
be expressed as a fraction, the numerator of
which is the positive difference between the
value of the Common Stock as of the Notice
Date minus the value of the Common Stock as
of the Transaction Date, and the denominator
of which is the value of the Common Stock as
of the Transaction Date. In case of any
reclassification, capital reorganization,
stock split or stock dividend or other
change of outstanding shares of Common Stock
of the Company (other than a change in par
value, or from no par value to par value, or
as a result of an issuance of Common Stock
except by way of a subdivision, split or
combination), or in case of any
consolidation or merger of the Company with
or into another corporation which results in
a reclassification, capital reorganization
or other change of outstanding shares of
Common Stock, the value of the Common Stock
for purposes of determining the Common Stock
Appreciation Percentage shall be
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determined by reference to the kind and
amount of shares of Common Stock receivable
upon such reclassification, capital
reorganization or other change,
consolidation or merger, which value shall
be functionally equivalent to the value of
Common Stock as it existed prior to such
reclassification, change, stock split, stock
dividend, consolidation or merger.
(D) For purpose of this paragraph and paragraph
3(a) above, the term Closing Date of the
Covered Transaction shall mean the day on
which the direct or indirect ownership of
the assets which are the subject of the
transaction passes to the Company and/or its
Affiliate or Enumerated Parties, as
applicable.
(E) For purposes of this paragraph the term
Notice Date shall be each date upon which
the Consultant gives notice or is deemed to
give notice (the "Exercise Notice") of its
intention to receive compensation with
respect to all or any portion of the
Incentive Amount (but not less than $5,000
or the amount of the Incentive Amount or the
remainder thereof, to the extent less than
$5,000, as to which no Exercise Notice
previously has been given) designated in
such Exercise Notice with respect to the
Covered Transaction so noted. Each Exercise
Notice shall specify the Covered Transaction
with respect to which the Exercise Notice is
being given, the amount of the Incentive
Compensation payable, and a calculation of
that portion of the Base Amount of the
Covered Transaction with respect to which
the Incentive Amount is payable. The portion
of the Base Amount specified in such
Exercise Notice shall be subtracted from the
Base Amount with respect to the relevant
Covered Transaction, for purposes of
determining the Base Amount upon which any
remaining Incentive Amount (and Base Amount
payable under paragraph 3(b)(iv) hereof, if
applicable) shall be determined and
calculated in the future. No Notice Date
shall be earlier than the first anniversary
of the Closing Date of a Covered
Transaction. No Notice Date shall be later
than (i) three (3) years after termination
of this Agreement on the bases set forth in
paragraphs 4(b), 4(c) or 4(g) hereof, or
(ii) two (2) years after termination of this
Agreement on the bases set forth in
paragraphs 4(e) or 4(f) hereof [subject in
all events to the earlier requirement
(hereinafter noted) for the Notice Date in
the event Consultant voluntarily terminates
the Agreement prior to the expiration of the
thirty month term described in paragraph
4(a)]. Upon the expiration of such three
year or two year period, as applicable, an
Exercise Notice shall be delivered given and
the Notice Date shall be deemed to occur
with respect to any remaining Incentive
Amount as to which any Base Amount may be
outstanding at such time. An Exercise Notice
for the Incentive
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Amount or the portion thereof as to which no
Exercise Notice previously has been given
shall be deemed given and the Notice Date
shall be deemed to occur, with respect to
any remaining Incentive Amount as to which
any Base Amount may be outstanding, as of
the date that is one (1) year after the
termination or expiration date of this
Agreement if such termination is voluntarily
initiated by Consultant prior to the
expiration of the thirty (30) month term
described in paragraph 4(a) hereof (which
termination is not on account of the bases
set forth in paragraph 4(c) or 4(g) hereof)
or if such termination is on account of the
bases set forth in paragraph 4(d) hereof.
Notwithstanding anything to the contrary
contained herein, in the event of a
termination of this Agreement on the bases
set forth in paragraphs 4(b), 4(c) or 4(g)
hereof, Consultant shall be entitled to give
an Exercise Notice at any time after the
occurrence of such termination event, but in
any event not later than the three (3) year
period from termination elsewhere provided
herein. Notwithstanding the above, with
respect to either a Transaction that
includes Other Assets or a Residual
Transaction as to which Consultant is
entitled to Incentive Compensation,
Consultant shall not be required to give an
Exercise Notice earlier than one year from
the Closing Date of such Residual
Transaction or from the date of inclusion of
such Other Assets, as applicable, as to the
Incentive Amount (and Base Amount
compensation under paragraph 3(b)(iv), if
applicable) which may apply with respect to
such Residual Transaction or Other Assets.
(iii) Payment of Incentive Amount. Within thirty (30) days
after the giving of an Exercise Notice with respect
to any Covered Transaction, the Company shall pay the
Consultant the amount due to Consultant with respect
to such Covered Transaction pursuant to such Exercise
Notice.
(iv) Payment of Base Amount. In addition to Incentive
Compensation, the Consultant shall be entitled to
payment of the Base Amount for any Covered
Transaction (an "Open Transaction") for which payment
of the Incentive Amount is payable as described above
only in the event that Consultant shall be terminated
on the bases set forth in paragraphs 4 (b), 4(c) or
4(g). Within thirty (30) days of the occurrence of
any of such events, the Consultant shall be paid the
Base Amount for each Open Transaction; provided
however, payment of that portion of the Base Amount
attributable to Other Assets for an Open Transaction
involving Other Assets or constituting a Residual
Transaction shall be made within 30 days after
inclusion of such Other Assets or within 30 days
after the closing of the Residual Transaction, as
applicable, provided further that the portion of the
Base Amount in a Residual Transaction involving
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Other Assets shall be paid within thirty (30) days
after inclusion of such Other Assets in the Base
Amount.
(c) Total Value of Transaction. Subject to paragraph 3(a)(ii), for
purposes of calculating the Incentive Compensation payable and Incentive Amount
available to the Consultant under Sections 3(a) and (b), the "Total Value" of a
Covered Transaction shall be equal to:
(i) the total monetary value of cash, equity or debt
securities, OPU's (valued as if it were freely
tradable common stock) or other property paid or
exchanged by the Company, or any Affiliate (or the
Enumerated Parties), for the assets being acquired
plus any mortgage debt or other debt assumed by the
Company or Affiliate (or forgiveness by the Company
or such Affiliate of indebtedness for which a seller
or its affiliate is responsible), but excluding
ordinary closing obligations such as real estate
taxes and operational ordinary-course-of-business
liabilities assumed by the Company or any Affiliate
(collectively, the "Closing Payments"); and
(ii) any deferred payments to be paid to or for the
benefit of the seller or its assignee under the
Covered Transaction after the closing and in respect
of the assets being acquired from such seller (as
opposed to payments to be made in the ordinary course
and in reasonable amounts for post-closing services
or covenants to be performed by seller or its
affiliates), such deferred payments to include
"earn-out" amounts relative to post-closing
performance of the assets being acquired
("Post-Closing Payments"). For purposes hereof, Total
Value shall be deemed to have been paid in respect of
Post-Closing Payments, and Incentive Compensation in
respect thereof shall be deemed to have been earned
by the Consultant, when, as and if such Post-Closing
Payments are in fact earned by and paid to the seller
in question.
The Total Value of the Closing Payments paid by the Company
(or an Affiliate) or the Enumerated Parties as consideration in a Covered
Transaction shall be the value stated therefor or determined under the
definitive contract for such Covered Transaction. Where the Company (or an
Affiliate) or the Enumerated Parties acquire less than the entire ownership
interest in assets that are the subject of a Covered Transaction (a "Partial
Acquisition"), Total Value shall be determined by reference to the consideration
paid or assumed or forgiven in the aggregate by the Company, its Affiliates and
the Enumerated Parties, and not by any other third parties. To the extent that
any securities of the Company and/or any Affiliate constitute a portion of the
consideration paid by the Company in respect of a Covered Transaction, whether
in respect of a Closing Payment or Post-Closing Payment, but the value therefor
is not so stated or cannot be so determined under the definitive contract for
such Covered Transaction, such securities shall be valued at the fair market
value without discount thereof on the business day immediately preceding the
date on which the transfer of such securities is made to the
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seller pursuant to the Covered Transaction, unless some other valuation
methodology is agreed to by the Company and the Consultant and the relevant
Employee.
4. Term and Termination.
(a) Basic Term. This Agreement shall be for a term of thirty (30)
months, commencing as of the Effective Date hereof, unless sooner terminated by
either party, with or without cause, effective as of the first business day
after written notice to that effect is delivered to the other party. The
Consultant shall be entitled to receive payments for Residual Transactions (as
hereinafter defined and provided) in the event this Agreement expires by its
terms at the end of such thirty (30) month period. The parties may, by mutual
written agreement, continue this Agreement after such thirty (30) month period,
in which event all provisions hereof shall continue in full force and effect
until the effective date of termination pursuant to written notice or
termination thereof given by either party, or until this Agreement is superseded
by a new written contract governing the terms and conditions of the Consultant's
provision of Services to the Company.
(b) Premature Termination. In the event that the Company terminates
this Agreement for any reason other than a For Cause termination (as hereinafter
defined), death or Disability (as hereinafter defined) in accordance with the
provisions of paragraphs (d), (e) or (f), respectively, of this Section 4, and
if such termination occurs prior to the end of the thirty (30) month term, then
notwithstanding any actual or allegedly available alternative business
opportunities or other mitigation of damages by or available to the Consultant
or any direct, consequential, actual or other damages purportedly incurred by
the Consultant, the Consultant shall be entitled to fixed and liquidated damages
constituting a lump sum payment ("Lump Sum Payment") equal to the greater of:
the Prior Compensation (as defined and calculated in clause (i) below) or the
applicable Fixed Amount (as described in clause (ii) below), as follows:
(i) the applicable "Prior Compensation" shall be the
total cash compensation earned by or otherwise owed
to paid or other entitlement earned by or otherwise
due to the Consultant by the Company during the
twelve (12) month period immediately preceding and
ending with the effective date of termination,
including all Incentive Compensation described below,
including all Incentive Compensation paid under
Section 3(a) hereof, and also including all Incentive
Compensation to be received with respect to Covered
Transactions with respect to which contracts were
executed prior to the date of termination, but
excluding and without giving any effect to any
Incentive Amount;
(ii) the applicable "Fixed Amount", which shall be the
amount of: (x) $1,500,000, if termination occurs
prior to October 1, 1998; (y) $1,000,00, if
termination occurs after October 1, 1998 and prior to
October 1, 1999; or (z) $500,000, if termination
occurs after October 1, 1999 and prior to October 1,
2000.
Only the greater of the amounts determined under clause (i) above or
clause (ii) above shall be payable to the Consultant as the Lump Sum Payment,
and not both. In addition to the
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<PAGE>
Lump Sum Payment, the Consultant shall be entitled to Incentive Compensation in
respect of any Covered Transaction, including any Covered Transaction which
rises to the level of or otherwise becomes a Change in Control (as hereinafter
defined), that closes within one (1) year after such termination of this
Agreement and to which the Consultant would have been entitled had the Covered
Transaction closed on the day prior to such termination ("Residual
Transactions"). The Consultant shall not be entitled to any Incentive Amount
with respect to any such Residual Transactions, except with respect to Covered
Transactions with respect to which a contract was entered into prior to
termination of this Agreement. The payments provided under this Section shall be
in lieu of damages, and made in exchange for a release of all claims by each of
the Consultant against the Company with respect to the termination of this
Agreement, but shall not be offset against or diminish any other Incentive
Compensation accrued and payable as of the date of termination.
(c) Termination by Consultant for Breach. If, at any time during the
term of this Agreement, the Company commits a material breach of its obligations
under this Agreement which is not cured within a reasonable period of time after
notice thereof is provided to the Company, then the Consultant shall have the
right, but only with the consent of Employee, by written notice to the Company
given within one hundred twenty (120) days after such breach to terminate this
Agreement for breach, effective as of thirty (30) days after such notice, in
which event the Consultant shall have no rights or obligations under this
Agreement other than as provided in Sections 5 and 6 hereof. The Consultant
shall in such event be entitled to the payment of the Lump Sum Payment and
Incentive Compensation in respect of Residual Transactions, as if such
termination of this Agreement had been effectuated pursuant to paragraph (b) of
this Section 4. Notwithstanding the foregoing, the parties acknowledge and agree
that it shall not be considered a material breach of this Agreement if the
Company should decide to relocate its primary corporate office to a new location
which is more than fifty (50) miles from northern New Jersey, provided
Consultant's Employee shall be permitted to retain an office in northern New
Jersey.
(d) Termination For Cause. This Agreement may be terminated "For Cause"
as hereinafter defined. Termination "For Cause" means the termination of this
Agreement on the basis or as a result of: (i) a material violation by the
Consultant (or by the Company and caused by the Consultant) of any applicable
material law or regulation respecting the business of the Company which has a
materially detrimental effect on the business of the Company; (ii) the
Consultant or Employee being found guilty of, or pleading guilty to, or
otherwise being found by an arbitrator pursuant to Section 10(d) hereof to have
engaged in, to the Company's material detriment, a felony or an act of
dishonesty or other behavior which results in material embarrassment or
discredit to the Company, whether in connection with the performance of the
Services hereunder or otherwise; (iii) the commission of an act (or omission) by
any officer or director of Consultant or by Employee which act would disqualify
such individual from serving as an officer or director of the Company (if such
individual were an officer or director of the Company) under reasonable criteria
adopted by the Board of Directors of the Company, and in the case of any dispute
as confirmed by an arbitrator pursuant to Section 10(d) hereof; (iv) a course of
conduct of the Consultant which is repetitive or continuous and willful or
grossly negligent, and which has a materially detrimental effect on the business
of the Company; (v) if the Consultant permits or directs Employee to pursue and
Employee does pursue any
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<PAGE>
Investment Opportunities other than those for the Company, except as
specifically permitted hereunder; or (vi) an event that would entitle the
Consultant to terminate its employment agreement with an Employee, on a "for
cause" basis under such Agreement. Except in relation to a bona fide emergency,
the Consultant shall be entitled to at least thirty (30) days' prior written
notice of the Company's intention to terminate this Agreement For Cause, and
such notice shall specify the basis of, causes and grounds for such termination,
and shall afford the Consultant a reasonable opportunity to cure any conduct or
act (if curable) and/or cease any course of conduct alleged as grounds for such
termination, and a reasonable opportunity to present to the Board of Directors
of the Company its position regarding any dispute relating to the existence of
such cause. In the event of the termination of this Agreement For Cause, no Lump
Sum Payment or any other further payments shall be due hereunder, with the sole
exception being that Incentive Compensation fully earned and vested as of the
date of such termination by virtue of closings of Covered Transactions completed
prior to the date of termination or which are the subject of existing and
outstanding contracts shall be paid, as well as Incentive Compensation earned in
respect of Residual Transactions. The Incentive Amount under Section 3(b) shall
be determined with respect of Covered Transactions completed prior to such
termination.
(e) Termination Upon Death. This Agreement shall terminate upon the
death of an Employee. Payments that are due and owing under this Agreement at
such death, including Incentive Compensation for Covered Transactions that shall
have closed prior to the date of death, together with Incentive Compensation in
respect of Residual Transactions, shall be made promptly to the Consultant in
full settlement and satisfaction of all claims and demands of the Consultant. No
Lump Sum Payment shall be due in respect of such termination.
(f) Termination Upon Disability. The Company may terminate this
Agreement after Employee is determined to have a Disability (as hereinafter
defined). For purposes of this Agreement, "Disability" means such Employee's
inability, as a result of physical or mental incapacity, to perform
substantially his usual and customary duties in connection with the Consultant's
performance of Services hereunder for a period of either four (4) consecutive
months, or one hundred and twenty (120) business days within a consecutive
twelve (12) month period. In the event of a dispute regarding such Employee's
Disability, such dispute shall be resolved through arbitration as provided in
paragraph (d) of Section 9 hereof, except that the arbitrator appointed by the
American Arbitration Association shall be a duly licensed medical doctor. The
Consultant shall be entitled to the compensation provided for under this
Agreement during any period of such Employee's incapacitation occurring during
the term of this Agreement prior to the establishment of such Employee's
Disability and subsequent termination of this Agreement, including Incentive
Compensation for closed Covered Transactions, and Incentive Compensation for
Residual Transactions closed within one (1) year following such incapacitation.
No Lump Sum Payment shall be due in respect of such termination. Notwithstanding
anything contained in this Agreement to the contrary, until the date specified
in a notice of termination relating to such Employee's Disability, Consultant
may, after a temporary period of infirmity of such Employee, allow such Employee
to resume the performance of his duties in connection with the Consultant's
performance of the Services hereunder in which event no Disability of such
Employee will be deemed to have occurred until the date of termination.
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<PAGE>
(g) Termination Upon Change in Control.
(i) In the event of a Change in Control (as defined
below) of the Company and the termination of this
Agreement, by operation of Section 4(c) within the
twelve (12) months preceding, or a period of one
hundred eighty (180) days after, the Change in
Control, other than on a For Cause basis (or due to
death or Disability), or by the Consultant within one
hundred eighty (180) days after the Change in
Control, the Consultant shall be entitled to such
payments as if such termination had been effectuated
pursuant to Section 4(b) hereof for any Transaction
which rises to the level of or otherwise becomes a
Change in Control.
(ii) For purposes of this paragraph, the term "Change in
Control" means the following:
(A) the merger, consolidation or other material
business combination of the Company,
including without limitation an exchange or
purchase of securities, or the sale of all
or substantially all of the assets of the
Company, with a publicly traded entity which
has a market capitalization of Five Hundred
Million Dollars ($500,000,000) or more, or a
non-publicly traded entity which has net
operating income of Fifty Million Dollars
($50,000,000) or more, at the time of such
transaction; or
(B) the completion of a material business
combination (including those anticipated in
subclause (A) above) by the Company as a
result of which, or within one hundred
twenty (120) days of Closing of such
transaction, either Clay W. Hamlin or Jay H.
Shidler is removed or otherwise ceases to be
a member of the Board of Directors of the
Company other than incidentally due to his
death or disability or neither of Hamlin nor
Shidler retains an executive or managerial
role with the Company unless failure to
remain in such capacity is due to such
person's death or disability.
Notwithstanding the above, any business combination
constituting an asset-specific (i.e., non-company wide) venture or financing
relationship by an investor or provider of capital, or constituting a minority
investment by or in the Company, shall not qualify as a Change in Control,
including, without limitation, an investment by or in the Company by or in a
downreit venture or "opportunity fund" which invests in real estate companies as
part of an investment strategy unrelated to any long term management or control
strategy. In no event shall the prospective transaction with Baltimore Gas and
Electric Company regarding the acquisition of the "Constellation" group
constitute or be considered to be a Change in Control hereunder.
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<PAGE>
(h) Company Rights Upon Termination. In the case of any termination of
this Agreement or the relevant employment agreement of an Employee, the Company
shall have the right to hire or place for employment such Employee.
5. Confidentiality and Loyalty. The Consultant acknowledges that heretofore or
hereafter during the course of this Agreement, it and/or its Employee have
produced and received, and may hereafter produce, receive and otherwise have
access to, various materials, records, data, trade secrets and information not
generally available to the public (collectively, "Confidential Information")
regarding the Company and its subsidiaries and affiliates. Accordingly, during
the term and subsequent to termination of this Agreement, the Consultant shall
hold in confidence and shall not directly or indirectly disclose, use, copy or
make lists of any Confidential Information and shall cause its employees to also
abide by such obligations, in each case except to the extent that such
information is or thereafter becomes lawfully available from public sources, or
such disclosure is authorized in writing by the Company, required by law or by
any competent administrative agency or judicial authority, or otherwise as
reasonably necessary or appropriate in connection with the performance by the
Consultant of the Services hereunder. All records, files, documents, computer
diskettes, computer programs and other computer-generated material, as well as
all other materials or copies thereof relating to the Company's business, which
the Consultant shall prepare or use, shall be and remain the sole property of
the Company, shall not be removed from the Company's premises without its
written consent, and shall be promptly returned to the Company upon termination
of the Consultant's Services hereunder. The Consultant agrees to abide by the
Company's reasonable policies, as in effect from time to time, respecting
confidentiality and the avoidance of interests conflicting with those of the
Company.
6. Non-Competition Covenant.
(a) Restrictive Covenant. The Company, the Consultant and Employee have
jointly reviewed the tenant lists, property submittals, logs, broker lists, and
operations of the Company, and have agreed that as an essential ingredient of
and in consideration of this Agreement and the payment of the amounts described
in Sections 3 and 4 hereof, the Consultant hereby agrees that, except with the
express prior written consent of the Company, for the term of this Agreement, as
such may be extended, it will not, and will cause Employee not to, directly or
indirectly compete with the business of the Company including, but not by way of
limitation, by directly or indirectly owning, managing, operating, controlling,
consulting for, advising, brokering, acquiring, selling, financing, or by
directly or indirectly serving as an employee, officer or director of or
consultant to, or by soliciting or inducing, or attempting to solicit or induce,
any employee or agent of the Company to terminate employment with Company and
become employed by any person, firm, partnership, corporation, trust or other
entity which owns or operates a business similar to that of the Company, or by
soliciting or attempting to solicit for any reason whatsoever any person or
entity from whom the Company, or any Affiliate, has bought property (the
"Restrictive Covenant"). For purposes of this paragraph(s), a business shall be
considered "similar" to that of the Company if it is engaged in the acquisition,
development, ownership, operation, management or leasing of office, medical
office, office flex and related commercial properties (or Excluded Activities or
Other Property Types from time to time pursued by the Company)
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<PAGE>
(i) in any geographic market or territory in which the Company owns properties
during the term of this Agreement; (ii) in any "Target Market" publicly
identified as an intended situs of acquisitions by the Company; or (iii) in any
market in which an acquisition is proposed or pending during the term of this
Agreement. An acquisition shall be deemed to be pending if it is the subject of
a purchase (or lease or contribution or other acquisition or venture-related)
agreement, or whose basic terms shall have been confirmed in writing under a
binding or non-binding letter of intent or term sheet executed by the parties.
In addition, for a period of six (6) months following the termination of this
Agreement for any reason whatsoever, with or without cause, whether precipitated
by the Consultant or the Company, the Consultant shall and shall cause its
Employee to abandon and refrain from contact with every person and entity in
connection with or concerning any potential acquisition or Covered Transaction
then in the Company's "Pipeline" (as defined below). Within ten (10) business
days after the termination of this Agreement, the Consultant shall deliver to
the CEO of the Company, and the CEO shall deliver to the Consultant, a written
statement of all acquisitions or other Projects (as hereinafter defined) in the
Pipeline (the "Pipeline Statement"). The Consultant's receipt of any amounts
otherwise due under Sections 4(b) or (c) or otherwise hereunder shall be
conditioned on and withheld pending its providing the Pipeline Statement to the
CEO. The restrictions concerning any one individual Project in the Pipeline
shall continue for such six (6) month period unless the Consultant receives from
the Company written notice that the Company has abandoned such Project, and any
such notice shall not diminish or otherwise affect the restrictions on any other
Projects contained in the Pipeline Statement. A Project shall be considered in
the "Pipeline" if, as of the date of the Consultant's termination, the
acquisition of the Project is pending (for example, is the subject of a letter
of intent), or is subject to a written proposal or a written broker submittal.
Omission of a Project from the Pipeline Statement by the Consultant shall not
affect the application of this Section 6(a) to any Project that is in fact in
the Pipeline. For purposes of this Agreement, a "Project" includes any potential
Covered Transaction, and may take the form of (w) an acquisition for cash, or an
acquisition as part of an UPREIT transaction or otherwise; (x) a development
project; (y) a joint venture partnership or other cooperative relationship,
whether through a DOWNREIT relationship or otherwise; or (z) any other
investment by the Company or an Affiliate. If the Consultant violates the
Restrictive Covenant and the Company brings legal action for injunctive or other
relief, the Company shall not, as a result of the time involved in obtaining
such relief, be deprived of the benefit of the full period of the Restrictive
Covenant with respect to the Covered Transaction or Project which is the subject
of the violation. Accordingly, the Restrictive Covenant shall be deemed to have
the duration specified in this paragraph (a) computed from the date the relief
is granted, but reduced by the time between the period when the Restrictive
Period began to run and the date of the first violation of the Restrictive
Covenant by the Consultant. In the event that a successor of the Company assumes
and agrees to perform this Agreement or otherwise acquires the Company, this
Restrictive Covenant shall continue to apply only to the primary service area of
the Company as it existed immediately before such assumption or acquisition, and
shall not apply to any of the successor's other offices or markets. The
foregoing Restrictive Covenant shall not prohibit the ownership, directly or
indirectly, of capital stock or similar securities which are listed on a
securities exchange or quoted on the National Association of Securities Dealers
Automated Quotation System which do not represent more than five percent (5%) of
the outstanding capital stock of any corporation. Notwithstanding the foregoing,
the Restrictive Covenant shall
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<PAGE>
no longer remain in force against the Consultant in the event the Company shall,
within the meaning of the United States Bankruptcy Code, be insolvent so as to
be unable to pay its debts as they become due or be subject to a pending
proceeding as a debtor under the United States Bankruptcy Code or a state
proceeding such an assignment for the benefit of creditors.
(b) Remedies for Breach of Restrictive Covenant. Consultant and each
Employee acknowledges that the restrictions contained in Section 5 and this
Section 6 of this Agreement are reasonable and necessary for the protection of
the legitimate proprietary business interests of the Company; that any violation
of these restrictions would cause substantial injury to the Company and such
interests; that the Company would not have entered into this Agreement with the
Consultant without receiving the additional consideration offered by the
Consultant and Employee in binding itself and himself to these restrictions; and
that such restrictions were a material inducement to the Company to enter into
this Agreement. In the event of any violation or threatened violation of these
restrictions; the Company shall be relieved of any further obligations under
this Agreement, and, notwithstanding Section 10(d) hereof, shall be entitled to
any rights, remedies or damages available at law, in equity or otherwise under
this Agreement, and shall be entitled to preliminary and temporary injunctive
relief granted by a court of competent jurisdiction to prevent or retrain any
such violation by the Consultant and/or by Consultant's Employees and any and
all other persons who are a director or officer, or who are employed by, the
Consultant, such relief to be provided while the parties are awaiting the
decision of the arbitrator selected in accordance with paragraph (d) of Section
10 of this Agreement, which decision, if rendered adverse to the Consultant
and/or such Employee of Consultant, may include permanent injunctive relief to
be granted by the court.
(c) Restrictive Covenant of Employee. Contemporaneously with the
execution and delivery of this Agreement by Consultant, Consultant has caused
each Employee of Consultant to execute and deliver to the Company, a restrictive
covenant agreement on substantially the same terms as set forth in this Section
5.
7. Independent Contractor Status. The Consultant, it officers and directors
shall at all times during the term of this Agreement each be deemed an
independent contractor and not any agent or employee of the Company. Neither the
Consultant, nor any of its officers or directors, shall have any power or
authority, or purport or represent itself or himself to have any power or
authority, to bind or commit the Company in any manner or for any purpose
whatsoever, except with the express prior written authorization of the Company's
CEO or its Chairman of the Board.
8. Interest in Assets. The Consultant shall not, and shall not permit any
Employee to, acquire hereunder any rights in funds or assets of the Company,
otherwise than by and through the actual payment of amounts payable hereunder;
nor shall the Consultant have any power to transfer, assign, anticipate,
hypothecate or otherwise encumber in advance any of said payments; nor shall any
of such payments be subject to seizure for payment of any debt, judgment,
alimony, separate maintenance or be transferable by operation of law in the
event of bankruptcy, insolvency or otherwise of the Consultant or any Employee.
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9. Indemnification. The Company shall upon demand defend, hold
harmless and indemnify the Consultant, its officers, directors, employees and
agents (and their respective successors, assigns, heirs, executors and
administrators) from and against all expenses and liabilities reasonably
incurred by any of them including, but not limited to, judgments, court costs
and attorneys' fees and the cost of reasonable settlements, solely in
connection with or arising out of any action, suit or proceeding for acts
committed by it, him or them, as the case may be, within the scope of the
Services performed pursuant to this Agreement, except to the extent that the
Company would be precluded, as a matter of law under the Company's By-Laws or
Certificate of Incorporation, from providing such indemnity if such
Consultant were an officer or director or employee of the Company after proof
by judgment that such activity precluded such indemnification.
10. General Provisions.
(a) Successors; Assignment. This Agreement shall be binding upon and
inure to the benefit of the Consultant, the Company and their respective
successors and permitted assigns, and any successor or assign of the Company
shall be deemed the "Company" hereunder. The Company shall require any Affiliate
to which this Agreement may be assigned or any successor to all or substantially
all of the business and/or assets of the Company, whether directly or
indirectly, by purchase, merger, consolidation, acquisition of stock, or
otherwise, by an agreement in form and substance satisfactory to the Consultant,
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent as the Company would be required to perform if no such
successor had taken place. The Consultant shall not have the right to assign its
rights obligations hereunder without the consent of the Company and Consultant's
Employee which can be withheld for any or no reason; provided, however, that the
Consultant shall, to the extent permitted by law, have the right to assign to
Consultant's Employee its right to receive Incentive Compensation and/or Stock
Purchase Loans pursuant to Sections 3(a) and (b) hereof and to payments payable
upon or arising from termination of the Agreement or related to or due upon a
Change in Control.
(b) Entire Agreement; Modifications. This Agreement and any other
written agreement executed by all of the Company, Consultant and Employee that
is of even date herewith constitute the entire agreement between the parties
respecting the subject matter hereof, and supersede all prior negotiations,
undertakings, agreements and arrangements with respect thereto, whether written
or oral. Except as otherwise explicitly provided herein, this Agreement may not
be amended or modified, or rights of the Consultant waived or modified, except
by written agreement signed by the Consultant and the Company and such Employee.
(c) Enforcement and Governing Law. The provisions of this Agreement
shall be regarded as divisible and separate; if any of said provisions should be
declared invalid or unenforceable by a court of competent jurisdiction, the
validity and enforceability of the remaining provisions shall not be affected
thereby. This Agreement shall be construed and the legal relations of the
parties hereto shall be determined in accordance with the laws of the State of
New Jersey, as it constitutes the principal place of business of the Consultant.
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(d) Arbitration. Except as provided in and subject to paragraph (b) of
Section 5, any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted by a single
arbitrator sitting in Philadelphia, Pennsylvania, in accordance with the
arbitration rules of the American Arbitration Associates (the "AAA") pertaining
to service contract disputes, if any, then in effect. The arbitrator shall be
selected by the parties from a list of eleven (11) arbitrators provided by the
AAA, provided that no arbitrator shall be related to or affiliates with either
of the parties. No later than ten (10) days after the list of proposed
arbitrators is received by the parties, the parties, or their respective
representatives, shall meet at a mutually convenient location in Philadelphia,
Pennsylvania, or telephonically. At that meeting the party who sought
arbitration shall eliminate one (1) proposed arbitrator and then the other party
shall eliminate one (1) proposed arbitrator. The parties shall continue to
alternatively eliminate names from the list of proposed arbitrators in this
manner until each party has eliminated five (5) proposed arbitrators. The
remaining arbitrator shall arbitrate the dispute. The proceedings shall be
conducted under a so-called "baseball arbitration" format, such that each party
shall submit, in writing, the specific requested action or decision it wishes to
take, or make, with respect to the matter in dispute, and the arbitrator shall
be obligated to choose one (1) party's specific requested action or decision,
without being permitted to effectuate any compromise or "new" position;
provided, however, that the arbitrator is authorized to award amounts not in
dispute during the pendency of any dispute or controversy arising under or in
connection with this Agreement. The losing party shall bear the cost of all
counsel, experts or other representatives that are retained by both parties,
together with all costs of the arbitration proceeding, including, without
limitation, the fees, costs and expenses imposed or incurred by the arbitrator.
Judgment may be entered on the arbitrator's award in any court having
jurisdiction; including, if applicable, entry of a permanent injunction under
paragraph (b) of Section 6. No arbitration involving Covered Transactions as to
which any Employee is involved shall be conducted in which such Employee is not
included as a party, or given an opportunity to participate as a party to such
arbitration and such Employee consents thereto.
(e) Waiver. No waiver by either party at any time of any breach by the
other party of, or compliance with, any condition or provision of this Agreement
to be performed by the other party, shall be deemed a waiver of any similar or
dissimilar provisions or conditions at the same time or any prior or subsequent
time.
(f) Notices. Notices given pursuant to this Agreement shall be in
writing, and shall be deemed given when received, and, if mailed, shall be
mailed by United States registered or certified mail, return receipt requested,
postage prepaid. Notices to the Company shall be addressed to the principal
headquarters of the Company, to the attention of Clay W. Hamlin, Chief Executive
Officer, with a copy of such notice to be provided to:
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Howard A. Nagelberg, Esq.
Barack Ferrazzano Kirschbaum Perlman & Nagelberg
333 West Wacker Drive
Suite 2700
Chicago, Illinois 60606
Notices to the Consultant shall be sent to the address first stated
above therefor, and in the case of any notice relating to a matter involving any
Employee of Consultant, such notice shall be with a copy of such notice to be
provided to such Employee and his counsel.
(g) Authority. Each of the Company and the Consultant represents and
warrants to the other that its signatory is duly authorized to execute and
perform under this Agreement, without the need for any consent or approval of
such party's Board of Directors or of any other party, and that this Agreement
is not violative of or in conflict with any agreement, understanding, order,
decree, law, regulation or other matter to which it is subject or by which it is
bound.
IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute this Agreement as of the date first above written.
CORPORATE OFFICE PROPERTIES NET LEASE FINANCE CORP. d/b/a
TRUST CORPORATE OFFICE SERVICES
By: /s/ Clay W. Hamlin By:
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Clay W. Hamlin Its:
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Chief Executive Officer
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Exhibit 10.18
PROJECT CONSULTING AND MANAGEMENT AGREEMENT
THIS PROJECT CONSULTING AND MANAGEMENT AGREEMENT (hereinafter the
"Agreement") is made as of the 28th day of September, 1998, by and between
CONSTELLATION PROPERTIES, INC. (hereinafter "Owner"), and CORPORATE OFFICE
MANAGEMENT, INC., a Maryland Corporation (hereinafter "Manager").
W I T N E S S E T H:
WHEREAS, Owner through its various subsidiaries and affiliates is the
owner of a portfolio of properties and projects (both vacant land and buildings
in construction) located in the Central Maryland area (hereinafter the
"Properties"), the exact locations and designations of the Properties being
known by the parties hereto;
WHEREAS, Owner is managing its ownership of the Properties, including
the planning and development of the Properties for residential, commercial and
industrial uses; and
WHEREAS, Owner and Manager acknowledge and agree that the following
projects are included, among others, within the Properties and are currently in
various stages of development by the Owner through the specified subsidiaries
and affiliates: (i) NBP IV, LLC is the owner of an office building known as 135
National Business Parkway which project is nearing completion; needing only
certain interior, elevator and exterior landscaping work to be completed; (ii)
Constellation Gatespring, LLC is the owner of an office building project known
as Woodlands One which project is nearing completion; (iii) Piney Orchard
Village Center, LLC is the owner of a retail strip project known as Piney
Orchard Village Center which project is under construction with completion
scheduled for completion December 31, 1998; and (iv) Constellation Springfield,
LLC is the owner of 60% LLC interest in another entity (Fran-Spring TSA, LLC)
which is the owner of a retail shopping center in Springfield, Virginia, which
project is under construction with completion scheduled for December 31, 1998 (
the foregoing items (i) through (iv) collectively referred to herein as the
"Under Development Projects").
WHEREAS, Owner desires to employ Manager to provide ongoing planning,
management and consulting services with respect to the management of Owner's
Properties, including management of the completion of development of the Under
Development Projects;
WHEREAS, Owner desires to employ Manager as set forth herein and
Manager is willing to manage same in accordance with the terms set forth herein.
NOW, THEREFORE, in consideration of the sums of money to be paid by
Owner to Manager, and in further consideration of the mutual covenants contained
herein, the parties hereto agree as follows:
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1. Recitals. Each party represents to the other that the recitals set
forth above contain no material misrepresentation of fact.
2. Employment of Manager. Owner hereby retains Manager, and Manager
hereby agrees, to provide to Owner consulting services and general management
and administration services with respect to the Properties and to initiate, and
thereafter, to diligently coordinate, supervise and pursue all steps necessary
to implement development plans for the various Properties upon such schedules as
are reasonably approved from time to time by Owner, upon the terms and
conditions, and for the term and compensation hereinafter set forth.
3. Term. The term of this Agreement, and of the employment of Manager
by Owner pursuant hereto, shall be for the period commencing as of the date
hereof and ending on the date that is the last day of the month that is eighteen
(18) months after the date of this Agreement ("Term").
4. Services. Subject to the direction and control of Owner, the
consulting, development, management and administrative services to be rendered
by Manager shall, when appropriate, include, but not be limited to, each of the
following services:
(a) Preliminary site analysis and project planning.
(b) Coordinate and manage the process of securing preliminary
approval of the land use plans and the preliminary engineering criteria.
(c) Assist Owner in retaining appropriate consultants related
to the various Properties including, but not limited to, landscape architect,
civil engineer, architect, traffic consultant, soil engineer, attorney,
accountant, marketing consultant, appraiser and surveyor and thereafter, act as
Owner's representative's contact with such consultants regarding the development
of the Properties.
(d) Act as Owner's representative and liaison with community
and other civic groups in connection with the development of the Properties.
(e) Assist in the preparation of cost line budgets and cash
flow projections for the development of the Properties.
(f) Prepare and monitor compliance with development schedules
approved by Owner.
(g) Coordinate the securing of all appropriate and necessary
governmental approvals relating to the development plans for the Properties.
(h) Consult with respect to the management of the Properties
which are not in development at any one time.
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(i) Consult with engineers, lenders and attorneys the securing
of all permits and the posting of all security required for the development of
the Properties.
(j) Consult with respect to the issuance of all construction
bid documents, provide analysis of bids and recommendations on awards of
contracts, and assist in the issuance of contracts for all construction work.
(k) Assist in the coordination of construction activities
relating to the Project by visiting the site during critical phases of
construction and by meeting with County officials, inspectors, contractors,
subcontractors and construction supervisors.
(l) Coordinate land development documentation with marketing
programs including, but not limited to, the preparation of any homeowner's
association documents, cross-easements, declarations of covenants and
restrictions and deeds to governmental bodies for roads, recreation spaces and
open spaces.
(m) Advise on the status of all construction/building permits
and the release of all security posted in connection with the development of the
Properties.
(n) Provide advice on the overall marketing and publicity
program for the Properties including advertising, signage, promotional brochures
and model homes parks.
(o) Meet regularly with designated representatives of Owner
and furnish summary reports on at least a monthly basis reflecting the status of
overall development.
With regard to the above enumerated services to be performed by Manager
hereunder it is agreed that the parties will regularly consult and mutually and
reasonably agree upon the scope, timing, order of importance and overall
direction of the services.
Notwithstanding anything herein to the contrary, with respect to the
Under Development Projects, Manager shall provide all those management services
reasonably required by Owner (or Owner's subsidiary or affiliate which holds
title to each of the Under Development Projects) in connection with bringing
each of the Under Development Projects to completion as evidenced by the
obtaining for each Under Development Project of a certificate of use and
occupancy or similar governmental permit. The work of Manager shall generally be
described as the performance of all those managerial and oversight functions
reasonably required so as to bring each Under Development Project to physical
completion on a timely basis and in line with budgeted costs.
5. Costs and Expenses. Owner shall pay, and Manager shall have no
responsibility whatsoever for, the payment of any independent costs or
out-of-pocket expenses incurred in connection with the work to be performed by
it hereunder. Manager shall be responsible only for its own overhead expenses
incurred in the performance of its obligations under this Agreement. Manager
shall not authorize or incur outside costs in excess of $5,000 for any one item
or service without the prior written approval of Owner. Notwithstanding anything
herein to the contrary,
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with regard to the Under Development Projects, in performing its management
services hereunder Manager shall use its good faith, commercially reasonable
efforts to consult with Owner to save costs and to bring each Under Development
Project to completion at a cost within prior approved budgeted sums. Under no
circumstances shall Manager authorize or permit additional costs above budget or
changes to any Under Development Project that would increase costs without same
being approved in advance and in writing by the Owner of the particular Under
Development Project.
6. Owner's Responsibility. Owner shall:
(a) Reimburse Manager for all independent costs and
out-of-pocket expenses properly incurred and approved (if required) by Owner in
accordance with the terms hereof.
(b) Pay to Manager for its services as rendered hereunder the
total sum of $2,000,000. This sum shall be paid as follows on a monthly basis:
(i) $250,000 per month from the date hereof through
the last day of the third (3rd) calendar month after the date hereof;
(ii) $150,000 per month from the first day of the
fourth (4th) calendar month after the date hereof through the last day of the
sixth (6th) calendar month after the date hereof;
(iii) $100,000 per month from the first day of the
seventh (7th) calendar month after the date hereof through the last day of the
tenth (10th) calendar month after the date hereof;
(iv) $50,000 per month from the first day of the
eleventh (11th) calendar month after the date hereof through the last day of the
eighteenth (18th) calendar month after the date hereof.
(c) Indemnify and hold Manager and all of its officers,
agents, servants and employees, harmless from and against any claims, actions,
damages, losses and expenses (including attorney's fees) of any kind whatsoever
arising out of or in connection with the work and services performed by Manager
hereunder, except Owner shall not be liable under this clause if said liability
shall arise by reason of the gross negligence or intentional misconduct of
Manager. Owner agrees that it will have Manager added as a named insured on the
public liability policies acquired by the various owners of the Properties.
(d) Cooperate with Manager in expediting the performance of
its work hereunder. Owner shall cooperate with Manager by (i) providing
information, (ii) providing funds required pursuant to invoices from and
contract with providers of services and suppliers of materials with respect to
the various Properties, (iii) rendering decisions on matters affecting the
development of the various Properties, all within the timeframes and in the form
reasonably recommended by Manager.
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7. Limitation on Manager's Responsibility. It is expressly understood
and agreed between the parties hereto, that notwithstanding anything to the
contrary in this Agreement, (i) Manager does not warrant, or guarantee the
performance of any professional or contractor employed in connection with the
Properties or warrant or guarantee the performance of under any construction
contracts relating to the Properties. Moreover the consulting development,
management and administrative services rendered by Manager hereunder will
involve recommendations as to how the various Properties might be developed and
estimates made by Manager as part of its development management services, and
the assumptions upon which they are based, represent Manager's judgment based
upon available information as of the date of preparation. No such
recommendation, estimate or assumption is intended to constitute a warranty,
guarantee or promise by Manager that the stated objectives can be achieved in
the manner described. Manager shall not be liable to Owner if any of Owner's
objectives with respect to the Properties are not achieved either in whole or in
part or in a timely manner or otherwise.
8. Default. If either party to this Agreement defaults in the
performance of its obligations under this Agreement after notice and opportunity
to cure set forth below in Section 8, the non-defaulting party shall have all
rights and remedies available to it at law or in equity on account of such
default, provided, however, that Owner shall not have the right to seek the
remedy of termination of this Agreement unless and until Manager has been given
the notice and opportunity to cure set forth below in this Section 8, and
thereafter, a court of competent jurisdiction has rendered a final,
non-appealable decision holding that the Manager has committed a material breach
of this Agreement. Anything contained in this Agreement to the contrary
notwithstanding, any act or omission which would otherwise be a default under
this Agreement by either party shall not be a default unless the non-defaulting
party shall have given the defaulting party notice of such alleged default, and
the defaulting party shall have failed to cure such alleged default within
thirty (30) days after such notice, or if the alleged default is one which
cannot with due diligence be cured within thirty (30) days, the defaulting party
shall have failed to commence curing such default within such thirty (30) day
period.
9. Notices. All notices required or provided for in this Agreement, if
hand delivered shall be deemed to have been given and received on the date hand
delivered to the party receiving same. If the United States mails are used,
notices shall be sent certified or registered mail, return receipt requested,
postage prepaid, and shall be deemed to have been given and received on the
second (2nd) business day from the date deposited in the United States mails
addressed as follows:
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If to Owner:
Constellation Properties, Inc.
Attention: Mr. Steven S. Koren
8815 Centre Park Drive - Suite 100
Columbia, MD 21045
and
Dan R. Skowronski, Esquire
Constellation Holdings, Inc.
250 W. Pratt Street
23rd Floor
Baltimore, MD 21201
If to Manager:
Corporate Office Management, Inc.
Attention: Mr. Randall M. Griffin
8815 Centre Park Drive - Suite 400
Columbia, MD 21045
and
Mr. Clay W. Hamlin, III
Corporate Office Properties Trust
401 City Avenue. Suite 615
Bala Cynwyd, PA 19004
Each party shall have the right to designate a different address,
provided the party's new address is contained in a written notice to the other
party.
10. Miscellaneous.
(a) This Agreement contains the final understanding of the
terms and provisions between the parties and supersedes any prior agreement
among the parties.
(b) This Agreement shall be interpreted under the laws of the
State of Maryland.
(c) If any provision of this Agreement is found to be
unenforceable or void, the remaining provisions of this Agreement shall be
enforceable between the parties.
(d) This Agreement may not be assigned by either party hereto
without the consent of the other party, which shall not be unreasonably withheld
or delayed, except that
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either party may assign to a subsidiary or affiliate of it without the prior
written consent of the other party.
(e) Nothing in the provisions of this Agreement shall be
deemed in any way to create between the parties hereto any relationship of
partnership, joint venture or association, and the parties hereto hereby
disclaim the existence thereof.
(f) Each party hereto warrants and represents that the person
who has signed this Agreement on its behalf is duly authorized to so sign, and
this Agreement is the legal, valid and binding agreement of such party,
enforceable against such party, in accordance with its terms.
(g) Manager agrees that it will not disclose confidential
information furnished to it by Owner as a consequence of its employment under
this Agreement.
IN WITNESS WHEREOF, the parties hereto sign and seal this Agreement on
the day and year first above written.
WITNESS CONSTELLATION PROPERTIES, INC.
By: (SEAL)
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CORPORATE OFFICE MANAGEMENT, INC.
By: (SEAL)
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OPTION AGREEMENT
THIS OPTION AGREEMENT (this "Agreement") is made and executed this 28th
day of September, 1998, by and between JOLLY ACRES LIMITED PARTNERSHIP and
ARBITRAGE LAND LIMITED PARTNERSHIP ("Sellers") and CORPORATE OFFICE PROPERTIES,
L.P., its permitted successors and assigns ("Buyer").
RECITALS
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Sellers are the owners of those various parcels of land identified and
described more specifically in Exhibit "A", attached hereto and by this
reference made a part hereof. Each of the Sellers, individually, as to those
parcels owned by each of them are willing to grant to Buyer an option to
purchase the parcels on the terms and conditions as set forth herein. Buyer is
willing to accept said option on the terms and conditions set forth herein and
for the considerations provided for hereafter.
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the adequacy of which is hereby acknowledged, Sellers
hereby grant to Buyer the exclusive right and option (irrevocable except upon
the express terms and conditions of this Agreement) during the term hereof to
purchase from Sellers, all of those parcels of land located in the National
Business Park in Anne Arundel County, State of Maryland and more fully described
in Exhibit "A" hereto (the "Property") upon the terms and subject to the
conditions hereinafter set forth. It is hereby irrevocably acknowledged,
confirmed and agreed by Sellers that the mutual obligations and covenants of the
parties hereunder and the entry by affiliates of Sellers and Buyer into other
agreements as of even date herewith, constitute adequate and appropriate
consideration for the option provisions of this Agreement.
1. Payment of Purchase Price.
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(a) The Purchase Price for each of the separate parcels
comprising the Property shall be the higher of (i) the Fair Market Value of the
specific parcel (as determined pursuant to paragraph 1(b), or (ii) the Seller's
Book Value of the specific parcel (as determined pursuant to paragraph 1(c) as
of the date of a Buyer's Appraisal Process Notice (as defined below) relating to
that specific parcel, and shall be paid by Buyer to the Sellers as provided in
paragraph 3.
(b) If Buyer is at anytime considering exercising its option
to purchase any parcel within the Property, Buyer shall first give notice to
Sellers specifically noting the parcel or parcels under consideration (the
"Appraisal Process Notice") in order to begin the appraisal process under this
paragraph 1(b) and to determine the Purchase Price of the parcels within the
Property then being considered. Within ten (10) days after Buyer gives the
Appraisal Process Notice, Buyer and Sellers shall arrange to meet in person
through their appointed agents and shall use their best efforts for a period of
ten (10) days from the date of their first meeting ("Agreement Period") to agree
upon a Fair Market Value for the parcel or parcels then being considered within
the Property. If the parties can agree then such agreed upon sum shall be the
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Fair Market Value of the parcels then being considered. If the parties cannot
agree then within ten (10) days of the end of the Agreement Period Buyer and
Sellers shall each retain an MAI Appraiser and obtain at their own cost and
expense (subject to paragraph (d) hereof) a certified appraisal with respect to
the value of the parcels within the Property being considered. Each appraiser
shall have forty-five (45) days after the last day of the Agreement Period to
determine the value of the parcel(s) and provide copies of their appraisals to
both Buyer and Sellers. The Fair Market Value shall be the average of these two
appraisals, provided that the higher valuation is not more than one hundred and
twenty percent (120%) of the lower valuation. In the event the valuations are
more than twenty percent (20%) apart, then the appraisers within five (5) days
after exchange of the appraisals shall jointly select a third MAI appraiser
whose valuation shall be substituted for the average of the two appraisals and
be the Fair Market Value, provided it falls between the two valuations selected
by the other appraisers. The third appraiser shall have thirty (30) days from
his or her selection to determine the value of the parcel(s) then under
consideration. If the third appraiser selects a valuation that does not fall
between the valuations determined by the other two appraisers, then the
valuation of the appraiser that is closest to the valuation selected by the
third appraiser shall be substituted for the average of the two appraisals as
provided above and shall be the Fair Market Value. The expense of the third
appraiser shall be divided equally between Buyer and Sellers (subject to
paragraph 1(d) hereof). All appraisers appointed under this Agreement shall be
independent MAI appraisers who have at least five (5) years experience in
appraising commercial real estate in Anne Arundel County, Maryland. Neither
party shall be precluded from appointing an independent appraiser whom such
party had previously employed as an independent appraiser, except that the third
appraiser, if appointed, may not have been previously employed by either party.
(c) Seller's Book Value is defined and shall be the net dollar
amount shown for any specific parcel within the Property as same appears as an
asset on the balance sheet of the particular Seller on any particular date.
Sellers shall maintain their books in accordance with generally accepted
accounting principals, consistently applied, and will provide to Buyer such
access to Seller's books and accounting records as shall be reasonably required
for a determination of Seller's Book Value to be made. Seller represents that
Seller's Book Value as of the date hereof for each parcel comprising the
Property is approximately as listed on Exhibit "A" attached hereto. Sellers
shall give Buyer written notice of Seller's Book Value for each parcel
comprising the Property as of January 1 and July 1 of each year during the
Option Period, and for each parcel specified in an Appraisal Process Notice as
of the date of the Appraisal Process Notice, such notice to be given within ten
(10) days after each of said dates.
(d) If Buyer gives the Appraisal Process Notice but does not
thereafter proceed to exercise the option to purchase the designated parcels
within the Property within thirty (30) days after the determination of the
Purchase Price of the portion of the Property being considered, then,
notwithstanding any contrary provisions of paragraph 1(b), all expenses incurred
by either party in retaining appraisers including the third appraiser if
required shall by paid by Buyer.
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2. Right to Inspect.
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(a) From and after execution of this Agreement by both Buyer
and Sellers, Buyer and Buyer's consultants shall have the right to enter upon
the Property and each parcel comprising same and conduct, at Buyer's sole
expense, any engineering tests, development and land use studies, environmental
analysis, soil tests, topographical and other surveys, wetlands and flood plain
delineations, and other surveys, tests and studies (collectively, "Site
Investigations") as Buyer deems necessary. Buyer shall give Sellers at least one
(1) day's notice of its desire to enter the Property to inspect and Buyer shall
coordinate the scheduling of such inspection with Seller, taking into account
any work Seller may be performing on the Property. All lands, trees, shrubs,
grass and field areas shall be restored as closely as possible to their pre-test
conditions. Buyer and its consultants shall enter and test the Property at their
own risk; and Buyer and/or its consultants shall carry adequate commercial
general liability insurance of not less than $1,000,000 combined single limit
naming Sellers as an additional insured. Buyer and/or its consultants shall
provide Sellers with a certificate evidencing such insurance promptly upon
request. Further, Buyer shall indemnify and save Sellers harmless from any and
all suits, claims of injuries and judgments, and reasonable attorney's fees, in
any way arising out or such entry and testing of the Property, which
indemnification and obligation to hold the Sellers harmless shall survive any
termination of this Agreement.
3. Exercise of Option and Settlement.
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(a) Buyer may from time to time exercise its option to
purchase the Property or any parcel or parcels within same by sending to Sellers
a written notice of such exercise at any time after the date hereof and on or
before the expiration of the Option Period (as herein defined); provided,
however, that any such exercise(s) must occur, if at all, within thirty (30)
days after the date on which the Purchase Price of the subject parcel(s) is
determined pursuant to paragraph 1. The term of this Option shall commence on
the date hereof and automatically terminate and expire on that date which is
five (5) calendar years following the date hereof ("Option Period").
(b) Settlement and closing of title on the parcel or parcels
which are the subject of any Appraisal Process Notice ("Settlement") shall be
held at a location selected by the Buyer, and shall occur on the date which
shall be the first to occur of (i) ninety (90) days after the receipt by Sellers
of notice of the exercise of the Option as to any parcel or (ii) such earlier
date as Buyer, upon at least ten (10) days prior written notice to Sellers,
shall select, provided that, on such earlier date the Purchase Price for the
Property has been determined.
(c) At Settlement, the Buyer shall pay Sellers, in cash or by
certified, cashier's, treasurer or title company check, or by wire transfer, the
Purchase Price determined for each separate parcel.
(d) At Settlement, title to the portions of the Property being
sold shall be good and marketable, free of all liens, encumbrances,
encroachments and easements other than the Permitted Encumbrances (as
hereinafter defined), and possession of the portions of Property then
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being transferred shall be given to Buyer free of all tenancies or other rights
of use or occupancy. A deed containing covenants of special warranty and further
assurances shall be executed by Sellers (as appropriate between them), at
Buyer's expense, which shall convey fee simple title to the portions of the
Property being conveyed together with all improvements, rights, alleys, ways,
waters, privileges, easements, appurtenances, and advantages benefiting such
portions of the Property, and shall be delivered to Buyer at Settlement.
(e) Within thirty (30) days after receipt by Sellers of notice
of any exercise of the Option, the Buyer, at Buyer's expense, shall have the
title to the portion of the Property which is the subject of the exercise
examined by a reputable title insurance company and have such title insurance
company issue a title insurance commitment (the "Title Commitment") to assure
Buyer that, as of the examination date, title to the particular portion of the
Property is good and marketable and insurable at ordinary prevailing title
insurance rates and that any exceptions to title contained in the Title
Commitment are acceptable to Buyer. By the thirtieth (30th) day after receipt by
Sellers of notice of any exercise of the Option, Buyer shall provide to Sellers
a copy of the Title Commitment and either advise Sellers in writing that all
exceptions to title contained in the Title Commitment are acceptable to Buyer or
advise Sellers in writing of those exceptions to title contained in the Title
Commitment that are unacceptable to Buyer; provided, however, that Buyer shall
be required to accept all matters shown on the Subdivision Plats and any
amendments thereto pursuant to paragraph 7 hereof. Failure of Buyer to examine
title or to advise Sellers of the acceptability of title within the time periods
required hereunder shall be deemed an acceptance of all title matters. Within
fifteen (15) days after receipt of a notice from Buyer advising Sellers that
certain title exceptions are unacceptable to Buyer, Sellers shall notify Buyer
whether Sellers will cure any of the unacceptable title exceptions. Failure of
Sellers to provide notice within such time period shall be deemed an election by
Sellers not to cure the unacceptable title exceptions. If Buyer has timely
notified Sellers of unacceptable title matters then, unless Sellers have timely
elected to cure such title exceptions as provided hereunder, Buyer, by written
notice to Sellers, may, within fifteen (15) days after expiration of the time
period for Sellers to elect to cure, either waive such unacceptable title
exceptions (in which case such exceptions shall be deemed acceptable to Buyer)
or terminate the Option as to those portions of the Property which are then the
subject of an Appraisal Process Notice. Failure of Buyer to notify Sellers in
such fifteen (15) day period shall be deemed an election by Buyer to waive the
unacceptable title exceptions. If Sellers notify Buyer that Sellers will cure
any unacceptable title exception, then Sellers shall be obligated to promptly
and, in all events, prior to Settlement, proceed to cure such title exception in
such manner that the defect or objection to the title will not appear in the
Buyer's title insurance policy. All exceptions to title accepted by Buyer or
deemed to be accepted by Buyer under the provisions of this paragraph (other
than mortgages, deeds of trust and other liens [excluding liens for current
taxes and assessments to be adjusted under paragraph 3(f)], all of which shall
be discharged by Sellers at or prior to Settlement) shall constitute "Permitted
Encumbrances." Notwithstanding the foregoing, from and after the date hereof and
continuing until the expiration of the Option Period, except as otherwise
permitted hereunder, Sellers shall not change or permit to be changed title to
the Property or any portion thereof in a manner which would materially prevent
or interfere with the development of the separate parcels comprising the
Property. Nothing herein shall preclude Sellers from placing liens on the
Property in connection with financings or refinancings, it being
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understood that it is the obligation of Sellers to remove such liens with
respect to Property being purchased by Buyer hereunder at the time of
Settlement.
(f) All costs, including taxes, insurance and any and all
costs relating to the ownership of the Property and each portion of same shall
be borne by Sellers until time of any Settlement hereunder. All taxes, general
or special, and all other public, governmental or other assessments against each
parcel comprising the Property payable on an annual basis are to be adjusted and
apportioned as of the date of Settlement as to each parcel then being
transferred and are to be assumed and paid after Settlement by Buyer. The costs
of all recordation taxes and transfer taxes shall be split and paid equally by
Buyer and Sellers. All agricultural transfer tax or taxes, if any, shall be paid
by Sellers. All other closing costs incurred by Buyer, including, without
limitation, recording charges, document preparation charges, notary fees and
title insurance premiums shall be paid by Buyer. Sellers and Buyer shall each
pay their respective legal costs.
(g) At Settlement hereunder, the Sellers shall execute and
deliver to the Buyer an affidavit, in form sufficient to satisfy all Internal
Revenue Service requirements, stating that Sellers are not a "foreign person"
(as defined by the Foreign Investment in Real Property Tax Act and the
regulations promulgated thereunder) so that Buyer is not legally required to
withhold any portion of the Purchase Price then being paid at any Settlement
hereunder.
(h) At Settlement hereunder the Sellers shall execute and
deliver reasonable and customary title affidavits as required by Buyer's title
company.
4. Risk of Loss. The Property and each parcel comprising same
is to be held at the risk of the Sellers until legal title has passed.
5. Seller's Warranties and Representations. Sellers warrant,
represent and covenant to Buyer the following items which are true in all
material respect and shall be deemed to have been restated at the time of each
Settlement hereunder:
(a) As of the date hereof and as of each Settlement, Sellers
will be the owner of 100 percent fee simple interest in the Property and or the
portion of same then being sold, and will not have entered into any contract of
sale, option agreement, right of first refusal or other agreement for the sale
of any part of the Property then subject to the Option.
(b) The Sellers have full power and authority to execute,
deliver and perform this Agreement in accordance with its terms.
(c) To Sellers' knowledge, as of the date of this Agreement,
the Property is zoned to permit its use for office and warehouse purposes and
Sellers shall not join in or consent to any change in the zoning of the Property
which would prohibit its use for office and warehouse purposes.
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(d) To Sellers' knowledge, there are no underground storage
tanks on the Property.
(e) To their knowledge, Sellers have not used, generated,
stored or disposed, and from and after the date of this Agreement, except to the
extent consistent with current real estate industry practices for such type of
property, consistent with use of the Property for office and warehouse purposes,
and permitted under governmental regulations, will not use, generate, store or
dispose, on, under or about the Property any hazardous waste, toxic substance or
related materials or any friable asbestos or substance containing asbestos.
The foregoing warranties shall terminate as to a specific parcel twelve
(12) months after Settlement hereunder as to each such parcel.
6. Right of First Refusal; Termination of Option As To Certain
Parcels.
Notwithstanding any other provision herein set forth it is agreed and
specifically understood by Buyer that at all times while this Option shall be in
effect Sellers shall be permitted to actively market the Property and each
parcel comprising same; and further that if Sellers receive a bona fide
third-party expression of intent to purchase the Property or any portion of same
or any partnership interest in Sellers which Sellers desire to accept, Sellers
shall first offer Buyer the opportunity to purchase the Property or portion of
same (the "Right of First Refusal") at the same price and upon the same terms
and conditions as are provided in the expression of intent in accordance with
the following procedure:
(a) Sellers shall cause the expression of intent to be reduced
to writing, which writing may take the form of a letter of understanding, term
sheet or other expression of interest which includes price and, in the opinion
of counsel for the Sellers, sufficient other terms and conditions to describe
the proposed transaction (the "Offer"). Sellers shall notify Buyer, in writing,
of its desire to accept the Offer (the "Initial Notice"). The Initial Notice
shall set forth the parcel or portion of the Property subject to the Offer and
such other material terms and conditions of the Offer as are reasonable for
Buyer to analyze the Offer, and shall be accompanied by a copy of the Offer.
(b) Buyer shall have the right, exercisable upon written
notice to Sellers within fifteen (15) days after Buyer's receipt of the Initial
Notice, to accept or reject the Offer contained in the Initial Notice. If by its
reply Buyer accepts the Offer of Sellers, such reply notice shall be accompanied
by the deposit specified in the Offer, if any, and shall constitute an agreement
binding on Sellers and Buyer to sell and purchase the particular portion of the
Property which is the subject of the Offer, at the price and upon the terms and
conditions stated in the Initial Notice.
(c) If Buyer does not unconditionally accept the Offer of
Sellers contained in the Initial Notice within such fifteen (15) day period or
does not respond to the Initial Notice within such fifteen (15) day period, time
being of the essence, then the Option herein granted to Buyer as to the portion
of the Property which is the subject of the Offer shall terminate and
6
<PAGE>
expire and Seller shall have the right to sell that portion of Property on the
terms and conditions specified in the Offer and free and clear of Buyer's rights
hereunder. If the contemplated sale is not completed by the date set forth in
the Offer, in accordance with the terms of the Offer, Buyer's purchase option
and Right of First Refusal for the pertinent portion of the Property shall be
reinstated and Owner shall again be required to comply with the terms of this
Agreement.
Buyer and Sellers acknowledge and agree that (i) a Sellers' Development
(as defined below) in accordance with paragraph 8 shall not be subject to the
Right of First Refusal, but (ii) any intent to develop all or any portion of the
Property which is not a Sellers' Development shall be deemed an offer to
purchase (a "ROFR Development"), shall be subject to the Right of First Refusal,
and shall be presented to Buyer in accordance with subparagraph 6(a) above as an
Offer to participate in the development as Sellers' co-developer. If an Offer
for a ROFR Development is presented to Buyer, then notwithstanding anything to
the contrary set forth above, within fifteen (15) days after the Initial Notice,
Buyer shall be entitled either to exercise the Option pursuant to paragraph 3,
or to accept or reject (in accordance with subparagraph (b)) the Offer. If Buyer
accepts an Offer for a ROFR Development, then Buyer shall be deemed to have
waived any due diligence period, whether set forth in the Offer or in any
expression of intent by the third-party co-developer(s), during which Buyer
would otherwise be entitled to conduct inspection activities on the pertinent
portions of the Property.
7. Resubdivision. The Property currently consists of a number of
separate subdivided parcels as shown on certain Subdivision Plats recorded among
the Land Records of Anne Arundel County, Maryland. Nothing herein shall be
deemed to prohibit Sellers from modifying the lot lines and/or sizes of the
various parcels as long as such changes are processed diligently through the
governmental subdivision process and written notice of such proposed changes is
given to Buyer. In addition Sellers shall notify Buyer when any resubdivision
has occurred and provide Buyer with a copy of the revised final resubdivision
plat.
8. Termination of Option - Construction of Buildings.
-------------------------------------------------
(a) Notwithstanding any other provision herein set forth, but
subject to the terms and conditions set forth in this paragraph, it is agreed
between the parties that nothing herein shall be deemed to prohibit or restrict
Sellers' rights to proceed with the development and construction of buildings on
any or all of the parcels comprising the Property by Sellers alone, or together
with others so long as none of the agreements between Sellers and its
co-developers in existence on the Extinguishment Date (as defined below) provide
for the aggregate interest of any such other co-developers to exceed a fifty
percent (50%) equity interest in the Sellers' Development project when completed
(a "Sellers' Development"). To that end it is agreed that if at any time while
the Option herein granted shall be effective Sellers elect to proceed with
Sellers' Development of any parcel comprising the Property, Sellers shall give
written notice (a "Development Notice") to Buyer that they or either of them as
the case may be have elected to proceed with Sellers' Development. If any
co-developers are to participate in a Sellers' Development, the Development
Notice shall identify all such co-developers and Sellers shall certify, and
provide such information and pertinent documentation as shall be reasonably
required to demonstrate, that the equity interest test set forth above has been
satisfied. Upon
7
<PAGE>
receipt of a Development Notice which meets all of the foregoing requirements,
Buyer's rights to give an Appraisal Process Notice or exercise the Option with
respect to any parcel which is the subject of the Development Notice shall be
suspended until the earlier to occur of (i) the date of issuance of the building
permit for Sellers' Development or (ii) the date which is eighteen (18) months
after Buyer's receipt of a Development Notice (the "Suspension Period"). If
Sellers receive a building permit for Sellers' Development within the Suspension
Period, the Suspension Period shall be extended for a period of twelve (12)
months from the date of issuance of the building permit for Sellers' Development
(the "Extended Suspension Period"). During the Suspension Period and any
Extended Suspension Period, Sellers agree to proceed with Sellers' Development
with due diligence and in good faith. If a building permit for Sellers'
Development is not received during the Suspension Period, or if Sellers fail to
commence construction of Sellers' Development prior to the end of an Extended
Suspension Period, Buyer's rights under this Agreement shall revive. If Sellers
receive a building permit within the Suspension Period and commence construction
of Sellers' Development prior to the end of the Extended Suspension Period, then
with respect to any parcel which is the subject of that Sellers' Development,
Buyer's rights to give an Appraisal Process Notice, exercise the Option and all
other rights Buyer may have hereunder with respect to any parcel which is the
subject of the Sellers' Development shall terminate, expire and be extinguished
on the date such construction is commenced (the "Extinguishment Date").
(b) So long as Sellers comply with all of the provisions of
subparagraph 8(a), nothing herein shall preclude Sellers, either alone or with
co-developers, from entering into an agreement (a "Pre-Sell Agreement") at any
time to sell the parcel which is the subject of Sellers' Development, or the
building constructed on such parcel, to a third-party upon completion of
Sellers' Development, provided that any such Pre-Sell Agreement entered into
prior to the Extinguishment Date is conditioned on the Extinguishment Date
occurring. The purchaser under a Pre-Sell Agreement, as such, shall not be
considered a co-developer for purposes of the definition of a Sellers'
Development.
9. Miscellaneous.
-------------
(a) Sellers and Buyer warrant that, in connection with this
Agreement, they have dealt with no broker, agent or other party who may be
entitled to a commission or finder's fee, and each party agrees to indemnify the
other from any claims or damages, including reasonable attorneys' fees, that the
other may incur as a result of the violation of this warranty, which warranty
and indemnification shall survive settlement and any termination of this
Agreement.
(b) Any written notices required under the terms of this
Agreement shall be sent by Federal Express Delivery or other national overnight
delivery service and addressed as follows:
8
<PAGE>
To Buyer:
Corporate Office Properties L.P.
401 City Avenue, Suite 615
Bala Cynwyd, PA 19004
Attention: Clay W. Hamlin, III
with copies to:
F. Michael Wysocki, Esquire
Saul, Ewing, Remick & Saul LLP
Centre Square West
1500 Market Street - 38th Floor
Philadelphia, PA 19102
To Sellers:
Jolly Acres Limited Partnership
Arbitrage Land Limited Partnership
c/o Constellation Properties, Inc.
250 West Pratt Street, 23rd Floor
Baltimore, MD 21201
Attention: Secretary
Any party hereto may change its notice address by giving notice of such change
in accordance with this paragraph. Notice shall be deemed to have occurred upon
actual delivery.
(c) Time shall be the essence of this Agreement.
(d) If the last day of the Option Period or the date on which
Settlement is to occur, or the last day of any time period specified herein,
falls on a Saturday, Sunday or holiday, the period for the required action shall
be extended until 5:00 PM on the next business day.
(e) This Agreement contains the final and entire agreement
between the parties thereto, and neither party shall be bound by any terms,
condition, statement or representation not herein contained. The Agreement may
not be modified or changed orally, but only by agreement in writing, signed by
the party against whom enforcement of any such change is sought.
(f) The Agreement shall be governed by the laws of the State
of Maryland. The titles of the paragraphs are inserted as a matter of
convenience and for reference and in no way define, limit or describe the scope
of this Agreement or the intent of any provision hereof.
9
<PAGE>
(g) Upon any expiration or termination of this Agreement, the
Option to purchase the Property or any parcel thereof, or the Right of First
Refusal to the Property or any parcel thereof, each party hereto, or any other
party to whom the Buyer's rights have been collaterally assigned, shall promptly
execute such instruments in recordable form as any party hereto may reasonably
require to confirm such expiration or termination. This Agreement may be
recorded by either party hereto.
10. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns. Buyer shall have the right to assign this Agreement in whole or in
part without the consent of Sellers (i) to any entity controlled by,
controlling, or under common control with Buyer or Corporate Office Properties
Trust (where control shall mean owning directly or indirectly fifty percent
(50%) or more of the voting stock or voting interest of such entity), (ii) to
any person or entity designated by Buyer as purchaser of the Property or any
portion thereof (with respect to such portion only) after Buyer has exercised
the Option or the Right of First Refusal with respect thereto, but provided that
Buyer shall remain liable hereunder, or (iii) to any successor entity of Buyer
resulting from the acquisition of Buyer by such entity or a merger of Buyer
where such successor entity is the surviving entity. Buyer shall not have any
other right to assign this Agreement in whole or in part without the prior
written consent of Sellers, which consent shall not be unreasonably withheld or
delayed.
10
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed or caused
this Agreement to be executed by its duly authorized representative on the day
and year first above written.
JOLLY ACRES LIMITED PARTNERSHIP
By: Constellation Properties, Inc.,
General Partner
By:____________________________________
Dan R. Skowronski, Secretary
ARBITRAGE LAND LIMITED
PARTNERSHIP
By: Constellation Properties, Inc.,
General Partner
By:____________________________________
Dan R. Skowronski, Secretary
CORPORATE OFFICE PROPERTIES, L.P.
By: Corporate Office Properties Trust,
Its sole general partner
By:____________________________________
Clay W. Hamlin, III
President and Chief Executive Officer
11
<PAGE>
EXHIBIT "A"
Description of Parcels Constituting the Property
Entities Which Own the Property
Current Book Values
<TABLE>
<CAPTION>
Parcel Seller Current Book Value
- ------ ------ ------------------
<S> <C> <C>
Lot 1 Jolly Acres Limited Partnership $ 1,882,652
Lot 3A Jolly Acres Limited Partnership $ 3,188,875
Lot 4-R Arbitrage Land Limited Partnership $ 368,816
Lot 5-R Arbitrage Land Limited Partnership $ 368,816
Lot 9 Jolly Acres Limited Partnership $ 1,300,000
Lot 10 Jolly Acres Limited Partnership $ 1,300,000
Lot 12 Jolly Acres Limited Partnership $ 1,115,976
Lot 13 Jolly Acres Limited Partnership $ 1,437,307
Lot 14 Jolly Acres Limited Partnership $ 1,626,325
Lot 15 Jolly Acres Limited Partnership $ 2,117,772
Lot 16 Jolly Acres Limited Partnership $ 2,117,772
Lot 17 Jolly Acres Limited Partnership $ 416,608
Lot 18 Jolly Acres Limited Partnership $ 2,367,276
Lot 19 Jolly Acres Limited Partnership $ 5,457,094
Lot 20 Jolly Acres Limited Partnership $ 1,046,668
Total: $ 26,111,958
</TABLE>
<PAGE>
EXHIBIT 10.20
RIGHT OF FIRST REFUSAL AGREEMENT
--------------------------------
THIS RIGHT OF FIRST REFUSAL AGREEMENT ("Agreement") is made and
executed this 28th day of September, 1998, by and between CONSTELLATION
PROPERTIES, INC., ("CPI") and CORPORATE OFFICE PROPERTIES, L.P., its permitted
successor and assigns ("COPLP").
RECITALS
--------
CPI is the owner of real property ("Property") described more
specifically in Exhibit "A" attached hereto and by this reference made a part
hereof. CPI is desirous of selling the Property and will be engaged in marketing
same. COPLP may at some time be interested in purchasing the Property and is
accordingly desirous of obtaining a first refusal right with regard to the
Property.
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the adequacy of which is acknowledged, CPI grants to
COPLP for the term as herein described a right of first refusal on the Property
on the terms and conditions as set forth and provided for herein, namely:
1. Term. The term of this Agreement shall commence as of the date
hereof and shall expire on that date which is two (2) years following ("Term").
2. Right to Inspect. From and after execution of this Agreement by both
CPI and COPLP, COPLP and COPLP's consultants shall have the right to enter upon
the Property and conduct, at COPLP's sole expense, any engineering tests,
development and land use studies, environmental analysis, soil tests,
topographical and other surveys, wetlands and flood plain delineations, and
other surveys, tests and studies (collectively, "Site Investigations") as COPLP
deems necessary. COPLP shall give CPI at least one (1) day's notice of its
desire to enter the Property to inspect and COPLP shall coordinate the
scheduling of such inspection with Seller, taking into account any work Seller
may be performing on the Property. All lands, trees, shrubs, grass and field
areas shall be restored as closely as possible to their pre-test condition.
COPLP and its consultants shall enter and test the Property at their own risk;
and COPLP and/or its consultants shall carry adequate commercial general
liability insurance of not less than $1,000,000 combined single limit naming CPI
as an additional insured. COPLP and/or its consultants shall provide CPI with a
certificate evidencing such insurance promptly upon request. Further, COPLP
shall indemnify and save CPI harmless from any and all suits, claims of injuries
and judgments, and reasonable attorneys' fees, in any way arising out of such
entry and testing of the Property, which indemnification and obligation to hold
CPI harmless shall survive any termination of this Agreement.
3. Right of First Refusal. CPI hereby agrees that during the Term of
this Agreement, if it receives a bona fide third-party expression of intent to
purchase the Property which CPI desires to accept, CPI shall first offer COPLP
the opportunity to purchase the
<PAGE>
Property at the same price and upon the same terms and conditions as are
provided in the expression of intent in accordance with the following procedure:
(a) CPI shall cause the expression of intent to be reduced to writing,
which writing may take the form of a letter of understanding, term sheet or
other expression of interest which includes price and, in the opinion of counsel
for the CPI, sufficient other terms and conditions to describe the proposed
transaction (the "Offer"). CPI shall notify COPLP, in writing, of its desire to
accept the Offer (the "Initial Notice"). The Initial Notice shall set forth the
parcel or portion of the Property subject to the Offer and such other material
terms and conditions of the Offer as are reasonable for COPLP to analyze the
Offer, and shall be accompanied by a copy of the Offer.
(b) COPLP shall have the right, exercisable upon written notice to CPI
within fifteen (15) days after COPLP's receipt of the Initial Notice, to accept
or reject the offer contained in the Initial Notice. If by its reply COPLP
accepts the Offer of CPI, such reply notice shall be accompanied by the deposit
specified in the Offer, if any, and shall constitute an agreement binding on CPI
and COPLP to sell and purchase the Property or portion thereof or LLC interest,
at the price and upon the terms and conditions stated in the Initial Notice.
(c) If COPLP does not unconditionally accept the Offer of CPI contained
in the Initial Notice within such fifteen (15) day period or does not respond to
the Initial Notice within such fifteen (15) day period, time being of the
essence, then CPI shall have the right to sell the Property in accordance with
the terms and conditions specified in the Offer free and clear of COPLP's rights
hereunder. If the contemplated sale is not completed by the date set forth in
the Offer, in accordance with the terms of the Offer COPLP's right of first
refusal shall be reinstated and CPI shall be required to again comply with the
terms of this Agreement.
(d) In the event CPI does not consummate the sale of the Property or
any portion thereof or LLC interest subject to an Offer for any reason, after
COPLP shall have not exercised its right of first refusal on same, then in that
event the right of first refusal shall be reinstituted and CPI shall for the
continuing Term not sell the Property or portion thereof or LLC interest without
first reoffering same to COPLP pursuant to subparagraph (a), (b) and (c) above.
(e) COPLP shall have the right to assign this Agreement in whole or in
part without the consent of CPI (i) to any entity controlled by, controlling, or
under common control with COPLP or Corporate Office Properties Trust (where
control shall mean owning directly or indirectly fifty percent (50%) or more of
the voting stock or voting interest of such entity), (ii) to any person or
entity designated by COPLP as purchaser of the Property or any portion thereof
(with respect to such portion only) after COPLP has exercised its right of first
refusal with respect thereto, but provided that Buyer shall remain liable
hereunder, or (iii) to any successor entity of Buyer resulting from the
acquisition of Buyer by such entity or a merger of Buyer where such successor
entity is the surviving entity. COPLP shall not have any other right to assign
this Agreement in whole or in part without the prior written consent of CPI,
which consent shall not be unreasonably withheld or delayed.
2
<PAGE>
(f) The right of first refusal as herein granted and described shall
apply to the Property as a whole. CPI may, at any time, however, at CPI's sole
cost and expense, subdivide the Property, but upon doing so, the right of first
refusal and all of the terms and conditions of this Agreement shall thereafter
apply separately to each subdivided portion of the Property. If the right of
first refusal shall be exercised on only a subdivided portion of the Property,
same shall remain in effect as to the balance of the Property for the Term
hereof.
4. CPI's Warranties and Representations. CPI warrants, represents and
covenants to COPLP that the following items are true in all material respects
and shall be deemed to have been restated at the time(s) of COPLP's exercise of
its rights hereunder and at the time of closing on the sale of the Property,
namely:
(a) CPI is the fee simple owner of the Property, and has not entered
into any contract of sale, option agreement, right of first refusal or other
agreement for the sale of any part of the Property; and
(b) CPI has full power and authority to execute, deliver and perform
this Agreement in accordance with its terms; and
(c) To CPI's knowledge, as of the date of this Agreement, the Property
is generally zoned to permit its use for office and retail purposes and CPI
shall not join in or consent to any change in the zoning of the Property which
would prohibit its use for office and retail purposes.
(d) To CPI's knowledge, there are no underground storage tanks on the
Property.
(e) To its knowledge, CPI has not used, generated, stored or disposed,
and from and after the date of this Agreement, except to the extent consistent
with current real estate industry practices for such type of property,
consistent with use of the Property for office and retail purposes, and
permitted under governmental regulations, will not use, generate, store or
dispose, on, under or about the Property any hazardous waste, toxic substance or
related materials or any friable asbestos or substance containing asbestos.
5. Miscellaneous.
-------------
(a) CPI and COPLP warrant that, in connection with this Agreement, they
have dealt with no broker, agent or other party who may be entitled to a
commission or finder's fee, and each party agrees to indemnify the other from
any claims or damages, including reasonable attorneys' fees, that the other may
incur as a result of the violation of this warranty, which warranty and
indemnification shall survive settlement and any termination of this Agreement.
(b) Any written notices required under the terms of this Agreement
shall be sent by Federal Express Delivery or other national overnight delivery
service and addressed as follows:
3
<PAGE>
To CPI: Constellation Properties, Inc.
250 West Pratt Street, 23rd Floor
Baltimore, MD 21201
Attention: Secretary
and
8815 Centre Park Drive, Suite 100
Columbia, MD 21045
Attention: Managing Director, CREI
To COPLP: Corporate Office Properties, L.P.
401 City Avenue, Suite 615
Bala Cynwyd, PA 19004
Attention: Clay W. Hamlin, III
with copies to: F. Michael Wysocki, Esquire
Saul, Ewing, Remick & Saul LLP
Center Square West
1500 Market Street - 38th Floor
Philadelphia, PA 19102
Any party hereto may change its notice address by giving notice of such change
in accordance with this paragraph. Notice shall be deemed to have occurred upon
actual delivery.
(c) Time shall be of the essence of this Agreement.
(d) If the last day of any time period specified herein, falls on a
Saturday, Sunday or holiday, the period for the required action shall be
extended until 5:00 PM on the next business day.
(e) This Agreement contains the final and entire agreement between the
parties thereto, and neither party shall be bound by any term, condition,
statement or representation not herein contained. The Agreement may not be
modified or changed orally, buy only by agreement in writing, signed by the
party against whom enforcement of any change is sought.
(f) The Agreement shall be governed by the laws of the State of
Maryland. The titles of the paragraphs are inserted as a matter of convenience
and for reference and in no way define, limit or describe the scope of this
Agreement or the intent of any provision hereof.
(g) Upon any expiration or termination of this Agreement and the right
of first refusal contained herein, each party hereto shall promptly execute such
instruments in recordable form as any party hereto may reasonably require to
confirm such expiration or termination. This Agreement may be recorded by either
party hereto.
(h) This Agreement shall be binding on and inure to the benefit of the
parties hereto and their respective successors and assigns.
4
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed or caused
this Right of First Refusal Agreement to be executed by its duly authorized
representative on the day and year first above written.
CONSTELLATION PROPERTIES, INC.
By: ____________________________________
Dan R. Skowronski, Secretary
CORPORATE OFFICE PROPERTIES, L.P.
By: Corporate Office Properties Trust, General
Partner
By: ____________________________________
Clay W. Hamlin, III, President and Chief
Executive Officer
<PAGE>
EXHIBIT "A"
Description of the Property
---------------------------
(Bond Street Property)
----------------------
<PAGE>
EXHIBIT 10.21
RIGHT OF FIRST REFUSAL AGREEMENT
--------------------------------
THIS RIGHT OF FIRST REFUSAL AGREEMENT ("Agreement") is made and
executed this 28th day of September, 1998, by and between 257 OXON, LLC ("Oxon")
and CORPORATE OFFICE PROPERTIES, L.P., its permitted successor and assigns
("COPLP").
RECITALS
--------
Oxon is the owner of those two condominium units ("Property") described
more specifically in Exhibit "A" attached hereto and by this reference made a
part hereof. These condominium units are located in the Constellation Centre
Condominium in Prince George's County, Maryland. Oxon is desirous of selling the
Property and/or either of the units comprising same and will be engaged in
marketing same. COPLP may at some time be interested in purchasing the Property
or either of the units comprising same and is accordingly desirous of obtaining
first refusal rights with regard to the Property.
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the adequacy of which is acknowledged, Oxon grants to
COPLP for the term as herein described a right of first refusal on the Property
on the terms and conditions as set forth and provided for herein, namely:
1. Term. The term of this Agreement shall commence as of the date
hereof and shall expire on that date which is two (2) years following ("Term").
2. Right to Inspect. From and after execution of this Agreement
by both Oxon and COPLP, COPLP and COPLP's consultants shall have the right to
enter upon the Property and conduct, at COPLP's sole expense, any engineering
tests, development and land use studies, environmental analysis, soil tests,
topographical and other surveys, wetlands and flood plain delineations, and
other surveys, tests and studies (collectively, "Site Investigations") as COPLP
deems necessary. COPLP shall give Oxon at least one (1) day's notice of its
desire to enter the Property to inspect and COPLP shall coordinate the
scheduling of such inspection with Seller, taking into account any work Seller
may be performing on the Property. All lands, trees, shrubs, grass and field
areas shall be restored as closely as possible to their pre-test condition.
COPLP and its consultants shall enter and test the Property at their own risk;
and COPLP and/or its consultants shall carry adequate commercial general
liability insurance of not less than $1,000,000 combined single limit naming
Oxon as an additional insured. COPLP and/or its consultants shall provide Oxon
with a certificate evidencing such insurance promptly upon request. Further,
COPLP shall indemnify and save Oxon harmless from any and all suits, claims of
injuries and judgments, and reasonable attorneys' fees, in any way arising out
of such entry and testing of the Property, which indemnification and obligation
to hold Oxon harmless shall survive any termination of this Agreement.
<PAGE>
3. Right of First Refusal. Oxon hereby agrees that during the
Term of this Agreement, if it receives a bona fide third-party expression of
intent to purchase the Property and/or either unit within same or if it receives
an offer to purchase the limited liability company interests of Oxon which Oxon
desires to accept, Oxon shall first offer COPLP the opportunity to purchase the
Property or portion thereof or LLC interest at the same price and upon the same
terms and conditions as are provided in the expression of intent in accordance
with the following procedure:
(a) Oxon shall cause the expression of intent to be reduced to
writing, which writing may take the form of a letter of understanding, term
sheet or other expression of interest which includes price and, in the opinion
of counsel for the Oxon, sufficient other terms and conditions to describe the
proposed transaction (the "Offer"). Oxon shall notify COPLP, in writing, of its
desire to accept the Offer (the "Initial Notice"). The Initial Notice shall set
forth the parcel or portion of the Property subject to the Offer and such other
material terms and conditions of the Offer as are reasonable for COPLP to
analyze the Offer, and shall be accompanied by a copy of the Offer.
(b) COPLP shall have the right, exercisable upon written
notice to Oxon within fifteen (15) days after COPLP's receipt of the Initial
Notice, to accept or reject the offer contained in the Initial Notice. If by its
reply COPLP accepts the Offer of Oxon, such reply notice shall be accompanied by
the deposit specified in the Offer, if any, and shall constitute an agreement
binding on Oxon and COPLP to sell and purchase the Property or portion thereof
or LLC interest, at the price and upon the terms and conditions stated in the
Initial Notice.
(c) If COPLP does not unconditionally accept the Offer of Oxon
contained in the Initial Notice within such fifteen (15) day period or does not
respond to the Initial Notice within such fifteen (15) day period, time being of
the essence, then Oxon shall have the right to sell the Property or portion of
same or LLC interest in accordance with the terms and conditions specified in
the Offer free and clear of COPLP's rights hereunder. If the contemplated sale
is not completed by the date set forth in the Offer, in accordance with the
terms of the Offer COPLP's right of first refusal shall be reinstated and Oxon
shall be required to again comply with the terms of this Agreement.
(d) The Property consists of two separate condominium units.
The right of first refusal as herein granted and described shall apply to the
Property as a whole and each unit within same as Oxon may desire to sell and on
which it receives an expression of intent to purchase. If the right of first
refusal shall be exercised on only a portion of the Property, same shall remain
in effect as to the balance of the Property for the Term hereof.
(e) In the event Oxon does not consummate the sale of the
Property or any portion thereof or LLC interest subject to an Offer for any
reason, after COPLP shall have not exercised its right of first refusal on same,
then in that event the right of first refusal shall be reinstituted and Oxon
shall for the continuing Term not sell the Property or portion thereof or LLC
interest without first reoffering same to COPLP pursuant to subparagraph (a),
(b) and (c) above.
2
<PAGE>
(f) COPLP shall have the right to assign this Agreement in
whole or in part without the consent of Oxon (i) to any entity controlled by,
controlling, or under common control with COPLP or Corporate Office Properties
Trust (where control shall mean owning directly or indirectly fifty percent
(50%) or more of the voting stock or voting interest of such entity), (ii) to
any person or entity designated by COPLP as purchaser of the Property or any
portion thereof (with respect to such portion only) after COPLP has exercised
its right of first refusal with respect thereto, but provided that Buyer shall
remain liable hereunder, or (iii) to any successor entity of Buyer resulting
from the acquisition of Buyer by such entity or a merger of Buyer where such
successor entity is the surviving entity. COPLP shall not have any other right
to assign this Agreement in whole or in part without the prior written consent
of Oxon, which consent shall not be unreasonably withheld or delayed.
4. Oxon's Warranties and Representations. Oxon warrants,
represents and covenants to COPLP that the following items are true in all
material respects and shall be deemed to have been restated at the time(s) of
COPLP's exercise of its rights hereunder and at the time(s) of closing(s) on the
sale of the Property or either unit comprising same, namely:
(a) Oxon is the fee simple owner of the entire Property and
each legally separate unit of same, and has not entered into any contract of
sale, option agreement, right of first refusal or other agreement for the sale
of any part of the Property; and
(b) Oxon has full power and authority to execute, deliver and
perform this Agreement in accordance with its terms; and
(c) To Oxon's knowledge, as of the date of this Agreement, the
Property is generally zoned to permit its use for office and retail purposes and
Oxon shall not join in or consent to any change in the zoning of the Property
which would prohibit its use for office and retail purposes.
(d) To Oxon's knowledge, there are no underground storage
tanks on the Property.
(e) To its knowledge, Oxon has not used, generated, stored or
disposed, and from and after the date of this Agreement, except to the extent
consistent with current real estate industry practices for such type of
property, consistent with use of the Property for office and retail purposes,
and permitted under governmental regulations, will not use, generate, store or
dispose, on, under or about the Property any hazardous waste, toxic substance or
related materials or any friable asbestos or substance containing asbestos.
5. Miscellaneous.
-------------
(a) Oxon and COPLP warrant that, in connection with this
Agreement, they have dealt with no broker, agent or other party who may be
entitled to a commission or finder's fee, and each party agrees to indemnify the
other from any claims or damages, including
3
<PAGE>
reasonable attorneys' fees, that the other may incur as a result of the
violation of this warranty, which warranty and indemnification shall survive
settlement and any termination of this Agreement.
(b) Any written notices required under the terms of this
Agreement shall be sent by Federal Express Delivery or other national overnight
delivery service and addressed as follows:
To Oxon:
257 Oxon LLC
c/o Constellation Properties, Inc.
250 West Pratt Street, 23rd Floor
Baltimore, MD 21201
Attention: Secretary
and
8815 Centre Park Drive, Suite 100
Columbia, MD 21045
Attention: Managing Director, CREI
To COPLP:
Corporate Office Properties, L.P.
401 City Avenue, Suite 615
Bala Cynwyd, PA 19004
Attention: Clay W. Hamlin, III
with copies to:
F. Michael Wysocki, Esquire
Saul, Ewing, Remick & Saul LLP
Center Square West
1500 Market Street - 38th Floor
Philadelphia, PA 19102
Any party hereto may change its notice address by giving notice of such change
in accordance with this paragraph. Notice shall be deemed to have occurred upon
actual delivery.
(c) Time shall be of the essence of this Agreement.
(d) If the last day of any time period specified herein, falls
on a Saturday, Sunday or holiday, the period for the required action shall be
extended until 5:00 PM on the next business day.
4
<PAGE>
(e) This Agreement contains the final and entire agreement
between the parties thereto, and neither party shall be bound by any term,
condition, statement or representation not herein contained. The Agreement may
not be modified or changed orally, buy only by agreement in writing, signed by
the party against whom enforcement of any change is sought.
(f) The Agreement shall be governed by the laws of the State
of Maryland. The titles of the paragraphs are inserted as a matter of
convenience and for reference and in no way define, limit or describe the scope
of this Agreement or the intent of any provision hereof.
(f) Upon any expiration or termination of this Agreement and
the right of first refusal contained herein, each party hereto shall promptly
execute such instruments in recordable form as any party hereto may reasonably
require to confirm such expiration or termination. This Agreement may be
recorded by either party hereto.
(g) This Agreement shall be binding on and inure to the
benefit of the parties hereto and their respective successors and assigns.
[Remainder of Page Intentionally Left Blank]
5
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed or caused
this Agreement to be executed by its duly authorized representative on the day
and year first above written.
257 OXON, LLC
By: Constellation Properties, Inc., General
Partner
By:____________________________________
Dan R. Skowronski, Secretary
CORPORATE OFFICE PROPERTIES, L.P.
By: Corporate Office Properties Trust,
Its sole general partner
By:____________________________________
Clay W. Hamlin, III
President and Chief Executive Officer
6
<PAGE>
EXHIBIT "A"
Description of the Property
---------------------------
Unit 2 and Unit 7 in the Constellation Centre Condominium, as shown on the plat
entitled "Amended Plat of Constellation Centre Condominium, 12th Election
District, Prince George's County, Maryland", prepared by Greenman-Pedersen Inc.
and recorded among the Land Records of Prince George's County in Plat Book V.J.
174, Plat No. 5.
<PAGE>
Exhibit 99.2
Corporate Office Properties Trust
One Logan Square, Suite 1105
Philadelphia, Pennsylvania 19103
FOR IMMEDIATE RELEASE
At Corporate Office Properties
Janet M. Point
Vice President, Investor Relations
(215) 567-1800
For Immediate Release
JULY 22, 1998
CORPORATE OFFICE PROPERTIES SETS DATE FOR
SPECIAL MEETING TO CONSIDER CONSTELLATION TRANSACTION
Corporate Office Properties' Portfolio to Increase by
60% -- The Combined Company to be
One of the Largest Commercial Real Estate Operators in the Mid-Atlantic Region
Philadelphia, PA, July 22, 1998 - Corporate Office Properties Trust (NYSE: OFC)
announced today that a Special Meeting of Shareholders has been set for Friday,
August 21, 1998. The Meeting will be held at 2:30 p.m. in the Adams Room of the
Four Seasons Hotel, One Logan Square, Philadelphia, Pennsylvania. At this
Meeting, shareholders will be asked to consider and vote to approve a
transaction pursuant to which affiliates of Constellation Real Estate Group,
Inc. (collectively "Constellation") will contribute certain real property and
other assets to Corporate Office Properties (the "Company") in exchange for
Company shares, cash and assumption of debt (the "Transaction"). The close of
business July 20, 1998 has been set as the record date for shareholders entitled
to vote at the meeting.
On May 15, 1998 the Company and Constellation announced the signing of a
definitive agreement. Constellation is part of Constellation Enterprises, Inc.
which is a wholly-owned subsidiary of Baltimore Gas and Electric Company (NYSE:
BGE). The Company believes that the Transaction will significantly expand the
Company's management, property, tenant and capital base. In addition, the
Constellation management team will add property development and third party
property management functions that the Company believes will enhance its
resources and long-term performance.
Upon completion, the Company's portfolio will increase by 60% to 49 properties
primarily located in Pennsylvania, New Jersey, Maryland and suburban Washington,
D.C. -- totaling 4.8 million square feet of leaseable space. The transaction
will expand the
<PAGE>
Company's organization by approximately 37 professionals and support staff.
Randall M. Griffin, 53, currently President of Constellation, will assume the
role of President and Chief Operating Officer reporting to Clay W. Hamlin, III,
Corporate Office Properties' Chief Executive Officer.
The Company will also acquire Constellation's 75% ownership of Constellation
Realty Management, LLC ("CRM"), Baltimore's largest commercial property/asset
management organization. CRM provides property and asset management services to
major institutional real estate investors and provides corporate facility
services to major owner occupied corporate properties. With a staff of
approximately 66, CRM currently manages a 146-building, 14.8 million square foot
portfolio with offices in the Baltimore, Northern Virginia and Philadelphia
areas.
Clay W. Hamlin, III, President and Chief Executive Officer of the Company
commented, "Combining the talents and resources of our two organizations creates
a new dynamic force in the Mid-Atlantic real estate market. With 17 million
square feet under management and a large development pipeline, we expect to
achieve a dominant position in the Baltimore/Washington corridor suburban office
market."
Highlights:
- Under terms of the agreement, the Company will pay consideration valued at
up to approximately $204.6 million comprised of $107.6 million in either
cash or debt assumption and the remainder in Company securities comprised
of approximately 6,928,000 Common Shares and approximately 969,900 Series A
Convertible Preferred Shares.
- Constellation will contribute up to 18 properties totaling 1.4 million
square feet of office properties (including two properties totaling 196,000
square feet under construction) and approximately 400,000 square feet of
retail properties.
- The Company will receive certain options and first refusal rights to
acquire 91 acres of identified properties at any time over the next two to
five years. The acreage, contiguous to the Constellation office properties
being acquired, will permit approximately 1.7 million square feet of office
development to be built.
- Constellation will become the Company's single largest shareholder, with a
41.5% common stock ownership interest.
- Upon completion of the combination, Constellation will gain two seats on
the Company's nine member board, which will be held by Edward A. Crooke,
59, Chairman of Constellation Enterprises, Inc., and Vice Chairman
of BGE, and Steven D. Kesler, 46, President of Constellation Investments,
Inc. and Vice President of Constellation Real Estate Group, Inc..
"Constellation looks forward to sharing in the growth of Corporate Office
Properties," added Ed Crooke, Chairman of Constellation Enterprises, Inc. and
Vice Chairman of BGE.
<PAGE>
Corporate Office Properties Trust is a real estate investment trust which
focuses on the ownership, acquisition, development and management of suburban
office properties in high-growth submarkets in the United States.
To receive Corporate Office Properties' latest news release and other corporate
documents via FAX at no cost dial 1-800-PRO-INFO. Use the Company's ticker, OFC.
This press release contains forward-looking information based upon the Company's
current best judgement and expectations. Actual results could vary materially
from those presented herein. The risks and uncertainties associated with the
forward-looking information include the strength of the commercial office real
estate markets in which the Company operates competitive market conditions,
general economic growth, interest rates, capital market conditions, and the
ability of the Company to access funding sources. For further information,
please refer to the Company's filings with the Securities and Exchange
Commission.
<PAGE>
Exhibit 99.3
SHAREHOLDERS OF CORPORATE OFFICE PROPERTIES TRUST
APPROVE CONSTELLATION TRANSACTION
Combined Company to be one of the Largest Commercial Real Estate Operators
in the Mid-Atlantic Region
PHILADELPHIA, PA, August 21, 1998 -- The shareholders of Corporate Office
Properties Trust (NYSE: OFC) in a Special Meeting today voted overwhelmingly to
approve a transaction with affiliates of Constellation Real Estate Group, Inc.
(collectively "Constellation"). In this transaction Constellation will
contribute certain real property and other assets to Corporate Office Properties
(the "Company") in exchange for Company common shares, cumulative preferred
stock, cash and assumption of debt (the "Transaction"). Approximately 99 percent
of the proxies cast voted to approve the Transaction. The Company expects that
the Transaction will close in the next six weeks. Constellation is part of
Constellation Enterprises, Inc., which is a wholly-owned subsidiary of Baltimore
Gas and Electric Company (NYSE: BGE).
On May 15, 1998 the Company and Constellation announced the signing of a
definitive agreement. The Company believes that the Transaction will be
immediately accretive to earnings and will significantly expand the Company's
management, property, tenant and capital base. In addition, the Constellation
management team will add property development and third party property
management functions that the Company believes will enhance its resources and
long-term performance.
Upon completion, the Company's portfolio will increase by 60% to 49 properties
primarily located in Pennsylvania, New Jersey, Maryland and suburban Washington,
D.C. -- totaling 4.8 million square feet of leaseable space. The transaction
will expand the Company's organization by approximately 37 professionals and
support staff. Randall M. Griffin, 53, currently President of Constellation,
will assume the role of President and Chief Operating Officer reporting to Clay
W. Hamlin, III, Corporate Office Properties' Chief Executive Officer.
<PAGE>
The Company will also acquire Constellation's 75% ownership of Constellation
Realty Management, LLC ("CRM"), Baltimore's largest commercial property/asset
management organization. CRM provides property and asset management services to
major institutional real estate investors and corporate facility services in the
area extending from Virginia to New Jersey. With a staff of approximately 72,
CRM currently manages a 153-building, 16.2 million square foot portfolio with
offices in the Baltimore, Northern Virginia, New Jersey and Philadelphia areas.
"This transaction represents a defining event for our Company. I am pleased to
welcome BGE/Constellation as a major investor in Corporate Office Properties and
its representatives to our Board," commented Clay W. Hamlin, III, President and
Chief Executive Officer of the Company. "We will now be a Company managing about
20 million square feet of institutional quality properties in the Mid-Atlantic.
We gain the addition of Constellation's acquisition and development pipeline. We
will become the largest owner and developer of suburban office properties in the
northern Baltimore/Washington corridor, with a focus in the area's best suburban
office submarkets. The transitioning and merging of our two organizations is
almost complete. Upon closing we will have the systems and a seasoned management
team in place necessary to achieve our growth objectives."
Highlights:
Under terms of the agreement, the Company will pay consideration valued at
up to approximately $204.6 million comprised of $107.6 million in either
cash or debt assumption and the remainder in Company securities comprised
of approximately 6,928,000 Common Shares and approximately 969,900 Series A
Convertible Preferred Shares.
Constellation will contribute up to 18 properties totaling 1.4 million
square feet of office properties (including two properties totaling 196,000
square feet under construction) and approximately 400,000 square feet of
retail properties.
The Company will receive certain options and first refusal rights to
acquire 91 acres of identified properties at any time over the next two to
five years. The acreage, contiguous to the Constellation office properties
being acquired, will permit approximately 1.7 million square feet of
additional office development to be built.
Constellation will become the Company's single largest shareholder, with a
41.5% common stock ownership interest.
Upon completion of the combination, Constellation will gain two seats on the
Company's nine member board, which will be held by Edward A. Crooke, 59,
Chairman of Constellation Enterprises, Inc., and Vice Chairman of BGE, and
Steven D. Kesler, 46, President of Constellation Investments, Inc. and Vice
President of Constellation Real Estate Group, Inc.
"Constellation looks forward to sharing in the growth of Corporate Office
Properties," added Ed Crooke, Chairman of Constellation Enterprises, Inc. and
Vice Chairman of BGE.
Company Information
Corporate Office Properties Trust is a real estate investment trust which
focuses on the ownership, acquisition, development and management of suburban
office properties in high-growth submarkets in the United States. As of June 30,
1998 the Company owned 31 properties totaling 2.9 million square feet.
Forward-looking Information
This press release contains forward-looking information based upon the Company's
current best judgment and expectations. Actual results could vary from those
presented herein. The risks and uncertainties associated with the
forward-looking information include the strength of the commercial office real
estate market in which the Company operates, competitive market conditions,
general economic growth, interest rates and capital market conditions. For
further information, please refer to the Company's filings with the Securities
and Exchange Commission.
<PAGE>
Exhibit 99.4
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
CORPORATE OFFICE PROPERTIES TRUST
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
-----------------------------------------------------------------------
(4) Date Filed:
-----------------------------------------------------------------------
<PAGE>
[LOGO]
July 22, 1998
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders (the
"Special Meeting") of Corporate Office Properties Trust (the "Company") to be
held on August 21, 1998, at 2:30 p.m. in The Adams Room at The Four Seasons
Hotel, One Logan Square, Philadelphia, Pennsylvania 19103.
At the Special Meeting, you will be asked to consider and vote to approve a
transaction (the "Transaction") pursuant to which certain affiliates of
Constellation Real Estate Group, Inc. (collectively, "Constellation") will
contribute certain real property, interests in entities which own certain real
property and a mortgage, and certain other assets to the Company in exchange for
cash, the assumption of certain debt, and Common Shares of Beneficial Interest
and non-voting Series A Convertible Preferred Shares of Beneficial Interest to
be issued by the Company. The Transaction is more fully described in the
accompanying Proxy Statement.
The scale of the Transaction will significantly expand the Company's
management, property, tenant and capital base. In addition, the Constellation
management team will add property development and third party property
management functions that management believes will enhance the Company's
resources and long term performance. As a result, the Board of Trustees believes
the Transaction will create shareholder value; and therefore it is in the
economic interest of all shareholders to approve the Transaction.
We urge you to review and consider carefully the accompanying Notice of
Special Meeting of Shareholders and Proxy Statement, which contain information
about the Transaction to be voted upon and certain other matters. The Board of
Trustees has unanimously approved, and recommends a vote FOR the Transaction.
The approval of the Transaction requires the affirmative vote of a majority
of the votes cast at the Special Meeting. Your vote is important to the Company.
Please complete, date and sign the enclosed proxy card and return it in the
accompanying postage-paid envelope. You are, of course, welcome to attend the
Special Meeting and vote in person, even if you have previously returned your
proxy card. Regardless of your attendance, you may revoke your proxy at any time
before it is exercised.
Thank you for your consideration of this important matter.
Sincerely,
/s/ Jay H. Shidler /s/ Clay W. Hamlin, III
Jay H. Shidler Clay W. Hamlin, III
Chairman of the Board Chief Executive Officer
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST
ONE LOGAN SQUARE, SUITE 1105
PHILADELPHIA, PENNSYLVANIA 19103
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 21, 1998
Notice is hereby given that a Special Meeting of Shareholders (the "Special
Meeting") of Corporate Office Properties Trust (the "Company") will be held on
August 21, 1998, at 2:30 p.m. in The Adams Room at The Four Seasons Hotel, One
Logan Square, Philadelphia, Pennsylvania 19103, to consider and vote upon the
following matters more fully described in the accompanying Proxy Statement:
1. A proposal to approve a transaction evidenced by various agreements by and
among the Company, Corporate Office Properties, L.P. and certain
partnerships and other entities affiliated with Constellation Real Estate
Group, Inc. (collectively, "Constellation"), pursuant to which Constellation
will contribute interests in entities which own certain real property and a
mortgage, certain real property owned by Constellation, and certain other
assets owned by Constellation to the Company in exchange for a combination
of cash, the assumption of debt by the Company, and Common Shares and non-
voting Series A Convertible Preferred Shares of Beneficial Interest to be
issued by the Company; and
2. Such other business as may properly be brought before the Special Meeting or
any adjournment or postponement thereof.
The Board of Trustees has fixed the close of business on July 20, 1998 as
the record date for the determination of shareholders entitled to notice of and
to vote at the Special Meeting and any adjournment or postponement thereof. A
list of such shareholders will be available for inspection at the offices of the
Company, at One Logan Square, Suite 1105, Philadelphia, Pennsylvania 19103, at
least ten days prior to the Special Meeting.
By order of the Board of Trustees,
/s/ John D. Parsinen
John D. Parsinen
Secretary
July 22, 1998
Philadelphia, Pennsylvania
THE BOARD OF TRUSTEES APPRECIATES AND ENCOURAGES YOUR PARTICIPATION IN THE
COMPANY'S SPECIAL MEETING. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL
MEETING, IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED. ACCORDINGLY, PLEASE
SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE POSTAGE-PAID ENVELOPE
PROVIDED. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY WITHDRAW YOUR PROXY, IF YOU
WISH, AND VOTE IN PERSON. YOUR PROXY IS REVOCABLE IN ACCORDANCE WITH THE
PROCEDURES SET FORTH IN THE PROXY STATEMENT.
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 21, 1998
PROXY STATEMENT
This Proxy Statement (the "Proxy Statement") is being furnished to holders
of Common Shares of Beneficial Interest, par value $0.01 per share, (the "Common
Shares") of Corporate Office Properties Trust, a Maryland real estate investment
trust (the "Company"), in connection with a special meeting of shareholders of
the Company (the "Special Meeting") and the solicitation of proxies in
connection therewith. The approximate date on which this Proxy Statement and
form of proxy solicited on behalf of the Board of Trustees will first be sent to
the Company's shareholders is on or about July 22, 1998. At the Special Meeting,
shareholders will be asked to consider and vote upon: (A) a transaction (the
"Transaction") in which certain affiliates of Constellation Real Estate Group,
Inc. (collectively, "Constellation") will contribute to the Company (i)
Constellation's interests in entities which own certain real property and a
mortgage, (ii) certain real property, and (iii) certain other assets owned by
Constellation, in exchange for a combination of cash, assumption of debt, and
Common Shares and non-voting Series A Convertible Preferred Shares of Beneficial
Interest to be issued by the Company; and (B) such other business as may
properly come before the Special Meeting or any adjournment thereof.
Constellation is an indirect wholly-owned subsidiary of Baltimore Gas and
Electric Company.
The close of business on July 20, 1998 has been fixed by the Board of
Trustees as the record date for the determination of shareholders entitled to
notice of and to vote at the Special Meeting and any adjournments or
postponements thereof (the "Record Date"). On the Record Date, the Company had
outstanding 9,771,083 Common Shares. The Common Shares is the Company's only
class of voting securities and each Common Share entitles the holder thereof to
one vote on all matters to come before the meeting. Approval of the Transaction
requires the affirmative vote of a majority of the votes cast at the Special
Meeting, assuming a quorum is present. There is no cumulative voting.
All of the shareholders represented at the Special Meeting by properly
executed proxies received prior to or at the Special Meeting, and not revoked,
will be voted at the Special Meeting in accordance with the instructions
thereon. If no instructions are indicated, proxies will be voted in favor of the
Transaction. Abstentions will have the effect of a vote against the Transaction.
The Company does not know of any matters, other than as described in the
Notice of Meeting, which are to come before the Special Meeting. If any other
matters are properly presented at the Special Meeting for action, the persons
named in the enclosed form of proxy and acting thereunder will have the
discretion to vote on such matters in accordance with their best judgment.
A proxy given pursuant to this solicitation may be revoked at any time
before it is voted. Proxies may be revoked (i) by filing with the Board of
Trustees of the Company at or before the Special Meeting a written notice of
revocation bearing a later date than the proxy, (ii) by duly executing a
subsequent proxy relating to the same Common Shares and delivering it to the
Board of Trustees of the Company at or before the Special Meeting or (iii) by
attending the Special Meeting and voting in person (attendance at the Special
Meeting will not in and of itself constitute revocation of a proxy). Any written
notice revoking a proxy should be delivered to the Board of Trustees, Corporate
Office Properties Trust, One Logan Square, Suite 1105, Philadelphia,
Pennsylvania 19103.
Votes cast by proxy or in person at the Special Meeting will be tabulated by
the election inspector appointed for the meeting. The election inspector will
treat abstentions as shares that are present and entitled to vote for purposes
of determining the presence of a quorum, but as unvoted for purposes of
determining the approval of any matter upon which the shareholder has abstained.
If a broker indicates on the proxy that it does not have discretionary authority
as to certain shares to vote on a particular matter, those shares will not be
considered as present and entitled to vote with respect to that matter.
i
<PAGE>
If the Special Meeting is postponed or adjourned for any reason, at any
subsequent reconvening of the Special Meeting all proxies will be voted in the
same manner as such proxies would have been voted at the original convening of
the Special Meeting (except for any proxies that have theretofore effectively
been revoked or withdrawn).
The cost of preparing, assembling and mailing the Notice of Special Meeting,
this Proxy Statement and the form of proxy, including the reimbursement of
banks, brokers and other nominees for forwarding proxy materials to beneficial
owners, will be borne by the Company. Proxies may also be solicited personally
or by telephone by Trustees and officers of the Company, who will receive no
additional compensation.
The Company's Common Shares are listed for trading on the New York Stock
Exchange ("NYSE") under the symbol OFC. On July 17, 1998, the last sale price
for the Company's Common Shares as reported on the NYSE was $9 3/4 per share.
The high and low sales price for the Company's Common Shares as reported on the
NYSE on May 14, 1998, the date preceding the public announcement of the
Transaction, was $10 15/16 and $10 1/2, respectively.
No persons have been authorized to give any information or to make any
representation other than those contained in this Proxy Statement in connection
with the solicitation of proxies hereby and, if given or made, such information
or representation must not be relied upon as having been authorized by the
Company or any other person.
This Proxy Statement is solicited on behalf of the Board of Trustees of the
Company. The date of this Proxy Statement is July 22, 1998.
ii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
SUMMARY................................................................................................... 1
THE SPECIAL MEETING....................................................................................... 7
Record Date; Voting At The Meeting...................................................................... 7
Proxies................................................................................................. 7
THE TRANSACTION........................................................................................... 8
Reasons For The Transaction And Recommendation Of The Board Of Trustees................................. 8
Terms Of The Transaction................................................................................ 8
Properties and Assets to be Contributed by Constellation.............................................. 9
Consideration to be Paid by the Company............................................................... 10
Description of Common and Preferred Shares............................................................ 11
Conditions to the Transaction......................................................................... 12
Registration Rights................................................................................... 13
Transaction Costs..................................................................................... 13
Changes In Operations And Additions To Management....................................................... 14
Certain Effects Of The Transaction...................................................................... 15
Share Ownership....................................................................................... 15
Major Tenants......................................................................................... 16
Financing of Transaction.............................................................................. 16
Other................................................................................................. 17
Accounting Treatment Of The Transaction................................................................. 17
Federal Income Tax Matters.............................................................................. 17
Treatment of the Transaction.......................................................................... 17
Taxation of the Company............................................................................... 18
REIT Qualification Requirements....................................................................... 18
THE COMPANY............................................................................................... 23
General................................................................................................. 23
Recent Developments..................................................................................... 23
CAPITALIZATION............................................................................................ 25
THE CONSTELLATION PROPERTIES AND CONSTELLATION SERVICE COMPANIES.......................................... 26
The Constellation Properties............................................................................ 26
The Constellation Service Companies..................................................................... 39
Legal Proceedings Related To Constellation.............................................................. 40
SELECTED FINANCIAL DATA OF CONSTELLATION SERVICE COMPANIES................................................ 41
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSTELLATION SERVICE COMPANIES' FINANCIAL CONDITION AND RESULTS
OF OPERATIONS........................................................................................... 42
SELECTED FINANCIAL DATA OF THE COMPANY.................................................................... 45
MANAGEMENT................................................................................................ 48
Executive Officers And Trustees......................................................................... 48
Certain Information Regarding The Board Of Trustees And Committees...................................... 50
SECURITY OWNERSHIP OF MANAGEMENT AND OTHERS............................................................... 51
INDEPENDENT ACCOUNTANTS................................................................................... 51
OTHER MATTERS............................................................................................. 52
EXPERTS................................................................................................... 52
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................................................... 52
INDEX TO FINANCIAL STATEMENTS............................................................................. F-1
</TABLE>
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS CONTAINED ELSEWHERE IN THIS PROXY STATEMENT
AND INCORPORATED BY REFERENCE. 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 ("COPLP" OR THE "OPERATING PARTNERSHIP") AND ITS SUBSIDIARIES. THE
ACTUAL AMOUNTS OF CASH TO BE PAID, DEBT TO BE ASSUMED OR REPAID AND COMMON AND
PREFERRED SHARES TO BE ISSUED BY THE COMPANY CANNOT BE DETERMINED UNTIL CLOSING,
AS THEY WILL BE A FUNCTION OF CERTAIN CALCULATIONS AND ADJUSTMENTS TO BE MADE AT
THAT TIME. ACCORDINGLY, SUCH AMOUNTS INCLUDED IN THIS PROXY STATEMENT ARE
ESTIMATES, NOT EXPECTED TO VARY MATERIALLY FROM THE ACTUAL AMOUNTS.
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THE COMPANY..................... The Company is a self-administered real estate investment
trust ("REIT") which focuses principally on the ownership,
acquisition and management of suburban office properties
in strong and growing suburban 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 and seven retail properties located in the
Midwest containing approximately 370,000 rentable square
feet. As of June 1, 1998, the properties owned by the
Company were over 97% leased. In addition, the Company has
options to purchase 44.3 acres of land contiguous to
certain of its properties owned by related parties. See
"The Company."
CONSTELLATION................... Constellation Real Estate Group, Inc. (together with its
affiliates that will be party to the Transaction,
"Constellation") is a wholly owned indirect subsidiary of
Baltimore Gas and Electric Company ("BGE"), through which
BGE has engaged in the acquisition, ownership,
development, construction and management of office, retail
and other commercial properties since 1981. The Company is
acquiring from Constellation title to, or ownership of
entities that own title to, all the office and retail
operating properties owned by Constellation, and options
to purchase 91 acres of land held by Constellation for
future office and retail development. The Company is also
acquiring Constellation's 75% interest in Constellation
Realty Management, LLC ("CRM"), a real estate management
services entity, and will employ the approximately 37
employees of Constellation Real Estate, Inc. ("CRE") who
are engaged in the development, construction and asset
management of Constellation's operating properties.
Constellation will continue to be actively engaged in the
real estate business, as it is retaining substantially all
its interests in its commercial and residential land and
will continue to employ its personnel engaged in the
development and management of those properties. See
"Constellation."
DATE, PLACE & TIME OF MEETING... The Special Meeting of Shareholders of the Company is
scheduled to be held in The Adams Room at The Four Seasons
Hotel, One Logan Square, Philadelphia, Pennsylvania 19103
on August 21, 1998 at 2:30 p.m.
PURPOSE OF MEETING.............. To consider and vote upon: (i) a transaction, pursuant to
which Constellation will contribute to the Company certain
real property,
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its interests in entities which own certain real property
and a mortgage, and certain other assets owned by
Constellation in exchange for a combination of cash,
assumption of debt by the Company, and Common Shares and
non-voting Series A Convertible Preferred Shares of
Beneficial Interest to be issued by the Company (the
"Transaction"); and (ii) such other business as may
properly come before the Special Meeting.
RECORD DATE, QUORUM AND VOTE
REQUIRED...................... Approval of the Transaction requires the affirmative vote
of a majority of the votes cast at the Special Meeting,
assuming a quorum is present. A majority of the Common
Shares outstanding, represented in person or by proxy,
will constitute a quorum for the transaction of business
at the Special Meeting. The Record Date for the Special
Meeting is July 20, 1998. See "The Special Meeting--Record
Date; Voting at the Meeting."
SOLICITATION AND REVOCATION OF
PROXIES....................... All expenses of the solicitation of the shareholders of
the Company in connection with this Proxy Statement will
be borne by the Company. Any proxy given pursuant to this
solicitation may be revoked at any time prior to its
exercise by the execution of a proxy signed at a later
date or by the giving of written notice of revocation to
the Secretary of the Company at any time before the taking
of the vote at the Special Meeting. A shareholder may also
revoke a proxy by attending the Special Meeting and voting
in person. See "The Special Meeting--Proxies."
ASSETS TO BE CONTRIBUTED TO THE
COMPANY BY CONSTELLATION...... Constellation will contribute to the Company: (i) title
to, or 100% of the ownership interests in, entities which
own a total of 14 office properties and two retail
properties; (ii) controlling interests in two entities,
one of which holds a mortgage on a retail property, the
other of which owns a retail property under development;
(iii) a 75% ownership interest in CRM, a real estate
management company (the 25% minority interest is owned by
an unaffiliated third party), and (iv) certain equipment,
office furniture and other assets related to CRE. In
addition, approximately 37 employees of CRE will become
Company employees. See "The Transaction-- Terms of the
Transaction." The real property, mortgage interest and
interests in entities owning real property being
contributed by Constellation are referred to herein
collectively as the "Constellation Properties," and the
75% interest in CRM and the furniture and other CRE assets
to be contributed to the Company by Constellation are
referred to herein as the "Constellation Service
Companies."
Upon completion of the Transaction, the Company will own
interests in a total of 38 suburban office properties (as
compared to 24 currently), containing approximately 4.0
million rentable square feet (as compared to 2.6 million
currently), and 11 retail properties (as compared to seven
currently) containing 783,000 rentable square feet (as
compared to 370,000 square feet currently). The
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Company will have approximately 49 full time employees (as
compared to 12 currently).
Constellation is also granting to the Company options to
purchase up to 91 acres of land zoned for office
development, and an option to purchase a 50% interest in a
206,000 square foot office property.
CONSIDERATION TO BE EXCHANGED
WITH CONSTELLATION BY THE
COMPANY....................... In exchange for the Constellation Properties and
Constellation Service Companies, the Company will (i)
issue to Constellation an aggregate of approximately
6,928,000 Common Shares; (ii) issue to Constellation an
aggregate of approximately 969,900 non-voting Series A
Convertible Preferred Shares of Beneficial Interest, $0.01
par value, with a liquidation preference of $25.00 per
share ("Preferred Shares"); and (iii) pay cash to
Constellation and assume or repay indebtedness outstanding
against the Constellation Properties. Such cash payments
and indebtedness are estimated to total $107.6 million,
including $4.2 million of cash payments to Constellation,
$64.8 million of debt repayment and $13.0 million of
assumed indebtedness. The $25.6 million balance of the
foregoing $107.6 million cash requirement reflects the
purchase price to be paid to Constellation for two retail
properties (the "Development Properties"). The Company's
obligation to close on each of the Development Properties
is contingent on the occurrence of certain events. For
purposes of the Transaction, the Common Shares are valued
at $10.50 per share and the Preferred Shares are valued at
$25.00 per share, for a total of approximately $97.0
million. The Preferred Shares are convertible, beginning
two years after the closing of the Transaction, at the
rate of 1.8748 Common Shares for each Preferred Share into
an aggregate of approximately 1,818,300 Common Shares. See
"The Transaction-- Terms of the Transaction." Common
Shares and Preferred Shares are collectively referred to
herein as the "Shares."
CLOSING OF THE TRANSACTION...... The Transaction will be consummated at several closings,
each comprising a closing with respect to one or more of
the Constellation Properties and Constellation Service
Companies, as follows. At the initial closing (expected to
occur no sooner than September 14, 1998 or later than 45
days following the date of the Special Meeting), the
Company will acquire the Constellation Service Companies
and 12 of the Constellation Properties. The total
consideration payable at the initial closing will be
approximately $145.0 million, including approximately
$59.9 million of indebtedness assumed or repaid and
approximately $85.1 million in value of Common and
Preferred Shares. Subsequent closings will be held with
respect to six Constellation Properties currently under
construction or development. The closing on two of those
properties is to occur within 45 days after the initial
closing (total consideration of approximately $4.2 million
in cash); closing on two of those properties is to occur
on the earlier of December 31, 1998 or the date on which
certain occupancy levels are met (total consideration of
approximately $29.8 million, including
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approximately $17.9 million debt repayment and $11.9
million in Shares), and closing on the Development
Properties is to occur on the earlier of the date on which
certain net operating income levels are achieved or July
1, 1999 (total purchase price of approximately $25.6
million in cash). Neither the Company nor Constellation is
obligated to close on the Development Properties unless
certain minimum net operating income levels have been
achieved by July 1, 1999.
SOURCE OF FUNDS REQUIRED BY THE
COMPANY....................... To complete the Transaction, the Company will require a
total of approximately $98.7 million in cash, of which
approximately $64.8 million will be used to repay
indebtedness currently outstanding with respect to certain
Constellation Properties, approximately $4.2 million will
be the purchase price payable for two of the Constellation
Properties, approximately $25.6 million will be the
purchase price of the two Development Properties and
approximately $4.1 million will be required for brokerage
fees and other out of pocket expenses related to the
Transaction. The cash required to complete the
Transaction, not including the Development Properties, is
available from the Company's existing acquisition credit
facility; however, the Company and Constellation are
currently seeking to refinance certain of the
Constellation Properties at or prior to the closing of the
Transaction to fund a significant portion of the cash
requirements of the Transaction. The Company expects to be
able to obtain financing commitments sufficient to enable
it to close on each of the Development Properties prior to
the time any such closing may occur. See "The
Transaction--Certain Effects of the Transaction."
CHANGES IN OPERATIONS,
MANAGEMENT AND BOARD OF
TRUSTEES...................... Upon closing of the Transaction, 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 designated by Constellation. The Company's
property management, development, construction and
accounting activities will be conducted from
Constellation's offices in Columbia (one of the
Constellation Properties), Maryland, and the Company's
acquisition, capital markets and financing activities will
continue to be conducted from the Company's headquarters
in Philadelphia, Pennsylvania. See "The
Transaction--Changes in Operations and Additions to
Management."
CERTAIN EFFECTS OF THE
TRANSACTION................... As a result of the Transaction: (i) 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; (ii) Constellation will
own approximately 41.5% of the Company's Common Shares
outstanding upon closing of the Transaction, 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; and (iii) Constellation, as holder of the
Preferred
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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. Additionally, in order to fulfill its obligation
to close on 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. See
"The Transaction--Certain Effects of the Transaction."
CONDITIONS TO THE CLOSING OF THE
TRANSACTION................... Closing of the Transaction is conditioned, among other
things, upon (i) approval of the Transaction by the
Company's shareholders, (ii) the representations and
warranties of the parties contained in the agreements
related to the Transaction (the "Transaction Agreements")
being true and correct in all material respects as of the
closing of the Transaction, (iii) performance by each of
the parties of their respective obligations required to be
performed under the Transaction Agreements on or prior to
the closing of the Transaction, and (iv) receipt of the
requisite consents, opinions and approvals from certain
third parties. For a discussion of certain important
issues related, inter alia, to the Company's continued
qualification as a REIT, see "The Transaction--Conditions
to the Transaction."
FEDERAL INCOME TAX
CONSEQUENCES.................. No gain or loss will be recognized by the Company or the
holders of Common Shares upon the consummation of the
Transaction. Subsequent to the Transaction, the Company
will continue to operate as a REIT. See "The
Transaction--Federal Income Tax Matters."
SHARES OUTSTANDING AFTER
CLOSING....................... Upon closing of the Transaction, there will be
approximately 16,699,083 Common Shares outstanding. The
entities comprising Constellation, all of which are
directly or indirectly owned by BGE, will own an aggregate
of approximately 6,928,000 Common Shares, or approximately
41.5% of the Common Shares to be outstanding after the
Transaction. They will also own approximately 969,900
Preferred Shares, convertible on a basis of 1.8748 Common
Shares for each Preferred Share beginning two years
following the closing of the Transaction into a total of
approximately 1,818,300 Common Shares. The Preferred
Shares may not be converted into Common Shares if at the
time of such conversion Constellation and its affiliates
would own 45% or more of the Company's outstanding Common
Shares. See "The Transaction--Terms of the Transaction."
OWNERSHIP OF UNITS IN COPLP..... As of the date of this Proxy Statement, there are
10,399,310 Partnership Units and 1,913,545 Preferred Units
(with a preferred distribution rate of 6.5%) of COPLP
outstanding. In addition, 282,508 Partnership Units and
186,455 Preferred Units (with a preferred distribution
rate of 6.5%) are issuable in November 2000. The Company
owns 8,100,000 Partnership Units, or 75.8% of all
Partnership Units outstanding and to be issued as
aforesaid. The ownership of substantially all the
Constellation Properties and
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Constellation Service Companies will be contributed by the
Company to COPLP and its subsidiaries, in exchange for
which COPLP will issue to the Company 6,928,000
Partnership Units and 969,900 Preferred Units (with a
preferred distribution rate of 5.5%). Upon completion of
the Transaction, the Company will own 85.3% of all
Partnership Units outstanding and to be issued as
aforesaid. The Preferred Units currently held by outside
parties are convertible to Partnership Units on a basis of
3.5714 Partnership Units for each Preferred Unit beginning
October 1, 1999. The 969,900 Preferred Units to be issued
to the Company are convertible to 1,818,300 Partnership
Units on a basis of 1.8748 Partnership Units for each
Preferred Unit beginning two years after the closing of
the Transaction. The Company's Preferred Units will be so
converted automatically upon the conversion of Preferred
Shares into Common Shares--the conversion of each
Preferred Share will automatically trigger the conversion
of a Preferred Unit.
RECOMMENDATION OF THE BOARD OF
TRUSTEES...................... The Board of Trustees, including the independent Trustees,
has unanimously approved the Transaction and the terms of
the Transaction Agreements, and UNANIMOUSLY RECOMMENDS
THAT THE SHAREHOLDERS VOTE FOR APPROVAL OF THE
TRANSACTION. The Board of Trustees believes that the terms
of the Transaction are fair to, and in the best interests
of, the Company, the Operating Partnership and the
Company's shareholders. For a discussion of factors
considered by the Board of Trustees in reaching its
decision, see "The Transaction--Reasons for the
Transaction and Recommendation of the Board of Trustees."
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This Proxy Statement contains "forward-looking statements" relating to,
without limitation, future economic performance, plans and objectives of
management for future operations and projections of revenue and other financial
items. The Company's actual results may differ significantly from the results
discussed in such "forward-looking statements." Factors that could cause such
differences include, but are not limited to, continued occupancy of certain
major tenants, supply and demand of office properties in the Company's market
area, prevailing economic conditions in the Mid-Atlantic region of the United
States, significant expansion of the properties owned and managed by the
Company, interest rates, availability of capital, expansion of the Company's
personnel, future capital expenditure requirements, and distributions available
from the Operating Partnership.
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THE SPECIAL MEETING
At the Special Meeting, the Company's shareholders will be asked to: (i)
consider and vote upon the approval of the Transaction, and (ii) transact such
other business relating thereto as may properly come before the Special Meeting.
The Board of Trustees has determined the Transaction to be fair to, and in
the best interests of, the Company's shareholders, has unanimously approved the
Transaction and the terms of the Transaction Agreements, and unanimously
recommends that the shareholders vote "FOR" approval of the Transaction.
RECORD DATE; VOTING AT THE MEETING
On the Record Date, there were 9,771,083 Common Shares outstanding. Each
holder of record of Common Shares on the Record Date is entitled to cast one
vote per Common Share, exercisable in person or by a properly executed proxy,
upon each matter properly submitted for the vote of the shareholders at the
Special Meeting. A majority of the Common Shares outstanding, represented in
person or by proxy, will constitute a quorum for the transaction of business at
the Special Meeting. Abstentions will be treated as shares that are present and
entitled to vote for the purpose of determining a quorum.
The approval and adoption of the Transaction requires the affirmative vote
of a majority of the votes cast at the Special Meeting, assuming a quorum is
present.
Approval of postponement or adjournment of the Special Meeting requires the
affirmative vote of a majority of the Common Shares voting at the Special
Meeting. For purposes of satisfying this vote requirement, failure to vote or an
abstention from voting will have the effect of votes against postponement or
adjournment. If shareholders approve such an adjournment or postponement, the
Special Meeting could be postponed or adjourned in order to permit further
solicitation of proxies if there are not sufficient votes at the time of the
Special Meeting to approve the Transaction.
PROXIES
Common Shares represented by properly executed proxies received at or prior
to the Special Meeting that have not been revoked will be voted at the Special
Meeting in accordance with the instructions contained therein. Common Shares
represented by properly executed proxies for which no instruction is given will
be voted "FOR" approval of the Transaction. The Company's shareholders are
requested to complete, sign, date and promptly return the enclosed proxy card in
the postage prepaid envelope provided for this purpose to ensure that their
shares are voted. A shareholder may revoke a proxy any time before it is voted
by submitting at any time prior to the Special Meeting a later-dated proxy with
respect to the same shares, by delivering a written notice of revocation to the
Secretary of the Company at any time prior to such Special Meeting or by
attending the Special Meeting and voting in person. Mere attendance at the
Special Meeting will not in and of itself revoke a proxy.
If the Special Meeting is postponed or adjourned for any reason, including
further solicitation of proxies, at any subsequent reconvening of the Special
Meeting all proxies will be voted in the same manner as such proxies would have
been voted at the original convening of the Special Meeting (except for any
proxies that have theretofore effectively been revoked or withdrawn).
The Company has retained Corporate Investor Communications, Inc. (the
"Solicitation Agent") to solicit proxies. The Solicitation Agent may contact the
Company's shareholders. The Solicitation Agent will receive a fee of
approximately $5,500 for such services, plus reimbursement of out-of-pocket
expenses. The Trustees and officers of the Company and their affiliates may also
solicit proxies by telephone, telegram or personal contact, and such persons
will receive no additional compensation for such services. Copies of
solicitation materials will be furnished to fiduciaries, custodians and
brokerage houses for forwarding to beneficial owners of the Company shares held
in their name. The Company will bear the cost of preparing and mailing proxy
materials in connection with the Special Meeting, solicitation of proxies,
exchange fees, filing fees and printing costs in connection with this Proxy
Statement.
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THE TRANSACTION
REASONS FOR THE TRANSACTION AND RECOMMENDATION OF THE BOARD OF TRUSTEES
In reaching its conclusion, the Board of Trustees considered, without
assigning relative weight to, the following factors:
(i) The Transaction will provide the Company with additional experienced
management personnel and significant property management, development and
construction infrastructure, all of which will expand its business and
development capabilities in the Mid-Atlantic region of the United States. In
addition, the Company will have the option to acquire 91 acres, adjacent to
certain of the properties being acquired, suitable for development of office
properties.
(ii) The Transaction will increase the Company's asset and capital base
and diversify its sources of revenue. While increased profitability does not
necessarily result from increased size, the Board of Trustees believes the
Company's increased size should enhance its access to capital and reduce its
costs of capital.
(iii) The Transaction will give the Company a major presence in the
Baltimore/Washington market, enhancing the geographic diversity of the
Company's ownership interests and operations and the Company's goal of
becoming a significant participant in key markets in the Mid-Atlantic region
of the United States.
(iv) The Transaction is expected to be accretive, and therefore
economically advantageous to the Company's current shareholders.
(v) In addition to adding up to 18 properties to the Company's
portfolio, the Transaction will add more than 130 tenants to the Company's
tenant base, for a combined total of more than 215 tenants. This adds to the
diversity and stability of the Company's portfolio.
(vi) The addition of the CRE employees and CRM will make the Company one
of the largest property managers in its market area, and will increase the
square footage of the office properties managed by the Company to more than
17 million (including approximately four million square feet in properties
owned, or to be owned by the Company).
The terms of the Transaction were negotiated by the respective managements
of the Company and Constellation. The Company did not obtain independent
appraisals of the specific Constellation Properties or Constellation Service
Companies, nor did the Company obtain an independent appraisal, valuation or
fairness opinion with respect to the Transaction as a whole. Constellation did
obtain a fairness opinion from an independent party, solely for the benefit of
Constellation.
The Board of Trustees has unanimously agreed that the Transaction is in the
best interests of the shareholders of the Company, and has unanimously
recommended that the shareholders approve the Transaction.
THE BOARD OF TRUSTEES RECOMMENDS A VOTE
FOR APPROVAL OF THE TRANSACTION.
TERMS OF THE TRANSACTION
The following summary of the material provisions of the Transaction
Agreements is qualified in its entirety by reference to the Transaction
Agreements, copies of which have been filed with the Securities and Exchange
Commission as Exhibits to this Proxy Statement.
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PROPERTIES AND ASSETS TO BE CONTRIBUTED BY CONSTELLATION
Constellation will contribute to the Company:
(i) Title to one operating office property;
(ii) 100% of the ownership interests in entities which own a total of
ten operating properties (nine office properties and one retail property);
(iii) 100% of the ownership interests in entities which own two office
properties currently under construction;
(iv) 75% of the ownership interest in one entity which holds a mortgage
on a retail property owned by persons not affiliated with either the Company
or Constellation;
(v) 100% and 60%, respectively, of the ownership interests in two
entities which own two retail properties currently under development (the
"Development Properties");
(vi) Either title to, or 100% of the ownership interests in entities
which own, two office properties on which construction recently commenced;
(vii) A 75% ownership interest in CRM; and
(viii) Certain equipment, furniture and other assets related to CRE.
Items (i)-(vi) above are referred to herein as the "Constellation Properties,"
and items (vii) and (viii) are referred to herein as the "Constellation Service
Companies." The Constellation Properties comprise, in the aggregate,
approximately 1.4 million rentable square feet of office space and approximately
400,000 rentable square feet of retail space in a total of 14 office properties
and four retail properties. The terms of the mortgage referred to in (iv) above
are such that the mortgagee has virtually the same economic risks and rewards as
if it owned the land and improvements directly.
The Company will acquire from CRE the furniture, equipment, computer
software, etc. used by CRE in connection with the operation of the Constellation
Properties. In addition, those persons employed by CRE engaged in the operation
of the Constellation Properties will become Company employees. Of the 37 CRE
employees expected to join the Company, ten are currently involved in
construction, nine in finance/ accounting, four in legal, four in development,
three in information technology, two in asset management, and five in various
corporate and administrative functions. CRM is one of the largest property
management organizations in the Baltimore/Washington market. Approximately 47%
of its revenues for the year ended December 31, 1997 were derived from
Constellation Properties and other Constellation affiliates (including BGE). The
balance of its revenues for the year were derived from unaffiliated third
parties. CRM employs 66 people, 30 of whom are building engineers and
maintenance personnel, 19 are engaged in property management and support, five
are lease administrators, nine are engaged in accounting and three are involved
in corporate activities.
In addition to the foregoing, Constellation will grant the Company an option
to purchase for cash its 50% interest in a planned suburban office development
project in Annapolis, Maryland, as well as certain options and rights of first
refusal to purchase undeveloped land totaling 91 acres in three locations
adjacent to certain of the Constellation Properties with aggregate office
development potential of approximately 1.7 million square feet.
Following closing of the Transaction, a subsidiary of the Operating
Partnership will perform certain consulting and project management services for
Constellation pursuant to an agreement that calls for Constellation to pay the
Company $250,000 per month for the first three months following the closing,
$150,000 per month for the next three months, $100,000 per month for the four
months thereafter, and $50,000 per month for the eight months thereafter.
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For a more complete description of the foregoing, see "The Constellation
Properties and Constellation Service Companies."
CONSIDERATION TO BE PAID BY THE COMPANY
Pursuant to the Transaction Documents, the Company agreed to acquire the
Constellation Service Companies for Common Shares and Preferred Shares valued at
a total of $2.5 million, and the Constellation Properties for a payment of cash,
the issuance of Common Shares and Preferred Shares and the assumption of debt
valued at a total of approximately $202.1 million. The mix of cash, shares and
debt assumption cannot be determined precisely until closing on all aspects of
the Transaction have occurred. The closing on certain of the retail
Constellation Properties may be deferred until after the first quarter of 1999,
closing on the Development Properties is contingent upon the occurrence of
certain events, and it is possible that certain of the Constellation Properties
may be disposed of to third parties with the consent of both the Company and
Constellation prior to closing of the Transaction. For purposes of the
Transaction, the Company and Constellation agreed to value the Common Shares at
$10.50 per share and the Preferred Shares at $25.00 per share.
At the date of this Proxy Statement, the Company's best estimate is that in
exchange for the Constellation Properties and Constellation Service Companies,
the Company will:
(i) Pay approximately $29.8 million in cash to Constellation.
Approximately $25.6 million of this amount will be payable for the purchase
of the two Development Properties, the closings for which are not expected
to occur prior to the first quarter of 1999, and approximately $4.2 million
will be payable for two properties (134 National Business Parkway and
Woodlands Two) on which construction recently commenced, the closings for
which are expected to occur within 45 days after the initial closing of the
Transaction;
(ii) Repay a total of approximately $64.8 million of indebtedness
currently outstanding against certain of the Constellation Properties;
(iii) Assume two loans reflecting a total of approximately $13.0 million
of indebtedness outstanding against certain of the Constellation Properties.
One such obligation is approximately $9.6 million of fixed rate debt bearing
interest at 7.5% per annum. Annual principal payments for the year ended
December 31, 1998 will approximate $165,000. This debt matures in October
2020, unless the lender exercises a termination right in October 2005 and
every five years thereafter. The remaining $3.4 million of debt to be
assumed matures in September 2000 and bears interest, payable monthly, based
upon London Interbank Offered Rate (LIBOR) plus 250 basis points. LIBOR as
of June 1, 1998 was 5.69%. Scheduled annual principal payments of $82,440
are required, with the remaining balance due upon maturity in September
2000;
(iv) Issue to Constellation approximately 6,928,000 Common Shares; and
(v) Issue to Constellation approximately 969,900 Preferred Shares.
The Company has deposited with an independent Escrowee a non-transferable,
irrevocable standby letter of credit in the amount of $5 million (the "Letter of
Credit") to collateralize its obligations under the Transaction Agreements,
other than the Company's obligation to acquire the Development Properties. In
the event of a final determination that the Company has defaulted under the
terms of such Transaction Agreements, the proceeds of the Letter of Credit are
to be paid to Constellation as liquidated damages. Upon closing of the
Transaction, the Letter of Credit shall be returned to the Company.
The Transaction will be consummated at several closings, each comprising a
closing with respect to one or more of the Constellation Properties and
Constellation Service Companies, as follows. At the initial closing (expected to
occur within 30 days following the date of the Special Meeting), the Company
will
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acquire the Constellation Service Companies and 12 of the Constellation
Properties. The total consideration payable at the initial closing will be
approximately $145.0 million, including approximately $59.9 million of
indebtedness assumed or repaid and approximately $85.1 million in value of
Common and Preferred Shares. Subsequent closings will be held with respect to
six Constellation Properties currently under construction or development. The
closing on two of those properties is to occur within 45 days after the initial
closing (total consideration approximately $4.2 million in cash); closing on two
of those properties is to occur on the earlier of December 31, 1998 or the date
on which certain occupancy levels are met (total consideration approximately
$29.8 million, including approximately $17.9 million debt repayment and $11.9
million in Shares), and closing on the Development Properties is to occur on the
earlier of the date on which certain net operating income levels are achieved or
July 1, 1999 (total purchase price approximately $25.6 million in cash). Neither
the Company nor Constellation is obligated to close on the Development
Properties unless certain minimum net operating income levels have been achieved
by July 1, 1999.
DESCRIPTION OF COMMON AND PREFERRED SHARES
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 1, 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 NYSE requires that the Company
obtain shareholder approval of the Transaction, since it calls for the issuance
of voting securities constituting more than 20% of the Company's outstanding
voting securities. For a discussion of certain limitations on Share ownership,
see "--Federal Tax Matters" below.
COMMON SHARES. 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.
PREFERRED SHARES. In connection with the Transaction, 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
Transaction, as follows:
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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 "The Transaction--Changes
in Operation and Additions to Management," 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 Transaction, into Common Shares on the basis of 1.8748 Common
Shares for each Preferred 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.
CONDITIONS TO THE TRANSACTION
Constellation's obligation to consummate the Transaction is subject to the
fulfillment of certain conditions (in most cases subject to waiver by
Constellation) by the Company including, but not limited to, the following: (i)
the Transaction shall have been approved by the Company shareholders; (ii) the
resolutions contemplated by the Transaction Agreements shall have been approved
and implemented by the Board of Trustees of the Company; (iii) the
representations and warranties of the Company contained in the Transaction
Agreements will be true and correct in all material respects as of the closing
of the Transaction; (iv) the Company will have performed all obligations
required to be performed by it under the Transaction Agreements on or prior to
the closing of the Transaction; (v) the Company shall not have taken any action
or have failed to take any action which would reasonably be expected to result
in the loss of its status as a REIT for federal income tax purposes; and (vi)
the Company shall have delivered, on or before the closing of the Transaction,
certain documents detailed in the Transaction Agreements.
The Company's obligation to consummate the Transaction is subject to the
fulfillment of certain conditions (in most cases subject to waiver by the
Company) by Constellation including, but not limited to, the following: (i) the
representations and warranties of Constellation contained in the Transaction
Agreements will be true and correct in all material respects as of the closing
of the Transaction; (ii) Constellation will have performed all obligations
required to be performed by it under the Transaction Agreements on or prior to
the closing of the Transaction; (iii) certain options to purchase and all rights
of first refusals and rights of first offer with respect to the Constellation
Properties which are held by unaffiliated third parties shall have been waived;
(iv) Constellation and the Company shall have received all requisite consents
and approvals from unaffiliated third parties; and (v) Constellation shall have
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delivered, on or before the closing of the Transaction, certain documents
detailed in the Transaction Agreements.
In addition, Constellation has agreed that, among other things, prior to the
consummation of the Transaction, it will (i) operate and maintain the
Constellation Service Companies and Constellation Properties in the ordinary
course of business and use reasonable efforts to preserve for the Company its
relationships with its tenants, suppliers and others having on-going business
relationships with the Constellation Service Companies and Constellation
Properties; (ii) maintain and keep in full force the insurance policies it
currently maintains on the Constellation Service Companies and Constellation
Properties; (iii) provide to the Company and its authorized representatives all
information concerning, and reasonable access to, all its books, records, tenant
and leasing data and materials, tax returns, market studies and any other
materials of any kind owned by or in the possession of Constellation which are
or may be used in the operation of the Constellation Service Companies and
Constellation Properties at all reasonable times and upon reasonable notice;
(iv) promptly notify the Company of any notice it may have received from any
Governmental Authority concerning a violation of any environmental laws or a
discharge of contaminants; (v) complete all required construction work at the
Constellation Properties; (vi) take all commercially reasonable action to obtain
the requisite consents and approvals from its partners to consummate the
Transaction; (vii) make all required payments, and comply with all other
material conditions under any mortgage affecting the Constellation Service
Companies and Constellation Properties; (viii) not modify its ownership
structure; and (ix) enter into new leases or modification of leases or new
contracts without the consent of the Company.
REGISTRATION RIGHTS
The Company has granted certain registration rights to the entities which
are contributing the Constellation Properties and Constellation Service
Companies to the Company in exchange for Common Shares and Preferred Shares.
Within six months of the initial closing the Transaction, the Company is
obligated to file a shelf registration statement with respect to the Common
Shares issued in the Transaction, as well as those issuable upon conversion of
the Preferred Shares (the "Registrable Securities"). The Company is also
required, at the demand of holders of 10% or more of the Registrable Securities,
to register such holders' Registrable Securities, subject to the right to defer
the filing of the necessary registration statement for a period not to exceed 90
days under certain limited circumstances. This right to demand registration may
be exercised not more than three times. In addition, the Company has granted to
holders of Registrable Securities certain "piggy-back" rights. The Company has
agreed to indemnify the holders of Registrable Securities against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
The Company will pay all fees associated with these registrations, other than
underwriting discounts and commissions.
TRANSACTION COSTS
Each of the Company and Constellation has agreed to pay its own costs and
expenses incidental to the Transaction, including brokerage, legal, accounting
and other fees and expenses payable to third parties. Except as set forth in the
following paragraph, all the Company's out-of-pocket expenses are payable to
unaffiliated third parties, and no current or former officer, director, trustee
or employee of the Company is entitled to receive any payment or other
consideration in connection with the Transaction.
The Company estimates its out-of-pocket expenses in connection with the
Transaction will be approximately $4.1 million, including investigation,
brokerage, legal, accounting, printing and title insurance fees. Among the fees
to be paid by the Company is a fee to Corporate Office Services, Inc. ("OSI"),
an entity of which Antony P. Bernheim is the principal employee, for
acquisition-related services with respect to the Transaction. Mr. Bernheim
resigned his position as Vice President and Chief Investment Officer of the
Company effective April 27, 1998. OSI and other third party service providers
will perform for the Company in the future those services previously performed
by Mr. Bernheim. The fee payable to
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OSI pursuant to the terms of a Consulting Services Agreement between the Company
and OSI will be approximately $745,000 in cash, and could be increased by up to
approximately $150,000 if the Company does not dispose of the retail
Constellation Properties within one year following the initial closing of the
Transaction. In addition, the Company has agreed to pay an additional fee to OSI
in an amount to be determined based principally upon the market value of the
Company's Common Shares 30 months after the closing of the Transaction.
CHANGES IN OPERATIONS AND ADDITIONS TO MANAGEMENT
Upon closing of the Transaction, the Company's Board of Trustees will be
expanded from its present composition of seven, to nine Trustees. The two new
Trustees, designated by Constellation pursuant to its right as the holder of
Preferred Shares, will be Edward A. Crooke, Chairman of Constellation
Enterprises, Inc. and Vice Chairman of BGE and Steven D. Kesler, President of
Constellation Investments, Inc. Mr. Crooke will be a Class III Trustee whose
term expires in 2001, and Mr. Kesler will be a Class II Trustee whose term
expires in 2000. If any member of the Board of Trustees designated by
Constellation shall withdraw for any reason, Constellation shall have the right
to designate such withdrawing Trustee's replacement. Thereafter, Constellation
shall be entitled to designate two Trustees as long as it owns any Preferred
Shares and at least 30% of the Company's outstanding Common Shares, and shall be
entitled to designate one Trustee as long as it owns any Preferred Shares and
less than 30% but more than 15% of the outstanding Common Shares. The foregoing
calculations are to include as outstanding the Common Shares owned by
Constellation as well as the Common Shares issuable upon conversion of Preferred
Shares owned by Constellation.
Upon closing of the Transaction, Jay H. Shidler will remain as Chairman and
Clay W. Hamlin, III will remain as Chief Executive Officer of the Company.
Randall M. Griffin, President of Constellation Real Estate Group, Inc. ("CREG"),
will become President and Chief Operating Officer of the Company. In addition,
Roger A. Waesche, Jr., Senior Vice President of Finance of CRE and John H.
Gurley, Vice President and General Counsel of CRE, as well as certain other
officers of Constellation, are expected to assume positions with the Company
similar to those held by them with Constellation.
Mr. Griffin has served as President of CREG since May 24, 1993. From 1990
through March 1993, Mr. Griffin worked as Vice President-Development for
EuroDisney Development in Paris, France. During the period 1976 to 1990, Mr.
Griffin progressed to Executive Vice President and Chief Operating Officer with
Linclay Corporation, a St. Louis based real estate development, management and
investment company. Mr. Griffin holds a Master of Business Administration from
Harvard Graduate School of Business Administration and a Bachelor of Arts from
Ohio Wesleyan University. Mr. Griffin remains active in several civic
organizations, including serving on the Board of Trustees of The National
Aquarium as its Vice Chairman and Columbia Festival of the Arts. He is a member
of the Maryland Economic Development Commission, and serves on its Executive
Committee. In addition, Mr. Griffin obtained the rank of 1st Lieutenant Infantry
in the United States Army during his service from 1966 through 1969.
Edward A. Crooke is currently Vice Chairman of BGE. Prior to May 1998, he
held the position of President and Chief Operating Officer of BGE from 1992 to
1998. Mr. Crooke presently serves as Chairman of the Board, President and Chief
Executive Officer of Constellation Enterprises, Inc., a wholly owned direct
subsidiary of BGE. Throughout his thirty-year career with BGE, Mr. Crooke
advanced through the utility from Vice-President-Finance & Accounting and
Secretary during the period 1978 through 1987 to President-Utility Operations
from 1988 to 1992. Mr. Crooke is a member of BGE's Board of Directors, a role he
has performed since 1988. Active in various civic and professional
organizations, Mr. Crooke serves as a director on First Maryland Bancorp, First
National Bank of Maryland, Goucher College and Baltimore Equitable Insurance.
Mr. Crooke possesses a Master of Business Administration in Finance from Loyola
College and a Bachelor's degree in Economics from the University of Maryland.
Prior to his employment with BGE, Mr. Crooke participated in the United States
Army Reserve from 1954 through 1964.
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Steven D. Kesler is the Chief Executive Officer and President of
Constellation Investments, Inc., and a Vice President of CREG, both wholly owned
indirect subsidiaries of BGE. In these roles, Mr. Kesler manages a corporate
investment entity, BGE's pension plan, BGE's nuclear decommissioning trust and a
portfolio of real estate assets. Mr. Kesler is currently a Director of publicly
traded insurance company and had previously served on the Board of another
insurance company. During his thirteen years with Constellation, Mr. Kesler had
also served as Treasurer and Assistant Secretary of Constellation Holdings,
Inc., the wholly owned indirect subsidiary of BGE. Prior to employment with
Constellation, Mr. Kesler was Controller of Westinghouse-Hittman Nuclear, Inc.
and Manager of budgets, planning and analysis with Maryland National
Corporation. Mr. Kesler participates in several civic and professional
organizations. He possesses a Master of Business Administration from the Wharton
Graduate School, University of Pennsylvania, a Bachelor of Science from New York
University and is a Certified Public Accountant in Maryland.
Roger A. Waesche, Jr. has been responsible for all financial operations of
CRE including treasury, accounting, budgeting and financial planning. Mr.
Waesche also has had primary responsibility for CRE's asset investment and
disposition activities. Since 1984, Mr. Waesche has managed the financial
relationships of the CRE and has sourced over $500 million of project debt.
Prior to joining CRE, Mr. Waesche was a practicing Certified Public Accountant
with Coopers & Lybrand L.L.P. Mr. Waesche has an undergraduate degree in
Accounting and a Master of Business Administration in Finance from Loyola
College.
John H. Gurley has served as Vice President and General Counsel of CRE with
responsibility for all legal matters. In this role, Mr. Gurley has managed lease
negotiations for more that 2.0 million square feet of office and retail space
and has handled all land purchases and sales, as well as financing and related
matters. Prior to his employment with CRE, Mr. Gurley spent 17 years with The
Rouse Company in which he worked eight years as Assistant General Counsel.
Before that he worked in a private practice for five years with Semmes, Bowen &
Semmes where he provided a broad spectrum of real estate related services to
various clients. He graduated from Georgetown University with honors and earned
his Juris Doctorate from University of Maryland School of Law also with honors.
He was an editor of the Maryland Law Review and clerked for the Chief Judge of
the Maryland Court of Appeals for one year after graduation. He participates in
the American Bar Association, the Maryland Bar Association and the Baltimore
City Bar Association.
Following closing of the Transaction, the Company's headquarters will remain
in Philadelphia, and acquisition, capital markets and financing activities will
be conducted out of the Philadelphia office. The Company will occupy a portion
of the space currently occupied by Constellation in Columbia, Maryland (in a
building which is one of the Constellation Properties), where the CRE personnel
who are to become Company employees will perform the Company's property
management, development, construction and accounting functions.
CERTAIN EFFECTS OF THE TRANSACTION
SHARE OWNERSHIP
As the holder of approximately 41.5% of the outstanding Common Shares,
Constellation will have significant influence on the Company. 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 Company's 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
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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 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.
MAJOR TENANTS
As of June 1, 1998, one major tenant accounted for approximately 23.2% of
the Company's total annualized revenue. Two major tenants accounted for
approximately 42.4% of the total annualized revenue derived from the
Constellation Properties as of June 1, 1998. One of those tenants 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. The
Department of Defense lease, which accounts for approximately 24.4% of the total
annualized revenue of the operating Constellation Properties, is for an entire
240,336 square foot building, and extends through 2007, but may be terminated by
the tenant with one year's notice and payment of a penalty. Following the
acquisition of the Constellation Properties, two major tenants will account for
approximately 32.5% of the Company's total annualized revenue as of June 1, 1998
on a pro forma basis, one of which is the federal government as described above.
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. For a tabular presentation of the Company's pro forma significant
tenants, see "The Constellation Properties and Constellation Service
Companies--The Constellation Properties."
FINANCING OF TRANSACTION
The Transaction will be consummated at several closings, as detailed
elsewhere in this Proxy Statement. 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. 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
of the date of this Proxy Statement, the Company has borrowed $23.8 million
under its recently obtained $100 million revolving credit facility. To complete
the Transaction, 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 Transaction. Although management believes appropriate financing will be
available to
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the Company to complete the Transaction, there can be no assurance that such
financing will be available on acceptable terms, if at all.
OTHER
For a discussion of certain issues regarding the qualification of the
Company as a REIT, see "The Company--Federal Income Tax Matters" below.
ACCOUNTING TREATMENT OF THE TRANSACTION
The Transaction will be accounted for as a purchase. See the Company's pro
forma financial statements included elsewhere in this Proxy Statement.
FEDERAL INCOME TAX MATTERS
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. No assurance can be given, however, that
such requirements have been or will continue to be met. The following is a
summary of certain federal income tax considerations that may be relevant to the
Company and its shareholders in connection with the Transaction, including the
continued treatment of the Company as a REIT for federal income tax purposes.
For purposes of this discussion of "FEDERAL INCOME TAX MATTERS" the term
"Company" refers only to Corporate Office Properties Trust and not to any other
affiliated entities.
The following discussion is based on the law existing and in effect on the
date hereof and the Company's qualification and taxation as a REIT will depend
on compliance with such law and with any future amendments or modifications to
such law. The qualification and taxation as a REIT will further depend upon the
ability to meet, on a continuing basis through actual operating results, the
various qualification tests imposed under the Code discussed below. No assurance
can be given that the Company will satisfy such tests on a continuing basis.
In brief, a corporation that invests primarily in real estate can, if it
meets the REIT provisions of the Code described below, claim a tax deduction for
the dividends it pays to its shareholders. Such a corporation generally is not
taxed on its "REIT taxable income" to the extent such income is currently
distributed to shareholders, thereby substantially eliminating the "double
taxation" (i.e., at both the corporate and shareholder levels) that generally
results from an investment in a corporation. However, as discussed in greater
detail below, such an entity remains subject to tax in certain circumstances
even if it qualifies as a REIT. Further, if the entity were to fail to qualify
as a REIT in any year, it would not be able to deduct any portion of the
dividends it paid to its shareholders and would be subject to full federal
income taxation on its earnings, thereby significantly reducing or eliminating
the cash available for distribution to its shareholders.
TREATMENT OF THE TRANSACTION
In general, the Transaction will be treated as a taxable purchase of assets
from Constellation, but will not cause the Company to recognize taxable gain or
loss. The Company will have an initial tax basis in the assets acquired from
Constellation equal to the sum of (i) the fair market value of the Common and
Preferred Shares issued to Constellation, (ii) the amount of any cash paid to
Constellation, and (iii) the principal amount of any indebtedness assumed by the
Company. This aggregate initial tax basis will be allocated among the assets
acquired from Constellation in accordance with their relative fair market
values, as determined by the Company. There can be no assurance that the
Internal Revenue Service (the "Service") will accept the allocation of basis
made by the Company.
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The Company will immediately contribute the assets and interests acquired
from Constellation, subject to indebtedness, to the Operating Partnership in
exchange for Partnership Units and Preferred Units equivalent to the Common and
Preferred Shares issued to Constellation. This contribution will be tax-free to
the Company, and the Company's tax basis in the assets will carry over to the
Operating Partnership.
TAXATION OF THE COMPANY
GENERAL. In any year in which the Company qualifies as a REIT, in general it
will not be subject to federal income tax on that portion of its REIT taxable
income or capital gain which is distributed to shareholders. The Company may,
however, be subject to tax at normal corporate rates upon any taxable income or
capital gains not distributed. Under recently enacted legislation, shareholders
are required to include their proportionate share of the REIT's undistributed
long-term capital gain in income but receive a credit for their share of any
taxes paid on such gain by the REIT.
Notwithstanding its qualification as a REIT, the Company also may be subject
to taxation in certain other circumstances. If the Company should fail to
satisfy either the 75% or the 95% gross income test (each as discussed below),
and nonetheless maintains its qualification as a REIT because certain other
requirements are met, it will be subject to a 100% tax on the greater of the
amount by which the Company fails either the 75% or the 95% test, multiplied by
a fraction intended to reflect the Company's profitability. The Company will
also be subject to a tax of 100% on net income from any "prohibited transaction"
(as described below), and if the Company has (i) net income from the sale or
other disposition of "foreclosure property" which is held primarily for sale to
customers in the ordinary course of business or (ii) other non-qualifying income
from foreclosure property, it will be subject to tax on such income from
foreclosure property at the highest corporate rate. In addition, if the Company
should fail to distribute during each calendar year at least the sum of (i) 85%
of its REIT ordinary income for such year, (ii) 95% of its REIT capital gain net
income for such year and (iii) any undistributed taxable income from prior
years, the Company would be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed. The Company also
may be subject to the corporate alternative minimum tax, as well as to tax in
certain situations not presently contemplated. The Company will use the calendar
year both for federal income tax purposes, as is required of a REIT, and for
financial reporting purposes.
FAILURE TO QUALIFY. If the Company fails to qualify for taxation as a REIT
in any taxable year and the relief provisions do not apply, the Company will be
subject to tax (including any applicable alternative minimum tax) on its taxable
income at regular corporate rates. Distributions to shareholders in any year in
which the Company fails to qualify as a REIT will not be deductible by the
Company, nor generally will they be required to be made under the Code. In such
event, to the extent of current and accumulated earnings and profits, all
distributions to shareholders will be taxable as ordinary income, and subject to
certain limitations in the Code, corporate distributees may be eligible for the
dividends received deduction. Unless entitled to relief under specific statutory
provisions, the Company also will be disqualified from re-electing taxation as a
REIT for the four taxable years following the year during which qualification
was lost.
REIT QUALIFICATION REQUIREMENTS
In order to qualify as a REIT, the Company must meet the following
requirements, among others:
SHARE OWNERSHIP TESTS. The Company's shares of beneficial interest (which
term, in the case of the Company, currently means the Common Shares) must be
held by a minimum of 100 persons for at least 335 days in each taxable year (or
a proportionate number of days in any short taxable year). In addition, at all
times during the second half of each taxable year, no more than 50% in value of
the outstanding shares of beneficial interest of the Company may be owned,
directly or indirectly and taking into account the effects of certain
constructive ownership rules, by five or fewer individuals, which for this
purpose includes
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certain tax-exempt entities (the "50% Limitation"). However, for purposes of
this test, any shares of beneficial interest held by a qualified domestic
pension or other retirement trust will be treated as held directly by its
beneficiaries in proportion to their actuarial interest in such trust rather
than by such trust. In addition, for purposes of the 50% Limitation, shares of
beneficial interest owned, directly or indirectly, by a corporation will be
considered as being owned proportionately by its shareholders.
In order to attempt to ensure compliance with the foregoing share ownership
tests, the Company's Declaration of Trust places certain restrictions on the
transfer of its shares of beneficial interest to prevent additional
concentration of stock ownership. Moreover, to evidence compliance with these
requirements, Treasury Regulations require the Company to maintain records which
disclose the actual ownership of its outstanding shares of beneficial interest.
In fulfilling its obligations to maintain records, the Company must and will
demand written statements each year from the record holders of designated
percentages of its shares of beneficial interest disclosing the actual owners of
such shares of beneficial interest (as prescribed by Treasury Regulations). A
list of those persons failing or refusing to comply with such demand must be
maintained as part of the Company's records. A shareholder failing or refusing
to comply with the Company's written demand must submit with his tax return a
similar statement disclosing the actual ownership of Company shares of
beneficial interest and certain other information.
As a result of the Transaction, BGE will directly or through its wholly
owned subsidiaries own approximately 41.5% of the Common Shares to be
outstanding, and will own approximately 969,900 Preferred Shares convertible,
two years after closing of the Transaction, into approximately 1,818,300 Common
Shares. Under the Company's Declaration of Trust a person is generally
prohibited from owning more than 9.8% of the aggregate outstanding Common Shares
or more than 9.8% in value of the aggregate outstanding shares of beneficial
interest unless such person makes certain representations to the Board of
Trustees and the Board of Trustees ascertains that ownership of a greater
percentage of shares will not cause the Company to violate either the 50%
Limitation or the gross income tests described below. The Board of Trustees has
exempted BGE from the 9.8% limitation set forth in the Declaration of Trust and
has determined that BGE may hold up to that number of Common Shares and
Preferred Shares to be issued in the Transaction. The Board of Trustees has
determined, based upon representations made by BGE, that this will not result in
a violation of the 50% Limitation or otherwise adversely affect the Company's
ability to qualify as a REIT for federal income tax purposes.
ASSET TESTS. At the close of each quarter of the Company's taxable year, the
Company must satisfy two tests relating to the nature of its assets (determined
in accordance with generally accepted accounting principles). First, at least
75% of the value of the Company's total assets must be represented by interests
in real property, interests in mortgages on real property, shares in other
REITs, cash, cash items, government securities and qualified temporary
investments. Second, although the remaining 25% of the Company's assets
generally may be invested without restriction, securities in this class may not
exceed (i) in the case of securities of any one non-government issuer, 5% of the
value of the Company's total assets (the "Value Test") or (ii) 10% of the
outstanding voting securities of any one such issuer (the "Voting Stock Test").
Where the Company invests in a partnership (such as the Operating Partnership),
it will be deemed to own a proportionate share of the partnership's assets, and
the partnership interest will not constitute a security for purposes of these
tests. Accordingly, the Company's investment in real properties through its
interests in the Operating Partnership (which itself holds real properties
through other partnerships) will constitute an investment in qualified assets
for purposes of the 75% asset test.
Certain of the assets to be acquired from Constellation as part of the
Transaction, such as the interest in CRM, will not constitute qualified assets
for purposes of the 75% asset test. The Company intends to transfer the interest
in CRM, as well as other management assets acquired from Constellation, to the
Operating Partnership in exchange for Partnership Units and Preferred Units. The
Operating Partnership will, in turn, transfer the interest in CRM and all or a
portion of the other management assets to a newly formed corporation to be named
Corporate Office Management, Inc. ("COMI") in exchange for indebtedness and 95%
of the capital stock to be issued by COMI. Although the Operating Partnership
will acquire
19
<PAGE>
all of the non-voting common stock to be issued by COMI, it will only acquire 1%
of the voting common stock to be issued by COMI. The Company has determined that
the acquisition of management assets from Constellation, the transfer of such
assets to COMI and the acquisition of indebtedness and common stock in COMI will
not cause the Company to violate the Voting Stock Test, the Value Test or the
75% asset test.
GROSS INCOME TESTS. There are two separate percentage tests relating to the
sources of the Company's gross income which must be satisfied for each taxable
year. For purposes of these tests, where the Company invests in a partnership,
the Company will be treated as receiving its share of the income and loss of the
partnership, and the gross income of the partnership will retain the same
character in the hands of the Company as it has in the hands of the partnership.
The two tests are described below.
THE 75% TEST. At least 75% of the Company's gross income for the taxable
year must be "qualifying income." Qualifying income generally includes: (i)
rents from real property (except as modified below); (ii) interest on
obligations secured by mortgages on, or interests in, real property; (iii) gains
from the sale or other disposition of interests in real property and real estate
mortgages, other than gain from property held primarily for sale to customers in
the ordinary course of the Company's trade or business ("dealer property"); (iv)
dividends or other distributions on shares in other REITs, as well as gain from
the sale of such shares; (v) abatements and refunds of real property taxes; (vi)
income from the operation, and gain from the sale, of property acquired at or in
lieu of a foreclosure of the mortgage secured by such property ("foreclosure
property"); and (vii) commitment fees received for agreeing to make loans
secured by mortgages on real property or to purchase or lease real property.
Rents received from a tenant will not, however, qualify as rents from real
property in satisfying the 75% gross income test (or the 95% gross income test
described below) if the Company, or an owner of 10% or more of the Company,
directly or constructively owns 10% or more of such tenant. In addition, if rent
attributable to personal property leased in connection with a lease of real
property is greater than 15% of the total rent received under the lease, then
the portion of rent attributable to such personal property will not qualify as
rents from real property. Moreover, an amount received or accrued will not
qualify as rents from real property (or as interest income) for purposes of the
75% and 95% gross income tests if it is based in whole or in part on the income
or profits of any person, although an amount received or accrued generally will
not be excluded from "rents from real property" solely by reason of being based
on a fixed percentage or percentages of receipts or sales. Finally, for rents
received to qualify as rents from real property for purposes of the 75% and 95%
gross income tests, the Company generally must not operate or manage the
property or furnish or render services to customers, other than through an
"independent contractor" from whom the Company derives no income, except that
the "independent contractor" requirement does not apply to the extent that the
services provided by the Company are "usually or customarily rendered" in
connection with the rental of space for occupancy only, and are not otherwise
considered "rendered to the occupant for his convenience." In addition, under
recently enacted legislation, beginning with its taxable year ending December
31, 1998, the Company may directly perform a DE MINIMIS amount of non-customary
services.
THE 95% TEST. In addition to deriving 75% of its gross income from the
sources listed above, at least 95% of the Trust's gross income for the taxable
year must be derived from the above-described qualifying income or from
dividends, interest, or gains from the sale or other disposition of stock or
other securities that are not dealer property. Dividends and interest on any
obligations not collateralized by an interest in real property are included for
purposes of the 95% test, but not for purposes of the 75% test. The Company
intends to monitor closely its non-qualifying income and anticipates that
non-qualifying income from its other activities will not result in the Company
failing to satisfy either the 75% or 95% gross income test.
For purposes of determining whether the Company complies with the 75% and
the 95% gross income tests, gross income does not include income from prohibited
transactions. A "prohibited transaction" is a
20
<PAGE>
sale of dealer property (excluding foreclosure property); however, a sale of
property will not be a prohibited transaction if such property is held for at
least four years and certain other requirements (relating to the number of
properties sold in a year, their tax bases and the cost of improvements made
thereto) are satisfied.
Even if the Company fails to satisfy one or both of the 75% and 95% gross
income tests for any taxable year, it may still qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions will generally be available if: (i) the Company's failure to comply
is due to reasonable cause and not to willful neglect; (ii) the Company reports
the nature and amount of each item of its income included in the tests on a
schedule attached to its tax return; and (iii) any incorrect information on this
schedule is not due to fraud with intent to evade tax. If these relief
provisions apply, however, the Company will nonetheless be subject to a 100% tax
on the greater of the amount by which it fails either the 75% or 95% gross
income test, multiplied by a fraction intended to reflect the Company's
profitability.
COMPLIANCE WITH INCOME TESTS. For the year following the closing of the
Transaction, BGE or affiliates in which BGE has a 10% or greater interest are
obligated as tenants to pay rent of approximately $1,020,000 with respect to
properties held by the Company through the Operating Partnership. Rental income
paid by such affiliates will not constitute qualifying rental income for
purposes of the 75% and 95% gross income tests. Constellation has represented to
the Company that the remainder of the rental income payable under the existing
leases on the properties it is transferring to the Company will constitute
qualifying income for purposes of the 75% and 95% gross income tests.
The Company expects, based on current rent levels, as per the Pro Forma
Schedule of Lease Expirations, that its annual gross income following the
Transaction will be at least $52,500,000. Accordingly, the Company estimates
that it can earn up to $2,625,000 of non-qualifying income per year without
violating the 95% gross income test. Aside from the rental income to be paid by
affiliates of BGE, the Company does not expect that it will earn material
amounts of non-qualifying income from either the Constellation Properties or its
existing properties. Based on the foregoing, the Company has determined that it
will continue to satisfy the 75% and 95% gross income tests following the
Transaction. The fact that affiliates of BGE will be paying substantial amounts
of non-qualifying income may, however, restrict the ability of the Company and
the Operating Partnership to acquire additional properties that generate non-
qualifying income.
As described above under "The Transaction--Terms of the Transaction,"
Constellation has agreed to pay fees to the Company (or its affiliates)
aggregating $2,000,000 for certain consulting and project management services to
be rendered over the 18 month period following closing of the Transaction.
Constellation is also selling the Company its 75% interest in CRM, a limited
liability company which earns management fees. To avoid a violation of the 95%
gross income test as a result of the fees paid by BGE or earned through CRM, the
75% interest in CRM and all or a portion of the other management assets to be
acquired from Constellation will be transferred to COMI, a new corporation to be
formed by the Operating Partnership and certain officers of the Company and
COMI. The Operating Partnership will hold indebtedness issued by COMI and 95% of
the aggregate amount of voting and non-voting common stock to be issued by COMI,
but will only hold 1% of the aggregate amount of voting common stock to be
issued by COMI. As discussed above, to satisfy the Voting Stock Test the Company
may not directly or indirectly hold 10% or more of the voting stock of COMI. In
addition to holding the 75% interest in CRM, COMI will, either directly or
through subsidiaries, provide management and development services to BGE, the
Operating Partnership and potentially unrelated parties.
The management fee income earned by COMI as a result of its ownership
interest in CRM, or as a result of management or development services performed
by COMI or its subsidiaries, will not be treated as non-qualifying income earned
by the Company for purposes of the 95% or 75% gross income tests. Any interest
or dividends paid or distributed by COMI to the Operating Partnership will be
considered as
21
<PAGE>
qualifying income for purposes of the 95% test, but will not be considered
qualifying income for purposes of the 75% gross income test. To the extent that
COMI earns net taxable income from its activities, it will be required to pay
federal and state income taxes, which will reduce the amount of dividends it is
able to pay to the Operating Partnership and its other shareholders.
The Company intends to monitor its operations in the context of these
standards so as to continue to satisfy the 75% and 95% gross income tests. The
Operating Partnership or its affiliate will provide certain services at the
properties in which the Company owns interests and possibly at any newly
acquired properties. The Company believes that for purposes of the 75% and 95%
gross income tests the services provided at such properties and any other
services and amenities provided by the Operating Partnership or its agents with
respect to such properties will be of the type usually or customarily rendered
in connection with the rental of space for occupancy only and not rendered to
the occupants of such properties. The Company intends that services that cannot
be provided directly by the Operating Partnership or other agents will be
performed by independent contractors.
ANNUAL DISTRIBUTION REQUIREMENTS. In order to qualify as a REIT, the Company
is required to distribute dividends to its shareholders each year in an amount
at least equal to (A) the sum of (i) 95% of the Company's REIT taxable income
(computed without regard to the dividends received deduction and the Company's
net capital gain) and (ii) 95% of the net income (after tax), if any, for
foreclosure property, minus (B) the sum of certain items of non-cash income.
Such distributions must be paid in the taxable year to which they relate, or in
the following taxable year if declared before the Company timely files its tax
return for such year and if paid on or before the first regular dividend payment
after the declaration. To the extent that the Company does not distribute all of
its net capital gain or distributes at least 95%, but less than 100%, of its
REIT taxable income, as adjusted, it will be subject to tax on the undistributed
amount at regular capital gain or ordinary corporate tax rates, as the case may
be.
The Company intends to make timely distributions sufficient to satisfy the
annual distribution requirements described in the first sentence of the
preceding paragraph. In this regard, the Operating Partnership Agreement
authorizes the Company in its capacity as General Partner to take such steps as
may be necessary to cause the Operating Partnership to distribute to its
partners an amount sufficient to permit the Company to meet the distribution
requirements. It is possible that the Company may not have sufficient cash or
other liquid assets to meet the 95% distribution requirement, due to timing
differences between the actual receipt of income and actual payment of expenses
on the one hand, and the inclusion of such income and deduction of such expense
in computing the Company's REIT taxable income on the other hand; or for other
reasons. The Company will monitor closely the relationship between its REIT
taxable income and cash flow and, if necessary, intends to borrow funds (or
cause the Operating Partnership or other affiliates to borrow funds) in order to
satisfy the distribution requirement. However, there can be no assurance that
such borrowing would be available at such time.
If the Company fails to meet the 95% distribution requirement as a result of
an adjustment to the Company's tax return by the Service, the Company may
retroactively cure the failure by paying a "deficiency dividend" (plus
applicable penalties and interest) within a specified period.
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<PAGE>
THE COMPANY
GENERAL
The Company is a self-administered REIT, headquartered in Philadelphia,
Pennsylvania, which focuses principally on the ownership, acquisition and
management of suburban office properties in high growth submarkets in the United
States. The Company owns interests in 24 suburban office buildings in Maryland,
Pennsylvania and New Jersey containing approximately 2.6 million rentable square
feet and seven retail properties located in the Midwest containing approximately
370,000 rentable square feet. As of June 1, 1998, the Company's properties were
over 97% leased. In addition, the Company has options to purchase 44.27 acres of
land owned by related parties contiguous to certain of the office properties.
The Company was formed in 1988 as Royale Investments, Inc. to own and
acquire net lease retail properties and subsequently became an externally
advised REIT. On October 14, 1997, the Company, as part of a series of
transactions, acquired the Mid-Atlantic suburban office operations of The
Shidler Group, a national real estate firm, relocated its headquarters from
Minneapolis to Philadelphia and became self-administered. At that time, Jay H.
Shidler became the Company's Chairman of the Board and Clay W. Hamlin, III
became the Company's President and Chief Executive Officer.
On January 1, 1998, the Company changed its name to Corporate Office
Properties Trust, Inc. On March 16, 1998, the Company was reformed as a Maryland
real estate investment trust and changed its name to Corporate Office Properties
Trust. The Company has operated and will continue to operate as a REIT under
Sections 856 through 860 of the Code. Under such provisions, the Company must
distribute at least 95% of its taxable income to its shareholders and meet
certain other asset and income tests. As a REIT, the Company generally is not
subject to federal income tax.
RECENT DEVELOPMENTS
On April 27, 1998, the Company completed a public offering which generated
$74.4 million of net proceeds from the issuance of 7,500,000 Common Shares (the
"1998 Offering"). The Company contributed all of the net proceeds to the
Operating Partnership in exchange for additional Partnership Units. These
7,500,000 additional Partnership Units increased the Company's interest in the
Operating Partnership to approximately 75.8%.
On April 30, 1998, the Company acquired nine multistory office buildings and
three office/flex buildings known as Airport Square, for approximately $72
million of the proceeds from the 1998 Offering. The properties, totaling
approximately 813,000 square feet, are located in the Baltimore/Washington
corridor in Anne Arundel County, Maryland. Acquisition of the Airport Square
properties was accounted for as a purchase. This purchase was accomplished
through a combination of (i) the purchase of the debt encumbering these
properties from the former mortgage lender, and (ii) the purchase of all the
partnership interests in the partnership that previously owned the Airport
Square properties. The Airport Square properties were 97% leased as of June 1,
1998.
On May 28, 1998, COPLP acquired two properties in Fairfield, New Jersey for
a total purchase price of $28.8 million, including the assumption of
approximately $6.47 million in existing debt collateralized by one of the
properties. The properties consist of two multistory office buildings totaling
approximately 263,000 square feet. The properties were 84% leased as of June 1,
1998.
In May 1998, the Company obtained a $100 million Senior Secured Revolving
Credit Facility (the "Revolving Credit Facility") from lenders led by Bankers
Trust Company ("BT"). BT is also the lead lender of the Company's $100 million
Senior Secured Term Credit Facility (the "Term Credit Facility") obtained in
October 1997.
The Revolving Credit Facility is a two year facility to be used to refinance
existing indebtedness, to fund acquisitions and new development projects and for
general working capital purposes, including
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<PAGE>
capital expenditures and tenant improvements. Maximum borrowings under the
Revolving Credit Facility are the lesser of $100 million or 65% of the appraised
values of the office properties in the borrowing base. COPLP is the borrower and
the Company is the guarantor of all advances under the Revolving Credit
Facility, and borrowings will be cross-collateralized with the Term Credit
Facility. The Revolving Credit Facility bears interest at LIBOR plus 175 basis
points, payable interest only on a monthly basis. A 25 basis point fee per annum
on the unused portion of the Revolving Credit Facility is payable quarterly in
arrears. As of the date of this Proxy Statement, borrowings outstanding under
the Revolving Credit Facility were approximately $23.8 million.
The Company is engaged in an active acquisition program, and is presently
identifying, negotiating and seeking to consummate acquisitions of entities,
portfolios and individual properties.
Additional information concerning the Company is included in the documents
incorporated by reference in this Proxy Statement. See "Incorporation of Certain
Documents by Reference."
24
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company on a
historical basis and a pro forma basis assuming the following as of March 31,
1998: (i) the issuance of 7.5 million Common Shares in a public offering
completed on April 27, 1998, including the application of the net proceeds
thereof, (ii) the acquisition of the Airport Square properties in Maryland,
(iii) the acquisition of two properties in Fairfield, New Jersey, (iv) the
consummation of the Company's $100 million Revolving Credit Facility, and (v)
the closing of the Transaction. For further information about each of items
(i)-(v), see "The Company-- Recent Developments." The information set forth in
the following table should be read in conjunction with the following: (i) the
consolidated financial statements of the Company and the notes thereto
incorporated by reference in this Proxy Statement, (ii) the consolidated
financial statements and the notes thereto of the Constellation Service
Companies included elsewhere in this Proxy Statement, (iii) the combined
statement of revenue and certain expenses for the year ended December 31, 1997
and the notes thereto for the real property being acquired by the Company in the
Transaction (the "Constellation Properties") included elsewhere in this Proxy
Statement, (iv) the pro forma financial information of the Company and the notes
and management assumptions thereto which appear elsewhere in this Proxy
Statement, and (v) other financial information included elsewhere in this Proxy
Statement.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
(IN THOUSANDS)
-----------------------
<S> <C> <C>
PRO FORMA HISTORICAL
----------- ----------
Debt:
Mortgage notes payable.................................................................... $ 230,649 $ 114,301
Minority Interest--Preferred Units (1).................................................... 52,500 52,500
Minority Interest--Partnership Units (1).................................................. 12,111 12,111
Shareholders' equity:
Preferred Shares, $0.01 par value per share, 5,000,000 shares authorized.No shares
issued and outstanding on an historical basis. 969,900 shares of Series A Convertible
Preferred Shares, $25.00 liquidation preference per share, 5.5% annual dividend issued
and outstanding as of March 31, 1998, on a pro forma basis............................ 10 --
Common Shares, $0.01 par value per share, 45,000,000 shares authorized, 2,271,083 issued
and outstanding on an historical basis as of March 31, 1998 and 16,699,083 shares
issued and outstanding on a pro forma basis as of March 31, 1998 (1).................. 167 23
Additional paid-in capital.............................................................. 185,656 16,647
Accumulated deficit..................................................................... (5,819) (5,819)
----------- ----------
Total shareholders' equity.............................................................. 180,014 10,851
----------- ----------
Total capitalization...................................................................... $ 475,274 $ 189,763
----------- ----------
----------- ----------
</TABLE>
- ------------------------
(1) Does not include the effects of 10,196,758 Common Shares that may be issued
upon conversion or redemption of certain Partnership Units and certain
Preferred Units of COPLP partnership interest or upon exercise of options
under the Company's Option Plan. Such conversion will also eliminate
Minority Interest.
25
<PAGE>
THE CONSTELLATION PROPERTIES AND CONSTELLATION SERVICE COMPANIES
Constellation has been an active participant in the real estate industry
since 1981. Based in Columbia, Maryland, the Constellation entities comprise a
full-service diversified real estate company. In addition to property
management, Constellation specializes in the planning and development of
multi-use business parks and the construction, leasing and sale of office
buildings and retail centers. Through investment, development and
acquisition/disposition, Constellation has assembled a real estate portfolio of
approximately 1.8 million square feet, consisting of high quality suburban
office (77%) and retail (23%) properties located in an area spanning from
Baltimore to Northern Virginia.
THE CONSTELLATION PROPERTIES
The Constellation Properties comprise 18 properties: ten operating office
properties, two operating retail properties, one of which is based on an
interest in a mortgage (Tred Avon), two office properties under construction
which are expected to be completed by the end of 1998 (135 National Business
Parkway and Woodlands One), two office properties on which construction has
recently commenced (134 National Business Parkway and Woodlands Two), and two
retail properties under construction which are expected to be completed early in
1999 (Piney Orchard Marketplace and Springfield Commons), if certain conditions
are met. The total square footage of the Constellation Properties is
approximately 1.8 million square feet.
The operating office properties comprise a total of approximately one
million rentable square feet, ranging from approximately 38,513 to 240,336
rentable square feet. The two operating retail properties contain approximately
241,749 rentable square feet. As of June 1, 1998, the operating Constellation
Properties had a weighted average occupancy rate of approximately 92% and were
leased to 126 tenants. As of June 1, 1998, only one tenant, occupying 100% of
one operating property with approximately 240,336 net rentable square feet,
represented more than 10% of the aggregate contractual annualized base rent of
the operating Constellation Properties. The two office properties which have
been under construction since September 1997 comprise approximately 193,110
rentable square feet. A tenant is committed to occupy 100% of one of the office
properties under construction, with approximately 106,278 net rentable square
feet, and will likely represent more than 10% of the aggregate contractual
annual base rent of the Constellation Properties.
The Constellation Properties are located in Maryland and Northern Virginia,
with a concentration of properties in Anne Arundel County (five operating
properties comprising approximately 524,000 square feet and two properties under
construction consisting of approximately 177,000 square feet and one development
property comprising 53,000 square feet); Prince George's County (three operating
properties comprising approximately 322,000 square feet); and Howard County (one
operating property comprising approximately 54,000 square feet and two
properties under construction comprising approximately 212,000 square feet).
Generally, each property has landscaped sites, common areas, and on-site
parking. The Constellation Properties are managed by CRM.
The Constellation Properties are leased to a variety of U.S. government
entities, service sector employers, high tech firms as well as a large number of
professional firms and national and international firms. Major office tenants
include, among others, the U.S. Department of Defense, e.spire Communications,
U.S. Department of Treasury, Stanford Telecommunications, Lockheed Martin
Technical, TASC, Inc. and JHPIEGO Corporation. Major retail tenants include
Giant Food, Staples, Inc., Acme Markets and Rite-Aid.
Leases for the operating properties are typically structured with terms
ranging from one to five years, with the major exception of one lease
representing 24.4% of the aggregate contractual annualized rent which contains
automatic annual renewal options for the remaining ten years of its fifteen year
term, unless terminated at the option of the tenant, the U.S. Department of
Defense, upon 12 months notice and payment of a penalty. Generally all leases
provide for annual contractual rent escalations over the lease
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<PAGE>
term. A typical lease requires (i) payment of base rent, (ii) payment of the
tenant's proportionate share of real estate taxes, utilities and common area and
other operating expense escalations over a base year, and (iii) payment of
overtime HVAC and electrical use. Under these leases, the landlord is typically
responsible for certain structural repairs. A few properties are leased to one
or more tenants on a triple net basis. Under these leases, the respective
tenant(s) are responsible for paying all or a proportionate share of all real
estate taxes, utilities and operating expenses; under some leases, the tenant
directly contracts and pays for such costs. Additionally, some of the leases
provide renewal options or provisions of varying durations which extend the
original lease terms, typically at either market rents or negotiated rental
rates set forth in the leases.
THE OFFICE PROPERTIES
ANALYSIS OF THE BALTIMORE METROPOLITAN AREA: Comprised of both the
Washington, D.C. and Baltimore communities, the Baltimore metropolitan region
contained approximately 36.6 million square feet of office property as of
December 1997. The office property market in the Baltimore metropolitan region
realized improvements in 1997 as space began to tighten after a five year lull.
In 1997, suburban office construction activity commenced on or completed 1.2
million square feet of property in the region. As of December 1997, Class A
space comprised 41% and Class B space contained 59% of the 530 office buildings
in the area. The overall region's vacancy rate decreased from 13.9% in 1996 to
12.1% in 1997 with 4.4 million square feet of available space. This vacancy
statistic is a mixture of the 16.9% vacancy rate in the downtown market with the
9.3% vacancy rate in the suburban markets.
The reduction in the overall vacancy rate is attributed to an 8.87% increase
in employment experienced by the region during the period from 1992 to 1997. Job
growth has been forecasted as steady with employment opportunities in financial
services, telecommunications, data processing, engineering and architectural
services as well as research and development companies in the region. Management
believes that the Baltimore metropolitan region will continue to improve as
businesses continue to migrate from the urban to the suburban markets, the
latter of which is experiencing 900,000 square feet of new construction, 78% of
which is located in submarkets with Class A vacancy rates below 5%.
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<PAGE>
BALTIMORE METROPOLITAN AREA / JANUARY 1, 1997--DECEMBER 31, 1997
OFFICE MARKET STATISTICAL OVERVIEW
<TABLE>
<CAPTION>
TOTAL TOTAL TOTAL TOTAL VACANCY FUTURE
BUILDINGS SIZE AVAILABLE ABSORBED RATE AVAILABLE* UNDER
12/97 12/97 12/97 YTD 1997 12/97 12/97 CONSTRUCTION
------------- --------- --------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
SUBMARKET TOTALS
DOWNTOWN
"A" Tier....................... 10 3,602,293 310,229 108,711 8.61% 42,710 --
"A-2" Tier..................... 15 3,527,010 489,587 55,740 13.88% -- --
--- --------- --------- ----------- ----- ----------- -------------
Total "A" Tier................. 25 7,129,303 799,816 164,451 11.22% 42,710 --
"B" Tier....................... 75 6,524,118 1,501,248 (95,184) 23.01% 300,038 177,130
TOTAL DOWNTOWN................. 100 13,653,421 2,301,064 69,267 16.85% 342,748 177,130
SUBURBAN NORTH
"A" Tier....................... 42 4,449,940 583,322 (143,066) 13.11% 162,642 --
"B" Tier....................... 112 5,500,636 532,557 10,060 9.68% 181,564 22,000
TOTAL SUBURBAN NORTH........... 154 9,950,576 1,115,879 (133,006) 11.21% 344,206 22,000
SUBURBAN SOUTH
"A" Tier....................... 8 959,077 32,621 22,267 3.40% -- --
"B" Tier....................... 47 2,648,827 316,234 245,701 11.94% 130,800 130,800
TOTAL SUBURBAN SOUTH........... 55 3,607,904 348,855 267,968 9.67% 130,800 130,800
HOWARD COUNTY
PERIMETER
"A" Tier....................... 8 703,893 24,516 -- 3.48% 292,749 292,749
"B" Tier....................... 90 2,839,736 152,583 36,509 5.37% -- --
TOTAL HOWARD COUNTY PERIMETER.. 98 3,543,629 177,099 36,509 5.00% 292,749 292,749
HOWARD COUNTY
TOWN CENTER
"A" Tier....................... 5 641,254 12,338 (3,570) 1.92% -- --
"B" Tier....................... 23 1,285,138 77,782 22,405 6.05% -- --
TOTAL HOWARD COUNTY TOWN
CENTER....................... 28 1,926,392 90,120 18,835 4.68% -- --
TOTAL HOWARD COUNTY............ 126 5,470,021 267,219 55,344 4.89% 292,749 292,749
SUBURBAN WEST
"A" Tier....................... 11 1,190,979 15,737 (2,723) 1.32% 158,100 111,416
"B" Tier....................... 84 2,765,214 380,354 251,748 13.75% 65,000 180,000
TOTAL SUBURBAN WEST............ 95 3,956,193 396,091 249,025 10.01% 223,100 291,416
MARKET TOTALS
DOWNTOWN....................... 100 13,653,421 2,301,064 69,267 16.85% 342,748 177,130
"A" Tier....................... 25 7,129,303 799,816 164,451 11.22% 42,710 --
"B" Tier....................... 75 6,524,118 1,501,248 (95,184) 23.01% 300,038 177,130
SUBURBAN MARKETS............... 430 22,984,694 2,128,044 439,331 9.26% 990,855 736,965
"A" Tier....................... 74 7,945,143 668,534 (127,092) 8.41% 613,491 404,165
"B" Tier....................... 356 15,039,551 1,459,510 566,423 9.70% 377,364 332,800
METROPOLITAN AREA.............. 530 36,638,115 4,429,108 508,598 12.09% 1,333,603 914,095
"A" Tier....................... 99 15,074,446 1,468,350 37,359 9.74% 656,201 404,165
"B" Tier....................... 431 21,563,669 2,960,758 471,239 13.73% 677,402 509,930
<CAPTION>
COMPLETED
CONSTRUCTION
YTD 1997
-------------
<S> <C>
DOWNTOWN
"A" Tier....................... --
"A-2" Tier..................... --
-------------
Total "A" Tier................. --
"B" Tier....................... --
TOTAL DOWNTOWN................. --
SUBURBAN NORTH
"A" Tier....................... --
"B" Tier....................... 89,200
TOTAL SUBURBAN NORTH........... 89,200
SUBURBAN SOUTH
"A" Tier....................... --
"B" Tier....................... --
TOTAL SUBURBAN SOUTH........... --
HOWARD COUNTY
PERIMETER
"A" Tier....................... --
"B" Tier....................... 40,000
TOTAL HOWARD COUNTY PERIMETER.. 40,000
HOWARD COUNTY
TOWN CENTER
"A" Tier....................... --
"B" Tier....................... --
TOTAL HOWARD COUNTY TOWN
CENTER....................... --
TOTAL HOWARD COUNTY............ 40,000
SUBURBAN WEST
"A" Tier....................... 300,000
"B" Tier....................... 50,000
TOTAL SUBURBAN WEST............ 350,000
DOWNTOWN....................... --
"A" Tier....................... --
"B" Tier....................... --
SUBURBAN MARKETS............... 479,200
"A" Tier....................... 300,000
"B" Tier....................... 179,200
METROPOLITAN AREA.............. 479,200
"A" Tier....................... 300,000
"B" Tier....................... 179,200
</TABLE>
- ------------------------
* Source: Colliers Pinkard, 1997 Office and Industrial Market Review.
* Future Available includes under Construction square footage and indicates
space not currently vacant, but becoming available after December 31, 1997.
28
<PAGE>
SUBURBAN SOUTH MARKET: As of December 1997, the Suburban South Market
contained approximately 3.6 million square feet of office space. The submarket
stretches from the Baltimore/Washington International Airport ("BWI") to
Maryland Route 32. Absorption of office space in this submarket in the last year
was almost 268,000 square feet of space. Rental rates have increased by 10% to
20% over the last year and a half. Class A renewals are achieving $18.75 per
square foot, full service, with new office space being offered at $21.00 per
square foot. Office space greater than 10,000 square feet is limited.
Speculative office development has commenced in the BWI/Anne Arundel section of
this submarket. Seven of the Constellation Properties are located in this
submarket, six of which are located in Annapolis Junction, Maryland.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Total Buildings........................................ 55 56 57
Total Square Feet...................................... 3,607,904 3,595,699 3,802,845
A Tier Vacancy Rate.................................... 3.40% 5.72% 11.67%
B Tier Vacancy Rate.................................... 11.94% 17.90% 18.61%
Market Vacancy Rate.................................... 9.67% 14.65% 16.86%
Net Absorption......................................... 267,968 24,894 88,627
Under Construction..................................... 130,800 90,000 277,233
SOURCE: COLLIERS PINKARD, 1997 OFFICE AND INDUSTRIAL MARKET REVIEW, 1996 OFFICE AND
INDUSTRIAL MARKET REVIEW, AND 1995 OFFICE AND INDUSTRIAL MARKET REVIEW.
</TABLE>
THE NATIONAL BUSINESS PARK: The National Business Park (the "Park"), a
175-acre business park, is located at the crossroads of the Baltimore/Washington
Parkway and Maryland Route 32 at the mid-point of the Baltimore/Washington
corridor. The Park is owned by affiliates of CREG, a Constellation entity, and
contains a mixture of mid-rise office buildings with low-rise tech buildings.
The Park also contains 85 acres of undeveloped land on which the Company will
hold, after closing of the Transaction, purchase options and rights of first
refusal. As of June 1, 1998, approximately 485,196 square feet of office space
has been constructed in the Park:
<TABLE>
<CAPTION>
NUMBER
NAME SQUARE FEET OF STORIES DATE OF CONSTRUCTION
- ------------------------------------------------------- ----------- ------------- --------------------------------
<S> <C> <C> <C>
One National Business Park............................. 240,336 12 1990
131 National Business Parkway.......................... 69,230 2 1990
141 National Business Parkway.......................... 86,964 2 1990
133 National Business Parkway.......................... 88,666 3 1997
135 National Business Parkway.......................... 86,832 3 Scheduled for completion by
September 1998
134 National Business Parkway.......................... 90,000 4 Commenced Summer 1998
</TABLE>
One National Business Park is 100% leased by the U.S. Department of Defense
through September 30, 2008. The tenant has the right to terminate this lease
with one year's notice and payment of a penalty. 135 National Business Parkway
is 81.75% pre-leased to Credit Management Solutions, Inc. ("CMSI") for 70,982
square feet. Other tenants in the Park include Lockheed Martin Technical,
Electronic Data Systems Corporation ("E.D.S."), General Dynamics, Intel
Corporation, Harris Data Services Corp., and TASC, Inc.
BRANDON I: Brandon I is a 38,513 square foot flex building located in
Brandon Woods Business Park, in Riviera Beach, Maryland. It is multi-tenanted
flex building with an office to warehouse ratio of
29
<PAGE>
approximately one to one. This property is located near I-695 and adjacent to
major parts of the Baltimore metropolitan region.
HOWARD COUNTY SUBURBAN MARKET: As of December 1997, the Howard County
Suburban Market contained 5,470,000 square feet of office space with the lowest
vacancy rate in the entire Baltimore metropolitan region equal to 4.89%. As the
submarket has tightened, office rental rates have exceeded $20 per square foot
for Class A space, supporting new construction. Three of the Constellation
Properties are located in this submarket.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Total Buildings....................................... 98 96 90
Total Square Feet..................................... 3,543,629 3,467,049 3,324,586
A Tier Vacancy Rate................................... 3.48% 3.45% 9.67%
B Tier Vacancy Rate................................... 5.37% 7.29% 9.03%
Market Vacancy Rate................................... 5.00% 6.51% 9.17%
Net Absorption........................................ 36,509 207,703 152,754
Under Construction.................................... 292,749 -- --
SOURCE: COLLIERS PINKARD, 1997 OFFICE AND INDUSTRIAL MARKET REVIEW, 1996 OFFICE AND
INDUSTRIAL MARKET REVIEW, AND 1995 OFFICE AND INDUSTRIAL MARKET REVIEW.
</TABLE>
THREE CENTRE PARK: Three Centre Park is a four-story office building
located in the Columbia North submarket between Maryland Routes 108 and 100, in
Columbia, Maryland. Three Centre Park contains 53,669 square feet of office
space and is Constellation's headquarters building.
WOODLANDS ONE: Woodlands One is a four-story, 106,278 square foot Class A
office building, located Columbia Gateway Corporate Center at the intersection
of Maryland Route 175 and Interstate 95 in Columbia, Maryland. Construction on
Woodlands One began in September 1997 and is expected to be completed and
occupied by August 1998. It has been 100% pre-leased to Green Spring Health
Services, Inc. for its national headquarters.
WOODLANDS TWO: This property, to be located adjacent to Woodlands One, is
planned as a four-story, 106,000 square foot office building. Construction
commenced in June 1998.
NORTHERN PRINCE GEORGE'S COUNTY MARKET, LAUREL SUBMARKET: As of December
1997, the Laurel submarket within the Northern Prince George's County Market,
contained 22 buildings and 1,450,000 square feet of office space and experienced
an 11.18% vacancy rate which was lower than the 14.8% overall Northern Prince
George's County Market. Rents are increasing, but at a slower rate than adjacent
30
<PAGE>
market areas, with rental rates ranging from $15 to $22 per square foot. Two of
the Constellation Properties are located in this market.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Total Buildings....................................... 22 22 21
Total Square Feet..................................... 1,450,600 1,448,473 1,418,116
A Tier Vacancy Rate................................... .57% .46% 1.90%
B Tier Vacancy Rate................................... 18.46% 22.61% 35.53%
Market Vacancy Rate................................... 11.18% 13.58% 21.53%
Net Absorption........................................ 34,539 282,094 (137,445)
Under Construction.................................... -- -- --
SOURCE: COLLIERS PINKARD, 1997 OFFICE AND INDUSTRIAL MARKET REVIEW, 1996 OFFICE AND
INDUSTRIAL MARKET REVIEW, AND 1995 OFFICE AND INDUSTRIAL MARKET REVIEW.
</TABLE>
LAKEVIEW AT THE GREENS I & II: Lakeview at the Greens I & II are twin,
five-story office buildings, with a total of 141,062 square feet, located
minutes from the Baltimore/Washington Parkway in Laurel, Maryland.
SOUTHERN PRINCE GEORGE'S COUNTY SUBURBAN MARKET: The Southern Prince
George's County Suburban Market contains approximately 2,530,000 square feet of
office space within 45 buildings. The vacancy rate for the first quarter of 1998
was 15.2%. Options for office space over 10,000 square feet are limited. The
overall market absorption during the first quarter of 1998 was a negative 2,300
square feet. Rental rates have been stable over the last 18 months despite the
availability of space and a lack of net absorption in the market. Rental rates
average $19 per square foot for Class A buildings and $15 per square foot for
Class B buildings. One of the Constellation Properties is located in this
submarket.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Total Buildings....................................... 45 46 44
Total Square Feet..................................... 2,531,712 2,728,729 2,418,646
A Tier Vacancy Rate................................... 10.2% 2.7% 1.8%
B Tier Vacancy Rate................................... 8.8% 9.6% 11.0%
Market Vacancy Rate................................... 15.1% 13.3% 15.3%
Net Absorption........................................ (48,941) 41,851 8,378
Under Construction.................................... -- -- --
SOURCE: GRUBB & ELLIS RESEARCH SERVICES, SUBURBAN MARYLAND OFFICE MARKET STATISTICS,
FOURTH QUARTER 1997; FOURTH QUARTER 1996, AND FOURTH QUARTER 1995.
</TABLE>
ONE CONSTELLATION CENTRE: One Constellation Centre is comprised of 178,198
square foot, Class A office building with a two-story atrium lobby and a
three-story covered parking deck and a 3,038 square foot, free standing building
occupied by a bank. The Centre is within view of the Potomac River at Exit 4 off
of the Capital Beltway (Maryland Route 495) in Prince George's County, Maryland.
FELLS POINT, BALTIMORE, MARYLAND: Although statistically part of the
downtown Baltimore market, the Brown's Wharf property is located near the Inner
Harbor in the historic Fells Point section of Baltimore,
31
<PAGE>
Maryland which has a reputation for its entertainment and amenities. The
following table presents information relating to the downtown Baltimore market.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Total Buildings.................................... 100 98 100
Total Square Feet.................................. 13,653,421 13,545,785 13,892,017
A Tier Vacancy Rate................................ 11.22% 13.80% 17.49%
B Tier Vacancy Rate................................ 23.01% 27.32% 24.10%
Market Vacancy Rate................................ 16.85% 20.24% 20.78%
Net Absorption..................................... 69,267 145,284 (157,337)
Under Construction................................. 177,130 -- --
SOURCE: COLLIERS PINKARD, 1997 OFFICE AND INDUSTRIAL MARKET REVIEW, 1996 OFFICE AND
INDUSTRIAL MARKET REVIEW, AND 1995 OFFICE AND INDUSTRIAL MARKET REVIEW.
</TABLE>
BROWN'S WHARF: Brown's Wharf combines 75,998 square feet of office space
with 27,672 square feet of retail space. The lead office tenant is JHPIEGO
Corporation, an affiliate of The Johns Hopkins University. The property had an
occupancy rate of 100% as of June 1, 1998.
THE RETAIL PROPERTIES
WESTMINSTER, MARYLAND RETAIL MARKET: An upward trend in housing starts and
economic growth has caused the Westminster, Maryland Retail Market to demand
additional retail development while simultaneously keeping overall market
vacancy rates below 5% with steadily increasing rental rates. Estimates of the
county's population will exceed 200,000 by the year 2000. This represents an
annual 12% growth rate. One of the Constellation Properties is located in this
market.
CRANBERRY SQUARE: Cranberry Square contains 112,609 square feet of retail
space, comprised of a 56,139 square foot Giant Food store, a Staples store, Toy
Works and small shops, and 27,000 square feet of retail space under construction
which will allow for the expansion of the Staples store and the addition of
Factory Card Outlet and Pier One Imports. Regionally located contiguous to
Cranberry Mall at Maryland Routes 27 and 140 in Westminster, Cranberry Square is
100% leased and serves more than 93,000 people located within a ten mile radius
of the square. In 1997, the number of households within a ten mile radius of
this property totaled 33,917 with an average household income of $60,499.
EASTON, MARYLAND RETAIL MARKET: Growth in the Easton, Maryland Retail
Market remains stable in all sectors of commercial development. Residential
growth continues to occur at a steady 3% annual rate. Vacancy rates are 3-4%
with gradually increasing rental rates. Easton includes major employers such as
Black and Decker, Cadmus, Journal Services, Allen Family Foods and The Memorial
Hospital, all of which provide basic employment to this market. One of the
Constellation Properties is located in this market.
TRED AVON: Tred Avon is a 129,140 square foot shopping center, located at
the heart of the Central Shopping District at Maryland Route 322 and Marlboro
Road in Easton, Maryland. This shopping center contains four anchor stores,
consisting of Acme Markets, Peebles, Rite-Aid and JoAnn Fabrics, and 19 other
tenants. An extensive refurbishment of the exterior has recently been completed
to update the design of the shopping center. In addition, Acme Markets is
planning a 21,000 square foot expansion. Constellation holds an interest in the
mortgage on this property. In 1996, the number of households within a ten mile
radius of this property totaled 15,324 with an average household income of
$55,838.
32
<PAGE>
THE DEVELOPMENT PROPERTIES
The Company has agreed to acquire the Development Properties for cash, as to
each such property upon the earlier of the achievement of certain net operating
income levels or July 1, 1999. Notwithstanding the foregoing, if certain minimum
net operating income levels are not achieved by July 1, 1999, either the Company
or Constellation has the right to terminate the agreement to purchase such
property.
PINEY ORCHARD MARKETPLACE: Located within the 2,000-acre planned unit
development of Piney Orchard in Odenton, Maryland, Piney Orchard Marketplace
will be a 52,781 square foot retail center. Construction on this property
commenced in April 1998 and is expected to be completed by November 1998. Piney
Orchard Marketplace will contain a mixture of convenience retail stores,
anchored by Food Lion, Inc. service retail, and restaurants on 8.77 acres. As of
June 1, 1998, 42,781 square feet, or approximately 81%, was pre-leased, the
primary amount of which has been pre-leased to Food Lion, Inc. In 1996, the
number of households within a five mile radius of this property totaled 22,387
with an average household income of $60,385.
SPRINGFIELD COMMONS: Springfield Commons will be a 119,099 square foot
regional shopping center located at Fairfax County Parkway and Frontier Drive in
Springfield, Virginia. Construction commenced on this retail center in April
1998 and is anticipated to be completed before the end of 1998. Springfield
Commons was 66.85% pre-leased as of June 1, 1998 to Borders, Inc., Staples,
Inc., Pier One Imports and other tenants. Constellation holds a 60% interest in
this property with the remaining 40% held by Fried Companies, Inc., an
unaffiliated entity. In 1997, the number of households within a five mile radius
of this property totaled 122,308 with an average household income of $83,969.
33
<PAGE>
THE CONSTELLATION PROPERTIES
The following tables set forth certain historical information relating to
each of the Constellation Properties as of June 1, 1998.
<TABLE>
<CAPTION>
PERCENTAGE
YEAR LEASED OR PRE-
BUILT/ RENTABLE LEASED AS OF TOTAL RENTAL
PROPERTY LOCATIONS RENOVATED SQ. FT. JUNE 1, 1998(1) REVENUE (2)
- ---------------------------------------- --------- --------- --------------- ------------
<S> <C> <C> <C> <C>
OFFICE PROPERTIES
1. One National Business Park (5) 1990 240,336 100.00% $ 4,523,256
2. 131 National Business Parkway 1990 69,230 99.52% 1,178,776
3. 133 National Business Parkway 1996 88,666 90.60% 1,683,725
4. 141 National Business Parkway 1990 86,964 98.42% 1,434,318
5. One Constellation Centre 1988-1989 181,236 69.27% 2,420,901
6. Lakeview at the Greens I 1986 69,192 73.40% 841,261
7. Lakeview at the Greens II 1988 71,870 95.94% 1,128,521
8. Three Centre Park 1987 53,669 95.65% 899,873
9. Brandon I 1982 38,513 94.49% 208,297
10. Brown's Wharf (7) 1989 103,670 100.00% 1,603,168
--------- ------- ------------
TOTAL OFFICE PROPERTIES 1,003,346 90.89% $15,922,096
--------- ------- ------------
<CAPTION>
PERCENTAGE OF
TOTAL RENTAL
REVENUE OF TOTAL RENTAL
OCCUPIED REVENUE PER MAJOR TENANTS
PROPERTY LOCATIONS SPACE (3) OCCUPIED SQ. FT. (4) (10% OR MORE RENTAL SQ. FT.)
- ---------------------------------------- ------------- -------------------- ----------------------------------------
<S> <C> <C> <C>
OFFICE PROPERTIES
1. One National Business Park (5) 24.40% $18.82 U.S. Department of Defense (100%)
2. 131 National Business Parkway 6.36% 17.11 e.spire Communications (35%)
TASC, Inc. (28%)
Lockheed Martin Technical (23%)
Intel Corporation (13%)
3. 133 National Business Parkway 9.08% 20.96 e.spire Communications (67%)
Applied Signal Technology (24%)
4. 141 National Business Parkway 7.74% 16.76 Stanford Telecommunications (35%)
J.G. Van Dyke & Associates (20%)
Harris Data Services Corp. (14%)(6)
E.D.S. (10%)
5. One Constellation Centre 13.05% 19.28 U.S. Department of Treasury (47%)
NRL Federal Credit Union (10%)
6. Lakeview at the Greens I 4.54% 16.56 Great West Life & Annuity (17%)
Laurel Consulting Group (15%)
Moore USA, Inc. (11%)
7. Lakeview at the Greens II 6.09% 16.37 Sky Alland Research, Inc. (22%)
Greeman-Pedersen, Inc. (15%)
Metcalf & Eddy (11%)
8. Three Centre Park 4.85% 17.53 CRE/CRM (34%)
N.A.C.M. (20%)
Reap/REMAX, Inc. (16%)
H.C. Copeland Associates, Inc. (11%)
9. Brandon I 1.12% 5.72 Rapid Response (50%)
BGE Environmental (19%)
10. Brown's Wharf (7) 8.65% 15.46 JHIEPGO Corporation (27%)
Lista's (10%)
------ ------
TOTAL OFFICE PROPERTIES 85.88% $17.46
------ ------
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
YEAR LEASED OR PRE-
BUILT/ RENTABLE LEASED AS OF TOTAL RENTAL
PROPERTY LOCATIONS RENOVATED SQ. FT. JUNE 1, 1998(1) REVENUE (2)
- ---------------------------------------- --------- --------- --------------- ------------
<S> <C> <C> <C> <C>
RETAIL PROPERTIES
11. Cranberry Square 1991 112,609 100.00% $ 1,871,836
12. Tred Avon 1977/1997 129,140 92.09% 747,325
--------- ------- ------------
TOTAL RETAIL PROPERTIES 241,749 95.77% $ 2,619,161
--------- ------- ------------
TOTAL OPERATING PROPERTIES (8) 1,245,095 91.83% $18,541,257
--------- ------- ------------
PROPERTIES UNDER CONSTRUCTION
13. 135 National Business Parkway 1998 86,832 81.75% 1,277,676
14. Woodlands One 1998 106,278 100.00% 2,168,071
15. 134 National Business Parkway (10) N/A 90,000 0% 0
16. Woodlands Two (10) N/A 106,000 0% 0
DEVELOPMENT PROPERTIES
17. Piney Orchard Marketplace (11) N/A 52,781 81.05% 265,000(12)
18. Springfield Commons (11) N/A 119,099 66.85% 1,750,363(12)
--------- ------- ------------
TOTAL CONSTELLATION PROPERTIES 1,806,085 78.61% $24,002,367
--------- ------- ------------
--------- ------- ------------
<CAPTION>
PERCENTAGE OF
TOTAL RENTAL
REVENUE OF TOTAL RENTAL
OCCUPIED REVENUE PER MAJOR TENANTS
PROPERTY LOCATIONS SPACE (3) OCCUPIED SQ. FT. (4) (10% OR MORE RENTAL SQ. FT.)
- ---------------------------------------- ------------- -------------------- ----------------------------------------
<S> <C> <C> <C>
RETAIL PROPERTIES
11. Cranberry Square 10.10% $16.62 Giant Food (50%)
Staples, Inc. (15%)
Toy Works (11%)
12. Tred Avon 4.02% 6.28 Peebles (27%)
Acme Markets (22%)
------ ------
TOTAL RETAIL PROPERTIES 14.12% $11.31
------ ------
TOTAL OPERATING PROPERTIES (8) 100.00% $16.22
------ ------
PROPERTIES UNDER CONSTRUCTION
13. 135 National Business Parkway N/A 18.00 CMSI (81.75%) (9)
14. Woodlands One N/A 20.40 Green Spring Health Services, Inc.
(100%) (9)
15. 134 National Business Parkway (10) N/A N/A N/A
16. Woodlands Two (10) N/A N/A N/A
DEVELOPMENT PROPERTIES
17. Piney Orchard Marketplace (11) N/A 6.19 Food Lion, Inc. (72%)
18. Springfield Commons (11) N/A 21.99 Borders, Inc. (23%) and Staples, Inc.
(20%)
------ ------
TOTAL CONSTELLATION PROPERTIES -- $16.91
------ ------
------ ------
</TABLE>
- ------------------------
(1) The percentage is based upon all leases signed as of June 1, 1998.
(2) Total Rental Revenue is the monthly contractual base rent as of June 1,
1998 multiplied by 12 plus the estimated annualized expense reimbursements
under existing leases.
(3) The percentage is based on the property's rental revenue to Constellation
Properties' Total Rental Revenue excluding properties numbered 13-18
listed on the table above.
(4) This represents the property's annualized base rent divided by the
respective property's leased square feet as of June 1, 1998.
(5) This property is triple net leased. The tenant reimburses Constellation
for $1,090,452 of annualized operating expenses included in rental revenue
noted.
(6) Harris Data Services Corp. is a subtenant for GTE Government Systems.
(7) This property contains 75,998 square feet of office space and 27,672 feet
of retail space.
(8) Total Rental Revenue per rentable square foot excludes the Development
Properties' square feet and the four properties under construction.
(9) CMSI has pre-leased 70,982 square feet for $18.00 per square foot (net of
electric cost) upon occupancy. Green Springs Health Services, Inc. has
pre-leased 106,278 square feet for $20.40 per square foot upon occupancy.
(10) The Company exercised its options for these two properties on May 28,
1998. These properties commenced in Summer 1998 and no pre-leasing
activity has occurred. The Rentable Square Foot figures are estimates as
of June 1, 1998 as a result of their development stages.
(11) The purchase commitment by the Company is the earlier of achievement of
certain operating results or July 1, 1999. The Rentable Square Foot
figures are estimates as of June 1, 1998 as a result of their development
stages.
(12) Total Rental Revenue does not include pro rata operating expenses since
these expense reimbursements have not yet been determined.
N/A Not applicable as property not operational as of June 1, 1998.
35
<PAGE>
CONSTELLATION'S SIGNIFICANT TENANTS
The following table sets forth a schedule of Constellation's ten largest
tenants, for the twelve operating properties, as of June 1, 1998, based upon
annualized contractual base rents for the month of June 1998 plus annualized
operating expense reimbursements. This schedule excludes $350,695 of rental
revenue for 21,502 square feet in two different buildings which were occupied by
CRE/CRM as of June 1, 1998.
<TABLE>
<CAPTION>
PERCENTAGE
REMAINING PERCENTAGE OF
LEASE OF AGGREGATE AGGREGATE
NUMBER TERM TOTAL RENT TOTAL LEASED LEASED SQ.
NAME EXP. DATE OF LEASES (MONTHS) REVENUE (1) REVENUE SQ. FT. FT.
- -------------------------------- -------------- ---------- --------- ----------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
OFFICE TENANTS:
U.S. Department of Defense
(2)......................... September 2008 1 124 $4,523,256 24.40% 240,336 21.02%
e.spire Communications (3).... -- 2 -- 1,763,769 9.51% 83,800 7.33%
U.S. Department of Treasury... April 2003 1 58 1,564,362 8.44% 85,253 7.46%
Stanford Telecommunications... August 2003 1 63 640,690 3.46% 39,880 3.49%
JHPIEGO Corporation........... October 2008 1 125 385,574 2.08% 27,541 2.41%
NRL Federal Credit Union...... December 2003 1 67 343,305 1.85% 17,901 1.57%
Applied Signal Technology..... May 2004 1 71 332,054 1.79% 20,783 1.82%
TASC, Inc..................... April 2001 1 35 327,188 1.76% 19,550 1.71%
Lockheed Martin Technical..... July 1998 1 2 286,532 1.55% 15,807 1.38%
RETAIL TENANTS:
Giant Food.................... April 2016 1 215 768,573 4.15% 56,139 4.91%
--- --- ----------- ----- --------- -----
TOTALS:....................... 11 -- $10,935,302 58.98% 606,990 53.09%
--- --- ----------- ----- --------- -----
--- --- ----------- ----- --------- -----
</TABLE>
- ------------------------
(1) Total Rental Revenue is the monthly contractual base rent as of June 1, 1998
multiplied by 12 plus the estimated annualized expense reimbursements under
existing leases.
(2) Property occupied under a triple net lease agreement, pursuant to which the
tenant reimburses Constellation for all building operating expenses. Lease
provides tenant with annual automatic renewal options which commenced in
October 1994.
(3) e.spire Communications occupies space in two different buildings with 59,545
square feet expiring in March 2003 and 24,255 square feet expiring in
January 2005.
Constellation has pre-leased properties under construction to the following
significant tenants. Green Spring Health Services, Inc. has pre-leased 106,278
square feet of Woodlands One for a five-year term, which will generate
$2,168,071 of annual rental revenue upon occupancy. In 135 National Business
Parkway, CMSI has leased 70,982 square feet under a seven-year lease which will
generate $1,277,676 of annual rental revenue upon occupancy. Food Lion, Inc. has
leased 37,981 square feet for a twenty-year term, which will generate $184,000
of annual rental revenue upon occupancy for the Piney Orchard Marketplace
property. Springfield Commons has been pre-leased to Borders, Inc. for 27,608
square feet for a twenty-year term and Staples, Inc. for 24,000 square feet for
a fifteen-year term, which will generate $604,891 and $432,000 of annual rental
revenue on occupancy, respectively.
36
<PAGE>
CONSTELLATION PROPERTIES
SCHEDULE OF LEASE EXPIRATIONS
The following table sets forth a schedule of the lease expirations for the
operating Constellation Properties beginning June 1, 1998 and annually
thereafter, assuming that none of the tenants exercises renewal options:
<TABLE>
<CAPTION>
SQUARE TOTAL RENTAL
FOOTAGE OF TOTAL RENTAL REVENUE OF PERCENTAGE OF
NUMBER OF LEASES PERCENTAGE OF REVENUE OF EXPIRING LEASES TOTAL RENTAL
YEAR OF LEASES EXPIRING TOTAL LEASED EXPIRING PER RENTABLE REVENUE
EXPIRATION EXPIRING (1) SQUARE FEET LEASES (2) SQUARE FEET (2) EXPIRING (2)
- -------------------------------- ------------- ----------- ------------- ------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
June 1, 1998-
December 31, 1998............... 15 58,021 5.07% $ 778,393 $ 13.42 4.20%
1999............................ 29 75,222 6.58% 1,107,648 14.73 5.97%
2000............................ 21 99,453 8.70% 1,418,525 14.26 7.65%
2001............................ 19 152,959 13.38% 2,262,091 14.79 12.20%
2002............................ 9 65,466 5.73% 684,858 10.46 3.70%
2003............................ 20 267,031 23.35% 4,899,731 18.35 26.43%
2004............................ 6 59,447 5.20% 928,196 15.61 5.01%
2005............................ 1 24,255 2.12% 412,097 16.99 2.22%
2006............................ 1 12,330 1.08% 150,601 12.21 .81%
2007............................ -- -- --% -- -- --%
2008............................ 2 267,877(1) 23.43% 4,908,830 18.32 26.48%
2009 and thereafter............. 3 61,311 5.36% 990,287 16.15 5.33%
--- ----------- ------ ------------- ------ ------
TOTALS:......................... 126 1,143,372 100.00% $ 18,541,257 $ 16.22 100.00%
--- ----------- ------ ------------- ------ ------
--- ----------- ------ ------------- ------ ------
</TABLE>
- ------------------------
(1) One tenant occupying 240,336 square feet and remitting $4,523,256 of
annualized June 1, 1998 total rental revenue leases space under a one year
lease with 14 consecutive automatic one year renewals. The lease has been
reflected as expiring in the year 2008 in the above table.
(2) Total Rental Revenue is the monthly contractual base rent as of June 1, 1998
multiplied by 12 plus the estimated annualized expense reimbursements under
existing leases.
37
<PAGE>
PRO FORMA SIGNIFICANT TENANTS
The following table sets forth a pro forma schedule of the Company's ten
largest tenants, including the 12 operating Constellation Properties and the
Company (including the Airport Square properties and the properties in
Fairfield, New Jersey) based upon annualized contractual rents as of June 1,
1998 plus annualized operating expense reimbursements.
<TABLE>
<CAPTION>
REMAINING
NUMBER LEASE TERM TOTAL RENT PERCENTAGE OF AGGREGATE
NAME EXP. DATE OF LEASES (MONTHS) REVENUE(1) TOTAL REVENUE LEASED SQ. FT.
- ------------------------------------ ----------- --------- ---------- ----------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
OFFICE TENANTS:
Unisys(2)......................... July 2009 4 133 $ 8,943,060 17.03% 954,937
U.S. Department of Defense(3)..... -- 7 -- 6,580,059 12.53% 450,041
IBM(4)............................ March 2002 1 46 3,255,778 6.20% 170,000
Teleport Communications(5)........ -- 2 -- 2,603,324 4.96% 172,385
Ciena Corporation(6).............. -- 3 -- 1,987,569 3.78% 182,183
e.spire Communications(7)......... -- 2 -- 1,763,769 3.35% 83,800
U.S. Department of Treasury....... April 2003 1 58 1,564,362 2.98% 85,253
First Annapolis Consulting........ August 2005 1 74 766,413 1.46% 49,446
RETAIL TENANTS:
Giant Food........................ April 2016 1 215 768,573 1.46% 56,139
Fleming Companies, Inc.(8)........ -- 3 -- 729,621 1.39% 128,320
--- --- ----------- ----- --------------
TOTALS:....................... 25 $28,962,528 55.14% 2,332,504
--- ----------- ----- --------------
--- ----------- ----- --------------
<CAPTION>
PERCENTAGE OF
AGGREGATE
NAME LEASED SQ. FT.
- ------------------------------------ --------------
<S> <C>
OFFICE TENANTS:
Unisys(2)......................... 23.86%
U.S. Department of Defense(3)..... 11.24%
IBM(4)............................ 4.25%
Teleport Communications(5)........ 4.30%
Ciena Corporation(6).............. 4.55%
e.spire Communications(7)......... 2.09%
U.S. Department of Treasury....... 2.13%
First Annapolis Consulting........ 1.23%
RETAIL TENANTS:
Giant Food........................ 1.40%
Fleming Companies, Inc.(8)........ 3.21%
-----
TOTALS:....................... 58.26%
-----
-----
</TABLE>
- ------------------------
(1) Total Rental Revenue is the monthly contractual base rent as of June 1,
1998 multiplied by 12 plus the estimated annualized expense reimbursements
under existing leases.
(2) Merck subleases from Unisys 109,109 square feet and has exercised its option
to lease an additional 109,109 square feet commencing January 1, 1999.
(3) U.S. Department of Defense occupies space in seven different buildings with
240,336 square feet expiring September 2008; 96,636 square feet expiring
September 1998; 73,572 square feet expiring May 1999; 12,333 square feet
expiring June 2005; 15,776 square feet expiring June 1999; 10,308 square
feet expiring September 1998; and 1,080 square feet expiring October 1998.
(4) Teleport Communications recently agreed to lease 143,072 square feet at this
location through March 31, 2009. Teleport Communications will sublease this
space from IBM through March 31, 2002 and thereafter will lease this space
directly from the Company.
(5) Teleport Communications leases 142,385 square feet which expires June 2008
and 30,000 square feet which expires December 2006. The 30,000 square feet
space is subleased from IBM through March 2002.
(6) Ciena Corporation leases 57,140 square feet which expires August 2002;
67,903 square feet which expires February 2008; and 57,140 square feet which
expires June 2002.
(7) e.spire Communications leases 59,545 square feet which expires March 2003
and 24,255 square feet which expires January 2005.
(8) Fleming Companies, Inc. has three leases consisting of 36,248 square feet
expiring October 2010; 39,272 square feet expiring May 2014; and 52,800
square feet expiring November 2014.
38
<PAGE>
PRO FORMA SCHEDULE OF LEASE EXPIRATIONS
The following table sets forth a pro forma schedule of the lease expirations
for the 12 operating Constellation Properties and the Company (including the
Airport Square properties and the properties in Fairfield, New Jersey) as of
June 1, 1998:
<TABLE>
<CAPTION>
TOTAL RENTAL
NUMBER SQUARE TOTAL RENTAL REVENUE OF PERCENTAGE OF
OF FOOTAGE OF PERCENTAGE OF REVENUE OF EXPIRING LEASES TOTAL RENTAL
YEAR OF LEASES LEASES TOTAL LEASED EXPIRING PER RENTABLE REVENUE
EXPIRATION EXPIRING EXPIRING SQUARE FEET LEASES (2) SQUARE FEET (2) EXPIRING (2)
- ----------------------------- ----------- ---------- ------------- ------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
June 1, 1998 -
December 31, 1998.......... 23 183,456 4.58% $ 2,029,497 $ 11.06 3.86%
1999......................... 39 307,219 7.68% 4,280,784 13.93 8.15%
2000......................... 32 156,000 3.90% 2,310,740 14.81 4.40%
2001......................... 35 384,304 9.60% 5,972,535 15.54 11.37%
2002......................... 27 353,389 8.83% 4,441,873 12.57 8.46%
2003......................... 24 284,368 7.10% 5,213,900 18.34 9.93%
2004......................... 8 86,481 2.16% 1,407,075 16.27 2.68%
2005......................... 3 86,034 2.15% 1,379,369 16.03 2.63%
2006......................... 3 109,840 2.74% 1,256,281 11.44 2.39%
2007......................... 3 53,812 1.34% 984,083 18.29 1.87%
2008......................... 12 838,241(1) 20.94% 10,980,417 13.10 20.91%
2009 and
thereafter................. 7 1,159,320 28.98% 12,262,390 10.58 23.35%
--- ---------- ------ ------------- ------ ------
TOTALS:...................... 216 4,002,464 100.00% $ 52,518,944 $ 13.12 100.00%
--- ---------- ------ ------------- ------ ------
--- ---------- ------ ------------- ------ ------
</TABLE>
- ------------------------
(1) One tenant occupying 240,336 square feet and remitting $4,523,256 of
annualized June 1, 1998 total rental revenue leases space under a one-year
lease with 14 consecutive automatic one-year renewals. The lease has been
reflected as expiring in the year 2008 in the above table.
(2) Total Rental Revenue is the monthly contractual base rent as of June 1, 1998
multiplied by 12 plus the estimated annualized expense reimbursements under
existing leases.
THE CONSTELLATION SERVICE COMPANIES
The Constellation Service Companies consist of certain assets and personnel
of CRE and a 75% interest in CRM.
CONSTELLATION REAL ESTATE, INC.
CRE provides comprehensive design/build, construction, development and asset
management service to entities affiliated with Constellation. Most of
Constellation's activities in the real estate business have been conducted on
its behalf by CRE and its employees. CRE's strategy in the office property
business has been to develop or acquire high quality office properties in
suburban markets where it is, or can become, a prominent market force, or in
markets where it identifies specific real estate investment opportunities
CRE management includes: Randall M. Griffin, President; Roger A. Waesche,
Jr., Senior Vice President of Finance; John H. Gurley, Vice President and
General Counsel; Stanley A. Link, Senior Vice President of Construction; and
Dwight S. Taylor, Senior Vice President of Marketing and Leasing. These
39
<PAGE>
individuals manage the operations including development, construction, leasing,
asset management, acquisition and disposition of the company owned, and
affiliated entities' properties. Each of them is expected to join the Company in
a senior management position following closing of the Transaction.
CONSTELLATION REALTY MANAGEMENT, LLC
CRM is engaged in management of income producing real estate and corporate
facilities management. Approximately 47% of CRM's revenues for the year ended
December 31, 1997 were derived from Constellation Properties and other
affiliates of Constellation, and the balance of its income was derived from
unaffiliated third parties. As of June 1, 1998, CRM managed approximately 14.8
million square feet of real estate, comprising more than 146 properties. Of
these totals, approximately 1.8 million square feet in 16 properties were owned
by entities affiliated with Constellation, including BGE. The balance, 13.0
million square feet in over 130 properties, is owned by unaffiliated clients of
CRM.
CRM is active in all facets of commercial real estate, including commercial,
office, retail and corporate facilities projects. CRM's list of clients includes
pension fund managers, Fortune 500 companies, financial institutions,
partnerships and individuals. Its clients include:
<TABLE>
<S> <C>
- - LaSalle Advisors - ERE Yarmouth
- - Westmark Realty Advisers - AMB Institutional RealtyAdvisers
- - GE Capital Investment Advisers
</TABLE>
CRM maintains its headquarters at Three Centre Park in Columbia, Maryland,
with offices in Towson, Maryland, Woodlawn, Maryland, Annapolis Junction,
Maryland, Calverton, Maryland, Columbia, Maryland, Linthicum, Maryland, and
Wilmington, Delaware. CRE owns 75% of the outstanding membership interests of
CRM, which was formed on April 1, 1996. The remaining 25% interest is held by
KLNB, Inc., an unaffiliated entity. CRM is operated under the direction of
Michael D. Kaiser, President and Steven J. Willats, Vice President. CRM employs
66 people, 30 of whom are building engineers, 19 are property managers, five are
lease administrators, nine are engaged in accounting and three are involved in
corporate activities.
The 75% interest in CRM and other management assets to be acquired by the
Company from Constellation will be transferred by the Company to the Operating
Partnership, which will, in turn, transfer such assets to COMI. In exchange for
such assets, the Operating Partnership will receive (i) indebtedness issued by
COMI in the principal amount of $2,005,000, (ii) cash of approximately $24,750,
(iii) 18,800 shares of non-voting common stock, representing all of the
non-voting common stock to be issued by COMI and (iv) 10 shares of voting common
stock, representing 1% of the voting common stock to be issued by COMI.
Individual shareholders, including Jay H. Shidler, Clay W. Hamlin, III,
executive officers of COMI and perhaps others, will purchase 990 shares of
voting common stock (representing 99% of the outstanding voting stock and 5% of
the aggregate outstanding stock) in exchange for a cash capital contribution of
$24,750. Due to federal income tax requirements, the REIT may not directly or
indirectly own 10% or more of the outstanding voting securities of COMI.
LEGAL PROCEEDINGS RELATED TO CONSTELLATION
To the Company's knowledge, there are no material legal proceedings pending
or threatened against Constellation, any of the Constellation Properties or the
Constellation Service Companies, other than routine litigation arising out of
the ordinary course of business, and which are covered by liability insurance.
40
<PAGE>
SELECTED FINANCIAL DATA OF
CONSTELLATION SERVICE COMPANIES
The following selected financial data of the Constellation Service Companies
as of and for the three months ended March 31, 1998 and 1997; and as of December
31, 1995, 1994 and 1993 and for the years ended December 31, 1994 and 1993, have
been derived from the Constellation Service Company's unaudited financial
statements, which in the opinion of management, include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the unaudited periods. The selected financial data of
Constellation Service Companies as of December 31, 1997 and 1996 and for the
years ended December 31, 1997, 1996 and 1995 has been derived from and should be
read in conjunction with the Constellation Service Companies' audited financial
statements and notes thereto for those periods included elsewhere in this Proxy
Statement. This information should also be read in conjunction with
"Management's Discussion and Analysis of Constellation Service Companies'
Financial Condition and Results of Operations" included elsewhere in this Proxy
Statement.
SELECTED FINANCIAL DATA OF CONSTELLATION SERVICE COMPANIES
(Dollars in Thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
-------------------------- --------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1998 1997 1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ---------- ---------- ----------
OPERATING DATA:
Total revenue.............. $ 3,717 $ 3,314 $ 11,226 $ 15,412 $ 7,096 $ 3,467 $ 3,308
Total expenses............. 3,755 3,043 10,485 14,708 7,088 3,401 3,769
Minority interest.......... 26 47 117 96 -- -- --
Income tax expense
(benefit)................ (23) 91 256 251 14 26 (189)
------------ ------------ ------------ ------------ ---------- ---------- ----------
Net Income (loss)........ $ (41) $ 133 $ 368 $ 357 $ (6) $ 40 $ (272)
------------ ------------ ------------ ------------ ---------- ---------- ----------
------------ ------------ ------------ ------------ ---------- ---------- ----------
BALANCE SHEET DATA:
Cash and cash
equivalents.............. $ 5,944 $ 5,733 $ 4,732 $ 5,191 $ (554) $ (423) $ (1,113)
Due from affiliates........ -- -- -- -- 1,484 1,448 2,637
Other assets............... 4,151 5,886 3,378 5,341 3,284 1,395 992
------------ ------------ ------------ ------------ ---------- ---------- ----------
Total assets............. $ 10,095 $ 11,619 $ 8,110 $ 10,532 $ 4,214 $ 2,420 $ 2,516
------------ ------------ ------------ ------------ ---------- ---------- ----------
------------ ------------ ------------ ------------ ---------- ---------- ----------
Due to affiliates.......... $ 6,051 $ 7,529 $ 4,423 $ 4,925 $ -- $ -- $ --
Other liabilities.......... 1,193 1,433 821 3,130 2,209 409 545
------------ ------------ ------------ ------------ ---------- ---------- ----------
Total liabilities........ $ 7,244 $ 8,962 5,244 $ 8,055 $ 2,209 $ 409 $ 545
Minority interest.......... $ 162 $ 162 $ 136 $ 115 -- -- --
Stockholder's equity....... 2,689 2,495 2,730 2,362 2,005 2,011 1,971
------------ ------------ ------------ ------------ ---------- ---------- ----------
Total liabilities and
stockholder's equity..... $ 10,095 $ 11,619 $ 8,110 $ 10,532 $ 4,214 $ 2,420 $ 2,516
------------ ------------ ------------ ------------ ---------- ---------- ----------
------------ ------------ ------------ ------------ ---------- ---------- ----------
SQUARE FEET UNDER
MANAGEMENT................. 13,576,000 11,278,000 14,203,000 10,863,000 2,245,000 1,594,000 1,372,000
------------ ------------ ------------ ------------ ---------- ---------- ----------
------------ ------------ ------------ ------------ ---------- ---------- ----------
</TABLE>
41
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSTELLATION SERVICE COMPANIES'
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with the consolidated financial
statements of Constellation Service Companies and the notes thereto, appearing
elsewhere in this Proxy Statement.
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO MARCH 31, 1997
NET INCOME: Net income decreased by $174,000 from $133,000 to a $41,000 loss for
the three month period ended March 31, 1998 as compared to the same period in
1997. This change resulted from reduction in CRM's profit by 44.7% from $188,000
in 1997 to $104,000 in 1998 as expenses increased 12.5% from $827,000 to
$930,000 but the property management fees only increased 1.9% from $1,015,000 in
1997 to $1,034,000 in 1998 for the three month period ended March 31, 1998
compared to the same period in 1997. The remaining decrease of $120,000 resulted
from the reduction in profit recognized on the construction contract services
due to the increase in related party transactions for which no profit was
realized.
REVENUES: Total revenues increased by 12.3% or $.4 million from $3.3 million to
$3.7 million for the three months ended March 31, 1998 compared to the same
period in 1997. This increase resulted principally from commencement of certain
construction contract services during the first quarter of 1998 which
represented new services, causing a 12.9% or $.2 million increase from $1.7
million to $1.9 million for the first quarter of 1998 compared to 1997. The
remaining $.2 million increase in revenues was generated from increased
construction, development, marketing, asset management and finance fees.
OPERATING EXPENSES: Total operating expenses increased by $.7 million or 23.4%
from $3.0 million to $3.7 million for the three months ended March 31, 1998 and
1997, respectively. Construction contract costs increased by $.3 million or
22.2% from $1.5 million to $1.8 million from 1997 to 1998 as a result of the
commencement of new construction contract services. Another $.3 million or 27.0%
increase from $1.0 million to $1.3 million in salaries and related expenses was
caused by the hiring of new employees to service the growth in the property
management business coupled with normal wage increases to the existing
employees.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
NET INCOME: Net income was relatively unchanged level for the year ended
December 31, 1997 compared to the same period in 1996 due to the offsetting
effects of decreases in revenues and decreases in operating expenses.
REVENUES: Total revenues decreased by 27.6% or $4.2 million from $15.3 to $11.1
million for the years ended December 31, 1996 and 1997, respectively. This
decrease resulted principally from reduced levels of certain construction
contract services from 1996 to 1997, causing a $5.4 million decrease. Property
management fees increased $.7 million or 21.0% due to higher volume of square
feet managed. Construction, development, marketing, asset management fees and
finance fees increased by 21.8% or $.5 million from $2.6 million in 1996 to $3.1
million in 1997, primarily due to increased marketing fees associated with new
projects of $.4 million.
OPERATING EXPENSES: Total operating expenses decreased by $4.2 million or 15.2%
from $14.7 to $10.5 million for the year ended December 31, 1997 compared to the
same period in 1996. This decrease, similar to the decline in revenues,
principally resulted from completion of certain construction contract services
during 1996 which represented non-recurring services in 1997 or a $5.4 million
decrease. An increase of $.7 million or 17.7% in salaries and related expenses
resulted from the hiring of ten new employees due to CRM's growth coupled with
wage increases for existing employees. Other expenses increased by $.5 million
or 52.8% over the prior year and consist primarily of $.3 million in consulting
advisory services and $.1 million of additional rental expense due to the
overall growth in the business.
42
<PAGE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
NET INCOME: Net income increased by $.4 million from a breakeven in 1995 to a
$.4 million profit in 1996 due to the $.3 million pre-tax improvement in
construction contract profit. The growth of $1.3 million in property management
fees due to additional square feet under management coupled with the $1.1
million increase in construction, development, marketing, asset management and
finance fees offset the additional $1.5 million in salaried expenses required to
service this growth.
REVENUES: Total revenues increased by $8.3 million or 119.3% from $7.0 million
to $15.3 million for the year ended December 31, 1996 compared to the same
period in 1995. This increase resulted principally from growth in certain
construction contract services during 1996 which did not exist in 1995, causing
a $5.9 million increase. Property management fees increased by 72.3% or $1.3
million from $1.8 million to $3.1 million as a result of the purchase of a 75%
member interest in CRM by CRE, effective in April 1996. Construction,
development, marketing, asset management fees and finance fees increased by
70.4% or $1.1 million from $1.5 million to $2.6 million in 1995 and 1996,
respectively, due to the increased leasing commissions and increased fees
associated with the growth in the construction contract services.
OPERATING EXPENSES: Total operating expenses increased by 107.0% or $7.6 million
from $7.1 million to $14.7 million for the year ended December 31, 1996 compared
to the same period in 1995. This increase, similar to the increased operating
revenues, principally resulted from growth in certain construction contract
services during 1996 which did not exist in 1995, causing a $5.6 million
increase. An increase of 67.3% or $1.5 million in salaries and related expenses
primarily resulted from the purchase of the 75% member interest in CRM in which
approximately 19 new employees were hired. Overhead costs of related party
increased 41.5% or $255,000 over the prior year because the total allocable
costs from related party comprised a larger portion of the related party's
business as compared to other lines of business in 1996. Other expenses
increased 32.6% or $.2 million from $.7 million in 1995 to $.9 million in 1996
as rent and depreciation expense increased from new CRM satellite offices.
MINORITY INTEREST: Minority interest expense increased by $96,000 as a result of
the formation of CRM in April 1996. KLNB, Inc., the minority interest holder,
shares in 25% of the earnings from CRM.
LIQUIDITY AND CAPITAL RESOURCES
Generally, cash provided from operations represents the primary source of
liquidity to fund operating expenses. To the extent necessary, borrowings from
affiliates and lending institutions provide other sources of liquidity. The
Constellation Service Companies have generated cash from operations to fund
distributions to the minority interest holder, as required, and from all sources
to satisfy its debt service obligations.
The Constellation Service Companies use a centralized cash management system
for Constellation affiliates owned by CREG. As a result, if historical cash
flows from operating activities were insufficient to fund operating expenses and
costs, the Constellation Service Companies received advances from its
affiliates. These advances are then repaid from available cash flow.
Working capital as of March 31, 1998 was $406,000 as compared to $1,460,000
as of March 31, 1997. This decrease of $1,054,000 was principally caused by a
$2,954,000 reduction in accounts receivable offset by a $1,478,000 reduction in
due to affiliates. Cash flows from operating activities increased by $1,591,000
from $650,000 for the three-month period March 31, 1997 to $2,241,000 for the
three-month period March 31, 1998 principally as a result of a $2,208,000
increase in accounts payable and accrued expenses offset by the $976,000
reduction in borrowings from affiliates. Cash flows from investing activities
decreased by $950,000 due to the $1,000,000 escrowed deposit related to a
contract to acquire loans collaterialized by the Airport Square properties. Cash
flows from (used in) financing activities increased by $29,000 from a $1,000
deficit for the three-month period March 31, 1998 to $28,000 for the three-month
period March 31, 1997.
43
<PAGE>
Working capital as of December 31, 1997 was $1,400,000 as compared to
$1,300,000 as of December 31, 1996. The $100,000 increase was principally caused
by the $2,464,000 reduction in the outstanding accounts receivable balances
partially offset by the $2,164,000 reduction in accounts payable.
Cash flows from (used in) operating activities for the years ended December
31, 1997, 1996 and 1995 were $124,000, $6,290,000, and $(91,000), respectively.
Although net income realized for the year ended December 31, 1997 remained level
compared to 1996, cash flows from operating activities decreased by $6,166,000
from $6,290,000 in 1996 to $124,000 in 1997 principally as a result of the
operating advances from affiliates. In 1997, the Constellation Service Companies
repaid $502,000 of advances from affiliates as compared to the $6,409,000
borrowed from affiliates in 1996. In 1996, although net income improved by
$363,000 as compared to 1995, cash flows from (used in) operating activities
increased by $6,381,000 from $(91,000) in 1995 to $6,290,000 in 1996 principally
as a result of $6,409,000 advanced from affiliates. This advance provided cash
to fund operations as liquidity was strained by the $1,982,000 increase in
accounts receivable from 1995 to 1996 coupled with a $2,182,000 increase in
accounts payable from 1995 to 1996. Net cash used in operating activities for
the year ended December 31, 1995 was $(91,000) caused primarily by the $(6,000)
net loss combined with a net decrease of $200,000 in current assets and
liabilities from 1994 to 1995.
Cash flows used in investing activities, which primarily relate to
investment in fixed assets, for the years ended December 31, 1997, 1996 and 1995
were $(445,000), $(731,000), and $(59,000), respectively. In 1996, cash flows
from investing activities included the $414,000 acquisition of the 75% member
interest in CRM.
Cash flows from (used in) financing activities, which include the annual
principal repayments to KLNB, Inc. on the outstanding note payable and any
distribution or contributions to CRM's minority interest holder, for the years
ended December 31, 1997, 1996 and 1995 were $(138,000), $186,000, and $19,000,
Annual scheduled principal payments of $40,000 were paid to KLNB from the
$200,000 promissory note assumed in 1996 upon the acquisition of the 75% member
interest in CRM in 1996. A $96,000 distribution was provided to the minority
interest holder in 1997. In 1996, the minority interest holder contributed
$19,000.
INFLATION
Inflation has generally not significantly impacted the periods presented for
the Constellation Service Companies due to the relatively low inflation rates in
their market. In addition, average salaries and related expenses historically
have not exceeded 10% annually in the same market.
44
<PAGE>
SELECTED FINANCIAL DATA OF THE COMPANY
The following tables set forth certain financial data on a consolidated
historical and pro forma basis for the Company. The financial data should be
read in conjunction with the Company's financial statements and the notes
thereto incorporated by reference in this Proxy Statement, Constellation
Properties' combined statement of revenue and certain expenses for the year
ended December 31, 1997 and the notes thereto, and the Constellation Service
Companies' consolidated financial statements and the notes thereto included
elsewhere in this Proxy Statement. The consolidated historical financial data of
the Company as of and for the fiscal years ended December 31, 1993 through 1997
have been derived from and should be read in conjunction with the audited
financial statements for those years. The financial data of the Company as of
and for the three months ended March 31, 1998 and 1997 have been derived from
unaudited financial statements, which, in the opinion of management, include all
adjustments, necessary for a fair statement of the results for the unaudited
interim periods. This information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" of the Company incorporated by reference in this Proxy Statement.
The unaudited pro forma financial and operating data for the three months
ended March 31, 1998 and for the year ended December 31, 1997, is presented as
if the completion of the Transaction, the Airport Square property acquisition,
the acquisition of properties in Fairfield, New Jersey, and the 1998 Offering,
all occurred as of January 1, 1998 for the March 31, 1998 pro forma data and as
of January 1, 1997 for the December 31, 1997 pro forma data. The acquisition of
the Shidler Group's Mid-Atlantic operations is reflected in the Company's
historical consolidated balance sheet at December 31, 1997 and March 31, 1997
and is included in the pro forma condensed consolidating statements of
operations as if it occurred on January 1, 1997. The unaudited pro forma balance
sheet as of March 31, 1998 is presented as if the foregoing, except for the
Shidler transaction, occurred as of March 31, 1998.
The pro forma information is based upon certain assumptions that are
included in the notes to the pro forma financial statements included elsewhere
in this Proxy Statement. The pro forma information is unaudited and is not
necessarily indicative of what the financial position and results of operations
of the Company would have been as of and for the periods indicated, nor does it
purport to represent the future financial position and results of operations for
future periods.
45
<PAGE>
SELECTED CONSOLIDATED HISTORICAL AND
PRO FORMA FINANCIAL DATA OF THE COMPANY
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
------------------------------------- -------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRO FORMA HISTORICAL PRO FORMA HISTORICAL
----------- ------------------------ ----------- ------------------------------------------
<CAPTION>
1998 1998 1997 1997 1997 1996 1995 1994
----------- ----------- ----------- ----------- --------- --------- --------- ---------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenue:
Rental income.............. $ 12,109 $ 4,919 $ 626 $ 44,007 $ 6,122 $ 2,477 $ 2,436 $ 2,038
Tenant recoveries and other
income................... 1,260 606 7 5,619 496 32 48 217
----------- ----------- ----------- ----------- --------- --------- --------- ---------
Total revenue.............. 13,369 5,525 633 49,626 6,618 2,509 2,484 2,255
----------- ----------- ----------- ----------- --------- --------- --------- ---------
Expenses:
Interest................... 4,281 2,159 308 17,226 2,855 1,246 1,267 1,098
Depreciation and
amortization............. 2,484 1,041 142 9,907 1,331 567 567 476
Property expenses.......... 3,460 899 79 14,743 728 31 42 43
General and
administrative........... 465 299 13 1,358 533 372 336 337
Reformation costs (1)...... -- 637 -- -- -- -- -- --
Termination of Advisory
Agreement (2)............ -- -- -- -- 1,353 -- -- --
----------- ----------- ----------- ----------- --------- --------- --------- ---------
Total expenses............. 10,690 5,035 542 43,234 6,800 2,216 2,212 1,954
----------- ----------- ----------- ----------- --------- --------- --------- ---------
Equity in income of
management company......... (159) -- -- 55 -- -- -- --
----------- ----------- ----------- ----------- --------- --------- --------- ---------
Income (loss) before minority
interests.................. 2,520 490 91 6,447 (182) 293 272 301
Income allocated to minority
interests.................. (1,033) (989) -- (3,608) (785) -- -- --
Preferred Share
distributions.............. (333) -- -- (1,334) -- -- -- --
----------- ----------- ----------- ----------- --------- --------- --------- ---------
Net income (loss)............ $ 1,154 $ (499) $ 91 $ 1,505 $ (967) $ 293 $ 272 $ 301
----------- ----------- ----------- ----------- --------- --------- --------- ---------
----------- ----------- ----------- ----------- --------- --------- --------- ---------
Net income (loss) per common
share...................... $ 0.07 $ (0.22) $ 0.06 $ 0.09 $ (0.60) $ 0.21 $ 0.19 $ 0.21
----------- ----------- ----------- ----------- --------- --------- --------- ---------
----------- ----------- ----------- ----------- --------- --------- --------- ---------
Cash dividends/ distributions
declared................... $ 1,276 $ 177 $ 816 $ 710 $ 710 $ 1,207
----------- ----------- --------- --------- --------- ---------
----------- ----------- --------- --------- --------- ---------
Cash dividends/ distributions
per share.................. $ 0.15 $ 0.12 $ 0.50 $ 0.50 $ 0.50 $ 0.85
----------- ----------- --------- --------- --------- ---------
----------- ----------- --------- --------- --------- ---------
BALANCE SHEET DATA (AS OF
PERIOD END):
Real estate investments, net
of accumulated
depreciation............... $ 469,850 $ 187,730 $ 22,931 $ 188,625 $ 23,070 $ 23,624 $ 24,179
Total assets................. 478,167 192,656 24,044 193,534 24,197 24,779 25,647
Mortgages payable............ 230,649 114,301 14,579 114,375 14,658 14,916 15,153
Total liabilities............ 233,542 117,194 14,959 117,008 15,026 15,191 15,620
Minority interests........... 64,611 64,611 -- 64,862 -- -- --
Shareholders' equity......... 180,014 10,851 9,085 11,664 9,171 9,588 10,026
<CAPTION>
<S> <C>
1993
---------
<S> <C>
OPERATING DATA:
Revenue:
Rental income.............. $ 1,073
Tenant recoveries and other
income................... 70
---------
Total revenue.............. 1,143
---------
Expenses:
Interest................... 461
Depreciation and
amortization............. 256
Property expenses.......... 63
General and
administrative........... 183
Reformation costs (1)...... --
Termination of Advisory
Agreement (2)............ --
---------
Total expenses............. 963
---------
Equity in income of
management company......... --
---------
Income (loss) before minority
interests.................. 180
Income allocated to minority
interests.................. --
Preferred Share
distributions.............. --
---------
Net income (loss)............ $ 180
---------
---------
Net income (loss) per common
share...................... $ 0.17
---------
---------
Cash dividends/ distributions
declared................... $ 923
---------
---------
Cash dividends/ distributions
per share.................. $ 0.88
---------
---------
BALANCE SHEET DATA (AS OF
PERIOD END):
Real estate investments, net
of accumulated
depreciation............... $ 15,110
Total assets................. 18,882
Mortgages payable............ 7,450
Total liabilities............ 7,950
Minority interests........... --
Shareholders' equity......... 10,932
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
------------------------------------- -------------------------------------------------------
PRO FORMA HISTORICAL PRO FORMA HISTORICAL
----------- ------------------------ ----------- ------------------------------------------
1998 1998 1997 1997 1997 1996 1995 1994
----------- ----------- ----------- ----------- --------- --------- --------- ---------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Cash flows provided (used
in):
Operating activities....... (3) $ 956 $ 223 (3) $ 3,216 $ 840 $ 678 $ 690
Investing activities....... (3) (682 ) 0 (3) 973 127 (551) (9,511)
Financing activities....... (3) (1,323 ) (256 ) (3) (1,052) (967) (1,001) 6,357
Funds from operations (4).... 1,246 229 1,718 847 827 768
Weighted average shares
outstanding (in
thousands)................. 16,699 2,268 1,420 16,699 1,601 1,420 1,420 1,420
PROPERTY DATA (AS OF PERIOD
END):
Number of properties owned... 49 17 7 49 17 7 7 7
Total rentable square feet
owned (in thousands)....... 4,734 1,852 370 4,734 1,852 370 370 370
<CAPTION>
1993
---------
<S> <C>
OTHER DATA:
Cash flows provided (used
in):
Operating activities....... $ 358
Investing activities....... (5,461)
Financing activities....... 7,829
Funds from operations (4).... 437
Weighted average shares
outstanding (in
thousands)................. 1,065
PROPERTY DATA (AS OF PERIOD
END):
Number of properties owned... 4
Total rentable square feet
owned (in thousands)....... 215
</TABLE>
- ------------------------
(1) Reflects a nonrecurring expense of $637 associated with the reformation of
the Company on March 16, 1998.
(2) Reflects a nonrecurring expense of $1,353 associated with the termination of
the Advisory Agreement on October 14, 1997, which was paid in the form of
Common Stock.
(3) Pro forma information relating to cash flows from operating, investing and
financing activities has not been included because management believes that
the information would not be meaningful due to the number of assumptions
required in order to calculate this information.
(4) The White Paper on Funds from Operations ("FFO") approved by the Board of
Governors of NAREIT in March 1995 defines FFO as net income (loss) (computed
in accordance with GAAP), excluding gains (or losses) from debt
restructuring and sales of properties, plus real estate related depreciation
and amortization and after adjustments for unconsolidated partnerships and
joint ventures. The Company believes that FFO is helpful to investors as a
measure of the financial performance of an equity REIT because, along with
cash flow from operating activities, financing activities and investing
activities, it provides investors with an indication of the ability of the
Company to incur and service debt, to make capital expenditures and to fund
other cash needs. The Company computes FFO in accordance with standards
established by NAREIT which may not be comparable to FFO reported by other
REITs that do not define the term in accordance with the current NAREIT
definition or that interpret the current NAREIT definition differently than
the Company. FFO does not represent cash generated from operating activities
determined in accordance with GAAP and should not be considered as an
alternative to net income (determined in accordance with GAAP) as an
indication of the Company's financial performance or to cash flow from
operating activities (determined in accordance with GAAP) as a measure of
the Company's liquidity, nor is it indicative of funds available to fund the
Company's cash needs, including its ability to make cash distributions.
47
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND TRUSTEES
Set forth below is certain information as of the date of this Proxy
Statement for (i) the Trustees of the Company, (ii) the executive officers of
the Company and (iii) the Trustees and executive officers of the Company as a
group.
<TABLE>
<CAPTION>
NAME AGE OFFICE CLASS
- ------------------------------------------------- --- ------------------------------------------------- -----
<S> <C> <C> <C>
Jay H. Shidler................................... 52 Chairman of the Board of Trustees III
Clay W. Hamlin, III.............................. 53 Chief Executive Officer and Trustee III
Vernon R. Beck................................... 56 Vice President and Vice Chairman of the Board of I
Trustees
Kenneth D. Wethe................................. 56 Trustee II
Allen C. Gehrke.................................. 63 Trustee I
William H. Walton................................ 45 Trustee II
Kenneth S. Sweet, Jr............................. 65 Trustee III
Thomas D. Cassel................................. 39 Vice President, Finance and Treasurer
John D. Parsinen................................. 55 Secretary
</TABLE>
- ------------------------
* Upon closing of the Transaction, Mr. Griffin will become President of the
Company and Messrs. Crooke and Kesler will become Trustees of the Company.
In addition, Messrs. Waesche and Gurley will become executive officers of
the Company. For biographies of each of the five aforementioned persons, see
the "The Transaction--Changes in Operations and Additions to Management."
JAY H. SHIDLER has been Chairman of the Board of Trustees since October
1997. Mr. Shidler is the Founder and Managing Partner of The Shidler Group. A
nationally acknowledged expert in the field of real estate investment and
finance, Mr. Shidler has over 25 years of experience in real estate investment
and has been directly involved in the acquisition and management of over 1,000
properties in 40 states and Canada totaling over $4 billion in aggregate value.
Mr. Shidler is a founder and current Chairman of the Board of Trustees of First
Industrial Realty Trust, Inc. and is a founder and former director and Co-
Chairman of TriNet Corporate Realty Trust, Inc. Mr. Shidler is also founder and
Chairman of the Board of Trustees of CGA Group, Ltd., a holding company whose
subsidiary is a AAA-rated financial guarantor based in Bermuda. Mr. Shidler
serves on the boards of directors of several companies and is active as a
Trustee of several charitable organizations, including The Shidler Family
Foundation. Mr. Shidler holds a bachelor's degree in Business Administration
from the University of Hawaii.
CLAY W. HAMLIN, III has been a Trustee and President and Chief Executive
Officer of the Company since October 1997. Upon consummation of the Transaction,
Mr. Hamlin will relinquish the role of President to Randall M. Griffin. See "The
Transaction--Changes in Operations and Additions to Management." Mr. Hamlin
joined The Shidler Group in May 1989, as Managing Partner of The Shidler Group's
Mid-Atlantic regional office and acquired, managed and leased over four million
square feet of commercial property with a value in excess of $300 million. A
resident of Philadelphia for over 30 years, Mr. Hamlin has been active in the
real estate business for 25 years. Mr. Hamlin is an attorney, a CPA and holds an
MBA from The Wharton School of Business and an undergraduate degree from the
University of Pennsylvania. Mr. Hamlin served as a Lieutenant J.G. in the U.S.
Navy, and is active in many professional and charitable organizations. Mr.
Hamlin is a founding shareholder of both TriNet Corporate Realty Trust, Inc. and
First Industrial Realty Trust, Inc. His professional affiliations include the
Urban Land Institute, NAREIT, the American Institute of CPAs and the American
Bar Association.
VERNON R. BECK is Vice Chairman of the Board of Trustees and a Vice
President of the Company. Mr. Beck was elected a Trustee of the Company in
January 1990. From 1988 to 1997, Mr. Beck served as President of the Company and
as President of Crown Advisors, Inc., the Company's former external
48
<PAGE>
advisors. Since 1976, Mr. Beck has also been President of Vernon Beck &
Associates, Inc., a commercial mortgage banking and real estate development
firm, which has developed and financed numerous commercial real estate projects.
Mr. Beck is a former commercial loan officer with IDS Mortgage Corporation and
senior analyst with Northwestern National Life Insurance Company.
KENNETH D. WETHE has been a Trustee of the Company since January 1990. Since
1990, Mr. Wethe has been the owner and principal officer of Wethe & Associates,
a Dallas-based firm providing independent risk management, insurance and
employee benefit services to school districts and governmental agencies. Mr.
Wethe's background includes over 26 years experience in the group insurance and
employee benefits area. He is a certified public accountant and holds an MBA
from Pepperdine University.
ALLEN C. GEHRKE has been a Trustee of the Company since 1995. Prior to
becoming a private investor in 1995, Mr. Gehrke served for 35 years in various
key positions at Fleming Companies, Inc. As Senior Vice President of Corporate
Development, Mr. Gehrke's responsibilities included management of company
physical assets, market research, lease negotiations and real estate financing.
Prior to his employment with Fleming Companies, Inc., Mr. Gehrke spent seven
years with Midwest Contractors and L.A. Construction Co. of Milwaukee. Mr.
Gehrke is a former director of United Cerebral Palsy and several other community
organizations.
WILLIAM H. WALTON has been a Trustee of the Company since October 1997. Mr.
Walton is a Managing Principal of Westbrook Partners, LLC ("Westbrook") which he
co-founded in April of 1994. With offices in Dallas, New York, San Francisco and
Florida, Westbrook is a fully integrated real estate investment management
company. Westbrook is the sponsor of Westbrook Real Estate Fund and Westbrook
Real Estate Fund II, which together control approximately $4 billion of real
estate assets including investments in: real estate companies and securities;
offices, retail and industrial properties; apartments; hotels; and residential
developments. Prior to co-founding Westbrook, Mr. Walton was a Managing Director
of Morgan Stanley Realty. Mr. Walton holds an AB from Princeton University and
an MBA from Harvard Business School.
KENNETH S. SWEET, JR. has been a Trustee of the Company since October 1997.
Mr. Sweet is the Managing Director of Gordon Stuart Associates, Inc., which he
founded in 1991. In 1971, Mr. Sweet founded K.S. Sweet Associates which
specialized in real estate and venture capital investments. From 1957 to 1971,
he served in increasingly responsible positions at The Fidelity Mutual Life
Insurance Company. Currently the Managing General Partner of fifteen venture
capital and real estate partnerships with assets of over $300 million, Mr. Sweet
has over 37 years of experience in real estate investments, management,
development and venture capital transactions. Mr. Sweet is active in community
affairs and serves as a director, chairman of the real estate committee and a
member of the finance committee of the Main Line Health and the Philadelphia
Chapter of the Nature Conservancy and is on the Advisory Committee of the Arthur
Ashe Youth Tennis Center. Mr. Sweet holds a BA degree from the Lafayette College
and attended The Wharton School of Business.
THOMAS D. CASSEL has been Vice President, Finance and Treasurer of the
Company since October 1997. Mr. Cassel is a Certified Public Accountant with
over 18 years experience in real estate accounting, finance, acquisitions and
management. From 1995 until he joined the Company, Mr. Cassel was Vice President
and Chief Financial Officer of Delancey Investment Group, Inc., a Philadelphia
based real estate investment and management company of commercial and
residential properties. Prior to Delancey, he was a real estate consulting
manager for Arthur Andersen, LLP for four years and Kenneth Leventhal & Co. for
two years. As a consultant, he performed strategic planning, capital markets,
valuation and acquisition analyses for a variety of real estate companies,
including real estate investment trusts. Mr. Cassel received his bachelor's
degree in Finance with a major in Accounting from the Wharton School at the
University of Pennsylvania. He is active in several professional and charitable
organizations.
JOHN PARSINEN has been Secretary of the Company since January 1990. Mr.
Parsinen has over 31 years of experience in commercial real estate. Mr. Parsinen
has developed and owns various real estate projects.
49
<PAGE>
Mr. Parsinen has been a senior attorney at Parsinen Kaplan Levy Rosberg &
Gotlieb, P.A., Minneapolis, Minnesota, since it was formed in 1982. Mr. Parsinen
owns 50% of Guaranty Title, Inc., a Minneapolis-based real estate title
insurance company. Mr. Parsinen was a general partner of Earle Brown Commons
Limited Partnership II, which owned and operated an elderly housing facility in
Brooklyn Center, Minnesota. In 1994, the limited partnership initiated a Chapter
11 bankruptcy reorganization proceeding to restructure certain tax and debt
obligations. The bankruptcy was dismissed in 1995 and the project was sold.
CERTAIN INFORMATION REGARDING THE BOARD OF TRUSTEES AND COMMITTEES
THE BOARD OF TRUSTEES. The business and affairs of the Company are managed
under the direction of the Board of Trustees. Pursuant to the terms of the
Declaration of Trust, the Trustees are divided into three classes. Class I will
hold office for a term expiring at the annual meeting of shareholders to be held
in 1999, Class II will hold office for a term expiring at the annual meeting of
shareholders to be held in 2000, and Class III will hold office for a term
expiring at the annual meeting of shareholders to be held in 2001. At each
annual meeting of shareholders of the Company, the successors to the class of
Trustees whose terms expire at the meeting will be elected to hold office for a
term continuing until the annual meeting of shareholders held in the third year
following the year of their election and the election and qualification of their
successors. Upon closing of the Transaction, the Board of Trustees will be
expanded from seven to nine members, as discussed under "The
Transaction--Changes in Operation and Additions to Management."
COMMITTEES. The Board of Trustees has Audit, Compensation and Investment
Committees. The Audit Committee, which currently consists of Messrs. Wethe,
Gehrke and Beck, reviews, recommends and reports to the Board of Trustees on (1)
the engagement of independent auditors and range of audit fees, (2) the quality
and effectiveness of internal controls, (3) engagement or discharge of the
independent auditors, (4) professional services provided by the independent
auditors and (5) the review and approval of major changes in the Company's
accounting principles and practices. The Compensation Committee, which currently
consists of Messrs. Sweet and Walton, determines all executive compensation,
administers stock option plans and other incentive plans and approves employment
contracts. The Investment Committee, which consists of Messrs. Shidler, Sweet
and Wethe, must approve all investments and acquisitions. Investments of less
than $25 million may be made with Investment Committee approval only, and
investments in excess of that amount must also be approved by the Board of
Trustees. The Board of Trustees presently acts as its own Nominating Committee.
COMPENSATION OF TRUSTEES. Independent Trustees (Messrs. Gehrke, Sweet,
Walton and Wethe) each receive an annual fee of $15,000. Trustees incurring
travel expenses in connection with their duties as Trustees of the Company are
reimbursed in full. Each Trustee is eligible to participate in the Incentive
Plan. The Compensation Committee intends to grant to each Trustee who is not an
employee of the Company, upon initial election or appointment, an option to
purchase 5,000 Common Shares, at the then fair market value of the Common
Shares.
50
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT AND OTHERS
The following table contains certain information as of June 1, 1998
regarding the beneficial ownership of Common Shares by (i) each person known by
the Company to own beneficially more than 5% of the Common Shares, (ii) each
current Trustee and executive officer of the Company, and (iii) the current
Trustees and executive officers as a group. Any shares which are subject to an
option or a warrant exercisable within 60 days are reflected in the following
table and are deemed to be outstanding for the purpose of computing the
percentage of Common Shares owned by the option or warrant holder but are not
deemed to be outstanding for the purpose of computing the percentage of Common
Shares owned by any other person. Unless otherwise noted, each person identified
below possesses sole voting and investment power with respect to such shares.
<TABLE>
<CAPTION>
NUMBER OF
COMMON PERCENT OF
SHARES ALL
BENEFICIALLY COMMON
OWNED(1) SHARES
----------- -------------
<S> <C> <C>
Jay H. Shidler......................................................................... 300,000 3.1%
Clay W. Hamlin, III.................................................................... 300,000 3.1
Vernon R. Beck......................................................................... 151,793(2) 1.6
John Parsinen.......................................................................... 151,965(3) 1.6
Allen C. Gehrke........................................................................ 7,750(4) *
Kenneth S. Sweet, Jr................................................................... 10,000 *
William H. Walton...................................................................... 0 --
Kenneth D. Wethe....................................................................... 12,724(2) *
Thomas D. Cassel....................................................................... 660 *
All Trustees and Executive Officers as a Group (9 persons)............................. 934,892(5) 9.4%
</TABLE>
- ------------------------
* Represents less than one percent.
(1) Shares Beneficially Owned by a person are determined in accordance with the
definition of "beneficial ownership," as set forth in the regulations of the
Commission and, accordingly, may include securities owned by or for, among
others, the spouse, children or certain other relatives of such person, as
well as other shares as to which the person has or shares voting or
investment power or has the option or right to acquire Common Shares within
60 days.
(2) Includes 12,500 Common Shares issuable upon exercise of presently
exercisable options.
(3) Includes 10,000 Common Shares issuable upon exercise of presently
exercisable options. Includes 3,000 shares owned by Mr. Parsinen's wife.
(4) Includes 7,500 Common Shares issuable upon exercise of presently exercisable
options.
(5) Includes 42,500 Common Shares issuable upon exercise of presently
exercisable options.
INDEPENDENT ACCOUNTANTS
Representatives of PricewaterhouseCoopers LLP (formerly Coopers & Lybrand
L.L.P.) are expected to be present at the Special Meeting to respond to
questions from shareholders and to make a statement if they so desire.
51
<PAGE>
OTHER MATTERS
As of the date of this Proxy Statement, neither the Board of Trustees nor
management knows of other matters which will be presented for consideration at
the Special Meeting. However, if any other business should properly come before
the Special Meeting, the persons named in the enclosed proxy (or their
substitutes) will have discretionary authority to take such action as shall be
in accordance with their best judgment.
EXPERTS
The consolidated financial statements of the Constellation Services
Companies as of December 31, 1997 and 1996 and for each of the years in the
three-year period ended December 31, 1997 and the combined statement of revenues
and certain expenses of the Constellation Properties for the year ended December
31, 1997 have been included herein in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that firm as experts in accounting and auditing.
The consolidated financial statements of the Company as of December 31, 1997
and 1996 and for each of the years in the three-year period ended December 31,
1997, incorporated by reference in this Proxy Statement, have been incorporated
by reference herein in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
The combined statement of revenue and certain expenses of the properties
known as Airport Square (Airport Square Acquisition Properties) for the year
ended December 31, 1997 have been incorporated herein in reliance on the report
of PricewaterhouseCoopers LLP, independent accountants, given on the authority
of that firm as experts in accounting and auditing.
The combined statement of revenue and certain expenses of the properties in
Fairfield, New Jersey (Wagman Acquisition Properties) for the year ended
December 31, 1997 have been incorporated herein in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that firm as experts in accounting and auditing.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, filed by the Company with the Commission pursuant
to Section 13 of the Securities Exchange Act of 1934 (the "Exchange Act") (File
No.1-13274), are incorporated herein by reference: (i) the Annual Report on Form
10-K for the year ended December 31, 1997, (ii) the Quarterly Report on Form
10-Q for the quarter ended March 31, 1998, (iii) the Current Reports on Forms
8-K and 8-K/A filed May 14, 1998, May 29, 1998, June 10, 1998, and July 7, 1998,
(iv) the Proxy Statement/ Prospectus dated February 11, 1998, and (v) the
Prospectus dated April 22, 1998.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Proxy Statement and
prior to the date of the Special Meeting shall be deemed to be incorporated by
reference herein from the date of filing 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 Proxy Statement to the extent that a statement contained
herein or in any subsequently filed document 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 Proxy Statement.
Also incorporated by reference herein are the Transaction Agreements, copies
of which have been filed with the Securities and Exchange Commission as Exhibits
to this Proxy Statement.
52
<PAGE>
TO THE EXTENT THAT THIS PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS, EXCEPT
THE EXHIBITS TO SUCH DOCUMENTS (UNLESS SUCH EXHIBITS 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, PA 19103 OR BY TELEPHONE AT (215) 567-1800. IN ORDER TO ENSURE
TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY AUGUST 7, 1998.
By order of the Board of Trustees,
/s/ John D. Parsinen
John D. Parsinen
Secretary
Date: July 22, 1998
Philadelphia, Pennsylvania
53
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C> <C>
I. PRO FORMA CONDENSED CONSOLIDATING FINANCIAL STATEMENTS OF THE COMPANY
Pro forma Condensed Consolidating Balance Sheet as of March 31, 1998.................................. F-4
Pro forma Condensed Consolidating Statements of Operations for the Three Months
Ended March 31, 1998 and for the Year Ended December 31, 1997....................................... F-5
Notes and Management's Assumptions to Pro Forma Condensed
Consolidating Financial Information................................................................. F-7
II. CONSTELLATION PROPERTIES
Report of Independent Accountants..................................................................... F-16
Combined Historical Statements of Revenue and Certain Expenses for the Three Months
Ended March 31, 1998 (unaudited) and for the Year Ended December 31, 1997........................... F-17
Notes to Combined Historical Statement of Revenue and Certain Expenses................................ F-18
III. CONSTELLATION SERVICE COMPANIES
Report of Independent Accountants..................................................................... F-22
Consolidated Balance Sheets as of March 31, 1998 and 1997 (unaudited) and
December 31, 1997 and 1996.......................................................................... F-23
Consolidated Statements of Operations for the Three Months Ended March 31, 1998 and
1997 (unaudited) and for the Years Ended December 31, 1997, 1996, and 1995.......................... F-24
Consolidated Statements of Equity for the Three Months Ended March 31, 1998 and 1997 (unaudited) and
for the Years Ended December 31, 1997, 1996, and 1995............................................... F-25
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1998 and
1997 (unaudited) and for Years Ended December 31, 1997 and 1996, and 1995........................... F-26
Notes to Consolidated Financial Statements............................................................ F-27
</TABLE>
F-1
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST
PRO FORMA CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The following sets forth the unaudited pro forma condensed consolidating
balance sheet of Corporate Office Properties Trust and its consolidated
affiliates, including Corporate Office Properties, L.P. (the "Operating
Partnership") as of March 31, 1998, and the unaudited pro forma condensed
consolidating statements of operations for the year ended December 31, 1997 and
the three-month period ended March 31, 1998 of the Company (as defined below).
Corporate Office Properties Trust and its consolidated affiliates, including the
Operating Partnership, are collectively referred to herein as the "Company."
In October 1997, the Operating Partnership acquired partnership interests in
a portfolio of ten properties (the "Initial Office Properties"), representing
the Mid-Atlantic suburban office operations of The Shidler Group, subject to
$100 million of indebtedness (the "Term Credit Facility"). At that time, the
Company became the sole general partner of the Operating Partnership, which was
formed to acquire and hold the Initial Office Properties. In connection with the
acquisition of the Initial Office Properties, the Company issued 600,000 of its
common shares of beneficial interest ("Common Shares") and the Operating
Partnership issued (or committed to issue) 3,181,818 common partnership units
("Partnership Units") and 2.1 million preferred partnership units ("Preferred
Units").
The acquisition of the Initial Office Properties is reflected in the
Company's historical consolidated balance sheet as of December 31, 1997, and is
included in the pro forma condensed consolidating statements of operations as if
it occurred on January 1, 1997.
The pro forma condensed consolidating financial information is presented as
if the following transactions had been consummated on March 31, 1998 for balance
sheet purposes, and at the beginning of the period presented for purposes of the
statements of operations:
- The completion of a public offering (the "Offering") in which the Company
issued 7,500,000 Common Shares at $10.50 per share and contributed all of
the net proceeds to the Operating Partnership in exchange for 7,500,000
Partnership Units.
- The acquisition of nine multistory office buildings and three office/flex
buildings (the "Airport Square Properties").
- The acquisition of two office properties (the "Fairfield Properties").
- The closing of a $100 million, two-year-senior revolving credit facility
(the "Revolving Credit Facility") and the borrowing of $23,750,000 under
the Revolving Credit Facility to pay a portion of the consideration for
the Fairfield Properties.
- The acquisition by the Company from various parties (collectively,
"Constellation") of interests in (i) 14 office and 2 retail properties
(the "Constellation Properties"); (ii) a 75% ownership interest in a real
estate management services entity; and (iii) certain equipment, furniture
and other assets related to management operations ((ii) and (iii)
collectively, the "Constellation Service Companies") in exchange for: (a)
issuance by the Company of 969,900 non-voting Series A Convertible
Preferred Shares of Beneficial Interest, $0.01 par value, $25.00
liquidation preference ("Preferred Shares") and 6,928,000 Common Shares;
(b) the assumption of debt aggregating $12,990,000; and (c) the payment of
$69,038,000 in cash. The foregoing is referred to herein as the
"Transaction."
- The borrowing of $73,143,000 under the Revolving Credit Facility to pay
for certain of the cash requirements of the Transaction.
- The contribution by the Company of all the assets acquired in the
Transaction to the Operating Partnership in exchange for Partnership Units
and Preferred Units.
F-2
<PAGE>
The accompanying pro forma condensed consolidating financial information
does not include the effects of the acquisition of two retail properties (the
"Development Properties"), as the Company's obligation to complete such
acquisitions is contingent on the occurrence of certain events.
This pro forma condensed consolidating financial information should be read
in conjunction with the historical financial statements of the Company and those
of the Initial Office Properties, the Airport Square Properties, the Fairfield
Properties, the Constellation Properties and the Constellation Service
Companies, which are incorporated by reference or included elsewhere herein. In
management's opinion, all adjustments necessary to reflect the effects of the
transactions to be consummated have been made. This pro forma condensed
consolidating financial information is unaudited and is not necessarily
indicative of what the actual financial position would have been at March 31,
1998, nor does it purport to represent the future financial position and the
results of operations of the Company.
F-3
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST
PRO FORMA CONDENSED CONSOLIDATING BALANCE SHEET
AS OF MARCH 31, 1998
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
OFFERING,
COMPANY AIRPORT SQUARE
HISTORICAL AND FAIRFIELD PRO FORMA PRO FORMA
(A) PROPERTIES (B) ADJUSTMENTS (C) CONSOLIDATED
---------- -------------- --------------- ------------
<S> <C> <C> <C> <C>
ASSETS
Net investments in real estate........................ $ 187,730 $ 102,073 $ 180,047(D) $ 469,850
Cash and cash equivalents............................. 2,346 386 -- 2,732
Deferred costs, net................................... 793 505 -- 1,298
Investment in management company...................... -- -- 2,500(D) 2,500
Other assets.......................................... 1,787 -- -- 1,787
---------- -------------- --------------- ------------
Total assets.................................... $ 192,656 $ 102,964 $ 182,547 $ 478,167
---------- -------------- --------------- ------------
---------- -------------- --------------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Mortgage loans payable............................ $ 114,301 $ 30,215 $ 86,133(E) $ 230,649
Other liabilities................................. 2,893 -- -- 2,893
---------- -------------- --------------- ------------
Total liabilities............................... 117,194 30,215 86,133 233,542
---------- -------------- --------------- ------------
Minority interests
Preferred Units................................... 52,500 -- -- 52,500
Partnership Units................................. 12,111 -- -- 12,111
---------- -------------- --------------- ------------
Total minority interests........................ 64,611 -- -- 64,611
---------- -------------- --------------- ------------
Shareholders' equity
Preferred shares of beneficial interest........... -- -- 10(F) 10
Common shares of beneficial interest.............. 23 75 69(G) 167
Additional paid in capital........................ 16,647 72,674 96,335(H) 185,656
Accumulated deficit............................... (5,819) -- -- (5,819)
---------- -------------- --------------- ------------
Total shareholders' equity...................... 10,851 72,749 96,414 180,014
---------- -------------- --------------- ------------
Total liabilities and shareholders' equity...... $ 192,656 $ 102,964 $ 182,547 $ 478,167
---------- -------------- --------------- ------------
---------- -------------- --------------- ------------
</TABLE>
See accompanying notes and management's assumptions to pro forma financial
statements
F-4
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST
PRO FORMA CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
OFFERING,
INITIAL
OFFICE,
COMPANY AIRPORT SQUARE
HISTORICAL AND FAIRFIELD PRO FORMA PRO FORMA
(A) PROPERTIES (B) ADJUSTMENTS (C) CONSOLIDATED
------------- -------------- --------------- ------------
<S> <C> <C> <C> <C>
REVENUES:
Base rents....................................... $ 6,122 $ 23,129 $ 14,756(D) $ 44,007
Tenant reimbursements............................ 434 2,795 2,095(D) 5,324
Other............................................ 62 20 213(D) 295
------------- ------- ------- ------------
Total revenues................................. 6,618 25,944 17,064 49,626
------------- ------- ------- ------------
EXPENSES:
Property operating............................... 728 8,029 5,986(D) 14,743
General and administrative....................... 533 299 526(D) 1,358
Interest expense................................. 2,855 8,194 6,177(D) 17,226
Depreciation and amortization.................... 1,331 5,059 3,517(D) 9,907
Termination of Advisory Agreement................ 1,353 -- (1,353)(E) --
------------- ------- ------- ------------
Total expenses................................. 6,800 21,581 14,853 43,234
------------- ------- ------- ------------
Equity in income of management company............. -- -- 55(D) 55
------------- ------- ------- ------------
Income (loss) before minority interests............ (182) 4,363 2,266 6,447
Minority interests
Preferred Units.................................. (720) -- (2,692)(F) (3,412)
Partnership Units................................ (65) -- (131)(F) (196)
------------- ------- ------- ------------
Net income (loss).................................. (967) 4,363 (557) 2,839
Preferred share distributions...................... -- -- (1,334)(F) (1,334)
------------- ------- ------- ------------
Net income (loss) available to Common
Shareholders..................................... $ (967) $ 4,363 $ (1,891) $ 1,505
------------- ------- ------- ------------
------------- ------- ------- ------------
Net income (loss) per share: Basic and diluted..... $ (0.60) $ 0.09
------------- ------------
------------- ------------
Weighted average number of Common Shares........... 1,600,807 16,699,083
------------- ------------
------------- ------------
</TABLE>
See accompanying notes and management's assumptions to pro forma financial
statements
F-5
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST
PRO FORMA CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1998
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
OFFERING,
HISTORICAL AIRPORT SQUARE
CONSOLIDATED AND FAIRFIELD PRO FORMA PRO FORMA
(A) PROPERTIES (B) ADJUSTMENTS (C) CONSOLIDATED
--------------- --------------- --------------- -------------
<S> <C> <C> <C> <C>
REVENUES:
Base rents............................... $ 4,919 $ 3,496 $ 3,694(D) $ 12,109
Tenant reimbursements.................... 553 142 426(D) 1,121
Other.................................... 53 4 82(D) 139
--------------- ------ ------ -------------
Total revenues......................... 5,525 3,642 4,202 13,369
--------------- ------ ------ -------------
EXPENSES:
Property operating....................... 899 1,088 1,473(D) 3,460
General and administrative............... 299 29 137(D) 465
Interest expense......................... 2,159 579 1,543(D) 4,281
Depreciation and amortization............ 1,041 564 879(D) 2,484
Reformation costs........................ 637 -- (637)(E) --
--------------- ------ ------ -------------
Total expenses......................... 5,035 2,260 3,395 10,690
--------------- ------ ------ -------------
Equity in income of management company..... -- -- (159)(D) (159)
--------------- ------ ------ -------------
Income (loss) before minority interests.... 490 1,382 648 2,520
Minority interests
Preferred Units.......................... (853) -- -- (F) (853)
Partnership Units........................ (136) -- (44)(F) (180)
--------------- ------ ------ -------------
Net income (loss).......................... (499) 1,382 604 1,487
Preferred share distributions.............. -- -- (333)(F) (333)
--------------- ------ ------ -------------
Net income (loss) available to Common
Shareholders............................. $ (499) $ 1,382 $ 271 $ 1,154
--------------- ------ ------ -------------
--------------- ------ ------ -------------
Net income (loss) per share: Basic and
diluted.................................. $ (0.22) $ 0.07
--------------- -------------
--------------- -------------
Weighted average number of Common Shares... 2,268,333 16,699,083
--------------- -------------
--------------- -------------
</TABLE>
See accompanying notes and management's assumptions to pro forma financial
statements
F-6
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST
NOTES AND MANAGEMENT'S ASSUMPTIONS TO
PRO FORMA CONDENSED CONSOLIDATING
FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. BASIS OF PRESENTATION:
Corporate Office Properties Trust (the "Company") is a self-administered
Maryland real estate investment trust. As of March 31, 1998, the Company's
portfolio included 17 commercial real estate properties leased for office and
retail purposes.
These pro forma condensed consolidating financial statements should be read
in conjunction with the historical financial statements and notes thereto of the
Company, the Initial Office Properties, the Airport Square Properties, the
Fairfield Properties, the Constellation Properties and the Constellation Service
Companies, incorporated by reference or included elsewhere herein. In
management's opinion, all adjustments necessary to reflect the effects of the
Offering and the acquisitions of the Initial Office Properties, the Airport
Square Properties, the Fairfield Properties, the Constellation Properties and
the Constellation Service Companies by the Company have been made.
2. ADJUSTMENTS TO PRO FORMA CONDENSED CONSOLIDATING BALANCE SHEET:
(A) Reflects the historical consolidated balance sheet of the Company as of
March 31, 1998.
(B) Reflects the effects of the Offering and the acquisitions of the Airport
Square Properties and the Fairfield Properties.
<TABLE>
<CAPTION>
AIRPORT SQUARE
PROPERTIES FAIRFIELD
OFFERING(I) (II) PROPERTIES(III) COMBINED
----------- -------------- ------------- ----------
<S> <C> <C> <C> <C>
ASSETS
Net investments in real estate................................ $ -- $ 72,668 $ 29,405 $ 102,073
Cash and cash equivalents..................................... 72,749 (72,668) 305 386
Deferred costs, net........................................... -- -- 505 505
----------- -------------- ------------- ----------
TOTAL ASSETS.............................................. $ 72,749 $ -- $ 30,215 $ 102,964
----------- -------------- ------------- ----------
----------- -------------- ------------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Mortgage loans payable...................................... $ -- $ -- $ 30,215 $ 30,215
----------- -------------- ------------- ----------
TOTAL LIABILITIES......................................... -- -- 30,215 30,215
----------- -------------- ------------- ----------
Shareholders' equity
Common shares of beneficial interest........................ 75 -- -- 75
Additional paid in capital.................................. 72,674 -- -- 72,674
----------- -------------- ------------- ----------
TOTAL SHAREHOLDERS' EQUITY................................ 72,749 -- -- 72,749
----------- -------------- ------------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................ $ 72,749 $ -- $ 30,215 $ 102,964
----------- -------------- ------------- ----------
----------- -------------- ------------- ----------
</TABLE>
(i) Reflects the proceeds of the Offering of $78,750 based upon an offering
of 7,500,000 Common Shares at an offering price of $10.50 per share, net
of underwriting discounts and offering expenses of approximately $6,001.
F-7
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST
NOTES AND MANAGEMENT'S ASSUMPTIONS TO
PRO FORMA CONDENSED CONSOLIDATING
FINANCIAL INFORMATION (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
2. ADJUSTMENTS TO PRO FORMA CONDENSED CONSOLIDATING BALANCE SHEET: (CONTINUED)
(ii) Reflects the Company's acquisition of the Airport Square Properties
based upon the purchase price of $71,479 plus closing costs of $1,189
paid in cash.
(iii) Reflects the Company's acquisition of the Fairfield Properties based
upon the purchase price of $28,800 plus closing costs of $605 paid
through the Company's assumption of debt of $6,465 and initial funding
proceeds of $23,750 from the Revolving Credit Facility, net of loan fees
totaling $505 in connection with the Revolving Credit Facility and the
debt assumed.
(C) The accompanying pro forma condensed consolidating financial information
does not include the effects of the acquisition of the Development
Properties (estimated purchase price of $25,594), as the Company's
obligation to complete such acquisitions is contingent on the occurrence of
certain events.
(D) Reflects the contribution of the Constellation Properties and Constellation
Service Companies in exchange for: (i) issuance of 969,900 Preferred Shares
at a value equal to a liquidation preference of $25.00 per share ($24,248);
(ii) issuance of 6,928,000 Common Shares at a value of $10.50 per share
($72,744); (iii) assumption of debt aggregating $12,990; and (iv)
utilization of loan proceeds from the Revolving Credit Facility of $72,565,
including payment of $3,527 of costs associated with the acquisition. The
total contribution is recorded as follows:
<TABLE>
<S> <C>
Net investments in real estate........................................ $180,047
Investment in management company...................................... 2,500
---------
Total investments from Transaction.................................... $182,547
---------
---------
</TABLE>
The Company will be acquiring from Constellation an interest in the
Constellation Service Companies for $2,500 which the Company will contribute
to a newly formed company in exchange for indebtedness and stock. As this
investment will be accounted for under the equity method of accounting, the
pro forma adjustments reflect the income (loss) from this investment as
equity in income of management company.
F-8
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST
NOTES AND MANAGEMENT'S ASSUMPTIONS TO
PRO FORMA CONDENSED CONSOLIDATING
FINANCIAL INFORMATION (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
2. ADJUSTMENTS TO PRO FORMA CONDENSED CONSOLIDATING BALANCE SHEET: (CONTINUED)
(E) Reflects the net increase in mortgage loans payable as follows:
<TABLE>
<S> <C>
Net proceeds from the Revolving Credit Facility in connection with the
Transaction................................................................... $73,143
Assumption of mortgages in connection with the Transaction..................... 12,990
---------
Net increase in mortgage loans payable....................................... $86,133
---------
---------
(F) Reflects the issuance of 969,900 Preferred Shares, $0.01 par value............ $10
---------
---------
(G) Reflects the issuance of 6,928,000 Common Shares, $0.01 par value.............. $69
---------
---------
(H) Reflects increase in additional paid in capital as follows:
Issuance of 969,900 Preferred Shares, excess of $25.00 over par................ $24,238
Issuance of 6,928,000 Common Shares, excess of $10.50 over par................. 72,675
Less: costs in connection with the Transaction................................. (578)
---------
Net increase in additional paid in capital................................... $96,335
---------
---------
</TABLE>
3. ADJUSTMENTS TO PRO FORMA CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS:
(A) Reflects the historical consolidated operations of the Company.
(B) Reflects the effects of the combined adjusted historical operations of the
Initial Office Properties, the Airport Square Properties and the Fairfield
Properties which were acquired on October 14, 1997, April 30, 1998 and May
28, 1998, respectively.
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
INITIAL OFFICE AIRPORT SQUARE FAIRFIELD
PROPERTIES PROPERTIES PROPERTIES
THROUGH THROUGH THROUGH PRO FORMA
10/13/97 12/31/97 12/31/97 ADJUSTMENTS COMBINED
-------------- -------------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
REVENUES
Base rents.................................. $12,216 $8,524 $2,389 $-- $23,129
Tenant reimbursements....................... 1,282 275 1,238 -- 2,795
Other....................................... -- 20 -- -- 20
------- ------ ---------- ----------- --------
TOTAL REVENUES.......................... 13,498 8,819 3,627 -- 25,944
------- ------ ---------- ----------- --------
EXPENSES
Property operating.......................... 2,731 3,367 1,931 -- 8,029
General and administrative.................. 174 41 84 -- 299
Interest expense............................ 7,388 -- -- 806(i) 8,194
Depreciation and amortization............... 2,580 -- -- 2,479(ii) 5,059
------- ------ ---------- ----------- --------
TOTAL EXPENSES.......................... 12,873 3,408 2,015 3,285 21,581
------- ------ ---------- ----------- --------
INCOME (LOSS) BEFORE MINORITY INTERESTS....... $ 625 $5,411 $1,612 $(3,285) $ 4,363
------- ------ ---------- ----------- --------
------- ------ ---------- ----------- --------
</TABLE>
F-9
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST
NOTES AND MANAGEMENT'S ASSUMPTIONS TO
PRO FORMA CONDENSED CONSOLIDATING
FINANCIAL INFORMATION (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
3. ADJUSTMENTS TO PRO FORMA CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS:
(CONTINUED)
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
FAIRFIELD
INITIAL AIRPORT SQUARE PROPERTIES
OFFICE PROPERTIES HISTORICAL
PROPERTIES HISTORICAL THROUGH PRO FORMA
HISTORICAL THROUGH 3/31/98 3/31/98 ADJUSTMENTS COMBINED
------------- --------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES
Base rents.................................. $ -- $ 2,528 $ 968 $ -- $ 3,496
Tenant reimbursements....................... -- 64 78 -- 142
Other....................................... -- 4 -- -- 4
------ ------ ----------- ----------- -----------
TOTAL REVENUES.......................... -- 2,596 1,046 -- 3,642
------ ------ ----------- ----------- -----------
EXPENSES
Property operating.......................... -- 805 283 -- 1,088
General and administrative.................. -- 6 23 -- 29
Interest expense............................ -- -- -- 579(i) 579
Depreciation and amortization............... -- -- -- 564(ii) 564
------ ------ ----------- ----------- -----------
TOTAL EXPENSES.......................... -- 811 306 1,143 2,260
------ ------ ----------- ----------- -----------
INCOME (LOSS) BEFORE MINORITY INTERESTS....... $ -- $ 1,785 $ 740 $ (1,143) $ 1,382
------ ------ ----------- ----------- -----------
------ ------ ----------- ----------- -----------
</TABLE>
(i) Reflects the net increase in interest expense resulting from:
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE YEAR MONTH PERIOD
ENDED ENDED
DECEMBER 31, 1997 MARCH 31, 1998
----------------- -----------------
<S> <C> <C>
The Term Credit Facility, for the period January 1, 1997 through
October 13, 1997, the date on which the loan originated, which
debt bears interest at 7.5% per annum, net of historical interest
expense of the Initial Office Properties.......................... $ (1,511) $ --
The debt assumed in connection with the acquisition of the Fairfield
Properties which debt bears interest at 8.29% per annum........... 536 134
The borrowing on the Revolving Credit Facility of $23,750 in
connection with the acquisition of the Fairfield Properties (which
debt bears interest at LIBOR plus 175 basis points) assuming a
LIBOR rate of 5.75%............................................... 1,781 445
------- -----
$ 806 $ 579
------- -----
------- -----
</TABLE>
F-10
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST
NOTES AND MANAGEMENT'S ASSUMPTIONS TO
PRO FORMA CONDENSED CONSOLIDATING
FINANCIAL INFORMATION (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
3. ADJUSTMENTS TO PRO FORMA CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS:
(CONTINUED)
(ii) Reflects the net increase in depreciation and amortization expense
resulting from:
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE YEAR MONTH PERIOD
ENDED ENDED
DECEMBER 31, 1997 MARCH 31, 1998
----------------- -----------------
<S> <C> <C>
Depreciation of buildings acquired over a 40-year useful
life................................................................ $ 2,588 $ 511
Reduction in amortization of deferred financing fees related to
loans held by previous owners of the Initial Office Properties
($515), net of amortization of deferred financing debt related to
Term Credit Facility held by the Company on Initial Office
Properties ($192)................................................. (323) --
Amortization of deferred financing fees related to debt assumed in
connection with the Fairfield Properties.......................... 10 2
Amortization of deferred financing fees related to the Revolving
Credit Facility................................................... 204 51
------ -----
$ 2,479 $ 564
------ -----
------ -----
</TABLE>
(C) Consistent with the pro forma condensed consolidating balance sheet, the pro
forma statements of operations do not reflect the operations of the
Development Properties.
(D) Reflects the effects of the combined adjusted historical operations of the
Constellation Properties and Constellation Service Companies.
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
CONSTELLATION CONSTELLATION PRO FORMA
PROPERTIES SERVICE COMPANIES CONSTELLATION
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
------------ ----------------- ------------ -----------
<S> <C> <C> <C> <C>
REVENUES
Base rents....................................... $ 14,756 $ -- $ -- $ 14,756
Tenant reimbursements............................ 2,095 -- -- 2,095
Other............................................ 213 11,226 (11,226)(i) 213
------------ ------- ------------ -----------
TOTAL REVENUES............................... 17,064 11,226 (11,226) 17,064
------------ ------- ------------ -----------
EXPENSES
Property operating............................... 5,986 -- -- 5,986
General and administrative....................... 526 10,242 (10,242) ii) 526
Interest expense................................. -- 18 6,159 iii 6,177
Depreciation and amortization.................... -- 225 3,292 (iv 3,517
------------ ------- ------------ -----------
TOTAL EXPENSES............................... 6,512 10,485 (791) 16,206
------------ ------- ------------ -----------
Equity in income of management company............. -- -- 55(v) 55
------------ ------- ------------ -----------
Income before income taxes and minority
interests........................................ $ 10,552 $ 741 $ (10,380) $ 913
------------ ------- ------------ -----------
------------ ------- ------------ -----------
</TABLE>
F-11
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST
NOTES AND MANAGEMENT'S ASSUMPTIONS TO
PRO FORMA CONDENSED CONSOLIDATING
FINANCIAL INFORMATION (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
3. ADJUSTMENTS TO PRO FORMA CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS:
(CONTINUED)
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
CONSTELLATION CONSTELLATION PRO FORMA
PROPERTIES SERVICE COMPANIES CONSTELLATION
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
------------- ----------------- ------------- --------
<S> <C> <C> <C> <C>
REVENUES
Base rents........................................... $3,694 --$ $-- $3,694
Tenant reimbursements................................ 426 -- -- 426
Other................................................ 82 3,717 (3,717)(i) 82
------ ----- ------------- --------
TOTAL REVENUES................................... 4,202 3,717 (3,717) 4,202
------ ----- ------------- --------
EXPENSES
Property operating................................... 1,473 -- -- 1,473
General and administrative........................... 137 3,685 (3,685)(ii) 137
Interest expense..................................... -- 3 1,540(iii) 1,543
Depreciation and amortization........................ -- 67 812(iv) 879
------ ----- ------------- --------
TOTAL EXPENSES................................... 1,610 3,755 (1,333) 4,032
------ ----- ------------- --------
Equity in income of management company................. -- -- (159)(v) (159)
------ ----- ------------- --------
Income (loss) before income taxes and minority
interests............................................ $2,592 $ (38) $(2,543) $ 11
------ ----- ------------- --------
------ ----- ------------- --------
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE YEAR MONTH PERIOD
ENDED ENDED
DECEMBER 31, 1997 MARCH 31, 1998
----------------- --------------
<S> <C> <C> <C>
(i) Reflects the reclassification of Constellation Service Companies'
historical revenue to equity in income of management company..... $(11,226) $(3,717)
-------- -------
-------- -------
(ii) Reflects the reclassification of Constellation Service Companies'
historical operating expenses to equity in income of management
company.......................................................... $(10,242) $(3,685)
-------- -------
-------- -------
</TABLE>
F-12
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST
NOTES AND MANAGEMENT'S ASSUMPTIONS TO
PRO FORMA CONDENSED CONSOLIDATING
FINANCIAL INFORMATION (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
3. ADJUSTMENTS TO PRO FORMA CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS:
(CONTINUED)
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE YEAR MONTH PERIOD
ENDED ENDED
DECEMBER 31, 1997 MARCH 31, 1998
----------------- --------------
<S> <C> <C> <C>
(iii) Reflects the net changes in interest expense as follows:
The borrowing on the Revolving Credit Facility of $73,143 in
connection with the Transaction (which debt bears interest at
LIBOR plus 175 basis points) assuming a LIBOR rate of 5.75%,
net of interest on $4,217 in debt associated with properties
under construction............................................. $ 5,168 $ 1,291
The fee of 25 basis points per annum on the unused portion of the
Revolving Credit Facility of $3,107............................ 8 2
The debt of $9,581 assumed in connection with the acquisition of
the Constellation Properties which debt bears interest at a
fixed rate of 7.5% per annum................................... 720 180
The debt of $3,409 assumed in connection with the acquisition of
the Constellation Properties which debt bears interest at a
fixed rate of 8.25% per annum.................................. 281 70
Reclassification of Constellation Service Companies' historical
interest expense to equity in income of management company..... (18) (3)
-------- -------
$ 6,159 $ 1,540
-------- -------
-------- -------
(iv) Reflects the net change in depreciation and amortization expense
as follows:
Depreciation of buildings acquired from Constellation over a
40-year useful life............................................ $ 3,517 $ 879
Reclassification of Constellation Service Companies' historical
depreciation and amortization to equity in income of management
company........................................................ (225) (67)
-------- -------
$ 3,292 $ 812
-------- -------
-------- -------
</TABLE>
F-13
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST
NOTES AND MANAGEMENT'S ASSUMPTIONS TO
PRO FORMA CONDENSED CONSOLIDATING
FINANCIAL INFORMATION (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
3. ADJUSTMENTS TO PRO FORMA CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS:
(CONTINUED)
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE YEAR MONTH PERIOD
ENDED ENDED
DECEMBER 31, 1997 MARCH 31, 1998
----------------- --------------
<S> <C> <C> <C>
(v) Reflects the net change in equity in income of management company
as follows:
Reclassification of Constellation Service Companies' historical
income and expenses............................................ $ 741 $ (38)
Elimination of construction contract revenue earned by
Constellation Service Companies in connection with operations
that are not expected to have a continuing impact on the
Company........................................................ (4,122) (1,889)
Elimination of construction contract costs incurred by
Constellation Service Companies in connection with operations
that are not expected to have a continuing impact on the
Company........................................................ 3,768 1,852
Addition of net overhead costs not included in historical costs
and expected to have a continuing impact on the Company........ (122) (177)
Depreciation expense on personal property of $405 over a 5-year
useful life.................................................... (81) (20)
Adjustment to Constellation Service Companies' historical
depreciation and amortization.................................. 122 42
To reflect income tax (expense) benefit at an assumed rate of
40%............................................................ (42) 111
To reflect minority interest in management company............... (124) (19)
To reflect adjustment for purchase price of management company to
pro forma net income over 20 years............................. (85) (21)
-------- -------
$ 55 $ (159)
-------- -------
-------- -------
</TABLE>
(E) Costs relating to termination of the advisory agreement and the reformation
of the Company aggregating $1,353 and $637 for the year ended December 31,
1997 and the three-month period ended March 31, 1998, respectively, have
been excluded since such costs are not expected to have a continuing impact
on the Company.
(F) Reflects the effects of contribution of the net assets received from the
Offering and the Transaction to the Operating Partnership in exchange for
7,500,000 Partnership Units as a result of the Offering and for 969,900
Preferred Units and 6,928,000 Partnership Units as a result of the
Transaction.
F-14
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST
NOTES AND MANAGEMENT'S ASSUMPTIONS TO
PRO FORMA CONDENSED CONSOLIDATING
FINANCIAL INFORMATION (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
3. ADJUSTMENTS TO PRO FORMA CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS:
(CONTINUED)
The following table presents the calculation of the post closing percentage
ownership of Partnership Units in the Operating Partnership (i.e. not including
Preferred Units):
<TABLE>
<CAPTION>
COMPANY OTHERS TOTAL
------------ ---------- ------------
<S> <C> <C> <C>
Partnership Units--pre closing...................................... 600,000 2,581,818 3,181,818
Offering............................................................ 7,500,000 -- 7,500,000
Transaction......................................................... 6,928,000 -- 6,928,000
------------ ---------- ------------
Partnership Units--post closing..................................... 15,028,000 2,581,818 17,609,818
------------ ---------- ------------
------------ ---------- ------------
Percentage ownership................................................ 85.3% 14.7% 100.0%
------------ ---------- ------------
------------ ---------- ------------
</TABLE>
Minority interest in income (loss) has been reflected, on a pro forma basis,
in accordance with the Operating Partnership Agreement. The holders of Preferred
Units are allocated income up to 6.5% or 5.5% of their investment on a PARI
PASSU basis with remaining income, if any, or loss allocated between the Company
(85.3%) and the remaining partners (14.7%). The adjustments to record the income
(loss) effect of the minority interest share of income (loss) in the pro forma
statements of operations were computed as follows:
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE YEAR MONTH PERIOD
ENDED ENDED
DECEMBER 31, 1997 MARCH 31, 1998
----------------- ---------------
<S> <C> <C>
Income before minority interests......................................... $ 6,447 $ 2,520
Less: income from the retail properties directly owned by the Company.... (368) (104)
------ ------
Income before minority interest
- Operating Partnership................................................ 6,079 2,416
Preferred Unitholders
- $52,500 @ 6.5%....................................................... 3,412 853
Preferred Unitholders/Shareholders
- $24,248 @ 5.5%....................................................... 1,334 333
------ ------
Remaining Operating Partnership allocation............................... 1,333 1,230
Pro forma minority share
- Partnership Units (14.7%)............................................ 196 180
------ ------
Remaining Operating Partnership allocation (85.3%)....................... 1,137 1,050
Add back: income from retail properties directly owned by the Company.... 368 104
------ ------
Net income allocated to Common Shareholders.............................. $ 1,505 $ 1,154
------ ------
------ ------
</TABLE>
F-15
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Constellation Real Estate Group, Inc.
We have audited the accompanying combined historical statement of revenues
and certain expenses of the Constellation Properties as described in Note 1 for
the year ended December 31, 1997. This financial statement is the responsibility
of the Constellation Properties' management. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying combined historical statement of revenues and certain
expenses as discussed in Note 1 was prepared for the purpose of complying with
the rules and regulations of the Securities and Exchange Commission for
inclusion in the proxy of Corporate Office Properties Trust and is not intended
to be a complete presentation of the Constellation Properties' revenue and
expenses.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the revenues and certain expenses of the Constellation
Properties for the year ended December 31, 1997 in conformity with generally
accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
May 8, 1998
F-16
<PAGE>
CONSTELLATION PROPERTIES
COMBINED HISTORICAL STATEMENT OF REVENUE AND CERTAIN EXPENSES
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE YEAR ENDED
ENDED MARCH 31, 1998 DECEMBER 31, 1997
-------------------- ------------------
UNAUDITED
<S> <C> <C>
REVENUES
Base Rents...................................... $3,694 $14,756
Recoveries from Tenants......................... 426 2,095
Other Income.................................... 82 213
------ -------
4,202 17,064
------ -------
CERTAIN EXPENSES
Operating....................................... 1,229 5,071
Real Estate Taxes............................... 244 915
General and Administrative...................... 137 526
------ -------
1,610 6,512
------ -------
REVENUE IN EXCESS OF CERTAIN EXPENSES............. $2,592 $10,552
------ -------
------ -------
</TABLE>
See accompanying notes to financial statements.
F-17
<PAGE>
CONSTELLATION PROPERTIES
NOTES TO COMBINED HISTORICAL STATEMENT OF REVENUE AND CERTAIN EXPENSES
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
The combined historical statement of revenue and certain expenses combines
the results of operations of the following 12 properties (the "Properties") to
be acquired from Constellation Properties, Inc. (CPI) by Corporate Office
Properties Trust (COPT).
BROWNS WHARF L.P.
1600 Block of Thames Street, Baltimore, MD
CRANBERRY-140 L.P.
405 North Center Street, Westminster, MD
LAUREL TOWER ASSOCIATES L.P.
14502 Greenview Drive, Laurel, MD
14504 Greenview Drive, Laurel, MD
NBP-I L.P.
2730 Hercules Road, Annapolis Junction, MD
NBP II L.P.
131 National Business Parkway, Annapolis Junction, MD
133 National Business Parkway, Annapolis Junction, MD
141 National Business Parkway, Annapolis Junction, MD
ST. BARNABUS L.P.
6009 and 6011 Oxon Hill Road, Oxon Hill, MD
THREE CENTRE PARK ASSOCIATES L.P.
8815 Centre Park Drive, Columbia, MD
CONSTELLATION PROPERTIES, INC.
7609 Energy Parkway, Baltimore, MD
PROJECT T/A TRED AVON SQUARE
210 Marlboro Avenue, Easton, MD
The Properties consist of 9 office properties, 2 retail properties and 1
flex office/warehouse property.
Tred Avon Square (TA) is a shopping center which has a participating
mortgage payable to Tred Lightly, LLC (TL), an entity in which CPI has a
controlling interest which is being acquired by COPT. Under the terms of the
mortgage with TA, TL has virtually the same risks and rewards as those of an
owner. Accordingly, TL is presented as if TL owns TA.
F-18
<PAGE>
CONSTELLATION PROPERTIES
NOTES TO COMBINED HISTORICAL STATEMENT OF REVENUE AND CERTAIN EXPENSES
(DOLLARS IN THOUSANDS) (CONTINUED)
1. ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
BASIS OF PRESENTATION
The statement has been prepared on the accrual basis of accounting.
The statement is not representative of the actual operations for the periods
presented, as certain expenses, which are not comparable to the expenses to be
incurred in the future operations of the Properties, have been excluded.
Expenses excluded include interest, depreciation, amortization of intangible
costs, income taxes, and other costs not directly related to the future
operations of the Properties. Management is not aware of any material factors
relating to these properties which would cause the reported financial
information not to be necessarily indicative of future operating results.
The combined historical statement of revenues and certain expenses and
related notes for the three months ended March 31, 1998 are unaudited and
reflect, in the opinion of management, all adjustments necessary for a fair
presentation of the interim statement.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts of revenues and expenses reported during the
period. Actual results could differ from those estimates.
REVENUE RECOGNITION
The Properties recognize rental revenue from tenants on a straight-line
basis under which contractual rent changes are recognized evenly over the lease
term. Tenant recovery income includes payments from tenants for taxes, insurance
and other property operating expenses and is recognized as revenues in the same
period as the related expenses are incurred by the Properties.
GEOGRAPHIC DIVERSITY
The Properties are geographically concentrated in the Baltimore/Washington
metropolitan area.
MAJOR TENANTS
The United States Government is the sole tenant of an office property.
Rental income from this lease represents approximately 23% and 24% of base rent
and 46% and 55% of recoveries from tenants in the three months ended March 31,
1998 and the year ended December 31, 1997, respectively.
MINORITY INTEREST
CPI owns a 75% member interest in Tred Lightly, LLC (TL). Under the terms of
TL's operating agreement, the interest owned by CPI is entitled to full
allocation of TL's income up until that point in time when CPI recovers its
investment in TL plus a 10% compounding preferred return. Since CPI had not
recovered its investment and preferred return at March 31, 1998 and December 31,
1997, no income was allocated to minority interest.
F-19
<PAGE>
CONSTELLATION PROPERTIES
NOTES TO COMBINED HISTORICAL STATEMENT OF REVENUE AND CERTAIN EXPENSES
(DOLLARS IN THOUSANDS) (CONTINUED)
3. LEASING ACTIVITY
The Properties are leased to tenants under operating leases with expiration
dates ranging from 1998 to 2015. Future contractual minimum rentals under
noncancelable tenant leases in effect at December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998............................................................... $ 14,618
1999............................................................... 13,970
2000............................................................... 13,125
2001............................................................... 11,584
2002............................................................... 9,870
Thereafter......................................................... 29,166
---------
Total............................................................ $ 92,333
---------
---------
</TABLE>
The United States Government is the sole tenant of an office property. The
tenant's lease is structured as a 1 year lease commencing in 1993, with 14
consecutive automatic 1 year renewals. The lease also carries a penalty should
the tenant not renew for all 14 years. Base rent from this lease is included in
future minimum rentals disclosed above.
4. RELATED PARTY REVENUE AND EXPENSES
The Properties are owned by CPI, which is a wholly owned subsidiary of
Constellation Real Estate Group, Inc. (CREG). CREG is a wholly owned subsidiary
of Constellation Holdings, Inc., which is wholly owned by Baltimore Gas and
Electric Company (BGE). Constellation Real Estate, Inc., Constellation Realty
Management, LLC, Constellation Health Services, Inc., and Constellation Senior
Services, Inc. are other affiliates of CREG. The Properties had transactions
with these related parties as follows:
RENTAL INCOME
The Properties earned base rent and tenant recoveries on leases to the
following related parties:
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1998 DECEMBER 31, 1997
--------------------- -------------------
<S> <C> <C>
Constellation Real Estate, Inc........................................... $ 85 $ 315
Baltimore Gas and Electric Co............................................ 9 242
Constellation Senior Services, Inc....................................... 34 59
Constellation Health Services, Inc....................................... -- 6
----- -----
Total.................................................................. $ 128 $ 622
----- -----
----- -----
</TABLE>
PROPERTY MANAGEMENT
The Properties incurred property management fees under contracts with
Constellation Realty Management, LLC (CRM) totaling $126 and $518 in the three
months ended March 31, 1998 and the year ended December 31, 1997, respectively.
F-20
<PAGE>
CONSTELLATION PROPERTIES
NOTES TO COMBINED HISTORICAL STATEMENT OF REVENUE AND CERTAIN EXPENSES
(DOLLARS IN THOUSANDS) (CONTINUED)
4. RELATED PARTY REVENUE AND EXPENSES (CONTINUED)
GENERAL AND ADMINISTRATIVE
Constellation Real Estate, Inc. charged the Properties for finance, legal
and corporate overhead costs totaling $137 and $526 in the three months ended
March 31, 1998 and the year ended December 31, 1997, respectively.
OPERATING EXPENSES
The Properties incurred costs with BGE during the three months ended March
31, 1998 and the year ended December 31, 1997 totaling $181 and $638,
respectively. These costs were primarily for utility services provided to the
Properties.
F-21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Constellation Real Estate Group, Inc.
We have audited the accompanying consolidated balance sheets of
Constellation Service Companies (as described in Note 1 to the accompanying
financial statements) as of December 31, 1997 and 1996, and the related
consolidated statements of operations, cash flows and equity for each of the
three years in the period ended December 31, 1997. These financial statements
are the responsibility of the Constellation Service Companies' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit include examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Constellation
Service Companies as of December 31, 1997 and 1996, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1997 in conformity with generally accepted accounting
principles.
/s/ COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
May 8, 1998
F-22
<PAGE>
CONSTELLATION SERVICE COMPANIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, --------------------
1998 1997 1996
----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.................................... $ 5,944 $ 4,732 $ 5,191
Accounts receivable.......................................... 1,186 1,158 3,622
Costs and estimated profit in excess of billings on
uncompleted contracts...................................... 265 449 215
Deferred tax asset........................................... 45 86 17
Other........................................................ 95 126 176
----------- --------- ---------
Total current assets....................................... 7,535 6,551 9,221
----------- --------- ---------
Property and equipment
Furniture, fixtures and equipment............................ 1,935 1,878 1,514
Leasehold improvements....................................... 81 81 --
Accumulated depreciation..................................... (1,310) (1,257) (1,089)
----------- --------- ---------
Total property and equipment............................... 706 702 425
Goodwill, net of accumulated amortization...................... 777 791 848
Deferred tax asset............................................. 77 66 38
Restricted cash................................................ 1,000 -- --
----------- --------- ---------
Total assets................................................... $ 10,095 $ 8,110 $ 10,532
----------- --------- ---------
----------- --------- ---------
LIABILITIES AND EQUITY
Current liabilities
Current portion of note payable.............................. $ 40 $ 40 $ 40
Accounts payable and accrued expenses........................ 502 241 2,508
Billings in excess of costs and estimated profit on
uncompleted contracts...................................... 192 140 238
Accrued vacation costs....................................... 328 296 193
Due to affiliates............................................ 6,051 4,423 4,925
Other........................................................ 16 17 22
----------- --------- ---------
Total current liabilities.................................. 7,129 5,157 7,926
Note payable, net of current portion........................... 80 80 120
Other.......................................................... 35 7 9
----------- --------- ---------
Total liabilities.............................................. 7,244 5,244 8,055
----------- --------- ---------
Minority interest.............................................. 162 136 115
----------- --------- ---------
Commitments and contingencies
Equity
Divisional equity............................................ 2,689 2,730 2,362
----------- --------- ---------
Total liabilities and equity................................... $ 10,095 $ 8,110 $ 10,532
----------- --------- ---------
----------- --------- ---------
</TABLE>
See accompanying notes to financial statements.
F-23
<PAGE>
CONSTELLATION SERVICE COMPANIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
<S> <C> <C> <C> <C> <C>
1998 1997 1997 1996 1995
----------- ----------- --------- --------- ---------
<CAPTION>
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues
Construction, development, marketing, asset
management and finance fees--related parties....... $ 735 $ 598 $ 2,880 $ 2,531 $ 1,517
Construction, development, marketing, asset
management and finance fees--other................. 33 -- 273 58 2
Property management fees--related parties............ 442 571 1,845 1,789 1,728
Property management fees--other...................... 592 444 1,952 1,348 93
Construction contract revenues--related parties...... 1,848 139 426 943 294
Construction contract revenues--other................ 41 1,534 3,696 8,617 3,335
----------- ----------- --------- --------- ---------
Total revenues..................................... 3,691 3,286 11,072 15,286 6,969
----------- ----------- --------- --------- ---------
Operating expenses
Construction contract costs.......................... 1,852 1,516 3,768 9,159 3,545
Salaries and related expenses........................ 1,243 979 4,412 3,750 2,242
Overhead costs--related party........................ 271 225 901 870 615
Other................................................ 386 320 1,386 907 684
----------- ----------- --------- --------- ---------
Total operating expenses........................... 3,752 3,040 10,467 14,686 7,086
----------- ----------- --------- --------- ---------
Income from operations................................. (61) 246 605 600 (117)
Interest income........................................ 18 21 101 84 66
Other income........................................... 8 7 53 42 61
Interest expense....................................... (3) (3) (18) (22) (2)
----------- ----------- --------- --------- ---------
Income before income taxes............................. (38) 271 741 704 8
Income tax expense (benefit)........................... (23) 91 256 251 14
----------- ----------- --------- --------- ---------
Income before minority interest........................ (15) 180 485 453 (6)
Minority interest...................................... 26 47 117 96 --
----------- ----------- --------- --------- ---------
Net income (loss)...................................... $ (41) $ 133 $ 368 $ 357 $ (6)
----------- ----------- --------- --------- ---------
----------- ----------- --------- --------- ---------
</TABLE>
See accompanying notes to financial statements.
F-24
<PAGE>
CONSTELLATION SERVICE COMPANIES
CONSOLIDATED STATEMENTS OF EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CONTRIBUTED ACCUMULATED
EQUITY EARNINGS TOTAL
----------- ------------- ---------
<S> <C> <C> <C>
Balance, January 1, 1995..................................................... $ 1,590 $ 421 $ 2,011
Net Loss..................................................................... -- (6) (6)
----------- ------ ---------
Balance, December 31, 1995................................................... 1,590 415 2,005
Net Income................................................................... -- 357 357
----------- ------ ---------
Balance, December 31, 1996................................................... 1,590 772 2,362
Net Income................................................................... -- 368 368
----------- ------ ---------
Balance, December 31, 1997................................................... 1,590 1,140 2,730
Net Loss..................................................................... -- (41) (41)
----------- ------ ---------
Balance, March 31, 1998 (Unaudited).......................................... $ 1,590 $ 1,099 $ 2,689
----------- ------ ---------
----------- ------ ---------
</TABLE>
See accompanying notes to financial statements.
F-25
<PAGE>
CONSTELLATION SERVICE COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE YEARS ENDED DECEMBER
ENDED, MARCH 31, 31,
------------------------ -------------------------------
1998 1997 1997 1996 1995
----------- ----------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................... $ (41) $ 133 $ 368 $ 357 $ (6)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization........... 67 55 225 164 98
Minority interest expense............... 26 47 117 96 --
Provision for deferred income taxes..... 30 11 (97) (62) 18
Changes in operating assets and
liabilities:
Accounts receivable..................... (28) (518) 2,464 (1,982) (1,056)
Accounts payable and accrued expenses... 293 (1,915) (2,164) 2,182 99
Due to affiliates....................... 1,628 2,604 (502) 6,409 (36)
Uncompleted contract asset.............. 184 (84) (234) 697 (849)
Uncompleted contract liability.......... 52 220 (98) (1,426) 1,664
Other current assets and liabilities.... 30 97 45 (145) (23)
----------- ----------- --------- --------- ---------
Net cash provided by (used in) operating
activities................................ 2,241 650 124 6,290 (91)
----------- ----------- --------- --------- ---------
Cash flows from investing activities:
Increase in restricted cash............... (1,000) -- -- -- --
Purchases of property and equipment....... (57) (107) (453) (317) (59)
Acquisition of business, net of cash
acquired................................ -- -- -- (414) --
Other..................................... -- -- 8 -- --
----------- ----------- --------- --------- ---------
Net cash used in investing activities....... (1,057) (107) (445) (731) (59)
----------- ----------- --------- --------- ---------
Cash flows from financing activities:
Proceeds from note payable................ -- -- -- 200 --
Note repayments........................... -- -- (40) (40) --
Minority interest (distribution)
contribution............................ -- -- (96) 19 --
Other..................................... 28 (1) (2) 7 19
----------- ----------- --------- --------- ---------
Net cash provided by (used in) financing
activities................................ 28 (1) (138) 186 19
----------- ----------- --------- --------- ---------
Net increase (decrease) in cash and cash
equivalents............................... 1,212 542 (459) 5,745 (131)
Cash and cash equivalents, beginning of
period.................................... 4,732 5,191 5,191 (554) (423)
----------- ----------- --------- --------- ---------
Cash and cash equivalents, end of period.... $ 5,944 $ 5,733 $ 4,732 $ 5,191 $ (554)
----------- ----------- --------- --------- ---------
----------- ----------- --------- --------- ---------
Supplemental data:
Cash paid during the period for:
Interest.................................. $ 3 $ 3 $ 18 $ 22 $ 2
Income Taxes.............................. $ 16 -- $ 88 $ 1 $ 25
</TABLE>
See accompanying notes to financial statements.
F-26
<PAGE>
CONSTELLATION SERVICE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND BASIS OF PRESENTATION
Constellation Service Companies (not a legal entity) (the "Company") is a
real estate company engaged in property and asset management and building
construction and development services. The Company represents a carve-out of the
aforementioned operations of the legal entity, Constellation Real Estate, Inc.
(CRE), and its 75% owned subsidiary, Constellation Realty Management, LLC.
(CRM).
CRE is a real estate company engaged in property and asset management,
building construction and development and land development. CRE is a wholly
owned subsidiary of Constellation Real Estate Group, Inc. ("CREG"), which is a
wholly owned subsidiary of Constellation Holdings, Inc. (CHI), which is wholly
owned by Baltimore Gas and Electric Company (BGE). In April 1996, CRE purchased
a 75% member interest in CRM, an entity engaged in real estate property
management. In May 1998, Corporate Office Properties Trust (COPT) entered into a
contract to acquire the assets and employees of CRE associated with property and
asset management and building construction and development services, as well as
CRE's 75% member interest in CRM.
A significant amount of the Company's activity represents services provided
to entities owned by CREG. The majority of these services are concentrated in
the Baltimore/Washington metropolitan area.
UNAUDITED FINANCIAL STATEMENTS
The consolidated financial statements including the note disclosures
included herein as of March 31, 1998 and 1997 and for the three months ended
March 31, 1998 and 1997 are unaudited; however, in the opinion of management,
all adjustments necessary for a fair presentation of the consolidated financial
statements for this interim period have been included. The results of the
interim period are not necessarily indicative of the results to be obtained for
the full fiscal year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of CRM and the
CRE lines of business being acquired by COPT. All material intercompany accounts
and transactions have been eliminated.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Construction, development, marketing and financing fees predominantly
represent fees charged to real estate projects owned by CREG. Most of these fees
are recognized as revenue as labor time is incurred. Certain of these fees,
however, are recognized upon the occurrence of an event at a real estate
project, such as the signing of a tenant lease or the closing of a loan.
Property management fees, property management recovery items and asset
management fees are recognized as earned.
F-27
<PAGE>
CONSTELLATION SERVICE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION (CONTINUED)
The Company recognizes construction, development, marketing and financing
fees charged to real estate projects owned by CREG at cost.
The Company recognizes construction contract revenues from third parties
using the percentage-of-completion method based on contract costs incurred to
date compared with total estimated contract costs. Because of inherent
uncertainties in estimating costs, it is at least reasonably possible that
estimates used will change within the near term. Changes to total estimated
contract costs and losses, if any, are recognized in the period they become
known. Amounts billed in advance of satisfying revenue recognition criteria are
recorded in current liabilities as billings in excess of costs and estimated
profit on uncompleted contracts. Costs and estimated profit in excess of amounts
billed are recorded in current assets as costs and estimated profit in excess of
billings on uncompleted contracts.
INCOME TAXES
Deferred income taxes are provided on a liability method whereby deferred
tax assets are recognized for deductible temporary differences and operating
loss and credit carryforwards, and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are the differences between
the reported amounts of assets and liabilities and their tax basis. Deferred tax
assets are reduced by a valuation allowance when it is probable that some
portion or all of the deferred tax assets will not be realized. Deferred tax
assets and liabilities are adjusted for the effects of changes in tax laws and
rates on the date of enactment.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all cash and liquid investments with an
initial maturity of three months or less. The carrying amount approximates fair
value due to the short maturity of these investments. The Company maintains its
cash in bank deposit accounts which may exceed federally insured limits at
times. The Company has not experienced any losses in such accounts and believes
it is not exposed to any significant credit risk on cash.
PROPERTY
Property is stated at original cost less accumulated depreciation.
Furniture, fixtures and equipment are depreciated on a straight-line basis over
the estimated useful lives of the assets, which is generally 3 to 5 years.
Leasehold improvements are depreciated over the shorter of the lives of the
respective leases or the useful lives of the assets. Depreciation expense
totaled $53, $40, $168, $120 and $83 for the three months ended March 31, 1998
and 1997 and the years ended December 31, 1997, 1996 and 1995, respectively.
GOODWILL
Goodwill consists of $590 relating to the 1988 acquisition of certain assets
and employees and $414 relating to the 1996 acquisition of CRM. The 1988
goodwill is being amortized over 40 years and the 1996 goodwill is being
amortized over 10 years. Goodwill is reflected net of accumulated amortization,
which totaled $227, $213 and $156 at March 31, 1998 and December 31, 1997 and
1996, respectively.
F-28
<PAGE>
CONSTELLATION SERVICE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MINORITY INTEREST
Minority interest represents the minority partner's proportionate share of
the equity in CRM. Income is allocated to minority interest based on the
minority partner's percentage ownership.
3. NOTE PAYABLE
The Company obtained a $200 unsecured note payable to KLNB, Inc. on April
16, 1996. The note matures on December 31, 2000 and bears interest at 8%. The
outstanding balance of the note totaled $120, $120 and $160 at March 31, 1998
and December 31, 1997 and 1996, respectively.
Interest expense incurred on the note totaled $2, $3, $13 and $11 during the
three months ended March 31, 1998 and 1997 and the years ended December 31, 1997
and 1996, respectively. Debt maturities of the note outstanding at December 31,
1997 are as follows:
<TABLE>
<S> <C>
1998................................................................. $ 40
1999................................................................. 40
2000................................................................. 40
---------
$ 120
---------
---------
</TABLE>
4. LEASES
The Company had several operating leases in place during the reporting
periods, most of which are for office space. Rent expense totaled $79, $69,
$451, $308 and $219 during the three months ended March 31, 1998 and 1997 and
the years ended December 31, 1997, 1996 and 1995, respectively.
Future minimum lease payments for non-cancelable operating leases at
December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998................................................................ $ 429
1999................................................................ 382
2000................................................................ 372
2001................................................................ 267
---------
Total............................................................... $ 1,450
---------
---------
</TABLE>
5. RELATED PARTY TRANSACTIONS
The Company provided construction, development, marketing, asset management
and finance services to entities owned by CREG. Fees earned from these services
totaled $714, $598, $2,686, $2,531 and $1,517 during the three months ended
March 31, 1998 and 1997 and the years ended December 31, 1997, 1996 and 1995,
respectively. The Company also earned marketing fees from a CREG affiliate
totaling $21 and $194 during the three months ended March 31, 1998 and the year
ended December 31, 1997, respectively.
F-29
<PAGE>
CONSTELLATION SERVICE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
5. RELATED PARTY TRANSACTIONS (CONTINUED)
The Company provided property management services to entities owned by CREG.
Fees earned from these services were computed predominantly based on a fixed
percentage of property income collections ranging from 3.5% to 5% and totaled
$315, $284, $1,272, $1,197 and $1,157 during the three months ended March 31,
1998 and 1997 and the years ended December 31, 1997, 1996 and 1995,
respectively. The Company also earned property management fees from BGE totaling
$127, $287, $573, $592 and $571 during the three months ended March 31, 1998 and
1997 and the years ended December 31, 1997, 1996 and 1995, respectively. Fees
were computed on the BGE management contracts based on a rate per square foot,
subject to increases and decreases for the Company's performance in managing
operating cost levels for individual projects.
The Company performed work under construction contracts with BGE, CHI and
certain entities owned by CREG. Construction contract revenue recognized on
contracts with BGE totaled $132, $200, $932 and $294 during the three months
ended March 31, 1997 and the years ended December 31, 1997, 1996 and 1995,
respectively. Construction contract revenue recognized on contracts with CHI
totaled $1,842 and $178 during the three months ended March 31, 1998 and the
year ended December 31, 1997, respectively. Construction contract revenue
recognized on contracts with entities owned by CREG totaled $6, $7, $48 and $11
during the three months ended March 31, 1998 and 1997 and the years ended
December 31, 1997 and 1996, respectively.
CREG allocates certain overhead costs to all of its subsidiaries. Overhead
costs allocated from CREG to the Company totaled $271, $225, $901, $870 and $615
during the three months ended March 31, 1998 and 1997 and the years ended
December 31, 1997, 1996 and 1995, respectively.
The Company provides administrative, financial and legal support services to
certain entities owned by CREG. During the three months ended March 31, 1998 and
1997 and the years ended December 31, 1997 and 1996, the Company received
expense reimbursements for these services totaling $89, $55, $318 and $64,
respectively.
The Company leased office space from entities owned by CREG. Expenses
incurred under these leases totaled $78, $62, $301, $240 and $219 during the
three months ended March 31, 1998 and 1997 and the years ended December 31,
1997, 1996 and 1995, respectively.
The Company also incurred other costs for various services provided by BGE
and CHI, including electrical service, payroll processing, and computer
training.
The Company had amounts due to affiliates at March 31, 1998 and December 31,
1997 and 1996 of $6,051, $4,423 and $4,925, respectively. These payables
represent primarily advances to the Company resulting from its participation in
a centralized cash account used by entities owned by CREG. The Company's
payables to affiliates are noninterest bearing and due on demand.
6. PENSION AND OTHER POST-EMPLOYMENT BENEFITS
Certain employees of the Company participate in the BGE noncontributory
defined benefit pension plan (the "plan"). BGE's policy is to fund annually the
cost of the Plan as determined under the projected unit credit cost method. BGE
charged the Company $20, $16, $64 and $80 during the three months ended March
31, 1998 and 1997 and the years ended December 31, 1997 and 1996, respectively.
Certain key executives also are participants in BGE's supplemental pension
plans, which provide enhanced retirement,
F-30
<PAGE>
CONSTELLATION SERVICE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
6. PENSION AND OTHER POST-EMPLOYMENT BENEFITS (CONTINUED)
disability and survivor benefits. Benefits under all of these plans are
generally based on age, years of service and compensation levels. Prior service
cost associated with retroactive plan amendments is amortized on a straight-line
basis over the average remaining service period of active employees. Plan assets
at December 31, 1997 consisted primarily of marketable equity and fixed income
securities and group annuity contracts.
Pension plan valuations are only available for CHI. The following table sets
forth CHI's combined funded status of the plans and the composition of total
pension cost:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Vested benefit obligation................................................ $ 5,104 $ 4,296
Nonvested benefit obligation............................................. 291 111
--------- ---------
Accumulated benefit obligation........................................... 5,395 4,407
Projected benefits related to increase in future compensation levels..... 2,096 769
--------- ---------
Projected benefit obligation............................................. 7,491 5,176
Plan assets at fair value (5,871) (3,535)
--------- ---------
Projected benefit obligation less plan assets............................ 1,620 1,641
Unrecognized prior service cost.......................................... (446) (290)
Unrecognized net gain.................................................... 1,091 934
Unamortized net liability from adoption of FASB Statement No. 87......... (168) (443)
--------- ---------
Accrued Pension Liability................................................ $ 2,097 $ 1,842
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Components of net pension cost
Service cost-benefits earned during the period................ $ 296 $ 321 $ 188
Interest cost on projected benefit obligation................. 1,149 1,179 509
Actual return on plan assets.................................. (468) (207) (542)
Net amortization and deferral................................. (315) (481) 552
--------- --------- ---------
Total net pension cost...................................... $ 662 $ 812 $ 707
--------- --------- ---------
--------- --------- ---------
</TABLE>
OTHER POSTEMPLOYMENT BENEFITS
In addition to providing pension benefits, the Company provides certain
health care and life insurance benefits for retired employees. The Company also
provides certain pay continuation payments to employees who are determined to be
disabled under the Company's Long-Term Disability Plan. The Company did not
recognize any liability at March 31, 1998 and 1997 and December 31, 1997 and
1996 since there were no employees determined to be disabled.
F-31
<PAGE>
CONSTELLATION SERVICE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
7. INCOME TAXES
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1997 1996 1995
--------- --------- --------- --------- ---------
Federal
Current............................................ $ (44) $ 67 $ 290 $ 258 $ (3)
Deferred........................................... 25 8 (80) (51) 15
--- --------- --------- --------- ---
(19) 75 210 207 12
--- --------- --------- --------- ---
State
Current............................................ (9) 14 63 55 (1)
Deferred........................................... 5 2 (17) (11) 3
--- --------- --------- --------- ---
(4) 16 46 44 2
--- --------- --------- --------- ---
$ (23) $ 91 $ 256 $ 251 $ 14
--- --------- --------- --------- ---
--- --------- --------- --------- ---
</TABLE>
The following is a reconciliation, stated as a percentage of pre-tax income,
of the U.S. statutory federal income tax rate to the Company's effective tax
rate on income from operations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1997 1996 1995
--------- --------- --------- --------- ---------
Federal Statutory Rate.......................... (35.0%) 35.0% 35.0% 35.0% 35.0%
Permanent Differences, Including Goodwill and
Meals and Entertainment....................... 3.6 1.1 1.6 1.7 135.5
State Taxes, Net of Federal Benefit............. (4.5) 4.5 4.5 4.5 4.5
--------- --- --- --- ---------
Effective Tax Rate.............................. (35.9%) 40.6% 41.1% 41.2% 175.0%
--------- --- --- --- ---------
--------- --- --- --- ---------
</TABLE>
Deferred income taxes consist of the following:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED DECEMBER
MARCH 31, 31,
--------------- --------------------
<S> <C> <C> <C>
1998 1997 1996
--------------- --------- ---------
Bonus and Deferred Compensation............................... $ 146 $ 174 $ 63
Depreciation.................................................. (24) (22) (8)
----- --------- ---
Net Deferred Asset............................................ $ 122 $ 152 $ 55
----- --------- ---
----- --------- ---
</TABLE>
F-32
<PAGE>
CONSTELLATION SERVICE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
8. COMMITMENTS AND CONTINGENCIES
CONTRACT TO ACQUIRE LOANS
In March 1998, the Company entered into a contract to acquire loans
collateralized by 12 commercial real estate properties from Aetna Life Insurance
Company for $65,300. In connection with the contract, the Company had $1,000 in
escrow as a deposit on the contract at March 31, 1998. In April 1998, the
Company assigned its rights under the contract to COPT in exchange for a fee.
LEGAL
The Company is subject to various legal proceedings and claims that arise in
the ordinary course of business. Management believes that the final outcome of
such matters will not have a material effect on the financial position, results
of operations or liquidity of the Company.
F-33
<PAGE>
APPENDIX
PROXY PROXY
CORPORATE OFFICE PROPERTIES TRUST
SPECIAL MEETING OF SHAREHOLDERS
AUGUST 21, 1998
THIS PROXY IS SOLICITED ON BEHALF OF
THE COMPANY'S BOARD OF TRUSTEES
The undersigned hereby (i) acknowledges receipt of the Notice of Special
Meeting of Shareholders (the "Special Meeting") of Corporate Office Properties
Trust (the "Company") and the accompanying Proxy Statement dated July 22, 1998
(the "Proxy Statement"), and (ii) appoints Jay H. Shidler and Clay W. Hamlin,
III, and each of them individually, lawful attorneys-in-fact and proxies of the
undersigned, with full power of substitution for and in the name, place, and
stead of the undersigned, to vote upon and act with respect to all of the Common
Shares of Beneficial Interest of the Company standing in the name of the
undersigned, or with respect to which the undersigned is entitled to vote and
act, at the Special Meeting and at any adjournments or postponements thereof.
The Company's Board of Trustees recommends a vote "for" item 1 set forth on
this proxy card. The shares represented by this proxy will be voted as
specified. IF NO DIRECTION IS GIVEN IN THE SPACE PROVIDED THIS PROXY WILL BE
VOTED "FOR" ITEM 1.
The undersigned directs that this proxy be voted as follows:
1. To consider and vote upon a proposal for the Company to enter into
and perform the transaction with certain partnerships and other
entities affiliated with Constellation Real Estate Group, Inc.
(collectively, "Constellation"), pursuant to which the Company will
acquire from Constellation interests in entities, an interest in a
mortgage, title to certain real property (the foregoing collectively
representing up to 18 properties) and certain other assets in
exchange for a combination of cash, the assumption of debt by the
Company, and Common Shares and non-voting Series A Convertible
Preferred Shares Of Beneficial Interest to be issued by the Company,
all as more particularly described in the Proxy Statement.
FOR / / AGAINST / / ABSTAIN / /
<PAGE>
2. In their discretion, the Proxies are authorized to vote upon such
other business as may properly come before the meeting or any
adjournment thereof and matters incident to the conduct of the
meeting.
The undersigned hereby revokes any proxy heretofore given to vote or act
with respect to the Common Stock and hereby ratifies and confirms all that the
proxies, their substitutes, or any of them may lawfully do by virtue hereof.
PLEASE SIGN EXACTLY AS THE NAME
APPEARS HEREON. WHEN SHARES ARE
HELD BY JOINT TENANTS, BOTH SHOULD
SIGN. WHEN SIGNING AS ATTORNEY,
EXECUTOR, ADMINISTRATOR, TRUSTEE OR
GUARDIAN, PLEASE GIVE FULL TITLE AS
SUCH. IF A CORPORATION, PLEASE SIGN
IN FULL CORPORATE NAME BY PRESIDENT
OR OTHER AUTHORIZED OFFICER AND
AFFIX CORPORATE SEAL. IF A
PARTNERSHIP, PLEASE SIGN IN
PARTNERSHIP NAME BY THE GENERAL
PARTNER.
Date: ____________________________
___________________________________
Signature
___________________________________
Signature
PLEASE MARK, SIGN, DATE AND RETURN
THIS PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
<PAGE>
Exhibit 99.5
CORPORATE OFFICE PROPERTIES TRUST
CLOSES CONSTELLATION TRANSACTION
Resulting entity becomes one of the largest
commercial real estate operators in mid-Atlantic region
PHILADELPHIA, PA, September 29, 1998 -- Corporate Office Properties Trust (NYSE:
OFC), a Real Estate Investment Trust, today announced the completion of the
initial and most significant stage of its transaction with Constellation Real
Estate Group, Inc. and its affiliates (collectively, "Constellation").
Constellation is part of Constellation Enterprises, Inc., a wholly-owned
subsidiary of Baltimore Gas and Electric Company (NYSE: BGE).
Corporate Office Properties Trust (the "Company") expects that the transaction
will be immediately accretive to the Company's Funds From Operations (FFO) by
$0.11 per fully diluted share on an annual basis.
The entire transaction has a value in excess of $178 million. It will increase
Corporate Office Properties' portfolio by 55% to 48 properties located primarily
in Pennsylvania, Maryland, New Jersey, and suburban Washington, D.C. - totaling
4.6 million square feet of space. In the fourth quarter, two office properties
under construction (comprising 195,000 square feet) will be acquired upon the
achievement of certain income thresholds. Two additional properties under
construction (comprising 196,000 square feet) will be purchased within
forty-five days of the close. In addition, the Company is slated to acquire one
retail property in 1999. As this retail asset is non-strategic, the Company is
actively seeking to sell the property and redeploy any profit.
In connection with the purchase, Constellation's management team has joined
the Company, expanding the Company by 35 professionals and support staff.
Randall M. Griffin, 53, formerly President of Constellation, has assumed the
role of President and Chief Operating Officer reporting to Clay W. Hamlin,
III, 53, Corporate Office Properties' Chief Executive Officer. Roger A.
Waesche, Jr., 44, formerly Senior Vice President of Constellation has become
Senior Vice President - Finance of Corporate Office Properties. John H.
Gurley, 59, formerly Vice President and General Counsel of Constellation has
become Vice President and General Counsel of Corporate Office Properties.
<PAGE>
In addition, Corporate Office Properties acquired Constellation's 75% ownership
in Corporate Realty Management, LLC (CRM), Baltimore's largest commercial
property/asset management organization. CRM provides property and asset
management services to third-party major institutional real estate investors and
provides corporate facility services to major owner-occupied corporate
properties. Michael Kaiser, 47, President of CRM, will continue to head this
operation and its 73 member team. CRM manages a 251-building, 17 million square
foot portfolio, with eight offices in the Baltimore, Northern Virginia and
Philadelphia areas.
The Company also announced the establishment of a new subsidiary, Corporate
Development Services, LLC (CDS), to oversee a range of services on behalf of the
Company that includes development, re-development and build-to-suit activities.
CDS is managed by Dwight S. Taylor, 53, Senior Vice President for Development in
conjunction with Stanley A. Link, 50, Senior Vice President of Construction.
Highlights
- - At the closing, Corporate Office Properties paid consideration to
Constellation consisting of the following components:
- (i) 6,182,634 Common Shares;
- (ii) 865,566 Series A Convertible Preferred Shares valued at $25.00
per Share. Each Convertible Preferred Share yields 5.5% per annum and
is convertible after two years into 1.8748 Common Shares; and,
- (iii) assumed $59.6 million in debt.
- - At a subsequent closing in the fourth quarter 1998, the Company will
acquire two additional newly constructed office properties totaling 194,641
square feet. The value of the consideration paid for these properties of
approximately $30 million is expected to consist of 118,460 Series A
Convertible Preferred Shares, 846,143 Common Shares, and $17.9 million in
assumed debt.
- - Corporate Office Properties received options or first rights of refusal to
acquire 91 acres of entitled land at any time over the next two to five
years. The acreage, contiguous to the Constellation office properties,
allows for development of approximately two million square feet of
additional office space.
- - Constellation will become Corporate Office Properties' single largest
investor, owning 41.8% of the Common Shares upon completion of the
transaction.
- - Constellation gains two seats to Corporate Office Properties' Board of
Trustees, now increased to nine individual Trustees. These seats will be
held by Edward A. Crooke, 59, Chairman of Constellation Enterprises, Inc.
and Vice Chairman of BGE, and Steven D. Kesler, 46, President of
Constellation Investments, Inc. and the new President of Constellation Real
Estate Group, Inc.
<PAGE>
- - Corporate Office Properties will acquire two office buildings under
construction in the Columbia, Maryland area within forty-five days. These
additional projects, expected to be completed in mid 1999, will bring
196,000 square feet into service.
The transaction expands Corporate Office Properties' portfolio to more than 4.6
million square feet, with a concentration in Pennsylvania, Maryland, New Jersey
and extending to the suburban Washington, D.C. area. Constellation's real estate
properties added to the portfolio include five office buildings at The National
Business Park in Anne Arundel County, MD, two office buildings in Columbia, MD,
a 10-story, 200,000 square foot office building in Oxon Hill, MD, twin 75,000
square foot office buildings in Laurel, MD, a one-story office building in the
Brandon Woods Business Park in Anne Arundel County, MD, a mixed-use complex at
the Inner Harbor in Baltimore, MD, Cranberry Square Shopping Center in
Westminster, MD, and Tred Avon Square in Easton, MD.
The acquired portfolio is comprised of Class A institutional quality properties
with aggregate occupancy rates of 95%. With the completion of this transaction
Corporate Office Properties will have over two million square feet of suburban
office properties in the Baltimore/Washington corridor, establishing a dominant
position in these submarkets.
"This is our first major entity transaction. It accomplishes several things for
Corporate Office Properties; we have added a talented and experienced team, a
high quality portfolio and an important significant investor," stated Clay W.
Hamlin, III, Chief Executive Officer of Corporate Office Properties. "This
combination provides us with the strength and infrastructure to achieve our
future growth objectives."
Company Information
Corporate Office Properties Trust is a real estate investment trust which
focuses on the acquisition, management, ownership and development of suburban
office properties located in high-growth submarkets in the United States.
Forward-looking Information
This press release contains forward-looking information based upon the
Company's current best judgement and expectations. Actual results could vary
from those presented herein. The risks and uncertainties associated with the
forward-looking information include the strength of the commercial office real
estate market in which the Company operates, competitive market conditions,
general economic growth, interest rates and capital market conditions. For
further information, please refer to the Company's filings with the Securities
and Exchange Commission.
###
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