<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 21, 1999
REGISTRATION STATEMENT NO. 333-71807
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------------
CORPORATE OFFICE PROPERTIES TRUST
(Exact name of Registrant as specified in its charter)
------------------------
<TABLE>
<S> <C>
MARYLAND 401 CITY AVENUE
(State or other jurisdiction of incorporation SUITE 615
or organization) BALA CYNWYD, PA 19004
(610) 538-1800
<CAPTION>
MARYLAND 23-2947217
or organization)
<CAPTION>
(State or other jurisdiction of incorporation (IRS Employee Identification Number)
</TABLE>
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
----------------------------------
CLAY W. HAMLIN, III
Chief Executive Officer
Corporate Office Properties Trust
401 City Avenue
Suite 615
Bala Cynwyd, PA 19004
(610) 538-1800
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------------------------
Copies to:
<TABLE>
<S> <C> <C>
JOHN F. BALES, ESQ. JOHN H. GURLEY, ESQ. ROBERT E. KING, JR., ESQ.
Morgan, Lewis & Bockius LLP Vice President & General Counsel Rogers & Wells LLP
1701 Market Street Corporate Office Properties Trust 200 Park Avenue
Philadelphia, PA 19103 401 City Avenue, Suite 615 New York, New York 10166
(215) 963-5478 Bala Cynwyd, PA 19004 (212) 878-8000
(610) 538-1800
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement.
----------------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
other than offered only in connection with dividend or interest reinvestment
plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE
SECURITIES TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE
<S> <C> <C> <C>
Common Shares of Beneficial Interest (3)
Preferred Shares of Beneficial Interest (3)(4) (1) (2)
Common Share Warrants (3)(5)
Preferred Share Warrants (3)(6)
Total $250,000,000 $250,000,000
<CAPTION>
TITLE OF EACH CLASS OF AMOUNT OF
SECURITIES TO BE REGISTERED REGISTRATION FEE
<S> <C>
Common Shares of Beneficial Interest (3)
Preferred Shares of Beneficial Interest (3)(4)
Common Share Warrants (3)(5)
Preferred Share Warrants (3)(6)
Total $69,500
</TABLE>
(1) The Proposed Maximum Offering Price Per Unit will be determined from time to
time by the Registrant in connection with the issuance of the Securities.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) of the Securities Act of 1933, as amended (the
"Securities Act").
(3) This Registration Statement covers (a) Common Shares of Beneficial Interest
("Common Shares") issued other than on conversion of Preferred Shares of
Beneficial Interest ("Preferred Shares") or exercise of Common Share
Warrants and includes Common Shares which may be purchased by underwriters
to cover over-allotments, if any, and (b) subject to notes 5 and 6, the
number of other Securities listed above as may from time to time be issued
at indeterminate prices, but with an aggregate initial offering price for
all such Common Shares and other Securities not to exceed $250,000,000. Also
includes such presently indeterminate number of additional Common Shares
("Additional Common Shares") as may be issued on (i) conversion of any
Preferred Shares as may be issued separately on exercise of Preferred Share
Warrants, if and to the extent such Preferred Shares are convertible into
Common Shares or (ii) exercise of any Common Share Warrants as may be
issued, if and to the extent exercisable for Common Shares. The Amount to be
Registered, Proposed Maximum Offering Price Per Unit, Proposed Maximum
Aggregate Offering Price and Amount of Registration Fee with respect to such
Preferred Shares and Common Share Warrants include such Additional Common
Shares.
(4) Includes Preferred Shares (a) issued other than on exercise of Preferred
Share Warrants and (b) which may be purchased by underwriters to cover
over-allotments, if any. Also includes such presently indeterminate number
of additional Preferred Shares ("Additional Preferred Shares") as may be
issued on exercise of any Preferred Share Warrants as may be issued, if and
to the extent exercisable for Preferred Shares. The Amount to be Registered,
Proposed Maximum Aggregate Offering Price and Amount of Registration Fee
with respect to such Preferred Share Warrants include such Additional
Preferred Shares.
(5) Includes Common Share Warrants which may be (a) issued other than as part of
Units of Common Share Warrants and other Securities and (b) purchased by
underwriters to cover over-allotments, if any. Also includes additional
Common Share Warrants ("Additional Common Share Warrants") which may be
offered as part of Units of Common Share Warrants and other Securities. The
Amount to be Registered, Proposed Maximum Aggregate Offering Price and
Amount of Registration Fee with respect to such Units of Common Share
Warrants and other Securities include such Additional Common Share Warrants.
(6) Includes Preferred Share Warrants which may be (a) issued other than as part
of Units of Preferred Share Warrants and other Securities and (b) purchased
by underwriters to cover over-allotments, if any. Also includes additional
Preferred Share Warrants ("Additional Preferred Share Warrants") which may
be offered as part of Units of Preferred Share Warrants and other
Securities. The Amount to be Registered, Proposed Maximum Aggregate Offering
Price and Amount of Registration Fee with respect to such Units of Preferred
Share Warrants and other Securities include such Additional Preferred Share
Warrants.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE>
CORPORATE OFFICE PROPERTIES TRUST
$250,000,000
COMMON SHARES OF BENEFICIAL INTEREST
PREFERRED SHARES OF BENEFICIAL INTEREST
WARRANTS TO PURCHASE COMMON SHARES
WARRANTS TO PURCHASE PREFERRED SHARES
- --------------------------------------------------------------------------------
This prospectus pertains to the offer and sale by Corporate Office Properties
Trust of one or more of its securities of the type identified above. Corporate
Office Properties Trust is referred to in this prospectus as "we," "us" or
"COPT."
We may offer and sell any combination of the securities described in this
prospectus in one or more offerings up to a total dollar amount of $250,000,000.
This prospectus provides you with a general description of the securities we may
offer. Each time we offer securities, we will provide a prospectus supplement
which will accompany this prospectus. This prospectus may not be used to sell
these securities unless accompanied by a prospectus supplement. The prospectus
supplement will contain specific information about the terms of the securities
being offered at that time. The prospectus supplement may also add, update or
change information contained in this prospectus. You should read both this
prospectus and any prospectus supplement, including the documents we have
referred to under the heading "Where You Can Find More Information," together
with any additional information you may need to make your investment decision.
------------------------
BEFORE INVESTING IN OUR SECURITIES, YOU SHOULD REVIEW THE SECTION OF THIS
PROSPECTUS CALLED "RISK FACTORS" WHICH BEGINS ON PAGE 5.
---------------------
Our Common Shares are listed on the New York Stock Exchange under the symbol
"OFC." To ensure that we maintain our qualification as a real estate investment
trust, ownership by any person is limited to 9.8% of the lesser of the number or
value of outstanding Common Shares, subject to certain exceptions.
------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
May 21, 1999
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY................................................................................ 3
CORPORATE OFFICE PROPERTIES TRUST...................................................... 3
FORWARD-LOOKING STATEMENTS............................................................. 4
RISK FACTORS........................................................................... 5
USE OF PROCEEDS........................................................................ 11
RATIOS OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED SHARE DIVIDENDS............. 11
GENERAL DESCRIPTION OF THE OFFERED SECURITIES.......................................... 11
DESCRIPTION OF SHARES.................................................................. 12
FEDERAL INCOME TAX MATTERS............................................................. 21
PLAN OF DISTRIBUTION................................................................... 32
EXPERTS................................................................................ 33
LEGAL MATTERS.......................................................................... 33
WHERE YOU CAN FIND MORE INFORMATION.................................................... 33
</TABLE>
2
<PAGE>
SUMMARY
THIS PROSPECTUS SUMMARY CALLS YOUR ATTENTION TO SELECTED INFORMATION IN THIS
DOCUMENT, BUT IT DOES NOT CONTAIN ALL THE INFORMATION THAT IS IMPORTANT TO YOU.
TO UNDERSTAND US AND THE SECURITIES THAT MAY BE OFFERED THROUGH THIS PROSPECTUS,
YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, ESPECIALLY THE "RISK FACTORS"
SECTION AND THE DOCUMENTS WE REFER YOU TO IN THE SECTION CALLED "WHERE YOU CAN
FIND MORE INFORMATION."
CORPORATE OFFICE PROPERTIES TRUST
GENERAL. We are a fully-integrated, self-managed real estate investment
trust ("REIT") that focuses principally on the acquisition, management,
ownership and development of suburban office properties in targeted suburban
submarkets principally in the Mid-Atlantic region of the United States. As of
March 31, 1999:
- we owned 49 suburban office properties in Maryland, Pennsylvania and New
Jersey containing approximately 4.4 million rentable square feet;
- we owned five retail properties containing approximately 311,000 rentable
square feet;
- our properties were 97.4% leased;
- we had options to purchase from related parties 156 acres of land
contiguous to certain of our office properties; and
- we were developing three office properties totaling 269,000 square feet.
We conduct almost all of our operations through our operating partnership,
Corporate Office Properties, L.P., a Delaware limited partnership. We are the
managing general partner of Corporate Office Properties, L.P. Interests in our
operating partnership are in the form of common and preferred units. As of March
31, 1999, we owned approximately 84% of the outstanding common units and
approximately 32% of the outstanding preferred units. The remaining common and
preferred units in our operating partnership were owned by third parties which
included certain of our officers and Trustees. If all preferred units were
converted into common units, we would have owned approximately 62% of the common
units as of March 31, 1999.
We are the successor to a corporation organized in 1988 and elected to be
taxed as a REIT commencing with the taxable year ended December 31, 1992. We
believe that we are organized and have operated in a manner that permits us to
satisfy the requirements for taxation as a REIT under the Internal Revenue Code
of 1986, as amended, and we intend to continue to operate in such a manner. If
we qualify for taxation as a REIT, we generally will not be subject to federal
income tax on our taxable income that is distributed to our shareholders. A REIT
is subject to a number of organizational and operational requirements, including
a requirement that it currently distribute to its shareholders at least 95% of
its annual taxable income (excluding net capital gains).
Our executive offices are located at 401 City Avenue, Suite 615, Bala
Cynwyd, PA 19004 and our telephone number is (610) 538-1800.
3
<PAGE>
FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS AND OUR DOCUMENTS INCORPORATED BY REFERENCE HEREIN CONTAIN
"FORWARD-LOOKING" STATEMENTS, AS DEFINED IN THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995, THAT ARE BASED ON OUR CURRENT EXPECTATIONS, ESTIMATES AND
PROJECTIONS. STATEMENTS THAT ARE NOT HISTORICAL FACTS, INCLUDING STATEMENTS
ABOUT OUR BELIEFS AND EXPECTATIONS, ARE FORWARD-LOOKING STATEMENTS. THESE
STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE, EVENTS OR RESULTS AND
INVOLVE POTENTIAL RISKS AND UNCERTAINTIES. ACCORDINGLY, ACTUAL RESULTS MAY
DIFFER MATERIALLY. WE UNDERTAKE NO OBLIGATION TO UPDATE PUBLICLY ANY
FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE
EVENTS OR OTHERWISE.
IMPORTANT FACTS THAT MAY AFFECT THESE EXPECTATIONS, ESTIMATES OR PROJECTIONS
INCLUDE, BUT ARE NOT LIMITED TO: OUR ABILITY TO BORROW ON FAVORABLE TERMS;
GENERAL ECONOMIC AND BUSINESS CONDITIONS, WHICH WILL, AMONG OTHER THINGS AFFECT
OFFICE PROPERTY DEMAND AND RENTS, TENANT CREDITWORTHINESS AND FINANCING
AVAILABILITY; ADVERSE CHANGES IN THE REAL ESTATE MARKETS INCLUDING, AMONG OTHER
THINGS, COMPETITION WITH OTHER COMPANIES; RISKS OF REAL ESTATE ACQUISITION AND
DEVELOPMENT; GOVERNMENTAL ACTIONS AND INITIATIVES; ENVIRONMENTAL REQUIREMENTS;
AND THE OTHER FACTORS DESCRIBED IN THIS PROSPECTUS UNDER THE HEADING "RISK
FACTORS" BEGINNING ON PAGE 5.
4
<PAGE>
RISK FACTORS
BEFORE YOU INVEST IN OUR SECURITIES, YOU SHOULD BE AWARE THAT THERE ARE
VARIOUS RISKS. WE HAVE DESCRIBED FOR YOU BELOW SOME OF THE RISKS INVOLVED IN
INVESTING IN THE COMMON SHARES WHICH MAY BE OFFERED UNDER THIS PROSPECTUS. A
WORD OF CAUTION: THE LIST BELOW IS NOT A COMPLETE LIST. YOU SHOULD CAREFULLY
CONSIDER EACH OF THESE FACTORS AND ALL OF THE INFORMATION BOTH IN THIS
PROSPECTUS AND THE DOCUMENTS WE REFER YOU TO IN THE SECTION CALLED "WHERE YOU
CAN FIND MORE INFORMATION."
WE MAY INCUR PROBLEMS WITH OUR REAL ESTATE FINANCING
GENERALLY. Our strategy is to operate with higher debt levels than most
other REITs. Our organizational documents do not limit the amount of
indebtedness that we may incur. Most of our properties have been mortgaged to
collateralize indebtedness. In addition, we will rely on borrowings to fund some
or all of the costs of new property acquisitions, capital expenditures and other
items.
As of March 31, 1999, our total outstanding debt was $290.8 million. Our
debt to total market capitalization ratio was 58.8% based upon the closing per
share market price for the Common Shares of $6.44 on March 31, 1999. Total
market capitalization is the sum of total debt plus the value of all outstanding
Common Shares and common units at such market price and the total Preferred
Shares and preferred units at their liquidation value.
Payments of principal and interest on our debt may leave us with
insufficient cash to operate our properties or pay distributions to our
shareholders required to maintain our qualification as a REIT. We are also
subject to the risks that:
- We may not be able to refinance our existing indebtedness or refinance on
terms as favorable as the terms of our existing indebtedness;
- Certain debt agreements of our operating partnership could restrict the
ability of our operating partnership to make cash distributions to us,
which could result in reduced distributions to our shareholders or the
need to incur additional debt to fund distributions; and
- If we are unable to pay our debt service on time, our lenders could
foreclose on our properties securing such debt and in some cases other
properties and assets which we own. A number of our loans are
cross-collateralized, which means that separate groups of properties from
our portfolio secure each of these loans. More importantly, almost all of
our loans are cross-defaulted, which means that failure to pay interest or
principal on any of our loans will create a default on certain of our
other loans. In addition, if we are in default and the value of the
properties securing a loan is less than the loan balance, the lender may
require payment from our other assets.
As of March 31, 1999, approximately 21.5% of our total debt had adjustable
interest rates. Consequently, if short term interest rates were to rise, our
debt service payments would increase, which would lower our net income and could
decrease our distributions to our shareholders.
WE MUST REFINANCE OUR MORTGAGE DEBT IN THE FUTURE. As of March 31, 1999,
our scheduled debt payments over the next five years, including maturities, are
as follows:
<TABLE>
<S> <C>
1999 1,242,000
2000 183,871,000
2001 12,363,000
2002 2,146,000
2003 2,305,000
</TABLE>
Of the debt due in 2000, we have the right to extend $100.0 million to 2002
and approximately $82.0 million to 2001. Of the debt due in 2001, we have the
right to extend $7.6 million of construction loans for a one-year period,
subject to certain conditions.
5
<PAGE>
We do not expect our operations to generate enough cash flow to repay some
or all of this debt without additional borrowings or new equity investment. If
we cannot refinance, extend the debt due dates, or raise additional equity prior
to the date when our debt matures, we would default on our existing debt.
WE RELY ON A FEW TENANTS FOR MOST OF OUR REVENUE
As of March 31, 1999, ten tenants accounted for 53.4% of our annualized
rents. Two of these tenants accounted for approximately 28.4% of our total
annualized rents. Our largest tenant is the United States federal government,
two agencies of which lease space in eleven of our office properties. These
leases represented approximately 18.1% of our total annualized office rents as
of March 31, 1999. Generally, these government leases provide for one-year terms
or provide for one-year termination rights. The government may terminate its
leases if, among other reasons, Congress fails to provide funding. The Congress
of the United States has appropriated funds for these leases through September
of 1999. The second largest tenant, Unisys Corporation, represented 10.3% of our
annualized office rents as of March 31, 1999 and a larger percentage of our net
operating income because Unisys pays all of its property operating expenses
directly. Unisys occupies space in three of our office properties. If either the
federal government or Unisys fails to make rental payments to us, or if the
federal government elects to terminate several of its leases and the space
cannot be re-leased on satisfactory terms, our financial performance and ability
to make expected distributions to shareholders would be materially adversely
affected.
OUR PROPERTIES ARE LOCATED MAINLY IN ONE REGION--THE MID-ATLANTIC
All of our office properties are located in the Mid-Atlantic region of the
United States, and 58.7% of our total office rental income for the quarter ended
March 31, 1999, was earned from our office properties located in the
Baltimore-Washington corridor. Consequently, we do not have a broad geographic
distribution of our properties. As a result, a decline in the real estate market
or economic conditions generally in the Mid-Atlantic region could have a
material adverse affect on our operations.
WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH
We have grown rapidly. In 1998, we completed numerous acquisitions,
expanding our total portfolio of properties from 1.9 million square feet to 5.0
million square feet. Our acquisition of properties from Constellation Real
Estate, Inc., the initial stage of which closed in September 1998, is our
largest acquisition to date. We also plan to expand in the future. In order to
successfully manage our growth, we must, among other things, integrate the
personnel and operations of the acquired properties while effectively managing
our corporate overhead costs. We cannot assure you that we will be able to
accomplish these goals. If we fail to successfully manage our growth, we could
be materially adversely affected.
THE LEVEL OF OUR SHAREHOLDER DISTRIBUTIONS COULD DECLINE
We intend to make regular quarterly cash distributions to our shareholders.
However, distribution levels depend on a number of factors, some of which are
beyond our control.
Commencing on October 1, 1999, holders of preferred units in our operating
partnership will be able to convert those units into common units and, if
current distribution levels remain unchanged, receive increased distributions.
These increased distributions would total approximately $2.0 million annually if
all holders of preferred units converted. Although we believe that we would have
sufficient cash flow to pay that increase, such conversion could require a
reduction in per share distributions on our Common Shares and common units or
restrict our ability to increase these distributions in the future. Our loan
agreements also contain provisions which could also restrict future
distributions. Our ability to sustain our current distribution level also will
be dependent, in part, on other matters including continued property occupancy
and profitability of tenants, the amount of future capital expenditures and
expenses relating to our
6
<PAGE>
properties, the level of leasing activity and future rental rates, the strength
of the commercial real estate market, competition, the costs of compliance with
environmental and other laws, our corporate overhead levels, the amount of
uninsured losses and our decisions whether to reinvest rather than distribute
available cash.
A THIRD PARTY COULD HAVE DIFFICULTY IN SEEKING TO ACQUIRE CONTROL OF US
CONSTELLATION'S COMMON SHARE OWNERSHIP AND OUR OWNERSHIP LIMITS ARE
IMPORTANT FACTORS. Constellation Real Estate, Inc. currently owns approximately
41.8% of our outstanding Common Shares. Under our charter, two-thirds of the
outstanding Common Shares must approve a merger, a sale of substantially all our
assets, any amendment to our charter, the removal of a Trustee, and the
termination of COPT. Because Constellation Real Estate, Inc. owns more than
one-third of our voting stock, it has the ability to veto any of those
transactions, which will make it more difficult for any third party to acquire
control of us. Such change of control could involve a premium over the market
price for the Common Shares or other attributes that the shareholders may
consider desirable. In addition, our charter limits ownership of our Common
Shares by any single shareholder to 9.8% of the number of the outstanding shares
or 9.8% of the value of the outstanding shares. We call these restrictions the
"Ownership Limit." Our charter allows our Board of Trustees to exempt
shareholders from the Ownership Limit, and the Board has exempted Constellation
Real Estate, Inc. from the Ownership Limit.
OUR CHARTER PROVIDES OTHER POTENTIAL DEFENSES. Subject to the requirements
of the New York Stock Exchange, the Board of Trustees has the authority without
shareholder approval to issue additional securities of COPT on terms that could
delay, defer or prevent a change in control of COPT. In addition, our Board has
the authority to reclassify any of our unissued Common Shares into Preferred
Shares. The Board may issue Preferred Shares with such preferences, rights,
powers and restrictions as the Board may determine. Our Board has already issued
the Series A Preferred Shares, which have features which make it harder for a
third party to acquire control of us. See "Description of Shares--Series A
Preferred Shares."
Our Board is divided into three classes of Trustees. The terms of the first,
second and third classes of the Trustees will expire in 2002, 2000 and 2001,
respectively. In the future, we will elect Trustees for staggered three-year
terms. Staggered elections make it more difficult for a third party to acquire
control of us. See "Description of Shares--Classification of Board, Vacancies
and Removal of Trustees."
THE MARYLAND BUSINESS STATUTES ALSO IMPOSE POTENTIAL RESTRICTIONS. Various
Maryland laws may have the effect of discouraging offers to acquire us, even if
the acquisition would be advantageous to shareholders. Our Bylaws exempt us from
such laws, but our Board of Trustees can change our Bylaws at any time to make
these provisions applicable to us. See "Description of Shares--Possible
Antitakeover Effect of Certain Provisions of Maryland Law."
OUR PERFORMANCE IS SUBJECT TO RISKS ASSOCIATED WITH THE REAL ESTATE INDUSTRY
GENERALLY. We earn income from renting our properties. Our operating costs
do not necessarily fluctuate in relation to changes in our rental income. This
means our costs will not necessarily decline even if our revenues do. Also, our
operating costs may increase while our revenues do not.
For new tenants or upon lease expiration for existing tenants, we generally
must make improvements and pay other tenant-related costs for which we may not
receive increased rents. We also make building-related capital improvements for
which tenants may not reimburse us.
If our properties do not generate income sufficient to meet our operating
expenses and capital costs, we may have to borrow additional amounts to cover
these costs. In such circumstances, we would likely have lower profits or
possibly incur losses. Moreover, there may be less or no cash available for
distributions to our shareholders.
7
<PAGE>
OUR LEASE RENEWALS POSE CERTAIN UNCERTAINTIES. When leases expire at our
properties, our tenants may not renew or may renew on terms less favorable to us
than the terms of the original lease. As of March 31, 1999. our scheduled lease
expirations, as a percentage of total annualized rents, for the next five years
were:
<TABLE>
<S> <C>
1999 (9 months ) 4.5%
2000 10.0%
2001 10.9%
2002 15.0%
2003 16.3%
</TABLE>
If a tenant leaves, we can expect to incur a vacancy for some period of time
as well as higher capital costs than if a tenant renews. In either case, our net
income and ability to make expected distributions to our shareholders could be
adversely affected.
COMPETITION MAY CAUSE DIFFICULTY IN OUR LEASING ACTIVITY. The commercial
real estate market is highly competitive. Numerous commercial properties compete
for tenants with our properties and our competitors are building additional
properties in the markets in which our properties are located. Some of these
competing properties may be newer or have more desirable locations than our
properties. If the market does not absorb newly constructed space, market
vacancies will increase and market rents may decline. As a result, we may have
difficulty leasing space at our properties and we may be forced to lower the
rents we charge on new leases to compete effectively.
COMPETITION MAY CAUSE DIFFICULTY IN OUR STRATEGY OF ACQUIRING NEW
PROPERTY. We compete for the purchase of commercial property with many
entities, including other publicly traded commercial REITs. Many of our
competitors have substantially greater financial resources than ours. In
addition, our competitors may be willing to accept lower returns on their
investments. If our competitors prevent us from buying the amount of properties
that we have targeted for acquisition, we may not be able to meet our property
acquisition and development goals.
OUR DEVELOPMENT AND CONSTRUCTION ACTIVITIES POSE CERTAIN RISKS. Although
the majority of our investments are in currently leased properties, to a lesser
extent we also develop properties, including some which are not fully
pre-leased. When we develop properties, we run the risks that development costs
will exceed our budgets, that we will experience construction or development
delays and that projected leasing will not occur.
WE ARE SUBJECT TO POSSIBLE ENVIRONMENTAL LIABILITIES. We are subject to
various federal, state and local environmental laws. These laws can impose
liability on property owners or operators for the costs of removal or
remediation of certain hazardous substances released on a property, even if the
property owner was not responsible for the release of the hazardous substances.
The presence of hazardous substances on our properties may adversely affect
occupancy and our ability to sell or borrow against those properties. In
addition to the costs of government claims under environmental laws, private
plaintiffs may bring claims for personal injury or similar reasons. Various laws
also impose liability for the costs of removal or remediation of hazardous
substances at the disposal or treatment facility. Anyone who arranges for the
disposal or treatment of hazardous substances at such a facility is potentially
liable under such laws. These laws often impose liability whether or not the
facility is or ever was owned or operated by such person.
WE CANNOT SELL OUR PROPERTIES QUICKLY. Equity real estate investments like
our properties are relatively difficult to sell and convert to cash quickly.
Such illiquidity will tend to limit our ability to vary our portfolio of
properties promptly in response to changes in economic or other conditions. In
addition, the Internal Revenue Code imposes certain penalties on a REIT that
sells property held for less than four years. As a result, we may be unable to
sell a property at an advantageous time.
8
<PAGE>
WE ARE SUBJECT TO OTHER POSSIBLE LIABILITIES. Our properties may be subject
to other risks relating to current or future laws including laws benefiting
disabled persons, and state or local zoning, construction or other regulations.
These laws may require significant property modifications in the future for
which we may not have budgeted and could result in fines being levied against
us. In addition, although we believe that we adequately insure our properties,
we are subject to the risk that our insurance may not cover all of the costs to
restore a property which is damaged by a fire or other similar catastrophic
event. The occurrence of any of these events could have an adverse impact on our
cash flows and ability to make distributions to shareholders.
WE AND OUR SHAREHOLDERS ARE SUBJECT TO CERTAIN TAX RISKS
OUR FAILURE TO QUALIFY AS A REIT WOULD HAVE ADVERSE TAX CONSEQUENCES. We
believe that since 1992 we have qualified for taxation as a REIT for federal
income tax purposes. We plan to continue to meet the requirements for taxation
as a REIT. Many of these requirements, however, are highly technical and
complex. The determination that we are a REIT requires an analysis of various
factual matters and circumstances that may not be totally within our control.
For example, to qualify as a REIT, at least 95% of our gross income must come
from certain sources that are itemized in the REIT tax laws. We are also
required to distribute to shareholders at least 95% of our REIT taxable income
(excluding capital gains). The fact that we hold most of our assets through our
operating partnership and its subsidiaries further complicates the application
of the REIT requirements. Even a technical or inadvertent mistake could
jeopardize our REIT status. Furthermore, Congress and the IRS might make changes
to the tax laws and regulations, and the courts might issue new rulings that
make it more difficult, or impossible for us to remain qualified as a REIT.
If we fail to qualify as a REIT, we would be subject to federal income tax
at regular corporate rates. Also, unless the IRS granted us relief under certain
statutory provisions, we would remain disqualified as a REIT for four years
following the year we first fail to qualify. If we fail to qualify as a REIT, we
would have to pay significant income taxes and would therefore have less money
available for investments or for distributions to our shareholders. This would
likely have a significant adverse effect on the value of our securities. In
addition, we would no longer be required to make any distributions to our
shareholders.
WE HAVE CERTAIN DISTRIBUTION REQUIREMENTS. As a REIT, we must distribute
95% of our annual taxable income. The required distribution limits the amount of
cash we have available for other business purposes, including amounts to fund
our growth. Also, it is possible that because of the differences between the
time we actually receive revenue or pay expenses and the period we report those
items for distribution purposes, we may have to borrow funds on a short-term
basis to meet the 95% distribution requirement.
WE ARE ALSO SUBJECT TO OTHER TAX LIABILITIES. Even if we qualify as a REIT,
we may be subject to certain federal, state and local taxes on our income and
property. Any such taxes would reduce our operating cash flow.
When we purchased certain office properties located in Pennsylvania, we only
purchased 89% of the partnership which owned each property. The remaining 11%
will be acquired by the operating partnership not later than December 2000. This
structure is intended to comply with informal advice from the Pennsylvania
Department of Revenue that such two-stage transfers are not subject to
Pennsylvania real estate transfer taxes. However, we have not obtained a formal
ruling from the Pennsylvania Department of Revenue on this issue. If the
Pennsylvania Department of Revenue were to successfully change this structure,
or the remaining interests were required to be transferred for financing or
other purposes prior to October 14, 2000, we would be subject to Pennsylvania
state and local transfer taxes of approximately $2.7 million.
9
<PAGE>
ISSUANCES OF LARGE AMOUNTS OF OUR COMMON SHARES COULD CAUSE OUR SHARE PRICE TO
DECLINE
As of March 31, 1999 16,801,876 Common Shares were outstanding. This
prospectus may be used for the issuance of additional Common Shares. If we issue
a significant number of Common Shares in a short period of time, there could be
a decrease in the market price of the Common Shares.
WE LACK CONTROL OVER OUR MANAGEMENT COMPANY
We receive substantially all of the economic benefits of Corporate Office
Management, Inc. ("COMI"), the company which manages our properties. We are not
able to elect directors or officers of COMI because we hold only 1% of COMI's
voting stock. The majority of COMI's voting stock is owned by persons who are
not our officers or Trustees. Therefore, we cannot directly influence the
operations of COMI. As a result, the board of directors and management of COMI
may implement business policies or decisions that would not have been
implemented by us. These policies or decisions could be adverse to our interests
or lead to adverse financial results, which could adversely impact our net
operating income and cash flow.
Although we believe that the contracts between us and COMI for management
services are no less favorable to us than those which could be obtained from a
third party, such contracts are not the result of arm's length negotiations and,
therefore, we cannot assure you that those contracts are just as favorable.
CERTAIN OFFICERS AND TRUSTEES OF COPT HAVE POTENTIAL CONFLICTS OF INTEREST
The Chairman of our Board, our Chief Executive Officer, and certain other
officers own direct and indirect interests in office properties and other real
estate assets in which we have an interest. The interests of these persons may
give rise to certain conflicts of interest concerning the fulfillment of their
responsibilities as our officers and Trustees. We have adopted certain policies
designed to minimize conflicts of interest. We cannot assure you, however, that
these policies will be successful in eliminating the influence of such
conflicts, and if they are not successful, decisions could be made that might
fail to reflect fully the interests of all shareholders of COPT. For example,
the Chairman of our Board of Trustees and our Chief Executive Officer own a
significant share of the units of our operating partnership. If our operating
partnership sells or refinances certain of the properties that these officers
contributed to the operating partnership, they could suffer adverse tax
consequences. Therefore, they could oppose such a transaction.
WE ARE DEPENDENT ON OUR KEY PERSONNEL
We are dependent on the efforts of our Trustees and executive officers,
including Mr. Shidler, our Chairman of the Board of Trustees, Mr. Hamlin, our
Chief Executive Officer, and Mr. Griffin, our President. The loss of any of
their services could have an adverse effect on our operations. Although certain
of our officers have entered into employment agreements with us, we cannot
assure you that they will remain employed with us.
WE MAY CHANGE OUR POLICIES WITHOUT SHAREHOLDER APPROVAL
Our Board of Trustees determines all of our policies, including our
investment, financing and distribution policies. Although our Board of Trustees
has no current plans to do so, it may amend or revise these policies at any time
without a vote of our shareholders. Policy changes could adversely affect our
financial condition, results of operations, the market price of the Common
Shares or our ability to pay dividends or distributions.
WE ARE SUBJECT TO THE "YEAR 2000 RISK"
The "Year 2000 Risk" arises because certain computer programs have been
written using two digits rather than four to define the applicable years.
Consequently, date-sensitive software may recognize a date
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<PAGE>
using "00" as the year 1900 rather than the year 2000. This could result in
system failures or miscalculations causing disruptions of operations, including,
among others, building system failures and a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
Our accounting software vendor has certified that the software package we use is
year 2000 compliant; however, we have not independently determined that this
package is year 2000 compliant and we cannot assure you it is free of Year 2000
Risk.
We rely on third-party suppliers for a number of key services. If supplier
operations are interrupted due to the Year 2000 Risk, that interruption could
affect our operations. Although some of our suppliers have assured us that they
are year 2000 compliant, we cannot assure you that our vendors are free of Year
2000 Risk. We also depend upon our tenants for revenue and cash flow.
Interruptions in tenant operations due to the Year 2000 Risk could result in
reduced revenue, increased receivable levels and cash flow reductions.
USE OF PROCEEDS
Unless otherwise indicated in an accompanying prospectus supplement, we
intend to use the net proceeds from the sale of the securities offered by this
prospectus for general trust purposes, including capital expenditures,
acquisition or development of additional properties, repayment of indebtedness
and meeting our working capital needs.
RATIOS OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED SHARE DIVIDENDS
The following table sets forth COPT's consolidated ratios of earnings to
combined fixed charges and Preferred Share dividends for the three months ended
March 31, 1999, and for each of the last five calendar years. For purposes of
calculating the ratio of earnings to combined fixed charges and Preferred Share
dividends, earnings were calculated by adding fixed charges, excluding Preferred
Share dividends, and minority interests of common unitholders to net income.
Fixed charges consist of interest costs, amortization of debt issuance costs and
distributions to preferred unitholders.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEARS ENDED
MARCH 31, ---------------------------------
1999 1998 1997 1996
--------------- --------- ----- ---------
<S> <C> <C> <C> <C>
Ratio of earnings to combined fixed charges and Preferred Share
dividends............................................................. 1.53 1.33 (A) 1.23
--- --- --- ---
--- --- --- ---
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Ratio of earnings to combined fixed charges and Preferred Share
dividends............................................................. 1.21 1.27
--- ---
--- ---
</TABLE>
- ------------------------
(A) During the year ended December 31, 1997, COPT's net income included a
non-recurring expense of $1,353,000 associated with the termination of an
advisory agreement. As a result, earnings were inadequate to cover fixed
charges by $902,000 in the year ended December 31, 1997. If such
non-recurring expense had not been incurred, COPT's ratio of earnings to
combined fixed charges and Preferred Share dividends for 1997 would have
been 1.12.
GENERAL DESCRIPTION OF THE OFFERED SECURITIES
We may use this prospectus to offer our Common Shares, Preferred Shares,
warrants to purchase Common Shares or warrants to purchase Preferred Shares,
which we refer to collectively as the "securities", or any combination of the
foregoing, either individually or as units consisting of two or more such
securities. The aggregate offering price of our securities will not exceed
$250,000,000. If securities offered by this prospectus are offered as units, the
terms of the units will be set forth in a related prospectus supplement.
11
<PAGE>
DESCRIPTION OF SHARES
THE FOLLOWING SUMMARY OF THE TERMS OF THE SECURITIES OF CORPORATE OFFICE
PROPERTIES TRUST ("COPT") DOES NOT PURPORT TO BE COMPLETE AND IS SUBJECT TO AND
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE DECLARATION OF TRUST AND THE
BYLAWS OF COPT, COPIES OF WHICH ARE EXHIBITS TO THE REGISTRATION STATEMENT OF
WHICH THIS PROSPECTUS IS A PART.
GENERAL
The Declaration of Trust provides that COPT may issue up to 45,000,000
Common Shares and 5,000,000 Preferred Shares of beneficial interest, par value
$.01 per share (the "Preferred Shares"), 1,025,000 of which are designated
Series A Convertible Preferred Shares (the "Series A Preferred Shares"). As of
March 31, 1999, there were 16,801,876 Common Shares and 984,308 Series A
Preferred Shares issued and outstanding. The Declaration of Trust contains a
provision permitting the Board of Trustees, without any action by the
shareholders of COPT, 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 COPT has authority to issue. The
additional shares of beneficial interest, which could include Common Shares,
will be available for issuance without further action by COPT's shareholders,
subject to the requirements of the New York Stock Exchange.
Both Title 8 of the Corporations and Associations Article of the Annotated
Code of Maryland, as amended (the "Maryland REIT Law") and the Declaration of
Trust provide that no shareholder of COPT will be personally liable for any
obligation of COPT solely as a result of such shareholder's status as a
shareholder of COPT. The Declaration of Trust provides that COPT shall have the
power, to the maximum extent permitted by Maryland law in effect from time to
time, to obligate itself to indemnify, and to pay or reimburse reasonable
expenses in advance of a final disposition of a proceeding to, any shareholder
or any former shareholder from and against any claim or liability to which such
person may become subject or which such person may incur by reason of his status
as a present or former shareholder of COPT. The Bylaws of COPT obligate it, to
the maximum extent permitted by Maryland law, to indemnify any shareholder or
any former shareholder (including, without limitation, any individual who, while
a shareholder and at the request of COPT, serves or has served another real
estate investment trust, corporation, partnership, joint venture, trust,
employee benefit plan or any other enterprise as a trustee, director, officer,
partner, employee or agent of such real estate investment trust, corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise)
who has been successful, on the merits or otherwise, in the defense of a
proceeding to which he was made a party by reason of being a shareholder,
against reasonable expenses incurred by him in connection with the proceeding.
Inasmuch as COPT carries public liability insurance which it considers adequate,
any risk of personal liability to shareholders not covered by the Maryland REIT
Law is limited to situations in which COPT's assets plus its insurance coverage
would be insufficient to satisfy the claims against COPT and its shareholders.
COMMON SHARES
All Common Shares offered hereby will be duly authorized, fully paid and
nonassessable. Subject to the preferential rights of any other shares or series
of beneficial interest and to the provisions of the Declaration of Trust
regarding the restriction on transfer of Common Shares, holders of Common Shares
are entitled to receive dividends on such shares if, as and when authorized and
declared by the Board of Trustees out of assets legally available therefor and
to share ratably in the assets of COPT 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 COPT.
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
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<PAGE>
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. Constellation Real Estate, Inc. is currently entitled to appoint two
of the nine Trustees. See "--Series A Preferred Shares."
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 COPT. 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.
The Declaration of Trust provides for approval by a majority of the votes
cast by holders of Common Shares entitled to vote on the matter in all
situations permitting or requiring action by the shareholders, except with
respect to: (i) the election of Trustees (which requires a plurality of all the
votes cast at a meeting of shareholders of COPT at which a quorum is present),
(ii) the removal of Trustees (which requires the affirmative vote of the holders
of two-thirds of the outstanding shares of beneficial interest of COPT 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 of COPT with
another entity or the sale (or other disposition) of all or substantially all of
the assets of COPT (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 (which requires the
affirmative vote of two-thirds of all the votes entitled to be cast on the
matter), (v) the termination of COPT (which requires the affirmative vote of
two-thirds of the outstanding shares of beneficial interest entitled to be cast
on the matter); and (vi) certain voting rights of Constellation Real Estate,
Inc. See "--Series A Preferred Shares". The Declaration of Trust permits the
Trustees, without any action by the holders of Common Shares, (a) 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 Internal Revenue Code or the
Maryland REIT Law and (b) by a majority vote 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 COPT has
authority to issue.
CLASSIFICATION OR RECLASSIFICATION OF COMMON SHARES OR PREFERRED SHARES
The Declaration of Trust authorizes the Board of Trustees to reclassify any
unissued shares of Common or Preferred Shares into other classes or series of
classes of shares and to establish the number of shares in each class or series
and to set the preferences, conversion and other rights, voting powers,
restrictions, limitations and restrictions on ownership, limitations as to
dividends or other distributions, qualifications and terms or conditions of
redemption for each such class or series. Thus, in addition to the Series A
Preferred Shares, the Board of Trustees could authorize the issuance of other
Preferred Shares with terms and conditions which could also have the effect of
delaying, deferring or preventing a change in control of COPT or other
transaction that might involve a premium over the then prevailing market price
for Common Shares or other attributes that the shareholders may consider to be
desirable.
SERIES A PREFERRED SHARES
The outstanding 984,308 Series A Preferred Shares were issued to
Constellation Real Estate, Inc., with terms as follows:
VOTING RIGHTS. Except as set forth below and as required by applicable law,
the Series A Preferred Shares do not entitle the holder thereof to any vote. If
an amendment to COPT's Declaration of Trust or a reclassification of Preferred
Shares would amend, alter or repeal any of the rights, preferences or powers of
the Series A Preferred Shares, then the affirmative vote of holders of
two-thirds of the outstanding Series A Preferred Shares, voting as a separate
class, would be required for its adoption. Constellation Real Estate, Inc. has
the right to designate up to two members of the Board of Trustees depending on
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<PAGE>
Constellation Real Estate, Inc.'s ownership percentage of outstanding shares.
This right is set forth as a term of the Series A Preferred Shares, such that so
long as Constellation Real Estate, Inc. holds any Series A Preferred Shares (and
it beneficially owns 30% of the Common Shares), Constellation Real Estate, Inc.
will have the right to designate up to two Trustees. If Constellation Real
Estate, Inc.'s Common Share beneficial holdings fall below 30% but above 15%,
Constellation Real Estate, Inc. may designate one Trustee.
DIVIDENDS. Holders of Series A 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 Series A Preferred Shares.
LIQUIDATION. In the event of any liquidation, dissolution or winding-up of
COPT's affairs, holders of Series A Preferred Shares will be entitled to
receive, out of the assets of COPT 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 Series A Preferred Share up to
the date fixed for distribution, before any distribution may be made to holders
of COPT's Common Shares.
CONVERSION. The Series A Preferred Shares are convertible into Common
Shares on the basis of 1.8748 Common Shares for each Series A Preferred Share
(subject to adjustment upon certain events, such as dividends paid in Common
Shares) as follows:
<TABLE>
<CAPTION>
SERIES A COMMON
PREFERRED SHARES IF
CONVERSION DATE SHARES CONVERTED
- ---------------------------------------------------------------------- ----------- ----------
<S> <C> <C>
September 28, 2000.................................................... 865,566 1,622,763
October 22, 2000...................................................... 72,509 135,940
December 30, 2000..................................................... 46,233 86,678
----------- ----------
Total................................................................. 984,308 1,845,381
----------- ----------
----------- ----------
</TABLE>
Notwithstanding the foregoing, Series A Preferred Shares held by
Constellation Real Estate, Inc. may not be converted into Common Shares if after
such conversion Constellation Real Estate, Inc. and its affiliates would own 45%
or more of COPT's outstanding Common Shares. In the event of such attempted
conversion, Constellation Real Estate, Inc. may elect to receive dividends
issued on the Common Shares it would have received if the conversion had been
completed, in lieu of dividends on its Preferred Shares.
ADDITIONAL PARITY AND JUNIOR SHARES. Any shares issued which are senior to
the Series A Preferred Shares require an affirmative vote of two-thirds of the
holders of Series A Preferred Shares. COPT may issue any class of capital shares
with voting rights which are on parity with or junior to the Series A Preferred
Shares without consent of the holders of Series A Preferred Shares. However, an
affirmative vote of two-thirds of the holders of Series A Preferred Shares is
required for any issuance or sale of greater than $50 million in Common Shares
at a price less than $9.50 per share.
ISSUANCE OF ADDITIONAL PREFERRED SHARES
The following description of our Preferred Shares of beneficial interest
sets forth general terms and provisions of the Preferred Shares to which any
prospectus supplement may relate. The statements below describing the Preferred
Shares are in all respects subject to and qualified in their entirety by
reference to our Declaration of Trust, Bylaws and any applicable amendment to
the Declaration of Trust designating terms of a series of Preferred Shares (a
"Designating Amendment"). The Preferred Shares, when issued, will be fully paid
and non-assessable. Because our Board of Trustees has the power to establish the
preferences, powers and rights of each series of Preferred Shares, subject to
the rights of the holders of the
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<PAGE>
Series A Preferred Shares, our Board may afford the holders of any series of
Preferred Shares preferences, powers and rights, voting or otherwise, senior to
the rights of holders of Common Shares. The issuance of additional series of
Preferred Shares could have the effect of delaying or preventing a change of
control that might involve a premium price for shareholders or otherwise be in
their best interest.
The rights, preferences, privileges and restrictions of the Preferred Shares
of each series will be fixed by the Designating Amendment relating to the
series. A prospectus supplement, relating to each series, will specify the terms
of the Preferred Shares, as follows:
- the title and stated value of the Preferred Shares;
- the number of Preferred Shares offered, the liquidation preference per
share and the offering price of the Preferred Shares;
- the dividend rate(s), period(s) and/or payment date(s) or method(s) of
calculation applicable to the Preferred Shares;
- the date from which dividends on the Preferred Shares will accumulate, if
applicable;
- the procedures for any auction and remarketing, if any, for the Preferred
Shares;
- the provision for a sinking fund, if any, for the Preferred Shares;
- the provision for redemption, if applicable, of the Preferred Shares;
- any listing of the Preferred Shares on any securities exchange;
- the terms and conditions, if applicable, upon which the Preferred Shares
will be convertible into Common Shares, including the conversion price (or
manner of calculation) and conversion period;
- any other specific terms, preferences, rights, limitations or restrictions
of the Preferred Shares;
- a discussion of certain material federal income tax considerations
applicable to the Preferred Shares;
- the relative ranking and preferences of the Preferred Shares as to
dividend rights and rights upon the liquidation, dissolution or winding up
of our affairs;
- any limitation on issuance of any series of Preferred Shares ranking
senior to or on a parity with the series of Preferred Shares as to
dividend rights and rights upon the liquidation, dissolution or winding up
of our affairs; and
- any limitations on direct or beneficial ownership and restrictions on
transfer of the Preferred Shares, in each case as may be appropriate to
preserve our status as a REIT.
RESTRICTIONS ON TRANSFER
For COPT to qualify as a REIT under the Internal Revenue Code, its shares of
beneficial interest generally must be beneficially owned by 100 or more persons
during at least 335 days of a taxable year of 12 months or during a
proportionate part of a shorter taxable year. Also, not more than 50% of the
value of the outstanding shares of beneficial interest may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Internal Revenue
Code to include certain entities) at any time during the last half of a taxable
year. This test is applied by "looking through" certain shareholders which are
not individuals (e.g., corporations or partnerships) to determine indirect
ownership of COPT by individuals.
The Declaration of Trust, subject to certain exceptions, contains certain
restrictions on the number of shares of beneficial interest of COPT that a
person may own. The Declaration of Trust provides that no person may own, or be
deemed to own by virtue of the attribution provisions of the Internal Revenue
Code, more than 9.8 of the number or value of the outstanding shares of
beneficial interest of COPT. In
15
<PAGE>
addition, the Declaration of Trust prohibits any person from acquiring or
holding, directly or indirectly, Common Shares in excess of 9.8% (in value or in
number of shares, whichever is more restrictive) of the aggregate of the
outstanding Common Shares.
The Board of Trustees, in its sole discretion, may exempt a proposed
transferee from the 9.8% ownership limitation. However, the Board of Trustees
may not grant such an exemption to any person if such exemption would result in
COPT being "closely held" within the meaning of Section 856(h) of the Internal
Revenue Code or otherwise would result in COPT failing to qualify as a REIT. In
order to be considered by the Board of Trustees for an exemption, a person also
must not own, directly or indirectly, more than a 9.9% interest in a tenant of
COPT (or a tenant of any entity owned or controlled by COPT). The person seeking
an exemption must represent to the satisfaction of the Board of Trustees that it
will not violate the two aforementioned restrictions. The person also must agree
that any violation or attempted violation of any of the foregoing restrictions
will result in the automatic transfer of the shares causing such violation to
the Share Trust (as defined below). The Board of Trustees may require a ruling
from the Internal Revenue Service or an opinion of counsel, in either case in
form and substance satisfactory to the Board of Trustees in its sole discretion,
in order to determine or ensure COPT's status as a REIT. Constellation Real
Estate, Inc., Mr. Jay H. Shidler and Mr. Clay W. Hamlin, III are all Excepted
Holders. However, as of March 31, 1999, Messrs. Shidler and Hamlin collectively
owned only 3.6% of the outstanding Common Shares.
The Declaration of Trust further prohibits (a) any person from beneficially
or constructively owning shares of beneficial interest of COPT that would result
in COPT being "closely held" under Section 856(h) of the Internal Revenue Code
or otherwise cause COPT to fail to qualify as a REIT and (b) any person from
transferring shares of beneficial interest of COPT if such transfer would result
in shares of beneficial interest of COPT being owned by fewer than 100 persons.
Any person who acquires or attempts or intends to acquire beneficial or
constructive ownership of shares of beneficial interest of COPT that will or may
violate any of the foregoing restrictions on transferability and ownership, or
any person who would have owned shares of the beneficial interest of COPT that
resulted in a transfer of shares to the Share Trust (as hereinafter defined), is
required to give notice immediately to COPT and provide COPT with such other
information as COPT may request in order to determine the effect of such
transfer on COPT's status as a REIT. The foregoing restrictions on
transferability and ownership will not apply if the Board of Trustees determines
that it is no longer in the best interests of COPT to attempt to qualify, or to
continue to qualify, as a REIT.
If any transfer of shares of beneficial interest of COPT occurs which, if
effective, would result in any person beneficially or constructively owning
shares of beneficial interest of COPT in excess or in violation of the above
transfer or ownership limitations (a "Prohibited Owner"), then that number of
shares of beneficial interest of COPT in excess of the ownership limit will
automatically be transferred to a trust (the "Share Trust") for the exclusive
benefit of one or more charitable beneficiaries (the "Charitable Beneficiary"),
and the Prohibited Owner shall not acquire any rights in such shares. The
Prohibited Owner may not benefit economically from ownership of any shares of
beneficial interest held in the Share Trust, may have no rights to dividends and
may not possess any other rights attributable to the shares of beneficial
interest held in the Share Trust. The trustee of the Share Trust (the "Share
Trustee") will have all voting rights and rights to dividends or other
distributions with respect to shares of beneficial interest held in the Share
Trust, which rights will be exercised for the exclusive benefit of the
Charitable Beneficiary. Any dividend or other distribution paid prior to the
discovery by COPT that shares of beneficial interest have been transferred to
the Share Trust will be paid by the recipient of such dividend or distribution
to the Share Trustee upon demand, and any dividend or other distribution
authorized but unpaid will be paid when due to the Share Trustee. Any dividend
or distribution so paid to the Share Trustee will be held in the Share Trust for
the Charitable Beneficiary. The Prohibited Owner will have no voting rights with
respect to shares of beneficial interest held in the Share Trust and, subject to
Maryland law, effective as of the date that such shares of beneficial interest
have been transferred to the Share Trust, the Share Trustee will have the
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<PAGE>
authority (at the Share Trustee's sole discretion) (i) to rescind as void any
vote cast by a Prohibited Owner prior to the discovery by COPT that such shares
have been transferred to the Share Trust and (ii) to recast such vote in
accordance with the desires of the Share Trustee acting for the benefit of the
Charitable Beneficiary. However, if COPT has already taken irreversible trust
action, then the Share Trustee will not have the authority to rescind and recast
such vote.
Within 20 days of receiving notice from COPT that shares of beneficial
interest of COPT have been transferred to the Share Trust, the Share Trustee
will sell the shares of beneficial interest held in the Share Trust to a person,
designated by the Share Trustee, whose ownership of the shares will not violate
the ownership limitations set forth in the Declaration of Trust. Upon such sale,
the interest of the Charitable Beneficiary in the shares sold will terminate and
the Share Trustee will distribute the net proceeds of the sale to the Prohibited
Owner and to the Charitable Beneficiary as described below. The Prohibited Owner
will receive the lesser of (i) the price paid by the Prohibited Owner for the
shares or, if the Prohibited Owner did not give value for the shares in
connection with the event causing the shares to be held in the Share Trust
(E.G., a gift, devise or other such transaction), the Market Price (as defined
in the Declaration of Trust) of such shares on the day of the event causing the
shares to be received by the Share Trustee and (ii) the price per share received
by the Share Trustee from the sale or other disposition of the Common Shares
held in the Share Trust. Any net sale proceeds in excess of the amount payable
to the Prohibited Owner will be paid immediately to the Charitable Beneficiary.
If, prior to the discovery by COPT that shares of beneficial interest have been
transferred to the Share Trust, such shares are sold by a Prohibited Owner, then
(i) such shares will be deemed to have been sold on behalf of the Share Trust
and (ii) to the extent that the Prohibited Owner received an amount for shares
that exceeds the amount that such Prohibited Owner was entitled to receive as
described above, such excess will be paid to the Share Trustee upon demand.
In addition, shares of beneficial interest of COPT held in the Share Trust
will be deemed to have been offered for sale to COPT, or its designee, at a
price per share equal to the lesser of (i) the price per share in the
transaction that resulted in such transfer to the Share Trust (or, in the case
of a devise or gift, the Market Price at the time of such devise or gift) and
(ii) the Market Price on the date COPT, or its designee, accepts such offer.
COPT shall have the right to accept such offer until the Share Trustee has sold
the shares of beneficial interest held in the Share Trust. Upon such a sale to
COPT, the interest of the Charitable Beneficiary in the shares sold will
terminate and the Share Trustee will distribute the net proceeds of the sale to
the Prohibited Owner.
All certificates representing Common Shares will bear a legend referring to
the restrictions described above.
Every owner of more than 5% (or such other percentage as required by the
Internal Revenue Code or the regulations promulgated thereunder) of all classes
or series of COPT's shares of beneficial interest, including Common Shares, is
required to give written notice to COPT within 30 days after the end of each
taxable year stating the name and address of such owner, the number of shares of
each class and series of shares of beneficial interest of COPT which the owner
beneficially owns and a description of the manner in which such shares are held.
Each such owner shall provide to COPT such additional information as COPT may
request in order to determine the effect, if any, of such beneficial ownership
on COPT's status as a REIT and to ensure compliance with the Aggregate Share
Ownership Limit. In addition, each shareholder shall upon demand be required to
provide to COPT such information as COPT may request, in good faith, in order to
determine COPT's status as a REIT and to comply with the requirements of any
taxing authority or governmental authority or to determine such compliance.
These ownership limitations could delay, defer or prevent a change in
control of COPT or other transaction that might involve a premium over the then
prevailing Market Price for the Common Shares or other attributes that the
shareholders may consider to be desirable.
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ISSUANCE OF WARRANTS
We have no outstanding warrants to purchase our Common Shares or outstanding
warrants to purchase our Preferred Shares (collectively, the "Warrants"). We
may, however, issue Warrants in the future. Warrants may be issued by any
prospectus supplement independently or together with any other securities
offered and may be attached to or separate from those securities. Each series of
Warrants will be issued under a separate warrant agreement to be entered into
between us and a warrant agent specified in a prospectus supplement, the form of
which will be filed or incorporated by reference as an exhibit to the
registration statement of which this prospectus forms a part. The warrant agent
will act solely as our agent in connection with the Warrants of such series and
will not assume any obligation or relationship of agency or trust for or with
any provisions of the Warrants offered hereby. Further terms of the Warrants and
the applicable warrant agreements will be set forth in the applicable prospectus
supplement relating to the issuance of any Warrants.
A prospectus supplement will describe the terms of the Warrants in respect
of which this prospectus is being delivered including, where applicable, the
following:
- the title of the Warrants;
- the aggregate number of the Warrants;
- the price or prices at which the Warrants will be issued;
- the designation, terms and number of Common Shares or Preferred Shares
purchasable upon exercise of the Warrants;
- the designation and terms of the securities, if any, with which the
Warrants are issued and the number of the Warrants issued with each such
offered security;
- the date, if any, on and after which the Warrants and the related
Preferred Shares or Common Shares will be separately transferable;
- the price (or manner of calculation) at which each Common Share or
Preferred Share purchasable upon exercise of the Warrants may be
purchased;
- the date on which the right to exercise the Warrants shall commence and
the date on which the right shall expire;
- the minimum or maximum amount of the Warrants which may be exercised at
any one time;
- information with respect to book-entry procedures, if any;
- a discussion of certain material federal income tax considerations; and
- any other terms of the Warrants, including terms, procedures and
limitations relating to the exchange and exercise of the Warrants.
The exercise of any Warrants will be subject to and limited by the transfer and
ownership restrictions in our declaration of trust. See "--Restrictions on
Transfer."
CLASSIFICATION OF BOARD, VACANCIES AND REMOVAL OF TRUSTEES
The Declaration of Trust provides for a staggered Board of Trustees. COPT
presently has nine Trustees divided into three classes, with terms of three
years each. Constellation Real Estate, Inc. currently
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may appoint two Trustees. See "--Series A Preferred Shares." Currently, the
number of Trustees in each class and the expiration of each class's term is as
follows:
<TABLE>
<S> <C> <C>
Class 1 2 Trustees Expires 2002
Class 2 3 Trustees Expires 2000
Class 3 4 Trustees Expires 2001
</TABLE>
At each annual meeting of shareholders of COPT, successors of the class of
Trustees whose term expires at that meeting will be elected for a three-year
term and the Trustees in the other two classes will continue in office. A
classified board may delay, defer or prevent a change in control of COPT or
other transaction that might involve a premium over the then prevailing market
price for the Common Shares or other attributes that the shareholders may
consider to be desirable. In addition, a classified board could prevent
shareholders who do not agree with the policies of the Board of Trustees from
replacing a majority of the Board of Trustees for two years, except in the event
of removal for cause.
The Bylaws of COPT provide that any vacancy on the Board of Trustees may be
filled by a majority of the remaining Trustees. Any individual so elected
Trustee will hold office for the unexpired term of the Trustee he or she is
replacing. The Declaration of Trust provides that a Trustee may be removed at
any time only for cause upon the affirmative vote of at least two-thirds of the
votes entitled to be cast in the election of Trustees, but only by a vote taken
at a shareholder meeting. These provisions preclude shareholders from removing
incumbent Trustees, except for cause and upon a substantial affirmative vote,
and filling the vacancies created by such removal with their own nominees.
ADVANCE NOTICE OF NOMINATIONS AND NEW BUSINESS
The Bylaws provide that, with respect to an annual meeting of shareholders,
nominations of persons for election to the Board of Trustees and the proposal of
business to be considered by shareholders may be made only (a) pursuant to
COPT's notice of the meeting, (b) by the Board of Trustees or (c) by a
shareholder who is entitled to vote at the meeting and has complied with the
advance notice procedures set forth in the Bylaws. With respect to special
meetings of shareholders, the Bylaws provide that only the business specified in
COPT's notice of meeting may be brought before the meeting of shareholders and
nominations of persons for election to the Board of Trustees may be made only
(a) pursuant to COPT's notice of the meeting, (b) by the Board of Trustees or
(c) provided that the Board of Trustees has determined that Trustees shall be
elected at such meeting, by a shareholder who is entitled to vote at the meeting
and has complied with the advance notice provisions set forth in the Bylaws.
POSSIBLE ANTITAKEOVER EFFECT OF CERTAIN PROVISIONS OF MARYLAND LAW
The Maryland General Corporations Law ("MGCL") contains provisions that may
be deemed to have an antitakeover effect. The provisions applicable to COPT are
set forth below.
CERTAIN BUSINESS COMBINATIONS. Under the MGCL, as applicable to Maryland
real estate investment trusts, certain business combinations (including certain
mergers, consolidations, share exchanges and asset transfers and certain
issuances and reclassifications of equity securities) between a Maryland real
estate investment trust and any person who beneficially owns ten percent or more
of the voting power of the trust's shares or an affiliate of the trust who, at
any time within the two-year period prior to the date in question, was the
beneficial owner of ten percent or more of the voting power of the then
outstanding voting shares of such trust (an "Interested Shareholder"), or an
affiliate of such an Interested Shareholder, are prohibited for five years after
the most recent date on which the Interested Shareholder becomes an Interested
Shareholder. Thereafter, any such business combination must be recommended by
the board of trustees of such trust and approved by the affirmative votes of at
least (i) 80% of the votes entitled to be cast by holders of outstanding voting
shares of the trust and (ii) two-thirds of the votes entitled to be cast by
holders of voting shares of the trust other than shares held by the Interested
Shareholder with whom (or
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with whose affiliate) the business combination is to be effected, unless, among
other conditions, the trust's common shareholders receive a minimum price (as
defined in the MGCL) for their shares and the consideration is received in cash
or in the same form as previously paid by the Interested Shareholder for its
shares. These provisions of Maryland law do not apply, however, to business
combinations that are approved or exempted by the board of trustees of the trust
prior to the time that the Interested Shareholder becomes an Interested
Shareholder. The Board of Trustees has opted out of this statute by resolution.
The Board of Trustees may, however, rescind its resolution at any time to make
these provisions of Maryland law applicable to COPT.
CONTROL SHARE PROVISIONS. The MGCL generally provides that control shares
of a Maryland real estate investment trust acquired in a control share
acquisition have no voting rights unless those rights are approved by a vote of
two-thirds of the disinterested shares (generally shares held by persons other
than the acquiror, officers or trustees who are employees of the trust). An
acquiror is deemed to own control shares the first time that the acquiror's
voting power in electing trustees equals or exceeds twenty percent of all such
voting power. Control shares do not include shares the acquiring person is then
entitled to vote as a result of having previously obtained shareholder approval.
A control share acquisition means the acquisition of control shares, subject to
certain exceptions.
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the Board of Trustees to call a special meeting of shareholders to be
held within 50 days of the demand to consider whether the control shares will
have voting rights. The trust may present the question at any shareholders'
meeting on its own initiative.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute, then,
subject to certain conditions and limitations, the trust may redeem any or all
of the control shares (except those for which voting rights have previously been
approved) for fair value, determined without regard to the absence of voting
rights for the control shares. Fair value will be determined as of the date of
the last control share acquisition by the acquiror or of any meeting of
shareholders at which the voting rights of such shares are considered and not
approved. If voting rights for control shares are approved at a shareholders'
meeting and the acquiror becomes entitled to vote a majority of the shares
entitled to vote, all other shareholders may exercise appraisal rights. The fair
value of the shares as determined for purposes of such appraisal rights may not
be less than the highest price per share paid by the acquiror in the control
share acquisition.
The control share provisions do not apply (a) to shares acquired in a
merger, consolidation or share exchange if the trust is a party to the
transaction or (b) to acquisitions approved or exempted by the declaration of
trust or bylaws of the trust. The Bylaws contain a provision exempting from the
control share acquisition statute any and all acquisitions by any person of
COPT's shares of beneficial interest. The Board of Trustees may, however, amend
the Bylaws at any time to eliminate such provision, either prospectively or
retroactively.
DISSOLUTION OF THE COMPANY; TERMINATION OF REIT STATUS
The Declaration of Trust permits the termination of COPT and the
discontinuation of the operations of COPT by the affirmative vote of the holders
of not less than two-thirds of the outstanding Common Shares entitled to be cast
on the matter at a meeting of shareholders or by written consent. In addition,
the Declaration of Trust permits the termination of COPT's qualification as a
REIT if such qualification, in the opinion of the Board of Trustees, is no
longer advantageous to the shareholders.
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FEDERAL INCOME TAX MATTERS
COPT was organized in 1988 and elected to be taxed as a REIT commencing with
its taxable year ended December 31, 1992. COPT 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
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 the material federal income tax considerations that
may be relevant to COPT and its shareholders, including the continued treatment
of COPT as a REIT for federal income tax purposes. For purposes of this
discussion of federal income tax matters the term "COPT" 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 COPT'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 Internal Revenue Code discussed
below. No assurance can be given that COPT will satisfy such tests on a
continuing basis.
In brief, an entity that invests primarily in real estate can, if it meets
the REIT provisions of the Internal Revenue Code described below, claim a tax
deduction for the dividends it pays to its shareholders. Such an entity
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 entity and shareholder levels) that
generally results from an investment in an entity which is taxed as 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 corporate income taxation on its earnings,
thereby significantly reducing or eliminating the cash available for
distribution to its shareholders.
Morgan, Lewis & Bockius LLP has opined that, for federal income tax
purposes, COPT has properly elected and otherwise qualified to be taxed as a
REIT under the Internal Revenue Code for taxable years commencing on or after
June 1, 1992, and that its proposed method of operations as described in this
prospectus and as represented to Morgan, Lewis & Bockius LLP by COPT will enable
COPT to continue to satisfy the requirements for such qualification and taxation
as a REIT under the Internal Revenue Code for future taxable years. This
opinion, however, is based upon certain factual assumptions and representations
made by COPT. Moreover, such qualification and taxation as a REIT depends upon
the ability of COPT to meet, for each taxable year, various tests imposed under
the Internal Revenue Code as discussed below, and Morgan, Lewis & Bockius LLP
has not reviewed in the past, and may not review in the future, COPT's
compliance with these tests. Accordingly, no assurance can be given that the
actual results of the operations of COPT for any particular taxable year will
satisfy such requirements.
TAXATION OF COPT
GENERAL. In any year in which COPT qualifies as a REIT, it will not
generally be subject to federal income tax on that portion of its REIT taxable
income or capital gain which is distributed to shareholders. COPT will, 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 would receive a credit for their share of
any taxes paid on such gain by the REIT.
Notwithstanding its qualification as a REIT, COPT also may be subject to
taxation in certain other circumstances. If COPT should fail to satisfy either
the 75% or the 95% gross income test (each as
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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 COPT fails either the 75% or the 95% test,
multiplied by a fraction intended to reflect COPT's profitability. COPT will
also be subject to a tax of 100% on net income from any "prohibited transaction"
(as described below), and if COPT 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 COPT 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, COPT
would be subject to a 4% excise tax on the excess of such required distribution
over the amounts actually distributed. COPT also may be subject to the corporate
alternative minimum tax, as well as to tax in certain situations not presently
contemplated. COPT will use the calendar year both for federal income tax
purposes, as is required of a REIT under the Internal Revenue Code, and for
financial reporting purposes.
FAILURE TO QUALIFY. If COPT fails to qualify for taxation as a REIT in any
taxable year and the relief provisions do not apply, COPT 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 COPT
fails to qualify as a REIT will not be deductible by COPT, nor generally will
they be required to be made under the Internal Revenue Code. In such event, to
the extent of current and accumulated earnings and profits, all distributions to
shareholders will be taxable as ordinary income, and subject to certain
limitations in the Internal Revenue Code, corporate distributees may be eligible
for the dividends received deduction. Unless entitled to relief under specific
statutory provisions, COPT also will be disqualified from reelecting 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, COPT must meet the following requirements,
among others:
SHARE OWNERSHIP TESTS. COPT's shares of beneficial interest 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 COPT 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 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, COPT'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 COPT to maintain records which disclose the actual
ownership of its outstanding shares of beneficial interest. In fulfilling its
obligations to maintain records, COPT 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
COPT's records. A shareholder failing or refusing to comply with COPT's written
demand must submit with his tax return a similar statement disclosing the actual
ownership of COPT shares of beneficial interest and certain other information.
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Currently, Constellation Real Estate, Inc. owns approximately 41.8% of the
Common Shares outstanding, and 984,308 Series A Convertible Preferred Shares
convertible into 1,845,381 Common Shares. Under COPT'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 COPT to violate
either the 50% Limitation or the gross income tests described below. The Board
of Trustees has exempted Constellation Real Estate, Inc. from the 9.8%
limitation set forth in the Declaration of Trust and has determined that
Constellation Real Estate, Inc. may hold up to 45% of the outstanding Common
Shares. The Board of Trustees has determined, based upon representations made by
Constellation Real Estate, Inc., that this will not result in a violation of the
50% Limitation or otherwise adversely affect COPT's ability to qualify as a REIT
for federal income tax purposes.
ASSET TESTS. At the close of each quarter of COPT's taxable year, COPT 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 COPT'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 COPT'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 COPT's total
assets (the "Value Test") or (ii) 10% of the outstanding voting securities of
any one such issuer (the "Voting Stock Test"). Where COPT 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, COPT'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.
GROSS INCOME TESTS. There are two separate percentage tests relating to the
sources of COPT's gross income which must be satisfied for each taxable year.
For purposes of these tests, where COPT invests in a partnership, COPT 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 COPT as it has in the hands of the partnership. The two tests are described
below.
THE 75% TEST. At least 75% of COPT'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 COPT'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 COPT, or an owner of 10% or more of COPT, 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
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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, COPT generally must not operate or manage the property or
furnish or render services to customers, other than through an "independent
contractor" from whom COPT derives no income, except that the "independent
contractor" requirement does not apply to the extent that the services provided
by COPT 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, COPT may directly
perform a de minimis amount of non-customary services. COPT believes that the
services provided with regard to COPT's properties by the operating partnership
(or its agents) are now (and, it is believed, will in the future be) usual or
customary services. Any services that cannot be provided directly by the
operating partnership will be performed by independent contractors.
THE 95% TEST. In addition to deriving 75% of its gross income from the
sources listed above, at least 95% of COPT'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 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. COPT intends to monitor
closely its non-qualifying income and anticipates that non-qualifying income
from its activities will not result in COPT failing to satisfy either the 75% or
95% gross income test.
For purposes of determining whether COPT complies with the 75% and the 95%
gross income tests, gross income does not include income from prohibited
transactions. A "prohibited transaction" is a 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 COPT 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 Internal Revenue Code.
These relief provisions will generally be available if: (i) COPT's failure to
comply is due to reasonable cause and not to willful neglect; (ii) COPT 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, COPT 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 COPT's profitability.
COMPLIANCE WITH INCOME TESTS. Constellation Real Estate, Inc. and certain
affiliated companies are obligated as tenants to pay annual rent of
approximately $950,000 with respect to properties owned by the operating
partnership. Some of this rental income may not constitute qualifying rental
income for purposes of the 75% and 95% gross income tests. COPT expects, based
on current rent levels, that its annual gross income in 1999 will be at least
$70 million. Accordingly, COPT estimates that it can earn up to $3.5 million of
non-qualifying income per year without violating the 95% gross income test.
Aside from this rental income, COPT does not expect that it will earn material
amounts of non-qualifying income from either Constellation Real Estate, Inc. or
its existing properties. Based on the foregoing, COPT has determined that it
will continue to satisfy the 75% and 95% gross income tests. The fact that
affiliates of Constellation Real Estate, Inc. will be paying substantial amounts
of non-qualifying income may, however, restrict the ability of COPT and the
operating partnership to acquire additional properties that generate
non-qualifying income.
To avoid a violation of the 95% gross income test, the operating partnership
established COMI in 1998 to own a 75% interest in Corporate Realty Management,
LLC, the operating partnership's property
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management company ("CRM"). In addition, COMI has entered into a services
agreement with Constellation Real Estate, Inc. for development and other
services, since income from such services is also considered non-qualifying
income.
The operating partnership currently holds indebtedness issued by COMI and
its subsidiaries and 95% of the aggregate amount of voting and non-voting common
stock issued by COMI, but only holds 1% of the aggregate amount of voting common
stock issued by COMI. As discussed above, to satisfy the Voting Stock Test COPT
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 provides, either directly or
through subsidiaries, management and development services to affiliates of
Constellation Real Estate, Inc., the operating partnership and unrelated
parties.
Because it is a corporate entity (as opposed to a partnership) which is not
wholly-owned by COPT, 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, although it is non-qualifying
income, is not treated as non-qualifying income earned by COPT for purposes of
the 95% or 75% gross income tests. However, any interest or dividends paid or
distributed by COMI to the operating partnership is considered as qualifying
income for purposes of the 95% test, but is not considered qualifying income for
purposes of the 75% gross income test. To the extent that COMI earns net taxable
income from its activities, it is required to pay federal and state income
taxes, which reduces the amount of dividends it is able to pay to the operating
partnership and its other shareholders.
On February 1, 1999, the United States Department of the Treasury released
its General Explanations of the Administration's Revenue Proposals, outlining
proposed amendments to the Internal Revenue Code. Among such proposals is a
recommendation that the Voting Stock Test described above be changed to a "vote
or value" test, which change is intended to prevent REITs from undertaking
prohibited activities through "preferred stock subsidiaries," such as COMI. The
proposal would also include an exception to the five-percent and 10% asset
tests, as modified, so that REITs could own either of two types of "taxable REIT
subsidiaries" without violating the asset tests. Such taxable REIT subsidiaries
would be permitted to undertake certain types of activities--including
non-tenant related activities that currently generate non-qualifying income for
a REIT (such as third-party management and development), and non-customary and
other currently prohibited services with respect to REIT tenants--without
jeopardizing the REIT's status as a REIT under the Internal Revenue Code. A
number of constraints would be imposed on such taxable REIT subsidiaries,
however, to insure that the REIT could not, through such subsidiaries, engage in
substantial non-real estate activities, and to insure that such subsidiaries pay
corporate-level tax on their earnings. Such constraints would include (1)
limitations on the percentage of a REIT's total asset value which could be
composed of taxable REIT subsidiaries; (2) disallowance of interest paid by any
such taxable REIT subsidiaries to the REIT; (3) a 100% excise tax imposed on
certain excess payments and expenses made or shared between the taxable REIT
subsidiaries and the REIT; and (4) limitations on the level of intercompany
rentals between the taxable REIT subsidiaries and the REIT. The proposal is
intended to be effective after the date of enactment, but would provide
considerable time for a REIT to restructure its operations and investments so as
to convert preferred stock subsidiaries into taxable REIT subsidiaries on a
tax-free basis.
COPT believes that the Administration's proposed amendment to the Voting
Stock Test should not have a significant impact on COPT's current operations or
assets, even if enacted in its proposed form. COPT intends to monitor this and
any other proposed legislation closely, however, to assess the possible effect
of any such legislation on its future operations and tax profile.
COPT intends to continue to monitor its operations and investments in the
context of these standards so as to continue to satisfy the 75% and 95% gross
income tests. While the operating partnership or its affiliates provide certain
services with respect to the properties in which COPT owns interests and
possibly with respect to any newly acquired properties, COPT believes that for
purposes of the 75% and 95% gross
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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. COPT 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, COPT is
required to distribute dividends to its shareholders each year in an amount at
least equal to (A) the sum of (i) 95% of COPT's REIT taxable income (computed
without regard to the dividends received deduction and COPT'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 COPT 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 COPT 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.
COPT 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 COPT
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 COPT to meet the distribution requirements. It is possible
that COPT may not have sufficient cash or other liquid assets to meet the 95%
distribution requirement, either due to timing differences between the actual
receipt of income and actual payment of expenses on the one hand, and the
inclusion of such income and deduction of such expenses in computing COPT's REIT
taxable income on the other hand, or for other reasons. COPT 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 COPT fails to meet the 95% distribution requirement as a result of an
adjustment to COPT's tax return by the Service, COPT may retroactively cure the
failure by paying a "deficiency dividend" (plus applicable penalties and
interest) within a specified period.
TAXATION OF SHAREHOLDERS
TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS. As long as COPT qualifies as a
REIT, distributions made to its taxable domestic shareholders out of current or
accumulated earnings and profits (and not designated as capital gain dividends)
will constitute dividends taxable as ordinary income, and corporate shareholders
will not be eligible for the dividends received deduction as to such amounts.
Distributions that are designated as capital gain dividends will be taxed as
gain from the sale or exchange of a capital asset (to the extent they do not
exceed COPT's actual net capital gain for the taxable year) without regard to
the period for which the shareholder has held its shares. In the event COPT
designates any portion of a dividend as a capital gain dividend, a shareholder's
share of such capital gain dividend would be an amount which bears the same
ratio to the total amount of dividends paid to such shareholder for the taxable
year as the total amount of capital gain dividends bears to the total amount of
all dividends paid on all classes of share for the taxable year. However,
corporate shareholders may be required to treat up to 20% of certain capital
gain dividends as ordinary income. COPT may elect to retain and pay income tax
on any net long-term capital gain, in which case its domestic shareholders would
include in their income as long-term capital gain their proportionate share of
such undistributed net long-term capital gain. A domestic shareholder would also
receive a refundable tax credit for such shareholder's proportionate share of
the tax paid by COPT on such retained capital gains and an increase in its basis
in its shares in an amount equal to the difference between the undistributed
long-term capital gains and the amount of tax paid by COPT. See "--Capital Gains
and Losses."
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Distributions in excess of current and accumulated earnings and profits will
not be taxable to a shareholder to the extent that they do not exceed the
adjusted basis of the shareholder's shares of beneficial interest, but rather
will reduce the adjusted basis of such shares. To the extent that such
distributions exceed the adjusted basis of a shareholder's shares of beneficial
interest, they will be included in income as short-term or long-term capital
gain (depending on the length of time the shares have been held), assuming the
shares are capital assets in the hands of the shareholder. In addition, any
dividend declared by COPT in October, November or December of any year and
payable to a shareholder of record on a specific date in any such month shall be
treated as both paid by COPT and received by the shareholder on December 31 of
such year, provided that the dividend is actually paid by COPT during January of
the following calendar year.
Domestic shareholders may not include in their individual income tax returns
any of COPT's net operating losses or capital losses. Instead, such losses would
be carried over by COPT for potential offset against future income (subject to
certain limitations). Distributions made by COPT and gain arising from the sale
or exchange of shares will not be treated as passive activity income, and, as a
result, shareholders generally will not be able to apply any "passive losses"
against such income and gain. In addition, taxable distributions from COPT
generally will be treated as investment income. Capital gain dividends
(including distributions treated as such) and capital gain from the disposition
of shares, however, will be treated as investment income only if a shareholder
so elects, in which case such capital gain will be taxed at ordinary income
rates. COPT will notify shareholders after the close of its taxable year as to
the portions of distributions attributable to that year that constitute ordinary
income, return of capital and capital gain.
In general, a domestic shareholder will realize capital gain or loss on the
disposition of COPT's shares of beneficial interest equal to the difference
between (i) the amount of cash and the fair market value of any property
received on such disposition, and (ii) the shareholder's adjusted basis of such
shares of beneficial interest. Such gain or loss generally will constitute
short-term capital gain or loss if the shareholder has not held such shares for
more than one year and long-term capital gain or loss if the shareholder has
held such shares for more than one year. See "--Capital Gains and Losses" below.
Loss upon a sale or exchange of COPT's shares of beneficial interest by a
shareholder who has held such shares for six months or less (after applying
certain holding period rules) will be treated as a long-term capital loss to the
extent of distributions from COPT required to be treated by such shareholder as
long-term capital gain.
CAPITAL GAINS AND LOSSES. The maximum marginal individual income tax rate
is 39.6%. The maximum tax rate on net capital gains applicable to individuals,
trusts and estates from the sale or exchange of capital assets held for more
than 18 months is 20%, and the maximum rate is reduced to 18% for assets
acquired after December 31, 2000 and held for more than five years. For
individuals, trusts and estates who would be subject to a maximum tax rate of
15%, the rate on net capital gains is reduced to 10%, and, effective for taxable
years commencing after December 31, 2000, the rate is reduced to 8% for assets
held for more than five years. The maximum rate for net capital gains
attributable to the sale of depreciable real property held for more than 18
months is 25% to the extent of the deductions for depreciation (other than
certain depreciation recapture taxable as ordinary income) with respect to such
property. The maximum rate of capital gains tax for capital assets held more
than one year but not more than 18 months is 28%. Accordingly, the tax rate
differential between capital gain and ordinary income for noncorporate taxpayers
may be significant. In addition, the characterization of income as capital or
ordinary may affect the deductibility of capital losses. Capital losses not
offset by capital gains may be deducted against a noncorporate taxpayer's
ordinary income only up to a maximum annual amount of $3,000. Unused capital
losses may be carried forward. All net capital gain of a corporate taxpayer is
subject to tax at ordinary corporate rates. A corporate taxpayer can deduct
capital losses only to the extent of capital gains, with unused losses being
carried back three years and forward five years.
BACKUP WITHHOLDING. COPT will report to its domestic shareholders and the
IRS the amount of dividends paid during each calendar year and the amount of tax
withheld, if any, with respect thereto.
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Under the backup withholding rules, a shareholder may be subject to backup
withholding at the rate of 31% with respect to dividends paid unless such holder
(i) is a corporation or comes within certain other exempt categories and, when
required, demonstrates this fact or (ii) provides a taxpayer identification
number, certifies as to no loss of exemption and otherwise complies with the
applicable requirements of the backup withholdings rules. Any amount paid as
backup withholding will be creditable against the shareholder's income tax
liability. The United States Treasury has recently issued final regulations (the
"Final Regulations") regarding the withholding and information reporting rules
discussed above. In general, the Final Regulations do not alter the substantive
withholding and information reporting requirements but unify current
certification procedures and forms and clarify and modify reliance standards.
The Final Regulations are generally effective for payments made on or after
January 1, 2000, subject to certain transition rules. Prospective investors
should consult their own tax advisors concerning the adoption of the Final
Regulations and the potential effect on their ownership of COPT's shares of
beneficial interest.
In addition, COPT may be required to withhold a portion of capital gain
distributions made to shareholders that fail to certify their non-foreign status
to COPT. See "--Taxation of Foreign Shareholders."
TAXATION OF TAX-EXEMPT SHAREHOLDERS. The IRS has ruled that amounts
distributed as dividends by a REIT generally do not constitute unrelated
business taxable income ("UBTI") when received by a tax-exempt entity. Based on
that ruling, dividend income from COPT's shares of beneficial interest will not
be UBTI to a tax-exempt shareholder, provided that the tax-exempt shareholder
has not held its shares as "debt financed property" within the meaning of the
Internal Revenue Code and such shares are not otherwise used in a trade or
business. Similarly, income from the sale of COPT's shares of beneficial
interest will not constitute UBTI unless such tax-exempt shareholder has held
such shares as "debt financed property" within the meaning of the Internal
Revenue Code or has used the shares in a trade or business.
Notwithstanding the above, however, a portion of the dividends paid by a
"pension held REIT" will be treated as UBTI as to any trust which is described
in Section 401(a) of the Internal Revenue Code, is tax-exempt under Section
501(a) of the Internal Revenue Code (a "qualified trust") and which holds more
than 10% (by value) of the interests in the REIT. A REIT is a "pension held
REIT" if (i) it would not have qualified as a REIT but for the application of a
"look-through" exception to the 50% Limitation applicable to qualified trusts,
and (ii) either (1) at least one such qualified trust holds more than 25% (by
value) of the interests in the REIT, or (2) one or more such qualified trusts,
each of which owns more than 10% (by value) of the interests in the REIT, hold
in the aggregate more than 50% (by value) of the interests in the REIT. The
percentage of any REIT dividend treated as UBTI is equal to the ratio of (i) the
gross income (less direct expenses related thereto) of the REIT from unrelated
trades or businesses (determined as if the REIT were a qualified trust) to (ii)
the total gross income (less direct expenses related thereto) of the REIT. A de
minimis exception applies where this percentage is less than 5% for any year.
The provisions requiring qualified trusts to treat a portion of REIT
distributions as UBTI will not apply if the REIT is able to satisfy the 50%
Limitation without relying upon the "look-through" exception with respect to
qualified trusts. As a result of certain limitations on transfer and ownership
of COPT's shares of beneficial interest contained in the Charter, COPT does not
expect to be classified as a "pension held REIT."
TAXATION OF FOREIGN SHAREHOLDERS. The rules governing the United States
federal income taxation of the ownership and disposition of COPT's shares of
beneficial interest by persons that are, for purposes of such taxation,
nonresident alien individuals, foreign corporations, foreign partnerships and
other foreign shareholders (collectively, "Non-U.S. Shareholders") are complex
and no attempt will be made herein to provide more than a summary of such rules.
PROSPECTIVE NON-U.S. SHAREHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS TO
DETERMINE THE IMPACT OF FEDERAL, STATE, AND LOCAL INCOME TAX LAWS WITH REGARD TO
AN INVESTMENT IN COPT'S SHARES OF
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BENEFICIAL INTEREST, INCLUDING ANY REPORTING REQUIREMENTS, AS WELL AS THE TAX
TREATMENT OF SUCH AN INVESTMENT UNDER THEIR HOME COUNTRY LAWS.
In general, Non-U.S. Shareholders will be subject to regular United States
federal income taxation with respect to their investment in COPT's shares of
beneficial interest in the same manner as a U.S. shareholder (I.E., at graduated
rates on a net basis, after allowance of deductions) if such investment is
"effectively connected" with the conduct by such Non-U.S. Shareholder of a trade
or business in the United States. A Non-U.S. Shareholder that is a corporation
and that receives income with respect to its investment in COPT's shares of
beneficial interest that is (or is treated as) "effectively connected" with the
conduct of a trade or business in the United States may also be subject to the
30% branch profits tax imposed under Section 884 of the Internal Revenue Code,
which is payable in addition to the regular United States corporate income tax.
The following discussion addresses only the federal income taxation of Non-U.S.
Shareholders whose investment in COPT's shares of beneficial interest is not
"effectively connected" with the conduct of a trade or business in the United
States. Prospective investors whose investment in COPT's shares of beneficial
interest may be "effectively connected" with the conduct of a United States
trade or business should consult their own tax advisors as to the tax
consequences thereof.
Distributions that are not attributable to gain from sales or exchanges of
United States real property interests and that are not designated by COPT as
capital gains dividends will be treated as dividends of ordinary income to the
extent that they are made out of COPT's current or accumulated earnings and
profits. Such distributions ordinarily will be subject to a withholding tax
equal to 30% of the gross amount of the distribution unless an applicable tax
treaty reduces or eliminates that tax. Pursuant to the Final Regulations,
dividends paid to an address in a country outside the United States will no
longer be presumed to be paid to a resident of such country for purposes of
determining the applicability of withholding discussed above and the
availability of a reduced tax treaty rate. A Non-U.S. Shareholder who wishes to
claim the benefit of an applicable treaty rate will now be required to satisfy
certain certification and other requirements. Distributions that COPT makes in
excess of its current and accumulated earnings and profits will not be taxable
to a Non-U.S. Shareholder to the extent they do not exceed the adjusted basis of
such Non-U.S. Shareholder's shares, but rather will reduce the adjusted basis of
such shares (but not below zero). To the extent that such distributions exceed
the adjusted basis of a Non-U.S. Shareholder's shares, they will give rise to
tax liability if such Non-U.S. Shareholder would otherwise be subject to tax on
any gain from the sale or disposition of shares, as described below.
For withholding tax purposes, COPT is currently required to treat all
distributions as if made out of its current or accumulated earnings and profits
and thus intends to withhold at the rate of 30% (or a reduced treaty rate if
applicable) on the amount of any distribution (other than distributions
designated as capital gain dividends) made to a Non-U.S. Shareholder. Under the
Final Regulations, generally effective for distributions on or after January 1,
2000, COPT would not be required to withhold at the 30% rate on distributions
COPT reasonably estimates to be in excess of its current and accumulated
earnings and profits. If it cannot be determined at the time a distribution is
made whether such distribution will be in excess of current and accumulated
earnings and profits, the distribution will be subject to withholding at the
rate applicable to ordinary dividends. However, a Non-U.S. Shareholder may seek
a refund of such amounts from the IRS if it is subsequently determined that such
distribution was, in fact, in excess of its current or accumulated earnings and
profits, and the amount withheld exceeded the Non-U.S. Shareholder's United
States tax liability, if any, with respect to the distribution.
For any year in which COPT qualifies as a REIT, distributions that are
attributable to gain from sales or exchanges of United States real property
interests will be taxed to a Non-U.S. Shareholder under the provisions of the
Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). Under FIRPTA,
these distributions are taxed to a Non-U.S. Shareholder as if such gain were
effectively connected with the conduct of a United States trade or business.
Non-U.S. Shareholders would thus be taxed at the normal capital gain rates
applicable to domestic shareholders (subject to applicable alternative minimum
tax and special alternative minimum tax in the case of nonresident alien
individuals), without regard as to whether
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such distributions are designated by COPT as capital gain dividends. Also,
distributions subject to FIRPTA may be subject to a 30% branch profits tax in
the hands of a foreign corporate shareholder not entitled to treaty exemption.
COPT is required by Treasury Regulations to withhold 35% of any distribution to
a Non-U.S. Shareholder that could be designated as a capital gain dividend. This
amount is creditable against the Non-U.S. Shareholder's FIRPTA tax liability.
Gain recognized by a Non-U.S. Shareholder upon a sale of COPT's shares of
beneficial interest generally will not be subject to United States taxation
unless such shares constitute a "United States real property interest" within
the meaning of FIRPTA. COPT's shares of beneficial interest will not constitute
a "United States real property interest" so long as COPT is a "domestically
controlled REIT." A "domestically controlled REIT" is generally a REIT in which
at all times during a specified testing period less than 50% in value of its
share was held directly or indirectly by Non-U.S. Shareholders. COPT believes
that it will be a "domestically controlled REIT" and therefore, the sale of
COPT's shares of beneficial interest will not be subject to taxation under
FIRPTA. However, because COPT's shares of beneficial interest will be publicly
traded, no assurance can be given that COPT will continue to be a "domestically
controlled REIT." Notwithstanding the foregoing, gain from the sale or exchange
of its shares not otherwise subject to FIRPTA generally will be taxable to a
Non-U.S. Shareholder if the Non-U.S. Shareholder is a nonresident alien
individual who is present in the United States for 183 days or more during the
taxable year and has a "tax home" in the United States. In such case, the
nonresident alien individual will be subject to a 30% United States withholding
tax on the amount of such individual's gain.
If COPT does not qualify as or ceases to be a "domestically controlled
REIT," whether gain arising from the sale or exchange by a Non-U.S. Shareholder
of COPT's shares of beneficial interest would be subject to U.S. taxation under
FIRPTA will depend on whether the shares are "regularly traded" (as defined in
applicable Treasury Regulations) on an established securities market (such as
the New York Stock Exchange on which COPT's shares of beneficial interest are
traded) and on the size of the selling Non-U.S. Shareholder's interest in COPT.
If the gain on the sale of COPT's shares of beneficial interest were to be
subject to tax under FIRPTA, the Non-U.S. Shareholder would be subject to the
same treatment as a domestic shareholder with respect to such gain (subject to
applicable alternative minimum tax and a special alternative minimum tax in the
case of nonresident alien individuals and the possible application of the 30%
branch profits tax in the case of foreign corporations), and the purchaser would
be required to withhold and remit to the IRS 10% of the purchase price. In
addition, if COPT is not a "domestically controlled REIT," distributions in
excess of its current and accumulated earnings and profits would be subject to
withholding at a rate of 10%.
Dividends paid in the United States with respect to COPT's shares of
beneficial interest, and proceeds from the sale of COPT's shares of beneficial
interest, through a United States broker (or certain brokers having significant
connections with the United States) may be subject to the information reporting
requirements of the Internal Revenue Code. Under the backup withholding rules, a
shareholder may be subject to backup withholding at the rate of 31% unless such
shareholder (i) is a corporation or comes within certain other exempt categories
and, when required, demonstrates this fact, or (ii) provides a taxpayer
identification number and certifies as to no loss of exemption, and otherwise
complies with the applicable requirements of the backup withholding rules.
Non-U.S. Shareholders are generally exempt from information reporting and backup
withholding, but may be required to provide a properly completed Form W-8 or
otherwise comply with applicable certification and identification procedures in
order to prove their exemption. Any amount paid as backup withholding will be
creditable against the Non-U.S. Shareholder's United States income tax
liability.
The Final Regulations, issued by the United States Treasury on October 6,
1997, affect the rules applicable to payments to foreign persons. In general,
the Final Regulations do not alter the substantive withholding and information
reporting requirements but unify current certification procedures and modify
reliance standards. In addition, the Final Regulations also address certain
issues relating to intermediary certification procedures designed to simplify
compliance by withholding agents. The Final Regulations are
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generally effective for payments made on or after January 1, 2000, subject to
certain transition rules. Prospective investors should consult their own tax
advisors concerning the adoption of the Final Regulations and the potential
effect on their ownership of COPT's shares of beneficial interest.
OTHER TAX CONSIDERATIONS
EFFECT OF TAX STATUS OF THE OPERATING PARTNERSHIP ON REIT
QUALIFICATION. All of COPT's investments are through the operating partnership.
COPT believes that the operating partnership is properly treated as a
partnership for tax purposes (and not as an association taxable as a
corporation). If, however, the operating partnership were to be treated as an
association taxable as a corporation, COPT would cease to qualify as a REIT.
Furthermore, in such a situation, the operating partnership would be subject to
corporate income taxes and COPT would not be able to deduct its share of any
losses generated by the operating partnership in computing its taxable income.
TAX ALLOCATIONS WITH RESPECT TO THE PROPERTIES. The operating partnership
was formed, in part, by way of contributions of appreciated property. When
property is contributed to a partnership in exchange for an interest in the
partnership, the partnership generally takes a carryover basis in that property
for tax purposes equal to the adjusted basis of the contributing partner in the
property, rather than a basis equal to the fair market value of the property at
the time of contribution (this difference is referred to as a "Book-Tax
Difference"). The partnership agreement of the operating partnership requires
allocations of income, gain, loss and deduction with respect to contributed
property to be made in a manner consistent with the special rules in Section
704(c) of the Internal Revenue Code, and the regulations thereunder, which tend
to eliminate the Book-Tax Differences with respect to the contributed properties
over the depreciable lives of the contributed properties. However, because of
certain technical limitations, the special allocation rules of Section 704(c)
may not always entirely eliminate the Book-Tax Difference on an annual basis or
with respect to a specific taxable transaction such as a sale. Thus, the
carryover basis of the contributed properties in the hands of the operating
partnership could cause COPT to be allocated lower amounts of depreciation and
other deductions for tax purposes than would be allocated to COPT if all
properties were to have a tax basis equal to their fair market value at the time
of acquisition. The foregoing principles also apply in determining its earnings
and profits for purposes of determining the portion of distributions taxable as
dividend income. The application of these rules over time may result in a higher
portion of distributions being taxed as dividends than would have occurred had
COPT purchased its interests in all properties at their agreed value.
Treasury Regulations under Section 704(c) of the Internal Revenue Code allow
partnerships to use any reasonable method of accounting for Book-Tax Differences
so that the contributing partner receives the tax benefits and burdens of any
built-in gain or loss associated with the property. The operating partnership
has determined to use the "traditional method" (which is specifically approved
in the Treasury Regulations) for accounting for Book-Tax Differences with
respect to the contributed properties.
STATE AND LOCAL TAXES. COPT and its shareholders may be subject to state or
local taxation in various state or local jurisdictions, including those in which
COPT or they transact business or reside. The state and local tax treatment of
us and our shareholders may not conform to the federal income tax consequences
discussed above. Consequently, prospective shareholders should consult with
their own tax advisors regarding the effect of state, local and other tax laws
of any investment in COPT's shares of beneficial interest.
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PLAN OF DISTRIBUTION
We may sell the securities offered pursuant to this prospectus and the
accompanying prospectus supplement to or through one or more underwriters or
dealers or may sell the securities to investors directly or through agents. Any
such underwriter or agent involved in the offer and sale of the securities will
be named in the applicable prospectus supplement. We may sell securities
directly to investors on our own behalf in those jurisdictions where we are
authorized to do so.
Underwriters may offer and sell the securities at a fixed price or prices,
which may be changed, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices. We also may,
from time to time, authorize dealers or agents to offer and sell these
securities upon such terms and conditions as may be set forth in the applicable
prospectus supplement. In connection with the sale of any of these securities,
underwriters may receive compensation from us in the form of underwriting
discounts or commissions and may also receive commissions from purchasers of the
securities for whom they may act as agent. Underwriters may sell the securities
to or through dealers, and such dealers may receive compensation in the form of
discounts, concessions or commissions from the underwriters or commissions from
the purchasers for which they may act as agents.
The Common Shares may also be sold in one or more of the following
transactions: (a) block transactions (which may involve crosses) in which a
broker-dealer may sell all or a portion of such shares as agent but may position
and resell all or a portion of the block as principal to facilitate the
transaction; (b) purchases by any such broker-dealer as principal and resale by
such broker-dealer for its own account pursuant to a prospectus supplement; (c)
a special offering, an exchange distribution or a secondary distribution in
accordance with applicable New York Stock Exchange or other stock exchange
rules; (d) ordinary brokerage transactions and transactions in which any such
broker-dealer solicits purchasers; (e) sales "at the market" to or through a
market maker or into an existing trading market, on an exchange or otherwise,
for such shares; and (f) sales in other ways not involving market markers or
established trading markets, including direct sales to purchasers.
Broker-dealers may also receive compensation from purchasers of the Common
Shares which is not expected to exceed that customary in the types of
transactions involved.
Any underwriting compensation paid by us to underwriters or agents in
connection with the offering of these securities, and any discounts or
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in the applicable prospectus supplement. Dealers and agents
participating in the distribution of the securities may be deemed to be
underwriters, and any discounts and commissions received by them and any profit
realized by them on resale of the securities may be deemed to be underwriting
discounts and commissions.
Underwriters, dealers and agents may be entitled, under agreements entered
into with us, to indemnification against and contribution toward certain civil
liabilities, including liabilities under the Securities Act. Unless otherwise
set forth in the accompanying prospectus supplement, the obligations of any
underwriters to purchase any of these securities will be subject to certain
conditions precedent, and the underwriters will be obligated to purchase all of
such series of securities, if any are purchased.
Underwriters, dealers and agents may engage in transactions with, or perform
services for, us and our affiliates in the ordinary course of business.
In connection with the offering of the securities hereby, certain
underwriters, and selling group members and their respective affiliates may
engage in transactions that stabilize, maintain or otherwise affect the market
price of the applicable securities. Such transactions may include stabilization
transactions effected in accordance with Rule 104 of Regulation M promulgated by
the Securities and Exchange Commission pursuant to which such persons may bid
for or purchase securities for the purpose of stabilizing their market price.
The underwriters in an offering of securities may also create a "short position"
for their account by selling more securities in connection with the offering
than they are
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committed to purchase from us. In such case, the underwriters could cover all or
a portion of such short position by either purchasing securities in the open
market following completion of the offering of such securities or by exercising
any over-allotment option granted to them by us. In addition, the managing
underwriter may impose "penalty bids" under contractual arrangements with other
underwriters, which means that they can reclaim from an underwriter (or any
selling group member participating in the offering) for the account of the other
underwriters, the selling concession with respect to securities that are
distributed in the offering but subsequently purchased for the account of the
underwriters in the open market. Any of the transactions described in this
paragraph or comparable transactions that are described in any accompanying
prospectus supplement may result in the maintenance of the price of the
securities at a level above that which might otherwise prevail in the open
market. None of such transactions described in this paragraph or in an
accompanying prospectus supplement are required to be taken by any underwriters
and, if they are undertaken, may be discontinued at any time.
The Common Shares are listed on the New York Stock Exchange under the symbol
"OFC." The Preferred Shares and the Warrants will be new issues of securities
with no established trading market and may or may not be listed in a national
securities exchange. Any underwriters or agents to or through which securities
are sold by us may make a market in such securities, but such underwriters or
agents will not be obligated to do so and any of them may discontinue any market
making at any time without notice. No assurance can be given as to the liquidity
of or trading market for any Preferred Shares or Warrants.
EXPERTS
The financial statements incorporated in this prospectus by reference to the
Annual Report on Form 10-K of Corporate Office Properties Trust for the year
ended December 31, 1998, and (1) the combined statement of revenue and certain
expenses of the Centerpoint Properties included in the Company's Form 8-K/A
filed on January 14, 1999, and (2) the combined statement of revenue and certain
expenses of the Gateway Properties included in the Company's Form 8-K/A filed on
February 3, 1999, have been so incorporated in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
LEGAL MATTERS
The validity of the Common Shares offered hereby are being passed upon for
COPT by Morgan, Lewis & Bockius LLP. The opinion of counsel as described under
the heading "Federal Income Tax Matters" is being rendered by Morgan, Lewis &
Bockius LLP, which opinion is subject to various assumptions and is based on
current tax law. The validity of the securities offered by this prospectus may
be passed upon for any of the underwriters or agents by counsel named in the
applicable prospectus supplement.
WHERE YOU CAN FIND MORE INFORMATION
COPT has filed a registration statement on Form S-3 with the Securities and
Exchange Commission in connection with this offering. In addition, COPT files
annual, quarterly, and current reports, proxy statements and other information
with the Securities and Exchange Commission. You may read and copy the
registration statement and any other documents filed by COPT at the Securities
and Exchange Commission's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Please call the Securities and Exchange Commission at
1-800-SEC-0330 for further information on the Public Reference Room. COPT's
Securities and Exchange Commission filings are also available to the public at
the Securities and Exchange Commission's Internet site at HTTP://WWW.SEC.GOV.
This prospectus is part of the registration statement and does not contain
all of the information included in the registration statement. If a reference is
made in this prospectus or any prospectus supplement to any contract or other
document of COPT, the reference may not be complete and you
33
<PAGE>
should refer to the exhibits that are a part of the registration statement for a
copy of the contract or document.
The Securities and Exchange Commission allows COPT to "incorporate by
reference" into this prospectus the information COPT files with the Commission,
which means that COPT can disclose important information to you by referring you
to those documents. Information incorporated by reference is part of this
prospectus. Later information filed with the Securities and Exchange Commission
will update and supersede this information.
COPT incorporates by reference the documents listed below and any future
filings made with the Securities and Exchange Commission under Sections 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until this offering is
completed:
- Annual Report on Form 10-K for the year ended December 31, 1998.
- Quarterly Report on Form 10-Q for the quarter ended March 31, 1999.
- Current Report on Form 8-K dated January 14, 1999, and Current Reports on
Form 8-K/A, dated January 14, 1999 and February 3, 1999.
- Proxy Statement dated April 6, 1999.
You may request a copy of these filings, at no cost, by contacting COPT,
Vice President-Investor Relations, 401 City Avenue, Suite 615, Bala Cynwyd,
Pennsylvania 19004, by telephone at 610-538-1800, by facsimile at 610-538-1801,
or by e-mail at [email protected].
34
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses in connection with the issuance and distribution of the
securities being registered are set forth in the following table (all amounts
except the registration fee are estimated):
<TABLE>
<S> <C>
Registration fee--Securities and Exchange Commission.............. $ 69,500
Accountant's fees and expenses.................................... 10,000
Legal fees and expenses........................................... 35,000
Miscellaneous..................................................... 20,000
---------
TOTAL............................................................. $ 134,500
---------
---------
</TABLE>
All expenses in connection with the issuance and distribution of the
securities being offered shall be borne by COPT.
ITEM 15. INDEMNIFICATION OF TRUSTEES AND OFFICERS.
The Maryland REIT Law permits a Maryland real estate investment trust to
include in its declaration of trust a provision limiting the liability of its
trustees and officers to the trust and its shareholders for money damages except
for liability resulting from (i) actual receipt of an improper benefit or profit
in money, property or services or (ii) active and deliberate dishonesty
established by a final judgment as being material to the cause of action. The
Declaration of Trust contains such a provision limiting such liability to the
maximum extent permitted by Maryland law.
The Declaration of Trust authorizes COPT, to the maximum extent permitted by
Maryland law, to obligate itself to indemnify and to pay or reimburse reasonable
expenses in advance of final disposition of a proceeding to (a) any present or
former Trustee or officer or (b) any individual who, while a Trustee of COPT and
at the request of COPT, serves or has served another real estate investment
trust, corporation, partnership, joint venture, trust, employee benefit plan or
any other enterprise as a trustee, director, officer, partner, employee or agent
of such entity from and against any claim or liability to which such person may
become subject or which such person may incur by reason of service in such
capacity. The Bylaws obligate COPT, to the maximum extent permitted by Maryland
law, to indemnify and to pay or reimburse reasonable expenses in advance of
final disposition of a proceeding to (i) any present or former Trustee or
officer who is made a party to the proceeding by reason of his or her service in
that capacity or (ii) any such Trustee or officer who, at the request of COPT,
serves or has served another real estate investment trust, corporation,
partnership, joint venture, trust, employee benefit plan or any other enterprise
as a trustee, director, officer, partner, employee or agent of such entity and
who is made a party to the proceeding by reason of his service in that capacity
against any claim or liability to which he may become subject by reason of his
or her status as a present or former Trustee or officer of COPT. The Declaration
of Trust and the Bylaws also permit COPT to provide indemnification to any
person who served a predecessor of COPT in any of the capacities described above
and to any employee or agent of COPT or a predecessor of COPT. The Bylaws
require COPT to indemnify a Trustee or officer who has been successful, on the
merits or otherwise, in the defense of any proceeding to which he or she is made
a party by reason of his or her service in that capacity.
The Maryland REIT Law permits a Maryland real estate investment trust to
indemnify, and to advance expenses to, its trustees and officers, to the same
extent as permitted by the MGCL for Trustees and officers of Maryland
corporations. The MGCL permits a corporation to indemnify its present and former
Trustees and officers, among others, against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by them in connection with
any proceeding to which they may be made a party by reason of their service in
those or other capacities unless it is established that (i) the act or omission
of
II-1
<PAGE>
the director or officer was material to the matter giving rise to the proceeding
and (a) was committed in bad faith or (b) was the result of active and
deliberate dishonesty, (ii) the director or officer actually received an
improper personal benefit in money, property or services or (iii) in the case of
any criminal proceeding, the director or officer had reasonable cause to believe
that the act or omission was unlawful. However, under the MGCL, a Maryland
corporation may not indemnify for an adverse judgment in a suit by or in the
right of the corporation or for a judgment of liability on the basis that
personal benefit was improperly received, unless in either case a court orders
indemnification and then only for expenses. In addition, the MGCL permits a
corporation to advance reasonable expenses to a director or officer upon the
corporation's receipt of (a) a written affirmation by the director or officer of
his or her good-faith belief that he or she has met the standard of conduct
necessary for indemnification by the corporation and (b) a written undertaking
by him or her or on his or her behalf to repay the amount paid or reimbursed by
the corporation if it shall ultimately be determined that the standard of
conduct was not met. Under the MGCL, rights to indemnification and expenses are
nonexclusive, in that they need not be limited to those expressly provided by
statute.
The Maryland REIT Law and the Bylaws may permit indemnification for
liabilities arising under the Securities Act or the Exchange Act. The Board of
Trustees has been advised that, in the opinion of the Commission,
indemnification for liabilities arising under the Securities Act or the Exchange
Act is contrary to public policy and is therefore unenforceable, absent a
decision to the contrary by a court of appropriate jurisdiction.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement for Common Shares of Beneficial Interest of Corporate Office Properties
Trust.*
1.2 Form of Underwriting Agreement for Preferred Shares of Corporate Office Properties Trust.*
1.3 Form of Underwriting Agreement for Warrants to Purchase Securities of Corporate Office Properties Trust.*
4.1 Form of certificate for the Registrant's Common Shares of Beneficial Interest, $0.01 par value per share
(filed with the Registrant's Registration Statement on Form S-4 (Commission File No. 333-45649) and
incorporated herein by reference.
4.2 Form of Warrant Certificate for Corporate Office Properties Trust.*
4.3 Form of Preferred Stock Certificate for Corporate Office Properties Trust.*
4.4 Amended and Restated Declaration of Trust of Registrant (filed with the Registrant's Registration
Statement on Form S-4 (Commission File No. 333-45649) and incorporated herein by reference).
4.5 Bylaws of Registrant (filed with the Registrant's Registration Statement on Form S-4 (Commission File No.
333-45649) and incorporated herein by reference).
4.6 Amended and Restated Registration Rights Agreement dated March 16, 1998 for the benefit of certain
shareholders of the Registrant (filed with the Registrant's Quarterly Report on Form 10-Q on August 12,
1998 and incorporated herein by reference).
4.7 Registration Rights Agreement dated September 28, 1998 for the benefit of certain shareholders of the
Registrant.**
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<C> <S>
4.8 Articles Supplementary of Corporate Office Properties Trust Series A Convertible Preferred Shares, dated
September 28, 1998 (filed with the Registrant's Current Report on Form 8-K on October 13, 1998 and
incorporated herein by reference).
4.9.1 Amended and Restated Limited Partnership Agreement of the Operating Partnership dated March 16, 1998
(filed with the Registrant's Quarterly Report on Form 10-Q on August 12, 1998 and incorporated herein by
reference).
4.9.2 First Amendment to Amended and Restated Limited Partnership Agreement of the Operating Partnership, dated
September 28, 1998 (filed with the Registrant's Current Report on Form 8-K on October 13, 1998 and
incorporated herein by reference).
4.9.3 Second Amendment to Amended and Restated Limited Partnership Agreement of the Operating Partnership,
dated as of October 13, 1998 (filed with the Registrant's Current Report on Form 8-K on October 28, 1998
and incorporated herein by reference).
5.1 Opinion of Morgan, Lewis & Bockius LLP regarding the legality of the securities being registered
hereby.**
8.1 Opinion of Morgan, Lewis & Bockius LLP as to certain tax matters.**
12.1 Calculation of Ratios of Earnings to Combined Fixed Charges and Preferred Share Dividends.***
21.1 Subsidiaries of Registrant (filed with the Registrant's 1997 Annual Report on Form 10-K and incorporated
herein by reference).
23.1 Consent of Morgan, Lewis & Bockius LLP (included in Exhibit 5.1).**
23.2 Consent of PricewaterhouseCoopers LLP.***
24.1 Powers of attorney (included on signature page to the Registration Statement).
</TABLE>
- ------------------------
* To be filed by Amendment or incorporated by reference prior to the offering
of securities registered by this Registration Statement.
** Previously filed.
*** Filed by this Amendment.
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the Registration Statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent
II-3
<PAGE>
no more than a 20% change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table in the
effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in
periodic reports filed with or furnished to the Securities and
Exchange Commission by the Registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered that remain unsold at the termination
of the offering.
(b) The undersigned Registrant hereby undertakes that, for the purpose of
determining any liability under the Securities Act of 1933, each filing of
the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing of
an employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered herein and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(c) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to Trustees, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a Trustee, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such Trustee, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Bala Cynwyd, State of Pennsylvania on May 21, 1999.
<TABLE>
<S> <C> <C>
CORPORATE OFFICE PROPERTIES TRUST
By: /s/ CLAY W. HAMLIN, III
-----------------------------------------
Clay W. Hamlin, III
CHIEF EXECUTIVE OFFICER
By: /s/ ROGER A. WAESCHE, JR
-----------------------------------------
Roger A. Waesche, Jr
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the date indicated.
SIGNATURE CAPACITY DATE
- ------------------------------ --------------------------- -------------------
/s/ JAY H. SHIDLER* Chairman of the Board and
- ------------------------------ Trustee May 21, 1999
Jay H. Shidler*
Chief Executive Officer and
/s/ CLAY W. HAMLIN, III* Trustee
- ------------------------------ (Principal Executive May 21, 1999
Clay W. Hamlin, III* Officer)
Senior Vice President and
/s/ ROGER A. WAESCHE, JR.* Chief Financial Officer
- ------------------------------ (Principal Accounting and May 21, 1999
Roger A. Waesche, Jr.* Financial Officer)
/s/ KENNETH D. WETHE* Trustee
- ------------------------------ May 21, 1999
Kenneth D. Wethe*
/s/ ALLEN C. GEHRKE* Trustee
- ------------------------------ May 21, 1999
Allen C. Gehrke*
/s/ WILLIAM H. WALTON, III* Trustee
- ------------------------------ May 21, 1999
William H. Walton, III*
/s/ KENNETH S. SWEET, JR.* Trustee
- ------------------------------ May 21, 1999
Kenneth S. Sweet, Jr.*
/s/ STEVEN D. KESLER* Trustee
- ------------------------------ May 21, 1999
Steven D. Kesler*
/s/ EDWARD A. CROOKE* Trustee
- ------------------------------ May 21, 1999
Edward A. Crooke*
- ------------------------
* Signed by Clay W. Hamlin, III (or Thomas D. Cassel) pursuant to power of
attorney set forth in the initial filing of this registration statement.
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 12.1
Ratio of Earnings to Combined Fixed Charges and Preferred Share dividends
(Dollars in thousands)
Three months
ended Years ended
March 31, -----------------------------------------------------------
1999 1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net income $ 3,545 $ 4,696 $ (967) $ 293 $ 272 $ 301
Add:
Minority interest (Common Units) 496 1,171 65 -- -- --
Total combined fixed charges and
Preferred Share dividends
(from below) 6,724 16,446 3,639 1,259 1,280 1,107
Capitalized interest (from below) (115) (77) -- -- -- --
Preferred Share Dividends included in
fixed charges (338) (327) -- -- -- --
-------- -------- -------- -------- -------- --------
Total earnings $ 10,312 $ 21,909 $ 2,737 $ 1,552 $ 1,552 $ 1,408
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Combined fixed charges and Preferred
Share dividends:
Interest on indebtedness $ 5,193 $ 12,207 $ 2,855 $ 1,246 $ 1,267 $ 1,098
Capitalized interest 115 77 -- -- -- --
Amortization of debt issuance costs 225 423 64 13 13 9
Preferred Share dividends 338 327 -- -- -- --
Preferred unit distributions 853 3,412 720 -- -- --
-------- -------- -------- -------- -------- --------
Total combined fixed charges and Preferred
Share dividends $ 6,724 $ 16,446 $ 3,639 $ 1,259 $ 1,280 $ 1,107
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Ratio of earnings to combined fixed charges
and Preferred Share dividends 1.53 1.33 (A) 1.23 1.21 1.27
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Deficiency of earnings N/A N/A $ (902) N/A N/A N/A
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
</TABLE>
(A) During the year ended December 31, 1997, the net income included a
non-recurring expense of $1,353 associated with the termination of an
advisory agreement. As a result, earnings were inadequate to cover fixed
charges by approximately $902 in the year ended December 31, 1997.
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-3 (No. 333-71807) of Corporate Office Properties Trust
(the "Company") of (1) our report dated February 24, 1999, relating to the
financial statements and financial statement schedule, which appears in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998,
(2) our report dated January 6, 1999, appearing on page F-15 of the Company's
Form 8-K/A filed on January 14, 1999 on the combined statement of revenue and
certain expenses of the Centerpoint Properties, and (3) our report dated
January 18, 1999, appearing on page F-17 of the Company's Form 8-K/A filed on
February 3, 1999 on the combined statement of revenue and certain expenses of
the Gateway Properties. We also consent to the references to us under the
heading "Experts" in such Registration Statement.
PRICEWATERHOUSECOOPERS LLP
Washington, D.C.
May 20, 1999
