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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
|x| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
or
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission file number 0-20047
Corporate Office Properties Trust
(Exact name of registrant as specified in its charter)
Maryland 23-2947217
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
401 City Avenue, Suite 615 19004
Bala Cynwyd, PA
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 538-1800
----------------------------------------
Securities registered pursuant to Section 12(b) of the Act:
Common Share of beneficial
interest, $0.01 par value New York Stock Exchange
(Title of Each Class) (Name of Exchange on Which Registered)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the (1) registrant has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. |X| Yes | | No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. | |
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $62,895,364 based on the closing price of such
Shares on the New York Stock Exchange on March 19, 1999. At March 19, 1999,
16,801,876 shares of the Registrant's Common Shares of Beneficial Interest,
$0.01 par value, were outstanding.
Portions of the proxy statement of the Registrant for its 1999 Annual Meeting of
Shareholders to be filed within 120 days after the end of the fiscal year
covered by this Form 10-K are incorporated by reference into Part III of this
Form 10-K.
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Table of Contents
Form 10-K
PART I..........................................................................
ITEM 1. BUSINESS..........................................................3
ITEM 2. PROPERTIES........................................................8
ITEM 3. LEGAL PROCEEDINGS................................................11
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS.............11
PART II.........................................................................
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS..............................................12
ITEM 6. SELECTED FINANCIAL DATA..........................................13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..............................15
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.......21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA......................22
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE..............................22
PART III........................................................................
ITEM 10. TRUSTEES AND EXECUTIVE OFFICERS OF THE REGISTRANT................22
ITEM 11. EXECUTIVE COMPENSATION...........................................22
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.......................................................22
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................22
PART IV.........................................................................
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.........................................................22
FORWARD-LOOKING STATEMENTS
This Form 10-K contains "forward-looking" statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Such statements 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 performance, events or results may differ materially from
such forward-looking statements. 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 forward-looking statements include,
but are not limited to: our ability to borrow on favorable terms; general
economic and business conditions, which will affect, among other things, demand
for office properties, availability and creditworthiness of tenants, lease rents
and the availability of financing; 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 other risks identified in this filing or our
other reports filed with the Securities Exchange Commission.
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PART I
Item 1. Business
Our Company
Corporate Office Properties Trust ("COPT") and subsidiaries is a
full-service real estate investment trust ("REIT"). We focus principally on the
acquisition, development, management and ownership of suburban office buildings
in targeted suburban submarkets mostly in the Mid-Atlantic region of the United
States. As of December 31, 1998:
o we owned 48 suburban office properties in Maryland, Pennsylvania and New
Jersey containing approximately 4.3 million rentable square feet,
o we owned nine retail properties containing approximately 639,000 rentable
square feet,
o our properties were 98.0% leased,
o we owned three parcels of land, two of which were under development, and
o we owned options to purchase from related parties 156 acres of land
contiguous to certain of our office properties.
We conduct almost all of our operations through our Operating Partnership,
Corporate Office Properties, L.P., a Delaware limited partnership, of which we
are the managing general partner. Our Operating Partnership owns real estate
both directly and through subsidiaries. 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
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.
The Operating Partnership also owns the principal economic interest and,
collectively with our Chief Executive Officer and Chief Operating Officer, 49.5%
of the voting stock of Corporate Office Management, Inc. ("COMI"). COMI provides
us with asset management and managerial, financial and legal support. COMI also
has two subsidiaries: Corporate Realty Management, LLC ("CRM") and Corporate
Development Services, LLC ("CDS"). CRM manages approximately 18 million square
feet for us and for third parties as of December 31, 1998 and also provides
corporate facilities management. CDS provides construction and development
services predominantly to us. COMI owns 75% of CRM and 100% of CDS.
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.
Significant 1998 Developments
On January 1, 1998, we changed our name from Royale Investments, Inc. to
Corporate Office Properties Trust, Inc. On March 16, 1998, we were reformed as a
Maryland REIT and changed our name to Corporate Office Properties Trust. In
connection with the reformation, we adopted our Declaration of Trust which
authorized for issuance up to 45,000,000 Common Shares of beneficial interest
("Common Shares") and 5,000,000 Preferred Shares. Each share of common stock in
Corporate Office Properties Trust, Inc. was exchanged for one Common Share in
our trust.
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During 1998, we completed a substantial number of operating property
acquisitions, increasing our rentable square feet by 169%. A summary of the
operating properties acquired during 1998 follows:
<TABLE>
<CAPTION>
# of Investment
Properties Date Rentable (in
Transaction Location Acquired Property Type Acquired Sq. Ft. millions)
- ------------------------ ----------------------------- ---------- -------------------------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Airport Square Portfolio Linthicum, MD 12 9 Office and 3 Office/Flex 04/30/98 812,616 $ 72.6
Fairfield Portfolio Fairfield, NJ 2 Office 05/28/98 262,417 29.4
Constellation Portfolio Baltimore/Washington Corridor 14 12 Office and 2 Retail Various 1,466,722 177.0
Riverwood Property Columbia, MD 1 Office 10/13/98 160,000 20.3
Centerpoint Portfolio Middlesex County, NJ 8 6 Office and 2 Office/Flex 10/30/98 269,222 31.7
Gateway Portfolio Columbia, MD 3 Office 12/31/98 148,804 17.3
---------- --------- ----------
40 3,119,781 $348.3
========== ========= ==========
</TABLE>
During 1998, we also acquired three parcels of land that are contiguous to
certain of our operating properties. In addition, we acquired options and rights
of first refusal to purchase 93 acres, estimated to yield nearly 1.6 million
square feet of new buildings in locations adjacent to certain of our operating
properties.
We had various construction and development projects underway in 1998. We
began construction of two buildings that are estimated to total 198,000 square
feet upon completion. We completed a substantial portion of a $7.8 million
project to convert a 170,000 square foot property we own into a first-class,
high technology office building.
We also acquired a 75% interest in CRM and certain equipment, furniture
and other assets for $2.5 million which we, in turn, contributed into COMI in
exchange for 95% of COMI's capital stock and a $2.0 million note receivable. We
then entered into a management relationship with COMI in order to further expand
our capabilities and support our growing portfolio of properties. We also
entered into contracts with COMI's subsidiaries, CRM and CDS, for property
management, construction and development services for our properties.
We financed our acquisitions and construction and development activities
using a combination of new debt and equity issuances. During 1998, we
o completed the sale of 7,500,000 Common Shares to the public at a price of
$10.50 per share,
o issued 7,030,793 of our Common Shares, valued at $73.8 million ($10.50 per
share), less $505,000 in share issuance costs, in connection with the
Constellation Portfolio acquisition,
o issued 984,308 of our Preferred Shares, valued at $24.6 million ($25 per
share), in connection with the Constellation Portfolio acquisition,
o obtained a $100.0 million recourse revolving credit facility from Bankers
Trust Company bearing interest at a variable rate of LIBOR + 1.75%,
o obtained an $85.0 million loan from Teachers Insurance and Annuity
Association of America bearing interest at a fixed rate of 6.89%, and
o issued 148,381 Common Units in our Operating Partnership, valued at $1.6
million ($10.50 per share), in connection with the Riverwood Property
acquisition.
Our Operating Strategy
Our primary business objectives are to achieve sustainable long-term
growth in funds from operations per share and to maximize long-term shareholder
value. We intend to achieve these objectives primarily through acquisitions and
property development and through internal growth. We intend to focus our
activities on acquiring, owning and operating suburban office properties in
strong and growing submarkets throughout the United States. We plan to sell our
remaining retail properties and redeploy the proceeds into suburban office
properties.
We believe we have certain competitive advantages that will promote our
growth strategies, including:
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o our multiple market expertise in identifying, creatively structuring and
closing acquisitions,
o our experience in successfully growing public real estate companies
utilizing a centralized/decentralized organizational structure,
o our long-standing relationships with tenants, real estate brokers and
institutional and other owners of commercial real estate that collectively
help us to identify acquisition opportunities, and
o our property management and development experience.
Suburban Office Focus. We believe office buildings currently offer the
strongest fundamentals of any real estate property type, and suburban office
properties provide us very attractive investment opportunities. The three key
factors driving the strong fundamentals of suburban office properties are (i)
increasing rental rates, (ii) declining vacancy rates, and (iii) a limited new
supply of office product. We believe that many companies are relocating to, and
expanding in, suburban locations because of lower operating costs, proximity to
residential housing and better quality of life.
Acquisition Strategies. We are actively pursuing the acquisition of
suburban office properties in submarkets in the United States with strong
fundamentals. Our three-part acquisition strategy includes targeting:
o entity transactions in which we enter new markets or increase our
penetration in existing markets by acquiring significant portfolios along
with their management which will also enable us to enhance our management
infrastructure and local expertise,
o portfolio purchases in these markets, and
o opportunistic acquisitions of individual properties in submarkets in which
we already have a presence.
We will seek to make acquisitions at attractive yields and below
replacement costs.
Property Development Strategies. We believe that the significant
experience of our management in property development, redevelopment,
construction, management and leasing provides us with the expertise necessary to
build, upgrade, renovate and reposition suburban office properties. We are
developing suburban office properties generally to meet the needs of our
existing tenants. We will selectively explore additional development when market
fundamentals support a favorable risk-adjusted return on such development. We
currently do not intend to develop or redevelop any properties outside of
submarkets in which we operate.
Internal Growth Strategies. We believe that our internal growth will come
from (i) proactive property management and leasing , (ii) operating efficiencies
achieved through increasing economies of scale, (iii) tenant retention and
rollovers at increased rents where market conditions permit and (iv) expansion
of the third party management business of CRM. These strategies are designed to
promote tenant satisfaction, resulting in tenant retention and the attraction of
new tenants.
Subsequent Events
On January 5, 1999, we entered into an interest rate swap agreement with
Bankers Trust Company. This swap agreement fixes our one-month LIBOR base to
5.085% per annum on a notional amount of $30.0 million through May 2001.
On January 13, 1999, we entered into a $9.8 million construction loan with
FMB Bank to finance the construction of an office building. This loan has an
interest rate of LIBOR plus 1.6%. This loan matures on February 1, 2001 and may
be extended for a one-year period, subject to certain conditions.
On January 22, 1999, we sold a retail property located in Westminster,
Maryland ("Cranberry Square"). We sold the property for $18.9 million, of which
$9.5 million was used to pay off the mortgage loan payable on the property,
$283,000 was placed in escrow, $272,000 was paid to the buyer for operating
pro-rations, $144,000 was used to pay our closing costs and $8.7 million was
used to repay a portion of our Revolving Credit Facility. We recognized no gain
or loss on the sale of Cranberry Square.
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On February 8, 1999, we entered into a $10.9 million construction loan
with Provident Bank of Maryland to finance the construction of a building. This
loan has an interest rate of LIBOR plus 1.75%. This loan matures on February 8,
2001 and may be extended for a one-year period, subject to certain conditions.
On February 26, 1999, we acquired an office building located in Linthicum,
Maryland. We acquired the property for $6.8 million, including $201,000 in
transaction costs, using $6.7 million in borrowings under our Revolving Credit
Facility and using cash reserves for the balance.
Industry Segments
We have five segments: Baltimore/Washington office, Greater Philadelphia
office, Northern/Central New Jersey office, Greater Harrisburg office and
retail. For information relating to these segments, you should refer to Note 13
of our Consolidated Financial Statements included with this Form 10-K.
Employees
We, together with COMI and its subsidiaries, employed 120 persons as of
December 31, 1998.
Competition
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
may be forced to lower the rents we charge on leases to compete effectively.
We also 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.
Major Tenants
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, the Congress of the United States
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.
Geographical Concentration
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 geographical distribution of our
6
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properties. As a result, a decline in the real estate market or economic
conditions generally in the Mid-Atlantic region would adversely affect us.
Environmental Matters
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. To date, the impact of
these laws has not been materially adverse to our operations.
Financing Policies
In conjunction with our growth strategies, we have developed a
capitalization strategy. To promote growth in funds from operations per share,
we intend to utilize a minimum cash flow to debt service coverage ratio of
approximately 1.6 to 1.0, which we anticipate will equate to a ratio of debt to
total market capitalization of between 40% and 60%. We believe a 1.6 times cash
flow coverage ratio is conservative for a seasoned pool of suburban office
buildings and is a more appropriate measure of entity leverage than the
conventional REIT measure of total debt outstanding to total market
capitalization. We intend to emphasize the issuance of Common Units and
Preferred Units in our Operating Partnership as tax-deferred compensation to
sellers in entity and portfolio acquisitions. We also intend to utilize both
Common and Convertible Preferred Shares when capital market conditions appear
advantageous.
We 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.
We favor long-term fixed rate debt over variable rate debt for permanent
financings. In addition, we will rely on borrowings to fund some or all of the
costs of new property acquisitions, capital expenditures and other items.
Mortgage Loans Payable
For information relating to future maturities of our mortgage loans
payable, you should refer to the Management's Discussion and Analysis of
Financial Condition and Results of Operations section and Note 7 to our
Consolidated Financial Statements included with this Form 10-K.
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Item 2. Properties
The following table provides certain information about our office
properties as of December 31, 1998:
<TABLE>
<CAPTION>
Total Rental
Year Rentable Percentage Total Percentage of Revenue per
Built/ Square Leased as of Rental Total Rental Occupied
Property Location Renovated Feet 12/31/98 (1) Revenue (2) Revenue (3) Square Foot (4)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Baltimore/Washington Corridor:
2730 Hercules Rd. 1990 240,336 100.00% $ 4,575,360 6.52% $ 19.04
6009 - 6011 Oxon Hill Rd. 1990 181,236 98.78% 3,420,225 4.87% 19.10
7200 Riverwood Dr. 1986 160,000 100.00% 2,826,640 4.03% 17.67
6950 Columbia Gateway Dr. 1998 107,778 100.00% 2,184,998 3.11% 20.27
1615 - 1629 Thames St. 1989 103,670 96.85% 1,569,422 2.24% 15.63
900 Elkridge Landing Rd. 1982 97,139 100.00% 1,645,193 2.34% 16.94
1199 Winterson Rd. 1988 96,636 100.00% 1,534,245 2.19% 15.88
133 National Business Pkwy. 1997 88,666 100.00% 1,522,876 2.17% 17.18
141 National Business Pkwy. 1990 86,964 100.00% 1,445,347 2.06% 16.62
135 National Business Pkwy. 1998 86,832 100.00% 1,614,374 2.30% 18.59
881 Elkridge Landing Rd. 1986 73,572 100.00% 879,912 1.25% 11.96
14502 Greenview Dr. 1988 71,870 95.28% 1,182,537 1.68% 17.27
1099 Winterson Rd. 1988 69,738 87.69% 961,580 1.37% 15.72
14504 Greenview Dr. 1985 69,194 93.62% 1,099,052 1.57% 16.97
131 National Business Pkwy. 1990 68,900 100.00% 1,215,582 1.73% 17.64
1190 Winterson Rd. 1987 68,567 100.00% 1,060,976 1.51% 15.47
911 Elkridge Landing Rd. 1985 68,162 73.50% 804,168 1.15% 16.05
1201 Winterson Rd. 1985 67,903 100.00% 675,635 0.96% 9.95
6740 Alexander Bell Dr. 1992 59,576 100.00% 1,260,644 1.80% 21.16
930 International Dr. 1986 57,140 100.00% 689,108 0.98% 12.06
900 International Dr. 1986 57,140 100.00% 622,826 0.89% 10.90
921 Elkridge Landing Rd. 1983 54,057 100.00% 851,398 1.21% 15.75
8815 Centre Park Dr. 1987 53,635 100.00% 956,461 1.36% 17.83
6716 Alexander Bell Dr. 1989 51,980 100.00% 903,119 1.29% 17.37
939 Elkridge Landing Rd. 1983 51,953 100.00% 778,143 1.11% 14.98
800 International Dr. 1988 50,609 100.00% 775,939 1.11% 15.33
7609 Energy Parkway Dr. 1982 38,513 97.42% 213,458 0.30% 5.69
6760 Alexander Bell Dr. 1989 37,248 100.00% 692,102 0.99% 18.58
--------- ------ ---------- ----- -----
Total Baltimore/Washington
Corridor 2,319,014 98.23% 37,961,320 54.07% 16.66
--------- ------ ---------- ----- -----
<CAPTION>
Major Tenants
(10% or more
Property Location Rentable Sq. Ft.)
- ----------------------------------------------------------------------------------------
<S> <C>
Baltimore/Washington Corridor:
2730 Hercules Rd. (6) U.S. Department of Defense (100%)
6009 - 6011 Oxon Hill Rd. U.S. Department of Treasury (47%)
Constellation Real Estate, Inc. (24%)
7200 Riverwood Dr. (6) U.S. Department of Defense (100%)
6950 Columbia Gateway Dr. Magellan Health Services, Inc. (100%)
1615 - 1629 Thames St. JHIEPGO Corporation (27%)
Lista's (14%)
900 Elkridge Landing Rd. First Annapolis (51%)
Booz*Allen Hamilton (38%)
1199 Winterson Rd. (6) U.S. Department of Defense (100%)
133 National Business Pkwy. e.spire Communications (67%)
(5) Applied Signal Technology (33%)
141 National Business Pkwy. Stanford Telecommunications (46%)
J.G. Van Dyke & Associates (20%)
Harris Data Services Corp (14%)
135 National Business Pkwy. Credit Management Solutions, Inc. (82%)
881 Elkridge Landing Rd. (6) U.S. Department of Defense (100%)
14502 Greenview Dr. Sky Alland Research, Inc. (22%)
Greenman-Pedersen, Inc. (15%)
1099 Winterson Rd. Preferred Health Network (34%)
McDonald's Corporation (29%)
14504 Greenview Dr. Great West Life & Annuity (17%)
Laurel Consulting Group (15%)
Moore USA, Inc. (11%)
131 National Business Pkwy. e.spire Communications (35%)
TASC, Inc. (28%)
Lockheed Martin Technical (23%)
Intel Corporation (14%)
1190 Winterson Rd. Chesapeake Appraisal (39%)
Domino's Pizza, Inc. (18%)
(6) U.S. Department of Defense (15%)
Motorola, Inc. (14%)
911 Elkridge Landing Rd. Optacor Financial Services (25%)
(6) U.S. Department of Defense (23%)
Nationwide Mutual Insurance (21%)
1201 Winterson Rd. Ciena Corporation (100%)
6740 Alexander Bell Dr. (5) Johns Hopkins University (42%)
Sky Alland Research, Inc. (21%)
Science Applications International Corporation
(20%)
Atmel Corporation (16%)
930 International Dr. Ciena Corporation (100%)
900 International Dr. Ciena Corporation (100%)
921 Elkridge Landing Rd. Aerotek, Inc.(100%)
8815 Centre Park Dr. COMI (25%)
National Association of Credit Management (20%)
Reap/REMAX, Inc. (16%)
H.C. Copeland Associates, Inc. (11%)
6716 Alexander Bell Dr. Sun Microsystems, Inc. (81%)
Science Applications International Corporation
(10%)
939 Elkridge Landing Rd. Agency Holding (68%)
(6) U.S. Department of Defense (24%)
800 International Dr. Ciena Corporation (100%)
7609 Energy Parkway Dr. Rapid Response (50%)
Baltimore Gas and Electric (19%)
6760 Alexander Bell Dr. (5) Cadence Design Systems, Inc. (65%)
Total Baltimore/Washington Corridor
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Greater Philadelphia:
753 Jolly Rd. 1960/92-94 419,472 100.00% 2,971,968 4.23% 7.09
785 Jolly Rd. 1970/1996 219,065 100.00% 2,123,513 3.02% 9.69
760 Jolly Rd. 1974/1994 208,854 100.00% 2,567,264 3.66% 12.29
751 Jolly Rd. 1960/1991 112,958 100.00% 1,459,176 2.08% 12.92
--------- ------ ----------- ----- -----
Total Greater Philadelphia 960,349 100.00% 9,121,921 12.99% 9.50
--------- ------ ----------- ----- -----
Greater Harrisburg:
2605 Interstate Dr. 1990 84,268 100.00% 1,103,704 1.57% 13.10
2601 Market Pl. 1989 67,753 100.00% 1,118,109 1.59% 16.50
6385 Flank Dr. 1995 32,800 100.00% 438,162 0.62% 13.36
--------- ------ ----------- ----- -----
Total Greater Harrisburg 184,821 100.00% 2,659,975 3.79% 14.39
--------- ------ ----------- ----- -----
Northern/Central
New Jersey:
431 Ridge Rd. 1958/1998 170,000 100.00% 3,087,379 4.40% 18.16
695 Route 46 1990 158,273 77.25% 2,231,824 3.18% 18.25
429 Ridge Rd. 1966/1996 142,385 100.00% 2,580,016 3.67% 18.12
710 Route 46 1985 104,144 92.83% 1,669,415 2.38% 17.27
19 Commerce 1989 65,277 100.00% 1,251,780 1.78% 19.18
104 Interchange Plaza 1990 47,142 100.00% 999,179 1.42% 21.20
101 Interchange Plaza 1985 43,886 92.19% 685,597 0.98% 16.95
47 Commerce 1992/1998 40,686 100.00% 476,498 0.68% 11.71
437 Ridge Rd. 1962/1996 30,000 100.00% 582,867 0.83% 19.43
3 Centre Dr. 1987 20,436 100.00% 312,382 0.44% 15.29
7 Centre Dr. 1989 19,464 100.00% 310,921 0.44% 15.97
8 Centre Dr. 1986 16,199 100.00% 348,249 0.50% 21.50
2 Centre Dr. 1989 16,132 100.00% 448,676 0.64% 27.81
--------- ------ ----------- ----- -----
Total Northern/Central New Jersey 874,024 94.43% 14,984,783 21.34% 18.16
--------- ------ ----------- ----- -----
Total Office Properties 4,338,208 97.93% $64,727,999 92.20% $ 15.24
========= ===== =========== ===== ========
</TABLE>
<TABLE>
<S> <C>
Greater Philadelphia:
753 Jolly Rd. (5) Unisys (100%)
785 Jolly Rd. (5) Unisys with 100% sublease to Merck
760 Jolly Rd. (5) Unisys (100%)
751 Jolly Rd. (5) Unisys (100%)
Total Greater Philadelphia
Greater Harrisburg:
2605 Interstate Dr. Commonwealth of Pennsylvania (56%)
United States Fidelity & Guaranty (24%)
Health Central, Inc. (15%)
2601 Market Pl. Penn State Geisinger Systems (38%)
Ernst & Young LLP (26%)
Texas Eastern Pipeline Company (26%)
6385 Flank Dr. (5) Cowles Enthusiast Media (34%)
Orion Capital Companies (26%)
Pitney Bowes, Inc. (21%)
Total Greater Harrisburg
Northern/Central
New Jersey:
431 Ridge Rd. IBM with 84% sublease to AT&T Local Services
695 Route 46 Pearson, Inc. (22%)
United Healthcare Services (15%)
The Museum Company (12%)
Dean Witter Reynolds, Inc. (12%)
429 Ridge Rd. AT&T Local Services (100%)
710 Route 46 Midsco, Inc. (18%)
Radian International, LLC (12%)
Continental Casualty (12%)
Lincoln Financial Group (10%)
19 Commerce The Associated Press (100%)
104 Interchange Plaza S.M.I.P.A. LLC (24%)
Utica Mutual Insurance Company (15%)
Laborer's International Union (13%)
Lanier Worldwide, Inc. (12%)
Somerset Real Estate Management, Inc. (10%)
101 Interchange Plaza Ford Motor Credit Company (33%)
Arquest, Inc. (16%)
Middlesex County Improvement Authority (13%)
Trans Union Corporation (11%)
47 Commerce Somfy Systems, Inc. (100%)
437 Ridge Rd. IBM with 100% sublease to AT&T Local Services
3 Centre Dr. Matrix Development Group (100%)
7 Centre Dr. Paradise Software, Inc. (17%)
System Freight, Inc. (14%)
Compugen, Inc. (7%)
8 Centre Dr. AON Risk Services, Inc. (100%)
2 Centre Dr. Summit Bancorp (100%)
Total Northern/Central New Jersy
Total Office Properties
</TABLE>
(1) This percentage is based upon all leases signed as of December 31, 1998.
(2) Total Rental Revenue is the monthly contractual base rent as of December 31,
1998 multiplied by 12 plus the estimated annualized expense reimbursements
under existing leases.
(3) This percentage represents the individual property's rental revenue to our
total rental revenue as of December 31, 1998.
(4) This total rent per occupied square foot is the property's total rental
revenue divided by that property's occupied square feet as of December 31,
1998.
(5) This property contains substantial leases remitting rental revenue on a
triple net lease basis.
(6) The U.S. Department of Defense leases contain estimated monthly expense
reimbursements that are reconciled each lease year to ensure that the lease
functions as a triple net lease. Accordingly, the total rental revenues
above include $2,750,159 estimated annualized expense reimbursements.
9
<PAGE>
The following table provides certain information about our retail
properties as of December 31, 1998:
<TABLE>
<CAPTION>
Percentage Percentage
Year Rentable Leased Total of Total
Built/ Square as of Rental Rental
Property Location Renovated Feet 12/31/98 (1) Revenue (2) Revenue (3)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
305 Center St. 1991/1998 139,988 100.00% $ 2,267,486 3.23%
322 Marlboro St. 1977/1997 129,140 92.09% 761,651 1.08%
5835 West 10th St. 1991 67,541 100.00% 548,196 0.78%
3550 Vicksburg Ln. 1991 67,510 100.00% 522,813 0.74%
1351 38th St. North 1993 60,232 100.00% 341,823 0.49%
3265 Golf Rd. 1994 52,800 100.00% 312,201 0.44%
2100 S. Broadway 1993 46,134 100.00% 305,774 0.44%
630 E. Wisconsin Ave. 1994 39,272 100.00% 249,125 0.35%
7601 N. Port Washington Rd. 1992 36,248 100.00% 168,300 0.24%
------- ----- ----------- ----
TOTAL RETAIL PROPERTIES 638,865 98.40% $ 5,477,369 7.80%
======= ===== =========== ====
<CAPTION>
Total Rental
Revenue per Major Tenants
Occupied (10% or more
Property Location Square Feet (4) Rentable Sq. Ft.)
- ------------------------------------------------------------------------------
<C> <C> <C>
305 Center St. $16.20 Giant Food (40%)
Staples, Inc. (17%)
322 Marlboro St. 6.40 Peebles (27%)
Acme Markets (22%)
5835 West 10th St. 8.12 SV Ventures (100%)
3550 Vicksburg Ln. 7.74 Innsbruck Investments (100%)
1351 38th St. North 5.68 Nash-Finch Company (100%)
3265 Golf Rd. 5.91 Fleming Companies, Inc. (100%)
2100 S. Broadway 6.63 Nash-Finch Company (100%)
630 E. Wisconsin Ave. 6.34 Fleming Companies, Inc. (100%)
7601 N. Port Washington Rd. 4.64 Fleming Companies, Inc. (100%)
------
TOTAL RETAIL PROPERTIES $ 8.71
======
</TABLE>
(1) This percentage is based upon all leases signed as of December 31, 1998.
(2) Total Rental Revenue is the monthly contractual base rent as of December 31,
1998 multiplied by 12 plus the estimated annualized expense reimbursements
under existing leases.
(3) This percentage represents the individual property's rental revenue to our
total rental revenue as of December 31, 1998.
(4) This total rent per occupied square foot is the property's total rental
revenue divided by that property's occupied square feet as of December 31,
1998.
Each of these properties contain substantial leases remitting rental revenue on
a triple net lease basis.
10
<PAGE>
The following table provides a summary schedule of the lease expirations
for leases in place as of December 31, 1998, assuming that none of the tenants
exercise renewal options:
Office and Retail Lease Expiration Analysis by Year
<TABLE>
<CAPTION>
Percentage Total Rental
Square (1) of Total Revenue of
Number Footage Percentage of Total Rental Rental Expiring Leases
Year of of Leases of Leases Total Leased Revenue of Revenue per Leased
Expiration Expiring Expiring Square Feet Expiring Leases Expiring Square Foot
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 50 291,761 5.98% $ 4,444,052 6.33% $15.23
2000 51 403,927 8.28% 6,412,934 9.13% 15.88
2001 52 411,239 8.43% 6,513,355 9.28% 15.84
2002 37 631,494 12.94% 10,015,518 14.27% 15.86
2003 44 598,385 12.26% 10,567,191 15.05% 17.66
2004 8 97,804 2.01% 1,830,015 2.61% 18.71
2005 2 42,394 0.87% 748,839 1.07% 17.66
2006 4 159,286 3.27% 2,028,413 2.89% 12.73
2007 4 121,715 2.50% 1,675,016 2.39% 13.76
2008(2) 7 581,243 11.92% 10,238,111 14.58% 17.61
2009 7 1,174,760 24.09% 12,815,599 18.25% 10.91
2010 1 36,248 0.74% 168,300 0.24% 4.64
2011 3 72,713 1.49% 770,529 1.10% 10.60
2012 -- -- 0.00% -- 0.00% --
2013 -- -- 0.00% -- 0.00% --
2014 4 198,438 4.07% 1,208,923 1.72% 6.09
2015 -- -- 0.00% -- 0.00% --
2016+ 1 56,139 1.15% 768,573 1.09% 13.69
----------------------------------------------------------------------------------------
275 4,877,546 100.00% $70,205,368 100.00% $14.39
========================================================================================
</TABLE>
(1) Total rental revenue is the monthly contractual base rent as of December 31,
1998 multiplied by 12, plus the estimated annualized expense reimbursements
under existing leases.
(2) One tenant (with 240,336 square feet and remitting $4,575,360 of annualized
December 31, 1998 total rental revenue) leases space under a one-year lease
with consecutive one-year renewals through 2007. This lease carries a
penalty should the tenant not renew and, accordingly, has been reflected as
expiring in the year 2008 in the above table.
Item 3. Legal Proceedings
We are not currently involved in any material litigation nor, to the
Company's knowledge, is any material litigation currently threatened against the
Company (other than routine litigation arising in the ordinary course of
business, substantially all of which is expected to be covered by liability
insurance).
Item 4. Submissions of Matters to a Vote of Security Holders
No matters were submitted to a vote of our security holders during the
fourth quarter of 1998.
11
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters
Our Common Shares began trading on the NYSE on April 27, 1998, under the
symbol "OFC". During the first quarter of 1998 and through April 26, 1998, our
Common Shares traded on the Nasdaq(R) under the symbols "COPT" and "COPTD".
Prior to January 1, 1998, the common stock of our predecessor corporation was
traded on the Nasdaq under the symbol "RLIN". The table below shows the range of
the high and low sale prices as reported on the NYSE and the Nasdaq, as well as
the quarterly dividends per share declared. The quotations shown represent
interdealer prices without adjustment for retail markups, markdowns or
commissions, and may not reflect actual transactions.
<TABLE>
<CAPTION>
Price Range
-------------------- Dividends
1998 Low High Per Share
<S> <C> <C> <C>
First Quarter ........................ 9.7500 14.1250 0.150
Second Quarter ....................... 8.6250 14.0000 0.150
Third Quarter ........................ 6.4375 9.9375 0.180
Fourth Quarter ....................... 6.3750 8.0625 0.180
1997
First Quarter ........................ 4.5000 6.0000 0.125
Second Quarter ....................... 4.5000 5.6250 0.125
Third Quarter ........................ 5.0000 7.8750 0.125
Fourth Quarter ....................... 6.8130 11.7500 0.125
</TABLE>
On March 19, 1999, the last reported sales price of our Common Shares on
the NYSE was $7.00. The approximate number of holders of record of our shares
was approximately 216 as of February 17, 1999. This number does not include
shareholders whose shares are held of record by a brokerage house or clearing
agency, but does include any such brokerage house or clearing agency as one
record holder.
We will pay future dividends at the discretion of our Board of Trustees.
Our ability to pay cash dividends in the future will be dependent upon (i) the
income and cash flow generated from our operations, (ii) cash generated or used
by our financing and investing activities and (iii) the annual distribution
requirements under the REIT provisions of the Code described above and such
other factors as the Board of Trustees deems relevant. Our ability to make cash
dividends will also be limited by the terms of our Operating Partnership
Agreement and our financing arrangements as well as limitations imposed by state
law and the agreements governing any future indebtedness.
During 1998, we issued 984,308 of our Preferred Shares to Constellation
Real Estate, Inc. in connection with our acquisition of interests in 12 office
and two retail properties, a 75% interest in CRM and certain equipment,
furniture and other assets as follows:
<TABLE>
<CAPTION>
No. of Shares Value of Share Issuance
Date Issued Issued (in millions)
------------------ ------------- -----------------------
<S> <C> <C>
September 28, 1998 865,566 $ 21.6
October 21, 1998 72,509 1.8
December 30, 1998 46,233 1.2
</TABLE>
These Preferred Share issuances were exempt from registration under Section 4
(2) of the Securities Act of 1933, as amended. Our Preferred Shares are
convertible after two years of issuance, subject to certain conditions, into
Common Shares on the basis of 1.8748 Common Shares for each Preferred Share.
12
<PAGE>
On October 13, 1998, we issued 148,381 Common Units in our Operating
Partnership valued at $1.6 million to M.O.R. XXIX Associates Limited Partnership
in connection with our acquisition of an office building. The issuance of these
Common Units is exempt from registration under Section 4 (2) of the Securities
Act of 1933, as amended. These Common Units are exchangeable into our Common
Shares, subject to certain conditions.
Items 6. Selected Financial Data
The following table contains selected financial data for each of the years
ended December 31, 1994 through 1998. Since this information is only a summary,
you should refer to our consolidated financial statements and the section of
this report entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for additional information.
Corporate Office Properties Trust
(Dollar and share information in thousands, except ratios and per share data)
<TABLE>
<CAPTION>
1998(1) 1997(1) 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Operating Data (for the year ended):
Revenues
Rental income ................................. $ 35,676 $ 6,122 $ 2,477 $ 2,436 $ 2,038
Tenant recoveries and other income ............ 4,538 496 32 48 217
-------- -------- -------- -------- --------
Total revenues .......................... 40,214 6,618 2,509 2,484 2,255
-------- -------- -------- -------- --------
Expenses
Property operating ............................ 9,632 728 31 42 43
General and administrative .................... 1,890 533 372 336 337
Interest ...................................... 12,207 2,855 1,246 1,267 1,098
Amortization of deferred financing costs ...... 423 64 13 13 9
Depreciation and other amortization ........... 6,285 1,267 554 554 467
Reformation costs (2) ......................... 637 -- -- -- --
Termination of advisory agreement (3) ......... -- 1,353 -- -- --
-------- -------- -------- -------- --------
Total expenses .......................... 31,074 6,800 2,216 2,212 1,954
-------- -------- -------- -------- --------
Income (loss) before equity in income of Service
Companies and minority interests .............. 9,140 (182) 293 272 301
Equity in income of Service Companies ............ 139 -- -- -- --
-------- -------- -------- -------- --------
Income (loss) before minority interests .......... 9,279 (182) 293 272 301
Minority interests ............................... (4,583) (785) -- -- --
-------- -------- -------- -------- --------
Net income (loss) ................................ 4,696 (967) 293 272 301
Preferred Share dividends ........................ (327) -- -- -- --
-------- -------- -------- -------- --------
Net income (loss) available to Common Shareholders $ 4,369 $ (967) $ 293 $ 272 $ 301
======== ======== ======== ======== ========
Earnings (loss) per Common Share
Basic ........................................ $ 0.48 $ (0.60) $ 0.21 $ 0.19 $ 0.21
======== ======== ======== ======== ========
Diluted ...................................... $ 0.47 $ (0.60) $ 0.21 $ 0.19 $ 0.21
======== ======== ======== ======== ========
Weighted average shares outstanding - basic ..... 9,099 1,601 1,420 1,420 1,420
Weighted average shares outstanding - diluted .... 19,237 1,601 1,420 1,420 1,420
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
1998(1) 1997(1) 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data (as of period end):
Commercial real estate properties, net ........ $ 546,887 $ 188,625 $ 23,070 $ 23,624 $ 24,179
Total assets .................................. $ 563,677 $ 193,534 $ 24,197 $ 24,779 $ 25,647
Mortgage loans payable ........................ $ 306,824 $ 114,375 $ 14,658 $ 14,916 $ 15,153
Total liabilities ............................. $ 317,700 $ 117,008 $ 15,026 $ 15,191 $ 15,620
Minority interests ............................ $ 77,196 $ 64,862 $ -- $ -- $ --
Shareholders' equity .......................... $ 168,781 $ 11,664 $ 9,171 $ 9,588 $ 10,026
Debt to market capitalization ................. 58.7% 53.1% 66.3% 68.9% 60.4%
Debt to undepreciated real estate assets ...... 55.1% 59.6% 58.6% 59.6% 60.5%
Other Financial Data (for the year ended):
Cash flows provided by (used in):
Operating activities ....................... $ 13,141 $ 3,216 $ 840 $ 678 $ 690
Investing activities ....................... $(183,928) $ 973 $ 127 $ (551) $ (9,511)
Financing activities ....................... $ 169,741 $ (1,052) $ (967) $ (1,001) $ 6,357
Funds from operations - basic (4) ............. $ 12,415 $ 1,718 $ 847 $ 827 $ 768
Funds from operations - diluted (4) ........... $ 16,154 $ 2,438 $ 847 $ 827 $ 768
Adjusted funds from operations - diluted (5) . $ 13,831 $ 2,143 $ 780 $ 760 $ 717
Cash dividends declared per Common Share ...... $ 0.66 $ 0.50 $ 0.50 $ 0.50 $ 0.85
Payout ratio (6) .............................. 74.63% 74.20% 83.83% 85.85% 157.16%
Interest coverage (7) ......................... 2.36 1.88 1.69 1.66 1.71
Ratio of earnings to combined fixed charges and
Preferred Share dividends .................. 1.33 0.75 1.23 1.21 1.27
Property Data (as of period end):
Number of properties owned .................... 57 17 7 7 7
Total rentable square feet owned (in thousands) 4,977 1,852 370 370 370
</TABLE>
(1) Our selected financial data reported for 1998 and 1997 is not comparative to
the other years reported due to our growth resulting from property
acquisitions and other changes in our organization (see Overview in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations").
(2) Reflects a non-recurring expense of $637 associated with our reformation
as a Maryland REIT during the first quarter of 1998. We have eliminated
this transaction in determining funds from operations since it is not
expected to have a continuing impact.
(3) Reflects a non-recurring expense of $1,353 associated with the termination
of an advisory agreement during the fourth quarter of 1997. We have
eliminated this transaction in determining funds from operations since it is
not expected to have a continuing impact.
(4) We consider Funds from Operations ("FFO") to be meaningful to investors as a
measure of the financial performance of an equity REIT when considered with
the financial data presented under generally accepted accounting principles
("GAAP"). Under the National Association of Real Estate Investment Trusts'
("NAREIT") definition, FFO means net income (loss) computed using generally
accepted accounting principles, excluding gains (or losses) from debt
restructuring and sales of property, plus real estate-related depreciation
and amortization and after adjustments for unconsolidated partnerships and
joint ventures. Further, if the conversion of securities into Common Shares
is dilutive, we exclude any GAAP income allocated to these securities in
computing FFO. The FFO we present may not be comparable to the FFO of other
REITs since they may interpret the current NAREIT definition of FFO
differently or they may not use the current NAREIT definition of FFO. FFO is
not the same as cash generated from operating activities or net income
determined in accordance with GAAP. FFO is not necessarily an indication of
our cash flow available to fund cash needs. Additionally, it should not be
used as an alternative to net income when evaluating our financial
performance or to cash flow from operating, investing and financing when
evaluating our liquidity or ability to make cash distributions or pay debt
service.
(5) We compute adjusted funds from operations-diluted by subtracting
straight-line rent adjustments and recurring capital improvements from funds
from operations-diluted.
(6) We compute payout ratio by dividing totaling dividends and distributions
reported for the year by funds from operations-diluted.
(7) We compute interest coverage by dividing earnings before interest,
depreciation and amortization by interest expense. We compute earnings
before interest, depreciation and amortization by subtracting property
operating and general and administrative expenses from the sum of total
revenues and equity in income of Service Companies.
14
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
Over the last two years, we completed a significant number of
acquisitions. Our portfolio consisted of seven retail properties as of December
31, 1996. At that time, we relied on an external advisory agreement for all of
our management and administrative needs. In October 1997, we acquired ten office
properties from the Shidler Group and terminated the external advisory
agreement. During 1998, we acquired 38 office and two retail properties,
including 12 office and two retail properties from Constellation. We financed
these acquisitions using debt and issuing Common Shares, Preferred Shares and
ownership interests in Corporate Office Properties, L.P., our Operating
Partnership. To accommodate our growth and changing needs as an organization, we
hired management and other staff. Our geographical and product concentration
also changed substantially as a result of these acquisitions. In 1996, we
derived all of our rental revenue from our retail properties in the Midwest
region of the United States. In 1998, we derived 93% of our rental revenue from
our properties in the Mid-Atlantic region of the United States, most of which
are office properties. As of December 31, 1998, our portfolio included 57
commercial real estate properties leased for office and retail purposes. Due to
these significant changes, our results of operations changed dramatically.
We conduct almost all of our operations through our Operating Partnership,
of which we are the managing general partner. The Operating Partnership owns
real estate both directly and through subsidiaries. The Operating Partnership
also owns the principal economic interest and, collectively with our Chief
Executive Officer and Chief Operating Officer, 49.5% of the voting common stock
of Corporate Office Management, Inc. ("COMI"). We refer to COMI and its
subsidiaries as the "Service Companies". 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. In 1998, we increased our ownership of the Operating Partnership
substantially by contributing proceeds from our Common Share offering on April
27, 1998 and assets acquired from Constellation into the Operating Partnership
in exchange for Common and Preferred Units.
In this section, we discuss our financial condition and results of
operations for 1998 and 1997. This section includes discussions on:
o why various components of our Consolidated Statements of Operations
changed from 1997 to 1998 and from 1996 to 1997,
o what our primary sources and uses of cash were in 1998,
o how we raised cash for acquisitions and other capital expenditures during
1998,
o how we intend to generate cash for future capital expenditures, and
o the computation of our funds from operations for 1998, 1997 and 1996.
It may be helpful as you read this section to refer to our consolidated
financial statements and selected financial data table.
This section contains "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
15
<PAGE>
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 and
environmental requirements.
Results of Operations
Comparison of the Years Ended December 31, 1998 and 1997:
Our 1998 total revenues increased $33.6 million or 508% from 1997. Of this
increase, $29.6 million was generated by rental income and $4.0 million by
tenant recoveries and other income. Tenant recovery income includes payments
from tenants as reimbursement for property taxes, insurance and other property
operating expenses. Our growth in revenues was due mostly to our property
acquisitions in 1998 and the impact of a full year of operations for the
properties we acquired from the Shidler Group in October 1997.
Our 1998 property operating expenses and depreciation and amortization
increased $13.9 million or 698% from 1997 due mostly to our property
acquisitions. Our 1998 interest expense and amortization of deferred financing
costs increased $9.7 million or 333% from 1997 because of our borrowings and
assumptions of debt needed to finance property acquisitions.
Our 1998 general and administrative expenses increased $1.4 million or
255% from 1997. Of this increase, $282,000 are costs we expensed in exploring
possible property acquisitions that did not occur. The remaining increase is due
mostly to our property acquisitions and our conversion from an
externally-advised REIT to a full-service REIT. During 1996 and through
September 1997, we functioned operationally as an externally-advised REIT. When
we completed the property acquisitions from the Shidler Group in October 1997,
we hired management and other staff so that we could operate as a full-service
REIT. In September 1998, we entered into a management relationship with COMI in
connection with our acquisition of properties from Constellation. As a result of
this relationship, we added management and other staffing functions to further
expand our capabilities and support our growing portfolio of properties.
Our 1998 total expenses increased $24.3 million or 357% from 1997 due
mostly to the effects of the increases in property operating expenses and
depreciation and amortization, interest expense and amortization of deferred
finance costs and general and administrative expenses described above. In
addition to these items, our 1998 expenses included $637,000 in costs associated
with our reformation into a Maryland REIT in March 1998. Our 1997 expenses
included $1.4 million in costs to terminate an advisory agreement in connection
with our conversion from an externally-advised REIT to a full-service REIT.
Our 1998 income before minority interests also includes our equity in
income from the Service Companies, which were established in 1998. These Service
Companies are not included as consolidated subsidiaries in our financial
statements.
As a result of the above factors, our 1998 income before minority
interests increased by $9.5 million from 1997. Our 1998 income allocation to
minority interests increased $3.8 million or 484% from 1997. The amounts
reported for minority interests on our Consolidated Statements of Operations
represent the portion of the Operating Partnership's net income not allocated to
us. Minority interests resulted from our creation of the Operating Partnership
in October 1997. The percentage of income allocated to minority interests
decreased during 1998 as our percentage ownership of the Operating Partnership
increased. The increase in income allocated to minority interests in 1998 from
1997 is due to the effects of the minority interests being in place for the
entire year, offset by the decreased percentage of income allocated to minority
interests later in the year.
Our 1998 income available to Common Shareholders increased $5.3 million
from 1997 due to the factors discussed above partially offset by $327,000 in
dividends declared on our Series A Convertible Preferred Shares of beneficial
interest ("Preferred Shares") issued in 1998. Our 1998 diluted earnings per
Common Share increased $1.07 per share from 1997 due to the effect of the
increase in net income being proportionately greater than the effects of the
issuance of our Common Shares and Preferred and Common Units in the Operating
16
<PAGE>
Partnership in October 1997, our share offering in April 1998, the issuance of
our Common Shares in connection with the Constellation Transaction and the
issuance of Common Units in our Operating Partnership in October 1998.
Comparison of the Years Ended December 31, 1997 and 1996:
Our 1997 total revenues increased $4.1 million or 164% from 1996. Of this
increase, $3.6 million was generated by rental income and $464,000 by tenant
recoveries and other income. Our growth in revenues was due mostly to the ten
office properties we acquired from the Shidler Group in October 1997.
Our 1997 property operating expenses and depreciation and amortization
increased by $1.4 million or 241% from 1996 due mostly to our property
acquisitions. Our 1997 interest expense and amortization of deferred financing
costs increased $1.7 million or 132% from 1996 because of our assumption of debt
needed to finance property acquisitions.
Our 1997 general and administrative expenses increased $161,000 or 43%
from 1996 due mostly to our property acquisitions and our conversion from an
externally-advised REIT to a full-service REIT.
Our 1997 total expenses increased $4.6 million or 207% from 1996 due
mostly to the effects of the increases in property operating expenses and
depreciation and amortization, interest expense and amortization of deferred
finance costs and increases in general and administrative expenses described
above. In addition to these items, our 1997 expenses included $1.4 million in
costs to terminate the advisory agreement.
As a result of the above factors, we incurred a $182,000 loss before
minority interests in 1997.
We incurred a $967,000 net loss available to Common Shareholders in 1997
due to the factors discussed above and the allocation of income to minority
interests resulting from our creation of the Operating Partnership in October
1997. We incurred a $0.60 diluted loss per Common Share in 1997 due to the
factors discussed above and the issuance of our Common Shares and Preferred
Units and Common Units in the Operating Partnership in October 1997.
Liquidity and Capital Resources
Capitalization
Historically, cash provided from operations represented our primary source
of liquidity to fund distributions, pay debt service and fund working capital
requirements. We expect to continue to meet our short-term capital needs from
property cash flow, including all property expenses, general and administrative
expenses, dividend and distribution requirements and recurring capital
improvements and leasing commissions. We do not anticipate borrowing to meet
these requirements.
On April 27, 1998, we completed the sale of 7,500,000 Common Shares to the
public at a price of $10.50 per share. In connection with the share offering,
our Common Shares were listed on the New York Stock exchange under the symbol
"OFC". Our net proceeds from the share offering totaled $72.7 million. We used
the net proceeds to acquire 7,500,000 Common Units in our Operating Partnership.
On May 28, 1998, we obtained a $100.0 million recourse revolving credit
facility from Bankers Trust Company. We used proceeds from the revolving credit
facility throughout 1998 to fund property acquisitions. This loan bears interest
at a variable rate of LIBOR plus 1.75% and provides for monthly payments of
interest only. The loan also requires that we pay a quarterly fee of 0.25% per
annum on the difference between $100.0 million and the outstanding balance. This
loan matures on May 28, 2000 and may be extended one year. We have mortgaged 22
of our properties as collateral for this loan. This loan and our term credit
facility with Bankers Trust Company are cross-defaulted, which means that a
default on the terms of one of the loans triggers
17
<PAGE>
a default of the other loan. The terms of the revolving credit facility require
that we comply with a number of restrictive financial covenants. At February 23,
1999, the maximum amount available under this loan was $100.0 million, of which
$12.1 million was unused.
On October 22, 1998, we obtained an $85.0 million loan from Teachers
Insurance and Annuity Association of America ("TIAA"). TIAA advanced $76.2
million of this loan on October 22, 1998 and $8.8 million on December 31, 1998.
The proceeds from this loan were used mostly to repay certain debt assumed in
our property acquisitions and a portion of the revolving credit facility. This
loan bears interest at a fixed rate of 6.89% per annum and provides for monthly
payments of principal and interest of $595,000. This loan matures on November 1,
2008 and may not be prepaid prior to November 30, 2003. We have mortgaged nine
of our properties as collateral for this loan.
During 1998, we acquired 40 operating properties and three land parcels
for an aggregate acquisition cost of $357.3 million. Of the 40 operating
properties acquired, 30 are located in the Baltimore/Washington Corridor and ten
in New Jersey. The land parcels are located in the Baltimore/Washington
Corridor. The operating property acquisitions increased our rentable square
footage by approximately 3.1 million. We also acquired a 75% interest in a real
estate management services entity and certain equipment, furniture, and other
assets related to Constellation Real Estate, Inc. for $2.5 million. These
acquisitions were financed by:
o assuming $66.5 million in mortgage loans,
o issuing 7,030,793 of our Common Shares, valued at $73.8 million ($10.50
per share), less $505,000 in share issuance costs,
o issuing 984,308 of our Preferred Shares, valued at $24.6 million ($25.00
per share),
o issuing 148,381 Common Units in our Operating Partnership, valued at $1.6
million ($10.50 per share), and
o using $193.3 million in cash.
Our April 1998 share offering, the revolving credit facility and the loan
from TIAA provided the cash used for our acquisitions.
During 1998, we began construction of new buildings on two of the land
parcels we acquired that are estimated upon completion to total 198,000 square
feet. We also began a project that is expected to expand the rentable square
footage of one of our properties by 6,300 square feet.
On January 5, 1999, we entered into an interest rate swap agreement with
Bankers Trust Company. This swap agreement fixes our one-month LIBOR base to
5.085% per annum on a notional amount of $30.0 million through May 2001.
On January 13, 1999, we entered into a $9.8 million construction loan with
FMB Bank to finance the construction of a building. This loan has an interest
rate of LIBOR plus 1.6%. This loan matures on February 1, 2001 and may be
extended for a one-year period, subject to certain conditions.
On January 22, 1999, we sold a retail property located in Westminster,
Maryland. We sold the property for $18.9 million, of which $9.5 million was used
to pay off the mortgage loan payable on the property, $283,000 was placed in
escrow, $272,000 was paid to the buyer for operating pro rations, $144,000 was
used to pay our closing costs and $8.7 million was used to pay down our
revolving credit facility. We recognized no gain or loss on the sale.
On February 8, 1999, we entered into a $10.9 million construction loan
with Provident Bank of Maryland to finance the construction of a building. This
loan has an interest rate of LIBOR plus 1.75%. This loan matures on February 8,
2001 and may be extended for a one-year period, subject to certain conditions.
18
<PAGE>
On February 26, 1999, we acquired a 68,000 square foot office building
located in Linthicum, Maryland. We acquired the property for $6.8 million,
including $201,000 in transaction costs, using $6.7 million in borrowings under
our revolving credit facility and using cash reserves for the balance.
We have no contractual obligations for property acquisitions or material
capital costs, other than completing the two development projects mentioned
above and tenant improvements in the ordinary course of business. We expect to
meet our long-term capital needs through a combination of cash from operations,
additional borrowings and additional equity issuances of Common Shares,
Preferred Shares, Common Units and/or Preferred Units.
We are under contract to sell three of our retail properties. The
contracted sale price for these properties is $14.5 million.
Statement of Cash Flows
We generated net cash flow from operations of $13.1 million in 1998, an
increase of $9.9 million from 1997. Our increase in cash flows from operations
is due mostly to income generated from our newly-acquired properties. Our 1998
net cash flow used in investing activities increased $184.9 million from 1997
due mostly to the larger volume of property acquisitions. Our 1998 net cash flow
provided by financing activities increased $170.8 million from 1997 due mostly
to borrowings obtained or assumed to finance property acquisitions and proceeds
from the April 1998 stock offering.
Funds From Operations
We consider Funds from Operations ("FFO") to be meaningful to investors as
a measure of the financial performance of an equity REIT when considered with
the financial data presented under generally accepted accounting principles
("GAAP"). Under the National Association of Real Estate Investment Trusts'
("NAREIT") definition, FFO means net income (loss) computed using generally
accepted accounting principles, excluding gains (or losses) from debt
restructuring and sales of property, plus real estate-related depreciation and
amortization and after adjustments for unconsolidated partnerships and joint
ventures. Further, if the conversion of securities into common shares is
dilutive, we exclude any GAAP income allocated to these securities in computing
FFO. The FFO we present may not be comparable to the FFO of other REITs since
they may interpret the current NAREIT definition of FFO differently or they may
not use the current NAREIT definition of FFO. FFO is not the same as cash
generated from operating activities or net income determined in accordance with
GAAP. FFO is not necessarily an indication of our cash flow available to fund
cash needs. Additionally, it should not be used as an alternative to net income
when evaluating our financial performance or to cash flow from operating,
investing and financing when evaluating our liquidity or ability to make cash
distributions or pay debt service. Our FFO for 1998, 1997 and 1996 are
summarized in the following table.
19
<PAGE>
<TABLE>
<CAPTION>
For the year ended December 31,
---------------------------------
(Dollars and shares in thousands)
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Income (loss) before minority interests ...... $ 9,279 $ (182) $ 293
Add: Nonrecurring charges
Reformation costs .......................... 637 -- --
Advisory Agreement termination cost ........ -- 1,353 --
Add: Real estate related depreciation and
amortization .............................. 6,238 1,267 554
Less: Preferred Unit distributions ........... (3,412) (720) --
Less: Preferred Share dividends .............. (327) -- --
-------- -------- --------
Funds from operations ........................ 12,415 1,718 847
Add: Preferred Unit distributions ............ 3,412 720 --
Add: Preferred Share dividends ............... 327 -- --
-------- -------- --------
Funds from operations - diluted .............. 16,154 2,438 847
Less: Straight line rent adjustments ......... (1,785) (295) (67)
Less: Recurring capital improvements ......... (538) -- --
-------- -------- --------
Adjusted funds from operations - diluted ..... $ 13,831 $ 2,143 $ 780
======== ======== ========
Weighted average Common Shares ............... 9,099 1,601 1,420
Conversion of Common Units ................... 2,614 552 --
-------- -------- --------
Weighted average Common Shares/Units - basic . 11,713 2,153 1,420
Assumed conversion of share options .......... 24 -- --
Conversion of Preferred Shares ............... 449 -- --
Conversion of Preferred Units ................ 7,500 1,602 --
-------- -------- --------
Weighted average Common Shares/Units - diluted 19,686 3,755 1,420
======== ======== ========
</TABLE>
Inflation
We have not been significantly impacted by inflation during the periods
presented in this report. This is mostly because of the relatively low inflation
rates in our markets. Most of our tenants are contractually obligated to pay
their share of operating expenses, thereby reducing exposure to increases in
such costs resulting from inflation.
Impact of the Year 2000 Issue
Many older computer software programs refer to years in terms of their
final two digits only. Such programs may interpret the year 2000 to mean the
year 1900 instead. If not corrected, this could result in a system failure or
miscalculations causing disruption of operations, including a temporary
inability to process transactions, prepare financial statements, send invoices
or engage in similar normal business activity.
Our accounting software package was certified as Year 2000 compliant by
its manufacturer. Accordingly, we do not anticipate problems in processing the
billing and collection of revenue, the payment of expenditures, the recording of
financial transactions, the preparation of financial statements and maintaining
and generating system driven managerial information. Our information technology
and accounting groups are conducting internal tests to ensure compliance. This
testing process is estimated to be completed by the second quarter of 1999. Our
accounting department has developed a plan that will enable a certain amount of
manual processing to take place in the unlikely event that problems arise with
our accounting software.
20
<PAGE>
Our property management team has been continually evaluating the impact of
the Year 2000 Issue on the various facets of property operating systems since
the beginning of 1998. This evaluation process will continue through the second
quarter of 1999. Based on the current status of this evaluation process, we do
not anticipate any material adverse consequences on property operations. Our
property management team has alternative plans in place to address unexpected
problems that may arise with the property operating systems. Additional property
management staff will also be on-call to respond to any such problems on January
1, 2000.
We rely on third party suppliers for a number of key services.
Interruption of supplier operations due to the Year 2000 Issue could affect our
operations. We also are dependent upon our tenants for revenue and cash flow.
Interruptions in tenant operations due to the Year 2000 Issue could result in
reduced revenue, increased receivable levels and cash flow reductions. Our
property management team is in the process of contacting significant tenants and
suppliers to discuss Year 2000 readiness. Management is being continually
updated on the status of this process, which is estimated to be completed by the
second quarter of 1999.
Based on information currently available from our internal assessment,
management does not expect significant incremental costs associated with our
Year 2000 activities during 1999. We will also evaluate Year 2000 issues for all
future property acquisitions and development.
Recent Accounting Pronouncements
In March 1998, the FASB's Emerging Issues Task Force reached consensus on
Emerging Issues Task Force Issue No. 97-11, "Accounting for Internal Costs
Relating to Real Estate Property Acquisitions" ("EITF 97-11"). EITF 97-11,
effective March 19, 1998, requires that internal costs of pre-acquisition
activities incurred in connection with the acquisition of an operating property
should be expensed as incurred. We do not incur significant internal costs from
pre-acquisition activities; therefore the adoption of EITF 97-11 did not have a
material effect on our Consolidated Statements of Operations.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging
Activities". This statement is effective for financial statements for all fiscal
quarters of fiscal years beginning after June 15, 1999. Accordingly, we plan to
adopt this standard beginning January 1, 2000. SFAS 133 establishes accounting
and reporting standards for derivative financial instruments and for hedging
activities. It requires that an entity recognize all derivatives as assets or
liabilities in the balance sheet and measure those instruments at fair value,
unless certain conditions are met that allow the entity to designate certain
derivatives as a hedge. We have not yet determined the impact of the adoption of
this standard.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to certain market risks, the most predominant of which is
changes in interest rates. Increases in interest rates can result in increased
interest expense under our revolving credit facility and our other mortgage
loans payable carrying variable interest rate terms. Increases in interest rates
can also result in increased interest expense when our mortgage loans payable
carrying fixed interest rate terms mature and need to be refinanced.
Based on our variable rate debt balances during the year ended December
31, 1998, our interest expense would have increased $246,000 if interest rates
were 1% higher.
On January 5, 1999, we entered into an interest rate swap agreement with
Bankers Trust Company that fixes our one-month LIBOR base to 5.085% per annum on
a notional amount of $30.0 million through May 2001. While this swap agreement
reduces the impact of an increase in interest rates, the nonperformance of
Bankers Trust Company in this swap agreement, while remote, could result in
material losses. We expect to continue to use such swap agreements to reduce the
impact of interest rate changes.
21
<PAGE>
Item 8. Financial Statements and Supplementary Data
Financial statements required by this Item can be found beginning on page
F-2 of this Form 10-K and are deemed incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
After our acquisition of properties from the Shidler Group, we changed our
certifying accountant from Lurie, Besikof, Lapidus & Co., LLP ("Lurie") to
Coopers & Lybrand LLP ("C&L"). On October 31, 1997, our Board of Directors
appointed C&L as our independent public accountant for the year ending December
31, 1997.
We are not aware of any disagreements with Lurie during our two most
recent fiscal years and through October 31, 1997 on any matters of accounting
principles or practices, financial statement disclosures, or auditing scope and
procedures.
During 1998, C&L merged with Price Waterhouse LLP to become
PricewaterhouseCoopers LLP ("PwC"). We retained PwC as our certifying
accountant.
PART III
Item 10, 11, 12 & 13. Trustees and Executive Officers of the Registrant,
Executive Compensation, Security Ownership of Certain Beneficial Owners and
Management and Certain Relationships and Related Transactions
For the information required by Item 10, Item 11, Item 12 and Item 13, you
should refer to our definitive proxy statement relating to the 1998 Annual
Meeting of our Shareholders to be filed with the Securities and Exchange
Commission no later than 120 days after the end of the fiscal year covered by
this Form 10-K.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this Form 10-K:
1. Financial Statements. Audited balance sheets as of December 31, 1998
and 1997, and the related statements of operations, of shareholders'
equity, and of cash flows for each of the three years in the period
ended December 31, 1998 are filed as part of this Form 10-K. See
Index to Consolidated Financial Statements on Page F-1.
2. Financial Statement Schedule. Audited Schedule III - Real Estate and
Accumulated Depreciation is filed as part of this Form 10-K. See
Index to Financial Statements on Page F-1.
(b) We filed the following Current Reports on Form 8-K in the last quarter of
the year ended December 31, 1998:
1. Item 2 and Item 5 in connection with acquisition of real estate
properties and service businesses from Constellation dated October
13, 1998 and amended December 11, 1998 to include relevant financial
statements and pro forma financial information.
2. Item 2 in connection with acquisition of Riverwood building dated
October 28, 1998 and amended December 11, 1998 to include relevant
financial statements and pro forma financial information.
3. Item 2 in connection with acquisition of Centerpoint Properties
dated November 16, 1998 and amended January 14, 1999 to include
relevant financial statements and pro forma financial information.
(c) Exhibits. Refer to the Exhibit Index that follows.
22
<PAGE>
EXHIBIT
NO. DESCRIPTION
- --------- --------------------------------------------------------------------
2.1 Agreement and Plan of Merger, dated January 31, 1998, among the
Registrant, the Maryland Company and the Company (filed with the
Trust's Registration Statement on Form S-4 (Commission File No.
333-45649) and incorporated herein by reference).
2.2 Assignment of Partnership Interests, dated April 30, 1998, between
Airport Square Limited Partnership, Airport Square Corporation, Camp
Meade Corporation and COPT Airport Square One LLC and COPT Airport
Square Two LLC. (filed with the Company's Current Report on Form 8-K
on May 14, 1998 and incorporated herein by reference).
2.3 Assignment of Purchase and Sale Agreement, dated April 30, 1998,
between Aetna Life Insurance Company and the Operating Partnership.
(filed with the Company's Current Report on Form 8-K on May 14, 1998
and incorporated herein by reference).
2.4 Assignment of Loan Purchase and Sale Agreement, dated April 30,
1998, between Constellation Real Estate, Inc. and the Operating
Partnership. (filed with the Company's Current Report on Form 8-K on
May 14, 1998 and incorporated herein by reference).
2.5 Purchase and Sale Agreement, dated April 1, 1998, between Aetna Life
Insurance Company and Airport Square Limited Partnership (filed
with the Company's Current Report on Form 8-K on May 14, 1998 and
incorporated herein by reference).
2.6.1 Loan Purchase and Sale Agreement, dated March 13, 1998, between
Aetna Life Insurance Company and Constellation Real Estate,
Inc. (filed with the Company's Current Report on Form 8-K on May 14,
1998 and incorporated herein by reference).
2.6.2 Amendment to Loan Purchase and Sale Agreement, dated April 16, 1998,
between Aetna Life Insurance Company and Constellation Real Estate,
Inc. (filed with the Company's Current Report on Form 8-K on May 14,
1998 and incorporated herein by reference).
2.7.1 Purchase and Sale Agreement, dated March 4, 1998, between 695 Rt. 46
Realty, LLC, 710 Rt. 46 Realty, LLC and COPT Acquisitions, Inc.
(filed with the Company's Current Report on Form 8-K on June 10,
1998 and incorporated herein by reference).
2.7.2 Letter Amendment to Purchase and Sale Agreement, dated March 26,
1998, between 695 Rt. 46 Realty, LLC, 710 Rt. 46 Realty, LLC and
COPT Acquisitions, Inc. (filed with the Company's Current Report on
Form 8-K on June 10, 1998 and incorporated herein by reference).
2.8.1 Contribution Agreement between the Company and the Operating
Partnership and certain Constellation affiliates (filed as
Exhibit A of the Company's Schedule 14A Information on June 26, 1998
and incorporated herein by reference).
2.8.2 First Amendment to Contribution Agreement, dated July 16, 1998,
between Constellation Properties, Inc. and certain entities
controlled by Constellation Properties, Inc. (filed with the
Company's Current Report on Form 8-K on October 13, 1998 and
incorporated herein by reference).
2.8.3 Second Amendment to Contribution Agreement, dated September 28,
1998, between Constellation Properties, Inc. and certain entities
controlled by Constellation Properties, Inc. (filed with the
Company's Current Report on Form 8-K on October 13, 1998 and
incorporated herein by reference).
23
<PAGE>
EXHIBIT
NO. DESCRIPTION
- --------- --------------------------------------------------------------------
2.9 Service Company Asset Contribution Agreement between the Company and
the Operating Partnership and certain Constellation affiliates
(filed as Exhibit B of the Company's Schedule 14A Information on
June 26, 1998 and incorporated herein by reference).
2.10.1 Option Agreement, dated May 14, 1998, between the Operating
Partnership and NBP-III, LLC (a Constellation affiliate)
(filed as Exhibit C of the Company's Schedule 14A Information on
June 26, 1998 and incorporated herein by reference).
2.10.2 First Amendment to Option Agreement, dated June 22, 1998, between
the Operating Partnership and NBP-III, LLC (a Constellation
affiliate) (filed as Exhibit E of the Company's Schedule 14A
Information on June 26, 1998 and incorporated herein by reference).
2.11.1 Option Agreement, dated May 14, 1998, between the Operating
Partnership and Constellation Gatespring II, LLC (a Constellation
affiliate) (filed as Exhibit D of the Company's Schedule 14A
Information on June 26, 1998 and incorporated herein by reference).
2.11.2 First Amendment to Option Agreement, dated June 22, 1998, between
the Operating Partnership and Constellation Gatespring II, LLC (a
Constellation affiliate) (filed as Exhibit F of the Company's
Schedule 14A Information on June 26, 1998 and incorporated herein by
reference).
2.12 Option Agreement, dated September 28, 1998, between Jolly Acres
Limited Partnership, Arbitrage Land Limited Partnership and the
Operating Partnership (filed with the Company's Current Report on
Form 8-K on October 13, 1998 and incorporated herein by reference).
2.13 Right of First Refusal Agreement, dated September 28, 1998, between
Constellation Properties, Inc. and the Operating Partnership (filed
with the Company's Current Report on Form 8-K on October 13, 1998
and incorporated herein by reference).
2.14 Right of First Refusal Agreement, dated September 28, 1998, between
257 Oxon, LLC and the Operating Partnership (filed with the
Company's Current Report on Form 8-K on October 13, 1998 and
incorporated herein by reference).
2.15 Development Property Acquisition Agreement, dated May 14, 1998,
between the Operating Partnership and CPI Piney Orchard Village
Center, Inc. (a Constellation affiliate) (filed as Exhibit H of the
Company's Schedule 14A Information on June 26, 1998 and incorporated
herein by reference).
2.16 Contribution Agreement, dated September 30, 1998, between COPT
Acquisitions, Inc. and M.O.R. XXIX Associates Limited
Partnership (filed with the Company's Current Report on Form 8-K on
October 28, 1998 and incorporated herein by reference).
2.17 Purchase and Sale Agreement, dated September 30, 1998, between New
England Life Pension Properties II: A Real Estate Limited
Partnership and COPT Acquisitions, Inc. (filed with the Company's
Current Report on Form 8-K on October 28, 1998 and incorporated
herein by reference).
24
<PAGE>
EXHIBIT
NO. DESCRIPTION
- --------- --------------------------------------------------------------------
2.18.1 Sale-Purchase Agreement, dated August 20, 1998 between South
Middlesex Industrial Park Associates, L.P. and SM Monroe Associates
and COPT Acquisitions, Inc. (filed with the Company's Current Report
on Form 8-K on October 28, 1998 and incorporated herein by
reference).
2.18.2 First Amendment to Sale-Purchase Agreement, dated October 30, 1998,
between South Middlesex Industrial Park Associates, L.P. and SM
Monroe Associates, L.P. and COPT Acquisitions, Inc. (filed with the
Company's Current Report on Form 8-K on November 16, 1998 and
incorporated herein by reference).
2.19 Contribution Agreement, dated December 31, 1998, between the
Operating Partnership and M.O.R. 44 Gateway Associates L.P., RA &
DM, Inc. and M.R.U. L.P. (filed with the Company's Current Report on
Form 8-K on January 14, 1999 and incorporated herein by reference).
2.20.1 Purchase and Sale Agreement, dated December 31, 1998, between
Metropolitan Life Insurance Company and Corporate Office
Acquisitions, Inc. (filed with the Company's Current Report on Form
8-K on January 14, 1999 and incorporated herein by reference).
2.20.2 Amendment to Purchase and Sale Agreement, dated December 31, 1998,
between Metropolitan Life Insurance Company, DPA/Gateway L.P.,
Corporate Office Acquisitions, Inc., COPT Gateway, LLC and the
Operating Partnership (filed with the Company's Current Report on
Form 8-K on January 14, 1999 and incorporated herein by reference).
3.1 Amended and Restated Declaration of Trust of Registrant (filed with
the Registrant's Registration Statement on Form S-4 (Commission File
No. 333-45649) and incorporated herein by reference).
3.2 Bylaws of Registrant (filed with the Registrant's Registration
Statement on Form S-4 (Commission File No. 333-45649) and
incorporated herein by reference).
4.1 Form of certificate for the Registrant's Common Shares of Beneficial
Interest, $0.01 par value per share (filed with the Registrant's
Registration Statement on Form S-4 (Commission File No. 333-45649)
and incorporated herein by reference).
4.2 Amended and Restated Registration Rights Agreement, dated March 16,
1998, for the benefit of certain shareholders of the Company
(filed with the Company's Quarterly Report on Form 10-Q on August
12, 1998 and incorporated herein by reference).
4.3 Articles Supplementary of Corporate Office Properties Trust Series A
Convertible Preferred Shares, dated September 28, 1998 (filed
with the Company's Current Report on Form 8-K on October 13, 1998
and incorporated herein by reference).
4.4.1 Amended and Restated Limited Partnership Agreement of the Operating
Partnership, dated March 16, 1998 (filed with the Company's
Quarterly Report on Form 10-Q on August 12, 1998 and incorporated
herein by reference).
4.4.2 First Amendment to Amended and Restated Limited Partnership
Agreement of the Operating Partnership, dated September 28,
1998 (filed with the Company's Current Report on Form 8-K on October
13, 1998 and incorporated herein by reference).
25
<PAGE>
EXHIBIT
NO. DESCRIPTION
- --------- --------------------------------------------------------------------
4.4.3 Second Amendment to Amended and Restated Limited Partnership
Agreement of the Operating Partnership, dated October 13, 1998
(filed with the Company's Current Report on Form 8-K on October 28,
1998 and incorporated herein by reference).
4.4.4 Third Amendment to Amended and Restated Limited Partnership
Agreement of the Operating Partnership, dated December 31,
1998 (filed with the Company's Current Report on Form 8-K on January
14, 1999 and incorporated herein by reference).
4.5 Registration Rights Agreement, dated September 28, 1998, for the
benefit of certain shareholders of the Company.
10.1 Clay W. Hamlin III Employment Agreement, dated October 14, 1997,
with the Operating Partnership (filed with the Company's Current
Report on Form 8-K on October 29, 1997, and incorporated herein by
reference).
10.2 Employment Agreement, dated October 20, 1997, between the Operating
Partnership and Thomas D. Cassel (filed with the Company's Annual
Report on Form 10-K on March 25, 1998 and incorporated herein by
reference).
10.3 Employment Agreement, dated September 28, 1998, between Corporate
Office Management, Inc. and Randall M. Griffin (filed with the
Company's Current Report on Form 8-K on October 13, 1998 and
incorporated herein by reference).
10.4 Employment Agreement, dated September 28, 1998, between Corporate
Office Management, Inc. and Roger A. Waesche, Jr. (filed with the
Company's Current Report on Form 8-K on October 13, 1998 and
incorporated herein by reference).
10.5 Management Agreement between Registrant and Glacier Realty, LLC
(filed with the Company's Current Report on Form 8-K on October 29,
1997, and incorporated herein by reference).
10.6 Senior Secured Credit Agreement, dated October 13, 1997, (filed with
the Company's Current Report on Form 8-K on October 29, 1997, and
incorporated herein by reference).
10.7 Corporate Office Properties Trust 1998 Long Term Incentive Plan
(filed with the Registrant's Registration Statement on Form S-4
(Commission File No. 333-45649) and incorporated herein by
reference).
10.8 Stock Option Plan for Directors (filed with Royale Investments,
Inc.'s Form 10-KSB for the year ended December 31, 1993 (Commission
File No. 0-20047) and incorporated herein by reference).
10.9 Lease Agreement between Blue Bell Investment Company, L.P. and
Unisys Corporation dated March 12, 1997 with respect to lot A (filed
with the Registrant's Registration Statement on Form S-4 (Commission
File No. 333-45649) and incorporated herein by reference).
10.10 Lease Agreement between Blue Bell Investment Company, L.P. and
Unisys Corporation, dated March 12, 1997, with respect to lot B
(filed with the Registrant's Registration Statement on Form S-4
(Commission File No. 333-45649) and incorporated herein by
reference).
10.11 Lease Agreement between Blue Bell Investment Company, L.P. and
Unisys Corporation, dated March 12, 1997, with respect to lot C
(filed with the Registrant's Registration Statement on Form S-4
(Commission File No. 333-45649) and incorporated herein by
26
<PAGE>
EXHIBIT
NO. DESCRIPTION
- --------- --------------------------------------------------------------------
reference).
10.12 Senior Secured Revolving Credit Agreement, dated May 28, 1998,
between the Company, the Operating Partnership, Any Mortgaged
Property Subsidiary and Bankers Trust Company (filed with the
Company's Current Report on Form 8-K on June 10, 1998 and
incorporated herein by reference).
10.13 Secured Promissory Note, dated April 29, 1997, between 710 Rt. 46
Realty, LLC and Life Investors Insurance Company of America
(filed with the Company's Current Report on Form 8-K on June 10,
1998 and incorporated herein by reference).
10.14 Mortgage and Security Agreement, dated April 29, 1997, between 710
Rt. 46 Realty, LLC and Life Investors Insurance Company of America
(filed with the Company's Current Report on Form 8-K on June 10,
1998 and incorporated herein by reference).
10.15 Amended and Restated Deed of Trust Note, dated October 6, 1995,
between Cranberry-140 Limited Partnership and Security Life of
Denver Insurance Company (filed with the Company's Current Report on
Form 8-K on October 13, 1998 and incorporated herein by reference).
10.16.1 Promissory Note, dated September 15, 1995, between Tred Lightly
Limited Liability Company and Provident Bank of Maryland
(filed with the Company's Current Report on Form 8-K on October 13,
1998 and incorporated herein by reference).
10.16.2 Allonge to Promissory Note, dated September 28, 1998, between Tred
Lightly Limited Liability Company and Provident Bank of
Maryland (filed with the Company's Current Report on Form 8-K on
October 13, 1998 and incorporated herein by reference).
10.17.1 Third Loan Modification and Extension Agreeement, dated November 12,
1997, between St. Barnabus Limited Partnership, Constellation
Properties, Inc. and NationsBank, N.A. (filed with the Company's
Current Report on Form 8-K on October 13, 1998 and incorporated
herein by reference).
10.17.2 Fourth Loan Modification Agreement, dated September 28, 1998,
between St. Barnabus Limited Partnership, Constellation Properties,
Inc. and NationsBank, N.A. (filed with the Company's Current Report
on Form 8-K on October 13, 1998 and incorporated herein by
reference).
10.18.1 Deed of Trust Note, dated September 20, 1988, between Brown's Wharf
Limited Partnership and Mercantile-Safe Deposit and Trust Company
(filed with the Company's Current Report on Form 8-K on October 13,
1998 and incorporated herein by reference).
10.18.2 Extension Agreement and Allonge to Deed of Trust Note, dated July 1,
1994, between Brown's Wharf Limited Partnership and Mercantile-Safe
Deposit and Trust Company (filed with the Company's Current Report
on Form 8-K on October 13, 1998 and incorporated herein by
reference).
10.19 Consulting Services Agreement, dated April 28, 1998, between the
Company and Net Lease Finance Corp., doing business as Corporate
Office Services (filed with the Company's Current Report on Form 8-K
on October 13, 1998 and incorporated herein by reference).
27
<PAGE>
EXHIBIT
NO. DESCRIPTION
- --------- --------------------------------------------------------------------
10.20 Project Consulting and Management Agreement, dated September 28,
1998, between Constellation Properties, Inc. and COMI (filed
with the Company's Current Report on Form 8-K on October 13, 1998
and incorporated herein by reference).
10.21 Promissory Note, dated October 22, 1998, between Teachers Insurance
and Annuity Association of America and the Operating Partnership
(filed with the Company's Quarterly Report on Form 10-Q on November
13, 1998 and incorporated herein by reference).
10.22 Indemnity Deed of Trust, Assignment of Leases and Rents and Security
Agreement, dated October 22, 1998, by affiliates of the Operating
Partnership for the benefit of Teachers Insurance and Annuity
Association of America (filed with the Company's Quarterly Report on
Form 10-Q on November 13, 1998 and incorporated herein by
reference).
10.23 Agreement for Services, dated September 28, 1998, between the
Company and Corporate Office Management, Inc.
10.24.1 Lease Agreement, dated September 28,1998, between St. Barnabus
Limited Partnership and Constellation Properties, Inc.
10.24.2 First Amendment to Lease, dated December 31, 1998, between St.
Barnabus, LLC and Constellation Properties, Inc.
10.25.1 Lease Agreement, dated August 3, 1998, between Constellation Real
Estate, Inc. and Constellation Properties, Inc.
10.25.2 First Amendment to Lease, dated December 30, 1998, between Three
Centre Park, LLC and Constellation Properties, Inc.
10.26.1 Lease Agreement, dated April 27, 1993, between Constellation
Properties, Inc. and Baltimore Gas and Electric Company.
10.26.2 First Amendment to Lease, dated December 9, 1998, between COPT
Brandon, LLC and Baltimore Gas and Electric Company.
21.1 Subsidiaries of Registrant
23 Consent of Independent Accountants
27 Financial Data Schedule.
28
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
CORPORATE OFFICE PROPERTIES TRUST
Date: March 30, 1999 By: /s/ Randall M. Griffin
-----------------------------------------
Randall M. Griffin
President and Chief Operating Officer
Date: March 30, 1999 By: /s/ Roger A. Waesche, Jr.
-----------------------------------------
Roger A. Waesche, Jr.
Senior Vice President and Chief Financial
Officer
Pursuant to the requirements of the Securities Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated:
Signatures Title Date
---------- ----- ----
/s/ Jay H. Shidler Chairman of the Board March 30, 1999
- ------------------------- and Trustee
(Jay H. Shidler)
/s/ Clay W. Hamlin, III Chief Executive Officer March 30, 1999
- -------------------------
(Clay W. Hamlin, III)
/s/ Randall M. Griffin President and Chief Operating March 30, 1999
- ------------------------- Officer
(Randall M. Griffin)
/s/ Roger A. Waesche, Jr. Senior Vice President and March 30, 1999
- ------------------------- Chief Financial Officer
(Roger A. Waesche, Jr.)
/s/ Vernon R. Beck Vice Chairman of the Board and March 30, 1999
- ------------------------- Trustee
(Vernon R. Beck)
/s/ Kenneth D. Wethe Trustee March 30, 1999
- -------------------------
(Kenneth D. Wethe)
/s/ Allen C. Gehrke Trustee March 30, 1999
- -------------------------
(Allen C. Gehrke)
/s/ William H. Walton Trustee March 30, 1999
- -------------------------
(William H. Walton)
/s/ Kenneth S. Sweet, Jr. Trustee March 30, 1999
- -------------------------
(Kenneth S. Sweet, Jr.)
/s/ Steven D. Kesler Trustee March 30, 1999
- -------------------------
(Steven D. Kesler)
/s/ Edward A. Crooke Trustee March 30, 1999
- -------------------------
(Edward A. Crooke)
29
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants...........................................F-2
Consolidated Balance Sheets as of December 31, 1998 and 1997................F-3
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996..........................................F-4
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1998, 1997 and 1996..........................................F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996..........................................F-6
Notes to Consolidated Financial Statements..................................F-7
Schedule III - Real Estate and Accumulated Depreciation.....................F-26
F-1
<PAGE>
Report of Independent Accountants
To the Board of Trustees and Shareholders of
Corporate Office Properties Trust
In our opinion, the accompanying consolidated financial statements listed in the
index appearing on page F-1 present fairly, in all material respects, the
financial position of Corporate Office Properties Trust (the "Company") at
December 31, 1998 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
[PricewaterhouseCoopers LLP (signed)]
1301 K Street NW, 800W
Washington, DC
February 24, 1999
F-2
<PAGE>
Corporate Office Properties Trust
Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31,
----------------------
1998 1997
--------- ---------
<S> <C> <C>
Assets
Commercial real estate properties:
Operating properties, net $ 536,228 $ 188,625
Projects under construction 10,659 --
- --------------------------------------------------------------------------------------
Total commercial real estate properties, net 546,887 188,625
Cash and cash equivalents 2,349 3,395
Accounts receivable, net 2,986 78
Investment in and advances to Service Companies 2,351 --
Deferred rent receivable 2,263 479
Deferred charges, net 3,542 857
Prepaid and other assets 3,299 100
- --------------------------------------------------------------------------------------
Total assets $ 563,677 $ 193,534
======================================================================================
Liabilities and shareholders' equity
Liabilities:
Mortgage loans payable $ 306,824 $ 114,375
Accounts payable and accrued expenses 3,395 932
Rents received in advance and security deposits 2,789 425
Dividends/distributions payable 4,692 1,276
- --------------------------------------------------------------------------------------
Total liabilities 317,700 117,008
- --------------------------------------------------------------------------------------
Minority interests:
Preferred Units 52,500 52,500
Common Units 24,696 12,362
- --------------------------------------------------------------------------------------
Total minority interests 77,196 64,862
- --------------------------------------------------------------------------------------
Commitments and contingencies (Note 14)
Shareholders' equity:
Preferred Shares ($0.01 par value; 5,000,000 authorized);
1,025,000 designated as Series A Convertible Preferred
Shares of beneficial interest ($0.01 par value, 984,308
shares issued and outstanding at December 31, 1998) 10 --
Common Shares of beneficial interest ($0.01 par value;
45,000,000 authorized, shares issued and outstanding
of 16,801,876 at December 31, 1998 and 2,266,083 at
December 31, 1997) 168 23
Additional paid-in capital 175,802 16,620
Accumulated deficit (7,199) (4,979)
- --------------------------------------------------------------------------------------
Total shareholders' equity 168,781 11,664
- --------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 563,677 $ 193,534
======================================================================================
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
Corporate Office Properties Trust
Consolidated Statements of Operations
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------
1998 1997 1996
--------------------------------
<S> <C> <C> <C>
Revenues
Rental income $ 35,676 $ 6,122 $ 2,477
Tenant recoveries and other income 4,538 496 32
- -------------------------------------------------------------------------------------
Total revenues 40,214 6,618 2,509
- -------------------------------------------------------------------------------------
Expenses
Property operating 9,632 728 31
General and administrative 1,890 533 372
Interest 12,207 2,855 1,246
Amortization of deferred financing costs 423 64 13
Depreciation and other amortization 6,285 1,267 554
Reformation costs 637 -- --
Termination of advisory agreement -- 1,353 --
- -------------------------------------------------------------------------------------
Total expenses 31,074 6,800 2,216
- -------------------------------------------------------------------------------------
Income (loss) before equity in income of
Service Companies and minority interests 9,140 (182) 293
Equity in income of Service Companies 139 -- --
- -------------------------------------------------------------------------------------
Income (loss) before minority interests 9,279 (182) 293
Minority interests
Preferred Units (3,412) (720) --
Common Units (1,171) (65) --
- -------------------------------------------------------------------------------------
Net income (loss) 4,696 (967) 293
Preferred Share dividends (327) -- --
- -------------------------------------------------------------------------------------
Net income (loss) available to Common Shareholders $ 4,369 $ (967) $ 293
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Earnings (loss) per Common Share
Basic $ 0.48 $ (0.60) $ 0.21
Diluted $ 0.47 $ (0.60) $ 0.21
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
Corporate Office Properties Trust
Consolidated Statements of Shareholders' Equity
(Dollars in thousands)
<TABLE>
<CAPTION>
Additional
Preferred Common Paid-in Accumulated
Shares Shares Capital Deficit Total
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ -- $ 14 $ 12,353 $ (2,779) $ 9,588
Net income -- -- -- 293 293
Dividends -- -- -- (710) (710)
- ------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 -- 14 12,353 (3,196) 9,171
Common Shares issued in connection with property
acquisitions and advisory agreement termination
(846,083 Shares) -- 9 4,267 -- 4,276
Net loss -- -- -- (967) (967)
Dividends -- -- -- (816) (816)
- ------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 -- 23 16,620 (4,979) 11,664
Common Shares issued to the public (7,500,000 Shares) -- 75 72,640 -- 72,715
Common Shares issued in connection with acquisitions
(7,030,793 Shares) -- 70 73,248 -- 73,318
Preferred Shares issued in connection with acquisitions
(984,308 Shares) 10 -- 24,598 -- 24,608
Adjustments to minority interests resulting from
changes in ownership of Operating Partnership by COPT -- -- (11,331) -- (11,331)
Exercise of share options (5,000 Common Shares) -- -- 27 -- 27
Net income -- -- -- 4,696 4,696
Dividends -- -- -- (6,916) (6,916)
- ------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 $ 10 $ 168 $ 175,802 $ (7,199) $ 168,781
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
Corporate Office Properties Trust
Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
For the years ended December 31,
-----------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ 4,696 $ (967) $ 293
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Minority interests 4,583 785 --
Depreciation and amortization 6,285 1,267 554
Amortization of deferred financing costs 423 64 13
Equity in net income of Service Companies 139 -- --
Termination of advisory agreement -- 1,353 --
Amortization of marketable securities -- -- (26)
Increase in deferred rent receivable (1,784) (295) (67)
Increase in accounts receivable and prepaid and
other assets (4,286) (158) (19)
Increase in accounts payable, accrued expenses, rents
received in advance and security deposits 3,085 1,167 92
- --------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 13,141 3,216 840
- --------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Purchases of and additions to commercial real estate properties (180,649) (506) --
Cash proceeds received from acquisition of properties -- 1,000 --
Purchase of marketable securities -- (1,375) (999)
Proceeds from maturity of marketable securities -- 1,854 1,126
Investments in and advances from Service Companies 10 -- --
Leasing commissions paid (1,468) -- --
Increase in prepaid and other assets (1,821) -- --
- --------------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities (183,928) 973 127
- --------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Proceeds from mortgage loans payable 117,962 -- --
Repayments of mortgage loans payable (10,192) (283) (257)
Deferred financing costs paid (1,627) -- --
Net proceeds from issuance of Common Shares 72,742 -- --
Costs attributable to Common Shares issued (505) (59) --
Dividends paid (3,848) (710) (710)
Distributions paid (4,791) -- --
- --------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 169,741 (1,052) (967)
- --------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (1,046) 3,137 --
Cash and cash equivalents
Beginning of year 3,395 258 258
- --------------------------------------------------------------------------------------------------------
End of year $ 2,349 $ 3,395 $ 258
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
Corporate Office Properties Trust
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
1. Organization
Corporate Office Properties Trust ("COPT") and subsidiaries (the
"Company") is a full-service Real Estate Investment Trust ("REIT"). We focus
principally on the acquisition, development, management and ownership of
suburban office buildings in targeted suburban submarkets mostly in the
Mid-Atlantic region of the United States. COPT is qualified as a REIT as defined
in the Internal Revenue Code and is the successor to a corporation organized in
1988. As of December 31, 1998, our portfolio included 57 commercial real estate
properties leased for office and retail purposes.
We conduct almost all of our operations through our operating partnership,
Corporate Office Properties, L.P. (the "Operating Partnership"), for which we
are the managing general partner. The Operating Partnership owns real estate
both directly and through subsidiary partnerships and limited liability
companies ("LLCs"). The Operating Partnership also owns the principal economic
interest and, collectively with our Chief Executive Officer and Chief Operating
Officer, 49.5% of the voting stock of Corporate Office Management, Inc. ("COMI")
(together with its subsidiaries defined as the "Service Companies"). See Note 5
for a description of the activities of the Service Companies. A summary of our
Operating Partnership's forms of ownership and the percentage of those ownership
forms owned by COPT follows:
<TABLE>
<CAPTION>
% Owned by
COPT
----------
<S> <C>
Common Units (see Note 3) 85%
Series A Preferred Units (see Note 8) 100%
Initial Preferred Units (see Note 3) 0%
</TABLE>
Throughout these consolidated financial statements, we use the term
"Preferred Units" to define the combination of both Series A Preferred Units and
Initial Preferred Units of our Operating Partnership. All Preferred Units are
convertible into Common Units in the Operating Partnership.
2. Basis of Presentation
We use two different accounting methods to report our investments in
entities: the consolidation method and the equity method.
Consolidation Method
We use the consolidation method when we own most of the outstanding voting
interests in an entity and can control its operations. This means the accounts
of the entity are combined with our accounts. We eliminate balances and
transactions between companies when we consolidate these accounts. Our
consolidated financial statements include the accounts of:
o COPT,
o the Operating Partnership and its subsidiary partnerships and LLCs, and
o Corporate Office Properties Holdings, Inc. (we own 100%).
F-7
<PAGE>
Equity Method
We use the equity method of accounting to report our investment in the
Service Companies. Under the equity method, we report:
O our ownership interest in the Service Companies' capital as an investment
on our Consolidated Balance Sheets and
O our percentage share of the earnings or losses from the Service Companies
in our Consolidated Statements of Operations.
3. Summary of Significant Accounting Policies
Use of Estimates in the Preparation of Financial Statements
Management makes estimates and assumptions when preparing financial
statements under generally accepted accounting principles. These estimates and
assumptions affect various matters, including:
o our reported amounts of assets and liabilities in our Consolidated Balance
Sheets at the dates of the financial statements,
o our disclosure of contingent assets and liabilities at the dates of the
financial statements, and
o our reported amounts of revenues and expenses in our Consolidated
Statements of Operations during the reporting periods.
These estimates involve judgements with respect to, among other things,
future economic factors that are difficult to predict and are often beyond
management's control. As a result, actual amounts could differ from these
estimates.
Commercial Real Estate Properties
We report commercial real estate properties at our depreciated cost. The
amounts reported for our commercial real estate properties include our costs of:
o acquisitions,
o development and construction,
o building and land improvements, and
o tenant improvements paid by us.
We capitalize interest expense, real estate taxes and other costs
associated with real estate under construction to the cost of the real estate.
We start depreciating newly-constructed properties when we place them in
service.
We depreciate our assets evenly over their estimated useful lives as
follows:
<TABLE>
<S> <C>
o Building and building improvements......40 years
o Land improvements.......................20 years
o Tenant improvements.....................Related lease terms
o Equipment and personal property.........3-5 years
</TABLE>
We also apply the valuation requirements of Statement of Financial
Accounting Standard ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of", to
F-8
<PAGE>
our real estate assets. Under these requirements, we recognize an impairment
loss on a real estate asset if its undiscounted expected future cash flows are
less than its depreciated cost. We have not recognized impairment losses on our
real estate assets to date.
We expense property maintenance and repair costs when incurred.
Cash and Cash Equivalents
Cash and cash equivalents include all cash and liquid investments that
mature three months or less from when they are purchased. Cash equivalents are
reported at cost, which almost equals their fair value. We maintain our cash in
bank accounts which may exceed federally insured limits at times. We have not
experienced any losses in these accounts in the past and believe we are not
exposed to significant credit risk.
Accounts Receivable
Our accounts receivable are reported net of an allowance for bad debts of
$50 at December 31, 1998 and $0 at December 31, 1997.
Revenue Recognition
We recognize rental revenue evenly over the term of tenant leases. Many of
our leases include contractual rent increases. For these leases, we average the
rents over the lease term to evenly recognize revenues. We report revenues
recognized in advance of payments received as deferred rent receivable on our
Consolidated Balance Sheets. We report prepaid tenant rents as rents received in
advance on our Consolidated Balance Sheets.
Some of our retail tenants' leases provide for additional rental
payments if the tenants meet certain sales targets. We do not recognize
additional rental revenue under these leases in interim periods until the
tenants meet the sales targets.
We recognize tenant recovery income as revenue in the same period we
incur the related expenses. Tenant recovery income includes payments from
tenants as reimbursement for property taxes, insurance and other property
operating expenses.
Major Tenants
During 1998, 44% of our total rental revenue was earned from four major
tenants, 25% of which was earned from our single largest tenant, Unisys
Corporation. During 1997, 64% of our total rental revenue was earned from four
major tenants, each contributing 10% or more. During 1996, all of our total
rental revenue was earned from four major tenants, each contributing 20% or
more.
Geographical Concentration
From 1996 to 1998, our geographical concentration changed from the Midwest
region of the United States to the Mid-Atlantic region of the United States. In
1998, 93% of our rental revenue was derived from the Mid-Atlantic region of the
United States. In 1997, 59% of our rental revenue was derived from the
Mid-Atlantic region of the United States. In 1996, all of our rental revenue was
derived from our retail properties in the Midwest region of the United States.
Deferred Charges
We capitalize costs that we incur to obtain new tenant leases or extend
existing tenant leases. We amortize these costs evenly over the lease terms.
When tenant leases are terminated early, we expense any unamortized deferred
leasing costs associated with those leases.
F-9
<PAGE>
We also capitalize costs for long-term financing arrangements and amortize
these costs over the loan terms.
Minority Interests
As discussed previously, we consolidate the accounts of our Operating
Partnership into our financial statements. However, we do not own 100% of the
Operating Partnership. The amounts reported for minority interests on our
Consolidated Balance Sheets represent the portion of the Operating Partnership's
equity that we do not own. The amounts reported for minority interests on our
Consolidated Statements of Operations represent the portion of the Operating
Partnership's net income not allocated to us.
Common Units of the Operating Partnership are substantially similar
economically to our Common Shares of beneficial interest ("Common Shares"). The
Common Units are also convertible into our Common Shares, subject to certain
conditions. We have accrued distributions related to Common Units owned by
minority interests of $488 at December 31, 1998 and $272 at December 31, 1997.
The owners of our Operating Partnership's Initial Preferred Units are
entitled to a 6.5% priority annual return. Income of our Operating Partnership
is also allocated to holders of Initial Preferred Units using the 6.5% priority
annual return. These units are convertible by unitholders at their option on or
after October 1, 1999, into Common Units on the basis of 3.5714 Common Units for
each Initial Preferred Unit, plus any accrued return. We have accrued
distributions related to Preferred Units owned by minority interests of $853 at
December 31, 1998 and $720 at December 31, 1997.
Income Taxes
We have elected to be treated as a REIT under Sections 856 through 860 of
the Internal Revenue Code. As a REIT, we generally will not be subject to
federal income tax if we distribute at least 95% of our REIT taxable income to
our shareholders and satisfy certain other requirements. As a result, we do not
report income tax expense on our Consolidated Statements of Operations. If we
fail to qualify as a REIT in any tax year, we will be subject to federal income
tax on our taxable income at regular corporate rates.
For federal income tax purposes, dividends to shareholders may be
characterized as ordinary income, return of capital (which is generally
non-taxable) or capital gains. The characterization of dividends declared during
each of the last three years was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Ordinary income per share $0.511 $0.225 $0.200
Return of capital per share 0.149 0.275 0.300
------ ------ ------
Total dividends per share $0.660 $0.500 $0.500
====== ====== ======
</TABLE>
We are subject to certain state and local income and franchise taxes. The
expense associated with these state and local taxes is included in general and
administrative expense on our Consolidated Statements of Operations. We did not
separately state these amounts on our Consolidated Statements of Operations
because they are insignificant.
Earnings Per Share ("EPS")
We present both basic and diluted EPS. We compute basic earnings per share
by dividing income available to common shareholders by the weighted-average
number of Common Shares outstanding during the period. Our computation of
diluted EPS is similar except that:
F-10
<PAGE>
o the denominator is increased to include the weighted average number of
potential additional Common Shares that would have been outstanding if
securities that are convertible into our Common Shares were converted and
o the numerator is adjusted to add back any convertible preferred dividends
and any other changes in income or loss that would result from the assumed
conversion into Common Shares.
Our computation of diluted EPS does not assume conversion of securities
into our Common Shares if conversion of those securities would increase our
diluted EPS in a given period. A summary of the numerator and denominator for
purposes of basic and diluted EPS calculations is as follows (dollars and shares
in thousands):
<TABLE>
<CAPTION>
Numerator: 1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Net income (loss) available to Common Shareholders $ 4,369 $ (967) $ 293
Preferred Share dividends -- -- --
Minority interests - Preferred Units 3,412 -- --
Minority interests - Common Units 1,171 -- --
------- ------- -------
Net income (loss) adjusted for dilution of
Common Shares $ 8,952 $ (967) $ 293
======= ======= =======
Denominator:
Weighted average Common Shares - basic 9,099 1,601 1,420
Assumed conversion of share options 24 -- --
Conversion of Preferred Shares -- -- --
Conversion of Initial Preferred Units 7,500 -- --
Conversion of Common Units 2,614 -- --
------- ------- -------
Weighted average Common Shares - diluted 19,237 1,601 1,420
======= ======= =======
</TABLE>
Our diluted EPS computation for 1998 does not assume conversion of
Preferred Shares since this conversion would increase diluted EPS in that
period. Our diluted EPS computation for 1997 does not assume conversion of
Initial Preferred Units or Common Units since these conversions would increase
diluted EPS in that period.
Fair Value of Financial Instruments
Our financial instruments include primarily notes receivable and mortgage
loans payable. The fair values of these financial instruments were not
materially different from their carrying or contract values at December 31, 1998
and 1997.
Reclassification
We reclassified certain amounts from prior periods to conform to the
current year presentation of our consolidated financial statements. These
reclassifications did not affect consolidated net income or shareholders'
equity.
Recent Accounting Pronouncements
In March 1998, the FASB's Emerging Issues Task Force reached consensus on
Emerging Issues Task Force Issue No. 97-11, "Accounting for Internal Costs
Relating to Real Estate Property Acquisitions" ("EITF 97-11"). EITF 97-11,
effective March 19, 1998, requires that internal costs of pre-acquisition
activities incurred in connection with the acquisition of an operating property
should be expensed as incurred. We do not incur significant internal costs from
pre-acquisition activities; therefore the adoption of EITF 97-11 did not have a
material effect on our Consolidated Statements of Operations.
F-11
<PAGE>
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging
Activities". This statement is effective for financial statements for all fiscal
quarters of fiscal years beginning after June 15, 1999. Accordingly, we plan to
adopt this standard beginning January 1, 2000. SFAS 133 establishes accounting
and reporting standards for derivative financial instruments and for hedging
activities. It requires that an entity recognize all derivatives as assets or
liabilities in the balance sheet and measure those instruments at fair value,
unless certain conditions are met that allow the entity to designate certain
derivatives as a hedge. We have not yet determined the impact of the adoption of
this standard.
4. Commercial Real Estate Properties and Acquisitions
Operating properties consisted of the following:
<TABLE>
<CAPTION>
December 31,
----------------------
1998 1997
--------- ---------
<S> <C> <C>
Land $ 108,433 $ 38,764
Buildings and improvements 436,932 152,945
Furniture, fixtures and equipment 332 140
--------- ---------
545,697 191,849
Less: accumulated depreciation (9,469) (3,224)
--------- ---------
$ 536,228 $ 188,625
========= =========
</TABLE>
Projects we had under development at December 31, 1998 consisted of the
following:
<TABLE>
<S> <C>
Land $ 8,941
Construction in progress 1,718
-------
$10,659
=======
</TABLE>
1998 Acquisitions
On April 30, 1998, we acquired nine multistory office buildings and three
office/flex buildings in Linthicum, Maryland (the "Airport Square Properties").
We acquired these properties for $72,618, including $1,139 in transaction costs,
using cash made available from our April 1998 share offering.
On May 28, 1998, we acquired two multistory office buildings located in
Fairfield, New Jersey (the "Fairfield Properties"). We acquired these properties
for $29,405, including $605 in transaction costs, by assuming $6,465 in debt and
borrowing from our Revolving Credit Facility (defined in Note 7).
In 1998, we completed a number of transactions (collectively, the
"Constellation Transaction") with affiliates of Constellation Real Estate Group
(collectively, "Constellation") to acquire real estate properties and service
businesses. In connection with this transaction, we acquired:
o interests in 12 office and two retail properties located in the
Baltimore/Washington Corridor (the "Constellation Properties"),
o two land parcels contiguous to certain Constellation Properties (the
"Constellation Land"), and
o a 75% interest in Corporate Realty Management, LLC ("CRM"), a real estate
management services entity, and certain equipment, furniture and other
assets related to Constellation Real Estate, Inc. ("CRE") (collectively,
the "Constellation Service Companies").
F-12
<PAGE>
We acquired the Constellation Properties and Constellation Land for
$184,225 including $3,711 in transaction costs. We acquired the Constellation
Service Companies for $2,500. We financed the Constellation Transaction by:
o issuing 7,030,793 of our Common Shares, valued at $73,823 ($10.50 per
share), less $505 in share issuance costs,
o issuing 984,308 of our Series A Convertible Preferred Shares ("Preferred
Shares"), valued at $24,608 ($25 per share),
o assuming $60,081 in debt (see Note 7),
o using $16,658 in proceeds from the TIAA Loan (defined in Note 7),
o using $7,289 in proceeds from our Revolving Credit Facility, and
o using $4,266 from our cash reserves.
In connection with the Constellation Transaction, Constellation granted us
certain options and rights of first refusal to purchase undeveloped land in
three locations adjacent to certain of the Constellation Properties. In
addition, a significant number of persons previously employed by CRE who were
engaged in the operation of the Constellation Properties became employees of
COMI and CDS (defined in Note 5).
On October 13, 1998, we acquired an office building located in Columbia,
Maryland ("Riverwood"). We acquired the property for $20,333, including $324 in
transaction costs, using $18,775 in borrowings under our Revolving Credit
Facility and issuing 148,381 Common Units in our Operating Partnership valued at
$1,558 ($10.50 per unit).
On October 30, 1998, we acquired six office buildings and two office/flex
buildings located in Middlesex County, New Jersey. We acquired these properties
for $31,656, including $406 in transaction costs, using $31,000 in borrowings
under our Revolving Credit Facility and using cash reserves for the balance.
On December 31, 1998, we acquired three office buildings and a contiguous
parcel of land located in Columbia, Maryland. We purchased these properties for
$19,100, including $250 in transaction costs, using borrowings under our
Revolving Credit Facility.
1997 Acquisitions
On October 14, 1997, we acquired a portfolio of 10 properties,
representing the Mid-Atlantic suburban office operations of The Shidler Group, a
national real estate investment firm (the "Shidler Transaction"). In connection
with this acquisition, we:
o issued 600,000 Common Shares (valued at $5.50 per share, or an aggregate
of $3,300),
o issued approximately 2.6 million Common Units in our Operating Partnership
valued at $14,200 ($5.50 per unit),
o issued 2.1 million Initial Preferred Units in our Operating Partnership
valued at $52,500 ($25.00 per unit), and
o assumed debt of $100,000.
1998 Construction in Progress
At December 31, 1998, we had construction of new buildings underway on
each of the land parcels acquired from Constellation. We also had a project
underway that will expand the rentable square footage of one of our properties.
F-13
<PAGE>
Note 5 Investment in and Advances to Service Companies
On September 28, 1998, we acquired from Constellation a 75% interest in
CRM and certain equipment, furniture and other assets related to CRE (see Note
4). Upon completion of the Constellation Transaction, we contributed these
assets into COMI, an entity that provides us with asset management, managerial,
financial and legal support. In exchange for this contribution of assets, we
received 95% of the capital stock in COMI, including 1% of the voting common
stock, and a $2,005 note receivable carrying an interest rate of 10% for one
year and Prime plus 2% thereafter through its maturity on September 28, 2003.
Also on September 28, 1998, our Chief Executive Officer and Chief Operating
Officer collectively acquired 48.5% of the voting common stock in COMI.
COMI contributed certain equipment, furniture and other assets into
Corporate Development Services, LLC ("CDS"), a limited liability company that
provides construction and development services predominantly to us. In exchange
for this contribution of assets, COMI received 100% of the membership interests
in CDS.
In November 1998, CDS acquired a parcel of land located near the Airport
Square Properties. CDS acquired this property for $1,162, including $53 in
transaction costs, using cash and proceeds from a $1,200 loan payable to our
Operating Partnership. This loan is evidenced by a note that carries an interest
rate of LIBOR + 2.25%. CDS is developing an office building on this parcel of
land.
We account for our investment in COMI and its subsidiaries, CRM and CDS,
using the equity method of accounting. Our investment in and advances to the
Service Companies at December 31, 1998 included the following:
<TABLE>
<S> <C>
Notes receivable $ 3,205
Equity investment in Service Companies 609
Advances payable (1,463)
-------
Total $ 2,351
=======
</TABLE>
Note 6 Deferred Charges
Deferred charges consisted of the following:
<TABLE>
<CAPTION>
December 31,
----------------------
1998 1997
------- -------
<S> <C> <C>
Deferred financing costs $ 2,611 $ 955
Deferred leasing costs 1,468 --
Deferred other 24 --
------- -------
4,103 955
Accumulated amortization (561) (98)
------- -------
Deferred charges, net $ 3,542 $ 857
======= =======
</TABLE>
F-14
<PAGE>
7. Mortgage Loans Payable
Mortgage loans payable consisted of the following:
<TABLE>
<CAPTION>
December 31,
-------------------
1998 1997
-------- --------
<S> <C> <C>
Term Credit Facility, 7.50%, maturing October 2000(1) $100,000 $100,000
TIAA Mortgage, 6.89%, maturing November 2008 84,808 --
Revolving Credit Facility, LIBOR + 1.75%, maturing May 2000(2) 76,800 --
Bank of America, LIBOR + 2%, maturing January 1999(3) 9,877 --
Security Life of Denver, 7.5%, maturing October 2005(4) 9,513 --
Aegon USA Realty Advisors, Inc., 8.29%, maturing May 2007 6,369 --
Provident Bank of Maryland, LIBOR + 1.75%, maturing
September 2000 2,907 --
Howard Research and Development Corporation, 8%, maturing
January 1999 (5) 1,996 --
Mercantile-Safe Deposit and Trust Co., Prime + 0.5%, maturing July 1999(6) 500 --
Other Mortgages - Retail Properties, fixed rates ranging from 7.63% to
9.5%, maturities ranging from 2002 to 2014 14,054 14,375
-------- --------
$306,824 $114,375
======== ========
</TABLE>
(1) May be extended for two one-year periods, subject to certain conditions.
(2) May be extended for a one-year period, subject to certain conditions.
(3) Extended to February 1999 and was subsequently repaid using borrowings from
our Revolving Credit Facility.
(4) Repaid in January 1999 using proceeds from the Cranberry Square sale (see
Note 17).
(5) Repaid in January 1999 using cash reserves.
(6) Repaid in February 1999 using borrowings from our Revolving Credit Facility.
In the case of each of our mortgage loans, we have pledged certain of our
real estate assets as collateral to the financial institutions. We use the term
collateralize to describe this arrangement. As of December 31, 1998,
substantially all of our real estate properties were collateralized on loan
obligations.
In October 1997, we assumed a $100,000 loan (the "Term Credit Facility")
with Bankers Trust Company in connection with the Shidler Transaction. The loan
is a non-recourse mortgage loan collateralized by the ten real estate properties
acquired in the transaction. The loan provides for monthly payments of interest
only. The terms of the Term Credit Facility require that we comply with a number
of restrictive financial covenants, including adjusted consolidated net worth,
minimum property interest coverage, minimum property hedged interest coverage,
minimum consolidated interest coverage, maximum consolidated unhedged floating
rate debt and maximum consolidated total indebtedness.
In May 1998, we obtained a $100,000 recourse revolving credit facility
(the "Revolving Credit Facility") from Bankers Trust Company. This loan provides
for monthly payments of interest only. In addition, a fee of 0.25% per annum on
the unused amount of the loan is payable quarterly. This loan is collateralized
by 22 of our properties. The terms of this loan require that we comply with a
number of the same restrictive financial covenants required under the Term
Credit Facility. At December 31, 1998, the maximum amount available under this
loan was $89,050, of which $12,250 was unused.
The Term Credit Facility and the Revolving Credit Facility are
cross-defaulted, which means that a default on the terms of one of the loans
triggers the default of the other loan. The Term Credit Facility is also
cross-collateralized by the 22 properties collateralizing the Revolving Credit
Facility.
F-15
<PAGE>
In May 1998, we assumed $6,465 in debt owed to Aegon USA Realty Advisors,
Inc. in connection with the acquisition of the Fairfield Properties. The loan
provides for monthly payments of principal and interest of $56. The loan is
collateralized by one of the Fairfield Properties.
During 1998, we assumed 11 mortgage loans in connection with the
Constellation Transaction totaling $60,081, net of $18,133 which was repaid at
settlement. We repaid all but five of these assumed loans prior to December 31,
1998. Payment information on the remaining five loans is as follows:
<TABLE>
<CAPTION>
Amount
Lender Assumed Terms
- ------------------------------------------- --------- --------------------------------------
<S> <C> <C>
Security Life of Denver Insurance Co. $9,556 Monthly principal and interest of $74
Bank of America 9,982(1) Monthly principal of $37 plus interest
Mercantile-Safe Deposit and Trust Co. 8,438(2) Monthly principal of $66 plus interest
Provident Bank of Maryland 2,928(3) Monthly principal of $7 plus interest
Howard Research and Development Corporation 1,996 Monthly interest only
</TABLE>
(1) Net of $1,000, which was repaid upon assumption.
(2) This loan was paid down by $7,806 in December 1998 using proceeds from the
Revolving Credit Facility.
(3) Net of $475, which was repaid upon assumption.
In October 1998, we obtained an $85,000, non-recourse loan from Teachers
Insurance and Annuity Association of America ("TIAA"). In connection with this
loan, TIAA advanced us $76,200 in October 1998 and $8,800 in December 1998. This
loan provides for monthly payments of principal and interest of $595 and may not
be prepaid prior to November 2003. The loan is collateralized by nine of our
properties.
Our mortgage loans mature on the following schedule (excluding extension
options):
<TABLE>
<S> <C>
1999.................................. $ 14,338
2000.................................. 179,035
2001.................................. 5,102
2002.................................. 6,871
2003.................................. 2,624
Thereafter............................ 98,854
--------
Total............................... $306,824
========
</TABLE>
We capitalized interest costs of $77 during 1998.
8. Shareholders' Equity
On January 1, 1998, COPT changed its name from Royale Investments, Inc. to
Corporate Office Properties Trust, Inc. On March 16, 1998, COPT was reformed as
a Maryland REIT and changed its name to Corporate Office Properties Trust (the
"Reformation"). In connection with the Reformation, we authorized 45,000,000
Common Shares and 5,000,000 Preferred Shares. Each share of common stock in
Corporate Office Properties Trust, Inc. was exchanged for one Common Share in
COPT.
F-16
<PAGE>
In April 1998, COPT completed the sale of 7,500,000 Common Shares to the
public at a price of $10.50 per share. COPT contributed the net proceeds to our
Operating Partnership in exchange for 7,500,000 Common Units. Our Operating
Partnership used the proceeds to fund acquisitions.
In 1998, in connection with the Constellation Transaction, COPT issued
7,030,793 Common Shares and 984,308 Preferred Shares. COPT contributed the
assets it received in the Constellation Transaction to our Operating Partnership
in exchange for 7,030,793 Common Units and 984,308 Series A Preferred Units. The
Series A Preferred Units carry terms which are identical to the Preferred Shares
issued to Constellation.
Our Preferred Shares are nonvoting and are convertible after 2 years of
issuance, subject to certain conditions, into Common Shares on the basis of
1.8748 Common Shares for each Preferred Share. Holders of our Preferred Shares
are entitled to cumulative dividends, payable quarterly (as and if declared by
the Board of Trustees). Dividends accrue from the date of issue at the annual
rate of $1.375 per share, which is equal to 5.5% of the $25.00 per share
liquidation preference of the Preferred Shares.
9. Share Options
In 1993, we adopted a share option plan for directors under which we have
75,000 Common Shares reserved for issuance. These options become exercisable
beginning on the first anniversary of their grant and expire ten years after the
date of grant.
In March 1998, we adopted a share option plan for employees and directors
under which we have 1,680,188 Common Shares reserved for issuance. Director
options under this plan become exercisable beginning on the first anniversary of
their grant. Employee options under this plan become exercisable over a
three-year period beginning on the first anniversary of their grant. These
options expire ten years after the date of grant.
The following table summarizes share option transactions under the plans
described above:
<TABLE>
<CAPTION>
Weighted
Average
Range of Exercise Exercise
Shares Price per Share Price per Share
------ -------------- ---------------
<S> <C> <C> <C>
Outstanding at December 31, 1995 42,500 $5.38 - $10.38 $8.21
Granted - 1996 15,000 $5.63 $5.63
-------
Outstanding at December 31, 1996 57,500 $5.38 - $10.38 $7.53
Granted - 1997 25,000 $5.25 - $7.59 $6.19
Forfeited - 1997 (7,500) $5.25 $5.25
-------
Outstanding at December 31, 1997 75,000 $5.25 - $10.38 $7.31
Granted - 1998 712,825 $9.25 - $12.25 $9.33
Forfeited - 1998 (6,050) $9.25 $9.25
Exercised - 1998 (5,000) $5.38 - $5.63 $5.51
-------
Outstanding at December 31, 1998 776,775 $5.25 - $12.25 $9.17
=======
Exercisable at December 31, 1998 70,000 $5.25 - $10.38 $7.77
=======
Available for future grant at
December 31, 1998 973,413
=======
</TABLE>
The weighted average remaining contractual life of the options at December
31, 1998 was approximately nine years.
F-17
<PAGE>
A summary of the weighted average grant-date fair value per option granted
is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Weighted average grant-date fair value $0.98 $1.25 $0.63
Weighted average grant-date
fair value - exercise price equals
market price on grant-date $2.03 $1.25 $0.63
Weighted average grant-date
fair value - exercise price exceeds
market price on grant-date $0.95 $ -- $ --
</TABLE>
We estimated the fair values using the Black-Scholes option-pricing model
using the following assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Risk free interest rate 4.65% 6.32% 6.25%
Expected life - years 5.75 8.00 8.00
Expected volatility 30.00% 34.00% 31.00%
Expected dividend yield 6.80% 6.70% 9.70%
</TABLE>
We do not record compensation expense for share option grants. The
following table summarizes results as if we elected to account for share options
based on Statement of Financial Accounting Standards No. 123:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Net income (loss) available to Common Shareholders, as reported $ 4,369 $ (967) $ 293
Net income (loss) available to Common Shareholders, pro forma 3,671 (998) 284
Earnings (loss) per share, as reported 0.48 (0.60) 0.21
Earnings (loss) per share, pro forma 0.40 (0.61) 0.19
Diluted earnings (loss) per share, as reported 0.47 (0.60) 0.21
Diluted earnings (loss) per share, pro forma 0.40 (0.61) 0.19
</TABLE>
10. Related Party Transactions
Management
In September 1998, we entered into a contract with COMI under which COMI
provides asset management, managerial, financial and legal support. Under the
terms of this contract, we reimburse COMI for a defined percentage of personnel
and other overhead-related expenses. During 1998, we incurred management fees
and related costs of $545 under this contract.
In 1998, we entered into a management agreement with CRM under which CRM
provides property management services to most of our properties. Under the terms
of this arrangement, CRM is entitled to a fee equal to 3.5% of property cash
collections. CRM is also entitled to reimbursement for direct labor and
out-of-pocket costs. We incurred property management fees and related costs of
$557 with CRM in 1998.
We have a management agreement with Glacier Realty LLC ("Glacier").
Glacier is partially owned by one of our Trustees. Under the management
agreement, Glacier is responsible for the management of our retail properties.
The management agreement provides that Glacier will receive an annual fee of
$250 plus a percentage of Average Invested Assets (as defined in the management
agreement) and will pay third party
F-18
<PAGE>
expenses associated with owning these retail properties. In addition, Glacier
will receive a fee of 1% of the purchase price or the sale price upon our
acquisition or sale of any net-leased retail real estate assets. Under the
Management Agreement, this percentage is increased to 3% in the event that all
or substantially all of the net-leased retail real estate properties are sold.
The management agreement, entered into on October 14, 1997, has a term of five
years and is terminable thereafter on 180 days prior written notice. In the
event that the management agreement is terminated, including for non-renewal, a
fee equal to 3% of the Invested Real Estate Assets (defined in the Management
Agreement to exclude our current net-leased retail real estate assets as of
October 14, 1997) would be due to Glacier. We incurred management fees under the
contract with Glacier of $250 in 1998 and $52 in 1997.
We also have a management agreement with a company, for which one of our
Trustees serves on the Board of Directors. We incurred management fees and
related costs under this contract of $87 in 1998 and $22 in 1997.
Prior to 1998, we had an advisory agreement with Crown Advisors, Inc.
("Crown"), a company owned by one of our Trustees. Under this agreement, Crown
acted as investment advisor to the Company and assisted in the management of the
day-to-day operations for a base annual fee of $250 plus incentives based upon
performance. We incurred advisory fees under this agreement of $198 in 1997 and
$250 in 1996. No performance fees were incurred under this agreement. When the
Shidler Transaction was completed, we issued 246,083 Common Shares (net of
27,646 Common Shares owned by Crown that were retired) valued at $1,353 ($5.50
per share) in exchange for the assets of Crown, which resulted in the
termination of the advisory agreement with Crown. We reported these costs of
terminating the advisory agreement as an expense in our Consolidated Statements
of Operations.
Construction Costs
In September 1998, we entered into a contract with CDS under which CDS
provides construction and development services. Under the terms of this
contract, we reimburse CDS for these services based on actual time incurred at
market rates. During 1998, we incurred $214 under this contract, substantially
all of which was capitalized into the cost of the related activities.
Legal Costs
We incurred fees with a law firm in which an officer and former Trustee of
ours is a partner. We incurred fees with this firm of $2 in 1998, $69 in 1997
and $9 in 1996.
Rental Income
During 1998, we recognized revenue of $92 on office space leased to COMI
and CRM. During 1998, we recognized revenue of $256 on office space leased to
Constellation.
Interest Income
During 1998, we earned interest income of $66 on notes receivable from the
Service Companies.
Construction Fees
During 1998, we earned construction management fees of $60 from an entity
owned by an officer and Trustee of ours.
F-19
<PAGE>
Fees Earned from Constellation
During 1998, the Service Companies earned $750 from a project consulting
and management agreement with Constellation. The Service Companies also earned
$206 in fees and expense reimbursements under a property management agreement
with Baltimore Gas and Electric ("BGE"), which owns 100% of Constellation.
Utilities Expense
During 1998, BGE provided utility services to most of our properties in
the Baltimore/Washington Corridor.
11. Operating Leases
We lease our properties to tenants under operating leases with various
expiration dates extending to the year 2016. Gross minimum future rentals on
noncancelable leases at December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999 ...............................$ 57,883
2000 ............................... 50,001
2001 ............................... 42,801
2002 ............................... 39,443
2003 ............................... 34,267
Thereafter ......................... 144,889
--------
Total ...........................$369,284
========
</TABLE>
The United States Government is the sole tenant of one office property,
the lease for which is structured as a one-year lease commencing in 1993, with
14 consecutive automatic one-year renewals. The lease also carries a penalty
should the tenant not renew for all 14 years. Total base rent from this lease of
$37,377, with annual base rents ranging from $3,524 to $4,115, is included in
future minimum rentals disclosed above.
F-20
<PAGE>
12. Supplemental Information to Statements of Cash Flows
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Interest paid, net of capitalized interest $ 12,876 $ 2,220 $ 1,210
========= ========= =========
Supplemental schedule of non-cash investing and
financing activities:
The following assets and liabilities were assumed in
connection with various acquisitions:
Purchase of real estate $(182,116) $(166,316) $ --
Purchase of Constellation Service Companies (2,500) -- --
Deferred financing costs (29) (735) --
Other deferred charges (24) -- --
Mortgage loans 84,679 100,000 --
Minority interest 1,559 65,070 --
Preferred Shares 10 -- --
Common Shares 70 6 --
Additional paid-in capital 98,351 2,975 --
--------- --------- ---------
Proceeds from acquisitions $ -- $ 1,000 $ --
========= ========= =========
Adjustments to minority interests resulting from
changes in ownership of Operating Partnership by
COPT $ 11,331 $ -- $ --
--------- --------- ---------
Increase in accrued capital improvements $ 1,742 $ -- $ --
========= ========= =========
Dividends/distributions payable $ 4,692 $ 1,276 $ 178
========= ========= =========
Advisory contract termination fee for Common Shares:
Advisory contract termination fee $ -- $ (1,353) $ --
Common Shares -- 2 --
Additional paid-in capital -- 1,351 --
--------- --------- ---------
Proceeds from advisory contract termination $ -- $ -- $ --
========= ========= =========
</TABLE>
13. Information by Business Segment
We have five segments: Baltimore/Washington office, Greater Philadelphia
office, Northern/Central New Jersey office, Greater Harrisburg office and
Retail. Our office properties represent our core-business. We manage our retail
properties as a single segment since they are considered outside of our
core-business.
The table below reports segment financial information. Our Greater
Harrisburg and Retail segments are not separately reported since they do not
meet the reporting thresholds. We measure the performance of our
F-21
<PAGE>
segments based on total revenues less property operating expenses. Accordingly,
we do not report other expenses by segment in the table below.
<TABLE>
<CAPTION>
Northern/
Baltimore/ Greater Central New
Washington Philadelphia Jersey
Office Office Office Other Total
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1998:
Revenues $ 13,548 $ 10,024 $ 9,997 $ 6,645 $ 40,214
Property operating expenses 4,293 15 3,914 1,410 9,632
--------- -------- -------- -------- --------
Income from operations $ 9,255 $ 10,009 $ 6,083 $ 5,235 $ 30,582
========= ======== ======== ======== ========
Commercial real estate property
expenditures $ 264,843 $ -- $ 64,571 $ 35,093 $364,507
========= ======== ======== ======== ========
Segment assets at December 31, 1998 $ 267,092 $108,894 $ 97,035 $ 90,656 $563,677
========= ======== ======== ======== ========
Year Ended December 31, 1997:
Revenues $ -- $ 2,100 $ 1,359 $ 3,159 $ 6,618
Property operating expenses -- 3 455 270 728
--------- -------- -------- -------- --------
Income from operations $ -- $ 2,097 $ 904 $ 2,889 $ 5,890
========= ======== ======== ======== ========
Commercial real estate property
expenditures $ -- $110,401 $ 32,144 $ 24,277 $166,822
========= ======== ======== ======== ========
Segment assets at December 31, 1997 $ -- $110,111 $ 32,123 $ 51,300 $193,534
========= ======== ======== ======== ========
Year Ended December 31, 1996:
Revenues $ -- $ -- $ -- $ 2,509 $ 2,509
Property operating expenses -- -- -- 31 31
--------- -------- -------- -------- --------
Income from operations $ -- $ -- $ -- $ 2,478 $ 2,478
========= ======== ======== ======== ========
Commercial real estate property
expenditures $ -- $ -- $ -- $ -- $ --
========= ======== ======== ======== ========
Segment assets at December 31, 1996 $ -- $ -- $ -- $ 24,197 $ 24,197
========= ======== ======== ======== ========
</TABLE>
The following table reconciles our income from operations for reportable
segments to total income (loss) from operations as reported in our Consolidated
Statements of Operations.
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Income from operations for reportable segments $30,582 $ 5,890 $ 2,478
Less:
General and administrative 1,890 533 372
Interest 12,207 2,855 1,246
Amortization of deferred financing costs 423 64 13
Depreciation and amortization 6,285 1,267 554
Reformation costs 637 -- --
Termination of advisory agreement -- 1,353 --
------- ------- -------
Income (loss) from operations $ 9,140 $ (182) $ 293
======= ======= =======
</TABLE>
We did not allocate interest expense, amortization of deferred financing
costs and depreciation and other amortization to segments since they are not
included in the measure of segment profit reviewed by management. We also did
not allocate general and administrative, reformation costs and termination of
advisory agreement costs since these items represent general corporate expenses
not attributable to segments.
F-22
<PAGE>
14. Commitments and Contingencies
In the normal course of business, we are involved in legal actions arising
from our ownership and administration of properties. In management's opinion,
any liabilities that may result are not expected to have a materially adverse
effect on our financial position, operations or liquidity. We are subject to
various federal, state and local environmental regulations related to our
property ownership and operation. We have performed environment assessments of
our properties, the results of which have not revealed any environmental
liability that we believe would have a materially adverse effect on our
financial position, operations or liquidity.
We are under contract to sell four of our retail properties. The
contracted sale price for these properties is $33,403. We sold one of these
properties on January 22, 1999 (as discussed in Note 17) and we estimate that
the other property sales will occur in the first quarter of 1999.
We have an office lease for our corporate headquarters in Bala Cynwyd,
Pennsylvania. The monthly rent under this lease is subject to an annual increase
based on the Consumer Price Index. Future minimum rental payments due under the
term of this lease are as follows:
<TABLE>
<S> <C>
1999 ......................................... $ 171
2000 ......................................... 171
2001 ......................................... 171
2002 ......................................... 171
2003 ......................................... 128
------
Total ......................................... $ 812
======
</TABLE>
15. Quarterly data (Unaudited)
<TABLE>
<CAPTION>
Year Ended December 31, 1998
--------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 5,525 $ 7,842 $ 9,812 $ 17,035
======== ======== ======== ========
Income before minority interest $ 490 $ 2,058 $ 2,493 $ 4,238
Minority interests (989) (1,129) (1,154) (1,311)
-------- -------- -------- --------
Net (loss) income (499) 929 1,339 2,927
Preferred Share Dividends -- -- (10) (317)
-------- -------- -------- --------
Net (loss) income available to
Common Shareholders $ (499) $ 929 $ 1,329 $ 2,610
======== ======== ======== ========
Basic (loss) earnings per share $ (0.22) $ 0.12 $ 0.13 $ 0.16
======== ======== ======== ========
Diluted (loss) earnings per share $ (0.22) $ 0.12 $ 0.12 $ 0.15
======== ======== ======== ========
Weighted average Common
Shares-basic (in thousands) 2,268 7,628 9,973 16,361
======== ======== ======== ========
Weighted average Common
Shares-diluted (in thousands) 2,294 17,731 20,065 23,868
======== ======== ======== ========
</TABLE>
F-23
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31, 1997
--------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 633 $ 633 $ 633 $ 4,719
======== ======== ======== ========
Income (loss) before minority interest $ 91 $ 87 $ 85 $ (445)
Minority interests -- -- -- (785)
-------- -------- -------- --------
Net income (loss) 91 87 85 (1,230)
Preferred Share Dividends -- -- -- --
-------- -------- -------- --------
Net income (loss) available to
Common Shareholders $ 91 $ 87 $ 85 $ (1,230)
======== ======== ======== ========
Basic and diluted earnings (loss)
per share $ 0.06 $ 0.06 $ 0.06 $ (0.58)
======== ======== ======== ========
Weighted average Common
Shares-basic (in thousands) 1,420 1,420 1,420 2,137
======== ======== ======== ========
Weighted average Common
Shares-diluted (in thousands) 1,420 1,420 1,427 2,137
======== ======== ======== ========
</TABLE>
16. Pro Forma Financial Information (Unaudited)
We accounted for our 1998 and 1997 acquisitions using the purchase method
of accounting. We included the results of operations for the acquisitions in our
Consolidated Statements of Operations from their respective purchase dates
through December 31, 1998.
We prepared our pro forma condensed consolidated financial information
presented below as if all of our 1998 and 1997 acquisitions had occurred on
January 1, 1997. Accordingly, we were required to make pro forma adjustments
where deemed necessary. The pro forma financial information is unaudited and is
not necessarily indicative of the results which actually would have occurred if
these acquisitions had occurred on January 1, 1997, nor does it intend to
represent our results of operations for future periods.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1998 1997
---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C>
Pro forma total revenues $ 67,607 $ 59,636
========== ==========
Pro forma net income available to Common Shareholders $ 8,185 $ 2,862
========== ==========
Pro forma earnings per Common Share
Basic $ 0.49 $ 0.17
========== ==========
Diluted $ 0.48 $ 0.17
========== ==========
</TABLE>
17. Subsequent Events
On January 5, 1999, we entered into an interest rate swap agreement with
Bankers Trust Company. This swap agreement fixes our one-month LIBOR base to
5.085% per annum on a notional amount of $30,000 through May 2001.
F-24
<PAGE>
On January 13, 1999, we entered into a $9,825 construction loan with FMB
Bank to finance the construction of a building. This loan has an interest rate
of LIBOR plus 1.6%. This loan matures on February 1, 2001 and may be extended
for a one-year period, subject to certain conditions.
On January 22, 1999, we sold a retail property located in Westminster,
Maryland ("Cranberry Square"). We sold the property for $18,900, of which $9,513
was used to pay off the mortgage loan payable on the property, $283 was placed
in escrow, $272 was paid to the buyer for operating pro-rations, $144 was used
to pay our closing costs and $8,688 was used to repay a portion of our Revolving
Credit Facility. We recognized no gain or loss on the sale of Cranberry Square.
On February 8, 1999, we entered into a $10,875 construction loan with
Provident Bank of Maryland to finance the construction of a building. This loan
has an interest rate of LIBOR plus 1.75%. This loan matures on February 8, 2001
and may be extended for a one-year period, subject to certain conditions.
In February 1999, we acquired an office building located in Linthicum,
Maryland. We acquired the property for $6,751, including $201 in transaction
costs, using $6,650 in borrowings under our Revolving Credit Facility and using
cash reserves for the balance.
F-25
<PAGE>
Corporate Office Properties Trust
Schedule III-Real Estate and Accumulated Depreciation
(Dollars in thousands)
<TABLE>
<CAPTION>
Building and
Building Land
Property Location Type Encumbrances Land Improvements
- ---------------------------- ------------------------ -------- ------------ --------- -------------
<S> <C> <C> <C> <C> <C>
751, 753 760, 785 Jolly Road Blue Bell, PA Office $66,232 $22,080 $88,320
2730 Hercules Road Annapolis Junction, MD Office 26,843 7,880 31,520
7200 Riverwood Drive Columbia, MD Office 11,212 4,067 16,266
695 Route 46 Fairfield, NJ Office 10,147 3,730 14,919
305 Center Street Westminster, MD Retail 9,513 3,592 14,367
6950 Columbia Gateway Drive Columbia, MD Office 12,216 3,586 14,343
6009 - 6011 Oxon Hill Road Oxon Hill, MD Office 9,877 3,425 13,699
431 Ridge Road Dayton, NJ Office 8,351 2,782 11,128
429 Ridge Road Dayton, NJ Office 8,794 2,930 11,719
133 National Business Parkway Annapolis Junction, MD Office 8,549 2,510 10,038
135 National Business Parkway Annapolis Junction, MD Office 8,438 2,477 9,907
141 National Business Parkway Annapolis Junction, MD Office 8,145 2,391 9,563
710 Route 46 Fairfield, NJ Office 6,369 2,151 8,605
1615 and 1629 Thames Street Baltimore, MD Office 500 2,075 8,298
2605 Interstate Drive Harrisburg, PA Office 6,242 2,089 8,355
900 Elkridge Landing Road Linthicum, MD Office 5,326 1,990 7,960
131 National Business Parkway Annapolis Junction, MD Office 6,474 1,900 7,602
2601 Market Place Harrisburg, PA Office 5,802 1,928 7,713
1199 Winterson Road Linthicum, MD Office 4,933 1,597 6,389
14502 Greenview Drive Laurel, MD Office 5,033 1,425 5,700
14504 Greenview Drive Laurel, MD Office 4,855 1,477 5,909
6740 Alexander Bell Drive Columbia, MD Office -- 1,389 5,556
1190 Winterson Road Linthicum, MD Office 3,307 1,334 5,334
1099 Winterson Road Linthicum, MD Office 3,420 1,322 5,287
104 Interchange Plaza Cranbury, NJ Office 3,364 1,317 5,267
1201 Winterson Road Linthicum, MD Office 3,588 1,287 5,149
19 Commerce Cranbury, NJ Office 3,924 1,276 5,105
8815 Centre Park Drive Columbia, MD Office 4,252 1,248 4,992
911 Elkridge Landing Road Linthicum, MD Office 3,139 1,214 4,856
6716 Alexander Bell Drive Columbia, MD Office -- 1,212 4,847
101 Interchange Plaza Cranbury, NJ Office 2,579 1,155 4,619
322 Marlboro Street Easton, MD Retail 2,907 1,154 4,618
5835 West 10th Street Indianapolis, IN Retail -- 1,270 4,003
881 Elkridge Landing Road Linthicum, MD Office 2,803 1,033 4,133
921 Elkridge Landing Road Linthicum, MD Office 2,803 1,043 4,172
930 International Drive Linthicum, MD Office 2,421 1,012 4,049
900 International Drive Linthicum, MD Office 2,344 980 3,918
3550 Vicksburg Lane Plymouth, MN Retail 4,606 764 4,020
134 National Business Parkwy (1) Annapolis Junction, MD Office -- 3,661 --
939 Elkridge Landing Road Linthicum, MD Office 2,467 938 3,752
6760 Alexander Bell Drive Columbia, MD Office -- 868 3,473
<CAPTION>
Costs
Capitalized Gross Amounts Year Built
Subsequent to Carried at Close Accumulated or Date Depreciation
Property Acquisition of Period Depreciation Renovated Acquired Life
- ---------------------------- ------------- ---------------- ------ ------ --------- -------- ------------
<C> <C> <C> <C> <C> <C> <C>
751, 753 760, 785 Jolly Road $ -- $110,400 $2,680 1960-74/ 10/14/97 40 Years
1991-96
2730 Hercules Road -- 39,400 167 1990 9/28/98 40 Years
7200 Riverwood Drive -- 20,333 85 1986 10/13/98 40 Years
695 Route 46 259 18,908 222 1990 5/28/98 40 Years
305 Center Street 492 18,451 93 1991/1998 9/28/98 40 Years
6950 Columbia Gateway Drive -- 17,929 60 1998 10/21/98 40 Years
6009 - 6011 Oxon Hill Road 309 17,433 91 1990 9/28/98 40 Years
431 Ridge Road 3,095 17,005 342 1958/1998 10/14/97 40 Years
429 Ridge Road 90 14,739 358 1966/1996 10/14/97 40 Years
133 National Business Parkway 221 12,769 64 1997 9/28/98 40 Years
135 National Business Parkway -- 12,384 -- 1998 12/30/98 40 Years
141 National Business Parkway 69 12,023 60 1990 9/28/98 40 Years
710 Route 46 20 10,776 126 1985 5/28/98 40 Years
1615 and 1629 Thames Street 101 10,474 53 1989 9/28/98 40 Years
2605 Interstate Drive 2 10,446 254 1990 10/14/97 40 Years
900 Elkridge Landing Road 101 10,051 151 1982 4/30/98 40 Years
131 National Business Parkway 175 9,677 49 1990 9/28/98 40 Years
2601 Market Place 16 9,657 234 1989 10/14/97 40 Years
1199 Winterson Road 30 8,016 107 1988 4/30/98 40 Years
14502 Greenview Drive 63 7,188 36 1988 9/28/98 40 Years
14504 Greenview Drive 101 7,487 39 1985 9/28/98 40 Years
6740 Alexander Bell Drive -- 6,945 -- 1992 12/31/98 40 Years
1190 Winterson Road 46 6,714 89 1987 4/30/98 40 Years
1099 Winterson Road 20 6,629 89 1988 4/30/98 40 Years
104 Interchange Plaza 1 6,585 22 1990 10/30/98 40 Years
1201 Winterson Road 13 6,449 86 1985 4/30/98 40 Years
19 Commerce -- 6,381 21 1989 10/30/98 40 Years
8815 Centre Park Drive 1 6,241 31 1987 9/28/98 40 Years
911 Elkridge Landing Road 23 6,093 81 1985 4/30/98 40 Years
6716 Alexander Bell Drive -- 6,059 -- 1989 12/31/98 40 Years
101 Interchange Plaza -- 5,774 19 1985 10/30/98 40 Years
322 Marlboro Street -- 5,772 29 1977/1997 9/28/98 40 Years
5835 West 10th Street -- 5,273 788 1991 11/30/93 40 Years
881 Elkridge Landing Road 63 5,229 69 1986 4/30/98 40 Years
921 Elkridge Landing Road -- 5,215 70 1983 4/30/98 40 Years
930 International Drive -- 5,061 67 1986 4/30/98 40 Years
900 International Drive -- 4,898 65 1986 4/30/98 40 Years
3550 Vicksburg Lane -- 4,784 784 1991 6/1/92 40 Years
134 National Business Parkwy (1) 1,044 4,705 -- N/A 11/13/98 N/A
939 Elkridge Landing Road -- 4,690 63 1983 4/30/98 40 Years
6760 Alexander Bell Drive -- 4,341 -- 1989 12/31/98 40 Years
</TABLE>
F-26
<PAGE>
<TABLE>
<CAPTION>
Building and
Building Land
Property Location Type Encumbrances Land Improvements
- ---------------------------- ------------------------ -------- ------------ --------- -------------
<S> <C> <C> <C> <C> <C>
6940 Columbia Gateway Dr. (1) Columbia, MD Office 1,996 3,525 --
6385 Flank Drive Harrisburg, PA Office 2,429 811 3,242
800 International Drive Linthicum, MD Office 1,850 774 3,096
47 Commerce Cranbury, NJ Office 1,906 750 2,999
1351 38th St. North Peru, IL Retail 2,363 426 3,226
437 Ridge Road Dayton, NJ Office 2,151 717 2,866
3265 Golf Road Delafield, WI Retail 1,807 903 2,540
2100 S. Broadway Minot, ND Retail 2,559 842 2,503
630 E. Wisconsin Avenue Oconowomac, WI Retail 1,714 595 2,150
3 Centre Drive Cranbury, NJ Office 1,514 506 2,026
2 Centre Drive Cranbury, NJ Office 1,401 476 1,904
7 Centre Drive Cranbury, NJ Office 1,121 466 1,864
8 Centre Drive Cranbury, NJ Office 1,233 384 1,540
7601 N. Port Washington Road Glendale, WI Retail 1,005 627 1,157
6750 Alexander Bell Drive (2) Columbia, MD Office -- 1,755 --
7609 Energy Parkway Drive Riviera Beach, MD Office -- 258 1,033
Furniture, Fixtures and Equip. Various N/A -- -- --
-------- -------- --------
$306,824 $117,374 $431,616
======== ======== ========
<CAPTION>
Costs
Capitalized Gross Amounts Year Built
Subsequent to Carried at Close Accumulated or Date Depreciation
Property Acquisition of Period Depreciation Renovated Acquired Life
- ---------------------------- ------------- ---------------- ------ ------ --------- -------- ------------
<C> <C> <C> <C> <C> <C> <C>
6940 Columbia Gateway Dr. (1) 632 4,157 -- N/A 11/13/98 N/A
6385 Flank Drive -- 4,053 98 1995 10/14/97 40 Years
800 International Drive -- 3,870 52 1988 4/30/98 40 Years
47 Commerce 41 3,790 12 1992/1998 10/30/98 40 Years
1351 38th St. North -- 3,652 441 1993 11/30/93 40 Years
437 Ridge Road 6 3,589 87 1962/1996 10/14/97 40 Years
3265 Golf Road -- 3,443 286 1994 11/2/94 40 Years
2100 S. Broadway -- 3,345 333 1993 2/1/94 40 Years
630 E. Wisconsin Avenue -- 2,745 267 1994 5/17/94 40 Years
3 Centre Drive -- 2,532 8 1987 10/30/98 40 Years
2 Centre Drive -- 2,380 8 1989 10/30/98 40 Years
7 Centre Drive -- 2,330 8 1989 10/30/98 40 Years
8 Centre Drive -- 1,924 6 1986 10/30/98 40 Years
7601 N. Port Washington Road -- 1,784 168 1992 9/29/93 40 Years
6750 Alexander Bell Drive (2) -- 1,755 -- N/A 12/31/98 N/A
7609 Energy Parkway Drive -- 1,291 6 1982 9/28/98 40 Years
Furniture, Fixtures and Equip. 332 332 45 N/A Various 3-5 Years
-------- -------- ------
$ 7,366 $556,356 $9,469
======== ======== ======
</TABLE>
(1) Under development at December 31, 1998.
(2) Held for future development at December 31, 1998.
F-27
<PAGE>
The following table summarizes our changes in cost of properties (in
thousands):
<TABLE>
<S> <C>
Balance at December 31, 1997 $191,849
Property acquisitions 357,283
Building and land improvements 7,032
Other 192
--------
Balance at December 31, 1998 $556,356
========
</TABLE>
The following table summarizes our changes in accumulated depreciation (in
thousands):
<TABLE>
<S> <C>
Balance at December 31, 1997 $3,224
Depreciation expense 6,245
------
Balance at December 31, 1998 $9,469
======
</TABLE>
F-28
<PAGE>
Exhibit 4.5
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered into as of September 28, 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 Statement, (ii)
-2-
<PAGE>
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
-3-
<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
-4-
<PAGE>
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
-5-
<PAGE>
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 price at which such
securities can be sold, then the Company will be required to include in such
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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 connection with
such registration would be materially harmful to the Company because of
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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 the Company shall not be required to (x) qualify
generally to do business in any jurisdiction where
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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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connection with the statements or omissions that resulted in such losses,
claims, damages, liabilities or expenses. The relative fault of the Company on
the one hand and a participating Holder on the other hand shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged -omission to state a material fact
relates to information supplied by the Company on the one hand or by such
participating Holder on the other hand and the parties' relative intent,
knowledge, access or information and opportunity to correct or prevent such
statement or omission.
(e) The Company and the participating Holders agree that it
would not be just and equitable if contribution pursuant to this Section 9 were
determined by a pro rata allocation or by any other method of allocation that
does not take account of the equitable considerations referred to in Section
9(d) hereof. The amount paid or payable by an indemnified party as a result of
the losses, claims, damages, liabilities and expenses referred to in Section
9(d) hereof shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating any claim or defending any such action, suit or
proceeding. Notwithstanding the provisions of this Section 9, no participating
Holder shall be required to contribute any amount in excess of the amount by
which the proceeds to such participating Holder exceeds the amount of any
damages which such participating Holder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
(f) No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened action, suit or proceeding in respect of which any indemnified party
is or could have been a party and indemnity could have been sought hereunder by
such indemnified party, unless such settlement includes an-unconditional release
of such indemnified party from all liability on claims that are the subject
matter of such action, suit or proceeding.
(g) Any losses, claims, damages, liabilities or expenses for
which an indemnified party is entitled to indemnification or contribution under
this Section 9 shall be paid by the indemnifying party to the indemnified party
as such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 9 shall remain
operative and in full force and effect, regardless of (i) any investigation made
by or on behalf of an Indemnitee, the Company, its directors or officers, or any
person controlling the Company, and (ii) any termination of this Agreement.
SECTION 10. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS.
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-up
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<PAGE>
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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<PAGE>
IN WITNESS WHEREOF, the Company has executed this Agreement as of the
date first written above.
CORPORATE OFFICE PROPERTIES TRUST
By: /s/Clay W. Hamlin, III
--------------------------------------------
Clay W. Hamlin, III
President and Chief Executive Officer
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<PAGE>
CORPORATE OFFICE MANAGEMENT, INC.
Agreement for Services
This Agreement for Services ("Agreement") is made as of this 28th day of
September, 1998, between Corporate Office Properties Trust (COPT) and Corporate
Office Properties, L.P. (COPLP) jointly ("Customer") and Corporate Office
Management, Inc. ("Provider").
In consideration of the mutual agreements set forth herein and for other good
and valuable consideration passing between the parties, Provider agrees to
provide the services requested by the Customer in strict compliance with the
terms and conditions hereinafter set forth.
1. Project. The existing, proposed, or other projects to which the Provider's
service shall relate (the "Projects") shall be defined by Customer at time
of request along with a description of required services and schedule.
2. Services. The services or tasks that can be performed by the Provider (the
"Services") at the request of the Customer are set forth in Exhibit A
attached hereto, entitled Scope of Services.
3. Payment. All services performed by the Provider by Provider's own
personnel, shall be charged on a time basis by functional group as
outlined on Exhibit B attached hereto and made a part hereof. Provider
will charge seventy five (75%) percent of rates for the period through
December 31, 1999 and one hundred (100%) thereafter. Provider shall be
entitled to the payments set forth in Exhibit B provided that Provider has
performed the Services required and provided that Provider is in full
compliance with all other terms and conditions of this Agreement. All
other services provided by the Provider requiring the use of Consultants
shall be subject to the payment schedule attached as Exhibit C.
Additionally, all reimbursables shall be charged in accordance with the
terms defined in the Payment Schedule noted as Exhibit C. Provided
Provider is in compliance with all terms and conditions of this Agreement,
Customer will make payment to Provider not later than Thirty (30) days
after the submission of appropriate invoice.
4. Expenses. Provider shall be entitled to reimbursement for out-of-pocket
expenses as set forth in Exhibit C. In the event that expense
reimbursement is so provided, such reimbursement shall be made at the same
time that payment of compensation is due Provider pursuant to this
Agreement.
5. Cooperation. Notwithstanding any other provisions of this Agreement
including the Exhibits hereto, Provider shall consult with and request
necessary information of Customer as frequently as reasonably required in
the performance of this Agreement, and
<PAGE>
Provider shall cooperate with the Customer and any other person or
organization designated by Customer as involved in the Projects, and shall
perform this Agreement as designated by Customer all to the general
satisfaction of Customer. Upon request by Provider, Customer will furnish
readily available and existing information related to the performance of
Services hereunder.
<PAGE>
6. Ownership of Work Product. All tangible work product produced by Provider
in connection with the performance of this Agreement, including but not
limited to, accounting records, tenant information, legal documents,
reports, correspondence, and minutes of meeting, shall be the property of
the Customer upon payment for services by Customer and any such materials
in the possession of the Provider upon termination of this Agreement for
any reason shall be promptly delivered to Customer.
7. Additional Services. Upon request of Customer, Provider shall perform
services beyond the Scope of Services required by this Agreement. Provider
shall perform such services for the hourly rates set forth in Exhibit B
attached hereto.
8. Termination. Both Customer and Provider shall have the absolute right to
terminate this Agreement for any reason upon thirty (30) calendar days
written notice to each other. In the event of such termination, Provider
shall be paid pro rata for Services actually performed since the last
payment. In the event Exhibit C provides for expense reimbursement,
Provider shall also be paid actual reimbursable expenses incurred through
the date of termination. Such payment shall be made by Customer no later
than fifteen (15) days from the date of termination, provided Provider has
complied with all terms and conditions of this Agreement. Upon such
termination and payment, Customer shall have no liability to Provider in
any manner arising out of this Agreement and Provider hereby waives and
releases any and all claims against Customer arising out of this
Agreement.
Customer may also terminate this Agreement for default by the Provider. In
the event that Provider shall, be found to have in the sole judgment of
Owner, become insolvent, or file or have filed against it, any petition in
bankruptcy, make an assignment for the benefit of creditors, or commence
or have commenced against it any proceeding, or enter into any other
proceeding or arrangement for relief of debtors or fail to adhere to the
schedules set forth in requests, or as it may be modified by written
agreement, or fail to pursue the work in accordance with this contract, or
fail to supply a sufficient number of skilled personnel (including failure
occasioned by labor dispute), or interfere with or disrupt or threaten
Customer's premises or furnishing services in connection with the Projects
(including interference or disruption arising from a labor dispute), or
fail to comply with the terms and conditions of this Agreement, then any
such event shall constitute a default by Provider hereunder and any such
event shall be deemed a breach of this Agreement. Customer shall give to
Provider written notice of such default. Upon receipt of such notice,
Provider shall have two (2) days in which to cure such default. If, such
default cannot be cured or is not cured within two (2) days after such
notice, Customer may terminate this Agreement, and enter into agreements
with others to complete the Services required hereunder The cost of such
completion, as well as other costs, damages or expenses, including legal
fees, incurred as a result of such default, shall be charged against
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<PAGE>
any unpaid amounts due Provider under this Agreement. The rights and
remedies of Customer hereunder are in addition to any and all rights and
remedies available to Customer under this Agreement.
9. Indemnity and Insurance. Provider agrees to indemnify and hold harmless
Customer, its officers, directors, agents and employees, from and against
claims, suites, judgement, damages, losses and expenses, from the
negligent professional act of omission of Provider, its officers,
directors, agents, employees or subcontracts, in the performance of this
Agreement. Provider shall bear proportional costs of defending any actions
or proceedings brought against Customer, its officers, directors, agents
and employees, arising in whole or in part out of any such negligent
professional acts or omission.
Provider shall carry all insurance required by law. In addition, Provider
shall carry insurance, for the benefit of the Customer, in such forms,
amounts, and with such companies, as are acceptable to the Customer,
covering bodily injury, sickness, disease or death of any employee of
Provider or any other person or damage to property to Customer or others
arising out of Providers performance of this Agreement or bodily injury or
death of any person or property damage arising out of the ownership,
maintenance or use of a motor vehicle in any manner arising out of or
relating to the performance of this Agreement.
10. Notices. All notices and communications concerning this contract shall be
effective only if delivered to the authorized representatives of Customer
and Provider, designated below, personally or at the addresses set forth
below:
Customer's Representative
Clay W. Hamlin, III
Chief Executive Officer
Corporate Office Properties Trust
401 City Avenue; Suite 615
Bala Cynwyd, Pennsylvania 19004-1126
Provider's Representative
Mr. Randall M. Griffin
President
Corporate Office Management, Inc.
8815 Centre Park Drive, Suite 400
Columbia, MD 21045
11. Access to Records. Customer and Provider agree to provide access to their
books, documents and records to appropriate governmental officials as
maybe required.
12. Assignment. Provider shall not assign any of its rights under this
Agreement nor shall Provider retain any persons or entities not directly
employed by the Provider's
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<PAGE>
organization to perform any services under this Agreement without the
prior consent of Customer.
13. Waiver and Severability. No provision of this Agreement shall be deemed to
have been waived unless such waiver be in writing. Any waiver shall extend
only to the particular case and only in the manner specified, and shall
not be construed in any way to be a waiver of any further or other rights
hereunder. The invalidity or unenforceability of any provision of this
Agreement, or any application thereof, shall not affect or impair any
other provision or the validity or enforceability of the remainder of this
Agreement, or any other application thereof.
14. Governing Law. This Agreement shall be governed by the laws of the State
of Maryland. Customer and Provider have caused this Agreement to be
executed by their duly authorized representatives as of the date set forth
in the first paragraph hereof.
Witness: Customer: Corporate Office
Properties Trust
/s/ Roger A. Waesche, Jr. /s/ Clay W. Hamlin III
- ----------------------------------- -----------------------------------
By: Clay W. Hamlin, III
Chief Executive Officer
Witness: Customer: Corporate Office
Properties, L.P.
/s/ Roger A. Waesche, Jr. /s/ Clay W. Hamlin III
- ----------------------------------- -----------------------------------
By: Clay W. Hamlin, III
Chief Executive Officer of Corporate
Properties Trust, General Partner
Witness: Provider: Corporate Office
Management, Inc.
/s/ Roger A. Waesche, Jr. /s/ Randall M. Griffin
- ----------------------------------- -----------------------------------
By: Randall M. Griffin
President
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Page 4
<PAGE>
Exhibit A
Scope of Available Services
- --------------------------------------------------------------------------------
Accounting General ledger maintenance, monthly financial
reporting, quarterly and annual SEC filings, SEC
8-K filings, tax compliance, REIT compliance.
Asset Management Property management oversight, leasing,
budgeting.
Acquisitions Analysis, Investment Committee approval,
coordination with Corporate Office Services.
Corporate Oversight of all activities, including management
of overall operations and organizational
strategic planning.
Finance Sourcing debt and equity capital, financial
analysis.
Investor Relations Interaction with investment community.
Information Technology Hardware and software procurement and management.
Legal Lease preparation, contract preparation,
financial document review, SEC and corporate
matter work.
Marketing Develop and coordinate overall COPT marketing
plan.
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<PAGE>
EXHIBIT B
PAYMENT SCHEDULE
Provider shall be reimbursed for services rendered based upon the following
allocations of all operational expenses:
September 28 through
Department December 31, 1998 Thereafter
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Accounting 50% 90%
Asset Management 85% 100%
Acquisitions 100% 100%
Corporate 70% 90%
Finance 55% 85%
Investor Relations 100% 100%
Information Technology 85% 90%
Legal 75% 95%
Marketing 100% 100%
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<PAGE>
EXHIBIT C
PAYMENT SCHEDULE
The following shall be used for all services not provided directly by Corporate
Office Management, Inc. personnel:
A. Contracted Consultants shall be charged per original invoice.
B. Reimbursables: Included in rate charges on Exhibit B.
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Page 7
<PAGE>
ONE CONSTELLATION CENTRE
THIS AGREEMENT OF LEASE (the "Lease") is made this 28th day of September,
1998, by and between ST. BARNABAS LIMITED PARTNERSHIP, a Maryland limited
partnership ("Landlord") and CONSTELLATION PROPERTIES, INC., a Maryland
corporation ("Tenant"), WITNESSETH that the parties hereby agree as follows:
1. Premises. Landlord is the owner of the One Constellation Centre Office
Building (the "Building"), an office building located at 6009 Oxon Hill Road,
Oxon Hill, Maryland 20745.
Landlord does hereby lease unto Tenant, and Tenant does hereby rent from
Landlord, that portion of the Building located on the fourth, fifth and sixth
floors designated as Suites 400, 500 and 600 containing the agreed upon
equivalent of 48,863 square feet of rentable area (the "Premises") described on
the schedule attached hereto as Exhibit "A" and made a part hereof. In addition
thereto, Tenant shall have the right to use, on a non-exclusive basis, and in
common with the other tenants of the Building the Common Areas of the Building
(as that term is defined in Section 5.2.6 hereof).
2. Term. This Lease shall commence on September 28, 1998 (the "Commencement
Date") and shall be for a term (the "Term") of two (2) years, expiring on
September 28, 2000.
3. Security Deposit and Advance Rent. Intentionally Left Blank.
4. Use. Tenant shall have the right to use and occupy the Premises of this
Lease, if at all, solely for general office purposes in accordance with
applicable zoning regulations and for no other purpose.
5. Rent.
5.1 Base Rent. As rent for the Premises during each year of the Term,
Tenant shall pay to Landlord an annual base rent of Nine Hundred Three Thousand
Nine Hundred Sixty-Five Dollars and Fifty-Two Cents ($903,965.52) (the "Base
Rent") in equal monthly installments of Seventy-Five Thousand Three Hundred
Thirty Dollars and Forty-Six Cents ($75,330.46) each, in advance on the first
day of each calendar month during the Term, and without deduction, setoff or
demand.
5.2 Definitions. For the purposes hereof, the following definitions shall
apply:
1
<PAGE>
5.2.1 "Property" shall mean the Building, the land upon which same
is situated and all fixtures and equipment thereon or therein, all commonly
owned or shared appurtenances, including but not limited to, parking areas,
walkways, landscaping and utilities, whether located on the land upon which the
Building is situated or elsewhere.
5.2.2 "Building Expenses" shall be all those expenses paid or
incurred by Landlord in connection with the owning, maintaining, operating and
repairing of the Property or any part thereof, in a manner deemed reasonable and
appropriate by Landlord and shall include, without limitation, the following:
1. All costs and expenses of operating, repairing, lighting,
cleaning, and insuring (including liability for personal injury, death and
property damage and workers' compensation insurance covering personnel) the
Property or any part thereof, as well as all costs incurred in removing snow,
ice and debris therefrom and of policing and regulating traffic with respect
thereto, and depreciation of all machinery and equipment used therein or
thereon, replacing or repairing of pavement, parking areas, curbs, walkways,
drainage, lighting facilities, landscaping (including replanting and replacing
flowers and other planting);
2. Electricity, steam and fuel used in lighting, heating,
ventilating and air conditioning;
3. Maintenance and repair of mechanical and electrical
equipment including heating, ventilating and air conditioning equipment;
4. Window cleaning and janitor service, including equipment,
uniforms, and supplies and sundries;
5. Maintenance of elevators, stairways, rest rooms, lobbies,
hallways and other Common Areas;
6. Repainting and redecoration of all Common Areas;
7. Sales or use taxes on supplies or services;
8. Management fees, wages, salaries and compensation of all
persons engaged in the maintenance, operation or repair of the Property
(including Landlord's share of all payroll taxes);
9. Legal, accounting and engineering fees and expenses, except
for those related to disputes with tenants or which are a result of and/or are
based on Landlord's negligence or other tortious conduct;
2
<PAGE>
10. Costs and expenses that may result from compliance with
any governmental laws or regulations that were not applicable to the Common
Areas at the time same were originally constructed;
11. Condominium fees and assessments paid to Constellation
Centre Condominium; and
12. All other expenses which under generally accepted
accounting principles would be considered as an expense of maintaining,
operating, or repairing the Property. Notwithstanding the foregoing, all
expenses (whether or not such expenses are enumerated on items 1 through 11 of
this Section 5.2.2) which would be considered capital in nature under generally
accepted accounting principles shall be excluded from "Building Expenses."
5.2.3 "Taxes" shall mean all real property taxes including currently
due installments of assessments, sewer rents, ad valorem charges, water rates,
rents and charges, front foot benefit charges, and all other governmental
impositions in the nature of any of the foregoing. Excluded from Taxes are (i)
federal, state or local income taxes, (ii) franchise, gift, transfer, excise,
capital stock, estate or inheritance taxes, and (iii) penalties or interest
charged for late payment of Taxes. If at any time during the Term the method of
taxation prevailing at the commencement of the Term shall be altered so as to
cause the whole or any part of the items listed in the first sentence of this
subparagraph 5.2.3 to be levied, assessed or imposed, wholly or partly as a
capital levy, or otherwise, on the rents received from the Building, wholly or
partly in lieu of imposition of or in addition to the increase of taxes in the
nature of real estate taxes issued against the Property, then the charge to the
Landlord resulting from such altered additional method of taxation shall be
deemed to be within the definition of "Taxes."
5.2.4 "Base Year Building Expenses" shall mean the actual Building
Expenses incurred by Landlord during 1998 per rentable square foot.
5.2.5 "Base Year Taxes" shall mean the actual Taxes incurred by
Landlord during the 1998-1999 tax year per rentable square foot.
5.2.6 "Common Areas" shall mean those areas and facilities which may
be from time to time furnished to the Building by Landlord for the non-exclusive
general common use of tenants and other occupants of the Building, their
officers, employees, and invitees, including (without limitation) the hallways,
stairs, parking facilities, washrooms, and elevators.
5.3 Rent Adjustments for Taxes.
5.3.1 At or after the time that Taxes are due and payable, Landlord
shall total the Taxes and shall allocate such Taxes to the rentable area within
the Building in the following
3
<PAGE>
manner: Taxes shall be totaled and such total shall be divided by the total
rentable square feet in the Building thereby deriving the "Cost of Taxes Per
Square Foot" of rentable area.
5.3.2 In the event that the Cost of Taxes Per Square Foot assessed
for any tax year which is wholly or partly within the Term are greater than the
Base Year Taxes, Tenant shall pay to Landlord, as additional rent at the time
such Taxes are due and payable, the amount of such excess times the number of
rentable square feet in the Premises. Any additional rent due Landlord under
this Section 5.3 shall be due and payable within thirty (30) days after Landlord
shall have submitted a written statement to Tenant showing the amount due.
Landlord may, in its discretion, make a reasonable estimate of such additional
rent with respect to Taxes, and require Tenant to pay each month during such
year 1/12 of such amount, at the time of payment of monthly installments of Base
Rent. In such event, Tenant shall pay, or Landlord shall refund or credit to
Tenant's account, any underpayment or overpayment of such additional rent within
thirty (30) days of Landlord's annual written statement of Taxes due. Tenant
shall have the right to examine, at Tenant's sole expense, Landlord's records
with respect to any such increases in rent; provided, however, that unless
Tenant shall have given Landlord written notice of exception to any such
statement within thirty (30) days after delivery thereof, the same shall be
conclusive and binding on Tenant. No credit shall be given to Tenant if the cost
of Taxes Per Square Foot are less than the Base Year Taxes.
As of the date of this Lease, the tax year is a fiscal year commencing
July 1. If the appropriate authorities shall hereafter change the tax year to a
calendar year, or to a fiscal year commencing on a date other than July 1,
appropriate adjustments shall be made in the computation of any additional rent
due hereunder.
All reasonable expenses incurred by Landlord (including attorneys',
appraisers' and consultants' fees, and other costs) in contesting any increase
in Taxes or any increase in the assessment of the Property shall be included as
an item of Taxes for the purpose of computing additional rent due hereunder.
5.4 Rent Adjustments for Building Expenses.
5.4.1 After the end of each calendar year, Landlord shall compute
the Building Expenses for such year and shall allocate such costs to the
rentable area within the Building in the following manner: Building Expenses
shall be totaled and such total shall be divided by the total rentable square
feet in the Building thereby deriving the "Cost of Building Expenses Per Square
Foot" of rentable area.
5.4.2 In the event that the cost of Building Expenses Per Square
Foot of rentable area for any year which is wholly or partly within the Term are
greater than the Base Year Building Expenses, Tenant shall pay to Landlord, as
additional rent, the amount of such excess times the number of rentable square
feet in the Premises, as set forth in Section 1 above. If
4
<PAGE>
occupancy of the Building during any calendar year is less than ninety percent
(90%), then Building Expenses for that calendar year shall be "grossed up" to
that amount of Building Expenses that, using reasonable projections, would
normally be expected to be incurred during the calendar year in question if the
Building was ninety percent (90%) occupied during the applicable calendar year
period, as determined under generally accepted accounting principles; it being
understood that the written statement submitted to Tenant shall provide a
reasonably detailed description of how the Building Expenses were grossed up and
that only those component expenses that are affected by variations in occupancy
levels shall be grossed up. Such additional rent shall be computed on a
year-to-year basis. Any such additional rent shall be due within thirty (30)
days after the Landlord has submitted a written statement to Tenant showing the
amount due. Landlord may, in its discretion, make a reasonable estimate of such
additional rent with respect to any calendar year, and require Tenant to pay
each month during such year 1/12 of such amount, at the time of payment of
monthly installments of Base Rent. In such event, Tenant shall pay, or Landlord
shall refund or credit to Tenant's account, any underpayment or overpayment of
such additional rent within thirty (30) days of Landlord's written statement of
actual Building Expenses for the Calendar year. Tenant shall have the right to
examine, at Tenant's sole expense, Landlord's records with respect to any such
increases in rent; provided, however, that unless Tenant shall have given
Landlord written notice of exception to any such statement within thirty (30)
days after delivery thereof, the same shall be conclusive and binding on Tenant.
No credit shall be given to the Tenant if the cost of Building Expenses Per
Square Foot are less than the Base Year Building Expenses. Notwithstanding
anything to the contrary contained herein Landlord shall use diligent efforts to
keep Building Expenses at reasonable amounts, while maintaining the Building as
a first class office building.
5.5 Additional Rent Payments. Tenant's obligation to pay any additional
rent accruing during the Term pursuant to Sections 5.3 and 5.4 hereof shall
apply pro rata to the proportionate part of a tax year as to Taxes, and calendar
year, as to Building Expenses, in which this Lease begins or ends, for the
portion of each such year during which this Lease is in effect. Such obligation
to make payments of such additional rent shall survive the expiration or sooner
termination of the Term, whether or not this Lease is superseded by a subsequent
lease of the Premises or of any other space or Tenant leaves the Building; any
such superseding lease shall not serve to supersede Tenant's obligation for any
such additional rent unless it makes express reference thereto and recites that
such additional rent is abated in consideration of the superseding lease.
5.6 Payments. All payments or installments of any rent hereunder and all
sums whatsoever due under this Lease (including but not limited to court costs
and attorneys fees) shall be deemed rent, shall be paid to Landlord at the
address designated by Landlord, and if not paid when due, shall be subject to a
late charge of $35.00 for each late payment and shall bear interest at the rate
of 18% per annum (but not more than the maximum allowable legal rate applicable
to Tenant) until paid. Additionally, if any of Tenant's checks for payment of
rent or additional rent are returned to Landlord for insufficient funds, Tenant
shall pay to Landlord as
5
<PAGE>
additional rent $50.00 for each such check returned for insufficient funds, and
if two or more of Tenant's checks in payment of rent or additional rent due
hereunder are returned for insufficient funds in any calendar year, Landlord
reserves the right upon ten (10) days advance written notice to Tenant to
thereafter require Tenant to pay all rent and additional rent and other sums
whatsoever due under this Lease in cash, by money order or by certified check or
cashier's check. If an attorney is employed to enforce Landlord's rights under
this Lease, Tenant shall pay all fees and expenses of such attorney whether or
not legal proceedings are instituted by Landlord. However, where legal
proceedings are instituted by Landlord against Tenant, and said legal
proceedings result in a monetary judgment in favor of Landlord, those reasonable
attorney fees for which Tenant shall be liable to Landlord shall not be less
than fifteen percent (15%) of such monetary judgment. Time is of the essence in
this Lease.
6. Requirements of Applicable Law. Landlord warrants that on the Commencement
Date, the Premises shall comply with all applicable laws, ordinances, rules and
regulations of governmental authorities having jurisdiction over the Property
("Applicable Laws"). Tenant, at its sole cost and expense, shall thereafter
comply promptly with all Applicable Laws now in force or which may hereafter be
in force, which impose any duty upon Landlord or Tenant with respect to the use,
occupancy or alteration of the Premises or any part thereof and for the
prevention of fires; provided, however, that Landlord and not Tenant shall
correct all structural defects in the Building necessary to comply with
Applicable Laws, and make all repairs, changes or alterations necessary because
the Building was not constructed in compliance with any of said Applicable Laws.
7. Certificate of Occupancy. Tenant will not use or occupy the Premises in
violation of any certificate of occupancy, permit, or other governmental consent
issued for the Building. If any governmental authority, after the commencement
of the Term, shall contend or declare that the Premises are being used for a
purpose which is in violation of such certificate of occupancy, permit, or
consent, then Tenant shall, upon five (5) days' notice from Landlord,
immediately discontinue such use of the Premises. If thereafter the governmental
authority asserting such violation threatens, commences or continues criminal or
civil proceedings against Landlord for Tenant's failure to discontinue such use,
in addition to any and all rights, privileges and remedies given to Landlord
under this Lease for default therein, Landlord shall have the right to terminate
this Lease forthwith. Tenant shall indemnify and hold Landlord harmless of and
from any and all liability for any such violation or violations.
8. Contest-Statute, Ordinance, Etc. Tenant may, after notice to Landlord, by
appropriate proceedings conducted promptly at Tenant's own expense in Tenant's
name and whenever necessary in Landlord's name, contest in good faith the
validity or enforcement of any such statute, ordinance, law, order, regulation
or requirement and may similarly contest any assertion of violation of any
certificate of occupancy, permit, or any consent issued for the Building. Tenant
may, pending such contest, defer compliance therewith if, in the opinion of
counsel for Landlord, such deferral shall not subject either the Landlord or the
Premises or the
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Property (or any part thereof) to any penalty, fine or forfeiture, and if Tenant
shall post a bond with corporate surety approved by Landlord sufficient, in
Landlord's opinion, fully to indemnify Landlord from loss.
9. Tenant's Improvements. Tenant shall make such improvements to the Premises as
it may deem necessary at its sole cost and expense. Tenant shall not make any
alterations, decorations, installations, additions or improvements to the
Premises, including but not limited to, the installation of any fixtures,
amenities, equipment, appliances, or other apparatus, without Landlord's prior
written consent, and then only by contractors or mechanics employed or approved
by Landlord. All such work, alterations, decorations, installations, additions
or improvements shall be done at Tenant's sole expense and at such times and in
such manner as Landlord may from time to time designate. Landlord's consent to
and/or approval of Tenant's plans and specifications for the aforesaid
improvements shall create no responsibility or liability on the part of Landlord
for their completeness, design sufficiency, or compliance with all laws, rules
and regulations of governmental agencies or authorities. All alterations,
decorations, installations, additions or improvements made by either of the
parties hereto upon the Premises, except movable office furniture put in at the
expense of Tenant and other items as mutually agreed upon in writing, shall be
the property of Landlord and shall remain upon and be surrendered with the
Premises at the termination of this Lease without molestation or injury.
10. Repairs and Maintenance.
10.1 Tenant's Care of the Premises and Building. During the Term,
Tenant shall:
(i) keep the Premises and the fixtures, appurtenances and
improvements therein in good order and condition;
(ii) make repairs and replacements to the Premises required because
of Tenant's misuse or primary negligence, except to the extent that the repairs
or replacements are covered by Landlord's insurance as required hereunder;
(iii) repair and replace special equipment or decorative treatments
installed by or at Tenant's request and that serve the Premises only, except to
the extent the repairs or replacements are needed because of Landlord's misuse
or primary negligence, and are not covered by Tenant's insurance as required
hereunder;
(iv) pay for all damage to the Building, its fixtures and
appurtenances, as well as all damages sustained by Tenant or occupants of the
Building due to any waste, misuse or neglect of the Premises, its fixtures and
appurtenances by Tenant, except to the extent that the repair of such damage is
covered by Landlord's insurance as required hereunder; and
(v) not commit waste.
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In addition Tenant shall not place a load upon any floor of the Premises
exceeding the floor load per square foot area which such floor was designed to
carry and which may be allowed under Applicable Laws. Landlord reserves the
right to prescribe the weight and position of all heavy equipment brought onto
the Premises and prescribe any reinforcing required under the circumstances, all
such reinforcing to be at Tenant's expense.
10.2 Landlord's Repairs. Except for the repairs and replacements that
Tenant is required to make pursuant to Section 10.1 above, Landlord shall make
all other repairs and replacements to the Premises, Common Areas and Building
(including Building fixtures and equipment) as shall be reasonably deemed
necessary to maintain the Building in a condition comparable to other first
class suburban office buildings in the Baltimore-Washington corridor area. This
maintenance shall include the roof, foundation, exterior walls, interior
structural walls, all structural components, and all systems such as mechanical,
electrical, multi-tenant HVAC, and plumbing. The costs associated with such
repairs shall be deemed a part of Building Expenses; provided, however, that
costs of all of such repairs which would be considered capital in nature under
generally accepted accounting principles shall be paid by Landlord. There shall
be no allowance to Tenant for a diminution of rental value, no abatement of
rent, and no liability on the part of Landlord by reason of inconvenience,
annoyance or injury to business arising from Landlord, Tenant or others making
any repairs or performing maintenance as provided for herein.
10.3 Time for Repairs. Repairs or replacements required pursuant to
Sections 10.1 and 10.2 above shall be made within a reasonable time (depending
on the nature of the repair or replacement needed - generally no more than
fifteen (15) days) after receiving notice or having actual knowledge of the need
for a repair or replacement.
10.4 Surrender of the Premises. Upon the termination of this Lease, Tenant
shall surrender the Premises to Landlord in the same broom clean condition that
the Premises were in on the Commencement Date except for:
(i) ordinary wear and tear;
(ii) damage by the elements, fire, and other casualty unless Tenant
would be required to repair under the provisions of this Lease;
(iii) damage arising from any cause not required to be repaired or
replaced by Tenant; and
(iv) alterations as permitted by this Lease unless consent was
conditioned on their removal.
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On surrender, Tenant shall remove from the Premises its personal property,
trade fixtures and any alterations required to be removed pursuant to the terms
of this Lease and repair any damage to the Premises caused by this removal. Any
items not removed by Tenant as required above shall be considered abandoned.
Landlord may dispose of abandoned items as Landlord chooses and bill Tenant for
the cost of their disposal.
11. Conduct on Premises. Tenant shall not do, or permit anything to be done in
the Premises, or bring or keep anything therein which will, in any way, increase
the rate of fire insurance on the Building, or invalidate or conflict with the
fire insurance policies on the Building, fixtures or on property kept therein,
or obstruct or interfere with the rights of the Landlord or of other tenants, or
in any other way injure or annoy Landlord or the other tenants, or subject
Landlord to any liability for injury to persons or damage to property, or
interfere with the good order of the Building, or conflict with Applicable Laws,
or the Maryland Fire Underwriters Rating Bureau. Tenant agrees that any increase
of fire insurance premiums on the Building or contents caused by the occupancy
of Tenant and any expense or cost incurred in consequence of negligence or
carelessness or the willful action of Tenant, Tenant's employees, agents,
servants, or invitees shall, as they accrue be added to the rent heretofore
reserved and be paid as a part thereof; and Landlord shall have all the rights
and remedies for the collection of same as are conferred upon the Landlord for
the collection of rent provided to be paid pursuant to the terms of this Lease.
12. Insurance.
12.1 Tenant's Insurance. Tenant shall keep in force at its own expense, so
long as this Lease remains in effect, (a) public liability insurance, including
insurance against assumed or contractual liability under this Lease, with
respect to the Premises, to afford protection with limits, per person and for
each occurrence, of not less than Two Million Dollars ($2,000,000), combined
single limit, with respect to personal injury and death and property damage,
such insurance to provide for only a reasonable deductible, (b) all-risk
property and casualty insurance, including theft, written at replacement cost
value and with replacement cost endorsement, covering all of Tenant's personal
property in the Premises and all improvements installed in the Premises by or on
behalf of Tenant whether pursuant to the terms of Section 34, Section 9, or
otherwise, such insurance to provide for only a reasonable deductible, (c) if,
and to the extent, required by law, workmen's compensation or similar insurance
offering statutory coverage and containing statutory limits, and (d) shall
insure all plate and other interior glass in the Premises for and in the name of
the Landlord. Such policies shall be maintained in companies and in form
reasonably acceptable to Landlord and shall be written as primary policy
coverage and not contributing with, or in excess of, any coverage which Landlord
shall carry. Tenant shall deposit the policy or policies of such required
insurance or certificates thereof with Landlord prior to the Commencement Date,
which policies shall name Landlord or its designee and, at the request of
Landlord, its mortgagees, as additional named insured and shall also contain a
provision stating that such policy or policies shall not be canceled except
after thirty (30) day's written notice to Landlord or its designees. All such
policies of insurance shall be effective as of
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the date Tenant occupies the Premises and shall be maintained in force at all
times during the Term of this Lease and all other times during which Tenant
shall occupy the Premises. In addition to the foregoing insurance coverage,
Tenant shall require any contractor retained by it to perform work on the
Premises to carry and maintain, at no expense to Landlord, during such times as
contractor is working in the Premises, a non-deductible (i) comprehensive
general liability insurance policy, including, but not limited to, contractor's
liability coverage, contractual liability coverage, completed operations
coverage, broad form property damage endorsement and contractor's protective
liability coverage, to afford protection with limits per person and for each
occurrence, of not less than Two Hundred Thousand Dollars ($200,000.00),
combined single limit, with respect to personal injury and death and property
damage, such insurance to provide for no deductible, and (ii) workmen's
compensation insurance or similar insurance in form and amounts as required by
law. In the event of damage to or destruction of the Premises and the
termination of this Lease by Landlord pursuant to Section 17 herein, Tenant
shall pay Landlord all of its insurance proceeds relating to improvements made
in the Premises by or on behalf of Tenant whether pursuant to the terms of
Section 9 or otherwise. If Tenant fails to comply with its covenants made in
this Section, if such insurance would terminate or if Landlord has reason to
believe such insurance is about to be terminated, Landlord may at its option
cause such insurance as it in its sole judgment deems necessary to be issued,
and in such event Tenant agrees to pay promptly upon Landlord's demand, as
additional rent the premiums for such insurance.
12.2 Landlord's Insurance. Landlord shall keep in force at its own expense
(a) contractual and comprehensive general liability insurance, including public
liability and property damage, with a minimum combined single limit of liability
of Two Million Dollars ($2,000,000.00) for personal injuries or death of persons
occurring in or about the Building and Premises, and (b) all-risk property and
casualty insurance written at replacement cost value covering the Building and
all of Landlord's improvements in and about same.
12.3 Waiver of Subrogation. Each party hereto waives claims arising in any
manner in its favor and against the other party and agrees that neither party
hereto shall be liable to the other party or to any insurance company (by way of
subrogation or otherwise) insuring the other party for any loss or damage to the
Building, the Premises or other tangible property, or any resulting loss of
income, or losses under worker's compensation laws and benefits, or against
liability on or about the Building, even though such loss or damage might have
been occasioned by the negligence of such party, its agents or employees if any
such loss or damage is covered by insurance benefiting the party suffering such
loss or damage as was required to be covered by insurance carried pursuant to
this Lease. Landlord shall cause each insurance policy carried by it insuring
against liability on or about the Building or insuring the Premises and the
Building or income resulting therefrom against loss by fire or any of the
casualties covered by the all-risk insurance carried by it hereunder to be
written in such a manner as to provide that the insurer waives all right of
recovery by way of subrogation against Tenant in connection with any loss or
damage covered by such policies. Tenant shall cause each insurance policy
carried by it insuring against liability or insuring the Premises (including the
contents thereof and Tenant's
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Improvements installed therein by Tenant or on its behalf) against loss by fire
or any of the casualties covered by the all-risk insurance required hereunder to
be written in such a manner as to provide that the insurer waives all right of
recovery by way of subrogation against Landlord in connection with any loss or
damage covered by such policies.
13. Rules and Regulations. Tenant agrees to be bound by the rules and
regulations set forth on the schedule attached hereto as Exhibit "B" and made a
part hereof. Landlord shall have the right, from time to time, to issue
additional or amended rules and regulations regarding the use of the Building,
so long as said rules shall be reasonable and non-discriminatory between
tenants. When so issued the same shall be considered a part of this Lease and
Tenant covenants that said additional or amended rules and regulations shall
likewise be faithfully observed by Tenant, the employees of Tenant and all
persons invited by Tenant into the Building, provided, that said additional or
amended rules are made applicable to all office tenants similarly situated as
Tenant. Landlord shall not be liable to Tenant for the violation of any of the
said rules and regulations, or the breach of any covenant or condition in any
lease, by any other tenant in the Building.
14. Mechanics' Liens. Tenant shall not do or suffer to be done any act, matter
or thing whereby Tenant's interest in the Premises, or any part thereof, may be
encumbered by any mechanics' lien. Tenant shall discharge, within ten (10) days
after the date of filing, any mechanics' liens filed against Tenant's interest
in the Premises, or any part thereof, purporting to be for labor or material
furnished or to be furnished to Tenant. Landlord shall not be liable for any
labor or materials furnished or to be furnished to Tenant upon credit, and no
mechanics' or other lien for labor or materials shall attach to or affect the
reversionary or other estate or interest of Landlord in and to the Premises, or
the Property.
15. Tenant's Failure to Repair. In the event that Tenant fails after reasonable
prior written notice from Landlord, to keep the Premises in a good state of
condition and repair pursuant to Section 10 above, or to do any act or make any
payment required under this Lease or otherwise fails to comply herewith,
Landlord may, at its option (but without being obliged to do so) immediately, or
at any time thereafter and without notice, perform the same for the account of
Tenant, including the right to enter upon the Premises at all reasonable hours
to make such repairs, or do any act or make any payment or compliance which
Tenant has failed to do, and upon demand, Tenant shall reimburse Landlord for
any such expense incurred by Landlord including but not limited to any costs,
damages and counsel fees. Any moneys expended by Landlord, as aforesaid, shall
be deemed additional rent, collectible as such by Landlord. All rights given to
Landlord in this section shall be in addition to any other right or remedy of
Landlord herein contained.
16. Property -- Loss, Damage. Landlord, its agents and employees shall not be
liable to Tenant for (i) any damage or loss of property of the Tenant placed in
the custody of persons employed to provide services for or stored in or about
the Premises and/or the Building, unless such damage or loss is the result of
the negligence of Landlord, (ii) any injury or damage to persons, property or
the business of Tenant resulting from a latent defect in or material change in
the condition of
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the Building, and (iii) interference with the light, air, or other incorporeal
hereditaments of the Premises.
17. Destruction -- Fire or Other Casualty. In case of partial damage to the
Premises by fire or other casualty insured against by Landlord, Tenant shall
give immediate notice thereof to Landlord, who shall thereupon cause damage to
all property owned by it to be repaired with reasonable speed at expense of
Landlord, due allowance being made for reasonable delay which may arise by
reason of adjustment of loss under insurance policies on the part of Landlord
and/or Tenant, and for reasonable delay on account of "labor troubles" or any
other cause beyond Landlord's control, and to the extent that the Premises are
rendered untenantable the rent shall proportionately abate from the date of such
casualty, provided the damage above mentioned occurred without the fault or
neglect of Tenant, Tenant's servants, employees, agents or visitors. If such
partial damage is due to the fault or neglect of Tenant, or Tenant's servants,
employees, agents, or invitees, the damage shall be repaired by Landlord to the
extent of Landlord's insurance coverage, but there shall be no apportionment or
abatement of rent. In the event the damage shall be so extensive to the whole
Building as to render it uneconomical, in Landlord's opinion, to restore for its
present uses and Landlord shall decide not to repair or rebuild the Building,
this Lease, at the option of Landlord, shall be terminated upon written notice
to Tenant and the rent shall, in such event, be paid to or adjusted as of the
date of such damage, and the terms of this Lease shall expire by lapse of time
and conditional limitation upon the third day after such notice is mailed, and
Tenant shall thereupon vacate the Premises and surrender the same to Landlord,
but no such termination shall release Tenant from any liability to Landlord
arising from such damage or from any breach of the obligations imposed on Tenant
hereunder, or from any obligations accrued hereunder prior to such termination.
18. Eminent Domain. If (1) the whole or more than fifty percent (50%) of the
floor area of the Premises shall be taken or condemned by Eminent Domain for any
public or quasi-public use or purpose, and either party shall elect, by giving
written notice to the other, or (2) more than twenty-five percent (25%) of the
floor area of the Building shall be so taken, and Landlord shall elect, in its
sole discretion, by giving written notice to the Tenant, any said written notice
to be given not more than sixty (60) days after the date on which title shall
vest in such condemnation proceeding, to terminate this Lease, then, in either
such event, the Term of this Lease shall cease and terminate as of the date of
title vesting. In case of any taking or condemnation, whether or not the Term of
this Lease shall cease and terminate, the entire award shall be the property of
Landlord, and Tenant hereby assigns to Landlord all its right, title and
interest in and to any such award, except that Tenant shall be entitled to
claim, prove and receive in the proceedings such awards as may be allowed for
moving expenses, loss of profit and fixtures and other equipment installed by it
which shall not, under the terms of this Lease, be or become the property of
Landlord at the termination hereof, but only if such awards shall be made by the
condemnation, court or other authority in addition to, and be stated separately
from, the award made by it for the Property or part thereof so taken.
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19. Sublease, Assignment and Recapture Provisions.
19.1 Tenant shall not have the right to assign this Lease or sublet all or
any portion of the Premises without Landlord's prior written consent, which
consent may be given or withheld by Landlord in its reasonable discretion. In
the event of an approved assignment, such assignee shall assume in writing all
of Tenant's obligations under this Lease and Tenant shall have no further
liability hereunder. Any assignment or subletting shall be under and subject to
Landlord's Recapture Option (as defined below).
19.2 At any time and from time to time during the Term, Landlord may elect
to terminate this Lease as to any or any portion of the Premises.
(a) Landlord shall exercise its rights under Section 19.2 (the
"Recapture Option"), if at all, by giving Tenant notice thereof in writing (the
"Recapture Notice"). The Recapture Notice shall set forth (i) the space as to
which the Recapture Option is being exercised (the "Recaptures Space"); (ii)
Landlord's determination of the number of square feet in the Recapture Space;
and (iii) the date upon which such termination is effective (the "Recapture
Date"). The parties acknowledge and agree that the Recapture Date shall be the
date that the replacement tenant takes possession of the Recaptured Space and
begins to pay rent thereon. Upon receipt of a Recapture Notice, and prior to the
Recapture Date, Tenant shall surrender possession of the Recapture Space to
Landlord in the condition required under Section 10.4 of this Lease.
(b) The Recapture Option shall not be exhausted by one (1) exercise
thereof (unless Landlord exercises the Recapture Option for the entire Premises)
and Landlord may exercise the Recapture Option on any number of occasions during
the Term.
(c) If Landlord exercises the Recapture Option, effective as of the
Recapture Date:
(i) this Lease shall terminate as the Recaptured Space;
(ii) the Premises shall be reduced by the number of square
feet in the Recaptured Space;
(iii) The Base Rent shall be reduced by an amount equal to the
product of $18.50 and the square footage of the Recaptured Space;
(iv) the monthly installments of Base Rent shall be adjusted
based upon the new Base Rent, and if the Recaptured Date is any day other than
the first day of a calendar month, Landlord and Tenant shall prorate the Base
Rent on a per diem basis;
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(v) if Tenant has paid any Taxes with respect to the
recaptured Space for any period after the Recapture Date, Landlord shall pay
Tenant the amount of such Taxes; and
(vi) effective as of the Recapture Date, Tenant's
proportionate share of Taxes and Building Expenses shall be adjusted to reflect
the reduction in the size of the Premises.
Promptly following each Recapture Date, Landlord and Tenant shall
enter into an amendment to this Lease, setting forth the new Base Rent and
Tenant's proportionate share for payment of Taxes and Building Expenses.
20. Default; Remedies; Bankruptcy of Tenant. Any one or more of the following
events shall constitute an "Event of Default" hereunder, at Landlord's election:
(a) the sale of Tenant's interest in the Premises under attachment, execution or
similar legal process or, the adjudication of Tenant as a bankrupt or insolvent,
unless such adjudication is vacated within thirty (30) days; (b) the filing of a
voluntary petition proposing the adjudication of Tenant as a bankrupt or
insolvent, or the reorganization of Tenant, or an arrangement by Tenant with its
creditors, whether pursuant to the Federal Bankruptcy Code or any similar
federal or state proceeding, unless such petition is filed by a party other than
Tenant and is withdrawn or dismissed within thirty (30) days after the date of
its filing; (c) the admission, in writing, by Tenant of its inability to pay its
debts when due; (d) the appointment of a receiver or trustee for the business or
property of Tenant, unless such appointment is vacated within thirty (30) days
of its entry; (e) the making by Tenant of an assignment for the benefit of its
creditors, or if, in any other manner, Tenant's interest in this Lease shall
pass to another by operation of law; (f) the failure of Tenant to pay any rent,
additional rent or other sum of money when due and such failure continues for a
period of seven (7) days after receipt of written notice that the same is past
due hereunder; (g) the default by Tenant in the performance or observance of any
covenant or agreement of this Lease (other than a default involving the payment
of money), which default is not cured within thirty (30) days after the giving
of notice thereof by Landlord, unless such default is of such nature that it
cannot be cured within such thirty (30) day period, in which case no Event of
Default shall occur so long as Tenant shall commence the curing of the default
within such thirty (30) day period and shall thereafter diligently prosecute the
curing of same.
Upon the occurrence and continuance of an Event of Default, Landlord, with
such notice to Tenant as provided for by law or as expressly provided for
herein, may do any one or more of the following: (a) sell, at public or private
sale, all or any part of the goods, chattels, fixtures and other personal
property belonging to Tenant which are or may be put into the Premises during
the Term, whether or not exempt from sale under execution or attachment (it
being agreed that said property shall at all times be bound with a lien in favor
of Landlord and shall be chargeable for all rent and for the fulfillment of the
other covenants and agreements herein contained), and apply the proceeds of such
sale, first, to the payment of all costs and expenses of conducting the
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sale or caring for or storing said property; second, toward the payment of any
indebtedness, including, without limitation, indebtedness for rent, which may be
or may become due from Tenant to Landlord; and third, to pay the Tenant, on
demand in writing, any surplus remaining after all indebtedness of Tenant to
Landlord has been fully paid; (b) perform, on behalf and at the expense of
Tenant, any obligation of Tenant under this Lease which Tenant has failed to
perform and of which Landlord shall have given Tenant notice, the cost of which
performance by Landlord, together, with interest thereon at the rate of eighteen
percent (18%) per annum, from the date of such expenditure, shall be deemed
additional rent and shall be payable by Tenant to Landlord upon demand; (c)
elect to terminate this Lease and the tenancy created hereby by giving notice of
such election to Tenant in which event Tenant shall be liable for Base Rent,
Additional Rent, and other indebtedness that otherwise would have been payable
by Tenant during the remainder of the Term had there been no Event of Default,
and on notice reenter the Premises, by summary proceedings or otherwise, and
remove Tenant and all other persons and property from the Premises, and store
such property in a public warehouse or elsewhere at the cost and for the account
of Tenant, without resort to legal process and without Landlord being deemed
guilty of trespass or becoming liable for any loss or damage occasioned thereby;
and also the right, but not the obligation, to re-let the Premises for any
unexpired balance of the Term, and collect the rent therefor. In the event of
such re-letting by Landlord, the re-letting shall be on such terms, conditions
and rental as Landlord may deem proper, and the proceeds that may be collected
from the same, less the expense of re-letting (including reasonable leasing fees
and commissions and reasonable costs of renovating the Premises), shall be
applied upon the Tenant's rental obligation as set forth in this Lease for the
unexpired portion of the Term. Tenant shall be liable for any balance that may
be due under this Lease, although Tenant shall have no further right of
possession of the Premises; and (d) exercise any other legal or equitable right
or remedy which it may have at law or in equity. Notwithstanding the provisions
of clause (b) above and regardless of whether an Event of Default shall have
occurred, Landlord may exercise the remedy described in clause (b) without any
notice to Tenant if Landlord, in its good faith judgment, believes it would be
materially injured by the failure to take rapid action, or if the unperformed
obligation of Tenant constitutes an emergency.
To the extent permitted by law, Tenant hereby expressly waives any and all
rights of redemption, granted by or under any present or future laws in the
event of Tenant's being evicted or dispossessed for any cause, or in the event
of Landlord's obtaining possession of the Premises, by reason of the violation
by Tenant of any of the covenants and conditions of this Lease, or otherwise.
Landlord and Tenant hereby expressly waive trial by jury in any action or
proceeding or counterclaim brought by either party hereto against the other
party on any and every matter, directly or indirectly arising out of or with
respect to this Lease, including, without limitation, the relationship of
Landlord and Tenant, the use and occupancy by Tenant of the Premises, any
statutory remedy and/or claim of injury or damage regarding this Lease.
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Any costs and expenses incurred by Landlord (including, without
limitation, reasonable attorneys' fees) in enforcing any of its rights or
remedies under this Lease shall be deemed to be additional rent and shall be
repaid to Landlord by Tenant upon demand.
Notwithstanding any of the other provisions of this Lease, in the event
Tenant shall voluntarily or involuntarily come under the jurisdiction of the
Federal Bankruptcy Code and thereafter Tenant or its trustee in bankruptcy,
under the authority of and pursuant to applicable provisions thereof, shall have
the power and so using same determine to assign this Lease, Tenant agrees that
(i) Tenant or its trustee shall provide to Landlord sufficient information
enabling it to independently determine whether Landlord will incur actual and
substantial detriment by reason of such assignment and (ii) "adequate assurance
of future performance" under this Lease, as that term is generally defined under
the Federal Bankruptcy Code, shall be provided to Landlord by Tenant and its
assignee as a condition of said assignment.
21. Damages. If this Lease is terminated by Landlord pursuant to Section 20,
Tenant shall, nevertheless, remain liable for all rent and damages which may be
due or sustained prior to such termination, and all reasonable costs, fees and
expenses including, but not limited to, attorneys' fees, costs and expenses
incurred by Landlord in pursuit of its remedies hereunder, or in renting the
Premises to others from time to time and additional damages (the "Liquidated
Damages"), which shall be an amount equal to the total rent which, but for
termination of this Lease, would have become due during the remainder of the
Term, less the amount of rent, if any, which Landlord shall receive during such
period from others to whom the Premises may be rented (other than any additional
rent received by Landlord as a result of any failure of such other person to
perform any of its obligations to Landlord), in which case such Liquidated
Damages shall be computed and payable in monthly installments, in advance on the
first day of each calendar month following termination of the Lease and
continuing until the date on which the Term would have expired but for such
termination, and any suit or action brought to collect any such Liquidated
Damages for any month shall not in any manner prejudice the right of Landlord to
collect any Liquidated Damages for any subsequent month by a similar proceeding.
If this Lease is terminated pursuant to Section 20, Landlord may relet the
Premises or any part thereof, alone or together with other premises, for such
term(s) which may be greater or less than the period which otherwise would have
constituted the balance of the Term and on such terms and conditions (which may
include concessions, free rent and/or alterations of the Premises) as Landlord,
in its sole discretion, may determine, but Landlord shall not be liable for, nor
shall Tenant's obligations hereunder be diminished by reason of, any failure by
Landlord to relet the Premises or any failure by Landlord to collect any rent
due upon such reletting.
22. Services and Utilities. Landlord shall provide the following listed services
and utilities, namely:
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(a) heating, ventilation, and air conditioning ("HVAC") for the Premises
during "Normal Business Hours" (as defined below) to maintain temperatures for
comfortable use and occupancy;
(b) electric energy in accordance with Section 23 following;
(c) automatic passenger elevators providing adequate service leading to
the floor on which the Premises are located;
(d) evening, unescorted janitorial services to the Premises including
removal of trash;
(e) hot and cold water sufficient for drinking, lavatory toilet and
ordinary cleaning purposes from fixtures either within the Premises (if provided
pursuant to this Lease) or on the floor on which the Premises are located;
(f) replacement of lighting tubes, lamp ballasts and bulbs;
(g) extermination and pest control when and if necessary; and
(h) maintenance of Common Areas in a manner comparable to other first
class suburban office buildings in the Baltimore-Washington corridor.
Notwithstanding the foregoing, if at any time during the Term and any
extension or renewal thereof, Landlord shall, after reasonable investigation
determine that trash and similar waste generated by Tenant and/or emanating from
the Premises is in excess of that of other standard office tenants within the
Building leasing a premises of the same or similar size to that of the Premises,
Landlord shall bill Tenant and Tenant shall pay to Landlord as additional rent
hereunder within thirty (30) days of the date of Landlord's invoice for the
same, those costs and expenses of trash removal which are reasonably
attributable to such excess trash and similar waste generated by Tenant and/or
emanating from the Premises. As used herein, the term "Normal Business Hours" is
defined from 8:00 a.m. to 6:00 p.m. on business days and from 8:00 a.m. to 1:00
p.m. on Saturdays. Landlord shall have no responsibility to provide any services
under (a) above except during Normal Business Hours unless arrangements for
after-hours services have been made pursuant to terms and conditions acceptable
to Landlord and embodied in a separate written agreement between Landlord and
Tenant. Landlord reserves the right to stop service of the HVAC, elevator,
plumbing and electric systems, when necessary, by reason of accident, or
emergency, or for repairs, alterations, replacements, or improvements, which in
the judgment of Landlord are desirable or necessary to be made, until said
repairs, alterations, replacements, or improvements shall have been completed.
Landlord shall have no responsibility or liability for failure to supply HVAC,
elevator, plumbing, cleaning, and electric service, during said period or when
prevented from so doing by laws, orders, or regulations of any Federal, State,
County or Municipal authority or by strikes, accidents or by any other cause
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whatsoever beyond Landlord's control. Landlord's obligations to supply HVAC are
subject to applicable laws and regulations as to energy conservation and other
such restrictions. In the event that Tenant should require supplemental HVAC for
the Premises, any maintenance repair and/or replacement required for such
supplemental service shall be performed by Landlord but the cost of such
maintenance repair and/or replacement (including labor and materials) shall be
paid by Tenant as additional rent.
23. Electric Current. Throughout the Term, Landlord shall furnish Tenant without
additional charge during Normal Business Hours (as defined in Section 22) a
reasonable amount of electric current at 110 volts ("Normal Usage Amount") for
lighting purposes within the Premises and the powering of a normal amount of
office equipment and appliances. As used herein, the term "Normal Usage Amount"
is means electric power supplied at the rate of three (3) watts per square foot
of Premises. In this regard, Tenant shall:
(1) If Landlord reasonably determines based upon engineering studies
of electrical load consumed that Tenant is materially exceeding the Normal Usage
Amount Tenant shall pay to Landlord such amounts as additional rent as shall
equitably reimburse Landlord for the cost of the extra electric power so
consumed by Tenant;
(2) If Tenant desires to operate its business in the Premises at
other than normal business hours it shall pay for same at rates mutually agreed
upon by separate agreement between the parties, it being understood that
Landlord shall have no obligation to supply Normal Usage Amount to Tenant for
after hours usage until such a mutual agreement is reached;
(3) If Tenant shall desire to place and install in the Premises
electric equipment or appliances other than normal and typical to general office
usage it shall pay for such installations including any additional electric
lines and facilities required and shall pay for the electric power used in such
equipment if same exceeds Normal Usage Amount.
24. Telephone. Landlord has arranged for the installation of telephone service
within the Building. Tenant shall be responsible for contacting the utility
company supplying said telephone service and arranging to have such telephone
facilities as it may desire to be extended and put into operation in the
Premises. All telephone and telecommunications services desired by Tenant shall
be ordered and utilized at the sole expense of Tenant. All costs related to
installation and the provision of such service shall be borne and paid for
directly by Tenant.
In the event Tenant wishes to utilize the services of a telephone or
telecommunications provider whose equipment is not servicing the Building at
such time Tenant wishes to install its telecommunications equipment serving the
Premises ("Provider"), no such Provider shall be permitted to install its lines
or other equipment without first securing the prior written consent of Landlord,
which consent shall not be unreasonably withheld. Prior to the commencement of
any work in or about the Building by the Provider, the Provider shall agree to
abide by such rules and
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regulations, job site rules, and such other requirements as reasonably
determined by Landlord to be necessary to protect the interest of the Building
and Property, the other tenants and occupants of the Building and the Landlord,
including, without limitation, providing security in such form and amount as
reasonable determined by Landlord. Each Provider must be duly licensed, insured
and reputable. Landlord shall incur no expense whatsoever with respect to any
aspect of Provider's provision of its services, including without limitation,
the costs of installation, materials and service.
25. Acceptance of Premises. Tenant shall have reasonable opportunity, provided
it does not thereby interfere with Landlord's work, to examine the Premises to
determine the condition thereof. Upon taking possession of the Premises, Tenant
shall be deemed to have accepted same as being satisfactory and in the condition
called for hereunder, except for latent defects and punch list items previously
noted to Landlord.
26. Inability to Perform. This Lease and the obligation of Tenant to pay rent
hereunder and perform all of the other covenants and agreements hereunder on the
part of Tenant to be performed shall in no way be affected, impaired or excused
because Landlord is unable to fulfill any of its obligations under this Lease or
to supply, or is delayed in supplying, any service to be supplied by it under
the terms of this Lease or is unable to make, or is delayed in making any
repairs, additions, alterations, or decorations or is unable to supply, or is
delayed in supplying, any equipment or fixtures if Landlord is prevented or
delayed from so doing by reason of strikes or labor troubles or any outside
cause whatsoever including, but not limited to, governmental preemption in
connection with a National Emergency, or by reason of any rule, order or
regulation of any department or subdivision of any government agency or by
reason of the conditions of supply and demand which have been or are affected by
war or other emergency. Similarly, Landlord shall not be liable for any
interference with any services supplied to Tenant by others if such interference
is caused by any of the reasons listed in this Section 26. Nothing contained in
this Section shall be deemed to impose any obligation on Landlord not expressly
imposed by other sections of this Lease.
27. No Waivers. The failure of Landlord to insist, in any one or more instances,
upon a strict performance of any of the covenants of this Lease, or to exercise
any option herein contained, shall not be construed as a waiver, or a
relinquishment for the future, of such covenant or option, but the same shall
continue and remain in full force and effect. The receipt by Landlord of rent,
with knowledge of the breach of any covenant hereof, shall not be deemed a
waiver of such breach, and no waiver by Landlord of any provision hereof shall
be deemed to have been made unless expressed in writing and signed by Landlord.
28. Access to Premises and Change in Services. Landlord shall have the right,
without abatement of rent, to enter the Premises at any hour to examine the
same, or to make such repairs and alterations as Landlord shall deem necessary
for the safety and preservation of the Building, and also to exhibit the
Premises to be let; provided, however, that except in the case of
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emergency such entry shall only be after notice first given to Tenant if Tenant
is occupying the Premises. If, during the last month of the Term, Tenant shall
have removed all or substantially all of Tenant's property therefrom, Landlord
may immediately enter and alter, renovate and redecorate the Premises, without
elimination or abatement of rent, or incurring liability to Tenant for any
compensation, and such acts shall have no effect upon this Lease. Nothing herein
contained, however, shall be deemed or construed to impose upon Landlord any
obligation, responsibility or liability whatsoever, for the care, supervision or
repair, of the Building or any part thereof, other than as herein elsewhere
expressly provided. Landlord shall also have the right at any time, without the
same constituting an actual or constructive eviction and without incurring any
liability to Tenant therefor, to change the arrangement and/or location of
entrances or passageways, doors and doorways, and corridors, stairs, toilets,
elevators, or other public parts of the Building, and to change the name by
which the Building is commonly known and/or its mailing address.
29. Estoppel Certificates. Tenant agrees at any time and from time to time upon
not less than ten (10) days' prior notice by Landlord to execute, acknowledge
and deliver to Landlord a statement in writing certifying that this Lease is
unmodified and in full force (or if there have been modifications, that the same
is in full force and effect as modified and stating the modifications) and the
dates to which the rent and other charges have been paid in advance, if any, and
stating whether or not to the best knowledge of the signer of such certificate
Landlord is in default in performance of any covenant, agreement or condition
contained in this Lease and, if so, specifying each such default of which the
signer may have knowledge, it being intended that any such statement delivered
hereunder may be relied upon by third parties not a party to this Lease.
Tenant agrees to execute the Estoppel Certificate in the form attached
hereto as Exhibit "D" upon acceptance of the Premises.
30. Subordination. Tenant accepts this Lease, and the tenancy created hereunder,
subject and subordinate to any mortgages, overleases, leasehold mortgages or
other security interests now or hereafter a lien upon or affecting the Building
or the Property or any part thereof. Tenant shall, at any time hereafter, on
request, execute any instruments or leases or other documents that may be
required by any mortgage or mortgagee or overlandlord (herein a "Mortgagee") for
the purpose of subjecting or subordinating this Lease and the tenancy created
hereunder to the lien of any such mortgage or mortgages or underlying lease, and
the failure of Tenant to execute any such instruments, releases or documents
shall constitute a default hereunder.
31. Attornment. Upon any termination of Landlord's interest in the Premises,
Tenant shall, upon request, attorn to the person or organization then holding
title to the reversion of the Premises (the "Successor") and to all subsequent
Successors, and shall pay to the Successor all of the rents and other monies
required to be paid by the Tenant hereunder and perform all of the other terms,
covenants, conditions and obligations in this Lease contained; provided,
however, that if in
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connection with such attornment Tenant shall so request from such Successor in
writing, such Successor shall execute and deliver to Tenant an instrument
wherein such Successor agrees that as long as Tenant performs all of the terms,
covenants and conditions of this Lease, on Tenant's part to be performed,
Tenant's possession under the provisions of this Lease shall not be disturbed by
such Successor.
32. Notices. All notices, demands and requests required under this Lease shall
be in writing. All such notices, demands and requests shall be deemed to have
been properly given if either sent by United States registered or certified
mail, or overnight by any nationally recognized overnight delivery service,
postage prepaid, addressed (i) if to the Landlord at 8815 Centre Park Drive,
Suite 400, Columbia, Maryland 21045, with copies sent to General Counsel, 8815
Centre Park Drive, Suite 400, Columbia, Maryland 21045 or (ii) if to Tenant at
the Premises.
Any party may designate a change of address by written notice to the above
parties, given at least ten (10) days before such change of address is to become
effective.
33. Relocation. Intentionally Left Blank.
34. Tenant's Space. Tenant accepts the Premises in "as is" condition as of the
date of this Lease.
35. Quiet Enjoyment. Tenant, upon the payment of rent and the performance of all
the terms of this Lease, shall at all times during the Term and during any
extension or renewal term peaceably and quietly enjoy the Premises without any
disturbance from the Landlord or any other person claiming through the Landlord.
36. Vacation of Premises. Tenant shall vacate the Premises at the end of the
Term of this Lease. If Tenant fails to vacate at such time there shall be
payable to Landlord an amount equal to double the monthly rent stated in Section
5 for each month or part of a month that Tenant holds over, plus all other
payments provided for herein, and the payment and acceptance of such payments
shall not constitute an extension or renewal of this Lease. In event of any such
holdover, Landlord shall also be entitled to all remedies provided by law for
the speedy eviction of tenants, and to the payment of all attorneys' fees and
expenses incurred in connection therewith.
37. Partners' Liability. It is understood that the Owner of the Building is a
Maryland Limited Partnership. All obligations of said Owner hereunder are
limited to the net assets of the Owner from time to time. No general or limited
partner of Owner, or of any successor partnership, whether now or hereafter a
partner, shall have any personal responsibility or liability for the obligations
of Owner hereunder.
38. Separability. If any term or provision of this Lease or the application
thereof to any person or circumstances shall, to any extent, be invalid or
unenforceable, the remainder of this Lease or
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the application of such term or provision of such term or provision to persons
or circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected thereby, and each term and provision of
this Lease shall be valid and be enforced to the fullest extent permitted by
law.
39. Indemnification. Tenant shall indemnify and hold harmless Landlord and all
of its and their respective partners, directors, officers, agents and employees
from any and all liability, loss, cost or expense arising from all third-party
claims resulting from or in connection with:
(i) the conduct or management of the Premises or of any business therein,
or any work or thing whatsoever done, or any condition created in or about the
Premises during the Term of this Lease or during the period of time, if any,
prior to the Commencement Date that Tenant may have been given access to the
Premises;
(ii) any act, omission or negligence of Tenant or any of its subtenants or
licensees or its or their partners, directors, officers, agents, employees,
invitees or contractors;
(iii) any accident, injury or damage whatever occurring in, at or upon
the Premises; and
(iv) any breach or default by Tenant in the full and prompt payment and
performance of Tenant's obligations under this Lease;
together with all costs and expenses reasonably incurred or paid in connection
with each such claim or action or proceeding brought thereon, including, without
limitation, all reasonable attorney's fees and expenses.
In case any action or proceeding is brought against Landlord and/or any of
its and their respective partners, directors, officers, agents or employees and
such claim is a claim from which Tenant is obligated to indemnify Landlord
pursuant to this Section 39, Tenant, upon notice from Landlord shall resist and
defend such action or proceeding (by counsel reasonably satisfactory to
Landlord). The obligations of Tenant under this Section shall survive
termination of this Lease.
40. Captions. All headings anywhere contained in this Lease are intended for
convenience or reference only and are not to be deemed or taken as a summary of
the provisions to which they pertain or as a construction thereof.
41. Brokers. Tenant represents that Tenant has not dealt either directly or
indirectly with any broker in connection with this Lease, and no broker is
entitled to any commissions in connection with this Lease.
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42. Recordation. Tenant shall not, without Landlord's prior written consent,
record this Lease or any memorandum of this Lease or offer this Lease or any
memorandum of this Lease for recordation. If at any time Landlord or any
mortgagee of Landlord's interest in the Premises shall require the recordation
of this Lease or any memorandum of this Lease, such recordation shall be at
Landlord's expense. If at any time Tenant shall require the recordation of this
Lease or any memorandum of this Lease, such recordation shall be at Tenant's
expense. If the recordation of this Lease or any memorandum of this Lease shall
be required by any valid governmental order, or if any government authority
having jurisdiction in the matter shall assess and be entitled to collect
transfer taxes or documentary stamp taxes, or both transfer taxes and
documentary stamp taxes on this Lease or any memorandum of this Lease, Tenant
shall execute such acknowledgments as may be necessary to effect such
recordations and pay, upon request of Landlord, one half of all recording fees,
transfer taxes and documentary stamp taxes payable on, or in connection with
this Lease or any memorandum of this Lease or such recordation.
43. Successors and Assigns. The covenants, conditions and agreements contained
in this Lease shall bind and inure to the benefit of Landlord and Tenant, and
their respective heirs, personal representatives, successors and assigns
(subject, however, to the terms of Article 19 hereof).
44. Integration of Agreements. This writing is intended by the parties as a
final expression of their agreement and is a complete and exclusive statement of
its terms, and all negotiations, considerations and representations between the
parties are incorporated. No course of prior dealings between the parties or
their affiliates shall be relevant or admissible to supplement, explain, or vary
any of the terms of this Lease. Acceptance of, or acquiescence to, a course of
performance rendered under this Lease or any prior agreement between the parties
or their affiliates shall not be relevant or admissible to determine the meaning
of any of the terms or covenants of this Lease. Other than as specifically set
forth in this Lease, no representations, understandings, or agreements have been
made or relied upon in the making of this Lease.
45. Hazardous Material; Indemnity. Tenant shall not cause or permit any
Hazardous Material (as hereinafter defined) to be brought upon, kept, or used in
or about the Premises by Tenant, its agents, employees, contractors or invitees,
without the prior written consent of Landlord (which Landlord shall not
unreasonably withhold as long as Tenant demonstrates to Landlord's reasonable
satisfaction that such Hazardous Material is necessary or useful to Tenant's
business and shall be used, kept and stored in a manner that complies with all
laws regulating any such Hazardous Material so brought upon or used or kept in
or about the Premises). If Tenant breaches the obligations stated in the
preceding sentence, or if the presence of Hazardous Material on the Premises
caused or permitted by Tenant results in contamination of the Premises, the
Building and/or the Property, or if contamination of the Premises, the Building
and/or the Property by Hazardous Material otherwise occurs, for which Tenant is
legally liable to Landlord for damage resulting therefrom, then Tenant shall
indemnify, defend and hold Landlord and its Mortgagee(s) harmless from any and
all claims, judgments, damages, penalties, fines, costs, liabilities or losses
(including, without limitation, diminution in value of the Premises, the
Building and/or the
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Property, damages for the loss or restriction on use of rentable or usable space
or of any amenity of the Premises, the Building and/or the Property, damages
arising from any adverse impact on marketing of space, and sums paid in
settlement of claims, attorneys' fees, consultant fees and expert fees) which
arise during or after the Term as a result of such contamination. This
indemnification of Landlord and its Mortgagee(s) by Tenant includes, without
limitation, costs incurred in connection with any investigation of site
conditions or any cleanup, remedial, removal, or restoration work required by
any federal, state or local governmental agency or political subdivision because
of Hazardous Material present in the soil or ground water on or under the
Building. Without limiting the foregoing, if the presence of any Hazardous
Material on the Premises, the Building and/or the Property caused or permitted
by Tenant results in any contamination of the Premises, the Building and/or the
Property, Tenant shall promptly take all actions at its sole expense as are
necessary to return the Premises, the Building and/or the Property to the
condition existing prior to the introduction of any such Hazardous Material to
the Premises, the Building and/or the Property; provided that Landlord's
approval of such actions shall first be obtained, which approval shall not be
unreasonably withheld so long as such actions would not potentially have any
material adverse long-term or short-term effect on the Premises or the Building.
As used herein, the term "Hazardous Material" means any hazardous or toxic
substance, material or waste which is or becomes regulated by any local
governmental authority, the State of Maryland or the United States Government.
The term "Hazardous Material" includes, without limitation, any material or
substance that is (i) defined as a "hazardous substance" under the laws of the
State of Maryland, (ii) petroleum, (iii) asbestos, (iv) designated as a
"hazardous substance" pursuant to Section 311 of the Federal Water Pollution
Control Act (33 U.S.C. Section 1321), (v) defined as a "hazardous waste"
pursuant to Section 1004 of the Federal Resource Conservation and Recovery Act,
42 U.S.C. Section 6901 et seq. (42 U.S.C. Section 6903), (vi) defined as a
"hazardous substance" pursuant to Section 101 of the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. Section 9601 et seq. (42
U.S.C. Section 9601), or (vii) defined as a "regulated substance" pursuant to
Subchapter IX, Solid Waste Disposal Act (Regulation of Underground Storage
Tanks), 42 U.S.C. Section 6991 et seq.
46. Americans With Disabilities Act. Notwithstanding any other provisions
contained in this Lease and with the purpose of superseding any such provisions
herein that might be construed to the contrary, it is the intent of the Landlord
and Tenant that at all times while this Lease shall be in effect that the
following provisions shall be deemed their specific agreement as to how the
responsibility for compliance (and cost) with the Americans With Disabilities
Act and amendments to same ("ADA"), both as to the Premises and the Property,
shall be allocated between them, namely:
1. Landlord and Tenant agree to cooperate together in the initial design,
planning and preparation of specifications for construction of the Premises so
that same shall be in compliance with the ADA. Any costs associated with
assuring that the plans and specifications
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for the construction of the Premises are in compliance with the ADA shall be
borne by the party whose responsibility it is hereunder to bear the cost of
preparation of the plans and specifications. Similarly those costs incurred in
the initial construction of the Premises so that same are built in compliance
with the ADA shall be included within Tenant's Improvements and handled in the
manner as provided for in other Sections of this Lease.
2. Modifications, alterations and/or other changes required to and within
the Common Areas which are not capital in nature shall be the responsibility of
Landlord to perform and the cost of same shall be considered a part of the
Building Expenses and treated as such.
3. Modifications, alterations and/or other changes required to and within
the Common Areas which are capital in nature shall be the responsibility of
Landlord and at its cost and expense.
4. Modifications, alterations and/or other changes required to and within
the Premises (after the initial construction of same), whether capital in nature
or non-capital in nature, shall be the responsibility of Tenant and at its cost
and expense; unless said changes are structural in nature and result from the
original design of the Building, in which instance they shall be the
responsibility of Landlord and at its cost and expense.
Each party hereto shall indemnify and hold harmless the other party from
any and all liability, loss, cost or expense arising as a result of a party not
fulfilling its obligations as to compliance with the ADA as set forth in this
Section 46.
47. Several Liability. If the Tenant shall be one or more individuals,
corporations or other entities, whether or not operating as a partnership or
joint venture, then each such individual, corporation, entity, joint venturer or
partner shall be deemed to be both jointly and severally liable for the payment
of the entire rent and other payments specified herein.
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IN WITNESS WHEREOF, Landlord and Tenant have respectively affixed their
hands and seals to this Lease as of the day and year first above written.
LANDLORD:
ST. BARNABAS LIMITED PARTNERSHIP,
a Maryland limited partnership
By: COPT COLUMBIA, LLC, General Partner
By: Corporate Office Properties, L.P., a
Delaware limited partnership, its
sole member
By: Corporate Office Properties
Trust, its sole general partner
By: /s/ Clay W. Hamlin, III
------------------------
Clay W. Hamlin, III
President and Chief
Executive Officer
TENANT:
CONSTELLATION PROPERTIES, INC.,
a Maryland corporation
By: /s/ Dan R. Skowronski (SEAL)
---------------------
Dan R. Skowronski
Secretary
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<PAGE>
EXHIBIT "A"
to Agreement of Lease by and between
St. Barnabas Limited Partnership, Landlord
and Constellation Properties, Inc., Tenant
FLOOR PLAN
[GRAPHIC OMITTED]
<PAGE>
EXHIBIT "A"
to Agreement of Lease by and between
St. Barnabas Limited Partnership, Landlord
and Constellation Properties, Inc., Tenant
FLOOR PLAN
[GRAPHIC OMITTED]
<PAGE>
EXHIBIT "A"
to Agreement of Lease by and between
St. Barnabas Limited Partnership, Landlord
and Constellation Properties, Inc., Tenant
FLOOR PLAN
[GRAPHIC OMITTED]
<PAGE>
EXHIBIT "B"
to Agreement of Lease by and between
St. Barnabas Limited Partnership, Landlord
and Constellation Properties, Inc., Tenant
RULES AND REGULATIONS
To the extent that any of the following Rules and Regulations, or any
Rules and Regulations subsequently enacted conflict with the provisions of the
Lease, the provisions of the Lease shall control.
1. Tenant shall not obstruct or permit its agents, clerks or servants to
obstruct, in any way, the sidewalks, entry passages, corridors, halls, stairways
or elevators of the Building, or use the same in any other way than as a means
of passage to and from the offices of Tenant; bring in, store, test or use any
materials in the Building which could cause a fire or an explosion or produce
any fumes or vapor; make or permit any improper noises in the Building; smoke in
the elevators; throw substances of any kind out of the windows or doors, or down
the passages of the Building, in the halls or passageways; sit on or place
anything upon the window sills; or clean the windows.
2. Waterclosets and urinals shall not be used for any purpose other than
those for which they were constructed; and no sweepings, rubbish, ashes,
newspaper or any other substances of any kind shall be thrown into them. Waste
and excessive or unusual use of electricity or water is prohibited.
3. Tenant shall not (i) obstruct the windows, doors, partitions and lights
that reflect or admit light into the halls or other places in the Building, or
(ii) inscribe, paint, affix, or otherwise display signs, advertisements or
notices in, on, upon or behind any windows or on any door, partition or other
part of the interior or exterior of the Building without the prior written
consent of Landlord which shall not be unreasonably withheld. If such consent be
given by Landlord, any such sign, advertisement, or notice shall be inscribed,
painted or affixed by Landlord, or a company approved by Landlord, but the cost
of the same shall be charged to and be paid by Tenant, and Tenant agrees to pay
the same promptly, on demand.
<PAGE>
4. No contract of any kind with any supplier of towels, water, ice, toilet
articles, waxing, rug shampooing, venetian blind washing, furniture polishing,
lamp servicing, cleaning of electrical fixtures, removal of waste paper, rubbish
or garbage, or other like service shall be entered into by Tenant, nor shall any
vending machine of any kind be installed in the Building, without the prior
written consent of Landlord, which consent of Landlord shall not be unreasonably
withheld.
5. When electric wiring of any kind is introduced, it must be connected as
directed by Landlord, and no stringing or cutting of wires will be allowed,
except with the prior written consent of Landlord which shall not be
unreasonably withheld, and shall be done only by contractors approved by
Landlord. The number and location of telephones, telegraph instruments, electric
appliances, call boxes, etc., shall be subject to Landlord's approval. No
tenants shall lay linoleum or other similar floor covering so that the same
shall be in direct contact with the floor of the Premises; and if linoleum or
other similar floor covering is desired to be used, an interlining of builder's
deadening felt shall be first affixed to the floor by a paste or other material,
the use of cement or other similar adhesive material being expressly prohibited.
6. No additional lock or locks shall be placed by Tenant on any door in
the Building, without prior written consent of Landlord. Two keys will be
furnished Tenant by Landlord; two additional keys will be supplied to Tenant by
Landlord, upon request, without charge; any additional keys requested by Tenant
shall be paid for by Tenant. Tenant, its agents and employees, shall not have
any duplicate keys made and shall not change any locks. All keys to doors and
washrooms shall be returned to Landlord at the termination of the tenancy, and
in the event of any loss of any keys furnished, Tenant shall pay Landlord the
cost thereof.
7. Tenant shall not employ any person or persons other than Landlord's
janitors for the purpose of cleaning the Premises, without prior written consent
of Landlord which shall not be unreasonably withheld. Landlord shall not be
responsible to Tenant for any loss of property from the Premises however
occurring, or for any damage done to the effects of Tenant by such janitors or
any of its employees, or by any other person or any other cause.
8. No bicycles, vehicles or animals of any kind shall be brought into or
kept in or about the Premises.
9. Tenant shall not conduct, or permit any other person to conduct, any
auction upon the Premises; manufacture or store goods, wares or merchandise upon
the Premises, without the prior written approval of Landlord, except the storage
of usual supplies and inventory to be used by Tenant in the conduct of its
business; permit the Premises to be used for gambling; make any unusual noises
in the Building; permit to be played any musical instrument in the Premises;
permit to be played any radio, television, recorded or wired music in such a
loud manner as to disturb or annoy other tenants; or permit any unusual odors to
be produced upon the Premises. Tenant shall not permit any portion of the
Premises to be used for the storage,
<PAGE>
manufacture, or sale of intoxicating beverages, narcotics, tobacco in any form,
or as a barber or manicure shop.
10. No awnings or other projections shall be attached to the outside walls
of the Building. No curtains, blinds, shades or screens shall be attached to or
hung in, or used in connection with, any window or door of the Premises, without
the prior written consent of Landlord which consent shall not be unreasonably
withheld. Such curtains, blinds and shades must be of a quality, type, design,
and color, and attached in a manner reasonably approved by Landlord.
11. Canvassing, soliciting and peddling in the Building are prohibited,
and Tenant shall cooperate to prevent the same.
12. There shall not be used in the Premises or in the Building, either by
Tenant or by others in the delivery or receipt of merchandise, any hand trucks
except those equipped with rubber tires and side guards, and no hand trucks will
be allowed in passenger elevators.
13. Tenant, before closing and leaving its Premises, shall ensure that all
entrance doors to same are locked.
14. Landlord shall have the right to prohibit any advertising by Tenant
which in Landlord's opinion tends to impair the reputation of the Building or
its desirability as a building for offices, and upon written notice from
Landlord, Tenant shall refrain from or discontinue such advertising.
15. Landlord hereby reserves to itself any and all rights not granted to
Tenant hereunder, including, but not limited to, the following rights which are
reserved to Landlord for its purposes in operating the Building:
(a) the exclusive right to the use of the name of the Building for all
purposes, except that Tenant may use the name as its business address and
for no other purpose;
(b) the right to change the name or address of the Building, without
incurring any liability to Tenant for so doing;
(c) the right to install and maintain a sign or signs on the exterior
of the Building;
(d) the exclusive right to use or dispose of the use of the roof of
the Building;
(e) the right to limit the space on the directory of the Building to
be allotted to Tenant;
<PAGE>
(f) the right to grant to anyone the right to conduct any particular
business or undertaking in the Building.
16. As used herein the term "Premises" shall mean and refer to the
"Premises" as defined in Section 1 of the Lease.
17. Tenant shall not operate space heaters or other heating or ventilating
equipment without the express prior written consent of Landlord in each instance
first obtained. Tenant shall not install or operate any electrical equipment,
appliances or lighting fixtures in the Premises which are not listed and labeled
by Underwriter's Laboratories or other testing organization acceptable to
Landlord.
<PAGE>
EXHIBIT "C"
to Agreement of Lease by and between
St. Barnabas Limited Partnership, Landlord
and Constellation Properties, Inc., Tenant
SCHEDULE OF TENANT IMPROVEMENTS
Landlord shall deliver the Premises in "as is" condition and shall not be
required to make any alterations to the Premises.
<PAGE>
EXHIBIT "D"
to Agreement of Lease by and between
St. Barnabas Limited Partnership, Landlord
and Constellation Properties, Inc., Tenant
ESTOPPEL CERTIFICATE
Premises: One Constellation Centre
6009 Oxon Hill Road
Oxon Hill, Maryland 20745
Lease dated:____, 199_ , between ST. BARNABAS LIMITED PARTNERSHIP,
Landlord, and CONSTELLATION PROPERTIES, INC., Tenant.
The undersigned, the Tenant under the above Lease, hereby certifies to
___________________________ to induce_____________ to loan certain funds to
Landlord/_____________ to invest certain funds in the Landlord pursuant to
Landlord's Limited Partnership Agreement, that said Lease is presently in full
force and effect and unmodified; that the term thereof commenced
on__________________ , 19 ____ and full rental is now accruing thereunder; in
addition to the minimum rent payable under the Lease, Tenant is paying the
additional rents as required thereby; that the undersigned accepted possession
of said premises on__________________ , and that any improvements required by
the terms of said Lease to be made by the Landlord have been completed to the
satisfaction of the undersigned; that no rent under said Lease has been paid
beyond ____________________ and that the undersigned, as of this date, has no
charge, lien or claim of offset under said Lease or otherwise, against rents or
other charges due or to become due thereunder, except as to the security
deposits, if any, listed below and to the knowledge of the undersigned, there is
no default by the Landlord under the Lease.
Tenant Deposit held by Landlord: $_____________.
WITNESS OR ATTEST: TENANT:
- -----------------
By: (SEAL)
-------------------
Title:
----------------
<PAGE>
FIRST AMENDMENT TO AGREEMENT OF LEASE
THIS FIRST AMENDMENT TO AGREEMENT OF LEASE (this "Amendment") is made this
31st day of December, 1998, and is effective as of October 13, 1998, by ST.
BARNABAS, LLC, a Maryland limited liability company, successor-in-interest to
St. Barnabas Limited Partnership ("Landlord") and CONSTELLATION PROPERTIES,
INC., a Maryland corporation ("Tenant").
W I T N E S S E T H:
WHEREAS, Landlord and Tenant entered into that Agreement of Lease dated
September 28, 1998 (the "Lease"), by the terms of which Tenant has leased from
Landlord and Landlord leased to Tenant that certain premises located on the
fourth, fifth and sixth floors containing an agreed upon equivalent of 48,863
square feet of rentable area (the "Original Premises") and located within the
office building known as One Constellation Centre, 6009 Oxon Hill Road, Oxon
Hill, Maryland 20745 (the "Building"), all as more particularly described in the
Lease; and
WHEREAS, as contemplated by Section 19.2 of the Lease, Landlord has
notified Tenant that it desires to recapture two (2) separate areas of the
Original Premises (as described below) and Landlord and Tenant mutually desire
to amend the Lease with respect to the size of the Original Premises and other
matters as more particularly set forth below.
NOW, THEREFORE, in consideration of the above Recitals and the mutual
covenants and conditions contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
Landlord and Tenant agree as follows:
1. Effective Date. The Effective Date of this Amendment shall be October 13,
1998.
2. Reduction of Premises.
2.1 As of October 13, 1998, the Original Premises shall be reduced by the
space known as Suite 414, which contains 2,621 rentable square feet (the
"Recapture Space #1") as shown on Exhibit A attached hereto and made a part
hereof.
2.2 As of December 1, 1998, the Original Premises shall be reduced by the
space known as Suite 412, which contains 2,654 rentable square feet (the
"Recapture Space #2") as shown on Exhibit B attached hereto and made a part
hereof.
Definition of "Premises".
3.1 For the period commencing on October 13, 1998 and ending on November
30, 1998, any references in the Lease to the "Premises" shall refer to 46,242
rentable square feet.
3.2 For the period commencing on December 1, 1998 and continuing through
the expiration of the Term, any references in the Lease to the "Premises" shall
refer to 43,588 rentable square feet.
3.3 Landlord shall use such varying definitions of "Premises" to compute
Tenant's liability for any additional rent hereunder, including, without
limitation, Building Expenses and Taxes.
3. Amendment of Section 5.1--Base Rent. Section 5.1 of the Lease is deleted in
its entirety and the following is inserted in lieu thereof:
5.1 Base Rent. As rent for the Premises during each year of the Term,
Tenant shall pay to Landlord an annual base rent, in equal monthly
installments, in advance on the first day of each calendar month during
the Term, and without deduction, setoff or demand, in accordance with the
following schedule
<PAGE>
Lease Year Annual Base Rent Monthly Installment of Base Rent
- ---------- ---------------- --------------------------------
(Or pro rata share thereof)
9/28/98-10/12/98 $903,965.52 $75,330.46
10/13/98-11/30/98 $855,477.00 $71,289.75
12/1/98-9/28/00 $806,378.04 $67,198.17
Landlord shall credit any overpayment of Base Rent due hereunder against
the next installment of Base Rent due under the terms of the Lease.
4. Ratification of Lease. All other terms, covenants and conditions of the Lease
shall remain the same and continue in full force and effect, and shall be deemed
unchanged, except as such terms, covenants and conditions of the Lease have been
amended or modified by this Amendment, and this Amendment shall constitute a
part of the Lease.
IN WITNESS WHEREOF, Landlord and Tenant have respectively affixed their
hands and seals to this Amendment as of the day and year written below their
respective signatures.
WITNESS: LANDLORD:
ST. BARNABAS, LLC
/s/ Karen [ILLEGIBLE] By: /s/ Roger A. Waesche, Jr.(SEAL)
- ------------------------- -------------------------
Roger A. Waesche, Jr.
Senior Vice President
WITNESS: TENANT:
CONSTELLATION PROPERTIES, INC.
/s/ Dawn Novak By: /s/ Steven D. Kesler (SEAL)
- ------------------------- -------------------------
Name: Steven D. Kesler
------------------------
Title: President
-----------------------
STATE OF MARYLAND, COUNTY OF Baltimore, TO WIT:
I HEREBY CERTIFY, that on this 31st day of December, 1998, before me, the
undersigned Notary Public of said State, personally appeared ROGER A. WAESCHE,
JR. who acknowledged himself to be a Senior Vice President of ST. BARNABAS, LLC,
a Maryland limited liability company known to me (or satisfactorily proven) to
be the person whose name is subscribed to the within instrument, and
acknowledged that he executed the same for the purposes therein contained as the
duly authorized Senior Vice President by signing the name of the limited
liability company by himself as Senior Vice President.
WITNESS my hand and Notarial Seal.
/s/ Zarae Pitts
--------------------------------
Notary Public
ZARAE PITTS
NOTARY PUBLIC STATE OF MARYLAND
My Commission Expires: My Commission Expires November 25, 2002
---------------------------------------
2
<PAGE>
STATE OF MARYLAND, County of Herford , TO WIT:
I HEREBY CERTIFY, that on this 30th day of December, 1998, before me, the
undersigned Notary Public of said State, personally appeared Steven D. Kesler,
known to me (or satisfactorily proven) to be the person whose name is subscribed
to the within instrument, and acknowledged himself/herself to be the President
of CONSTELLATION PROPERTIES, INC., a Maryland corporation, that he/she, as such,
being authorized so to do, executed the foregoing instrument on behalf of said
Corporation by himself/herself as such President.
WITNESS my hand and Notarial Seal.
/s/ Janet R. Cunningham
---------------------------
Notary Public
My Commission Expires: May 1, 2000
Janet R. Cunningham, Notary Public
Herford County
State of Maryland
My Commission Expires May 1, 2000
3
<PAGE>
THREE CENTRE PARK BUILDING
THIS AGREEMENT OF LEASE, made this 3rd day of August, 1998, by and between
CONSTELLATION REAL ESTATE, INC., a Maryland corporation, Agent for Owner (the
"Landlord") and CONSTELLATION PROPERTIES, INC., a Maryland corporation (the
"Tenant"), witnesseth that the parties hereby agree as follows:
1. Premises. Landlord is the owner of the Three Centre Park Office Building (the
"Building"), an office building located at 8815 Centre Park Drive, Columbia,
Maryland 21045.
Landlord does hereby lease unto Tenant, and Tenant does hereby rent from
Landlord a total area containing an agreed upon equivalent of 3,299 square feet
of rentable area which is comprised of (i) that portion of the Building on the
first floor designated as Suite 104 containing the agreed upon equivalent of
3,213 square feet of rentable area and (ii) that portion of the Building on the
second floor designated as "Shower Area" containing the agreed upon equivalent
of 86 square feet of rentable area (collectively, the "Premises") described on
the schedule attached hereto as Exhibit "A" and made a part hereof. In addition
thereto, Tenant shall have the right to use, on a non-exclusive basis, and in
common with the other tenants of the Building the Common Areas of the Building
(as that term is defined in Section 5.2.6 hereof).
2. Term.
2.1 This Lease shall commence April 20, 1998 (the "Commencement Date") and
shall be for a term (the "Initial Term") of three (3) years, which shall expire
on April 30, 2001.
2.2 Provided Tenant is not in default of any term, covenant or condition
of this Lease, Tenant shall have the option to extend the Initial Term of this
Lease for one (1) additional period of two (2) years (the "Renewal Term") to
commence immediately upon the expiration of the Initial Term.
Tenant's rental of the Premises during the Renewal Term shall be upon the
same terms, covenants and conditions contained in this Lease, except that Tenant
shall pay to Landlord as Base Rent that amount equal to the "Prevailing Market
Rate" for the Premises for the Renewal Term as hereinafter defined (including
annual adjustments). For purposes of this Section 2.2, the term "Prevailing
Market Rate" shall mean the then prevailing market rate being charged for
comparable space in comparable office buildings within a ten (10) mile radius of
the Premises, with consideration given for construction allowances, commissions,
free rent, and other concessions or premiums. In order to exercise its option
granted herein, Tenant shall notify Landlord in writing of its intent to renew
not less than one hundred and eighty (180) days prior to the expiration of the
Initial Term. Within thirty (30) days following the exercise by Tenant of its
option to extend the Lease for the Renewal Term, Landlord shall notify Tenant in
writing of its determination of the Prevailing Market Rate for the Renewal Term
as reasonably determined by Landlord ("Landlord's Notice"). Within ten (10) days
after receipt of Landlord's Notice, Tenant shall notify Landlord in writing of
Tenant's acceptance or rejection of such rate. If Tenant shall accept such
Prevailing Market Rate, Landlord and Tenant shall enter into an amendment to
this Lease acknowledging such renewal and setting forth any terms at variance
with the terms of this Lease. If within the ten (10) day period, Tenant shall
reject such Prevailing Market Rate as determined by Landlord for the Renewal
Term, then within twenty (20) days thereafter, Landlord and Tenant shall meet at
a mutually acceptable time and place and shall use their reasonable efforts to
agree upon the Prevailing Market Rate. If Landlord and Tenant shall fail to
agree upon such Prevailing Market Rate within the twenty (20) day period, then
Tenant's option to extend the Lease for the Renewal Term shall be void and
inoperable. If Tenant shall fail to respond to Landlord's Notice as provided
above, or if Tenant shall fail to deliver the requisite notice exercising its
option to extend by the date prescribed above, then Tenant's option to extend
the Term for the Renewal Term shall be void and inoperable.
<PAGE>
2.3 As used herein, the word "Term" shall refer to the Initial Term and
the Renewal Term, if any.
3. Security Deposit and Advance Rent. Intentionally Left Blank.
4. Use. Tenant shall use and occupy the Premises continuously during the Term of
this Lease solely for general office purposes in accordance with applicable
zoning regulations and for no other purpose. Tenant acknowledges that (a)
violation of the foregoing continuous occupancy and use covenant shall be a
material breach of this Lease, and (b) Landlord considers such continuous use
and occupancy covenant a valuable contractual interest with which no other
landlord should interfere by attempting to induce Tenant to move to another
building. Tenant recognizes that its occupancy of the Premises continuously
throughout the Term of this Lease provides Landlord a significant benefit in the
perception of the Building by other prospective tenants who will negotiate with
Landlord for space in the Building in the future as well as the perception of
other existing tenants who will be negotiating with Landlord to renew their
leases and remain in the Building.
5. Rent.
5.1 Commencing on the Commencement Date, as rent for the Premises during
each year of the Term, Tenant shall pay to Landlord an annual base rent ("Base
Rent") in equal monthly installments in accordance with the following schedule,
in advance on the first day of each calendar month during the Term, and without
deduction, set off or demand.
Rental Year Annual Base Rent Monthly Base Rent
- ----------- ---------------- -----------------
1 $65,980.00 $5,498.33
2 $67,959.40 $5,663.28
3 $69,998.14 $5,833.18
In addition to the Base Rent, if the Term should commence on a day other than
the first day of a calendar month, Tenant shall pay to Landlord upon the
Commencement Date, a sum equaling that percentage of the monthly rent
installment which equals the percentage of such calendar month falling within
the Term.
5.2 Definitions. For the purposes hereof, the following definitions shall
apply:
5.2.1 "Property" shall mean the Building, the land upon which same
is situated and all fixtures and equipment thereon or therein, all commonly
owned or shared appurtenances, including but not limited to, parking areas,
walkways, landscaping and utilities, whether located on the land upon which the
Building is situated or elsewhere.
5.2.2 "Building Expenses" shall be all those expenses paid or
incurred by Landlord in connection with the owning, maintaining, operating and
repairing of the Property or any part thereof, in a manner deemed reasonable and
appropriate by Landlord and shall include, without limitation, the following:
(a) All costs and expenses of operating, repairing, lighting,
cleaning, and insuring (including liability for personal injury, death and
property damage and workers' compensation insurance covering personnel) the
Property or any part thereof, as well as all costs incurred in removing snow,
ice and debris therefrom and of policing and regulating traffic with respect
thereto, and depreciation of all machinery and equipment used therein or
thereon, replacing or repairing of pavement, parking areas, curbs, walkways,
drainage, lighting facilities, landscaping (including replanting and replacing
flowers and other planting);
(b) Electricity, steam and fuel used in lighting, heating,
ventilating and air conditioning;
2
<PAGE>
(c) Maintenance and repair of mechanical and electrical
equipment including heating, ventilating and air conditioning equipment;
(d) Window cleaning and janitor service, including equipment,
uniforms, and supplies and sundries;
(e) Maintenance of elevators, stairways, rest rooms, lobbies,
hallways and other Common Areas;
(f) Repainting and redecoration of all Common Areas;
(g) Sales or use taxes on supplies or services;
(h) Management fees, wages, salaries and compensation of all
persons engaged in the maintenance, operation or repair of the Property
(including Landlord's share of all payroll taxes);
(i) Legal, accounting and engineering fees and expenses,
except for those related to disputes with tenants or which are a result of
and/or are based on Landlord's negligence or other tortious conduct;
(j) Costs and expenses that may result from compliance with
any governmental laws or regulations that were not applicable to the Common
Areas at the time same were originally constructed; and
(k) All other expenses which under generally accepted
accounting principles would be considered as an expense of maintaining,
operating, or repairing the Property. Notwithstanding the foregoing, all
expenses (whether or not such expenses are enumerated on items 1 through 10 of
this Section 5.2.2) which would be considered capital in nature under generally
accepted accounting principles ("GAAP") shall be excluded from "Building
Expenses," unless such expenses are amortized in accordance with GAAP.
Notwithstanding anything herein to the contrary, none of the following
items shall be included in the computation of Building Expenses:
(a) Wages, salaries, fees, and fringe benefits paid to administrative or
executive personnel or officers or partners of Landlord unless employed at
competitive rates as independent contractors;
(b) Any charge for depreciation of the Building or equipment and any
interest or other financing charge;
(c) Any charge for Landlord's income taxes, excess profit taxes, franchise
taxes, or similar taxes on Landlord's business;
(d) All costs relating to activities for the solicitation and execution of
leases of space in the Building;
(e) All costs for which Tenant or any other tenant in the Building is
being charged other than pursuant to Sections 5.3 and 5.4;
(f) The cost of any electric current furnished to the Premises or any
rentable area of the Building for purposes other than the operation of Building
equipment and machinery and the lighting of public toilets, stairways,
shaftways, and Building machinery or fan rooms;
(g) The cost of correcting defects in the construction of the Building or
in the Building equipment, except that conditions (not occasioned by
construction defects) resulting from ordinary wear and tear will not be deemed
defects for the purpose of this section;
3
<PAGE>
(h) The cost of any repair made by Landlord because of the total or
partial destruction of the Building or the condemnation of a portion of the
Building;
(i) Any insurance premium to the extent that Landlord is entitled to be
reimbursed for it by Tenant pursuant to this Lease or by any tenant of the
Building pursuant to a similar lease other than pursuant to clauses comparable
to this section;
(j) The cost of any items for which Landlord is reimbursed by insurance or
otherwise compensated by parties other than tenants of the Building pursuant to
clauses similar to this section;
(k) Any operating expense representing an amount paid to a related
corporation, entity, or person that is in excess of the amount that would be
paid in the absence of such relationship;
(l) The cost of any work or service performed for or facilities furnished
to any tenant of the Building to a greater extent or in a manner more favorable
to such tenant than that performed for or furnished to Tenant;
(m) The cost of alterations of space in the Building leased to other
tenants;
(n) The cost of overtime or other expense to Landlord during its defaults
or performing work expressly provided in this Lease to be borne at Landlord's
expense;
(o) Amounts paid (including interest and penalties) in order to comply
with or cure violations of statutes, laws, or ordinances by Landlord or any part
of the Building, except as provided in Section 6;
5.2.3 "Taxes" shall mean all real property taxes including currently
due installments of assessments, sewer rents, ad valorem charges, water rates,
rents and charges, front foot benefit charges, and all other governmental
impositions in the nature of any of the foregoing. Excluded from Taxes are (i)
federal, state or local income taxes, (ii) franchise, gift, transfer, excise,
capital stock, estate or inheritance taxes, and (iii) penalties or interest
charged for late payment of Taxes. If at any time during the Lease Term the
method of taxation prevailing at the commencement of the Term shall be altered
so as to cause the whole or any part of the items listed in the first sentence
of this Subparagraph 5.2.3 to be levied, assessed or imposed, wholly or partly
as a capital levy, or otherwise, on the rents received from the Building, wholly
or partly in lieu of imposition of or in addition to the increase of taxes in
the nature of real estate taxes issued against the Property, then the charge to
Landlord resulting from such altered additional method of taxation shall be
deemed to be within the definition of "Taxes."
5.2.4 "Base Year Building Expenses" shall mean the actual Building
Expenses per rentable square foot incurred by Landlord in 1998.
5.2.5 "Base Year Taxes" shall mean the actual Taxes incurred by
Landlord per rentable square foot for the 1998-1999 tax year.
5.2.6 "Common Areas" shall mean those areas and facilities which may
be from time to time furnished to the Building by Landlord for the non-exclusive
general common use of tenants and other occupants of the Building, their
officers, employees, and invitees, including (without limitation) the hallways,
stairs, parking facilities, washrooms, and elevators.
5.2.7 "Lease Year" shall mean the first twelve (12) month period
following the Commencement Date and each succeeding twelve (12) month period
thereafter up to the end of the Term; provided, however, that if the
Commencement Date shall occur on a day other than the first day of a calendar
month, then the first Lease Year shall include that portion of a calendar month
in which the Commencement Date occurs in addition to the first twelve (12) month
period.
4
<PAGE>
5.3 Rent Adjustments for Taxes.
5.3.1 At or after the time that Taxes are due and payable, Landlord
shall total the Taxes and shall allocate such Taxes to the rentable area within
the Building in the following manner: Taxes shall be totaled and such total
shall be divided by the total rentable square feet in the Building thereby
deriving the "Cost of Taxes Per Square Foot" of rentable area.
5.3.2 In the event that the Cost of Taxes Per Square Foot assessed
for any tax year which is wholly or partly within the Lease Term are greater
than the Base Year Taxes, Tenant shall pay to Landlord, as additional rent at
the time such Taxes are due and payable, the amount of such excess times the
number of rentable square feet in the Premises. Any additional rent due Landlord
under this Section 5.3 shall be due and payable within thirty (30) days after
Landlord shall have submitted a written statement to Tenant showing the amount
due. For Tenant's obligation for such additional rent at the beginning or end of
the Lease, see Section 5.6. Landlord may, in its discretion, make a reasonable
estimate of such additional rent with respect to Taxes, and require Tenant to
pay each month during such year 1/12 of such amount, at the time of payment of
monthly installments of Base Rent. In such event, Tenant shall pay, or Landlord
shall refund or credit to Tenant's account, any underpayment or overpayment of
such additional rent within thirty (30) days of Landlord's annual written
statement of Taxes due. Tenant shall have the right to examine, at Tenant's sole
expense, Landlord's records with respect to any such increases in rent;
provided, however, that unless Tenant shall have given Landlord written notice
of exception to any such statement within thirty (30) days after delivery
thereof, the same shall be conclusive and binding on Tenant. No credit shall be
given to Tenant if the cost of Taxes Per Square Foot are less than the Base Year
Taxes.
As of the date of this Lease, the tax year is a fiscal year commencing
July 1. If the appropriate authorities shall hereafter change the tax year to a
calendar year, or to a fiscal year commencing on a date other than July 1,
appropriate adjustments shall be made in the computation of any additional rent
due hereunder.
All reasonable expenses incurred by Landlord (including attorneys',
appraisers' and consultants' fees, and other costs) in contesting any increase
in Taxes or any increase in the assessment of the Property shall be included as
an item of Taxes for the purpose of computing additional rent due hereunder.
5.4 Rent Adjustments for Building Expenses.
5.4.1 After the end of each calendar year, Landlord shall compute
the Building Expenses for such year and shall allocate such costs to the
rentable area within the Building in the following manner: Building Expenses
shall be totaled and such total shall be divided by the total rentable square
feet in the Building thereby deriving the "Cost of Building Expenses Per Square
Foot" of rentable area.
5.4.2 In the event that the cost of Building Expenses Per Square
Foot of rentable area for any year which is wholly or partly within the Term are
greater than the Base Year Building Expenses, Tenant shall pay to Landlord, as
additional rent, the amount of such excess times the number of rentable square
feet in the Premises, as set forth in Section 1 above. If occupancy of the
Building during any calendar year is less than ninety-five percent (95%), then
Building Expenses for that calendar year shall be "grossed up" to that amount of
Building Expenses that, using reasonable projections, would normally be expected
to be incurred during the calendar year in question if the Building was
ninety-five percent (95%) occupied during the applicable calendar year period,
as determined under generally accepted accounting principles; it being
understood that the written statement submitted to Tenant shall provide a
reasonably detailed description of how the Building Expenses were grossed up and
that only those component expenses that are affected by variations in occupancy
levels shall be grossed up. Such additional rent shall be computed on a
year-to-year basis. Any such additional rent shall be due within thirty (30)
days after Landlord has submitted a written statement to Tenant showing the
amount due. Landlord may, in its discretion, make a reasonable estimate of such
additional rent with respect to any calendar year, and require
5
<PAGE>
Tenant to pay each month during such year 1/12 of such amount, at the time of
payment of monthly installments of Base Rent. In such event, Tenant shall pay,
or Landlord shall refund or credit to Tenant's account, any underpayment or
overpayment of such additional rent within thirty (30) days of Landlord's
written statement of actual Building Expenses for the Calendar year. Tenant, at
Tenant's sole expense, shall have the right to examine Landlord's records with
respect to any such increases in rent; provided, however, that unless Tenant
shall have given Landlord written notice of exception to any such statement
within thirty (30) days after delivery thereof, the same shall be conclusive and
binding on Tenant. No credit shall be given to Tenant if the cost of Building
Expenses Per Square Foot are less than the Base Year Building Expenses.
Notwithstanding anything to the contrary contained herein Landlord shall use
diligent efforts to keep Building Expenses at reasonable amounts, while
maintaining the Building as a first class office building.
5.5 Additional Rent Payments. Tenant's obligation to pay any additional
rent accruing during the Lease Term pursuant to Sections 5.3 and 5.4 hereof
shall apply pro rata to the proportionate part of a tax year as to Taxes, and
calendar year, as to Building Expenses, in which this Lease begins or ends, for
the portion of each such year during which this Lease is in effect. Such
obligation to make payments of such additional rent shall survive the expiration
or sooner termination of the Lease Term, whether or not this Lease is superseded
by a subsequent lease of the Premises or of any other space or Tenant leaves the
Building; any such superseding lease shall not serve to supersede Tenant's
obligation for any such additional rent unless it makes express reference
thereto and recites that such additional rent is abated in consideration of the
superseding lease.
5.6 Payments. All payments or installments of any rent hereunder and all
sums whatsoever due under this Lease (including but not limited to court costs
and attorneys fees) shall be deemed rent, shall be paid to Landlord at the
address designated by Landlord, and if not paid when due, shall be subject to a
late charge of $35.00 for each late payment and shall bear interest at the rate
of 18% per annum (but not more than the maximum allowable legal rate applicable
to Tenant) until paid. Additionally, if any of Tenant's checks for payment of
rent or additional rent are returned to Landlord for insufficient funds, Tenant
shall pay to Landlord as additional rent $50.00 for each such check returned for
insufficient funds, and if two or more of Tenant's checks in payment of rent or
additional rent due hereunder are returned for insufficient funds in any
calendar year, Landlord reserves the right upon ten (10) days advance written
notice to Tenant to thereafter require Tenant to pay all rent and additional
rent and other sums whatsoever due under this Lease in cash, by money order or
by certified check or cashier's check. If an attorney is employed to enforce
Landlord's rights under this Lease, Tenant shall pay all fees and expenses of
such attorney whether or not legal proceedings are instituted by Landlord.
However, where legal proceedings are instituted by Landlord against Tenant, and
said legal proceedings result in a monetary judgment in favor of Landlord, those
reasonable attorney fees for which Tenant shall be liable to Landlord shall not
be less than fifteen percent (15%) of such monetary judgment. Time is of the
essence in this Lease.
6. Requirements of Applicable Law. Landlord warrants that on the Commencement
Date, the Premises shall comply with all applicable laws, ordinances, rules and
regulations of governmental authorities having jurisdiction over the Property
("Applicable Laws"). Tenant, at its sole cost and expense, shall thereafter
comply promptly with all Applicable Laws now in force or which may hereafter be
in force, which impose any duty upon Landlord or Tenant with respect to the
Tenant's specific use, occupancy or alteration of the Premises or any part
thereof and for the prevention of fires; provided, however, that Landlord and
not Tenant shall correct all structural defects in the Building necessary to
comply with Applicable Laws, and make all repairs, changes or alterations
necessary because the Building was not constructed in compliance with any of
said Applicable Laws.
7. Certificate of Occupancy. Tenant shall not use or occupy the Premises in
violation of any certificate of occupancy, permit, or other governmental consent
issued for the Building. If any governmental authority, after the commencement
of the Lease Term, shall contend or declare that the Premises are being used for
a purpose which is in violation of such certificate of occupancy, permit, or
consent, then Tenant shall, upon five (5) days' notice from Landlord,
immediately discontinue such use of the Premises. If thereafter the governmental
authority asserting such violation threatens, commences or continues criminal or
civil proceedings against Landlord for
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Tenant's failure to discontinue such use, in addition to any and all rights,
privileges and remedies given to Landlord under this Lease for default therein,
Landlord shall have the right to terminate this Lease forthwith. Tenant shall
indemnify and hold Landlord harmless of and from any and all liability for any
such violation or violations.
8. Contest-Statute, Ordinance, Etc. Tenant may, after notice to Landlord, by
appropriate proceedings conducted promptly at Tenant's own expense in Tenant's
name and whenever necessary in Landlord's name, contest in good faith the
validity or enforcement of any such statute, ordinance, law, order, regulation
or requirement and may similarly contest any assertion of violation of any
certificate of occupancy, permit, or any consent issued for the Building. Tenant
may, pending such contest, defer compliance therewith if, in the opinion of
counsel for Landlord, such deferral shall not subject either Landlord or the
Premises or the Property (or any part thereof) to any penalty, fine or
forfeiture, and if Tenant shall post a bond with corporate surety approved by
Landlord sufficient, in Landlord's opinion, fully to indemnify Landlord from
loss.
9. Tenant's Improvements. Except to the extent that Landlord is responsible for
making improvements to the Premises pursuant to Section 34 of this Lease, Tenant
shall make such improvements to the Premises as it may deem necessary at its
sole cost and expense. Tenant shall not make any alterations, decorations,
installations, additions or improvements to the Premises, including but not
limited to, the installation of any fixtures, amenities, equipment, appliances,
or other apparatus, without Landlord's prior written consent which consent shall
not be unreasonable withheld or delayed), and then only by contractors or
mechanics employed or approved by Landlord. All such work, alterations,
decorations, installations, additions or improvements shall be done at Tenant's
sole expense and at such times and in such manner as Landlord may from time to
time designate, subject to Force Majeure Events (as defined in Section 48).
Landlord's consent to and/or approval of Tenant's plans and specifications for
the aforesaid improvements shall create no responsibility or liability on the
part of Landlord for their completeness, design sufficiency, or compliance with
all laws, rules and regulations of governmental agencies or authorities. All
alterations, decorations, installations, additions or improvements made by
either of the parties hereto upon the Premises, except movable office furniture
put in at the expense of Tenant and other items as mutually agreed upon in
writing, shall be the property of Landlord and shall remain upon and be
surrendered with the Premises at the termination of this Lease without
molestation or injury.
10. Repairs and Maintenance.
10.1 Tenant's Care of the Premises and Building. During the Lease Term
Tenant shall:
(i) keep the Premises and the fixtures, appurtenances and
improvements therein in good order and condition;
(ii) make repairs and replacements to the Premises required because
of Tenant's misuse or primary negligence, except to the extent that the repairs
or replacements are covered by Landlord's insurance as required hereunder;
(iii) repair and replace special equipment or decorative treatments
installed by or at Tenant's request and that serve the Premises only, except to
the extent the repairs or replacements are needed because of Landlord's misuse
or primary negligence, and are not covered by Tenant's insurance as required
hereunder;
(iv) pay for all damage to the Building, its fixtures and
appurtenances, as well as all damages sustained by Tenant or occupants of the
Building due to any waste, misuse or neglect of the Premises, its fixtures and
appurtenances by Tenant, except to the extent that the repair of such damage is
covered by Landlord's insurance as required hereunder; and
(v) not commit waste.
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In addition Tenant shall not place a load upon any floor of the Premises
exceeding the floor load per square foot area which such floor was designed to
carry and which may be allowed under Applicable Laws. Landlord reserves the
right to prescribe the weight and position of all heavy equipment brought onto
the Premises and prescribe any reinforcing required under the circumstances, all
such reinforcing to be at Tenant's expense.
10.2 Landlord's Repairs. Except for the repairs and replacements that
Tenant is required to make pursuant to Section 10.1 above, Landlord shall make
all other repairs and replacements to the Premises, Common Areas and Building
(including Building fixtures and equipment) as shall be reasonably deemed
necessary to maintain the Building in a condition comparable to other first
class suburban office buildings in the Baltimore-Washington corridor area. This
maintenance shall include the roof, foundation, exterior walls, interior
structural walls, all structural components, and all systems such as mechanical,
electrical, multi-tenant HVAC, and plumbing. The costs associated with such
repairs shall be deemed a part of Building Expenses; provided, however, that
costs of all of such repairs which would be considered capital in nature under
generally accepted accounting principles and any other items excluded from the
definition of Building Expenses shall be paid by Landlord. There shall be no
allowance to Tenant for a diminution of rental value, no abatement of rent, and
no liability on the part of Landlord by reason of inconvenience, annoyance or
injury to business arising from Landlord, Tenant or others making any repairs or
performing maintenance as provided for herein.
10.3 Time for Repairs. Repairs or replacements required pursuant to
Section 10.1 and 10.2 above shall be made within a reasonable time (depending on
the nature of the repair or replacement needed - generally no more than fifteen
(15) days) after receiving notice or having actual knowledge of the need for a
repair or replacement, and subject to reasonable delays for Force Majeure Events
(as defined in Section 48).
10.4 Surrender of the Premises. Upon the termination of this Lease, Tenant
shall surrender the Premises to Landlord in the same broom clean condition that
the Premises were in on the Commencement Date except for:
(i) ordinary wear and tear;
(ii) damage by the elements, fire, and other casualty unless Tenant
would be required to repair under the provisions of this Lease;
(iii) damage arising from any cause not required to be repaired or
replaced by Tenant; and
(iv) alterations as permitted by this Lease unless consent was
conditioned on their removal.
On surrender Tenant shall remove from the Premises its personal property,
trade fixtures and any alterations required to be removed pursuant to the terms
of this Lease and repair any damage to the Premises caused by this removal. Any
items not removed by Tenant as required above shall be considered abandoned.
Landlord may dispose of abandoned items as Landlord chooses and bill Tenant for
the cost of their disposal.
11. Conduct on Premises. Tenant shall not do, or permit anything to be done in
the Premises, or bring or keep anything therein which shall, in any way,
increase the rate of fire insurance on the Building, or invalidate or conflict
with the fire insurance policies on the Building, fixtures or on property kept
therein, or obstruct or interfere with the rights of Landlord or of other
tenants, or in any other way injure or annoy Landlord or the other tenants, or
subject Landlord to any liability for injury to persons or damage to property,
or interfere with the good order of the Building, or conflict with Applicable
Laws, or the Maryland Fire Underwriters Rating Bureau. Tenant agrees that any
increase of fire insurance premiums on the Building or contents caused by the
occupancy of Tenant and any expense or cost incurred in consequence of
negligence or carelessness or the willful action
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of Tenant, Tenant's employees, agents, servants, or invitees shall, as they
accrue be added to the rent heretofore reserved and be paid as a part thereof;
and Landlord shall have all the rights and remedies for the collection of same
as are conferred upon Landlord for the collection of rent provided to be paid
pursuant to the terms of this Lease.
12. Insurance.
12.1 Tenant's Insurance. Tenant shall keep in force at its own expense, so
long as this Lease remains in effect, (a) public liability insurance, including
insurance against assumed or contractual liability under this Lease, with
respect to the Premises, to afford protection with limits, per person and for
each occurrence, of not less than One Million Dollars ($1,000,000), combined
single limit, with respect to personal injury and death and property damage,
such insurance to provide for only a reasonable deductible, (b) all-risk
property and casualty insurance, including theft, written at replacement cost
value and with replacement cost endorsement, covering all of Tenant's personal
property in the Premises and all improvements and installed in the Premises by
or on behalf of Tenant whether pursuant to the terms of Section 34, Section 9,
or otherwise, such insurance to provide for only a reasonable deductible, (c)
if, and to the extent, required by law, workmen's compensation or similar
insurance offering statutory coverage and containing statutory limits, and (d)
shall insure all plate and other interior glass in the Premises for and in the
name of Landlord. Such policies shall be maintained in companies and in form
reasonably acceptable to Landlord and shall be written as primary policy
coverage and not contributing with, or in excess of, any coverage which Landlord
shall carry. Tenant shall deposit the policy or policies of such required
insurance or certificates thereof with Landlord prior to the Commencement Date,
which policies shall name Landlord or its designee and, at the request of
Landlord, its mortgagees, as additional named insured and shall also contain a
provision stating that such policy or policies shall not be canceled except
after thirty (30) day's written notice to Landlord or its designees. All such
policies of insurance shall be effective as of the date Tenant occupies the
Premises and shall be maintained in force at all times during the Term of this
Lease and all other times during which Tenant shall occupy the Premises. In
addition to the foregoing insurance coverage, Tenant shall require any
contractor retained by it to perform work on the Premises to carry and maintain,
at no expense to Landlord, during such times as contractor is working in the
Premises, a non-deductible (i) comprehensive general liability insurance policy,
including, but not limited to, contractor's liability coverage, contractual
liability coverage, completed operations coverage, broad form property damage
endorsement and contractor's protective liability coverage, to afford protection
with limits per person and for each occurrence, of not less than Two Hundred
Thousand Dollars ($200,000.00), combined single limit, with respect to personal
injury and death and property damage, such insurance to provide for no
deductible, and (ii) workmen's compensation insurance or similar insurance in
form and amounts as required by law. In the event of damage to or destruction of
the Premises and the termination of this Lease by Landlord pursuant to Section
17 herein, Tenant agrees that it shall pay Landlord all of its insurance
proceeds relating to improvements made in the Premises by or on behalf of Tenant
whether pursuant to the terms of Section 34, Section 9, or otherwise. If Tenant
fails to comply with its covenants made in this Section, if such insurance would
terminate or if Landlord has reason to believe such insurance is about to be
terminated, Landlord may at its option cause such insurance as it in its sole
judgment deems necessary to be issued, and in such event Tenant agrees to pay
promptly upon Landlord's demand, as additional rent the premiums for such
insurance.
12.2 Landlord's Insurance. Landlord shall keep in force at its own expense
(a) contractual and comprehensive general liability insurance, including public
liability and property damage, with a minimum combined single limit of liability
of Two Million Dollars ($2,000,000.00) for personal injuries or death of persons
occurring in or about the Building and Premises, and (b) all-risk property and
casualty insurance written at replacement cost value covering the Building and
all of Landlord's improvements in and about same.
12.3 Waiver of Subrogation. Each party hereto waives claims arising in any
manner in its favor and against the other party and agrees that neither party
hereto shall be liable to the other party or to any insurance company (by way of
subrogation or otherwise) insuring the other party for any loss or damage to the
Building, the Premises or other tangible property, or any resulting loss of
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income, or losses under worker's compensation laws and benefits, or against
liability on or about the Building, even though such loss or damage might have
been occasioned by the negligence of such party, its agents or employees if any
such loss or damage is covered by insurance benefiting the party suffering such
loss or damage as was required to be covered by insurance carried pursuant to
this Lease. Landlord shall cause each insurance policy carried by it insuring
against liability on or about the Building or insuring the Premises and the
Building or income resulting therefrom against loss by fire or any of the
casualties covered by the all-risk insurance carried by it hereunder to be
written in such a manner as to provide that the insurer waives all right of
recovery by way of subrogation against Tenant in connection with any loss or
damage covered by such policies. Tenant shall cause each insurance policy
carried by it insuring against liability or insuring the Premises (including the
contents thereof and Tenant's Improvements installed therein by Tenant or on its
behalf) against loss by fire or any of the casualties covered by the all-risk
insurance required hereunder to be written in such a manner as to provide that
the insurer waives all right of recovery by way of subrogation against Landlord
in connection with any loss or damage covered by such policies.
13. Rules and Regulations. Tenant shall be bound by the rules and regulations
set forth on the schedule attached hereto as Exhibit "B" and made a part hereof.
Landlord shall have the right, from time to time, to issue additional or amended
rules and regulations regarding the use of the Building, so long as said rules
shall be reasonable and non-discriminatory between tenants. When so issued the
same shall be considered a part of this Lease and Tenant covenants that said
additional or amended rules and regulations shall likewise be faithfully
observed by Tenant, the employees of Tenant and all persons invited by Tenant
into the Building, provided, that said additional or amended rules are made
applicable to all office tenants similarly situated as Tenant. Landlord shall
not be liable to Tenant for the violation of any of the said rules and
regulations, or the breach of any covenant or condition in any lease, by any
other tenant in the Building.
14. Mechanics' Liens. Tenant shall not do or suffer to be done any act, matter
or thing whereby Tenant's interest in the Premises, or any part thereof, may be
encumbered by any mechanics' lien. Tenant shall discharge, within ten (10) days
after the date of filing, any mechanics' liens filed against Tenant's interest
in the Premises, or any part thereof, purporting to be for labor or material
furnished or to be furnished to Tenant. Landlord shall not be liable for any
labor or materials furnished or to be furnished to Tenant upon credit, and no
mechanics' or other lien for labor or materials shall attach to or affect the
reversionary or other estate or interest of Landlord in and to the Premises, or
the Property.
15. Tenant's Failure to Repair. In the event that Tenant fails after reasonable
prior written notice from Landlord, to keep the Premises in a good state of
condition and repair pursuant to Section 10 above, or to do any act or make any
payment required under this Lease or otherwise fails to comply herewith,
Landlord may, at its option (but without being obliged to do so) immediately, or
at any time thereafter and without notice, perform the same for the account of
Tenant, including the right to enter upon the Premises at all reasonable hours
to make such repairs, or do any act or make any payment or compliance which
Tenant has failed to do, and upon demand, Tenant shall reimburse Landlord for
any such expense incurred by Landlord including but not limited to any costs,
damages and counsel fees. Any moneys expended by Landlord, as aforesaid, shall
be deemed additional rent, collectible as such by Landlord. All rights given to
Landlord in this section shall be in addition to any other right or remedy of
Landlord herein contained.
16. Property -- Loss, Damage. Landlord, its agents and employees shall not be
liable to Tenant for (i) any damage or loss of property of Tenant placed in the
custody of persons employed to provide services for or stored in or about the
Premises and/or the Building, unless such damage or loss is the result of the
negligence of Landlord, (ii) any injury or damage to persons, property or the
business of Tenant resulting from a latent defect in or material change in the
condition of the Building, and (iii) interference with the light, air, or other
incorporeal hereditaments of the Premises.
17. Destruction -- Fire or Other Casualty. In case of partial damage to the
Premises by fire or other casualty insured against by Landlord, Tenant shall
give immediate notice thereof to Landlord, who shall thereupon cause damage to
all property owned by it to be repaired with reasonable speed
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at expense of Landlord, due allowance being made for reasonable delay which may
arise by reason of adjustment of loss under insurance policies on the part of
Landlord and/or Tenant, and for reasonable delay on account of Force Majeure
Events (as defined in Section 48), and to the extent that the Premises are
rendered untenantable the rent shall proportionately abate from the date of such
casualty, provided the damage above mentioned occurred without the fault or
neglect of Tenant, Tenant's servants, employees, agents or visitors. If such
partial damage is due to the fault or neglect of Tenant, or Tenant's servants,
employees, agents, or invitees, the damage shall be repaired by Landlord to the
extent of Landlord's insurance coverage, but there shall be no apportionment or
abatement of rent. In the event the damage shall be so extensive to the whole
Building as to render it uneconomical, in Landlord's opinion, to restore for its
present uses and Landlord shall decide not to repair or rebuild the Building,
this Lease, at the option of Landlord, shall be terminated upon written notice
to Tenant and the rent shall, in such event, be paid to or adjusted as of the
date of such damage, and the terms of this Lease shall expire by lapse of time
and conditional limitation upon the third day after such notice is mailed, and
Tenant shall thereupon vacate the Premises and surrender the same to Landlord,
but no such termination shall release Tenant from any liability to Landlord
arising from such damage or from any breach of the obligations imposed on Tenant
hereunder, or from any obligations accrued hereunder prior to such termination.
Notwithstanding anything herein to the contrary, Tenant shall have the right to
terminate this Lease by giving Landlord thirty (30) days' advance written notice
if (i) Landlord advises Tenant that Landlord estimates that the Premises will be
restored within a period in excess of one hundred twenty (120) days after the
casualty, or (ii) Landlord in fact does not complete the restoration within one
hundred twenty (120) days after the casualty, subject to extension for Force
Majeure Events (as defined in Section 48).
18. Eminent Domain. If (1) the whole or more than fifty percent (50%) of the
floor area of the Premises shall be taken or condemned by Eminent Domain for any
public or quasi-public use or purpose, and either party shall elect, by giving
written notice to the other, or (2) more than twenty-five percent (25%) of the
floor area of the Building shall be so taken, and Landlord shall elect, in its
sole discretion, by giving written notice to Tenant, any said written notice to
be given not more than sixty (60) days after the date on which title shall vest
in such condemnation proceeding, to terminate this Lease, then, in either such
event, the Term of this Lease shall cease and terminate as of the date of title
vesting. In case of any taking or condemnation, whether or not the Term of this
Lease shall cease and terminate, the entire award shall be the property of
Landlord, and Tenant hereby assigns to Landlord all its right, title and
interest in and to any such award, except that Tenant shall be entitled to
claim, prove and receive in the proceedings such awards as may be allowed for
moving expenses, loss of profit and fixtures and other equipment installed by it
which shall not, under the terms of this Lease, be or become the property of
Landlord at the termination hereof, but only if such awards shall be made by the
condemnation, court or other authority in addition to, and be stated separately
from, the award made by it for the Property or part thereof so taken.
19. Assignment. So long as Tenant is not in default of any of the terms and
conditions hereof, and further provided that Tenant has fully and faithfully
performed all of the terms and conditions of this Lease, Landlord shall not
unreasonably withhold its consent to an assignment of this Lease or sublease of
the Premises for any of the then remaining portion of the unexpired Term
provided: (i) the net assets of the assignee or sublessee shall not be less than
the net assets of Tenant at the time of the signing of this Lease; (ii) in the
event of an assignment, such assignee shall assume in writing all of Tenant's
obligations under this Lease; (iii) in the event of a sublease, such sublease
shall in all respects be subject to and in conformance with the terms of this
Lease; and (iv) in all events Tenant continues to remain liable on this Lease
for the performance of all terms, including but not limited to, payment of all
rent due hereunder. Landlord and Tenant acknowledge and agree that it shall not
be unreasonable for Landlord to withhold its consent to an assignment if in
Landlord's sole business judgment, the assignee lacks sufficient business
experience or net worth to successfully operate its business within the Premises
in accordance with the terms, covenants and conditions of this Lease. If this
Lease be assigned, or if the Premises or any part thereof be underlet or
occupied by anybody other than Tenant, Landlord may, after default by Tenant,
collect rent from the assignee, undertenant or occupant and apply the net amount
collected to the rent herein reserved, but no such collection shall be deemed a
waiver of this covenant, or the acceptance of the assignee, undertenant or
occupant as tenant, or a release of Tenant from the further observance and
performance by Tenant of the
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covenants herein contained. No assignment or sublease, regardless of whether
Landlord's consent has been granted or withheld, shall be deemed to release
Tenant from any of its obligations nor shall the same be deemed to release any
person guaranteeing the obligations of Tenant hereunder from their obligations
as guarantor. Notwithstanding anything herein to the contrary, Tenant shall have
the right to transfer, assign or sublet its rights under this Lease to Baltimore
Gas & Electric ("BGE") or to any subsidiary or affiliate of BGE without
obtaining Landlord's prior written consent, but rather upon written notice to
Landlord.
20. Default; Remedies; Bankruptcy of Tenant. Any one or more of the following
events shall constitute an "Event of Default" hereunder, at Landlord's election:
(a) the sale of Tenant's interest in the Premises under attachment, execution or
similar legal process or, the adjudication of Tenant as a bankrupt or insolvent,
unless such adjudication is vacated within thirty (30) days; (b) the filing of a
voluntary petition proposing the adjudication of Tenant (or any guarantor of
Tenant's obligations hereunder) as a bankrupt or insolvent, or the
reorganization of Tenant (or any such guarantor), or an arrangement by Tenant
(or any such guarantor) with its creditors, whether pursuant to the Federal
Bankruptcy Code or any similar federal or state proceeding, unless such petition
is filed by a party other than Tenant (or any such guarantor) and is withdrawn
or dismissed within thirty (30) days after the date of its filing; (c) the
admission, in writing, by Tenant (or any such guarantor) of its inability to pay
its debts when due; (d) the appointment of a receiver or trustee for the
business or property of Tenant (or any such guarantor), unless such appointment
is vacated within thirty (30) days of its entry; (e) the making by Tenant (or
any such guarantor) of an assignment for the benefit of its creditors, or if, in
any other manner, Tenant's interest in this Lease shall pass to another by
operation of law; (f) the failure of Tenant to pay any rent, additional rent or
other sum of money when due and such failure continues for a period of seven (7)
days after receipt of written notice that the same is past due hereunder; and
(g) subject to reasonable delays for the occurrence of Force Majeure Events, the
default by Tenant in the performance or observance of any covenant or agreement
of this Lease (other than a default involving the payment of money), which
default is not cured within thirty (30) days after the giving of notice thereof
by Landlord, unless such default is of such nature that it cannot be cured
within such thirty (30) day period, in which case no Event of Default shall
occur so long as Tenant shall commence the curing of the default within such
thirty (30) day period and shall thereafter diligently prosecute the curing of
same.
Upon the occurrence and continuance of an Event of Default, Landlord, with
such notice to Tenant as provided for by law or as expressly provided for
herein, may do any one or more of the following: (a) sell, at public or private
sale, all or any part of the goods, chattels, fixtures and other personal
property belonging to Tenant which are or may be put into the Premises during
the Lease Term, whether or not exempt from sale under execution or attachment
(it being agreed that said property shall at all times be bound with a lien in
favor of Landlord and shall be chargeable for all rent and for the fulfillment
of the other covenants and agreements herein contained), and apply the proceeds
of such sale, first, to the payment of all costs and expenses of conducting the
sale or caring for or storing said property; second, toward the payment of any
indebtedness, including, without limitation, indebtedness for rent, which may be
or may become due from Tenant to Landlord; and third, to pay Tenant, on demand
in writing, any surplus remaining after all indebtedness of Tenant to Landlord
has been fully paid; (b) perform, on behalf and at the expense of Tenant, any
obligation of Tenant under this Lease which Tenant has failed to perform and of
which Landlord shall have given Tenant notice, the cost of which performance by
Landlord, together, with interest thereon at the rate of eighteen percent (18%)
per annum, from the date of such expenditure, shall be deemed additional rent
and shall be payable by Tenant to Landlord upon demand; (c) elect to terminate
this Lease and the tenancy created hereby by giving notice of such election to
Tenant in which event Tenant shall be liable for Base Rent, Additional Rent, and
other indebtedness that otherwise would have been payable by Tenant during the
remainder of the Term had there been no Event of Default, and on notice reenter
the Premises, by summary proceedings or otherwise, and remove Tenant and all
other persons and property from the Premises, and store such property in a
public warehouse or elsewhere at the cost and for the account of Tenant, without
resort to legal process and without Landlord being deemed guilty of trespass or
becoming liable for any loss or damage occasioned thereby; and also the right,
but not the obligation, to re-let the Premises for any unexpired balance of the
Lease Term, and collect the rent therefor. In the event of such re-letting by
Landlord, the re-
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letting shall be on such terms, conditions and rental as Landlord may deem
proper, and the proceeds that may be collected from the same, less the expense
of re-letting (including reasonable leasing fees and commissions and reasonable
costs of renovating the Premises), shall be applied upon Tenant's rental
obligation as set forth in this Lease for the unexpired portion of the Lease
Term. Tenant shall be liable for any balance that may be due under this Lease,
although Tenant shall have no further right of possession of the Premises; and
(d) exercise any other legal or equitable right or remedy which it may have at
law or in equity. Notwithstanding the provisions of clause (b) above and
regardless of whether an Event of Default shall have occurred, Landlord may
exercise the remedy described in clause (b) without any notice to Tenant if
Landlord, in its good faith judgment, believes it would be materially injured by
the failure to take rapid action, or if the unperformed obligation of Tenant
constitutes an emergency.
Landlord and Tenant hereby expressly waive trial by jury in any action or
proceeding or counterclaim brought by either party hereto against the other
party on any and every matter, directly or indirectly arising out of or with
respect to this Lease, including, without limitation, the relationship of
Landlord and Tenant, the use and occupancy by Tenant of the Premises, any
statutory remedy and/or claim of injury or damage regarding this Lease.
Any costs and expenses incurred by Landlord (including, without
limitation, reasonable attorneys' fees) in enforcing any of its rights or
remedies under this Lease shall be deemed to be additional rent and shall be
repaid to Landlord by Tenant upon demand.
Notwithstanding any of the other provisions of this Lease, in the event
Tenant shall voluntarily or involuntarily come under the jurisdiction of the
Federal Bankruptcy Code and thereafter Tenant or its trustee in bankruptcy,
under the authority of and pursuant to applicable provisions thereof, shall have
the power and so using same determine to assign this Lease, Tenant agrees that
(i) Tenant or its trustee shall provide to Landlord sufficient information
enabling it to independently determine whether Landlord will incur actual and
substantial detriment by reason of such assignment and (ii) "adequate assurance
of future performance" under this Lease, as that term is generally defined under
the Federal Bankruptcy Code, shall be provided to Landlord by Tenant and its
assignee as a condition of said assignment.
21. Damages. If this Lease is terminated by Landlord pursuant to Section 20,
Tenant shall, nevertheless, remain liable for all rent and damages which may be
due or sustained prior to such termination, and all reasonable costs, fees and
expenses including, but not limited to, attorneys' fees, costs and expenses
incurred by Landlord in pursuit of its remedies hereunder, or in renting the
Premises to others from time to time and additional damages (the "Liquidated
Damages"), which shall be an amount equal to the total rent which, but for
termination of this Lease, would have become due during the remainder of the
Term, less the amount of rent, if any, which Landlord shall receive during such
period from others to whom the Premises may be rented (other than any additional
rent received by Landlord as a result of any failure of such other person to
perform any of its obligations to Landlord), in which case such Liquidated
Damages shall be computed and payable in monthly installments, in advance on the
first day of each calendar month following termination of the Lease and
continuing until the date on which the Lease Term would have expired but for
such termination, and any suit or action brought to collect any such Liquidated
Damages for any month shall not in any manner prejudice the right of Landlord to
collect any Liquidated Damages for any subsequent month by a similar proceeding.
If this Lease is terminated pursuant to Section 20, Landlord may relet the
Premises or any part thereof, alone or together with other premises, for such
term(s) which may be greater or less than the period which otherwise would have
constituted the balance of the Term and on such terms and conditions (which may
include concessions, free rent and/or alterations of the Premises) as Landlord,
in its sole discretion, may determine, but Landlord shall not be liable for, nor
shall Tenant's obligations hereunder be diminished by reason of, any failure by
Landlord to relet the Premises or any failure by Landlord to collect any rent
due upon such reletting.
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22. Services and Utilities. Landlord shall provide the following listed services
and utilities, namely:
(a) heating, ventilation, and air conditioning ("HVAC") for the Premises
during "Normal Business Hours" (as defined below) to maintain temperatures for
comfortable use and occupancy;
(b) electric energy in accordance with Section 23 following;
(c) automatic passenger elevators providing adequate service leading to
the floor on which the Premises are located;
(d) evening, unescorted janitorial services to the Premises including
removal of trash;
(e) hot and cold water sufficient for drinking, lavatory toilet and
ordinary cleaning purposes from fixtures either within the Premises (if provided
pursuant to this Lease) or on the floor on which the Premises are located;
(f) replacement of lighting tubes, lamp ballasts and bulbs;
(g) extermination and pest control when and if necessary; and
(h) maintenance of Common Areas in a manner comparable to other first
class suburban office buildings in the Baltimore-Washington corridor.
Notwithstanding the foregoing, if at any time during the Term and any
extension or renewal thereof, Landlord shall, after reasonable investigation
determine that trash and similar waste generated by Tenant and/or emanating from
the Premises is in excess of that of other standard office tenants within the
Building leasing a premises of the same or similar size to that of the Premises,
Landlord shall bill Tenant and Tenant shall pay to Landlord as additional rent
hereunder within thirty (30) days of the date of Landlord's invoice for the
same, those costs and expenses of trash removal which are reasonably
attributable to such excess trash and similar waste generated by Tenant and/or
emanating from the Premises. "Normal Business Hours" as used herein is defined
from 8:00 a.m. to 6:00 p.m. on business days and from 8:00 a.m. to 1:00 p.m. on
Saturdays. Landlord shall have no responsibility to provide any services under
(a) above except during Normal Business Hours unless arrangements for
after-hours services have been made pursuant to terms and conditions acceptable
to Landlord and embodied in a separate written agreement between Landlord and
Tenant. Landlord reserves the right to stop service of the HVAC, elevator,
plumbing and electric systems, when necessary, by reason of accident, or
emergency, or for repairs, alterations, replacements, or improvements, which in
the judgment of Landlord are desirable or necessary to be made, until said
repairs, alterations, replacements, or improvements shall have been completed.
Landlord shall have no responsibility or liability for failure to supply HVAC,
elevator, plumbing, cleaning, and electric service, during said period or when
prevented from so doing by laws, orders, or regulations of any Federal, State,
County or Municipal authority or by strikes, accidents or by any other cause
whatsoever beyond Landlord's control. Landlord's obligations to supply HVAC are
subject to applicable laws and regulations as to energy conservation and other
such restrictions. In the event that Tenant should require supplemental HVAC for
the Premises, any maintenance repair and/or replacement required for such
supplemental service shall be performed by Landlord but the cost of such
maintenance repair and/or replacement (including labor and materials) shall be
paid by Tenant as additional rent.
23. Electric Current. Throughout the Term Landlord shall furnish Tenant without
additional charge during Normal Business Hours (as defined in Section 22) a
reasonable amount of electric current at 110 volts ("Normal Usage Amount") for
lighting purposes within the Premises and the powering of a normal amount of
office equipment and appliances. "Normal Usage Amount" is defined for purposes
of this Lease to mean electric power supplied at the rate of three (3) watts per
square foot of Premises. In this regard Tenant agrees as follows:
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(1) If Landlord reasonably determines based upon engineering studies of
electrical load consumed that Tenant is materially exceeding the Normal Usage
Amount Tenant shall pay to Landlord such amounts as additional rent as will
equitably reimburse Landlord for the cost of the extra electric power so
consumed by Tenant;
(2) If Tenant desires to operate its business in the Premises at other
than normal business hours it shall pay for same at rates mutually agreed upon
by separate agreement between the parties, it being understood that Landlord
shall have no obligation to supply Normal Usage Amount to Tenant for after hours
usage until such a mutual agreement is reached;
(3) If Tenant shall desire to place and install in the Premises electric
equipment or appliances other than normal and typical to general office usage it
shall pay for such installations including any additional electric lines and
facilities required and shall pay for the electric power used in such equipment
if same exceeds Normal Usage Amount.
24. Telephone. Landlord has arranged for the installation of telephone service
within the Building. Tenant shall be responsible for contacting the utility
company supplying said telephone service and arranging to have such telephone
facilities as it may desire to be extended and put into operation in the
Premises. Tenant acknowledges and agrees that all telephone and
telecommunications services desired by Tenant shall be ordered and utilized at
the sole expense of Tenant. All costs related to installation and the provision
of such service shall be borne and paid for directly by Tenant.
In the event Tenant wishes to utilize the services of a telephone or
telecommunications provider whose equipment is not servicing the Building at
such time Tenant wishes to install its telecommunications equipment serving the
Premises ("Provider"), no such Provider shall be permitted to install its lines
or other equipment without first securing the prior written consent of Landlord,
which consent shall not be unreasonably withheld. Prior to the commencement of
any work in or about the Building by the Provider, the Provider shall agree to
abide by such rules and regulations, job site rules, and such other requirements
as reasonably determined by Landlord to be necessary to protect the interest of
the Building and Property, the other tenants and occupants of the Building and
Landlord, including, without limitation, providing security in such form and
amount as reasonable determined by Landlord. Each Provider must be duly
licensed, insured and reputable. Landlord shall incur no expense whatsoever with
respect to any aspect of Provider's provision of its services, including without
limitation, the costs of installation, materials and service.
25. Acceptance of Premises. Tenant shall have reasonable opportunity, provided
it does not thereby interfere with Landlord's work, to examine the Premises to
determine the condition thereof. Upon taking possession of the Premises, Tenant
shall be deemed to have accepted same as being satisfactory and in the condition
called for hereunder, except for latent defects and punch list items previously
noted to Landlord.
26. Inability to Perform. This Lease and the obligation of Tenant to pay rent
hereunder and perform all of the other covenants and agreements hereunder on the
part of Tenant to be performed shall in no way be affected, impaired or excused
because Landlord is unable to fulfill any of its obligations under this Lease or
to supply, or is delayed in supplying, any service to be supplied by it under
the terms of this Lease or is unable to make, or is delayed in making any
repairs, additions, alterations, or decorations or is unable to supply, or is
delayed in supplying, any equipment or fixtures if Landlord is prevented or
delayed from so doing by reason of strikes or labor troubles or any outside
cause whatsoever including, but not limited to, governmental preemption in
connection with a National Emergency, or by reason of any rule, order or
regulation of any department or subdivision of any government agency or by
reason of the conditions of supply and demand which have been or are affected by
war or other emergency. Similarly, Landlord shall not be liable for any
interference with any services supplied to Tenant by others if such interference
is caused by any of the reasons listed in this Section 26. Nothing contained in
this Section 26 shall be deemed to impose any obligation on Landlord not
expressly imposed by other sections of this Lease.
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27. No Waivers. The failure of Landlord to insist, in any one or more instances,
upon a strict performance of any of the covenants of this Lease, or to exercise
any option herein contained, shall not be construed as a waiver, or a
relinquishment for the future, of such covenant or option, but the same shall
continue and remain in full force and effect. The receipt by Landlord of rent,
with knowledge of the breach of any covenant hereof, shall not be deemed a
waiver of such breach, and no waiver by Landlord of any provision hereof shall
be deemed to have been made unless expressed in writing and signed by Landlord.
28. Access to Premises and Change in Services. Landlord shall have the right,
without abatement of rent, to enter the Premises at any hour to examine the
same, or to make such repairs and alterations as Landlord shall deem necessary
for the safety and preservation of the Building, and also to exhibit the
Premises to be let; provided, however, that except in the case of emergency such
entry shall only be after notice first given to Tenant. If, during the last
month of the Lease Term, Tenant shall have removed all or substantially all of
Tenant's property therefrom, Landlord may immediately enter and alter, renovate
and redecorate the Premises, without elimination or abatement of rent, or
incurring liability to Tenant for any compensation, and such acts shall have no
effect upon this Lease. Nothing herein contained, however, shall be deemed or
construed to impose upon Landlord any obligation, responsibility or liability
whatsoever, for the care, supervision or repair, of the Building or any part
thereof, other than as herein elsewhere expressly provided. Landlord shall also
have the right at any time, without the same constituting an actual or
constructive eviction and without incurring any liability to Tenant therefor, to
change the arrangement and/or location of entrances or passageways, doors and
doorways, and corridors, stairs, toilets, elevators, or other public parts of
the Building, and to change the name by which the Building is commonly known
and/or its mailing address.
29. Estoppel Certificates. Tenant agrees at any time and from time to time upon
not less than ten (10) days' prior notice by Landlord to execute, acknowledge
and deliver to Landlord a statement in writing certifying that this Lease is
unmodified and in full force (or if there have been modifications, that the same
is in full force and effect as modified and stating the modifications) and the
dates to which the rent and other charges have been paid in advance, if any, and
stating whether or not to the best knowledge of the signer of such certificate
Landlord is in default in performance of any covenant, agreement or condition
contained in this Lease and, if so, specifying each such default of which the
signer may have knowledge, it being intended that any such statement delivered
hereunder may be relied upon by third parties not a party to this Lease. Tenant
agrees to execute the Estoppel Certificate substantially in the form attached
hereto as Exhibit "D" upon acceptance of the Premises.
30. Subordination. Tenant accepts this Lease, and the tenancy created hereunder,
subject and subordinate to any mortgages, overleases, leasehold mortgages or
other security interests now or hereafter a lien upon or affecting the Building
or the Property or any part thereof. Tenant shall, at any time hereafter, on
request, execute any instruments or leases or other documents that may be
reasonably required by any mortgage or mortgagee or overlandlord (herein a
"Mortgagee") for the purpose of subjecting or subordinating this Lease and the
tenancy created hereunder to the lien of any such mortgage or mortgages or
underlying lease, and the failure of Tenant to execute any such instruments,
releases or documents shall constitute a default hereunder.
31. Attornment. Tenant agrees that upon any termination of Landlord's interest
in the Premises, Tenant shall, upon request, attorn to the person or
organization then holding title to the reversion of the Premises (the
"Successor") and to all subsequent Successors, and shall pay to the Successor
all of the rents and other monies required to be paid by Tenant hereunder and
perform all of the other terms, covenants, conditions and obligations in this
Lease contained; provided, however, that if in connection with such attornment
Tenant shall so request from such Successor in writing, such Successor shall
execute and deliver to Tenant an instrument wherein such Successor agrees that
as long as Tenant performs all of the terms, covenants and conditions of this
Lease, on Tenant's part to be performed, Tenant's possession under the
provisions of this Lease shall not be disturbed by such Successor.
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32. Notices. All notices, demands and requests required under this Lease shall
be in writing. All such notices, demands and requests shall be deemed to have
been properly given if either sent by United States registered or certified
mail, or overnight by any nationally recognized overnight delivery service,
postage prepaid, addressed (i) if to Landlord at 8815 Centre Park Drive, Suite
400, Columbia, Maryland 21045, with copies sent to John Harris Gurley, Esquire,
8815 Centre Park Drive, Suite 400, Columbia, Maryland 21045 or (ii) if to Tenant
at the Premises, with a copy to Constellation Properties, Inc., 250 West Pratt
Street, 24th Floor, Baltimore, Maryland 21201, Attn: General Counsel. Any party
may designate a change of address by written notice to the above parties, given
at least ten (10) days before such change of address is to become effective.
33. Relocation. Landlord reserves the right at any time prior to the
Commencement Date or during the Lease Term upon sixty (60) days' prior written
notice to relocate Tenant within the Building provided: (1) that Tenant approves
the location and size of the new premises and (2) Landlord pays all reasonable
moving costs and relocation costs incurred by Tenant in connection with such
move, including, without limitation, costs of reprinting a reasonable amount of
stationery, reconnecting computers and telecommunication equipment. If Landlord
exercises this right, the written notice to Tenant shall include a drawing
showing the size and location of the new premises. If Tenant approves the new
location, the parties shall execute an amendment to this Lease which will
specify the change in premises, but this Lease shall in no other respect be
amended and the rent payable hereunder shall not abate except for the period
actually involved in the moving of Tenant. If Tenant does not send Landlord
written notice of its disapproval of the proposed relocation within said sixty
(60) day period, Tenant shall be conclusively presumed to have approved the
same. If Tenant shall send a notice disapproving the proposed relocation during
said sixty (60) day period, then Landlord, at its option, may (i) rescind the
notice of relocation (in which event this Lease shall continue to the same
extent as if no such notice had been sent), or (ii) terminate this Lease upon
sixty (60) days' written notice (in which event the rights of the parties shall
be the same as if the Lease had terminated by expiration of the Lease Term).
Landlord shall make its election within ten (10) days following the first said
sixty (60) day period and shall give Tenant written notice thereof specifying
its election.
34. Tenant's Space. Attached hereto as Exhibit "C" is a copy of Landlord's
"Tenant Improvements," specifying the materials and manner in which, at
Landlord's expense, Landlord shall finish the Premises. Landlord shall cause all
work necessary to complete the Premises in accordance with Exhibit "C" to be
completed on or before the Commencement Date. All costs incurred for work and
material, other than as described in "Tenant Improvements" shall be paid by
Tenant immediately upon demand by Landlord. The cost of such work shall include
all costs of labor and materials incurred by Landlord in the performance of such
work, plus ten percent (10%) for overhead and ten percent (10%) for profit. At
Tenant's request, Landlord shall fully cooperate with Tenant to establish such
costs or estimates thereof in advance of performing the work.
35. Quiet Enjoyment. Tenant, upon the payment of rent and the performance of all
the terms of this Lease, shall at all times during the Lease Term and during any
extension or renewal term peaceably and quietly enjoy the Premises without any
disturbance from Landlord or any other person claiming through Landlord.
36. Vacation of Premises. Tenant shall vacate the Premises at the end of the
Term of this Lease or any extension or renewal thereof. If Tenant fails to
vacate at such time there shall be payable to Landlord an amount equal to double
the monthly rent stated in paragraph 5 for each month or part of a month that
Tenant holds over, plus all other payments provided for herein, and the payment
and acceptance of such payments shall not constitute an extension or renewal of
this Lease. In event of any such holdover, Landlord shall also be entitled to
all remedies provided by law for the speedy eviction of tenants, and to the
payment of all attorneys' fees and expenses incurred in connection therewith.
37. Partners' Liability. It is understood that the Owner of the Building is a
Maryland Limited Partnership. All obligations of said Owner hereunder are
limited to the net assets of the Owner from time to time. No General or Limited
Partner of Owner, or of any successor partnership, whether now
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or hereafter a partner, shall have any personal responsibility or liability for
the obligations of Owner hereunder.
38. Separability. If any term or provision of this Lease or the application
thereof to any person or circumstances shall, to any extent, be invalid or
unenforceable, the remainder of this Lease or the application of such term or
provision of such term or provision to persons or circumstances other than those
as to which it is held invalid or unenforceable, shall not be affected thereby,
and each term and provision of this Lease shall be valid and be enforced to the
fullest extent permitted by law.
39. Indemnification. Except for claims or damages resulting from Landlord's
gross negligence, Tenant shall indemnify and hold harmless Landlord and all of
its and their respective partners, directors, officers, agents and employees
from any and all liability, loss, cost or expense arising from all third-party
claims resulting from or in connection with:
(i) the conduct or management of the Premises or of any business therein,
or any work or thing whatsoever done, or any condition created in or about the
Premises during the Term of this Lease or during the period of time, if any,
prior to the Commencement Date that Tenant may have been given access to the
Premises;
(ii) any act, omission or negligence of Tenant or any of its subtenants or
licensees or its or their partners, directors, officers, agents, employees,
invitees or contractors;
(iii) any accident, injury or damage whatever occurring in, at or upon the
Premises; and
(iv) any breach or default by Tenant in the full and prompt payment and
performance of Tenant's obligations under this Lease;
together with all costs and expenses reasonably incurred or paid in connection
with each such claim or action or proceeding brought thereon, including, without
limitation, all reasonable attorney's fees and expenses.
In case any action or proceeding is brought against Landlord and/or any of
its and their respective partners, directors, officers, agents or employees and
such claim is a claim from which Tenant is obligated to indemnify Landlord
pursuant to this Section 39, Tenant, upon notice from Landlord shall resist and
defend such action or proceeding (by counsel reasonably satisfactory to
Landlord). The obligations of Tenant under this Section shall survive
termination of this Lease.
40. Captions. All headings anywhere contained in this Lease are intended for
convenience or reference only and are not to be deemed or taken as a summary of
the provisions to which they pertain or as a construction thereof.
41. Brokers. Tenant represents that Tenant has not dealt directly or indirectly
with any broker in connection with this Lease, and Tenant warrants that no
broker negotiated this Lease or is entitled to any commissions in connection
with this Lease.
42. Recordation. Tenant covenants that it shall not, without Landlord's prior
written consent, record this Lease or any memorandum of this Lease or offer this
Lease or any memorandum of this Lease for recordation. If at any time Landlord
or any mortgagee of Landlord's interest in the Premises shall require the
recordation of this Lease or any memorandum of this Lease, such recordation
shall be at Landlord's expense. If at any time Tenant shall require the
recordation of this Lease or any memorandum of this Lease, such recordation
shall be at Tenant's expense. If the recordation of this Lease or any memorandum
of this Lease shall be required by any valid governmental order, or if any
government authority having jurisdiction in the matter shall assess and be
entitled to collect transfer taxes or documentary stamp taxes, or both transfer
taxes and documentary stamp taxes on this Lease or any memorandum of this Lease,
Tenant shall execute such acknowledgments as may be necessary to effect such
recordations and pay, upon request of
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Landlord, one half of all recording fees, transfer taxes and documentary stamp
taxes payable on, or in connection with this Lease or any memorandum of this
Lease or such recordation.
43. Successors and Assigns. The covenants, conditions and agreements contained
in this Lease shall bind and inure to the benefit of Landlord and Tenant, and
their respective heirs, personal representatives, successors and assigns
(subject, however, to the terms of Article 19 hereof).
44. Integration of Agreements. This writing is intended by the Parties as a
final expression of their agreement and is a complete and exclusive statement of
its terms, and all negotiations, considerations and representations between the
Parties are incorporated. No course of prior dealings between the Parties or
their affiliates shall be relevant or admissible to supplement, explain, or vary
any of the terms of this Lease. Acceptance of, or acquiescence to, a course of
performance rendered under this Lease or any prior agreement between the Parties
or their affiliates shall not be relevant or admissible to determine the meaning
of any of the terms or covenants of this Lease. Other than as specifically set
forth in this Lease, no representations, understandings, or agreements have been
made or relied upon in the making of this Lease.
45. Hazardous Material; Indemnity. Tenant shall not cause or permit any
Hazardous Material (as hereinafter defined) to be brought upon, kept, or used in
or about the Premises by Tenant, its agents, employees, contractors or invitees,
without the prior written consent of Landlord (which Landlord shall not
unreasonably withhold as long as Tenant demonstrates to Landlord's reasonable
satisfaction that such Hazardous Material is necessary or useful to Tenant's
business and shall be used, kept and stored in a manner that complies with all
laws regulating any such Hazardous Material so brought upon or used or kept in
or about the Premises). If Tenant breaches the obligations stated in the
preceding sentence, or if the presence of Hazardous Material on the Premises
caused or permitted by Tenant results in contamination of the Premises, the
Building and/or the Property, or if contamination of the Premises, the Building
and/or the Property by Hazardous Material otherwise occurs, for which Tenant is
legally liable to Landlord for damage resulting therefrom, then Tenant shall
indemnify, defend and hold Landlord and its Mortgagee(s) harmless from any and
all claims, judgments, damages, penalties, fines, costs, liabilities or losses
(including, without limitation, diminution in value of the Premises, the
Building and/or the Property, damages for the loss or restriction on use of
rentable or usable space or of any amenity of the Premises, the Building and/or
the Property, damages arising from any adverse impact on marketing of space, and
sums paid in settlement of claims, attorneys' fees, consultant fees and expert
fees) which arise during or after the Term as a result of such contamination.
This indemnification of Landlord and its Mortgagee(s) by Tenant includes,
without limitation, costs incurred in connection with any investigation of site
conditions or any cleanup, remedial, removal, or restoration work required by
any federal, state or local governmental agency or political subdivision because
of Hazardous Material present in the soil or ground water on or under the
Building. Without limiting the foregoing, if the presence of any Hazardous
Material on the Premises, the Building and/or the Property caused or permitted
by Tenant results in any contamination of the Premises, the Building and/or the
Property, Tenant shall promptly take all actions at its sole expense as are
necessary to return the Premises, the Building and/or the Property to the
condition existing prior to the introduction of any such Hazardous Material to
the Premises, the Building and/or the Property; provided that Landlord's
approval of such actions shall first be obtained, which approval shall not be
unreasonably withheld so long as such actions would not potentially have any
material adverse long-term or short-term effect on the Premises or the Building.
As used herein, the term "Hazardous Material" means any hazardous or toxic
substance, material or waste which is or becomes regulated by any local
governmental authority, the State of Maryland or the United States Government.
The term "Hazardous Material" includes, without limitation, any material or
substance that is (i) defined as a "hazardous substance" under the laws of the
State of Maryland, (ii) petroleum, (iii) asbestos, (iv) designated as a
"hazardous substance" pursuant to Section 311 of the Federal Water Pollution
Control Act (33 U.S.C. Section 1321), (v) defined as a "hazardous waste"
pursuant to Section 1004 of the Federal Resource Conservation and Recovery Act,
42 U.S.C. Section 6901 et seq. (42 U.S.C. Section 6903), (vi) defined as a
"hazardous substance" pursuant to Section 101 of the Comprehensive Environmental
Response, Compensation
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and Liability Act, 42 U.S.C. Section 9601 et seq. (42 U.S.C. Section 9601), or
(vii) defined as a "regulated substance" pursuant to Subchapter IX, Solid Waste
Disposal Act (Regulation of Underground Storage Tanks), 42 U.S.C. Section 6991
et seq.
46. Americans With Disabilities Act. Notwithstanding any other provisions
contained in this Lease and with the purpose of superseding any such provisions
herein that might be construed to the contrary, it is the intent of Landlord and
Tenant that at all times while this Lease shall be in effect that the following
provisions shall be deemed their specific agreement as to how the responsibility
for compliance (and cost) with the Americans With Disabilities Act and
amendments to same ("ADA"), both as to the Premises and the Property, shall be
allocated between them, namely:
46.1 Landlord and Tenant agree to cooperate together in the initial
design, planning and preparation of specifications for construction of the
Premises so that same shall be in compliance with the ADA. Any costs associated
with assuring that the plans and specifications for the construction of the
Premises are in compliance with the ADA shall be borne by the party whose
responsibility it is hereunder to bear the cost of preparation of the plans and
specifications. Similarly those costs incurred in the initial construction of
the Premises so that same are built in compliance with the ADA shall be included
within Tenant's Improvements and handled in the manner as provided for in other
Sections of this Lease.
46.2 Modifications, alterations and/or other changes required to and
within the Common Areas which are not capital in nature shall be the
responsibility of Landlord to perform and the cost of same shall be considered a
part of the Building Expenses and treated as such.
46.3 Modifications, alterations and/or other changes required to and
within the Common Areas which are capital in nature shall be the responsibility
of Landlord and at its cost and expense.
46.4 Modifications, alterations and/or other changes required to and
within the Premises (after the initial construction of same), whether capital in
nature or non-capital in nature, shall be the responsibility of Tenant and at
its cost and expense; unless said changes are structural in nature and result
from the original design of the Building, in which instance they shall be the
responsibility of Landlord and at its cost and expense.
Each party hereto shall indemnify and hold harmless the other party from
any and all liability, loss, cost or expense arising as a result of a party not
fulfilling its obligations as to compliance with the ADA as set forth in this
Section 46.
47. Several Liability. If Tenant shall be one or more individuals, corporations
or other entities, whether or not operating as a partnership or joint venture,
then each such individual, corporation, entity, joint venturer or partner shall
be deemed to be both jointly and severally liable for the payment of the entire
rent and other payments specified herein.
48. Force Majeure. If either party is delayed in performing its obligations
hereunder by events outside the scope of its control, including, without
limitation, weather conditions, war, labor troubles, moratoria, shortage of
supplies (collectively, "Force Majeure Events"), then such party shall notify
the other party in writing within thirty (30) days after the occurrence of the
Force Majeure Event.
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IN WITNESS WHEREOF, Landlord and Tenant have respectively affixed their
hands and seals to this Lease as of the day and year first above written.
WITNESS OR ATTEST: LANDLORD:
CONSTELLATION REAL ESTATE, INC.,
Agent for Owner
/s/ Karen Singer By: /s/ Roger A. Waesche, Jr.(SEAL)
- ------------------------- -------------------------
Roger A. Waesche, Jr.
Sr. Vice President
WITNESS OR ATTEST: TENANT:
CONSTELLATION PROPERTIES, INC.
By: /s/ Steven D. Kesler (SEAL)
- ------------------------- -------------------------
Name: Steven D. Kesler
------------------------
Title: Vice President
-----------------------
STATE OF MARYLAND, Howard County, TO WIT:
I HEREBY CERTIFY, that on this 3rd day of August, 1998, before me, the
undersigned Notary Public of said State, personally appeared Roger A. Waesche,
Jr. who acknowledged himself to be the Vice President of CONSTELLATION REAL
ESTATE, INC., a Maryland corporation, known to me (or satisfactorily proven) to
be the person whose name is subscribed to the within instrument, and
acknowledged that he executed the same on behalf of said corporation for the
purposes therein contained as the duly authorized Vice President of said
corporation by signing the name of the corporation by himself as such Vice
President.
WITNESS my hand and Notarial Seal.
/s/ Pamela Goodman
---------------------
Notary Public
PAMELA GOODMAN
My Commission Expires: NOTARY PUBLIC STATE OF MARYLAND
My Commission Expires August 21, 2000
STATE OF MARYLAND, County of Harford, TO WIT:
I HEREBY CERTIFY, that on this 31st day of July, 1998, before me, the
undersigned Notary Public of said State, personally appeared Steven D. Kesler,
known to me (or satisfactorily proven) to be the person whose name is subscribed
to the within instrument, and acknowledged himself to be the Vice President of
CONSTELLATION PROPERTIES, INC., a Maryland corporation, and that he, as such
Vice President, being authorized so to do, executed the foregoing instrument on
behalf of said Corporation by himself as such Vice President.
WITNESS my hand and Notarial Seal.
/s/ Janet R. Cunningham
---------------------------
Notary Public
My Commission Expires: May 1, 2000
Janet R. Cunningham, Notary Public
Harford County
State of Maryland
My Commission Expires May 1, 2000
21
<PAGE>
EXHIBIT "A"
to Agreement of Lease by and between
Constellation Real Estate, Inc., Agent for Owner, Landlord
and Constellation Properties, Inc., Tenant
FLOOR PLAN
[SHOWER AREA - THREE CENTRE PARK]
[FLOOR PLAN OMITTED]
<PAGE>
EXHIBIT "A"
to Agreement of Lease by and between
Constellation Real Estate, Inc., Agent for Owner, Landlord
and Constellation Properties, Inc., Tenant
FLOOR PLAN
[FIRST FLOOR - THREE CENTRE PARK]
[FLOOR PLAN OMITTED]
<PAGE>
EXHIBIT "B"
to Agreement of Lease by and between
Constellation Real Estate, Inc., Agent for Owner, Landlord
and Constellation Properties, Inc., Tenant
RULES AND REGULATIONS
To the extent that any of the following Rules and Regulations, or any
Rules and Regulations subsequently enacted conflict with the provisions of the
Lease, the provisions of the Lease shall control.
1. Tenant shall not obstruct or permit its agents, clerks or servants to
obstruct, in any way, the sidewalks, entry passages, corridors, halls, stairways
or elevators of the Building, or use the same in any other way than as a means
of passage to and from the offices of Tenant; bring in, store, test or use any
materials in the Building which could cause a fire or an explosion or produce
any fumes or vapor; make or permit any improper noises in the Building; smoke in
the elevators; throw substances of any kind out of the windows or doors, or down
the passages of the Building, in the halls or passageways; sit on or place
anything upon the window sills; or clean the windows.
2. Waterclosets and urinals shall not be used for any purpose other than
those for which they were constructed; and no sweepings, rubbish, ashes,
newspaper or any other substances of any kind shall be thrown into them. Waste
and excessive or unusual use of electricity or water is prohibited.
3. Tenant shall not (i) obstruct the windows, doors, partitions and lights
that reflect or admit light into the halls or other places in the Building, or
(ii) inscribe, paint, affix, or otherwise display signs, advertisements or
notices in, on, upon or behind any windows or on any door, partition or other
part of the interior or exterior of the Building without the prior written
consent of Landlord which shall not be unreasonably withheld. If such consent be
given by Landlord, any such sign, advertisement, or notice shall be inscribed,
painted or affixed by Landlord, or a company approved by Landlord, but the cost
of the same shall be charged to and be paid by Tenant, and Tenant agrees to pay
the same promptly, on demand.
4. No contract of any kind with any supplier of towels, water, ice, toilet
articles, waxing, rug shampooing, venetian blind washing, furniture polishing,
lamp servicing, cleaning of electrical fixtures, removal of waste paper, rubbish
or garbage, or other like service shall be entered into by Tenant, nor shall any
vending machine of any kind be installed in the Building, without the prior
written consent of Landlord, which consent of Landlord shall not be unreasonably
withheld.
5. When electric wiring of any kind is introduced, it must be connected as
directed by Landlord, and no stringing or cutting of wires shall be allowed,
except with the prior written consent of Landlord which shall not be
unreasonably withheld, and shall be done only by contractors approved by
Landlord. The number and location of telephones, telegraph instruments, electric
appliances, call boxes, etc., shall be subject to Landlord's approval. No
tenants shall lay linoleum or other similar floor covering so that the same
shall be in direct contact with the floor of the Premises; and if linoleum or
other similar floor covering is desired to be used, an interlining of builder's
deadening felt shall be first affixed to the floor by a paste or other material,
the use of cement or other similar adhesive material being expressly prohibited.
6. No additional lock or locks shall be placed by Tenant on any door in
the Building, without prior written consent of Landlord. Two keys will be
furnished Tenant by Landlord; two additional keys will be supplied to Tenant by
Landlord, upon request, without charge; any additional keys requested by Tenant
shall be paid for by Tenant. Tenant, its agents and employees, shall not have
any duplicate keys made and shall not change any locks. All keys to doors and
washrooms shall be
Exhibit "B"-Page 1
<PAGE>
returned to Landlord at the termination of the tenancy, and in the event of any
loss of any keys furnished, Tenant shall pay Landlord the cost thereof.
7. Tenant shall not employ any person or persons other than Landlord's
janitors for the purpose of cleaning the Premises, without prior written consent
of Landlord which shall not be unreasonably withheld. Landlord shall not be
responsible to Tenant for any loss of property from the Premises however
occurring, or for any damage done to the effects of Tenant by such janitors or
any of its employees, or by any other person or any other cause.
8. No bicycles, vehicles or animals of any kind shall be brought into or
kept in or about the Premises.
9. Tenant shall not conduct, or permit any other person to conduct, any
auction upon the Premises; manufacture or store goods, wares or merchandise upon
the Premises, without the prior written approval of Landlord, except the storage
of usual supplies and inventory to be used by Tenant in the conduct of its
business; permit the Premises to be used for gambling; make any unusual noises
in the Building; permit to be played any musical instrument in the Premises;
permit to be played any radio, television, recorded or wired music in such a
loud manner as to disturb or annoy other tenants; or permit any unusual odors to
be produced upon the Premises. Tenant shall not permit any portion of the
Premises to be used for the storage, manufacture, or sale of intoxicating
beverages, narcotics, tobacco in any form, or as a barber or manicure shop.
10. No awnings or other projections shall be attached to the outside walls
of the Building. No curtains, blinds, shades or screens shall be attached to or
hung in, or used in connection with, any window or door of the Premises, without
the prior written consent of Landlord which consent shall not be unreasonably
withheld. Such curtains, blinds and shades must be of a quality, type, design,
and color, and attached in a manner reasonably approved by Landlord.
11. Canvassing, soliciting and peddling in the Building are prohibited,
and Tenant shall cooperate to prevent the same.
12. There shall not be used in the Premises or in the Building, either by
Tenant or by others in the delivery or receipt of merchandise, any hand trucks
except those equipped with rubber tires and side guards, and no hand trucks will
be allowed in passenger elevators.
13. Tenant, before closing and leaving its Premises, shall ensure that all
entrance doors to same are locked.
14. Landlord shall have the right to prohibit any advertising by Tenant
which in Landlord's opinion tends to impair the reputation of the Building or
its desirability as a building for offices, and upon written notice from
Landlord, Tenant shall refrain from or discontinue such advertising.
15. Landlord hereby reserves to itself any and all rights not granted to
Tenant hereunder, including, but not limited to, the following rights which are
reserved to Landlord for its purposes in operating the Building:
(a) the exclusive right to the use of the name of the Building for all
purposes, except that Tenant may use the name as its business address and
for no other purpose;
(b) the right to change the name or address of the Building, without
incurring any liability to Tenant for so doing;
(c) the right to install and maintain a sign or signs on the exterior of
the Building;
(d) the exclusive right to use or dispose of the use of the roof of the
Building;
(e) the right to limit the space on the directory of the Building to be
allotted to Tenant;
Exhibit "B"-Page 2
<PAGE>
(f) the right to grant to anyone the right to conduct any particular
business or undertaking in the Building.
16. As used herein the term "Premises" shall mean and refer to the
"Premises" as defined in Section 1 of the Lease.
17. Tenant shall not operate space heaters or other heating or ventilating
equipment without the express prior written consent of Landlord in each instance
first obtained. Tenant shall not install or operate any electrical equipment,
appliances or lighting fixtures in the Premises which are not listed and labeled
by Underwriter's Laboratories or other testing organization acceptable to
Landlord.
Exhibit "B"-Page 3
<PAGE>
FIRST AMENDMENT TO AGREEMENT OF LEASE
THIS FIRST AMENDMENT TO AGREEMENT OF LEASE ( the "Amendment") is made as
of this 30 day of December 30, 1998, and is effective as of December 14, 1998,
by and between THREE CENTRE PARK, LLC, a Maryland limited liability company
("Landlord"), and CONSTELLATION PROPERTIES, INC., a Maryland corporation
("Tenant").
WITNESSETH:
WHEREAS, Landlord (through its then agent, Constellation Real Estate,
Inc.) and Tenant have heretofore entered into that certain Agreement of Lease
dated August 3, 1998 (the "Lease"), by the terms of which Landlord leases to
Tenant and Tenant rents from Landlord that certain premises containing an agreed
upon equivalent of 3,299 square feet of rentable area known as Suites 104 and
the second floor "Shower Area" as shown on Exhibit "A" attached to and made a
part of the Lease (collectively the "Original Premises"), said areas being
located on the first and second floors of Landlord's Building located at 8815
Centre Park Drive, Columbia, Maryland 21045 (the "Building"), all as more
particularly set forth in the Lease for a term which expires on April 30, 2001;
WHEREAS, Landlord and Tenant mutually desire to amend the Lease with
respect to the size of the Premises and other matters as more particularly set
forth below.
NOW, THEREFORE, in consideration of the above Recitals, and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Landlord and Tenant agree as follows:
1. Expansion of Premises. The Original Premises shall be increased in size by an
agreed upon 985 square feet of rentable area located contiguous to the Original
Premises on the first floor of the Building as shown on Schedule "A" attached
hereto and made a part hereof (the "Expansion Space"). From and after December
14, 1998, in each instance within the Lease wherein reference is made to the
Premises, the same shall be construed to mean the aggregate of the Original
Premises and the Expansion Space containing in the aggregate an agreed upon
4,284 rentable square feet of area.
2. Improvement of Expansion Space. Tenant accepts the Expansion Space in "As Is"
condition as of the date of this Amendment. If Tenant desires to make
improvements to the Expansion Space, Landlord, at Tenant's expense, shall
improve the Expansion Space in accordance with the plans and specifications to
be agreed upon the Landlord and Tenant.
3. Adjustment to Base Rent. Effective as of December 14, 1998, Tenant shall pay
Landlord Annual Base Rent in connection with both the Original Premises and the
Expansion Space, as set forth on the schedule below, in advance in equal monthly
installments without deduction, setoff or demand:
Period of Term Annual Base Rent Monthly Installment of Base Rent
- -------------- ---------------- --------------------------------
4/20/98 - 12/13/98 $65,980.00 $5,498.33
12/14/98 - 4/30/99 $87,157.44 $7,263.12
5/1/99 - 4/30/00 $89,767.32 $7,480.61
5/1/00 - 4/30/01 $92,466.00 $7,705.50
Within fifteen (15) days after receipt of an invoice from Landlord, Tenant shall
pay to Landlord an amount equal to that percentage of the monthly Expansion
Space Base Rent installment which equals the percentage of such calendar month
falling within the Term.
<PAGE>
4. Amendment of Definition of "Base Year Building Expenses" and "Base Year
Taxes".
4.1 Amendment of Section 5.2.4. Commencing on December 14, 1998, with
respect to the Expansion Space only, "Base Year Building Expenses" shall mean
the actual Building Expenses incurred by Landlord in calendar year 1999, per
rentable square foot of the Building.
4.2 Amendment of Section 5.2.5 Commencing on December 14, 1998, with
respect to the Expansion Space only, "Base Year Taxes" shall mean the actual
Taxes incurred for the 1999-2000 tax year per rentable square foot of the
Building.
5. Ratification of Lease. All other terms, covenants and conditions of the Lease
shall remain the same and continue in full force and effect, and shall be deemed
unchanged, except as such terms, covenants and conditions of the Lease have been
amended or modified by this First Amendment to Agreement of Lease, and this
First Amendment to Agreement of Lease shall, by this reference, constitute a
part of the Lease.
WITNESS OR ATTEST: LANDLORD:
THREE CENTRE PARK, LLC
/s/ Karen [ILLEGIBLE] By: /s/ Roger A. Waesche, Jr. (SEAL)
- ------------------------- --------------------------
Roger A. Waesche, Jr.
Senior Vice President
WITNESS OR ATTEST: TENANT:
CONSTELLATION PROPERTIES, INC.
a Maryland corporation
/s/ Dawn Novak By: /s/ Steven D. Kesler (SEAL)
- ------------------------- --------------------------
Printed Name: Steven D. Kesler
----------------
Title: President
------------------------
STATE OF Maryland, Cty of Baltimore, TO WIT:
I HEREBY CERTIFY, that on this 31st day of December, 1998, before me, the
undersigned Notary Public of said State, personally appeared ROGER A. WAESCHE,
JR., who acknowledged himself to be Senior Vice President of THREE CENTRE PARK,
LLC, a Maryland limited liability company, known to me (or satisfactorily
proven) to be the person whose name is subscribed to the within instrument, and
acknowledged that he executed the same for the purposes therein contained as the
duly authorized Agent by signing the name of the limited liability company by
himself as Senior Vice President.
WITNESS my hand and Notarial Seal.
/s/ Zarae Pitts
--------------------------------
Notary Public
ZARAE PITTS
My Commission Expires: NOTARY PUBLIC STATE OF MARYLAND
My Commission Expires November 25, 2002
2
<PAGE>
STATE OF MARYLAND, CITY/COUNTY OF Harford, TO WIT:
I HEREBY CERTIFY, that on this 30th day of December, 1998, before me, the
undersigned Notary Public of said State, personally appeared Steven D. Kesler,
who acknowledged himself/herself to be President of CONSTELLATION PROPERTIES,
INC., a Maryland corporation, known to me (or satisfactorily proven) to be the
person whose name is subscribed to the within instrument, and acknowledged that
he/she executed the same for the purposes therein contained as the duly
authorized President of said corporation by signing the name of the corporation
by himself/herself as President.
WITNESS my hand and Notarial Seal.
/s/ Janet R. Cunningham
---------------------------
Notary Public
My Commission Expires: May 1, 2000 Janet R. Cunningham, Notary Public
Herford County
State of Maryland
My Commission Expires May 1, 2000
3
<PAGE>
First Amendment to Lease
by and between
Three Centre Park, LLC, Landlord
and
Constellation Properties, Inc, Tenant
SCHEDULE "A"
DESCRIPTION OF EXPANSION SPACE
[FLOOR PLAN OMITTED]
<PAGE>
PROJECT NUMBER: 0101.9
LOCATION:
7609 Energy Parkway
Baltimore, Maryland 21226
Suite 101, Office and Research
CONSTELLATION PROPERTIES, INC.
TENANT: BALTIMORE GAS AND ELECTRIC COMPANY
DATE: April 27, 1993
<PAGE>
PROJECT NO. 0101.9
BRANDON I
SUITE NO. 101
TABLE OF CONTENTS
Page
----
1. Premises . . . . . . . . . . . . . . . . . . . . . . . 1
2. Term. . . . . . . . . . . . . . . . . . . . . . . . . . 1
3. Renewal Terms . . . . . . . . . . . . . . . . . . . . . 1
4. Rent. . . . . . . . . . . . . . . . . . . . . . . . . . 2
5. Additional Rent . . . . . . . . . . . . . . . . . . . . 2
6. Payment, Late Charge, Time of Essence . . . . . . . . . 3
7. Advance Rent/Security Deposit . . . . . . . . . . . . . 3
8. Improvements to the Premises. . . . . . . . . . . . . . 3
9. Care of Premises . . . . . . . . . . . . . . . . . . . 6
10. Utilities . . . . . . . . . . . . . . . . . . . . . . . 8
11. Use and Occupancy . . . . . . . . . . . . . . . . . . . 8
12. Access by Landlord . . . . . . . . . . . . . . . . . . 9
13. Subordination . . . . . . . . . . . . . . . . . . . . . 9
14. Assignment or Subletting . . . . . . . . . . . . . . . 9
15. Alterations . . . . . . . . . . . . . . . . . . . . . . 9
16. Office Appearance Outside . . . . . . . . . . . . . . . 9
17. Damage to Leased Premises . . . . . . . . . . . . . . . 10
18. Waiver or Breach . . . . . . . . . . . . . . . . . . . 10
19. Rules and Regulations . . . . . . . . . . . . . . . . . 10
20. Insurance . . . . . . . . . . . . . . . . . . . . . . . 10
21. Indemnity . . . . . . . . . . . . . . . . . . . . . . . 12
22. Condemnation . . . . . . . . . . . . . . . . . . . . . 12
23. Legal Fees . . . . . . . . . . . . . . . . . . . . . . 13
24. Covenant to Surrender . . . . . . . . . . . . . . . . . 13
25. Holdover Provision . . . . . . . . . . . . . . . . . . 13
26. Quiet Enjoyment . . . . . . . . . . . . . . . . . . . . 13
27. Tenant Default . . . . . . . . . . . . . . . . . . . . 14
28. Notices . . . . . . . . . . . . . . . . . . . . . . . . 15
29. Representations . . . . . . . . . . . . . . . . . . . . 15
30. Trial by Jury . . . . . . . . . . . . . . . . . . . . . 15
31. Gender . . . . . . . . . . . . . . . . . . . . . . . . 15
32. Estoppel Certificates . . . . . . . . . . . . . . . . . 15
33. Covenants, Terms and Conditions . . . . . . . . . . . . 16
34. Warranties . . . . . . . . . . . . . . . . . . . . . . 16
35. Common Areas . . . . . . . . . . . . . . . . . . . . . 16
36. Hazardous Material; Indemnity . . . . . . . . . . . . . 16
37. Brokers . . . . . . . . . . . . . . . . . . . . . . . . 18
38. Separability . . . . . . . . . . . . . . . . . . . . . 18
39. Relocation . . . . . . . . . . . . . . . . . . . . . . 18
40. Captions . . . . . . . . . . . . . . . . . . . . . . . 18
41. Entire Agreement . . . . . . . . . . . . . . . . . . . 18
42. Recordation . . . . . . . . . . . . . . . . . . . . . . 19
43. Tenant's Right of First Refusal . . . . . . . . . . . . 19
<PAGE>
LEASE AGREEMENT
This Lease Agreement, made this 27th day of April, 1993, by and between
CONSTELLATION PROPERTIES, INC., hereinafter called "Landlord", and BALTIMORE GAS
AND ELECTRIC COMPANY, a Maryland corporation, hereinafter called "Tenant",
W I T N E S S E T H:
1. Premises. In consideration of the mutual promises herein contained, the
Landlord hereby rents to the Tenant, and the latter does hereby rent from the
former, the premises designated as Suite 101, containing the gross floor area of
7,470 rentable square feet of area as described in Schedule "A" (hereafter
called the "Premises" or the "Leased Premises"), and located within the building
owned by Landlord located at 7609 Energy Parkway, Baltimore, Maryland 21226 (the
"Building").
2. Term. This Lease shall be for a term (the "Lease Term" or "Term") of
three (3) years, plus the portion of a calendar month, if any, from the
commencement date to the last day of the calendar month in which such
commencement date occurs. As used in this Lease, the term "Commencement Date" as
advanced or postponed pursuant to the terms hereof, shall be defined as the
earliest to occur of, (a) July 1, 1993, (b) Tenant's occupancy of the Premises,
or (c) one hundred and twenty (120) days from the full execution of this Lease.
3. Renewal Terms. Provided Tenant is not in default of any term, covenant
or condition of this Lease, Tenant shall have the option to extend the Term of
this Lease for three (3) additional one (1) year periods (the "First Renewal
Term", "Second Renewal Term" and "Third Renewal Term", respectively and
sometimes individually referred to as a "Renewal Term") to commence immediately
upon the expiration of the then-current Term or Renewal Term, upon the same
terms, covenants and conditions contained in this Lease, except that annual Base
Rent payable during each Renewal Term shall equal the following dollar amounts,
namely:
Monthly Installment
Renewal Term Annual Base Rent of Annual Base Rent
------------ ---------------- -------------------
First Renewal Term $44,649.81 $3,720.82
Second Renewal Term $45,989.30 $3,832.44
Third Renewal Term $47,368.98 $3,947.42
Tenant shall exercise its options to renew the Term of this Lease by
delivery of written notice thereof to Landlord at least ninety (90) days prior
to the expiration of the then-current Term or Renewal Term. The options to
extend the Term of this Lease as herein set forth shall, however, be void if
Tenant is not in
<PAGE>
possession of the Premises at the time of giving the requisite notice, or if
Tenant is in default under any of the Terms of this Lease at that time, or if
the Tenant does not deliver the requisite notice within the time period
specified above. The options herein granted shall not be severed from this Lease
or separately sold, assigned or transferred.
4. Rent. As used in this Lease, the term "Lease Year" shall mean the first
twelve (12) month period following the Commencement Date, and each succeeding
twelve (12) month period thereafter up to the end of the Term; provided,
however, that if the Commencement Date shall occur on a day other than the first
day of a calendar month, then the first Lease Year shall include that portion of
a calendar month from the Commencement Date to the last day of the calendar
month in which the Commencement Date occurs, and shall expire twelve (12) months
after the first day of the first full calendar month of the Term.
As rent for the Premises during the Term, Tenant shall pay to Landlord an
annual base rent (herein "Base Rent") set forth on the schedule below, in
advance, in monthly installments on the first day of each calendar month during
each respective Lease Year as set forth below, and without deduction, setoff or
demand except as otherwise specifically set forth herein:
Monthly Installment
Lease Year Annual Base Rent of Annual Base Rent
---------- ---------------- -------------------
First Lease Year $40,860.90 $3,405.08
Second Lease Year $42,086.73 $3,507.23
Third Lease Year $43,349.33 $3,612.44
If the Commencement Date shall occur on a day other than the first day of
a calendar month, Tenant shall pay Landlord, on the Commencement Date, Base Rent
through the first day of the next calendar month equal to the monthly
installment of annual Base Rent for the first Lease Year divided by the number
of days in that month times the number of days remaining in that month.
5. Additional Rent. Tenant agrees to pay as additional rent Tenant's
proportionate share of all common expenses such as, but not limited to, real
estate taxes, maintenance, common area expenses, and all risk building
insurance. For purposes of computing Tenant's proportionate share of such common
expenses, that amount determined by dividing the total actual common expenses
paid or incurred by Landlord for the calendar year of 1992 (and the 1992-1993
tax year as to that portion of the common expenses comprised of real estate
taxes) by the total number of rentable
2
<PAGE>
square feet within the Building shall be deemed to be the base year charge for
the common expenses as described above (which base year charge is included in
the annual Base Rent described in Section 4 above). Such common area expenses
shall include all costs and expenses that may result from compliance with any
governmental laws or regulations that were not applicable to the common areas at
the time same were originally constructed. Notwithstanding the foregoing, all
expenses which would be considered capital in nature under generally accepted
accounting principles shall be excluded from such common expenses. This
estimated cost (as reflected in the base year charge for common expenses as set
forth above) shall be adjusted annually to reflect actual annual common expenses
for the Building's fiscal year and Tenant shall pay its proportionate share of
any such adjustment. Said adjustment will be added to or subtracted from the
next year's estimated monthly common expenses charge. All other net expenses,
such as personal property taxes, gas and electric charges, improvements or
betterments assessments and all other taxes or any charges assessed or payable
during the Lease term are to be paid by the Tenant. Tenant agrees to forward any
and all notices of any assessments promptly to Landlord.
6. Payment, Late Charge, Time of Essence. The Tenant covenants to pay the
rent as herein provided without deduction whatsoever, and without any obligation
on the Landlord to make demand for it. To any installment of Base Rent and
additional rent accruing hereunder and any other sum payable hereunder, if not
paid within seven (7) days of the due date, shall be added a late charge of five
percent (5%) of the amount overdue for each late payment, and shall bear
interest at the rate of eighteen (18%) percent per annum (but not more than the
maximum allowable legal rate applicable to Tenant) until paid. Time is of the
essence to this Lease.
7. Advance Rent/Security Deposit. Section Intentionally Deleted.
8. Improvements to the Premises.
8.1. Condition of the Premises. By execution of this Lease, Tenant
acknowledges that it has inspected the Premises and is hereby accepting the same
and all improvements thereon or therein in an "as is" condition and in the
configuration as shown generally on the key plan attached hereto as Schedule "A"
and by this reference made a part hereof; provided, however, that prior to
delivery of possession of the Premises to Tenant, Landlord shall, at Landlord's
cost and expense: (i) remove existing ceiling finishes within the Premises; (ii)
remove all existing flooring finishes within the Premises leaving the existing
concrete
3
<PAGE>
flooring; (iii) perform all repairs and maintenance necessary to restore the
heating, ventilating and air conditioning system ("HVAC") existing within the
Premises to good working order; (iv) encase the opening for the overhead doors
shown on Schedule "A" attached hereto; (v) secure any existing vents to the roof
of the Premises with iron bars; and (vi) replace the existing doors within the
Premises shown on Schedule "A" with glass panels consistent with the building
standard materials used elsewhere within the Premises.
8.2. Delivery of Possession of the Premises. Landlord shall deliver
possession of the Premises in the condition specified in Section 8.1 above by
that date which is thirty (30) days from the date of execution of this Lease,
but in no event later than July 1, 1993.
8.3. Tenant's Improvements. Tenant shall, at its sole cost and expense,
complete all improvements and other work to be performed by Tenant to the
Premises pursuant to plans and specifications submitted to Landlord and approved
in writing by Landlord prior to Tenant's commencement of such work, which
approval by Landlord shall not be unreasonably withheld, conditioned or delayed.
Tenant shall submit its final plans and specifications for the Premises to
Landlord for Landlord's approval no later than April 8, 1993. Unless Tenant
shall elect that Landlord shall complete Tenant's improvements to the Premises
as hereinafter set forth, Landlord's consent to and/or approval of Tenant's
plans and specifications for the aforesaid improvements shall create no
responsibility or liability on the part of Landlord for their completeness,
design sufficiency, or compliance with all laws, rules, regulations and
ordinances of governmental agencies or authorities. Such plans and
specifications approved by Landlord shall be hereinafter referred to as the
"Final Plans and Specifications." Promptly upon Landlord's approval of Tenant's
Final Plans and Specifications, Landlord shall, at Tenant's expense, proceed on
behalf of Tenant to secure all necessary building permits to complete the
improvements to the Premises described and shown on the Final Plans and
Specifications.
Tenant shall secure Landlord's prior written approval to any and all
alterations, deviations or modifications to Tenant's Final Plans and
Specifications. Prior to commencement of construction, Tenant shall deliver to
Landlord certificates or policies of insurance required for all of Tenant's
contractors pursuant to the terms of Section 20 of this Lease. Tenant agrees to
keep common areas within the Building and Property free and clear of equipment
and building materials and, as far as practical, to confine its activities to
the Premises. Tenant shall cause the improvements to
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the Premises to be constructed in a good and workmanlike manner and in
accordance with those Final Plans and Specifications approved by Landlord.
All improvements and other items of any nature placed on or installed
within the Premises as a part of Tenant's construction and installation of
improvements to the Premises described in this Section 8.2 (hereafter "Tenant's
Work"), other than trade fixtures and personal property items (including but not
limited to Tenant's cubicle partitions), shall become and at all times remain
the property of Landlord and, unless otherwise specifically provided in this
Lease, shall not be removed from the Premises. If Tenant is in default, Landlord
shall have the benefit of any applicable lien on Tenant's property located in or
on the Premises as may be permitted under the laws of the State of Maryland, and
in the event such lien is asserted by Landlord in any manner or by operation of
law, Tenant shall not remove or permit the removal of said property until the
lien has been removed and all defaults have been cured. Tenant shall at its sole
cost and expense upon the expiration or earlier termination of the Term remove
from the Premises Tenant's personal property and trade fixtures and repair and
restore any damage to the Premises or Building caused by the installation and/or
removal of such personal property and trade fixtures. Tenant shall not do or
suffer to be done any act, matter or thing whereby said improvements shall be
encumbered or have a lien of any type placed against same. Notwithstanding the
foregoing, Landlord hereby acknowledges and agrees to the lien held by Bankers
Trust Company, Trustee, under the original indenture dated February 1, 1919, and
indentures supplemental thereto. Said improvements constructed or installed
within the Premises as a part of Tenant's Work shall at all times while Tenant
is in possession of the Premises be maintained, repaired, and/or replaced by
Tenant at Tenant's cost and expense. In addition, Tenant agrees that at the
expiration or early termination of this Lease, all of said improvements
constructed or installed within the Premises as a part of Tenant's Work, except
for Tenant's trade fixtures and personal property, shall be surrendered to
Landlord in good order and condition, reasonable wear and tear excepted.
Notwithstanding the foregoing and anything contained in this Lease to the
contrary, Tenant may elect to have Landlord complete the improvements to the
Premises shown on Tenant's Final Plans and Specifications by written
notification thereof from Tenant to Landlord given no later than April 15, 1993.
If Tenant shall elect to have Landlord complete said improvements, Landlord
shall promptly after Tenant's election commence such work and shall diligently
prosecute the same to completion. All alterations, modifications, and/or
deviations to the Final Plans and Specifications requested by Tenant shall be
made in the form of written change orders prepared at Tenant's sole cost and
expense
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and submitted by Tenant to Landlord in writing, and shall be subject to the
prior approval of Landlord, which approval shall not be unreasonably withheld.
The costs of all work performed by Landlord pursuant to Tenant's written change
orders approved by Landlord shall include all costs of labor and materials, plus
ten percent (10%) for overhead and ten percent (10%) for profit. At Tenant's
request, Landlord shall fully cooperate with Tenant to establish such costs or
estimates thereof in advance of performing such work. The costs of all work
performed by Landlord in completing the improvements to the Premises at Tenant's
request pursuant to this Section 8.3 including but not limited to (i) labor and
materials for constructing and installing improvements shown on the Final Plans
and Specifications, (ii) labor and materials for constructing and installing
improvements shown on Tenant's requested and approved written change orders, and
(iii) Landlord's overhead and profit charges on change order items in the
amounts set forth in the preceding sentence (hereinafter collectively the
"Completion Costs"), shall be paid by Tenant. Tenant shall pay such Completion
Costs to Landlord as additional rent hereunder within thirty (30) days of the
date of Landlord's invoice(s) to Tenant for the same, which invoices shall
include reasonably supporting documentation.
8.4. Mechanic's Liens. Tenant shall pay promptly all persons furnishing
labor or materials with respect to any work performed by Tenant or its
contractors on or about the Premises. In the event any mechanic's or other lien
shall at any time be filed against the Premises or Property by reason of work,
labor, services or materials performed or furnished, or alleged to have been
performed or furnished to Tenant or to anyone holding the Premises through or
under Tenant, Tenant shall forthwith cause the same to be discharged of record
or bonded to the satisfaction of Landlord. If Tenant shall fail to cause such
lien forthwith to be so discharged or bonded after being notified of the filing
thereof, then, in addition to any other right or remedy of Landlord, Landlord
may discharge the same by paying the amount claimed to be due, and the amount so
paid by Landlord, including reasonable attorney's fees incurred by Landlord
either defending against such lien or in procuring the discharge of such lien
shall be due and payable by Tenant to Landlord as additional rent hereunder.
9. Care of Premises.
(a) The Tenant agrees that it will maintain, at its sole expense,
the Leased Premises, fixtures, and appurtenances, including exterior doors and
windows, window frames, hardware and the like, and electric meters, gas meters
(if and to the extent such gas meter is installed by or on behalf of Tenant at
Tenant's
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cost and expense), plumbing, heating and air conditioning equipment serving the
Leased Premises and keep all in good order, clean, and repair throughout the
Term of this Lease, and suffer or permit no waste or injury; that at Tenant's
sole cost and expense, Tenant will comply with all laws, orders, and regulations
of the Federal, State, County and City authorities now in force or which may
hereafter be in force, which impose any duty upon Landlord or Tenant with
respect to the use, occupancy or alteration of the Premises or any part thereof,
and will not, through its own act or neglect, cause any situation to exist in or
about the Leased Premises which would constitute a violation of any applicable
Federal, State, County or City Code, Regulation or Ordinance governing use,
occupancy, health, sanitation or fire pertaining to Tenant's use of the Leased
Premises; that it will not do, or permit anything to be done, in the Leased
Premises which will in any way increase the rate of fire insurance on the
Building, or conflict with the fire insurance policies on the Building; that it
will save harmless the Landlord from any liability arising from injury to person
or property caused by any act or omission of Tenant, its agents, employees or
guests; that it will repair at or before the end of the Term, or sooner if so
requested by Landlord, all injury done by the installation or removal of
furniture or other property and will surrender the Leased Premises at the end of
the Term broom cleaned in as good condition as they were at the beginning of the
Term, ordinary wear and tear excepted. In the event of any increase in insurance
as a result of the failure of the Tenant to comply with the provisions of the
section, the Tenant will pay the amount of such increase as additional rent
within thirty (30) days after the Landlord's written demand.
The Landlord, its agents or employees shall be under no liability to
the Tenant for any discontinuance of heat, air conditioning or hot water unless
due to Landlord's negligence.
(b) Tenant shall not place a load upon any floor of the Leased
Premises that exceeds the lesser of (i) floor load per square foot which such
floor was designed to carry or (ii) the maximum floor load per square foot
allowed by laws. Business machines and mechanical equipment shall be placed and
maintained by Tenant, at Tenant's expense, in settings sufficient in Landlord's
reasonable judgment to absorb and prevent vibration, noise and annoyance.
(c) There shall be no allowance to Tenant for any diminution of
rental value and no liability on the part of Landlord by reason of
inconvenience, annoyance or injury to business arising from the making by
Landlord, Tenant or others of any repairs in or to the Building or the Leased
Premises, or in or to the fixtures,
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appurtenances or equipment thereof. Said repairs shall be made without
substantial interference in the Leased Premises.
(d) Tenant shall provide, at its sole expense, janitorial services
and trash removal services in compliance with all applicable health and safety
codes. Landlord shall supply and maintain a dumpster in the Common Area at all
times.
(e) Except for the repairs and replacements that Tenant is required
to make pursuant to the terms of this Section 9, Landlord shall make all other
repairs and replacements to the structural areas of the Premises, and to the
common areas and the Building and Property (including fixtures and equipment) as
shall be reasonably deemed necessary by Landlord to maintain the Building and
Property. This maintenance shall include the roof, foundation, exterior walls,
concrete flooring, gutter downspouts, all other structural components,
landscaping, and parking areas. The costs associated with such repairs shall be
deemed a part of common expenses set forth in Section 5 hereof (unless such
repair or maintenance shall be due to the gross negligence or willful misconduct
of Landlord); provided, however, that all of such repairs which would be
considered capital in nature under generally accepted accounting principles
shall be paid by Landlord.
10. Utilities. Tenant shall, at its own cost and expense, pay all charges
when due for utilities for which the Premises is separately metered, including
but not limited to electricity and gas. The costs of all other utilities
incurred in the use of the Leased Premises, including but not limited to water
and sewerage or any other utility for which the Premises shall not be separately
metered, shall be paid by Tenant as additional rent hereunder pursuant to the
terms of Section 5 hereof.
11. Use and Occupancy. Tenant shall have reasonable opportunity, provided
it does not interfere with Landlord's work, to examine the Premises to determine
the condition thereof. Upon taking possession of the Premises, Tenant shall be
deemed to have accepted the same and all improvements thereon in an "as is"
condition. The Leased Premises are to be used only for general office purposes
and for no other purpose. Tenant will not use the Leased Premises for any
unlawful purpose; Tenant covenants not to conduct nor permit to be conducted on
the Leased Premises any business in violation of the existing Brandon Woods
Business Park Rules and Regulations ("Rules and Regulations"), the certificate
of occupancy issued for the Premises and Building, or any law of the City and/or
County in which the Leased Premises are located or State or Federal law,
ordinance or regulation.
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12. Access by Landlord. The Landlord shall retain duplicate keys to all of
the doors of the Leased Premises, and the Landlord or his agents shall have
access to the Leased Premises upon reasonable advance notice thereof to Tenant
at all reasonable hours in order to inspect same, or to make any necessary
repairs within the Leased Premises or on said Building. The Landlord shall have
the right to show the Leased Premises to prospective tenants at any time during
the final six (6) months of the Lease term, providing it does not unduly
interfere with the Tenant's use of the Leased Premises. In the event of an
emergency, landlord shall have immediate access to the Leased Premises.
13. Subordination. This Lease shall be subject to and subordinate at all
times only to the lien of any first mortgage and/or deed of trust and to all
advances made or hereafter to be made thereunder. This subordination provision
shall be self-operative and no further instrument of subordination shall be
required, provided that Tenant shall be entitled to the benefit of this Lease as
long as Tenant is not in default.
14. Assignment or Subletting. Tenant shall not assign, mortgage or
encumber this Lease, nor sublet the Leased Premises or any part thereof without
the prior written consent of the Landlord, which consent of Landlord shall not
be unreasonably withheld, conditioned or delayed. In the event of the insolvency
or bankruptcy of Tenant, this Lease shall, at the option of the Landlord,
terminate forthwith, and this Lease shall not, by operation of law or otherwise,
be considered a part of the Tenant's estate.
15. Alterations. The Tenant covenants not to make or permit any
alterations, additions or improvements to said Leased Premises without the prior
written consent of the Landlord, and all additions and improvements made by
Tenant, except only moveable office furniture, and equipment, shall become the
property of the Landlord at the termination of this Lease or the vacating of the
Leased Premises. Unless such alterations or modifications are made by Landlord
on behalf of Tenant, Landlord's consent to or approval of Tenant's plans and
specifications for the aforesaid improvements and/or alterations shall create no
liability on the part of Landlord for their completeness, design sufficiency, or
compliance with all laws, rules and regulations of governmental agencies or
authorities.
16. Office Appearance Outside. Tenant shall not display any merchandise,
place vending machines or other obstructions outside the Leased Premises, or in
any lobby or passageway adjoining the same, nor shall Tenant permit rubbish,
refuse or garbage to
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accumulate or a fire hazard to exist about the Leased Premises. All signs will
conform to the Rules and Regulations.
17. Damage to Leased Premises. If the Leased Premises are partially
damaged by fire or other casualty, not the fault of the Tenant, Landlord shall
make repairs as speedily as conveniently possible using the insurance proceeds
called for in Section 20. If the damage is so extreme as to render the Leased
Premises wholly unfit for occupancy, all rents shall cease until the Leased
Premises are put into repair by the Landlord. In the event of total destruction
of the Building of which the Leased Premises form a part, or if in the judgment
of the Landlord the damage to the Leased Premises cannot be repaired within one
hundred twenty (120) days, and if the Landlord shall decide not to restore or
repair the same, the Landlord may, within sixty (60) days after such fire or
other casualty, by notification to the Tenant, terminate this Lease. In the
event the Premises are only partially damaged and fit for occupancy, Tenant
shall continue to pay rent, which rent shall be equitably adjusted based upon
the portion of the Premises fit for occupancy and use. In no event shall
Landlord by liable for any loss or damage sustained by Tenant by reason of fire
or other accidental casualty unless caused by Landlord, its agent, employees or
contractors. In the event more than fifty percent (50%) of the Building is
destroyed and the Leased Premises is unfit for occupancy, the Tenant may
terminate this Lease upon thirty (30) days' prior written notice to the
Landlord.
18. Waiver or Breach. No waiver of any breach of the covenants, provisions
or conditions contained in this Lease shall be construed as a waiver of the
covenant itself or any subsequent breach thereof; and if any breach shall occur
and afterwards be compromised, settled or adjusted, this Lease shall continue in
full force and effect as if no breach had occurred.
19. Rules and Regulations. Tenant shall comply with the Rules and
Regulations as set forth in Schedule "B", which is attached hereto and hereby
made a part of this Agreement. Any persistent violation of said Rules and
Regulations shall be a violation of this Lease, which shall, subject to the
notice provisions of Section 27(b), at the sole option of the Landlord,
thereupon cease and terminate, and Tenant shall be liable for all rent (past and
future) and other damages to Landlord as provided in Section 27(b), and/or
Landlord shall be entitled to any other remedy which it may have at law or in
equity and/or otherwise provided for in this Lease.
20. Insurance. Landlord will obtain and will keep in force at Tenant's
expense, so long as this Lese remains in effect, all
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risk property insurance for the full replacement value of the Leased Premises.
During the term of this Lease Tenant will maintain and require its
contractors and subcontractors to maintain the following forms of insurance:
(i) Commercial General Liability $2,000,000 combined
Including contractual liability single limit on an
occurrence basis
(ii) Business Auto Liability $2,000,000 combined
Including all Owned, Non-Owned, single limit
Hired and Leased Autos
(iii) Workers Compensation Statutory
Including U.S. Longshore and
Harbor Workers' Act and Jones
Act, if applicable
Employers Liability $2,000,000 (each
accident)
$2,000,000 (disease-
policy limit)
$2,000,000 (disease-
each employee)
So long as Baltimore Gas and Electric Company (or a wholly owned
subsidiary of Baltimore Gas and Electric Company) shall remain the Tenant under
this Lease, Tenant is permitted to self insure all or part of its obligations
under this Section in lieu of procuring and maintaining the above insurance
policies.
As evidence of the above insurances, Tenant shall file and require its
contractors and subcontractors to file with Landlord certificates of insurance.
Such certificates shall name Landlord as an additional insured (except workers
compensation) and provide that Landlord shall receive sixty (60) days prior
written notice of non-renewal, cancellation of or significant modification to
any of the above policies.
All insurance shall be placed and maintained with insurers authorized to
do business in the state where the Leased Premises are located and who have an
A.M. Best rating of A or better unless otherwise approved by Landlord.
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If Tenant fails to comply with its covenants made in this Section or if
such insurance should terminate or if Landlord has reason to believe such
insurance is about to terminate, Landlord may, at its option and sole judgment,
cause such insurance to be issued, and in such event Tenant agrees to pay
promptly upon Landlord's demand, as additional rent, the premiums for such
insurance.
It shall be the Tenant's responsibility to secure insurance covering
Tenant's property interest, such as personal contents within the Leased Premises
and improvements and betterments.
21. Indemnity. Tenant will defend, indemnify and save Landlord (except for
the negligence of the Landlord, its agent and employees) harmless from and
against any and all claims, actions, damages, liabilities and expenses in
connection with loss of life, personal injury and/or damage to property arising
from or out of any occurrence in, upon or at the Premises, or the occupancy or
use by Tenant of the Premises or any part hereof, or occasioned wholly or in
part, by act or omission of Tenant, its agents, contractors, employees or
invitees. In case Landlord shall, without fault on its part, be made a party to
any litigation commenced by or against Tenant, then Tenant shall protect, defend
and hold Landlord harmless and shall pay all costs and expenses incurred by
Landlord in connection with such litigation. Tenant shall indemnify and defend
Landlord for any damage to any property of Landlord caused by or arising out of
or in connection with any act or omission of Tenant, its employees, agents,
contractors or invitees, or Tenant's occupancy or use of the Premises or common
areas, or any thing, matter or condition of, on or pertaining to the Premises,
or any breach by Tenant of any term, covenant or condition of this Lease to be
performed or observed by Tenant.
22. Condemnation. In the event the whole or any part of the Leased
Premises shall be taken under the power of eminent domain, or sold under threat
thereof, or taken in any manner for public use, the Landlord, at its option, may
terminate this Lease, which Lease shall then terminate on the effective date of
the condemnation or sale. The compensation awarded or paid for such taking, both
as to Landlord's reversionary interest and Tenant's interest under this Lease,
shall belong to and be the sole property of the Landlord. Tenant shall have no
claim against the Landlord or be entitled to any award or damages other than an
abatement of the rent beyond the period of termination date and compensation
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paid for moving expenses and/or cost of removal of stock and/or trade fixtures,
if allowable by the condemnor.
23. Legal Fees. Where legal proceedings are instituted by either party
against the other, the prevailing party in such action shall be entitled to
recover from the other party its reasonable attorney's fees, and if such
prevailing party shall be Landlord, then Landlord's reasonable attorney's fees
shall be paid by Tenant as additional rent hereunder.
24. Covenant to Surrender. This Lease and the tenancy hereby created shall
cease and terminate at the end of the original Term hereof, without the
necessity of any notice of termination from either Landlord or Tenant, and
Tenant hereby waives notice to remove and agrees that Landlord shall be entitled
to the benefit of law respecting summary recovery of possession of the Leased
Premises from a Tenant holding over to the same extent as if statutory notice
was given, provided, however, that this Lease and the tenancy hereby created
shall not so cease and terminate at the end of the original Term if the Tenant
shall have been granted an option or options to renew and shall be entitled to
remain in possession under said option and/or options, and in said event, this
Lease and the tenancy hereby created shall cease and terminate at the end of the
last option period exercised under the terms of this Lease without the necessity
of any notice of termination from either Landlord or Tenant, and the Tenant
hereby waives notice to remove and agrees that Landlord shall be entitled to the
benefit of law respecting summary recovery of possession of the Leased Premises
from the Tenant holding over to the same extent as if statutory notice were
given.
25. Holdover Provision. The failure of Tenant to surrender the Leased
Premises on the date provided herein for the termination of the Lease term, and
the subsequent holding over by Tenant without the express prior written consent
of Landlord, shall result in the creation of a tenancy from month to month at a
monthly rental of 150% of the base rent payable in the same manner as provided
for in this Lease. This provision does not give Tenant any right to hold over at
the expiration of the Term. All other terms and conditions of this Lease shall
remain in full force during any month to month tenancy hereunder.
26. Quiet Enjoyment. Landlord covenants that, upon the payment of the rent
herein provided, and the performance by the Tenant of all covenants herein,
Tenant shall have and hold the
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Leased Premises, free from any interference from the Landlord, except as
otherwise provided for herein.
27. Tenant Default.
(a) In case of the non-payment of rent at the time provided, and
after four (4) days' written notice, or in case the said Leased Premises shall
be deserted, or vacated, the Landlord shall have the right to enter the same and
distrain for any amount of money that may be due under this Lease, either by
necessary force or otherwise, without being liable to any prosecution therefor,
and to apply any proceeds to the payment of the rent due or to be due, holding
the Tenant liable for any deficiency, unless Landlord is negligent.
(b) It is agreed upon any default on the part of the Tenant of any
provision or covenant of this Lease other than the non-payment of rent, the
Landlord shall have the right, after ten (10) days' notice to the Tenant
(provided that if the Tenant has commenced to repair the Premises within said
ten (10) days and proceeds, with due diligence to complete same, it shall not
constitute a default), to perform therefore on behalf of the Tenant at the risk
and expense of the Tenant and to render a bill for the cost thereof to the
Tenant, which shall be payable as rent. Upon failure of the Tenant to pay such
bill within ten (10) days after sending such bill to the Tenant at the Leased
Premises, the Landlord shall have the same rights against the Tenant (and with
reference to the Leased Premises) as it has in the event of non-payment of rent.
In addition to the above remedies, the Landlord shall have the right after ten
(10) days' written notice of a violation by the Tenant of any of the covenants
or provisions on the part of the Tenant contained in this Lease, to reenter and
take possession of the Leased Premises without formal notice if the violation
has not been corrected within said ten (10) days after notice (provided that if
the Tenant has commenced to repair the Premises within said ten (10) days and
proceeds, with due diligence to complete same, it shall not constitute a
default), and it is further agreed that notwithstanding such reentry, the Tenant
shall remain liable for all rent and other damages and losses as of the date of
reentry, and shall further be liable, at the option of the Landlord, for the
amount of rent reserved under the Lease for the balance of the term, less any
amount of rent received by the Landlord during such period from others to whom
the Premises may be rented on such terms and conditions and at such rentals as
Landlord, in its sole discretion, shall deem proper, all of which shall be at
the risk and expense of the Tenant. In addition, Landlord, at its option, shall
have the right to repossess the Leased Premises and terminate this Lease.
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(c) In the event Landlord terminates this Lease, under this Section
27, the Landlord may, without further notice, reenter the Leased Premises and
dispossess Tenant, the legal representatives of Tenant, or other occupant of the
Leased Premises, and remove their effects and hold the Premises as if this Lease
has not been made. The Landlord shall also be entitled to the benefit of all
provisions of law for the recovery of land and tenements held over by Tenant in
Anne Arundel County, Maryland.
(d) It is expressly agreed and understood that the exercise of any
one or more of said rights shall not be construed as a waiver of any other
rights, it being understood that all of said rights shall be cumulative and may
be exercised simultaneously.
28. Notices. All notices from Tenant to Landlord shall be sent by
Certified Mail, Return Receipt Requested, and addressed to Landlord at c/o
Constellation Real Estate, Inc., Attn: John Harris Gurley, Esquire, 8815 Centre
Park Drive, Suite 400, Columbia, Maryland 21045. All notices from Landlord to
Tenant shall be sent by Certified Mail, Return Receipt Requested, and addressed
to Tenant at Baltimore Gas and Electric Company, 7152 Windsor Boulevard,
Baltimore, Maryland 21244, Attention: Claude S. Cohen, Supervisor, Real Estate
Operations, with a copy to the Premises. Either party may from time to time
designate in writing by Certified Mail, Return Receipt Requested, a substitute
address, and thereafter all notices shall be sent to such substitute address.
29. Representations. Landlord or Landlord's agents have made no
representations or promises with respect to the said Building or Leased Premises
except as herein expressly set forth.
30. Trial by Jury. Landlord and Tenant do hereby waive trial by jury in
any action, proceeding or counterclaim brought by either of the parties hereto
for the collection or payment of rent or additional rent hereunder.
31. Gender. Reference to masculine, feminine or neuter gender shall
include proper gender as the case may be. If more than one Tenant is named
herein, the obligations of the persons so named shall be joint and several.
32. Estoppel Certificates. Tenant agrees that at any time and from time to
time, upon not less than ten (10) days' prior notice by Landlord, it will
execute, acknowledge and deliver to
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Landlord a statement in writing certifying that this Lease is unmodified and in
full force and effect (or if there have been modifications) and the dates to
which the rent and other charges have been paid in advance, if any, and stating
whether or not, to the best knowledge of the signer of such certificate,
Landlord is in default in performance of any covenant, agreement or condition
contained in this Lease and, if so, specifying each such default of which the
signer may have knowledge, it being intended that any such statement delivered
hereunder may be relied upon by any third party not a party to this Lease.
33. Covenants, Terms and Conditions. This Lease and the covenants, terms
and conditions contained herein shall inure to the benefit of and be binding on
Landlord, provided that if Landlord sells or otherwise transfers title to the
Leased Premises, the Landlord shall be relieved of all covenants and obligations
hereunder upon completion of such sale or transfer, and it shall be considered
that the transferee has assumed and agreed to carry out all of the obligations
of the Landlord hereunder. This Lease and the covenants, terms and conditions
contained herein shall be binding on and inure to the benefit of Tenant, its
successors and assigns, provided the transferor in fact assumes such
obligations.
34. Warranties. Tenant will be subrogated to Landlord's claims, if any,
against the manufacturer or supplier of any building components or equipment for
breach of any warranty or representation and upon written request from Tenant,
Landlord shall take all reasonable action requested by Tenant to enforce any
such warranty, express or implied, issued on or applicable to any holding
component or equipment which is enforceable by Landlord in its own rights,
provided, however, that (a) Tenant is not in default under this Lease and (b)
Landlord shall not obligated to resort to litigation to enforce any such
warranty unless Tenant shall pay all expenses in connection therewith.
35. Common Areas. Landlord shall keep the common areas in and around the
Building in reasonable repair, and it shall substantially clean ice and snow
from the parking areas to permit substantial use thereof for the intended
purposes, with reasonable diligence under the circumstances.
36. Hazardous Material; Indemnity. Tenant shall not cause or permit any
Hazardous Material (as hereinafter defined) to be brought upon, kept, or used in
or about the Premises by Tenant, its agents, employees, contractors or invitees,
without the prior
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written consent of Landlord (which Landlord shall not unreasonably withhold as
long as Tenant demonstrates to Landlord's reasonable satisfaction that such
Hazardous Material is necessary or useful to Tenant's business and will be used,
kept and stored in a manner that complies with all laws regulating any such
Hazardous Material so brought upon or used or kept in or about the Premises). If
Tenant breaches the obligations stated in the preceding sentence, or if the
presence of Hazardous Material on the Premises caused or permitted by Tenant
results in contamination of the Premises, the Building and/or the Property, or
if contamination of the Premises, the Building and/or the Property by Hazardous
Material otherwise occurs, for which Tenant is legally liable to Landlord for
damage resulting therefrom, then Tenant shall indemnify, defend and hold
Landlord harmless from any and all claims, judgments, damages, penalties, fines,
costs, liabilities or losses (including, without limitation, diminution in value
of the Premises, the Building and/or the Property, damages for the loss or
restriction on use of rentable or usable space or of any amenity of the
Premises, the Building and/or the Premises, damages arising from any adverse
impact on marketing of space, and sums paid in settlement of claims, attorneys'
fees, consultant fees and expert fees) which arise during or after the Term as a
result of such contamination. This indemnification of Landlord by Tenant
includes, without limitation, costs incurred in connection with any
investigation of site conditions or any cleanup, remedial, removal, or
restoration work required by any federal, state or local governmental agency or
political subdivision because of Hazardous Material present in the soil or
ground water on or under the Building. Without limiting the foregoing, if the
presence of any Hazardous Material on the Premises, the Building and/or the
Property caused or permitted by Tenant results in any contamination of the
Premises, the Building and/or the Property, Tenant shall promptly take all
actions at its sole expense as are necessary to return the Premises, the
Building and/or the Property to the condition existing prior to the introduction
of any such Hazardous Material to the Premises, the Building and/or the
Property; provided that Landlord's approval of such actions shall first be
obtained, which approval shall not be unreasonably withheld so long as such
actions would not potentially have any material adverse long-term or short-term
effect on the Premises or the Building.
As used herein, the term "Hazardous Material" means any hazardous or toxic
substance, material or waste which is or becomes regulated by any local
governmental authority, the State of Maryland or the United States Government.
The term "Hazardous
17
<PAGE>
Material" includes, without limitation, any material or substance that is (i)
defined as a "hazardous substance" under the laws of the State of Maryland, (ii)
petroleum, (iii) asbestos, (iv) designated as a "hazardous substance" pursuant
to Section 311 of the Federal Water Pollution Control Act (33 U.S.C. Section
1321), (v) defined as a "hazardous waste" pursuant to Section 1004 of the
Federal Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq.
(42 U.S.C. Section 6903), (vi) defined as a "hazardous substance" pursuant to
Section 101 of the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. Section 9601 et seq. (42 U.S.C. Section 9601), or (vii)
defined as a "regulated substance" pursuant to Subchapter IX, Solid Waste
Disposal Act (Regulation of Underground Storage Tanks), 42 U.S.C. Section 6991
et seq.
37. Brokers. Tenant represents that Tenant has not dealt with any broker
in connection with this Lease, and Tenant warrants that no broker negotiated
this Lease or is entitled to any commissions in connection with this Lease.
Similarly, Landlord represents that Landlord has not dealt with any broker in
connection with this Lease, and Landlord warrants that no broker negotiated this
Lease or is entitled to any commissions in connection with this Lease.
38. Separability. If any term or provision of this Lease or the
application thereof to any person or circumstances shall, to any extent, be
invalid or unenforceable, the remainder of this Lease or the application of such
term or provision of such term or provision to persons or circumstances other
than those as to which it is held invalid or unenforceable, shall not be
affected thereby, and each term and provision of this Lease shall be valid and
be enforced to the fullest extent permitted by law.
39. Relocation. Section Intentionally Deleted.
40. Captions. All headings anywhere contained in this Lease are intended
for convenience or reference only and are not to be deemed or taken as a summary
of the provisions to which they pertain or as a construction thereof.
41. Entire Agreement. This writing is intended by the parties hereto as a
final expression of their agreement, and is a complete and exclusive statement
of its terms, and all negotiations, considerations and representations between
the parties hereto are incorporated herein. No course of prior
18
<PAGE>
dealings between the parties or their affiliates shall be relevant or admissible
to supplement, explain, or vary any of the terms of this Lease. Acceptance of,
or acquiescence to a course of performance rendered under this Lease or any
prior agreement between the parties hereto or their affiliates shall not be
relevant or admissible to determine the meaning of any of the terms or covenants
of this Lease. Other than as specifically set forth herein, no representations,
understandings or agreements have been made or relied upon in the making of this
Lease.
42. Recordation. Tenant covenants that it will not, without Landlord's
prior written consent, record this Lease or any memorandum of this Lease. If at
any time Tenant shall require the recordation of this Lease or any memorandum of
this Lease, such recordation shall be at Tenant's expense (including but not
limited to any stamps or transfer taxes which may be assessed in connection with
such recordation.) If the recordation of this Lease or any memorandum of this
Lease shall be required Landlord or by any mortgagee of Landlord's interest in
the Premises, such recordation shall be at Landlord's expense (including any
stamps or transfer taxes which may be assessed in connection with such
recordation.)
43. Tenant's Right of First Refusal. Landlord agrees that during the Term
and any extension or renewal thereof, Tenant shall have a continuing
right-of-first refusal to lease from Landlord the 1,000 rentable square feet of
space contiguous to the Premises and more particularly shown cross-hatched on
Schedule C attached hereto and made a part hereof (the "Expansion Space"). At
such time and from time to time as Landlord shall enter into meaningful
negotiations with a third party to lease all or any portion of the Expansion
Space, Landlord shall so notify Tenant to that effect in writing.
Tenant shall exercise the foregoing right-of-first refusal by delivering
written notice to Landlord within thirty (30) days of Tenant's receipt of the
aforesaid notice from Landlord, said notice from Tenant to indicate: (i) that
Tenant agrees to exercise the aforesaid right-of-first refusal to lease the
Expansion Space for the balance of the Term as renewed or extended; (ii) that
rent for the Expansion Space shall be equivalent to the rent payable by Tenant
for the Premises (including rent escalations) computed on a per rentable square
basis for the balance of the Term as renewed or extended (without concession,
abatement, improvement allowance, set-off or demand except as otherwise
specifically set forth herein); (iii) Tenant shall take possession of the
Expansion Space
19
<PAGE>
in an "as is" condition within sixty (60) days of that date on which Tenant
exercises its right-of-first refusal for the Expansion Space; and (iv) that the
Expansion Space shall be leased on the same terms and conditions as set forth in
this Lease. In the event that Tenant exercises the right-of-first refusal
granted herein, Landlord and Tenant shall enter into an amendment to this Lease
for the Expansion Space within thirty (30) calendar days of receipt by Landlord
of Tenant's notice exercising said right-of-first refusal. If Tenant is in
default under the terms of this Lease at the time Tenant exercises its
right-of-first refusal, or if Tenant declines to exercise its right as provided
above, or if Tenant fails to deliver notice thereof within the thirty (30) day
period stipulated above, or if Tenant fails to execute an amendment to this
Lease for the Expansion Space within said thirty (30) day period, then in any of
such events, this right-of-first refusal as to the Expansion Space shall then
lapse and Landlord shall be free to proceed with its meaningful negotiations;
provided, however, that this right-of-first refusal shall again be operative at
such time as the Expansion Space or any portion thereof shall again for whatever
reason become available for Lease.
IN WITNESS WHEREOF, the parties hereto, by the properly authorized persons
and with their respective seals attached, have duly executed this Lease the day
and year first above written.
ATTEST OR WITNESS: LANDLORD:
CONSTELLATION PROPERTIES, INC.,
a Maryland corporation
/s/ [ILLEGIBLE] By: /s/ J. Richard O'Connell (SEAL)
- ------------------------- ---------------------------
Vice President
ATTEST OR WITNESS: TENANT:
BALTIMORE GAS AND ELECTRIC COMPANY,
a Maryland corporation
/s/ [ILLEGIBLE] By: /s/ G.D. Schwartz, Jr. (SEAL)
- ------------------------- ---------------------------
Title: Vice President
20
<PAGE>
STATE OF MARYLAND, COUNTY OF Baltimore:
BEFORE ME, a Notary Public of the State of Maryland, in and for the County
aforesaid, personally appeared J. Richard O'Connell, Vice President of
CONSTELLATION PROPERTIES, INC., a Maryland corporation, and acknowledged that
he, as such Vice President, being authorized so to do, executed the foregoing
document on behalf of said corporation by signing the name of the corporation by
himself as such Vice President.
WITNESS my hand and notarial seal this 27th day of April, 1993.
/s/ Eileen A. Cassell
--------------------------------
Notary Public
My Commission Expires: 2/2/94
STATE OF MARYLAND, COUNTY OF Baltimore:
BEFORE ME, a Notary Public of the State of Maryland, in and for the County
aforesaid, personally appeared Dowell G. Schwartz, Jr., of BALTIMORE GAS
AND ELECTRIC COMPANY, a Maryland corporation, and acknowledged that he, as such
Vice President, being authorized so to do, executed the foregoing document on
behalf of said corporation by signing the name of the corporation by himself as
such Vice President.
WITNESS my hand and notarial seal this 22nd day of April, 1993.
/s/ [ILLEGIBLE]
--------------------------------
Notary Public
My Commission Expires: 11-15-93
21
<PAGE>
Schedule "A"
Page 1 of 2
KEY PLAN
NTS - FIRST FLOOR
[FLOOR PLAN OMITTED]
<PAGE>
Schedule "B"
Brandon Woods Business Park
Rules and Regulations
1. No improvements, betterments or changes to the Leased Premises including
plumbing and electric wiring will be installed without prior written
approval of the Landlord and shall be done only by contractors approved by
Landlord. The number and location of telephones, telegraph instruments,
electric appliances, call boxes, etc., shall be subject to Landlord's
approval, which consent shall not be unreasonably withheld.
2. No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed, printed or affixed on or to any part of the outside
or inside of the Building without the Tenant's first obtaining the written
consent of Landlord which consent of Landlord shall not be unreasonably
withheld. Landlord shall have the right to remove any such sign, placard,
picture, advertisement, name or notice without notice to and at the
expense of Tenant. All approved signs or lettering on doors shall be
printed, painted, or affixed or inscribed at the expense of Tenant by a
person or company approved by the Landlord. Tenant shall not place
anything or allow anything to be placed near or on the glass of any
window, door, partition or wall which may appear unsightly from outside
the Leased Premises, which consent shall not be unreasonably withheld.
3. No awnings or other projections shall be attached to the outside walls of
the Building. No curtains, blinds, shades or screens shall be attached to
or hung in, or used in conjunction with, any window or door of the Leased
Premises, without the prior written consent of Landlord which consent of
Landlord shall not be unreasonably withheld. Such curtains, blinds and
shades must be of a quality, type, design, and color, and attached in a
manner approved by Landlord.
4. The sidewalks, passages, exits, entrances, and stairways shall not be
obstructed by Tenants or used by them for any purpose other than for
ingress to and egress from their respective Leased Premises. All passages,
exits, entrances, stairways, balconies and roof are not for the use of the
general public and the Landlord shall in all cases retain the right to
Schedule B - Page 1
<PAGE>
control and prevent access thereto by all persons whose presence, in the
sole judgment of the Landlord, shall be prejudicial to the safety,
character, reputation and interests of the Building and its Tenants,
provided that nothing herein contained shall be construed to prevent such
access to persons with whom the Tenant normally deals in the ordinary
course of business, unless such persons are engaged in illegal activities.
Unless making repairs required to be made under the terms of the Lease to
heating ventilation or air conditioning located thereon, neither Tenant
nor any employees of invitees of the Tenant shall have access to or go
upon the roof of the Building without the prior approval of the Landlord.
5. After regular business hours on weekdays, Saturdays, Sundays, and legal
holidays, Tenant, its agents, servants, employees and invitees, shall
abide by such security rules and regulations as Landlord may promulgate.
6. A dumpster shall be provided to the Building site by the Landlord for use
by the Tenants with the cost to be borne by the Tenants on a pro rata
share. Abnormal amounts of trash or garbage generated by either Tenant's
initial movement into or occupancy of the Leased Premises, or the purchase
of equipment or fixtures placed on the Leased Premises shall be removed by
Tenant at its sole cost or expense and shall not be placed in the dumpster
provided by Landlord.
7. Tenant shall not make or permit to be made any loud or offensive noises,
keep any foul or noxious gas or substance or other disturbances of any
kind in the Leased Premises or within the Building. Tenant shall be
responsible for insuring that any office equipment and machinery is
installed in such a manner as to absorb and prevent the transmission of
vibration and noise beyond the confines of the Leased Premises so as not
to disturb other tenants in the Building.
8. No additional lock or locks shall be placed by Tenant on any door in the
Building, without the prior written consent of Landlord. One key set will
be furnished Tenant by Landlord; any additional keys requested by Tenant
shall be paid for by Tenant. At his expense, Tenant, its agents and
employees, may have duplicate keys made and shall not change any locks.
All keys shall be returned to Landlord at the termination of the tenancy.
In the event of loss of any keys, at Tenant's
Schedule B - Page 2
<PAGE>
option, Tenant shall pay Landlord the cost of changing locks and replacing
keys.
9. The Tenant shall not use any other method of permanent heating or air
conditioning than that provided by the Landlord, without first obtaining
the written consent of the Landlord.
10. No animals or birds of any kind shall be kept in or permitted on or about
the Leased Premises or any other part of the Building.
11. No public cooking shall be done or permitted by any Tenant on the Leased
Premises, nor shall the Leased Premises be used for washing clothes,
lodging or for any improper, objectionable or immoral purposes.
12. Tenant shall not be permitted to use or keep explosives, kerosene,
cleaning fluid or any other illuminating, combustible or explosive
material or substance of any kind in the Building or the Leased Premises.
13. Tenant shall not be permitted to keep food upon the Leased Premises,
except in proper containers, cabinets and refrigerators and in strict
accordance with all applicable rules, regulations and ordinances of all
local health and sanitation authorities.
14. Tenant shall comply with all Tenant requirements issued and mandated by
insurance companies insuring the Building.
15. Landlord reserves the right to institute energy management procedures when
applicable.
16. No vending, video, amusement machine or machines of any other description
shall be installed, maintained or operated upon the Leased Premises or the
Building without the prior written consent of the Landlord.
17. No Tenant shall lay linoleum, tile, carpet or other similar floor covering
so that the same shall be affixed to the floor of the Leased Premises or
the Building in any manner except as approved by Landlord which approval
of Landlord shall not be unreasonably withheld. The expense of repairing
any damage resulting from a violation of this Rule, or of removing any
floor covering shall be borne and paid for by the Tenant who
Schedule B - Page 3
<PAGE>
violated or permitted the violation of this Rule, whether by its own
actions or the actions of its contractors or employees.
18. Canvassing, soliciting and peddling in the Building are prohibited, and
Tenant shall cooperate with Landlord to prevent these practices.
19. There shall not be used in the Leased Premises or in the Building, either
by Tenant or by others in the delivery or receipt of merchandise, any hand
trucks except those equipped with rubber tires and side guards.
20. Landlord shall have the right to prohibit any advertising by Tenant
(including, but not limited to, advertising concerning liquidation, going
out of business sales and the like) which in Landlord's opinion tends to
impair the reputation of the Building or its desirability as a building
for offices, and upon written notice from Landlord, Tenant shall refrain
from or discontinue such advertising.
21. Landlord hereby reserves to itself any and all rights not granted to
Tenant hereunder, including, but not limited to, the following rights
which are reserved to Landlord for its purposes in operating the Building:
(a) the exclusive right to the use of the name of the Building for all
purposes, except that Tenant may use the name as its business
address and for no other purpose;
(b) the right to change the name or address of the Building, without
incurring any liability to Tenant for so doing;
(c) the right to install and maintain a sign or signs on the exterior of
the Building or within the Building Area;
(d) the exclusive right to use or dispose of the use of the roof of the
Building;
(e) to the extent that Landlord shall hereafter install directory
signage for the Building, signage on such directory shall be
uniformly and democratically provided to all tenants within the
Building; and
Schedule B - Page 4
<PAGE>
(f) the right to grant to anyone the right to conduct any particular
legal business or undertaking in the Building which will not impair
the reputation of the Building.
22. The Landlord reserves the right at any time to rescind any one or more of
these Rules and Regulations, or to make such other and further reasonable
Rules and Regulations as in the Landlord's judgment may, from time to
time, be necessary for the safety, care and cleanliness of the Building,
Building Area or any part thereof, and for the preservation of the Rules
and Regulations set forth herein. All rules shall be enforced fairly and
equally by Landlord.
23. Tenant will observe all parking policies of the Landlord including but not
limited to:
(a) parking automobiles in Tenant's designated areas and use of visitors
parking as such only;
(b) scheduling deliveries of goods and materials at unobtrusive times
and places to minimize overall traffic patterns in parking lots;
(c) not allowing parking for any extended time of trucks, vans and such
vehicles not considered passenger vehicles; and
(d) maintain a conscientious, courteous parking etiquette.
Schedule B - Page 5
<PAGE>
Schedule "C"
DESCRIPTION OF EXPANSION SPACE
KEY PLAN
NTS - FIRST FLOOR
[FLOOR PLAN OMITTED]
<PAGE>
Schedule "A"
Page 1 of 2
KEY PLAN
NTS - FIRST FLOOR
[FLOOR PLAN OMITTED]
<PAGE>
Schedule "A"
Page 2 of 2
[FLOOR PLAN OMITTED]
<PAGE>
FIRST AMENDMENT TO LEASE AGREEMENT
THIS FIRST AMENDMENT TO LEASE AGREEMENT ("First Amendment") is made this
9th day of December, 1998 by and between COPT BRANDON, LLC ("Landlord") and
BALTIMORE GAS AND ELECTRIC COMPANY, ("Tenant")
WITNESSETH:
WHEREAS, by Lease Agreement dated April 27, 1993 (the "Original Lease")
between Constellation Properties, Inc. (the "Original Landlord") and Tenant,
the Original Landlord leased to Tenant and Tenant leased from Original
Landlord that certain office space containing 7,470 rentable square feet (the
"Leased Premises"), and located within the building owned by Original
Landlord at 7609 Energy Parkway, Baltimore, Maryland 21226.
WHEREAS, effective September 28, 1998, the Original Landlord assigned all
of its right, title and interest in the Original Lease to Landlord.
NOW, THEREFORE, in consideration of the sum of Five Dollars ($5.00), paid
by the Landlord and Tenant, each to the other, the mutual covenants and
conditions herein contained, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
hereto hereby amend the Lease as follows:
1. Paragraph Numbered 2. - Term:
This Lease Extension shall be for a term ("Term") of 19 months commencing
July 1, 1999 and extending through December 31, 2000.
2. Paragraph Numbered 3. - Renewal Terms:
Delete this paragraph in its entirety.
3. Paragraph Numbered 4. - Rent
As rent for the Premises during this extension Term, Tenant shall pay to
Landlord an annual base rent (herein "Base Rent") set forth on the schedule
below, in advance, in monthly installments on the first day of each calendar
month during each respective Lease Year as set forth below, and without
deduction, setoff or demand except as otherwise specifically set forth herein:
<TABLE>
<CAPTION>
Monthly Installment
Lease Year Annual Base Rent of Annual Base Rent
---------- ---------------- -------------------
<S> <C> <C>
First Lease Year $49,302.00 $4,108.50
Second Lease Year $51,274.08 $4,272.84
</TABLE>
4. Paragraph Numbered 28. - Notices
Delete "Attention: Claude S. Cohen, Supervisor, Real Estate Operations"
and replace with "Director, Real Estate and Facilities Planning."
5. Except as herein modified or amended, the parties hereto do hereby
ratify and confirm the Lease and all terms, covenants and conditions thereof
which shall continue in full force and effect. To the extent of any
inconsistency between the Lease and this First Amendment, the terms of this
First Amendment shall prevail.
<PAGE>
IN WITNESS WHEREOF, this First Amendment has been executed the day and
year first above written.
WITNESS: COPT. BRANDON, LLC
/s/ Karen [ILLEGIBLE] By: /s/ Roger A. Waesche, Jr.
------------------------------ -------------------------- (SEAL)
Roger A. Waesche, Jr.
Senior Vice President
ATTEST/WITNESS: BALTIMORE GAS AND ELECTRIC COMPANY
/s/ A. M. Thompson By: /s/ Stephen C. Roth
------------------------------ -------------------------- (SEAL)
Stephen C. Roth
Director-Real Estate
and Planning
<PAGE>
Exhibit 21.1
CORPORATE OFFICE PROPERTIES TRUST
SUBSIDIARIES OF REGISTRANT
Delaware
Corporate Office Properties, L.P.
Corporate Office Properties Holdings, Inc.
COPT Acquisitions, Inc.
Maryland
Airport Square II, LLC
Airport Square IV, LLC
Airport Square V, LLC
Airport Square X, LLC
Airport Square XI, LLC
Airport Square XIII, LLC
Airport Square XIV, LLC
Airport Square XIX, LLC
Airport Square XX, LLC
Browns Wharf, LLC
COPT Brandon, LLC
Corporate Gatespring, LLC
Corporate Gatespring II, LLC
Gateway 44, LLC
Lakeview at the Greens, LLC
NBP One, LLC
NBP 131-133-141, LLC
NBP 134, LLC
NBP 135, LLC
St. Barnabus, LLC
Tech Park I, LLC
Tech Park II, LLC
Tech Park IV, LLC
Three Centre Park, LLC
Tred Lightly, LLC
7200 Riverwood, LLC
New Jersey
South Brunswick Investors, L.P.
Pennsylvania
Blue Bell Investment Company, L.P.
Comcourt Investors, L.P.
6385 Flank Drive, L.P.
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 (No. 333-71807 and 333-60379) of our report dated
February 24, 1999 appearing on page F-2 of Corporate Office Properties Trust's
Annual Report on Form 10-K for the year ended December 31, 1998.
PricewaterhouseCoopers LLP
Washington, DC
March 29, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,349
<SECURITIES> 0
<RECEIVABLES> 3,036
<ALLOWANCES> 50
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 556,356
<DEPRECIATION> 9,469
<TOTAL-ASSETS> 563,677
<CURRENT-LIABILITIES> 0
<BONDS> 306,824
0
10
<COMMON> 168
<OTHER-SE> 168,603
<TOTAL-LIABILITY-AND-EQUITY> 563,677
<SALES> 0
<TOTAL-REVENUES> 40,214
<CGS> 0
<TOTAL-COSTS> 15,917
<OTHER-EXPENSES> 2,527<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,630
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 9,279
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,696
<EPS-PRIMARY> 0.48
<EPS-DILUTED> 0.47
<FN>
<F1>REFLECTS NONRECURRING REFORMATION COST OF $637 ASSOCIATED WITH THE REFORMATION
OF THE COMPANY AS A MARYLAND TRUST.
</FN>
</TABLE>
