<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 4, 1999
REGISTRATION STATEMENT NO. 333-_______
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------
CORPORATE OFFICE PROPERTIES TRUST
(Exact name of Registrant as specified in its charter)
-----------------------
Maryland 401 City Avenue 23-2947217
(State or other jurisdiction of Suite 615 (IRS Employee
incorporation or organization) Bala Cynwyd, PA 19004 Identification Number)
(610) 538-1800
(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 AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Shares of Beneficial Interest
(3)
Preferred Shares of Beneficial (1) (2)
Interest (3)(4)
Common Share Warrants (3)(5)
Preferred Share Warrants (3)(6)
- ---------------------------------------------------------------------------------------------------------------------
Total $250,000,000 $250,000,000 $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.
(Footnotes continued on next page)
<PAGE>
(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 SUCH
SECTION 8(a), MAY DETERMINE.
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED FEBRUARY 4, 1999
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 4.
-------------------
Our Common Shares are listed on the New York Stock Exchange under the
symbol "OFC." On February 2, 1999, the closing sale price of our Common Shares,
as reported on the New York Stock Exchange, was $8.0625. 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.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY...........................................................................3
OUR COMPANY.......................................................................3
FORWARD-LOOKING STATEMENTS........................................................3
RISK FACTORS......................................................................4
USE OF PROCEEDS..................................................................10
RATIOS OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED SHARE DIVIDENDS.......10
GENERAL DESCRIPTION OF THE OFFERED SECURITIES....................................10
DESCRIPTION OF SHARES............................................................10
FEDERAL INCOME TAX MATTERS.......................................................19
PLAN OF DISTRIBUTION.............................................................28
EXPERTS..........................................................................30
LEGAL MATTERS....................................................................30
WHERE YOU CAN FIND MORE INFORMATION..............................................30
</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" BEGINNING ON PAGE 30.
OUR COMPANY
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
December 31, 1998:
- we owned 48 suburban office properties in Maryland, Pennsylvania
and New Jersey containing approximately 4.3 million rentable
square feet;
- we owned nine retail properties containing approximately 639,000
rentable square feet;
- our properties were 98.0% 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 December 31, 1998, we owned approximately 85% 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 December 31, 1998.
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.
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 4.
3
<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" BEGINNING ON PAGE 30.
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 December 31, 1998, our total outstanding debt was $306.8 million.
Our debt to total market capitalization ratio was 58.7% based upon a market
price for Common Shares of $7.125 on December 31, 1998. 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 December 31, 1998, approximately 19.6% 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. Over the next five
years, our scheduled debt payments, including maturities, are as follows:
<TABLE>
<S> <C>
1999 $ 14,338,000
2000 179,035,000
2001 5,102,000
2002 6,871,000
2003 2,624,000
</TABLE>
Of the debt due in 2000, we have the right to extend $100.0 million to
2002 and approximately $76.8 million to 2001.
4
<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 December 31, 1998, ten tenants accounted for 50.6% of our
annualized office rents. Two of these tenants accounted for approximately 27.0%
of our total annualized office rents. Our largest tenant is the United States
federal government, two agencies of which lease space in nine of our office
properties. These leases represented approximately 17.0% of our total annualized
office rents as of December 31, 1998. 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 10.0% of our annualized office rents as of December 31, 1998 and a
larger percentage of our net operating income since 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 annualized office rents as of December
31, 1998 is 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 would adversely
affect us.
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 recent acquisition of properties from Constellation
Properties, Inc. 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 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 cash available for distribution.
5
<PAGE>
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 Properties, 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 Properties, 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
Properties, 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" beginning on page 12.
Our Board is divided into three classes of Trustees. The terms of the
first, second and third classes of the Trustees will expire in 1999, 2000 and
2001, respectively. 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" on page 17.
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" on page 18.
OUR PERFORMANCE IS SUBJECT TO RISKS ASSOCIATED WITH THE REAL ESTATE INDUSTRY
GENERALLY. We earn income from renting our properties. Our operating
costs are mostly fixed costs, and 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. We may have lower profits or even incur losses. Moreover,
there may be less or no cash available for distributions to our shareholders.
6
<PAGE>
OUR LEASE RENEWALS POSE CERTAIN UNCERTAINTIES. When leases expire at
our properties, our tenants may not renew or may renew but on terms less
favorable to us than the terms of the original lease. Our scheduled lease
expirations, as a percentage of total annualized rents for the next five years,
are:
<TABLE>
<S> <C>
1999 6.3%
2000 9.1%
2001 9.3%
2002 14.3%
2003 15.1%
</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 of 1986, as amended, imposes certain
penalties on a REIT that sells properties held for less than four years. As a
result, we may be unable to sell a property at an advantageous time.
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 other 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
7
<PAGE>
which is damaged by a fire or other similar catastrophic event. The occurrence
of any of these risks would 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, which 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.
A LIMITED PARTNER MAY INCUR TAX UPON EXCHANGE OF UNITS. If a limited
partner of our operating partnership exchanges units for Common Shares, the tax
effect to the limited partner will be the same as a sale of such units.
Consequently, such limited partner may have a taxable gain on such exchange. It
is possible that his or her tax liability could exceed the value of the Common
Shares received upon such exchange. Also, a limited partner's ability to sell
enough Common Shares to raise cash to pay such a tax liability may be
restricted, which would further reduce the value of those shares to the limited
partner.
ISSUANCES OF LARGE AMOUNTS OF OUR COMMON SHARES COULD CAUSE OUR SHARE PRICE TO
DECLINE
As of December 31, 1998, 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, that
activity may cause a decrease in the market price of the Common Shares.
8
<PAGE>
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.
However, we are not able to elect directors or officers of COMI because we hold
only 1% of COMI's voting stock and the balance 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 and 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, or 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 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, a temporary inability to process transactions, send
invoices, or engage in similar normal business activities. Our accounting
software vendor has certified that its package of software which 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.
9
<PAGE>
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,
repurchases of our Common Shares 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 nine months
ended September 30, 1998, and for each of the last five calendar years.
<TABLE>
<CAPTION>
Years ended
Nine Months ------------------------------------
ended 9/30/98 1997 1996 1995 1994 1993
------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to combined fixed
charges and Preferred Share
dividends 1.24 (A) 1.23 1.21 1.27 1.39
------------- ---- ---- ---- ---- ----
------------- ---- ---- ---- ---- ----
</TABLE>
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.
(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 approximately $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.
DESCRIPTION OF SHARES
THE FOLLOWING SUMMARY OF THE TERMS OF THE SHARES 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"). As of December 31, 1998, there were
16,801,876 Common Shares and 984,308 Series A Convertible Preferred Shares (the
"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,
10
<PAGE>
will be available for issuance without further action by COPT's shareholders,
subject to the requirements of the New York Stock Exchange ("NYSE").
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 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 Properties, Inc. is currently
entitled to appoint two of the nine Trustees. See "Description of Common
Shares--Series A Preferred Shares" below.
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-
11
<PAGE>
thirds of the outstanding shares of beneficial interest entitled to be cast
on the matter); and (vi) certain voting rights of Constellation Properties,
Inc. (See "Series A Preferred Shares" below). 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 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
Of the 5,000,000 Preferred Shares authorized, the Declaration of Trust
designates 1,025,000 Series A Convertible Preferred Shares, par value $.01 per
share ("Series A Preferred Shares"), of which 984,308 Series A Preferred Shares
were issued to Constellation Properties, 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 Properties, Inc. has
the right to designate up to two members of the Board of Trustees depending on
Constellation Properties, 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 Properties, Inc. holds any Series A Preferred Shares (and
it beneficially owns 30% of the Common Shares), Constellation Properties, Inc.
will have the right to designate up to two Trustees. If Constellation
Properties, Inc.'s Common Share beneficial holdings fall below 30% but above
15%, Constellation Properties, 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:
12
<PAGE>
<TABLE>
<CAPTION>
Series A Common Shares
Preferred 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 Properties, Inc. may not be converted into Common Shares if after
such conversion Constellation Properties, Inc. and its affiliates would own 45%
or more of COPT's outstanding Common Shares, although in the event of such
attempted conversion, Constellation Properties, 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 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;
13
<PAGE>
- 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 our 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 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 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 Code, more than
9.8% (the "Aggregate Share Ownership Limit") of the number or value of the
outstanding shares of beneficial interest of COPT. In addition, the Declaration
of Trust prohibits any person from acquiring or holding, directly or indirectly,
Common Shares in excess of 9.8% (in value or in number of shares, whichever is
more restrictive) of the aggregate of the outstanding Common Shares (the "Common
Share Ownership Limit").
The Board of Trustees, in its sole discretion, may exempt a proposed
transferee from the Aggregate Share Ownership Limit and the Common Share
Ownership Limit (an "Excepted Holder"). However, the Board of Trustees may not
grant such an exemption to any person if such exemption would result in COPT
being "closely held" within the meaning of Section 856(h) of the Code or
otherwise would result in COPT failing to qualify as a REIT. In order to be
considered by the Board of Trustees as an Excepted Holder, a person also must
not own, directly or indirectly, an interest in a tenant of COPT (or a tenant of
any entity owned or controlled by COPT) directly or indirectly, more than a 9.9%
interest in such a tenant. The person seeking an exemption must represent to the
satisfaction of the Board of Trustees that it will not violate the two
aforementioned restrictions. The person also must agree that any violation or
attempted violation of any of the foregoing restrictions will result in the
automatic transfer of the shares of stock causing such violation to the Share
Trust (as defined below). The Board of Trustees may require a ruling from the
Service or an opinion of counsel, in either case in form and substance
satisfactory to the Board of Trustees, in its sole discretion, in order to
determine or ensure COPT's status as a REIT. Constellation Properties, Inc., Mr.
Jay H. Shidler and Mr. Clay W. Hamlin, III are all Excepted Holders. However, as
of December 31, 1998, 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 Code or
otherwise cause COPT to fail to qualify as a REIT and (b) any person from
transferring shares of beneficial interest
14
<PAGE>
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
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.
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All certificates representing Common Shares will bear a legend
referring to the restrictions described above.
Every owner of more than 5% (or such other percentage as required by
the Code or the regulations promulgated thereunder) of all classes or series of
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.
ISSUANCE OF WARRANTS
We have no outstanding warrants to purchase our Common Shares ("Common
Share Warrants") or outstanding warrants to purchase our Preferred Shares
("Preferred Share Warrants" and collectively with Common Share Warrants, the
"Warrants"). We may issue Warrants for the purchase of Preferred Shares or
Common Shares. 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 (each, a "Warrant Agreement") to be entered into between us
and a warrant agent specified in a prospectus supplement (the "Warrant Agent"),
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;
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- 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 "Description of
Shares---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 Properties, Inc. currently may appoint two Trustees.
See "Description of Shares - 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 1999
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, classification of the Board of Trustees
would 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 (the "Bylaws") 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 upon the existence of
cause for removal and 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.
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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 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 ("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 enters into one of the
following ranges of voting power: (i) one-fifth or more but less than one-third,
(ii) one-third or more but less than a majority or (iii) a majority or more of
all voting power. Control Shares do not include shares the acquiring person is
then entitled to vote as a result of having previously obtained shareholder
approval. A control share acquisition means the acquisition of Control Shares,
subject to certain exceptions.
A person who has made or proposes to make a control share acquisition,
upon satisfaction of certain conditions (including an undertaking to pay
expenses), may compel the board of trustees of the trust to call a special
meeting of shareholders to be held within 50 days of demand to consider whether
the 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.
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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.
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 of 1986, as amended (the "Code") and intends to continue
to operate in such a manner. No assurance can be given, however, that such
requirements have been or will continue to be met. The following is a summary of
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 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 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 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 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 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.
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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 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 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 Code. In such event, to the extent of
current and accumulated earnings and profits, all distributions to shareholders
will be taxable as ordinary income, and subject to certain limitations in the
Code, corporate distributees may be eligible for the dividends received
deduction. Unless entitled to relief under specific statutory provisions, 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.
Currently, Constellation Properties, 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
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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 Properties,
Inc. from the 9.8% limitation set forth in the Declaration of Trust and has
determined that Constellation Properties, Inc. may hold up to 45% of the
outstanding Common Shares. The Board of Trustees has determined, based upon
representations made by Constellation Properties, 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
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.
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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 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 Properties, Inc. and
certain affiliated companies are obligated as tenants to pay annual rent of
approximately $960,000 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 Properties, 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 Properties, 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 Corporate Office Management, Inc. ("COMI") in 1998 to
own a 75% interest in Corporate Realty Management, LLC, the operating
partnership's property management company ("CRM"). In addition, COMI has entered
into a services agreement with Constellation Properties, 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 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
Properties, 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
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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 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 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 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
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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" below.
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
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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. 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" below.
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
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 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 Code, is tax-exempt under Section 501(a) of the 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
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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 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 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.
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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 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 NYSE 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 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 generally effective
for payments made on
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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 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 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.
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
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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 NYSE or other stock exchange rules; (d) ordinary
brokerage transactions and transactions in which any such broker-dealer solicits
purchasers; (e) sales "at the market" to or through a market maker or into an
existing trading market, on an exchange or otherwise, for such shares; and (f)
sales in other ways not involving market markers or established trading markets,
including direct sales to purchasers. In effecting sales, broker-dealers engaged
by the selling shareholders may arrange for other broker-dealers to participate.
Broker-dealers will receive commissions or other compensation from the selling
shareholders in amounts to be negotiated immediately prior to the sale that will
not exceed those customary in the types of transactions involved. Broker-dealers
may also receive compensation from purchasers of the 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 (the "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 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.
29
<PAGE>
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, Inc. for
the year ended December 31, 1997, and (1) the combined statement of revenue and
certain expenses of the Wagman Acquisition Properties included in the Company's
Form 8-K/A filed on July 7, 1998, (2) the combined statement of revenue and
certain expenses of the Airport Square Acquisition Properties included in the
Company's Form 8-K/A filed on July 7, 1998, (3) the combined statement of
revenue and certain expenses of the Riverwood Acquisition Property included in
the Company's Form 8-K/A filed on December 11, 1998, (4) the combined statement
of revenue and certain expenses of the Constellation Properties included in the
Company's Form 8-K/A filed on December 11, 1998, (5) the consolidated financial
statements of Constellation Service Companies included in the Company's Form
8-K/A filed on December 11, 1998, (6) 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 (7) the combined statement of revenue and
certain expenses of the Gateway Properties included in the Company's Form 8-K/A
filed on February 2, 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
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.
30
<PAGE>
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, 1997.
- Quarterly Reports on Form 10-Q for the quarters ended March 31,
1998, June 30, 1998 and September 30, 1998.
- Current Reports on Forms 8-K and 8-K/A, dated January 5, 1998,
January 22, 1998, March 6, 1998, March 20, 1998, May 14, 1998, May
29, 1998, June 10, 1998, July 7, 1998, August 12, 1998, October
13, 1998, October 28, 1998, November 16, 1998, December 11, 1998,
January 14, 1999 and February 3, 1999.
- Proxy Statement dated July 22, 1998.
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].
31
<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
Legal fees and expenses
Miscellaneous
-------
TOTAL $
-------
-------
</TABLE>
All expenses in connection with the issuance and distribution of the
securities being offered shall be borne by 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 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
II-1
<PAGE>
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 DESCRIPTION
NO.
<S> <C>
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 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).
4.3 Bylaws of Registrant (filed with the Registrant's Registration
Statement on Form S-4 (Commission File No. 333-45649) and incorporated
herein by reference).
4.4 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).
4.5 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).
4.6 Registration Rights Agreement dated September 28, 1998 for the benefit
of certain shareholders of the Registrant.
4.7 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).
4.8.1 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).
4.8.2 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).
4.8.3 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.
II-2
<PAGE>
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 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
II-3
<PAGE>
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 February
3, 1999.
CORPORATE OFFICE PROPERTIES TRUST
By: /S/Clay W. Hamlin, III
------------------------------------
Name: Clay W. Hamlin, III
Title: Chief Executive Officer
By: /S/Roger A. Waesche, Jr.
------------------------------------
Name: Roger A. Waesche, Jr.
Title: Senior Vice President - Finance and
Chief Accounting Officer
<PAGE>
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and
Trustees of Corporate Office Properties Trust hereby severally constitute Clay
W. Hamlin, III and Thomas D. Cassel, and each of them singly, our true and
lawful attorneys with full power to them, and each of them singly, to sign for
us and in our names in the capacities indicated below, and any and all
amendments (including post-effective amendments) to this registration statement
and to file the same with all exhibits thereto, and generally to do all such
things in our names and in our capacities as officers and Trustees to enable
Corporate Office Properties Trust to comply with the provisions of the
Securities Act of 1933, as amended, and all requirements of the Securities and
Exchange Commission, hereby ratifying and confirming our signatures as they may
be signed by our said attorneys, or any of them, to said registration statement
and any and all amendments thereto.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
<S> <C> <C>
/s/Jay H. Shidler Chairman of the Board and Trustee February 3, 1999
- ----------------------------
Jay H. Shidler
/s/Clay W. Hamlin, III Chief Executive Officer and Trustee February 3, 1999
- ---------------------------- (Principal Executive Officer)
Clay W. Hamlin, III
/s/Roger A. Waesche, Jr. Senior Vice President--Finance and Chief February 3, 1999
- ---------------------------- Accounting Officer (Principal Accounting and
Roger A. Waesche, Jr. Financial Officer)
/s/Vernon R. Beck Vice Chairman of the Board and Trustee February 3, 1999
- ----------------------------
Vernon R. Beck
/s/Kenneth D. Wethe Trustee February 3, 1999
- ----------------------------
Kenneth D. Wethe
/s/Allen C. Gehrke
- ---------------------------- Trustee February 3, 1999
Allen C. Gehrke
/s/William H. Walton, III
- ---------------------------- Trustee February 3, 1999
William H. Walton, III
/s/Kenneth S. Sweet, Jr.
- ---------------------------- Trustee February 3, 1999
Kenneth S. Sweet, Jr.
/s/Steven D. Kesler
- ---------------------------- Trustee February 3, 1999
Steven D. Kesler
/s/Edward A. Crooke
- ---------------------------- Trustee February 3, 1999
Edward A. Crooke
</TABLE>
<PAGE>
Exhibit 4.6
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered into as of September ______, 1998 by Corporate Office Properties Trust,
a Maryland real estate investment trust (the "Company"), for the benefit of (x)
persons issued shares of Common Stock of the Company ("Common Stock") pursuant
to the Contribution Agreement, the Asset Contribution Agreement and the
Development Agreements (each, as defined below), (y) persons issued shares of
Convertible Preferred Stock of the Company ("Preferred Stock") pursuant to the
Contribution Agreement, the Asset Contribution Agreement and the Development
Agreements, and (z) the respective successors, assigns, transferees and estates
of the persons identified in clauses (x) and (y) (herein referred to
collectively as the "Holders" and individually as a "Holder"). The Common Stock
and Preferred Stock issued and to be issued to the Holders pursuant to the
Contribution Agreement, the Asset Contribution Agreement and the Development
Agreements are herein sometimes collectively called the "Stock."
WHEREAS, on the date hereof certain Holders have become the owner of
Stock upon the transfer of certain partnership interests and other assets
pursuant to the Contribution Agreement dated as of May 14, 1998 by and among the
Company, Corporate Office Properties, L.P. ("COP") and the Persons identified
therein as "Sellers", as the same may at any time be amended, modified and
supplemented and in effect (the "Contribution Agreement");
WHEREAS, on the date hereof certain Holders have become the owner of
Stock upon the transfer of certain membership interests and other assets
pursuant to the Service Company Asset Contribution Agreement dated as of May 14,
1998 by and among COP and the Persons identified therein as "Seller" and
"Shareholders", as the same may at any time be amended, modified and
supplemented and in effect (the "Asset Contribution Agreement");
WHEREAS, after the date hereof certain Holders may become the owner of
Stock upon the transfer of certain partnership interests and other assets
pursuant to two Development Properties Acquisition Agreements each dated as of
May 14, 1998 by and among the Company, COP and the Persons identified therein as
"Sellers", as the same may at any time be amended, modified and supplemented and
in effect (the "Development Agreements");
WHEREAS, pursuant to the Company's Amended and Restated Declaration of
Trust, the Holders of shares of Preferred Stock have the right to convert them
into shares of Common Stock;
WHEREAS, on the date hereof, the Common Stock is publicly held and
traded and the Company is an issuer which is subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended from time to
time (the "Exchange Act");
WHEREAS, in connection with the foregoing, the Company has agreed,
subject to the terms, conditions and limitations set forth in this Agreement, to
provide the Holders with certain registration rights in respect of shares of
Common Stock issued either (x) pursuant to the Contribution Agreement, the Asset
Contribution Agreement or the Development Agreements, or (y) upon conversion of
shares of Preferred Stock issued pursuant to the Contribution Agreement, the
Asset Contribution Agreement or the Development Agreements.
<PAGE>
NOW, THEREFORE, the Company for the benefit of the Holders agrees as
follows:
SECTION 1. DEFINITIONS.
As used in this Agreement, the following capitalized defined terms
shall have the following meanings:
ASSET CONTRIBUTION AGREEMENT: As set forth in the preamble.
COMMISSION: The Securities and Exchange Commission.
COMMON STOCK: Shares of common stock, $.01 par value, of the Company.
CONTRIBUTION AGREEMENT: As set forth in the preamble.
DEVELOPMENT AGREEMENTS: As set forth in the preamble.
EXCHANGE ACT: As set forth in the preamble.
HOLDER OR HOLDERS: As set forth in the preamble.
MAJORITY HOLDERS: At any time, Holders of Registrable Securities and
shares of Preferred Stock then convertible into Registrable Securities who, if
all such Preferred Stock were converted, would then hold a majority of the
Registrable Securities.
MINIMUM REGISTRABLE AMOUNT: At any date of determination, Registrable
Securities having an aggregate fair market value of at least $3 million.
NASD: The National Association of Securities Dealers, Inc.
PERSON: Any individual, partnership, corporation, trust or other legal
entity.
PREFERRED STOCK: Shares of Convertible Preferred Stock, par value
$25.00, of the Company.
PROSPECTUS: A prospectus included in a Registration Statement,
including any preliminary prospectus, and any such prospectus as amended or
supplemented by any prospectus supplement with respect to the terms of the
offering of any portion of the Registrable Securities covered by such
Registration Statement, and by all other amendments and supplements to such
prospectus, including post-effective amendments, and in each case including all
material incorporated by reference therein.
REGISTRABLE SECURITIES: The shares of Common Stock (i) issued pursuant
to the terms of the Contribution Agreement, the Asset Contribution Agreement and
the Development Agreements, and (ii) issued and issuable upon conversion of the
shares of Preferred Stock issued pursuant to the terms of the Contribution
Agreement, the Asset Contribution Agreement and the Development Agreements.
Registrable Securities shall not include (x) Common Stock as to which a
Registration Statement shall have become effective under the Securities Act
pursuant to Section 2, 3 or 4 of this Agreement and which shall have been
disposed of under such Registration
-2-
<PAGE>
Statement, (ii) Common Stock sold or otherwise distributed pursuant to Rule 144
under the Securities Act and (iii) Common Stock as to which registration under
the Securities Act is not required to permit the sale thereof to the public by a
Holder at any time and without application of any volume or other limitations
imposed by Rule 144 under the Securities Act.
SALE PERIOD: The 60-day period immediately following the filing with
the Commission by the Company of an annual report of the Company on Form 10-K or
a quarterly report of the Company on Form 10-Q or such other period as the
Company may determine.
SECURITIES ACT: The Securities Act of 1933, as amended from time to
time.
SHELF REGISTRATION STATEMENT: shall mean a "shelf" registration
statement of the Company and any other entity required to be a registrant with
respect to such shelf registration statement pursuant to the requirements of the
Securities Act which covers all of the Registrable Securities then issued and
outstanding or which may thereafter be issued pursuant to the Contribution
Agreement, the Asset Contribution Agreement or the Development Agreements on an
appropriate form under Rule 415 under the Securities Act, or any similar rule
that may be adopted by the Commission, and all amendments and supplements to
such registration statement, including post-effective amendments, in each case
including the Prospectus contained therein, all exhibits thereto and all
materials incorporated by reference therein.
SECTION 2. SHELF REGISTRATION UNDER THE SECURITIES ACT.
(a) FILING OF SHELF REGISTRATION STATEMENT. Within six months
following, the date hereof, the Company shall cause to be filed a Shelf
Registration Statement providing for the sale by the Holders of all of the
Registrable Securities in accordance with the terms hereof and will use its
reasonable best efforts to cause such Shelf Registration Statement to be
declared effective by the SEC as soon as reasonably practicable. The Company
agrees to use its reasonable best efforts to keep the Shelf Registration
Statement continuously effective under the Securities Act until such time as the
aggregate number of Registrable Securities outstanding (computed for this
purpose as if all outstanding shares of Preferred Stock have been converted into
Common Stock) is less than 5% of the aggregate number of Registrable Securities
outstanding on the date hereof (assuming all Stock issuable pursuant to the
Development Agreements has been issued), and further agrees to supplement or
amend the Shelf Registration Statement, if and as required by the rules,
regulations or instructions applicable to the registration form used by the
Company for such Shelf Registration Statement or by the Securities Act or by any
other rules and regulations thereunder for Shelf Registration. Each Holder who
sells shares of Common Stock as part of the Shelf Registration shall be deemed
to have agreed to all of the terms and conditions of this Agreement and to have
agreed to perform any and all obligations of a Holder hereunder.
(b) INCLUSION IN SHELF REGISTRATION STATEMENT. Not later than 30
days prior to filing the Shelf Registration Statement with the Commission, the
Company shall notify each Holder of its intention to make such filing and
request advice from each such Holder as to whether such Holder desires to have
Registrable Securities held by it or which it is entitled to receive not later
than the last day of the first Sale Period occurring in whole or in part after
the date of such notice included in the Shelf Registration Statement at such
time. Any such Holder
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<PAGE>
who does not provide the information reasonably requested by the Company in
connection with the Shelf Registration Statement as promptly as practicable
after receipt of such notice, but in no event later than 20 days thereafter,
shall not be entitled to have its Registrable Securities included in the Shelf
Registration Statement at the time it becomes effective, but shall have the
right thereafter to deliver to the Company a Registration Notice as contemplated
by Section 3(b) to have such Registrable Securities included in the Shelf
Registration Statement by post effective amendment.
SECTION 3. SHELF REGISTRATION PROCEDURES.
In connection with the obligations of the Company with respect to the
Shelf Registration Statement pursuant to Section 2 hereof, the Company shall:
(a) prepare and file with the SEC, within the time period set
forth in Section 2(a) hereof, a Shelf Registration Statement, which Shelf
Registration Statement (i) shall be available for the sale of the Registrable
Securities in accordance with the intended method or methods of distribution by
the selling Holders thereof and (ii) shall comply as to form in all material
respects with the requirements of the applicable form.
(b) subject to the last three sentences of this Section 3(b) and
to Section 3(i) hereof, (i) prepare and file with the Commission such amendments
and post-effective amendments to the Shelf Registration Statement as may be
necessary to keep the Shelf Registration Statement effective for the applicable
period; (ii) cause each Prospectus to be supplemented by any required prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424 or any
similar rule that may be adopted under the Securities Act, (iii) respond
promptly to any comments received from the Commission with respect to the Shelf
Registration Statement, or any amendment, post-effective amendment or supplement
relating thereto; and (iv) comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by the Shelf Registration
Statement during the applicable period in accordance with the intended method or
methods of distribution by the selling Holders thereof. Notwithstanding anything
to the contrary contained herein, the Company shall not be required to take any
of the actions described in clauses (i), (ii) or (iii) above with respect to
each particular Holder of Registrable Securities unless and until the Company
has received either a written notice (a "Registration Notice") from a Holder
that such Holder intends to make offers or sales under the Shelf Registration
Statement as specified in such Registration Notice or a written response from
such Holder of the type contemplated by Section 2(b); provided, however, that
the Company shall have 7 business days to prepare and file any such amendment or
supplement after receipt of a Registration Notice. Once a Holder has delivered
such a written response or a Registration Notice to the Company, such Holder
shall promptly provide to the Company such information as the Company reasonably
requests in order to identify such Holder and the method of distribution in a
post-effective amendment to the Shelf Registration Statement or a supplement to
a Prospectus. Unless otherwise approved in writing by the Company in its sole
discretion, offers or sales under the Shelf Registration Statement may be made
only during a Sale Period. Such Holder also shall notify the Company in writing
upon completion of such offer or sale or at such time as such Holder no longer
intends to make offers or sales under the Shelf Registration Statement.
(c) furnish to each Holder of Registrable Securities that has
delivered a Registration Notice to the Company, without charge, as many copies
of each applicable
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Prospectus, including each preliminary Prospectus, and any amendment or
supplement thereto and such other documents as such Holder may reasonably
request, in order to facilitate the public sale or other disposition of the
Registrable Securities; the Company consents to the use of such Prospectus,
including each preliminary Prospectus, by each such Holder of Registrable
Securities in connection with the offering and sale of the Registrable
Securities covered by such Prospectus or the preliminary Prospectus.
(d) use its reasonable best efforts to register or qualify the
Registrable Securities by the time the Shelf Registration Statement is declared
effective by the SEC under all applicable state securities or "blue sky" laws of
such jurisdictions as any Holder of Registrable Securities covered by the Shelf
Registration Statement shall reasonably request in writing, keep each such
registration or qualification effective during the period the Shelf Registration
Statement is required to be kept effective or during the period offers or sales
are being made by a Holder that has delivered a Registration Notice to the
Company, whichever is shorter, and do any and all other acts and things may be
reasonably necessary or advisable to enable such Holder to consummate the
disposition in each such jurisdiction of such Registrable Securities owned by
such Holder, provided, however, that the Company not be required (i) to qualify
generally to do business in any jurisdiction or to register as a broker or
dealer in such jurisdiction where it would not be required so to qualify or
register but for this Section 3(d), (ii) to subject itself to taxation in any
such jurisdiction or (iii) to submit to the general service of process in any
such jurisdiction.
(e) notify each Holder when the shelf Registration Statement has
become effective and notify each Holder that has delivered a Registration Notice
to the Company promptly and, if requested by such Holder, confirm such advice in
writing (i) when any post-effective amendments and supplements to the Shelf
Registration Statement become effective, (ii) of the issuance by the Commission
or any state securities authority of any stop order suspending the effectiveness
of the Shelf Registration Statement or the initiation of any proceedings for
that purpose, (iii) if the Company receives any notification with respect to the
suspension of the qualification of the Registrable Securities for sale in any
jurisdiction or the initiation of any proceeding for such purpose and (iv) of
the happening of any event during the period the Shelf Registration Statement is
effective as a result of which the Shelf Registration Statement or a related
Prospectus contains any untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to make the
statements therein (in the case of the Prospectus, in light of the circumstances
under which they were made) not misleading.
(f) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of the Shelf Registration Statement at the
carried possible moment.
(g) furnish to each Holder that has delivered a Registration
Notice to the Company, without charge, at least one conformed copy of the Shelf
Registration Statement and any post-effective amendment thereto (without
documents incorporated therein by reference or exhibits thereto, unless
requested).
(h) cooperate with the selling Holders to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be sold and not bearing any Securities Act legend; and enable certificates for
such Registrable Securities to be issued for
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such numbers of shares and registered in such names as the selling Holders may
reasonably request at least two business days prior to any sale of Registrable
Securities.
(i) subject to the last three sentences of Section 3(b) hereof,
upon the occurrence of any event contemplated by Section 3(e)(iv) hereof, use
its reasonable best efforts promptly to prepare and file a supplement or
prepare, file and obtain effectiveness of a post-effective amendment to the
Shelf Registration Statement or a related Prospectus or any document
incorporated therein by reference or file any other required document so that,
as thereafter delivered to the purchasers of the Registrable Securities, such
Prospectus will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(j) make available for inspection by representatives of the
selling Holders and any counsel or accountant retained by such Holders, all
financial and other records, pertinent corporate documents and properties of the
Company, and cause the respective officers, directors and employees of the
Company to supply all information reasonably requested by any such
representative, counsel or accountant in connection with the Shelf Registration
Statement; provided, however, that such records, documents or information which
the Company determines in good faith to be confidential and notifies such
representatives, counsel or accountants in writing that such records, documents
or information are confidential, shall not be disclosed by the representatives,
counsel or accountants unless (i) the disclosure of such records, documents or
information is necessary to avoid or correct a material misstatement or omission
in the Shelf Registration Statement, (ii) the release of such records, documents
or information is ordered pursuant to a subpoena or outer order from a court of
competent jurisdiction or (iii) such records, documents or information have been
generally made available to the public otherwise than in violation of this
Agreement.
(k) within a reasonable time prior to the filing of any
Prospectus, any amendment to the Shelf Registration Statement or amendment or
supplement to a Prospectus, provide copies of such document (not including any
documents incorporated by reference therein unless requested) to the Holders of
Registrable Securities that have provided a Registration Notice to the Company.
(l) use its reasonable best efforts to cause all Registrable
Securities to be listed on any securities exchange on which similar securities
issued by the Company are then listed.
(m) obtain a CUSIP number for all Registrable Securities, not
later than the effective date of the Shelf Registration Statement.
(n) otherwise use its reasonable efforts to comply with all
applicable rules and regulations of the Commission and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering at least 12 months which shall satisfy the provisions of Section 11(a)
of the Securities Act and Rule 158 thereunder.
(o) use its reasonable best efforts to cause the Registrable
Securities covered by the Shelf Registration Statement to be registered with or
approved by such other governmental agencies or authorities as may be necessary
by virtue of the business and
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operations of the Company to enable Holders that have delivered Registration
Notices to the Company to consummate the disposition of such Registrable
Securities.
The Company may require each Holder to furnish to the Company
in writing such information regarding the proposed distribution by such Holder
of such Registrable Securities as the Company may from time to time reasonably
request in writing.
In connection with and as a condition to the Company's
obligations with respect to the Shelf Registration Statement pursuant to Section
2 hereof and this Section 3, each Holder agrees that (i) it will not offer or
sell its Registrable Securities under the Shelf Registration Statement until (A)
it has either (1) provided a Registration Notice pursuant to Section 3(b) hereof
or (2) had Registrable Securities included in the Shelf Registration Statement
at the time it became effective pursuant to Section 2(b) hereof and (B) it has
received copies of the supplemented or amended Prospectus contemplated by
Section 3(b) hereof and receives notice that any required post-effective
amendment has become effective; (ii) upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 3(e)(iv) hereof,
such Holder will forthwith discontinue disposition of Registrable Securities
pursuant to the Shelf Registration Statement until such Holder receives copies
of the supplemented or amended Prospectus contemplated by Section 3(i) hereof
and receives notice that any post-effective amendment has become effective, and,
if so directed by the Company, such Holder will deliver to the Company (at the
expense of the Company) all copies in its possession, other than permanent file
copies then in such Holder's possession, of the Prospectus covering such
registrable Securities current at the time of receipt of such notice; and (iii)
all offers and sales under the Shelf Registration Statement shall be completed
during the first available Sale Period when offers or sales can be made pursuant
to clause (i) above, and upon expiration of such Sale Period the Holder will not
offer or sell its Registrable Securities under the Shelf Registration Statement
until it has again complied with the provisions of clauses (i)(A)(1) and (B)
above, provided, however, that if the entirety of a Sale Period is for any
reason not available to the Holder, the Holder shall also be entitled to make
offers and sales during the next succeeding Sale Period.
SECTION 4. PIGGYBACK REGISTRATION.
(a) Whenever (x) the Company proposes to register any shares of
its Common Stock (or securities convertible into or exchangeable or exercisable
for such Common Stock) under the Securities Act for its own account or the
account of any shareholder of the Company (other than offerings pursuant to
employee plans, or non-cash offerings in connection with a proposed acquisition,
exchange offer, recapitalization or similar transaction), and (y) the
registration form otherwise to be used by the Company may be used for the
registration of Registrable Securities (a "Piggyback Registration"), the Company
will give prompt written notice to all Holders of its intention to effect such a
registration and will, subject to Section 4(b) and Section 10 hereof, include in
such registration all Registrable Securities with respect to which such Holders
request in writing to be so included within 20 days after the receipt of the
Company's notice.
(b) If a registration pursuant to this Section 4 involves an
underwritten offering and the managing underwriter advises the Company in good
faith that in its opinion the number of securities requested to be included in
such registration exceeds the number which can be sold in such offering without
having an adverse effect on such offering, including the
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price at which such securities can be sold, then the Company will be required to
include in such registration the maximum number of shares that such underwriter
advises can be so sold, allocated (x) first, to the securities the Company
proposes to sell, (y) second, among the shares of Common Stock requested to be
included in such registration by the Holders, considered in the aggregate (if
such registration was initiated by the Company), and any other shareholder of
the Company with shares of Common Stock eligible for registration, pro rata, on
the basis of the number of shares of Common Stock such holder requests be
included in such registration, and (z) third, among other securities, if any,
requested and otherwise eligible to be included in such registration.
(c) Nothing contained herein shall prohibit the Company from
determining, at any time, not to file a registration statement or, if filed, to
withdraw such registration or terminate or abandon the registration related
thereto.
SECTION 5. REQUESTED REGISTRATION.
(a) RIGHT TO REQUEST REGISTRATION. Upon the written request of
Holders owning 10% or more of the outstanding Registrable Securities then owned
in the aggregate by such Holders (the "Requesting Holders') (computed for these
purposes as if all outstanding shares of Preferred Stock and all shares of
Preferred Stock thereafter issuable pursuant to the Development Agreements have
been converted into shares of Common Stock), requesting that the Company effect
the registration under the Securities Act of at least the Minimum Registration
Amount, the Company shall use its best efforts to effect, as expeditiously as
possible, following the prompt (but in no event later than 15 days following the
receipt of such written request) delivery of notice to all Holders, the
registration under the Securities Act of such number of shares of Registrable
Securities owned by the Requesting Holders and requested by the Requesting
Holders to be so registered (subject to Section 5(c) hereof), together with (x)
all other shares of Common Stock entitled to registration, and (y) securities of
the Company which the Company elects to register and offer for its own account,
provided, however, that the Company shall not be required to (i) subject to
Section 5(b) below, effect more than a total of three such registrations
pursuant to this Agreement or (ii) file a registration statement relating to a
registration request pursuant hereto within a period of six months after the
effective date of any other registration statement of the Company requested
hereunder (other than pursuant to Section 2) or pursuant to which the Requesting
Holders shall have been given an opportunity to participate pursuant to Section
4 hereof and which opportunity they declined or which registration statement
under Section 4 hereof included shares of Registrable Securities (so long as
such registration statement became and was effective for sufficient time to
permit the sales contemplated thereby); provided, further, that the Company
shall not be required to file a registration statement relating to an offering
of Common Stock on a delayed or continuous basis pursuant to Rule 415 (or any
successor to similar effect) promulgated under the Securities Act if the Company
is not, at the time, eligible to register shares of Common Stock on form S-3 (or
a successor form).
Notwithstanding the foregoing, if the Board of Directors of the Company
determines in its good faith judgment, (x) after consultation with a nationally
recognized investment banking firm, that there will be an adverse effect on a
then contemplated public offering of the Company's securities, (y) that the
disclosures that would be required to be made by the Company in
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connection with such registration would be materially harmful to the Company
because of transactions then being considered by, or other events then
concerning the Company, or (z) the registration at the time would require the
inclusion of pro forma or other information, which requirements the Company is
reasonably unable to comply with, then the Company may defer the filing (but not
the preparation) of the registration statement which is required to effect any
registration pursuant to this Section 5 for a reasonable period of time, but not
in excess of 90 calendar days (or any longer period agreed to by the Holders),
provided that at all times the Company is in good faith using all reasonable
efforts to file such registration statement as soon as practicable.
(b) EFFECTIVE REGISTRATION. A registration requested pursuant to
this Section 5 shall not be deemed to have been effected (and, therefore, not
requested for purposes of Section 5(a) above) (w) unless the registration
statement relating thereto has become effective under the Securities Act, (x) if
after it has become effective such registration is interfered with by any stop
order, injunction or other order or requirement of the Commission or other
governmental agency or court for any reason other than a misrepresentation or an
omission by a Holder and, as a result thereof, the shares of Registrable
Securities requested to be registered cannot be completely distributed in
accordance with the plan of distribution, (y) if the conditions to closing
specified in the purchase agreement or underwriting agreement entered into in
connection with such registration are not satisfied or waived other than by
reason of some act or omission by a participating Holder or (z) if with respect
to what would otherwise be deemed the third, or last, request under Section 5(a)
hereof, less than all of the shares of Common Stock that the Holders requested
be registered were actually registered due to the operation of Section 5(c)
hereof, provided that clause (z) above may not be invoked by the Holders unless
(I) such request includes at least the Minimum Registrable Amount, or (II) if
such request includes an amount that is less than the Minimum Registrable
Amount, Rule 144 under the Securities Act is not available to the Holders for
the sale in any three (3) month period of all of the shares of Common Stock
owned by the Holders; and provided further that clause (z) above may be invoked
only at the request of Holders meeting the foregoing requirements and owning
more than 10% of the shares of Registrable Securities then owned (computed as
aforesaid) in the aggregate by the Holders.
(c) PRIORITY. If a requested registration pursuant to this
Section 5 involves an underwritten offering and the managing underwriter shall
advise the Company that in its opinion the number of securities requested to be
included in such registration exceeds the number which can be sold in such
offering without having an adverse effect on such offering, including the price
at which such securities can be sold, then the Company will be required to
include in such registration the maximum number of shares that such underwriter
advises can be so sold, allocated (x) first, among all shares of Common Stock
requested by Holders to be included in such registration, pro rata on the basis
of the number of shares of Common Stock then owned by each of them (or, if such
holder requests that less than all of the shares of Common Stock owned by such
holder be included in such registration such lesser number of shares) (y)
second, to any securities requested to be included in such registration by any
other shareholder of the Company having registration rights and (z) third, to
any securities the Company proposes to sell.
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SECTION 6. REGISTRATION PROCEDURES.
If and whenever the Company is required to use its best efforts to
effect or cause the registration of any Registrable Securities under the
Securities Act as provided in this Agreement pursuant to Section 4 or 5 hereof,
the Company shall:
(a) prepare and file with the Commission as expeditiously as
possible but in no event later than 90 days after receipt of a request for
registration with respect to such Registrable Shares, a registration statement
on any form for which the Company then qualifies or which counsel for the
Company shall deem appropriate, which form shall be available for the sale of
the Registrable Securities in accordance with the intended methods of
distribution thereof, and use its best efforts to cause such registration
statement to become effective; provided that before filing with the Commission a
registration statement or prospectus or any amendments or supplements thereto,
including documents incorporated by reference after the initial filing of any
registration statement, the Company shall (x) furnish to each participating
Holder and to one firm of attorneys selected collectively by the participating
Holders and the holders of other securities covered by such registration
statement, but in no event to more than one such counsel for all such selling
securityholders, copies of all such documents proposed to be filed, which
documents shall be subject to the review of the participating Holders and such
counsel, and (y) notify the participating Holders of any stop order issued or
threatened by the Commission and take all reasonable actions required to prevent
the entry of such stop order or to remove it if entered;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
a period of not less than 180 days or such shorter period which shall terminate
when all Registrable Securities covered by such registration statement have been
sold (but not before the expiration of the 90-day period referred to in Section
4(3) of the Securities Act and Rule 174 thereunder, or any successor thereto, if
applicable), and comply with the provisions of the Securities Act with respect
to the disposition of all securities covered by such registration statement
during such period in accordance with the intended methods of disposition by the
sellers thereof set forth in such registration statement;
(c) furnish, without charge, to the participating Holders and
each underwriter, if any, such number of copies of such registration statement,
each amendment and supplement thereto (including one conformed copy to each
participating Holder and one signed copy to each managing underwriter and in
each case including all exhibits thereto), and the prospectus included in such
registration statement (including each preliminary prospectus), in conformity
with the requirements of the Securities Act, and such other documents as the
participating Holders may reasonably request in order to facilitate the
disposition of the Registrable Securities registered thereunder;
(d) use its best efforts to register or qualify such Registrable
Securities covered by such registration statement under such other securities or
blue sky laws of such jurisdiction as the participating Holders, and the
managing underwriter, if any, reasonably requests and do any and all other acts
and things which may be reasonable necessary or advisable to enable the
participating Holders and each underwriter, if any to consummate the disposition
in such jurisdiction of the Registrable Securities registered thereunder,
provided that
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the Company shall not be required to (x) qualify generally to do business in any
jurisdiction where it would not otherwise be required to quality but for this
Section 6(d), (y) subject itself to taxation in any such jurisdiction or (z)
consent to general service of process in any such jurisdiction;
(e) immediately notify the managing underwriter, if any, and the
Holders at any time when a prospectus relating thereto is required to be
delivered under the Securities Act, of the happening of any event which comes to
the Company's attention if as a result of such event the prospectus included in
such registration statement contains an untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, and the Company shall promptly
prepare and furnish to the participating Holders and any other holder of
securities covered by such registration statement and prospectus a supplement or
amendment to such prospectus so that as thereafter delivered, such prospectus
shall not contain an untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however. that if the Company determines in
good faith that the disclosure that would be required to be made by the Company
would be materially harmful to the Company because of transactions then being
considered by, or other events then concerning, the Company, or a supplement or
amendment to such prospectus at such time would require the inclusion of pro
forma or other information, which requirement the Company is reasonably unable
to comply with, then the Company may defer for a reasonable period of time, not
to exceed 90 days, furnishing to the participating Holders and any other holder
of securities covered by such registration statement and prospectus a supplement
or amendment to such prospectus, provided, further, that at all times the
Company is in good faith using all reasonable efforts to file such amendment as
soon as practicable;
(f) use its best efforts to cause all such securities being
registered to be listed on each securities exchange on which similar securities
issued by the Company are then listed, and enter into such customary agreements
including a listing. application and indemnification agreement in customary form
(provided that the applicable listing requirements are satisfied), and to
provide a transfer agent and register for such Registrable Shares covered by
such registration statement no later than the effective date of such
registration statement;
(g) make available for inspection by any of the participating
Holders and any holder of securities covered by such registration statement, any
underwriter participating in any distribution pursuant to such registration
statement, and any attorney, accountant or other agent retained by such persons
(collectively, the "Inspectors"), all financial and other records of the Company
and its subsidiaries (collectively, 'Records'), if any, as shall be reasonably
necessary to enable them to exercise their due diligence responsibility, and
cause the Company's and its subsidiaries' officers, directors and employees to
supply all information and respond to all inquiries reasonably requested by any
such Inspector in connection with such registration statement. Notwithstanding
the foregoing, the Company shall have no obligation to disclose any Records to
the Inspector in the event the Company determines that such disclosure is
reasonably likely to have an adverse effect on the Company's ability to asset
the existence of an attorney-client privilege with respect thereto;
(h) if requested use its best efforts to obtain a "cold comfort"
letter and a "bring-down cold comfort" letter from the Company's independent
public accountants in customary form and covering such matters of the type
customarily covered by such letters;
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(i) enter into a form of underwriting agreement that contains
customary terms and provisions for similar securities offerings;
(j) make available senior management personnel to participate in.
and cause them to cooperate with the underwriters in connection with. "road
show" and other customary marketing activities, including "one-on-one" meetings
with prospective purchasers of the Registrable Securities; and
(k) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its security
holders. as soon as reasonably practicable. an earning statement covering a
period of at least 12 months, beginning with the first: month after the
effective date of the registration statement (as the term "effective date" is
defined in Rule 158(c) under the Securities Act), which earning statement shall
satisfy the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder.
It shall be a condition precedent to the obligation of the Company to
take any action pursuant to this Agreement in respect of Registrable Securities
which are to be registered at the request of any of the participating Holders
that the participating Holders shall furnish to the Company such information
regarding the securities held by the participating Holders and the intended
method of disposition thereof as the Company shall reasonably request and as
shall be required in correction with the action taken by the Company.
Each of the Holders agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 6(e)
hereof, the Holders shall discontinue disposition of Registrable Shares pursuant
to the registration statement covering such Registrable Securities until receipt
of the copies of the supplemented or amended prospectus contemplated by Section
6(c) hereof or until otherwise notified by the Company, and, if so directed by
the Company, the participating Holders shall deliver to the Company (at the
Company's expense) all copies (including, without limitation, any and all
drafts), other than permanent file copies, then in any participating Holder's
possession, of the prospectus coveting such Registrable Securities at the time
of receipt of such notice. In the event the Company shall give any such notice,
the period specified in Section 6(b) hereof shall be extended by the greater of
(x) three months and (y) the number of days during the period from and including
the date of the giving of such notice pursuant to Section 6(e) hereof to and
including the date when each of the participating Holders shall have received
the copies of the supplemented or amended prospectus contemplated by Section
6(e) hereof.
SECTION 7. SELECTION OF UNDERWRITERS.
If any offering pursuant to a registration statement is to be an
underwritten offering, the Company will select a managing underwriter or
underwriters to administer the offering; provided that in the case of a
registration statement pursuant to Section 5 hereof, the Holders holding more
than 50% of the shares of Registrable Securities held by the Holders to be
included in such underwritten offering shall select the managing underwriter or
underwriters, subject to the consent of the Company which shall not be
unreasonably withheld.
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SECTION 8. REGISTRATION EXPENSES.
The Company shall pay, in connection with any registration pursuant to
Section 2. 4 or 5, the following registration expenses incurred in connection
therewith: (i) all Commission, stock exchange or NASD registration and filing
fees, (ii) all fees and expenses. of compliance with securities or blue sky laws
(including reasonable fees and disbursements of counsel in connection with the
blue sky qualifications of the Registrable Securities), (iii) printing expenses,
(iv) internal expenses (including without limitation, all salaries and expenses
of its officers and employees performing legal or accounting duties), (v) the
fees and expenses incurred in connection with the listing of the Registrable
Securities on any national securities exchange or interdealer quotation system,
(vi) the reasonable fees and disbursements of counsel for the Company and
customary fees and expenses for independent certified public accountants
retained by the Company (including the expenses of any comfort letters or costs
associated with the delivery by independent certified public accountants of a
comfort letter or comfort letters), (vii) the reasonable fees and disbursements
of not more than one firm of attorneys acting as legal counsel for (x) all of
the selling shareholders, collectively, in respect of a registration pursuant to
Section 2 hereof or (y) all of the participating Holders, collectively, in
respect of a registration pursuant to Sections 4 or 5 hereof, (viii) the fees
and expenses of any registrar and transfer agent for the Common Stock, (ix) the
underwriting fees, discounts and commissions applicable to any shares of Common
Stock sold for the account of the Company and (x) all expenses of any Person in
preparing or assisting in preparing, word processing, printing and distributing
any registration statement, prospectus, certificates and other documents
relating to the performance of and compliance with this Agreement. Except as
otherwise provided in clause (ix) of this Section 8, the Company shall have no
obligation to pay any underwriting fees, discounts or commissions attributable
to the sale of Registrable Shares.
SECTION 9. INDEMNIFICATION; CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each seller
of Registrable Securities covered by a Registration Statement filed pursuant to
this Agreement, and such seller's partners, directors, officers, employees and
any Person who controls such seller under the Securities Act (each, an
"Indemnitee") from and against any and all losses, claims, damages, liabilities
and expenses (including reasonable costs of investigation) arising out of or
based upon any untrue statement or alleged untrue statement of a material fact
contained in any prepricing prospectus, registration statement or prospectus or
in any amendment or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or expenses rise out
of or are based upon any untrue statement or omission or alleged untrue
statement or omission which has been made therein or omitted therefrom in
reliance upon and in conformity with the information relating to a participating
Holder furnished in writing to the Company by or on behalf of a participating
Holder expressly for use in connection therewith. The foregoing indemnity
agreement shall be in addition to any liability which the Company may otherwise
have.
(b) If any action, suit or proceeding shall be brought against an
Indemnitee in respect of which indemnity may be sought against the Company, such
Indemnitee shall promptly notify the Company, and the Company shall assume the
defense thereof, including the
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employment of counsel and payment of all fees and expenses. The Indemnitee shall
have the right to employ separate counsel in any such action, suit or proceeding
and to participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such Indemnitee unless (x) the Company has
agreed in writing to pay such fees and expenses, (y) the Company has failed to
assume the defense and employ counsel, or (z) the named parties to any such
action, suit or proceeding (including any impleaded parties) include both such
Indemnitee and the Company, and such Indemnitee shall have been advised by its
counsel that representation of such Indemnitee and the Company by the same
counsel would be inappropriate under applicable standards of professional
conduct (whether or not such representation by the same counsel has been
proposed) due to actual or potential differing interests between them (in which
case the Company shall not have the right to assume the defense of such action,
suit or proceeding on behalf of such Indemnitee). It is understood, however,
that the Company shall, in connection with any one such action, suit or
proceeding or separate but substantially similar or related actions, suits or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, be liable for the reasonable fees and expenses of only one
separate firm of attorneys (in addition to any local counsel) at any time for
all such Indemnitees not having actual or potential differing interests among
themselves, and that all such fees and expenses shall be reimbursed as they are
incurred. The Company shall not be liable for any settlement of any such action,
suit or proceeding effected without its written consent, but if settled with
such written consent, or if them be a final judgment for the plaintiff in any
such action, suit or proceeding, the Company agrees to indemnify and hold
harmless such Indemnitee, to the extent provided in the preceding paragraph,
from and against any loss, claim, damage, liability or expense by reason of such
settlement or judgment.
(c) Each of the participating Holders, severally and not jointly,
agree to indemnify and hold harmless the Company, its directors, its officers
who sign the registration statement, and any person who controls the Company
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act, to the same extent as the foregoing indemnity from the Company to
an Indemnitee, but only with respect to information relating to such Holder
furnished in writing by or on behalf of such Holder expressly for use in the
registration statement, prospectus or any prepricing prospectus, or any
amendment or supplement thereto. If any action, suit or proceeding shall be
brought against the Company, any of its directors, any such officer, or any such
controlling person based on the registration statement, prospectus or any
prepricing prospectus, or any amendment or supplement thereto, and in respect of
which indemnity may be sought against any Holder pursuant to this Section 9(c),
such Holder shall have the rights and duties given to the Company by Section
9(b) hereof (except that if the Company shall have assumed the defense thereof
such Holder shall not be required to do so, but may employ separate counsel
therein and participate in the defense thereof, but the fees and expenses of
such counsel shall be at the Holder's expense), and the Company, its directors,
any such officer, and any such controlling person shall have the rights and
duties given to an Indemnitee by Section 9(b) hereof. The foregoing indemnity
agreement shall be in addition to any liability which the participating Holders
may otherwise have.
(d) If the indemnification provided for in this Section 9 is
unavailable to an indemnified party under paragraphs (a) or (c) hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the Company and of
the participating Holders in
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<PAGE>
connection with the statements or omissions that resulted in such losses,
claims, damages, liabilities or expenses. The relative fault of the Company on
the one hand and a participating Holder on the other hand shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged -omission to state a material fact
relates to information supplied by the Company on the one hand or by such
participating Holder on the other hand and the parties' relative intent,
knowledge, access or information and opportunity to correct or prevent such
statement or omission.
(e) The Company and the participating Holders agree that it would
not be just and equitable if contribution pursuant to this Section 9 were
determined by a pro rata allocation or by any other method of allocation that
does not take account of the equitable considerations referred to in Section
9(d) hereof. The amount paid or payable by an indemnified party as a result of
the losses, claims, damages, liabilities and expenses referred to in Section
9(d) hereof shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating any claim or defending any such action, suit or
proceeding. Notwithstanding the provisions of this Section 9, no participating
Holder shall be required to contribute any amount in excess of the amount by
which the proceeds to such participating Holder exceeds the amount of any
damages which such participating Holder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
(f) No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened action, suit or proceeding in respect of which any indemnified party
is or could have been a party and indemnity could have been sought hereunder by
such indemnified party, unless such settlement includes an-unconditional release
of such indemnified party from all liability on claims that are the subject
matter of such action, suit or proceeding.
(g) Any losses, claims, damages, liabilities or expenses for
which an indemnified parry is entitled to indemnification or contribution under
this Section 9 shall be paid by the indemnifying party to the indemnified party
as such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 9 shall remain
operative and in full force and effect, regardless of (i) any investigation made
by or on behalf of an Indemnitee, the Company, its directors or officers, or any
person controlling the Company, and (ii) any termination of this Agreement.
SECTION 10. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS.
A Holder may not participate in any underwritten offering pursuant to
Section 4 or 5 hereof unless such Holder (i) agrees to sell its Registrable
Securities on the basis provided in any underwriting arrangements which, to the
extent applicable solely to the participating Holders, are approved by the
participating Holders in their reasonable discretion or which, to the extent
applicable to the Company and the participating Holders, are approved by the
Company in its reasonable discretion and (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents (including lock-
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<PAGE>
up agreements) reasonably required under the terms of such underwriting
arrangements which are not in consistent with the terms of this Agreement.
SECTION 11. OTHER REGISTRATION RIGHTS.
The Company agrees that it shall not enter into any agreement which
provides registration rights to any Person that are inconsistent with the
provisions contained in this Agreement. If the Company does become a party to
such an agreement, the Company agrees that to the extent that the provisions of
such agreement conflict with this Agreement, the provisions of this Agreement
shall control.
SECTION 12. RULE 144 SALES.
(a) The Company covenants that it will file the reports required
to be filed by the Company under the Securities Act and the Exchange Act, so as
to enable any Holder to sell Registrable Securities pursuant to Rule 144 under
the Securities Act.
(b) In connection with any sale, transfer or other disposition by
any Holder of any Registrable Securities pursuant to Rule 144 under the
Securities Act, the Company shall cooperate with such Holder to facilitate the
timely preparation and delivery of certificates representing Registrable
Securities to be sold and not bearing any Securities Act legend, and enable
certificates for such Registrable Securities to be for such number of shares and
registered in such names as the selling Holders may reasonably request at least
two business days prior to any sale of Registrable Securities.
SECTION 13. MISCELLANEOUS.
(a) AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereto
may not be given without the written consent of the Company and Holders
constituting Majority Holders; provided, however, that no amendment,
modification or supplement or waiver or consent to the departure with respect to
the provisions of Sections 1 through 12, inclusive, hereof or which would impair
the rights of any Holder under such provisions, shall be effective as against
any Holder. Notice of any amendment, modification or supplement to this
Agreement adopted in accordance with this Section 13(a) shall be provided by
Company to each Holder at least thirty (30) days prior to the effective date of
such amendment, modification or supplement.
(b) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand delivery, registered
first-class mail, telex, telecopier or any courier guaranteeing overnight
delivery, (i) if to a Holder, at the most current address given by such Holder
to the Company by of a notice given in accordance with the provisions of this
Section 13(b), which address initially is, with respect to each Holder, the
address set forth in the Contribution Agreement, the Asset Contribution
Agreement or the Development Agreements, or (ii) if to the Company, at One Logan
Square, Suite 1105, Philadelphia, PA 19103.
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<PAGE>
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed: when
answered back, if telexed; when receipt is acknowledged, if telecopied; or at
the time delivered if delivered by an air courier guaranteeing overnight
delivery.
(c) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors, assigns and transferees of each
of the Company and the Holders, including without limitation and without the
need for an express assignment, subsequent Holders. If any successor, assignee
or transferee of any Holder shall acquire Registrable Securities, in any manner,
whether by operation of law or otherwise, such Registrable Securities shall be
held subject to all of the terms of this Agreement, and by taking and holding
such Registrable Securities such Person shall be entitled to receive the
benefits hereof and shall be conclusively deemed to have agreed to be bound by
all of the terms and provisions hereof.
(d) HEADINGS. The headings in this Agreement are for the
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(e) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE WITHOUT GIVING
EFFECT TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
(f) SPECIFIC PERFORMANCE. The Company and the Holders acknowledge
that there would be no adequate remedy at law if any party fails to perform any
of its obligations hereunder, and accordingly agree that the Company and each
Holder, in addition to any other remedy to which it may be entitled at law or in
equity, shall be entitled to compel specific performance of the obligations of
another under this Agreement in accordance with the terms and conditions of this
Agreement in any court of the United States or any State thereof having
jurisdiction.
(g) ENTIRE AGREEMENT. This Agreement is intended by the Company
as a final expression of its agreement and is intended to be a complete and
exclusive statement of the agreement and understanding of the Company in respect
of the subject matter contained herein. This Agreement supersedes all prior
agreements and understandings of the Company with respect to such subject
matter.
(h) Notwithstanding any other provision of this Agreement to the
contrary, the total number of days that the Holders shall be precluded from the
disposition of Registrable Securities under an effective Registration Statement
coupled with the total number of days that the Company may defer the filing of
the registration statement hereunder shall not exceed 180 in any 12-month period
during the first two years from the date of this Agreement, and shall not exceed
120 days in any 12-month period thereafter.
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IN WITNESS WHEREOF, the Company has executed this Agreement as of the
date first written above.
CORPORATE OFFICE PROPERTIES TRUST
By:
--------------------------------------
Clay W. Hamlin, III
President and Chief Executive Officer
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EXHIBIT 12.1
Ratio of Earnings to Combined Fixed Charges and Preferred Share dividends
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months
Ended Years ended
9/30/98 1997 1996 1995 1994 1993
------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net income $ 1,769 $ (967) $ 293 $ 272 $ 301 $ 180
Add:
Minority interest (Common Units) 713 65 -- -- -- --
Total combined fixed charges and
Preferred Share dividends
(from below) 10,259 3,639 1,259 1,280 1,107 465
Preferred Share Dividends included in
fixed charges (10) -- -- -- -- --
------- ------- ------- ------- ------- -------
Total earnings $12,731 $ 2,737 $ 1,552 $ 1,552 $ 1,408 $ 645
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
Combined fixed charges and Preferred
Share dividends:
Interest on indebtedness $ 7,424 $ 2,855 $ 1,246 $ 1,267 $ 1,098 $ 461
Amortization of debt issuance costs 266 64 13 13 9 4
Preferred Share dividends 10 -- -- -- -- --
Preferred unit distributions 2,559 720 -- -- -- --
------- ------- ------- ------- ------- -------
Total combined fixed charges and Preferred
Share dividends $10,259 $ 3,639 $ 1,259 $ 1,280 $ 1,107 $ 465
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
Ratio of earnings to combined fixed charges
and Preferred Share dividends 1.24 (A) 1.23 1.21 1.27 1.39
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
Deficiency of earnings N/A $ (902) N/A N/A N/A N/A
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
</TABLE>
(A) During the year ended December 31, 1997, the Company's 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.
