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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 1, 2000
REGISTRATION STATEMENT NO. 333-71807
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 2 TO
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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CORPORATE OFFICE PROPERTIES TRUST
(Exact name of Registrant as specified in its charter)
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Maryland 8815 Centre Park Drive 23-2947217
(State or other jurisdiction Suite 400 (IRS Employer
of incorporation or Columbia, Maryland 21045 Identification Number)
organization)
(410) 730-9092
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
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CLAY W. HAMLIN, III
Chief Executive Officer
Corporate Office Properties Trust
8815 Centre Park Drive
Suite 400
Columbia, MD 21045
(410) 730-9092
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
John F. Bales, Esq. John H. Gurley
Morgan, Lewis & Bockius LLP Senior Vice President & General Counsel
1701 Market Street Corporate Office Properties Trust
Philadelphia, PA 19103 8815 Centre Park Drive, Suite 400
(215) 963-5478 Columbia, MD 21045
(410) 992-7247
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after the effective date of this Registration Statement.
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If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
other than offered only in connection with dividend or interest reinvestment
plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
THE REGISTRANT HEREBY REQUESTS THAT THIS POST-EFFECTIVE AMENDMENT NO. 2 BECOME
EFFECTIVE, AS SOON AS PRACTICABLE, PURSUANT TO SECTION 8(C) OF THE SECURITIES
ACT OF 1933.
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CORPORATE OFFICE PROPERTIES TRUST
$218,750,000
COMMON SHARES OF BENEFICIAL INTEREST
PREFERRED SHARES OF BENEFICIAL INTEREST
WARRANTS TO PURCHASE COMMON SHARES
WARRANTS TO PURCHASE PREFERRED SHARES
This prospectus pertains to the offer and sale by Corporate Office
Properties Trust of one or more of its securities of the type
identified above. Corporate Office Properties Trust is referred to
in this prospectus as "we," "us" or "COPT."
We may offer and sell any combination of the securities described in
this prospectus in one or more offerings up to a total dollar amount
of $218,750,000. This prospectus provides you with a general
description of the securities we may offer. Each time we offer
securities, we will provide a prospectus supplement which will
accompany this prospectus. This prospectus may not be used to sell
these securities unless accompanied by a prospectus supplement. The
prospectus supplement will contain specific information about the
terms of the securities being offered at that time. The prospectus
supplement may also add, update or change information contained in
this prospectus. You should read both this prospectus and any
prospectus supplement, including the documents we have referred to
under the heading "Where You Can Find More Information," together
with any additional information you may need to make your investment
decision.
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BEFORE INVESTING IN OUR SECURITIES, YOU SHOULD REVIEW THE SECTION OF
THIS PROSPECTUS CALLED "RISK FACTORS" WHICH BEGINS ON PAGE 4.
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We may sell the securities offered pursuant to this prospectus and
the accompanying prospectus supplement to or through one or more
underwriters or dealers or may sell the securities to investors
directly or through agents. Any such underwriter or agent involved
in the offer and sale of the securities will be named in the
applicable prospectus supplement.
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THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR
DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Prospectus is November 1, 2000.
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TABLE OF CONTENTS
PAGE
SUMMARY......................................................................3
OUR COMPANY..................................................................3
FORWARD-LOOKING STATEMENTS...................................................3
RISK FACTORS.................................................................4
USE OF PROCEEDS..............................................................9
RATIOS OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED SHARE
DIVIDENDS..............................................................9
DESCRIPTION OF SHARES.......................................................10
FEDERAL INCOME TAX MATTERS..................................................21
PLAN OF DISTRIBUTION........................................................31
EXPERTS.....................................................................32
LEGAL MATTERS...............................................................32
WHERE YOU CAN FIND MORE INFORMATION.........................................32
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SUMMARY
THIS PROSPECTUS SUMMARY CALLS YOUR ATTENTION TO SELECTED INFORMATION IN
THIS DOCUMENT, BUT IT DOES NOT CONTAIN ALL THE INFORMATION THAT IS IMPORTANT
TO YOU. TO UNDERSTAND US AND THE SECURITIES THAT MAY BE OFFERED THROUGH THIS
PROSPECTUS, YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, ESPECIALLY THE
"RISK FACTORS" SECTION AND THE DOCUMENTS WE REFER YOU TO IN THE SECTION
CALLED "WHERE YOU CAN FIND MORE INFORMATION" BEGINNING ON PAGE 32.
OUR COMPANY
GENERAL. We are a fully-integrated and self-managed real estate
investment trust ("REIT") that focuses principally on the ownership,
management, leasing, acquisition and development of suburban office buildings
located in select submarkets in the Mid-Atlantic region of the United States.
As of June 30, 2000, we:
o owned 81 suburban office properties in Maryland, Pennsylvania
and New Jersey containing approximately 6.2 million rentable
square feet;
o achieved a 96.7% occupancy rate on our properties;
o had construction underway on four new buildings totaling
approximately 321,000 square feet that were 44% pre-leased;
o had development underway on four new buildings totaling
approximately 403,000 square feet that were 52% pre-leased;
and
o owned options to purchase 74 acres of land contiguous to
certain of our office properties from related parties.
We conduct almost all of our operations through our operating
partnership, Corporate Office Properties, L.P., a Delaware limited
partnership, for 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 September 30, 2000, we owned approximately 66% of
the outstanding Common Units and approximately 55% 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.
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 8815 Centre Park Drive, Suite 400,
Columbia, Maryland 21045 and our telephone number is (410) 730-9092.
FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS AND OUR DOCUMENTS INCORPORATED BY REFERENCE HEREIN
CONTAIN "FORWARD-LOOKING" STATEMENTS, AS DEFINED IN THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995, THAT ARE BASED ON OUR CURRENT EXPECTATIONS,
ESTIMATES AND PROJECTIONS ABOUT FUTURE EVENTS AND FINANCIAL TRENDS AFFECTING
THE FINANCIAL CONDITION OF THE BUSINESS. STATEMENTS THAT ARE NOT HISTORICAL
FACTS, INCLUDING STATEMENTS ABOUT OUR BELIEFS AND EXPECTATIONS, ARE
FORWARD-LOOKING STATEMENTS. THESE STATEMENTS ARE NOT GUARANTEES OF FUTURE
PERFORMANCE, EVENTS OR RESULTS AND INVOLVE POTENTIAL RISKS AND UNCERTAINTIES.
ACCORDINGLY, ACTUAL RESULTS MAY DIFFER MATERIALLY. WE UNDERTAKE NO OBLIGATION
TO UPDATE PUBLICLY ANY FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW
INFORMATION, FUTURE EVENTS OR OTHERWISE.
IMPORTANT FACTS THAT MAY AFFECT THESE EXPECTATIONS, ESTIMATES OR
PROJECTIONS INCLUDE, BUT ARE NOT LIMITED TO: OUR ABILITY TO BORROW ON
FAVORABLE TERMS; GENERAL ECONOMIC AND BUSINESS CONDITIONS, WHICH WILL, AMONG
OTHER THINGS AFFECT OFFICE PROPERTY DEMAND AND RENTS, TENANT
CREDITWORTHINESS, INTEREST RATES AND FINANCING AVAILABILITY; ADVERSE CHANGES
IN THE REAL ESTATE MARKETS INCLUDING, AMONG OTHER THINGS, COMPETITION WITH
OTHER COMPANIES; RISKS OF REAL ESTATE ACQUISITION AND DEVELOPMENT;
GOVERNMENTAL ACTIONS AND INITIATIVES; ENVIRONMENTAL REQUIREMENTS; AND THE
OTHER FACTORS DESCRIBED IN THIS PROSPECTUS UNDER THE HEADING "RISK FACTORS"
BEGINNING ON PAGE 4.
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RISK FACTORS
BEFORE YOU INVEST IN OUR SECURITIES, YOU SHOULD BE AWARE THAT THERE ARE
VARIOUS RISKS. WE HAVE DESCRIBED FOR YOU BELOW SOME OF THE RISKS INVOLVED IN
INVESTING IN THE SECURITIES WHICH MAY BE OFFERED UNDER THIS PROSPECTUS. A WORD
OF CAUTION: THE LIST BELOW IS NOT A COMPLETE LIST. YOU SHOULD CAREFULLY CONSIDER
EACH OF THESE FACTORS AND ALL OF THE INFORMATION BOTH IN THIS PROSPECTUS AND THE
DOCUMENTS WE REFER YOU TO IN THE SECTION CALLED "WHERE YOU CAN FIND MORE
INFORMATION" BEGINNING ON PAGE 32.
WE MAY INCUR PROBLEMS WITH OUR REAL ESTATE FINANCING
GENERALLY. Our strategy is to operate with higher debt levels than most other
REITs. Our organizational documents do not limit the amount of indebtedness that
we may incur. Most of our properties have been mortgaged to collateralize
indebtedness. In addition, we will rely on borrowings to fund some or all of the
costs of new property acquisitions, capital expenditures and other items.
As of June 30, 2000, our total outstanding debt was $436.7 million. Our debt
to total market capitalization ratio was 56.5% based upon the closing per share
market price for the Common Shares of $9.1875 on June 30, 2000. Total market
capitalization is the sum of total debt plus the value of all outstanding Common
Shares and Common Units at such market price and the total Preferred Shares and
Preferred Units at their liquidation value.
Payments of principal and interest on our debt may leave us with insufficient
cash to operate our properties or pay distributions to our shareholders required
to maintain our qualification as a REIT. We are also subject to the risks that:
o We may not be able to refinance our existing indebtedness, or refinance
on terms as favorable as the terms of our existing indebtedness;
o Certain debt agreements of our Operating Partnership could restrict the
ability of our Operating Partnership to make cash distributions to us,
which could result in reduced distributions to our shareholders or the
need to incur additional debt to fund distributions; and
o If we are unable to pay our debt service on time, our lenders could
foreclose on our properties securing such debt and in some cases other
properties and assets which we own. A number of our loans are
cross-collateralized, which means that separate groups of properties
from our portfolio secure each of these loans. More importantly, almost
all of our loans are cross-defaulted, which means that failure to pay
interest or principal on any of our loans will create a default on
certain of our other loans. In addition, if we are in default and the
value of the properties securing a loan is less than the loan balance,
the lender may require payment from our other assets.
As of June 30, 2000, approximately 36.4% of our total debt had adjustable
interest rates. Consequently, if short term interest rates were to rise, our
debt service payments would increase, which would lower our net income and could
decrease our distributions to our shareholders.
WE MUST REFINANCE OUR MORTGAGE DEBT IN THE FUTURE. As of June 30, 2000, our
scheduled debt payments over the next five calendar years, including maturities,
are as follows:
2000 $121,049,000 (1)
2001 122,468,000 (2)(3)
2002 19,161,000 (4)
2003 3,531,000
2004 29,343,000
(1) Includes $100.0 million maturity in October that was extended through
October 2001. The loan may be extended for an additional one-year
period, subject to certain conditions.
(2) Includes $31.9 million maturity for four construction loan facilities
that may be extended for a one-year period, subject to certain
conditions.
(3) Includes $2.6 million maturity for a construction loan facility that
may be extended for a two-year period, subject to certain conditions.
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(4) Includes $3.7 million maturity for a construction loan facility that
may be extended for a one-year period, subject to certain conditions.
We do not expect our operations to generate enough cash flow to repay some or
all of this debt without additional borrowings or new equity investment. If we
cannot refinance, extend the debt due dates, or raise additional equity prior to
the date when our debt matures, we would default on our existing debt.
WE RELY ON A FEW TENANTS FOR MOST OF OUR REVENUE
As of June 30, 2000, ten tenants accounted for 44.1% of our annualized office
rents. Two of these tenants accounted for approximately 22.1% of our total
annualized office rents. Our largest tenant is the United States Federal
government, two agencies of which lease space in 13 of our office properties.
These leases represented approximately 14.9% of our total annualized office
rents as of June 30, 2000. Generally, these government leases provide for
one-year terms or provide for 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 2000 and, as of October 31, 2000, is
considering appropriation measures for the period beginning October 1, 2000. We
have not received any notice from any government tenant indicating that it
intends to terminate its lease. The second largest tenant, Unisys Corporation,
represented 7.2% of our total annualized office rents as of June 30, 2000 and
13.0% of our 1999 net operating income since Unisys pays all of its property
operating expenses directly. Unisys occupies space in three of our office
properties. If either the Federal government or Unisys fails to make rental
payments to us, or if the Federal government elects to terminate several of its
leases and the space cannot be re-leased on satisfactory terms, our financial
performance and ability to make expected distributions to shareholders would be
materially adversely affected.
OUR PROPERTIES ARE LOCATED MAINLY IN ONE REGION -- THE MID-ATLANTIC
All of our properties are located in the Mid-Atlantic region of the United
States and as of June 30, 2000, our office properties located in the
Baltimore-Washington Corridor accounted for 63.4% of our annualized office
rents. Consequently, we do not have a broad geographic distribution of our
properties. As a result, a decline in the real estate market or economic
conditions generally in the Mid-Atlantic region could have a material adverse
affect on our operations.
THE LEVEL OF OUR SHAREHOLDER DISTRIBUTIONS COULD DECLINE
We intend to make regular quarterly cash distributions to our shareholders.
However, distribution levels depend on a number of factors, some of which are
beyond our control.
Our loan agreements contain provisions which could restrict future
distributions. Our ability to sustain our current distribution level also will
be dependent, in part, on other matters including continued property occupancy
and profitability of tenants, the amount of future capital expenditures and
expenses relating to our properties, the level of leasing activity and future
rental rates, the strength of the commercial real estate market, competition,
the costs of compliance with environmental and other laws, our corporate
overhead levels, the amount of uninsured losses and our decisions whether to
reinvest rather than distribute available cash.
In addition, we can make distributions to the holders of our Common Shares
only after we make preferential distributions to the holders of our Series A and
B Preferred Shares. See "Description of Shares - Series A Preferred Shares" and
"-Series B Preferred Shares" beginning on page 11 . We also would likely have to
make prior distributions to third party holders of preferred units in our
operating partnership. See "Description of Shares Operating Partnership Series C
Preferred Units" on page 16.
A THIRD PARTY COULD HAVE DIFFICULTY IN SEEKING TO ACQUIRE CONTROL OF US
CONSTELLATION'S COMMON SHARE OWNERSHIP AND OUR OWNERSHIP LIMITS ARE IMPORTANT
FACTORS. As of September 30, 2000, Constellation Real Estate, Inc. owns
approximately 43.5% of our outstanding Common Shares. Under our charter,
two-thirds of the outstanding Common Shares must approve a merger, a sale of
substantially all our assets, any amendment to our charter, the removal of a
Trustee and the termination of COPT. Because Constellation Real Estate, Inc.
owns more than one-third of our voting shares, it has the ability to veto any of
those transactions, which
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could make it more difficult for any third party to acquire control of us. Such
change of control could involve a premium over the market price for the Common
Shares or other attributes that the shareholders may consider desirable. In
addition, our charter limits ownership of our Common Shares by any single
shareholder to 9.8% of the number of the outstanding Common Shares or 9.8% of
the value of the outstanding Common Shares. We call these restrictions the
"Ownership Limit." Our charter allows our Board of Trustees to exempt
shareholders from the Ownership Limit, and the Board has exempted Constellation
Real Estate, Inc. from the Ownership Limit.
OUR CHARTER PROVIDES OTHER POTENTIAL DEFENSES. Subject to the requirements of
the New York Stock Exchange, the Board of Trustees has the authority without
shareholder approval to issue additional securities of COPT on terms that could
delay, defer or prevent a change in control of COPT. In addition, our Board has
the authority to reclassify any of our unissued Common Shares into Preferred
Shares. The Board may issue Preferred Shares with such preferences, rights,
powers and restrictions as the Board may determine.
Our Board is divided into three classes of Trustees. The term of one class of
the Trustees will expire each year, at which time a successor class is elected
for a three-year term. Such staggered three-year terms make it more difficult
for a third party to acquire control of us. See "Description of
Shares--Classification of Board, Vacancies and Removal of Trustees" on page 19.
THE MARYLAND BUSINESS STATUTES ALSO IMPOSE POTENTIAL RESTRICTIONS. Various
Maryland laws may have the effect of discouraging offers to acquire us, even if
the acquisition would be advantageous to shareholders. Our Bylaws exempt us from
such laws, but our Board of Trustees can change our Bylaws at any time to make
these provisions applicable to us. See "Description of Shares--Possible
Antitakeover Effect of Certain Provisions of Maryland Law" on page 20.
OUR PERFORMANCE IS SUBJECT TO RISKS ASSOCIATED WITH THE REAL ESTATE INDUSTRY
GENERALLY. We earn income from renting our properties. Our operating costs do
not necessarily fluctuate in relation to changes in our rental revenue. This
means our costs will not necessarily decline even if our revenues do. Also, our
operating costs may increase while our revenues do not.
For new tenants or upon lease expiration for existing tenants, we generally
must make improvements and pay other tenant-related costs for which we may not
receive increased rents. We also make building-related capital improvements for
which tenants may not reimburse us.
If our properties do not generate income sufficient to meet our operating
expenses and capital costs, we may have to borrow additional amounts to cover
these costs. In such circumstances, we would likely have lower profits or
possibly incur losses. Moreover, there may be less or no cash available for
distributions to our shareholders.
OUR LEASE RENEWALS POSE CERTAIN UNCERTAINTIES. When leases expire at our
properties, our tenants may not renew or may renew but on terms less favorable
to us than the terms of the original lease. As of June 30, 2000, our scheduled
lease expirations, as a percentage of total annualized rents for the next five
calendar years, were:
2000 7.5%
2001 8.1%
2002 15.5%
2003 16.5%
2004 11.2%
If a tenant leaves, we can expect to incur a vacancy for some period of time
as well as higher capital costs than if a tenant renews. In either case, our net
income and ability to make expected distributions to our shareholders could be
adversely affected.
COMPETITION MAY CAUSE DIFFICULTY IN OUR LEASING ACTIVITY. The commercial real
estate market is highly competitive. Numerous commercial properties compete for
tenants with our properties and our competitors are building additional
properties in the markets in which our properties are located. Some of these
competing properties may be newer or have more desirable locations than our
properties. If the market does not absorb newly constructed space, market
vacancies will increase and market rents may decline. As a result, we may have
difficulty
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leasing space at our properties and we may be forced to lower the rents we
charge on new leases to compete effectively.
COMPETITION MAY CAUSE DIFFICULTY IN OUR STRATEGY OF ACQUIRING NEW PROPERTY.
We compete for the purchase of commercial property with many entities, including
other publicly traded commercial REITs. Many of our competitors have
substantially greater financial resources than ours. In addition, our
competitors may be willing to accept lower returns on their investments. If our
competitors prevent us from buying the amount of properties that we have
targeted for acquisition, we may not be able to meet our property acquisition
and development goals.
OUR DEVELOPMENT AND CONSTRUCTION ACTIVITIES POSE CERTAIN RISKS. Although the
majority of our investments are in currently leased properties, to a lesser
extent we also develop properties, including some which are not fully
pre-leased. When we develop properties, we run the risks that development costs
will exceed our budgets, that we will experience construction or development
delays and that projected leasing will not occur.
WE ARE SUBJECT TO POSSIBLE ENVIRONMENTAL LIABILITIES. We are subject to
various Federal, state and local environmental laws. These laws can impose
liability on property owners or operators for the costs of removal or
remediation of certain hazardous substances released on a property, even if the
property owner was not responsible for the release of the hazardous substances.
The presence of hazardous substances on our properties may adversely affect
occupancy and our ability to sell or borrow against those properties. In
addition to the costs of government claims under environmental laws, private
plaintiffs may bring claims for personal injury or similar reasons. Various laws
also impose liability for the costs of removal or remediation of hazardous
substances at the disposal or treatment facility. Anyone who arranges for the
disposal or treatment of hazardous substances at such a facility is potentially
liable under such laws. These laws often impose liability whether or not the
facility is or ever was owned or operated by such person.
WE CANNOT SELL OUR PROPERTIES QUICKLY. Equity real estate investments like
our properties are relatively difficult to sell and convert to cash quickly.
Such illiquidity will tend to limit our ability to vary our portfolio of
properties promptly in response to changes in economic or other conditions. In
addition, the Internal Revenue Code imposes certain penalties on a REIT that
sells property held for less than four years. As a result, we may be unable to
sell a property at an advantageous time.
WE ARE SUBJECT TO OTHER POSSIBLE LIABILITIES. Our properties may be subject
to other risks relating to current or future laws including laws benefiting
disabled persons, and other state or local zoning, construction or other
regulations. These laws may require significant property modifications in the
future for which we may not have budgeted and could result in fines being levied
against us. In addition, although we believe that we adequately insure our
properties, we are subject to the risk that our insurance may not cover all of
the costs to restore a property which is damaged by a fire or other similar
catastrophic event. The occurrence of any of these events could have an adverse
impact on our cash flows and ability to make distributions to shareholders.
WE AND OUR SHAREHOLDERS ARE SUBJECT TO CERTAIN TAX RISKS
OUR FAILURE TO QUALIFY AS A REIT WOULD HAVE ADVERSE TAX CONSEQUENCES. We
believe that since 1992 we have qualified for taxation as a REIT for Federal
income tax purposes. We plan to continue to meet the requirements for taxation
as a REIT. Many of these requirements, however, are highly technical and
complex. The determination that we are a REIT requires an analysis of various
factual matters and circumstances that may not be totally within our control.
For example, to qualify as a REIT, at least 95% of our gross income must come
from certain sources that are itemized in the REIT tax laws. We are also
required to distribute to shareholders at least 95% of our REIT taxable income
(excluding capital gains). The fact that we hold most of our assets through our
Operating Partnership and its subsidiaries further complicates the application
of the REIT requirements. Even a technical or inadvertent mistake could
jeopardize our REIT status. Furthermore, Congress and the IRS might make changes
to the tax laws and regulations, and the courts might issue new rulings that
make it more difficult, or impossible for us to remain qualified as a REIT.
If we fail to qualify as a REIT, we would be subject to Federal income tax at
regular corporate rates. Also, unless the IRS granted us relief under certain
statutory provisions, we would remain disqualified as a REIT for four years
following the year we first fail to qualify. If we fail to qualify as a REIT, we
would have to pay significant income taxes and would therefore have less money
available for investments or for distributions to our shareholders.
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This would likely have a significant adverse effect on the value of our
securities. In addition, we would no longer be required to make any
distributions to our shareholders.
WE HAVE CERTAIN DISTRIBUTION REQUIREMENTS. As a REIT, we must distribute 95%
of our annual taxable income, which limits the amount of cash we have available
for other business purposes, including amounts to fund our growth. Also, it is
possible that because of the differences between the time we actually receive
revenue or pay expenses and the period we report those items for distribution
purposes, we may have to borrow funds on a short-term basis to meet the 95%
distribution requirement. For taxable years beginning after December 31, 2000,
we will only be required to distribute 90% of our annual taxable income in order
to maintain REIT status.
WE ARE ALSO SUBJECT TO OTHER TAX LIABILITIES. Even if we qualify as a REIT,
we may be subject to certain Federal, state and local taxes on our income and
property. Any such taxes would reduce our operating cash flow.
When we purchased certain office properties located in Pennsylvania, we only
purchased 89% of the partnership which owned each property. The remaining 11%
will be acquired by the operating partnership not later than December 2000. This
structure is intended to comply with informal advice from the Pennsylvania
Department of Revenue that such two-stage transfers are not subject to
Pennsylvania real estate transfer taxes. However, we have not obtained a formal
ruling from the Pennsylvania Department of Revenue on this issue. If the
Pennsylvania Department of Revenue were to successfully challenge this
structure, or the remaining interests were required to be transferred for
financing or other purposes prior to October 14, 2000, we would be subject to
Pennsylvania state and local transfer taxes of approximately $2.7 million.
SALES OF LARGE AMOUNTS OF OUR COMMON SHARES COULD CAUSE OUR SHARE PRICE TO
DECLINE
As of September 30, 2000, we had 20,406,536 Common Shares outstanding. If we
issue a significant number of Common Shares in a short period of time, there
could be a decrease in the market price of the Common Shares.
WE LACK CONTROL OVER OUR MANAGEMENT COMPANY
We receive substantially all of the economic benefits of Corporate Office
Management, Inc. ("COMI"), the company which manages our properties. We are not
able to elect directors or officers of COMI because more than 50% of COMI's
voting stock is owned by persons who are not our officers or Trustees.
Therefore, we cannot directly influence the operations of COMI. As a result, the
board of directors and management of COMI may implement business policies or
decisions that would not have been implemented by us. These policies or
decisions could be adverse to our interests or lead to adverse financial
results, which could adversely impact our net operating income and cash flow.
Although we believe that the contracts between us and COMI for management
services are no less favorable to us than those which could be obtained from a
third party, such contracts are not the result of arm's length negotiations and,
therefore, we cannot assure you that those contracts are just as favorable.
CERTAIN OFFICERS AND TRUSTEES OF COPT HAVE POTENTIAL CONFLICTS OF INTEREST
The Chairman of our Board, our Chief Executive Officer, and certain other
officers own direct and indirect interests in office properties and other real
estate assets in which we have an interest. The interests of these persons may
give rise to certain conflicts of interest concerning the fulfillment of their
responsibilities as our officers and Trustees. We have adopted certain policies
designed to minimize conflicts of interest. We cannot assure you, however, that
these policies will be successful in eliminating the influence of such
conflicts, and if they are not successful, decisions could be made that might
fail to reflect fully the interests of all shareholders of COPT. For example,
the Chairman of our Board of Trustees and our Chief Executive Officer own a
significant share of the units of our Operating Partnership. If our Operating
Partnership sells or refinances certain of the properties that these officers
contributed to the Operating Partnership, they could suffer adverse tax
consequences. Therefore, they could oppose such a transaction.
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WE ARE DEPENDENT ON OUR KEY PERSONNEL
We are dependent on the efforts of our Trustees and executive officers,
including Jay Shidler, our Chairman of the Board of Trustees, Clay Hamlin, our
Chief Executive Officer, and Rand Griffin, our President. The loss of any of
their services could have an adverse effect on our operations. Although certain
of our officers have entered into employment agreements with us, we cannot
assure you that they will remain employed with us.
WE MAY CHANGE OUR POLICIES WITHOUT SHAREHOLDER APPROVAL
Our Board of Trustees determines all of our policies, including our
investment, financing and distribution policies. Although our Board of Trustees
has no current plans to do so, it may amend or revise these policies at any time
without a vote of our shareholders. Policy changes could adversely affect our
financial condition, results of operations, the market price of the Common
Shares or our ability to pay dividends or distributions.
USE OF PROCEEDS
Unless otherwise indicated in an accompanying prospectus supplement, we
intend to use the net proceeds from the sale of the securities offered by this
prospectus for general trust purposes, including capital expenditures,
acquisition or development of additional properties, repayment of indebtedness,
repurchases of our Common Shares and meeting our working capital needs.
RATIOS OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED SHARE DIVIDENDS
The following table sets forth COPT's consolidated ratios of earnings to
combined fixed charges and Preferred Share dividends for the six months ended
June 30, 2000 and for each of the last five calendar years. For purposes of
calculating the ratio of earnings to combined fixed charges and Preferred Share
dividends, earnings were calculated by adding fixed charges, excluding Preferred
Share dividends, and minority interests of common unitholders to net income.
Fixed charges consist of interest costs, amortization of debt issuance costs and
distributions to preferred unitholders.
<TABLE>
<CAPTION>
Six Months
Ended
June 30,2000 1999 1998 1997 1996 1995
-------------- --------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to combined fixed
charges and Preferred Share dividends 1.33 1.48 1.33 (A) 1.23 1.21
==== ==== ==== ==== ====
</TABLE>
(A) During the year ended December 31, 1997, COPT's net income included a
non-recurring expense of $1,353,000 associated with the termination of an
advisory agreement. As a result, earnings were inadequate to cover fixed
charges by $902,000 in the year ended December 31, 1997. If such
non-recurring expense had not been incurred, COPT's ratio of earnings to
combined fixed charges and Preferred Share dividends for 1997 would have
been 1.12.
9
<PAGE>
DESCRIPTION OF SHARES
THE FOLLOWING SUMMARY OF THE TERMS OF THE SECURITIES OF CORPORATE OFFICE
PROPERTIES TRUST ("COPT") DOES NOT PURPORT TO BE COMPLETE AND IS SUBJECT TO AND
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE DECLARATION OF TRUST AND THE
BYLAWS OF COPT, COPIES OF WHICH ARE EXHIBITS TO THE REGISTRATION STATEMENT OF
WHICH THIS PROSPECTUS IS A PART.
GENERAL
The Declaration of Trust provides that COPT may issue up to 45,000,000 Common
Shares and 5,000,000 Preferred Shares of beneficial interest, par value $0.01
per share (the "Preferred Shares"). As of September 30, 2000, there were
20,406,536 Common Shares, one Series A Convertible Preferred Share of beneficial
interest (the "Series A Preferred Shares") and 1,250,000 Series B Cumulative
Redeemable Preferred Shares of beneficial interest (the "Series B Preferred
Shares") issued and outstanding. The Declaration of Trust contains a provision
permitting the Board of Trustees, without any action by the shareholders of
COPT, to amend the Declaration of Trust to increase or decrease the aggregate
number of shares of beneficial interest or the number of shares of any class of
shares of beneficial interest that COPT has authority to issue. The additional
shares of beneficial interest, which could include Common Shares, will be
available for issuance without further action by COPT's shareholders, subject to
the requirements of the New York Stock Exchange ("NYSE").
Both Title 8 of the Corporations and Associations Article of the Annotated
Code of Maryland, as amended (the "Maryland REIT Law") and the Declaration of
Trust provide that no shareholder of COPT will be personally liable for any
obligation of COPT solely as a result of such shareholder's status as a
shareholder of COPT. The Declaration of Trust provides that COPT shall have the
power, to the maximum extent permitted by Maryland law in effect from time to
time, to obligate itself to indemnify, and to pay or reimburse reasonable
expenses in advance of a final disposition of a proceeding to, any shareholder
or any former shareholder from and against any claim or liability to which such
person may become subject or which such person may incur by reason of his status
as a present or former shareholder of COPT. The Bylaws of COPT obligate it, to
the maximum extent permitted by Maryland law, to indemnify any shareholder or
any former shareholder (including, without limitation, any individual who, while
a shareholder and at the request of COPT, serves or has served another real
estate investment trust, corporation, partnership, joint venture, trust,
employee benefit plan or any other enterprise as a trustee, director, officer,
partner, employee or agent of such real estate investment trust, corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise)
who has been successful, on the merits or otherwise, in the defense of a
proceeding to which he was made a party by reason of being a shareholder,
against reasonable expenses incurred by him in connection with the proceeding.
Inasmuch as COPT carries public liability insurance which it considers adequate,
any risk of personal liability to shareholders not covered by the Maryland REIT
Law is limited to situations in which COPT's assets plus its insurance coverage
would be insufficient to satisfy the claims against COPT and its shareholders.
COMMON SHARES
All Common Shares offered hereby will be duly authorized, fully paid and
nonassessable. Subject to the preferential rights of the Series A and B
Preferred Shares and any other shares or series of beneficial interest which
COPT may issue in the future and to the provisions of the Declaration of Trust
regarding the restriction on transfer of Common Shares, holders of Common Shares
are entitled to receive dividends on such shares if, as and when authorized and
declared by the Board of Trustees out of assets legally available therefor and
to share ratably in the assets of COPT legally available for distribution to its
shareholders in the event of its liquidation, dissolution or winding-up after
payment of, or adequate provision for, all known debts and liabilities of COPT.
Subject to the provisions of the Declaration of Trust regarding restrictions
on transfer of shares of beneficial interest, each outstanding Common Share
entitles the holder thereof to one vote on all matters submitted to a vote of
shareholders, including the election of Trustees, and, except as provided with
respect to any other class or series of shares of beneficial interest, the
holders of such Common Shares possess the exclusive voting power. There is no
cumulative voting in the election of Trustees, which means that the holders of a
majority of the outstanding Common Shares can elect all of the Trustees then
standing for election. The Declaration of Trust provides for the election of
Trustees to staggered three-year terms. See the section below entitled
"Classification of Board,
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<PAGE>
Vacancies and Removal of Trustees." Constellation Real Estate, Inc. is currently
entitled to appoint two of the nine Trustees. See section below entitled
"Description of Common Shares--Series A Preferred Shares".
Holders of Common Shares have no preference, conversion, sinking fund,
redemption or appraisal rights and have no preemptive rights to subscribe for
any securities of COPT. Subject to the provisions of the Declaration of Trust
regarding the restriction on transfer of Common Shares, the Common Shares have
equal dividend, distribution, liquidation and other rights.
The Declaration of Trust provides for approval by a majority of the votes
cast by holders of Common Shares entitled to vote on the matter in all
situations permitting or requiring action by the shareholders, except with
respect to: (i) the election of Trustees (which requires a plurality of all the
votes cast at a meeting of shareholders of COPT at which a quorum is present),
(ii) the removal of Trustees (which requires the affirmative vote of the holders
of two-thirds of the outstanding shares of beneficial interest of COPT entitled
to vote generally in the election of Trustees, which action can only be taken
for cause by vote at a shareholder meeting), (iii) the merger of COPT with
another entity or the sale (or other disposition) of all or substantially all of
the assets of COPT (which requires the affirmative vote of the holders of
two-thirds of the outstanding shares of beneficial interest entitled to vote on
the matter), (iv) the amendment of the Declaration of Trust (which requires the
affirmative vote of two-thirds of all the votes entitled to be cast on the
matter), (v) the termination of COPT (which requires the affirmative vote of
two-thirds of the outstanding shares of beneficial interest entitled to be cast
on the matter); and (vi) certain voting rights of Constellation Real Estate,
Inc. (See section below entitled "Series A Preferred Shares"). The Declaration
of Trust permits the Trustees, without any action by the holders of Common
Shares, (a) by a two-thirds vote, to amend the Declaration of Trust from time to
time to qualify as a real estate investment trust under the Code or the Maryland
REIT Law and (b) by a majority vote to amend the Declaration of Trust to
increase or decrease the aggregate number of shares of beneficial interest or
the number of shares of any class of shares of beneficial interest that COPT has
authority to issue.
CLASSIFICATION OR RECLASSIFICATION OF COMMON SHARES OR PREFERRED SHARES
The Declaration of Trust authorizes the Board of Trustees to reclassify any
unissued shares of Common or Preferred Shares into other classes or series of
classes of shares and to establish the number of shares in each class or series
and to set the preferences, conversion and other rights, voting powers,
restrictions, limitations and restrictions on ownership, limitations as to
dividends or other distributions, qualifications and terms or conditions of
redemption for each such class or series. Thus, in addition to the Series A
Preferred Shares and Series B Preferred Shares, the Board of Trustees could
authorize the issuance of other Preferred Shares with terms and conditions which
could also have the effect of delaying, deferring or preventing a change in
control of COPT or other transaction that might involve a premium over the then
prevailing market price for Common Shares or other attributes that the
shareholders may consider to be desirable.
PREFERRED SHARES
Of the 5,000,000 Preferred Shares authorized, the Declaration of Trust
designates 1,025,000 as Series A Preferred Shares and 1,725,000 as Series B
Preferred Shares.
SERIES A PREFERRED SHARES
We issued 984,308 Series A Preferred Shares to Constellation Real Estate,
Inc. in 1998. We contributed the proceeds from the issuance of the Series A
Preferred Shares to our Operating Partnership in exchange for a number of Series
A Preferred Units equal to the number of Series A Preferred Shares that we
issued. The terms of the Series A Preferred Units are substantially equivalent
to the economic terms of the Series A Preferred Shares. The Series A Preferred
Shares are convertible into Common Shares on the basis of 1.8748 Common Shares
for each Series A Preferred Share. During September 2000, Constellation Real
Estate, Inc. converted 984,307 of its 984,308 shares into 1,845,378 Common
Shares, leaving only one Series A Preferred Share outstanding. Simultaneously,
an equivalent number of Series A Preferred Units which we held in our Operating
Partnership were converted into Common Units of the Operating Partnership.
So long as Constellation Real Estate, Inc. holds any Series A Preferred
Shares (and it beneficially owns at least 30% of the Common Shares), it will
have the right to designate up to two Trustees to our Board of Trustees. If
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<PAGE>
Constellation Real Estate, Inc.'s Common Share beneficial holdings fall below
30% but remain above 15%, it may designate one Trustee. As of September 30,
2000, Constellation Real Estate, Inc. beneficially held 43.5% of our Common
Shares. The affirmative vote of Constellation Real Estate, Inc. as the holder of
the Series A Preferred Shares is required for any issuance or sale by COPT of
greater than $50 million in Common Shares at a price less than $9.50 per share.
Except as set forth above and as required by applicable law, the Series A
Preferred Shares do not entitle the holder thereof to any vote.
The holder of the Series A Preferred Shares has nominal dividend and
liquidation rights.
SERIES B PREFERRED SHARES
The outstanding 1,250,000 Series B Preferred Shares were issued in a public
offering. We contributed the proceeds of the Series B Preferred Share offering
to our Operating Partnership in exchange for a number of Series B Preferred
Units equal to the number of Series B Preferred Shares that we sold in the
offering. The terms of the Series B Preferred Units are substantially equivalent
to the economic terms of the Series B Preferred Shares. The terms of the Series
B Preferred Shares are as follows:
RANKING. The Series B Preferred Shares, with respect to dividend rights and
rights upon our liquidation, dissolution or winding up, rank (i) prior or senior
to the Common Shares and any other class or series of our equity securities
authorized or designated in the future if the holders of Series B Preferred
Shares shall be entitled to the receipt of dividends or of amounts distributable
upon liquidation, dissolution or winding up in preference or priority to the
holders of shares of such class or series ("Junior Shares"); (ii) on a parity
with the Series A Convertible Preferred Shares and any other class or series of
our equity securities authorized or designated in the future if the holders of
such class or series of securities and the Series B Preferred Shares shall be
entitled to the receipt of dividends and of amounts distributable upon
liquidation, dissolution or winding up in proportion to their respective amounts
of accrued and unpaid dividends per share or liquidation preferences, without
preference or priority of one over the other ("Parity Shares"); and (iii) junior
to any class or series of our equity securities authorized or designated in the
future if the holders of such class or series shall be entitled to the receipt
of dividends and amounts distributable upon liquidation, dissolution or winding
up in preference or priority to the holders of the Series B Preferred Shares
("Senior Shares").
DIVIDENDS. Holders of Series B Preferred Shares are entitled to receive, when
and as declared by our Board of Trustees, out of our funds legally available for
payment, quarterly cash dividends on the Series B Preferred Shares at the rate
of $2.50 per year per Series B Preferred Share. Such dividends are cumulative
from the date of original issue, whether or not in any dividend period or
periods such dividends shall be declared or there shall be funds legally
available for the payment of such dividends, and are payable quarterly on
January 15, April 15, July 15 and October 15 of each year (or, if not a business
day, the next succeeding business day) (each a "Dividend Payment Date"). Any
dividend payable on the Series B Preferred Shares for any partial dividend
period will be computed ratably on the basis of twelve 30-day months and a
360-day year. Dividends are payable in arrears to holders of record as they
appear on our share records at the close of business on the applicable record
date, which are fixed by our Board of Trustees and which are not more than 60
nor less than 10 days prior to such Dividend Payment Date. Holders of Series B
Preferred Shares are not entitled to receive any dividends in excess of
cumulative dividends on the Series B Preferred Shares. No interest, or sum of
money in lieu of interest, shall be payable in respect to any dividend payment
or payments on the Series B Preferred Shares that may be in arrears.
When dividends are not paid in full upon the Series B Preferred Shares or any
other class or series of Parity Shares, or a sum sufficient for such payment is
not set apart, all dividends declared upon the Series B Preferred Shares and any
Parity Shares shall be declared ratably in proportion to the respective amounts
of dividends accrued and unpaid on the Series B Preferred Shares and accrued and
unpaid on such Parity Shares. Except as set forth in the preceding sentence,
unless dividends on the Series B Preferred Shares equal to the full amount of
accrued and unpaid dividends have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof has been or
contemporaneously is set apart for such payment, for all past dividend periods,
no dividends shall be declared or paid or set apart
12
<PAGE>
for payment by us and no other distribution of cash or other property may be
declared or made, directly or indirectly, by us with respect to any Parity
Shares. Unless dividends equal to the full amount of all accrued and unpaid
dividends on the Series B Preferred Shares have been paid, or declared and set
apart for payment, for all past dividend periods, no dividends (other than
dividends or distributions paid in Junior Shares or options, warrants or rights
to subscribe for or purchase Junior Shares) may be declared or paid or set apart
for payment by us and no other distribution of cash or other property may be
declared or made, directly or indirectly, by us with respect to any Junior
Shares, nor shall any Junior Shares be redeemed, purchased or otherwise acquired
(except for a redemption, purchase or other acquisition of Common Shares made
for purposes of our employee incentive or benefit plan or any such plan of any
of our subsidiaries) for any consideration (or any monies be paid to or made
available for a sinking fund for the redemption of any such Junior Shares),
directly or indirectly, by us (except by conversion into or exchange for Junior
Shares, or options, warrants or rights to subscribe for or purchase Junior
Shares), nor shall any other cash or other property be paid or distributed to or
for the benefit of holders of Junior Shares. Notwithstanding the provisions
described above, we shall not be prohibited from (i) declaring or paying or
setting apart for payment any dividend or distribution on any Parity Shares or
(ii) redeeming, purchasing or otherwise acquiring any Parity Shares, in each
case, if such declaration, payment, redemption, purchase or other acquisition is
necessary to maintain our qualification as a REIT.
LIQUIDATION PREFERENCE. Upon any voluntary or involuntary liquidation,
dissolution or winding up, before any payment or distribution by us shall be
made to or set apart for the holders of any Junior Shares, the holders of Series
B Preferred Shares shall be entitled to receive a liquidation preference of
$25.00 per share (the "Series B Liquidation Preference"), plus an amount equal
to all accrued and unpaid dividends (whether or not earned or declared) to the
date of final distribution to such holders; but such holders shall not be
entitled to any further payment. Until the holders of the Series B Preferred
Shares have been paid the Series B Liquidation Preference in full, plus an
amount equal to all accrued and unpaid dividends (whether or not earned or
declared) to the date of final distribution to such holders, no payment shall be
made to any holder of Junior Shares upon our liquidation, dissolution or winding
up. If upon any liquidation, dissolution or winding up, our assets, or proceeds
thereof, distributable among the holders of Series B Preferred Shares shall be
insufficient to pay in full the above described preferential amount and
liquidating payments on any other shares of any class or series of Parity
Shares, then our assets, or the proceeds thereof, shall be distributed among the
holders of Series B Preferred Shares and any such other Parity Shares ratably in
the same proportion as the respective amounts that would be payable on such
Series B Preferred Shares and any such other Parity Shares if all amounts
payable thereon were paid in full. A voluntary or involuntary liquidation,
dissolution or winding up shall not include a consolidation or merger of us with
or into one or more other entities, a sale or transfer of all or substantially
all of our assets or a statutory share exchange. Upon any liquidation,
dissolution or winding up, after payment shall have been made in full to the
holders of Series B Preferred Shares and any Parity Shares, any other series or
class or classes of Junior Shares shall be entitled to receive any and all of
our assets remaining to be paid or distributed, and the holders of the Series B
Preferred Shares and any Parity Shares shall not be entitled to share therein.
OPTIONAL REDEMPTION. The Series B Preferred Shares will not be redeemable by
us prior to July 15, 2004 (except in certain limited circumstances relating to
our maintenance of our ability to qualify as a REIT as described in the section
entitled "Restrictions on Transfer"). On or after July 15, 2004, we may, at our
option, redeem the Series B Preferred Shares, in whole or from time to time in
part, at a cash redemption price equal to 100% of the Series B Liquidation
Preference, plus all accrued and unpaid dividends, if any, to the redemption
date. The redemption price for the Series B Preferred Shares (other than any
portion thereof consisting of accrued and unpaid dividends) shall be payable
solely with the proceeds from the sale of equity securities by us or our
Operating Partnership (whether or not such sale occurs concurrently with such
redemption). For purposes of the preceding sentence, "equity securities" means
any Common Shares, preferred shares, depositary shares, partnership or other
interests, participations or other ownership interests (however designated) and
any rights (other than debt securities convertible into or exchangeable at the
option of the holder for equity securities unless and to the extent such debt
securities are subsequently converted into equity securities) or options to
purchase any of the foregoing of or in us or our Operating Partnership.
In the event of a redemption of any Series B Preferred Shares, if the
redemption date occurs after a dividend record date and on or prior to the
related Dividend Payment Date, the dividend payable on such Dividend Payment
Date in respect of such Series B Preferred Shares called for redemption shall be
payable on such Dividend Payment Date to the holders of record at the close of
business on such dividend record date, and shall not be payable as part of the
redemption price for such Series B Preferred Shares. The redemption date shall
be selected by us and shall not be less than 30 days nor more than 60 days after
the date notice of redemption is sent by us. If full cumulative dividends on all
outstanding Series B Preferred Shares have not been paid or declared and set
apart for payment, no Series B Preferred Shares may be redeemed unless all
outstanding Series B Preferred Shares are simultaneously redeemed and neither we
nor any of our affiliates may purchase or acquire Series B Preferred Shares
otherwise than pursuant to a purchase or exchange offer made on the same terms
to all holders of Series B Preferred Shares.
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<PAGE>
If fewer than all the outstanding Series B Preferred Shares are to be
redeemed, we will select those Series B Preferred Shares to be redeemed pro rata
in proportion to the numbers of Series B Preferred Shares held by holders (with
adjustment to avoid redemption of fractional shares) or by lot or in such other
manner as the Board of Trustees may determine.
Notice of redemption will be given by publication in a newspaper of general
circulation in the City of New York, such publication to be made once a week for
two consecutive weeks commencing not less than 30 nor more than 60 days prior to
the redemption date. A similar notice shall be mailed by us not less than 30
days nor more than 60 days prior to the redemption date to each holder of record
of the Series B Preferred Shares to be redeemed by first class mail, postage
prepaid at such holder's address as the same appears on our share records. Any
notice which was mailed as described above shall be conclusively presumed to
have been duly given on the date mailed whether or not the holder receives the
notice. Each notice shall state: (i) the redemption date; (ii) the number of
Series B Preferred Shares to be redeemed; (iii) the place or places where
certificates for such Series B Preferred Shares are to be surrendered for cash;
and (iv) the redemption price payable on such redemption date, including,
without limitation, a statement as to whether or not accrued and unpaid
dividends will be (x) payable as part of the redemption price, or (y) payable on
the next Dividend Payment Date to the record holder at the close of business on
the relevant record date as described above. From and after the redemption date
(unless we shall default in the payment of our redemption obligation), dividends
on the Series B Preferred Shares to be redeemed will cease to accrue, such
shares shall no longer be deemed to be outstanding and all rights of the holders
thereof shall cease (except (a) the right to receive the cash payable upon such
redemption without interest thereon, and (b) if the redemption date occurs after
a dividend record date and on or prior to the related Dividend Payment Date, the
right of record holders at the close of business on such record date to receive
the dividend payable on such Dividend Payment Date).
The Series B Preferred Shares will have no stated maturity and will not be
subject to any sinking fund or mandatory redemption provisions except as
provided under the section entitled "Restrictions on Transfer."
Subject to applicable law and the limitation on purchases when dividends on
the Series B Preferred Shares are in arrears, we may, at any time and from time
to time, purchase any Series B Preferred Shares in the open market, by tender or
by private agreement.
VOTING RIGHTS. Holders of Series B Preferred Shares will not have any voting
rights, except as set forth below and except as otherwise required by applicable
law.
If and whenever dividends on any Series B Preferred Shares or any series or
class of Parity Shares shall be in arrears for six or more quarterly periods
(whether or not consecutive), the number of Trustees then constituting our Board
of Trustees shall be increased by two (if not already increased by reason of
similar types of provisions with respect to Parity Shares of any other class or
series which is entitled to similar voting rights (the "Voting Parity Shares")),
and the holders of Series B Preferred Shares, together with the holders of all
other Voting Parity Shares then entitled to exercise similar voting rights,
voting as a single class regardless of series, will be entitled to vote for the
election of the two additional Trustees at any annual meeting of shareholders or
at a special meeting of the holders of the Series B Preferred Shares and of the
Voting Parity Shares called for that purpose. At any time when such right to
elect Trustees separately shall have so vested, we must call such special
meeting upon the written request of the holders of record of not less than 20%
of the total number of Series B Preferred Shares and shares of any series of
Voting Parity Shares then outstanding. Such special meeting shall be held, in
the case of such written request, within 90 days after the delivery of such
request, provided that we shall not be required to call such a special meeting
if such request is received less than 120 days before the date fixed for the
next ensuing annual meeting of shareholders and the holders of Series B
Preferred Shares and such other Voting Parity Shares are offered the opportunity
to elect such Trustees at such annual meeting of shareholders. If, prior to the
end of the term of any Trustee so elected, a vacancy in the office of such
Trustee shall occur by reason of death, resignation, or disability, such vacancy
shall be filled for the unexpired term of such former Trustee by the appointment
of a new Trustee by the remaining Trustee or Trustees so elected. Whenever
dividends in arrears on outstanding Series B Preferred Shares and Voting Parity
Shares shall have been paid and dividends thereon for the current quarterly
dividend period shall have been paid or declared and set apart for payment, then
the right of the holders of the Series B Preferred Shares and Voting Parity
Shares to elect such additional two Trustees shall cease and the terms of office
of such Trustees shall terminate and the number of Trustees constituting our
Board of Trustees shall be reduced
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<PAGE>
accordingly. Series A Preferred Shares are not Voting Parity Shares. The holder
of the Series A Preferred Shares, as a separate class, is entitled to elect two
additional Trustees if we shall fail at any time or from time to time to pay
when due two consecutive quarterly dividend payments on the Series A Preferred
Shares, and such Trustees are entitled to serve as Trustees thereafter until all
accrued and unpaid dividends on the Series A Preferred Shares have been paid in
full.
The affirmative vote or consent of at least two-thirds of the votes entitled
to be cast by the holders of the outstanding Series B Preferred Shares and the
holders of all other classes or series of Voting Parity Shares entitled to vote
on such matters, voting as a single class, will be required to (i) authorize,
create, increase the authorized amount of, or issue any shares of any class of
Senior Shares or any security convertible into shares of any class of Senior
Shares, or (ii) amend, alter or repeal any provision of, or add any provision
to, our Declaration of Trust or Bylaws, if such action would materially
adversely affect the voting powers, rights or preferences of the holders of the
Series B Preferred Shares; provided, however, that no such vote of the holders
of Series B Preferred Shares shall be required if, at or prior to the time such
amendment, alteration or repeal is to take effect or the issuance of any such
Senior Shares or convertible security is to be made, as the case may be,
provisions are made for the redemption of all outstanding Series B Preferred
Shares. The amendment of or supplement to our Declaration of Trust to authorize,
create, increase or decrease the authorized amount of or to issue Junior Shares,
Series B Preferred Shares or any shares of any class of Parity Shares shall not
be deemed to materially adversely affect the voting powers, rights or
preferences of the holders of Series B Preferred Shares.
With respect to the exercise of the above-described voting rights, each
Series B Preferred Share has one (1) vote per share, except that when any other
class or series of preferred shares shall have the right to vote with the Series
B Preferred Shares as a single class, then the Series B Preferred Shares and
such other class or series shall have one quarter of one (0.25) vote per $25.00
of liquidation preference.
CONVERSION. The Series B Preferred Shares are not convertible into or
exchangeable for any other property or securities.
ISSUANCE OF ADDITIONAL PREFERRED SHARES
The following description of our Preferred Shares of beneficial interest sets
forth general terms and provisions of the Preferred Shares to which any
prospectus supplement may relate. The statements below describing the Preferred
Shares are in all respects subject to and qualified in their entirety by
reference to our Declaration of Trust, Bylaws and any applicable amendment to
the Declaration of Trust designating terms of a series of Preferred Shares (a
"Designating Amendment"). The Preferred Shares, when issued, will be fully paid
and non-assessable. Because our Board of Trustees has the power to establish the
preferences, powers and rights of each series of Preferred Shares, subject to
the rights of the holder of the Series A Preferred Shares and the holders of the
Series B Preferred Shares, our Board may afford the holders of any series of
Preferred Shares preferences, powers and rights, voting or otherwise, senior to
the rights of holders of Common Shares. The issuance of additional series of
Preferred Shares could have the effect of delaying or preventing a change of
control that might involve a premium price for shareholders or otherwise be in
their best interest.
The rights, preferences, privileges and restrictions of the Preferred Shares
of each series will be fixed by the Designating Amendment relating to the
series. A prospectus supplement, relating to each series, will specify the terms
of the Preferred Shares, as follows:
- the title and stated value of the Preferred Shares;
- the number of Preferred Shares offered, the liquidation preference per
share and the offering price of the Preferred Shares;
- the dividend rate(s), period(s) and/or payment date(s) or method(s) of
calculation applicable to the Preferred Shares;
- the date from which dividends on the Preferred Shares will accumulate,
if applicable;
- the procedures for any auction and remarketing, if any, for the
Preferred Shares;
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<PAGE>
- the provision for a sinking fund, if any, for the Preferred Shares;
- the provision for redemption, if applicable, of the Preferred Shares;
- any listing of the Preferred Shares on any securities exchange;
- the terms and conditions, if applicable, upon which the Preferred Shares
will be convertible into our Common Shares, including the conversion price
(or manner of calculation) and conversion period;
- any other specific terms, preferences, rights, limitations or
restrictions of the Preferred Shares;
- a discussion of certain material federal income tax considerations
applicable to the Preferred Shares;
- the relative ranking and preferences of the Preferred Shares as to dividend
rights and rights upon the liquidation, dissolution or winding up of our
affairs;
- any limitation on issuance of any series of Preferred Shares ranking senior
to or on a parity with the series of Preferred Shares as to dividend rights
and rights upon the liquidation, dissolution or winding up of our affairs;
and
- any limitations on direct or beneficial ownership and restrictions on
transfer of the Preferred Shares, in each case as may be appropriate to
preserve our status as a REIT.
OPERATING PARTNERSHIP SERIES C PREFERRED UNITS
COPT conducts almost all of its operations through the Operating Partnership,
for which COPT is the managing general partner. Interests in the Operating
Partnership are in the form of Common and Preferred Units. As of September 30,
2000, COPT owned approximately 66% of the outstanding Common Units and 55% of
the outstanding Preferred Units. The remaining Preferred Units in the Operating
Partnership were 1,016,662 Series C Preferred Units, owned by United Properties
Group, Incorporated, with terms as follows:
VOTING RIGHTS. Except in certain limited circumstances, at any time that COPT
holds less than 90% of the outstanding partnership units in the Operating
Partnership, any amendment to the Operating Partnership agreement must be
approved by the vote of a majority of the Common and Preferred Units not held by
COPT, each voting as a separate class. If COPT were to hold 90% or more of the
outstanding partnership units, COPT would have the right to amend the Operating
Partnership agreement without first seeking such unitholder approval.
LIQUIDATION. In the event of the dissolution of the Operating Partnership,
the holder of the Series C Preferred Units will be entitled to receive a $25
liquidation preference (the "Series C Liquidation Preference"), prior to any
liquidation payment to be made to the holders of the Common Units but PARI PASSU
with liquidation payments made to COPT as holder of the Series A and B Preferred
Units.
DISTRIBUTIONS. The holder of the Series C Preferred Units are entitled to
receive quarterly priority percentage return payments, prior to distributions
made to the holders of the Common Units but PARI PASSU with distributions made
to COPT as holder of the Series A and B Preferred Units, in an amount equal to a
percentage of the Series C Liquidation Preference, which percentage equals (a)
2.25% from December 21, 1999 to December 20, 2009, (b) 2.625% from December 21,
2009 to December 20, 2014, and (c) 3.00% thereafter.
CONVERSION. Beginning on December 21, 2000, the Series C Preferred Units are
convertible into Common Units at a conversion rate of 2.381 Common Units per
Series C Preferred Unit.
ISSUANCE OF WARRANTS
We have no outstanding warrants to purchase our Common Shares ("Common
Share Warrants") or outstanding warrants to purchase our Preferred Shares
("Preferred Share Warrants" and collectively with Common Share Warrants, the
"Warrants"). We may issue Warrants for the purchase of Preferred Shares or
Common Shares.
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Warrants may be issued by any prospectus supplement independently or together
with any other securities offered and may be attached to or separate from those
securities. Each series of Warrants will be issued under a separate warrant
agreement (each, a "Warrant Agreement") to be entered into between us and a
warrant agent specified in a prospectus supplement (the "Warrant Agent"), the
form of which will be filed or incorporated by reference as an exhibit to the
registration statement of which this prospectus forms a part. The Warrant Agent
will act solely as our agent in connection with the Warrants of such series and
will not assume any obligation or relationship of agency or trust for or with
any provisions of the Warrants offered hereby. Further terms of the Warrants and
the applicable Warrant Agreements will be set forth in the applicable prospectus
supplement relating to the issuance of any Warrants.
A prospectus supplement will describe the terms of the Warrants in respect
of which this prospectus is being delivered including, where applicable, the
following:
- the title of the Warrants;
- the aggregate number of the Warrants;
- the price or prices at which the Warrants will be issued;
- the designation, terms and number of Common Shares or Preferred
Shares purchasable upon exercise of the Warrants;
- the designation and terms of the securities, if any, with which the
Warrants are issued and the number of the Warrants issued with each such
offered security;
- the date, if any, on and after which the Warrants and the related
Preferred Shares or Common Shares will be separately transferable;
- the price (or manner of calculation) at which each Common Share or
Preferred Share purchasable upon exercise of the Warrants may be
purchased;
- the date on which the right to exercise the Warrants shall commence
and the date on which the right shall expire;
- the minimum or maximum amount of the Warrants which may be exercised
at any one time;
- information with respect to book-entry procedures, if any; - a
discussion of certain material federal income tax considerations; and
- any other terms of the Warrants, including terms, procedures and
limitations relating to the exchange and exercise of the Warrants.
The exercise of any Warrants will be subject to and limited by the transfer
and ownership restrictions in our declaration of trust. See "Description of
Shares--Restrictions on Transfer."
RESTRICTIONS ON TRANSFER
For COPT to qualify as a REIT under the Internal Revenue Code, its shares of
beneficial interest generally must be beneficially owned by 100 or more persons
during at least 335 days of a taxable year of 12 months or during a
proportionate part of a shorter taxable year. Also, not more than 50% of the
value of the outstanding shares of beneficial interest may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Internal Revenue
Code to include certain entities) at any time during the last half of a taxable
year. This test is applied by "looking through" certain shareholders which are
not individuals (e.g., corporations or partnerships) to determine indirect
ownership of COPT by individuals.
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The Declaration of Trust, subject to certain exceptions, contains certain
restrictions on the number of shares of beneficial interest of COPT that a
person may own. The Declaration of Trust provides that no person may own, or be
deemed to own by virtue of the attribution provisions of the Internal Revenue
Code, more than 9.8% of the number or value of the outstanding shares of
beneficial interest of COPT. In addition, the Declaration of Trust prohibits any
person from acquiring or holding, directly or indirectly, Common Shares in
excess of 9.8% (in value or in number of shares, whichever is more restrictive)
of the aggregate of the outstanding Common Shares.
The Board of Trustees, in its sole discretion, may exempt a proposed
transferee from the 9.8% ownership limitation. However, the Board of Trustees
may not grant such an exemption to any person if such exemption would result in
COPT being "closely held" within the meaning of Section 856(h) of the Internal
Revenue Code or otherwise would result in COPT failing to qualify as a REIT. In
order to be considered by the Board of Trustees for an exemption, a person also
must not own, directly or indirectly, more than a 9.9% interest in a tenant of
COPT (or a tenant of any entity owned or controlled by COPT). The person seeking
an exemption must represent to the satisfaction of the Board of Trustees that it
will not violate the two aforementioned restrictions. The person also must agree
that any violation or attempted violation of any of the foregoing restrictions
will result in the automatic transfer of the shares of stock causing such
violation to the Share Trust (as defined below). The Board of Trustees may
require a ruling from the Internal Revenue Service or an opinion of counsel, in
either case in form and substance satisfactory to the Board of Trustees in its
sole discretion, in order to determine or ensure COPT's status as a REIT.
Constellation Real Estate, Inc., Mr. Jay H. Shidler and Mr. Clay W. Hamlin, III
are all Excepted Holders. However, as of December 31, 1999, Messrs. Shidler and
Hamlin collectively owned only 3.4% of the outstanding Common Shares.
The Declaration of Trust further prohibits (a) any person from beneficially
or constructively owning shares of beneficial interest of COPT that would result
in COPT being "closely held" under Section 856(h) of the Internal Revenue Code
or otherwise cause COPT to fail to qualify as a REIT and (b) any person from
transferring shares of beneficial interest of COPT if such transfer would result
in shares of beneficial interest of COPT being owned by fewer than 100 persons.
Any person who acquires or attempts or intends to acquire beneficial or
constructive ownership of shares of beneficial interest of COPT that will or may
violate any of the foregoing restrictions on transferability and ownership, or
any person who would have owned shares of the beneficial interest of COPT that
resulted in a transfer of shares to the Share Trust (as hereinafter defined), is
required to give notice immediately to COPT and provide COPT with such other
information as COPT may request in order to determine the effect of such
transfer on COPT's status as a REIT. The foregoing restrictions on
transferability and ownership will not apply if the Board of Trustees determines
that it is no longer in the best interests of COPT to attempt to qualify, or to
continue to qualify, as a REIT.
If any transfer of shares of beneficial interest of COPT occurs which, if
effective, would result in any person beneficially or constructively owning
shares of beneficial interest of COPT in excess or in violation of the above
transfer or ownership limitations (a "Prohibited Owner"), then that number of
shares of beneficial interest of COPT in excess of the ownership limit will
automatically be transferred to a trust (the "Share Trust") for the exclusive
benefit of one or more charitable beneficiaries (the "Charitable Beneficiary"),
and the Prohibited Owner shall not acquire any rights in such shares. The
Prohibited Owner may not benefit economically from ownership of any shares of
beneficial interest held in the Share Trust, may have no rights to dividends and
may not possess any other rights attributable to the shares of beneficial
interest held in the Share Trust. The trustee of the Share Trust (the "Share
Trustee") will have all voting rights and rights to dividends or other
distributions with respect to shares of beneficial interest held in the Share
Trust, which rights will be exercised for the exclusive benefit of the
Charitable Beneficiary. Any dividend or other distribution paid prior to the
discovery by COPT that shares of beneficial interest have been transferred to
the Share Trust will be paid by the recipient of such dividend or distribution
to the Share Trustee upon demand, and any dividend or other distribution
authorized but unpaid will be paid when due to the Share Trustee. Any dividend
or distribution so paid to the Share Trustee will be held in the Share Trust for
the Charitable Beneficiary. The Prohibited Owner will have no voting rights with
respect to shares of beneficial interest held in the Share Trust and, subject to
Maryland law, effective as of the date that such shares of beneficial interest
have been transferred to the Share Trust, the Share Trustee will have the
authority (at the Share Trustee's sole discretion) (i) to rescind as void any
vote cast by a Prohibited Owner prior to the discovery by COPT that such shares
have been transferred to the Share Trust and (ii) to recast such vote in
accordance with the desires of the Share Trustee acting for the benefit of the
Charitable Beneficiary. However, if COPT has already taken irreversible trust
action, then the Share Trustee will not have the authority to rescind and recast
such vote.
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Within 20 days of receiving notice from COPT that shares of beneficial
interest of COPT have been transferred to the Share Trust, the Share Trustee
will sell the shares of beneficial interest held in the Share Trust to a person,
designated by the Share Trustee, whose ownership of the shares will not violate
the ownership limitations set forth in the Declaration of Trust. Upon such sale,
the interest of the Charitable Beneficiary in the shares sold will terminate and
the Share Trustee will distribute the net proceeds of the sale to the Prohibited
Owner and to the Charitable Beneficiary as described below. The Prohibited Owner
will receive the lesser of (i) the price paid by the Prohibited Owner for the
shares or, if the Prohibited Owner did not give value for the shares in
connection with the event causing the shares to be held in the Share Trust
(e.g., a gift, devise or other such transaction), the Market Price (as defined
in the Declaration of Trust) of such shares on the day of the event causing the
shares to be received by the Share Trustee and (ii) the price per share received
by the Share Trustee from the sale or other disposition of the Common Shares
held in the Share Trust. Any net sale proceeds in excess of the amount payable
to the Prohibited Owner will be paid immediately to the Charitable Beneficiary.
If, prior to the discovery by COPT that shares of beneficial interest have been
transferred to the Share Trust, such shares are sold by a Prohibited Owner, then
(i) such shares will be deemed to have been sold on behalf of the Share Trust
and (ii) to the extent that the Prohibited Owner received an amount for shares
that exceeds the amount that such Prohibited Owner was entitled to receive as
described above, such excess will be paid to the Share Trustee upon demand.
In addition, shares of beneficial interest of COPT held in the Share Trust
will be deemed to have been offered for sale to COPT, or its designee, at a
price per share equal to the lesser of (i) the price per share in the
transaction that resulted in such transfer to the Share Trust (or, in the case
of a devise or gift, the Market Price at the time of such devise or gift) and
(ii) the Market Price on the date COPT, or its designee, accepts such offer.
COPT shall have the right to accept such offer until the Share Trustee has sold
the shares of beneficial interest held in the Share Trust. Upon such a sale to
COPT, the interest of the Charitable Beneficiary in the shares sold will
terminate and the Share Trustee will distribute the net proceeds of the sale to
the Prohibited Owner.
All certificates representing Common Shares will bear a legend referring to
the restrictions described above.
Every owner of more than 5% (or such other percentage as required by the
Internal Revenue Code or the regulations promulgated thereunder) of all classes
or series of COPT's shares of beneficial interest, including Common Shares, is
required to give written notice to COPT within 30 days after the end of each
taxable year stating the name and address of such owner, the number of shares of
each class and series of shares of beneficial interest of COPT which the owner
beneficially owns and a description of the manner in which such shares are held.
Each such owner shall provide to COPT such additional information as COPT may
request in order to determine the effect, if any, of such beneficial ownership
on COPT's status as a REIT and to ensure compliance with the 9.8% ownership
limitation. In addition, each shareholder shall upon demand be required to
provide to COPT such information as COPT may request, in good faith, in order to
determine COPT's status as a REIT and to comply with the requirements of any
taxing authority or governmental authority or to determine such compliance.
These ownership limitations could delay, defer or prevent a change in control
of COPT or other transaction that might involve a premium over the then
prevailing Market Price for the Common Shares or other attributes that the
shareholders may consider to be desirable.
CLASSIFICATION OF BOARD, VACANCIES AND REMOVAL OF TRUSTEES
The Declaration of Trust provides for a staggered Board of Trustees. At the
conclusion of its annual meeting of shareholders on May 16, 2000, COPT had nine
Trustees divided into three classes, with terms of three years each.
Constellation Real Estate, Inc. has appointed two Trustees, pursuant to the
terms of the Series A Preferred Shares. See section entitled "Description of
Shares - Series A Preferred Shares." As of May 16, 2000, the number of Trustees
in each class and the expiration of each class' term is as follows:
Class 1 2 Trustees Expires 2002
Class 2 3 Trustees Expires 2003
Class 3 4 Trustees Expires 2001
At each annual meeting of shareholders of COPT, successors of the class of
Trustees whose term expires at that meeting will be elected for a three-year
term and the Trustees in the other two classes will continue in office. A
classified board may delay, defer or prevent a change in control of COPT or
other transaction that might involve a
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premium over the then prevailing market price for the Common Shares or other
attributes that the shareholders may consider to be desirable. In addition, a
classified Board could prevent shareholders who do not agree with the policies
of the Board of Trustees from replacing a majority of the Board of Trustees for
two years, except in the event of removal for cause.
The Bylaws of COPT provide that any vacancy on the Board of Trustees may be
filled by a majority of the remaining Trustees. Any individual so elected
Trustee will hold office for the unexpired term of the Trustee he or she is
replacing. The Declaration of Trust provides that a Trustee may be removed at
any time only for cause upon the affirmative vote of at least two-thirds of the
votes entitled to be cast in the election of Trustees, but only by a vote taken
at a shareholder meeting. These provisions preclude shareholders from removing
incumbent Trustees, except for cause and upon a substantial affirmative vote,
and filling the vacancies created by such removal with their own nominees.
ADVANCE NOTICE OF NOMINATIONS AND NEW BUSINESS
The Bylaws provide that, with respect to an annual meeting of shareholders,
nominations of persons for election to the Board of Trustees and the proposal of
business to be considered by shareholders may be made only (a) pursuant to
COPT's notice of the meeting, (b) by the Board of Trustees or (c) by a
shareholder who is entitled to vote at the meeting and has complied with the
advance notice procedures set forth in the Bylaws. With respect to special
meetings of shareholders, the Bylaws provide that only the business specified in
COPT's notice of meeting may be brought before the meeting of shareholders and
nominations of persons for election to the Board of Trustees may be made only
(a) pursuant to COPT's notice of the meeting, (b) by the Board of Trustees or
(c) provided that the Board of Trustees has determined that Trustees shall be
elected at such meeting, by a shareholder who is entitled to vote at the meeting
and has complied with the advance notice provisions set forth in the Bylaws.
POSSIBLE ANTITAKEOVER EFFECT OF CERTAIN PROVISIONS OF MARYLAND LAW
The Maryland General Corporations Law ("MGCL") contains provisions that may
be deemed to have an antitakeover effect. The provisions applicable to COPT are
set forth below.
CERTAIN BUSINESS COMBINATIONS. Under the MGCL, as applicable to Maryland real
estate investment trusts, certain business combinations (including certain
mergers, consolidations, share exchanges and asset transfers and certain
issuances and reclassifications of equity securities) between a Maryland real
estate investment trust and any person who beneficially owns ten percent or more
of the voting power of the trust's shares or an affiliate of the trust who, at
any time within the two-year period prior to the date in question, was the
beneficial owner of ten percent or more of the voting power of the then
outstanding voting shares of such trust (an "Interested Shareholder"), or an
affiliate of such an Interested Shareholder, are prohibited for five years after
the most recent date on which the Interested Shareholder becomes an Interested
Shareholder. Thereafter, any such business combination must be recommended by
the board of trustees of such trust and approved by the affirmative votes of at
least (i) 80% of the votes entitled to be cast by holders of outstanding voting
shares of the trust and (ii) two-thirds of the votes entitled to be cast by
holders of voting shares of the trust other than shares held by the Interested
Shareholder with whom (or with whose affiliate) the business combination is to
be effected, unless, among other conditions, the trust's common shareholders
receive a minimum price (as defined in the MGCL) for their shares and the
consideration is received in cash or in the same form as previously paid by the
Interested Shareholder for its shares. These provisions of Maryland law do not
apply, however, to business combinations that are approved or exempted by the
board of trustees of the trust prior to the time that the Interested Shareholder
becomes an Interested Shareholder. The Board of Trustees has opted out of this
statute by resolution. The Board of Trustees may, however, rescind its
resolution at any time to make these provisions of Maryland law applicable to
COPT.
CONTROL SHARE PROVISIONS. The MGCL generally provides that control shares of
a Maryland real estate investment trust acquired in a control share acquisition
have no voting rights unless those rights are approved by a vote of two-thirds
of the disinterested shares (generally shares held by persons other than the
acquiror, officers or trustees who are employees of the trust). An acquiror is
deemed to own control shares the first time that the acquiror's voting power in
electing trustees equals or exceeds 20% of all such voting power. Control shares
do not include shares the acquiring person is then entitled to vote as a result
of having previously obtained shareholder approval. A control share acquisition
means the acquisition of control shares, subject to certain exceptions.
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A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the Board of Trustees to call a special meeting of shareholders to be
held within 50 days of the demand to consider whether the control shares will
have voting rights. The trust may present the question at any shareholders'
meeting on its own initiative.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute, then,
subject to certain conditions and limitations, the trust may redeem any or all
of the control shares (except those for which voting rights have previously been
approved) for fair value, determined without regard to the absence of voting
rights for the control shares. Fair value will be determined as of the date of
the last control share acquisition by the acquiror or of any meeting of
shareholders at which the voting rights of such shares are considered and not
approved. If voting rights for control shares are approved at a shareholders'
meeting and the acquiror becomes entitled to vote a majority of the shares
entitled to vote, all other shareholders may exercise appraisal rights. The fair
value of the shares as determined for purposes of such appraisal rights may not
be less than the highest price per share paid by the acquiror in the control
share acquisition.
The control share provisions do not apply (a) to shares acquired in a merger,
consolidation or share exchange if the trust is a party to the transaction or
(b) to acquisitions approved or exempted by the declaration of trust or bylaws
of the trust. The Bylaws contain a provision exempting from the control share
acquisition statute any and all acquisitions by any person of COPT's shares of
beneficial interest. The Board of Trustees may, however, amend the Bylaws at any
time to eliminate such provision, either prospectively or retroactively.
DISSOLUTION OF THE COMPANY; TERMINATION OF REIT STATUS
The Declaration of Trust permits the termination of COPT and the
discontinuation of the operations of COPT by the affirmative vote of the holders
of not less than two-thirds of the outstanding Common Shares entitled to be cast
on the matter at a meeting of shareholders or by written consent. In addition,
the Declaration of Trust permits the termination of COPT's qualification as a
REIT if such qualification, in the opinion of the Board of Trustees, is no
longer advantageous to the shareholders.
FEDERAL INCOME TAX MATTERS
COPT was organized in 1988 and elected to be taxed as a REIT commencing with
its taxable year ended December 31, 1992. COPT believes that it was organized
and has operated in a manner that permits it to satisfy the requirements for
taxation as a REIT under the applicable provisions of the Internal Revenue Code
of 1986, as amended (the "Code") and intends to continue to operate in such a
manner. No assurance can be given, however, that such requirements have been or
will continue to be met. The following is a summary of the material Federal
income tax considerations that may be relevant to COPT and its shareholders,
including the continued treatment of COPT as a REIT for Federal income tax
purposes. For purposes of this discussion of "FEDERAL INCOME TAX MATTERS" the
term "COPT" refers only to Corporate Office Properties Trust and not to any
other affiliated entities.
The following discussion is based on the law existing and in effect on the
date hereof, including the recently-enacted "Tax Relief Extension Act of 1999"
(the "TREA"), and COPT's qualification and taxation as a REIT will depend on
compliance with such law and with any future amendments or modifications to such
law. The qualification and taxation as a REIT will further depend upon the
ability to meet, on a continuing basis through actual operating results, the
various qualification tests imposed under the Code discussed below. No assurance
can be given that COPT will satisfy such tests on a continuing basis.
In brief, an entity that invests primarily in real estate can, if it meets
the REIT provisions of the Code described below, claim a tax deduction for the
dividends it pays to its shareholders. Such an entity generally is not taxed on
its "REIT taxable income" to the extent such income is currently distributed to
shareholders, thereby substantially eliminating the "double taxation" (i.e., at
both the entity and shareholder levels) that generally results from an
investment in an entity which is taxed as a corporation. However, as discussed
in greater detail below, such an entity remains subject to tax in certain
circumstances even if it qualifies as a REIT. Further, if the entity were to
fail to qualify as a REIT in any year, it would not be able to deduct any
portion of the dividends it paid to its shareholders and would be subject to
full Federal corporate income taxation on its earnings, thereby significantly
reducing or eliminating the cash available for distribution to its shareholders.
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Morgan, Lewis & Bockius LLP has opined that, for Federal income tax purposes,
COPT has properly elected and otherwise qualified to be taxed as a REIT under
the Code for taxable years commencing on or after June 1, 1992 and that its
proposed method of operations as described in this prospectus and as represented
to Morgan, Lewis & Bockius LLP by COPT will enable COPT to continue to satisfy
the requirements for such qualification and taxation as a REIT under the Code
for future taxable years. This opinion, however, is based upon certain factual
assumptions and representations made by COPT. Moreover, such qualification and
taxation as a REIT depends upon the ability of COPT to meet, for each taxable
year, various tests imposed under the Code as discussed below, and Morgan, Lewis
& Bockius LLP has not reviewed in the past, and may not review in the future,
COPT's compliance with these tests. Accordingly, no assurance can be given that
the actual results of the operations of COPT for any particular taxable year
will satisfy such requirements.
TAXATION OF COPT
GENERAL. In any year in which COPT qualifies as a REIT, it will not generally
be subject to Federal income tax on that portion of its REIT taxable income or
capital gain which is distributed to shareholders. COPT will, however, be
subject to tax at normal corporate rates upon any taxable income or capital
gains not distributed. Shareholders are required to include their proportionate
share of the REIT's undistributed long-term capital gain in income, but would
receive a credit for their share of any taxes paid on such gain by the REIT.
Notwithstanding its qualification as a REIT, COPT also may be subject to
taxation in certain other circumstances. If COPT should fail to satisfy either
the 75% or the 95% gross income test (each as discussed below), and nonetheless
maintains its qualification as a REIT because certain other requirements are
met, it will be subject to a 100% tax on the greater of the amount by which COPT
fails either the 75% or the 95% gross income test, multiplied by a fraction
intended to reflect COPT's profitability. (Under the TREA, effective for taxable
years beginning after December 31, 2000, for purposes of this tax only, the 95%
gross income test will be changed to a 90% gross income test.) COPT will also be
subject to a tax of 100% on net income from any "prohibited transaction" (as
described below), and if COPT has (i) net income from the sale or other
disposition of "foreclosure property" which is held primarily for sale to
customers in the ordinary course of business or (ii) other non-qualifying income
from foreclosure property, it will be subject to tax on such income from
foreclosure property at the highest corporate rate. In addition, if COPT should
fail to distribute during each calendar year at least the sum of (i) 85% of its
REIT ordinary income for such year, (ii) 95% of its REIT capital gain net income
for such year and (iii) any undistributed taxable income from prior years, COPT
would be subject to a 4% excise tax on the excess of such required distribution
over the amounts actually distributed. COPT also may be subject to the corporate
alternative minimum tax, as well as to tax in certain situations not presently
contemplated. COPT will use the calendar year both for Federal income tax
purposes, as is required of a REIT under the Code, and for financial reporting
purposes. Finally, under the TREA, for taxable years beginning after December
31, 2000, in the event that items of rent, interest or other deductible expenses
are paid to a REIT by a "taxable REIT subsidiary" (as defined below) of such
REIT, and such amounts are determined to be other than at arm's length, a REIT
may be subject to a 100% tax on the portion of such amounts treated as
excessive. Safe harbors exist for certain rental payments.
FAILURE TO QUALIFY. If COPT fails to qualify for taxation as a REIT in any
taxable year and the relief provisions do not apply, COPT will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to shareholders in any year in which COPT
fails to qualify as a REIT will not be deductible by COPT, nor generally will
they be required to be made under the Code. In such event, to the extent of
current and accumulated earnings and profits, all distributions to shareholders
will be taxable as ordinary income, and subject to certain limitations in the
Code, corporate distributees may be eligible for the dividends received
deduction. Unless entitled to relief under specific statutory provisions, COPT
also will be disqualified from reelecting taxation as a REIT for the four
taxable years following the year during which qualification was lost.
REIT QUALIFICATION REQUIREMENTS
In order to qualify as a REIT, COPT must meet the following requirements,
among others:
SHARE OWNERSHIP TESTS. COPT's shares of beneficial interest must be held by a
minimum of 100 persons for at least 335 days in each taxable year (or a
proportionate number of days in any short taxable year). In addition, at all
times during the second half of each taxable year, no more than 50% in value of
the outstanding shares of beneficial
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interest of COPT may be owned, directly or indirectly and taking into account
the effects of certain constructive ownership rules, by five or fewer
individuals, which for this purpose includes certain tax-exempt entities (the
"50% Limitation"). However, for purposes of this test, any shares of beneficial
interest held by a qualified domestic pension or other retirement trust will be
treated as held directly by its beneficiaries in proportion to their actuarial
interest in such trust rather than by such trust. In addition, for purposes of
the 50% Limitation, shares of beneficial interest owned, directly or indirectly,
by a corporation will be considered as being owned proportionately by its
shareholders.
In order to attempt to ensure compliance with the foregoing share ownership
tests, COPT's Declaration of Trust places certain restrictions on the transfer
of its shares of beneficial interest to prevent additional concentration of
share ownership. Moreover, to evidence compliance with these requirements,
Treasury Regulations require COPT to maintain records which disclose the actual
ownership of its outstanding shares of beneficial interest. In fulfilling its
obligations to maintain records, COPT must and will demand written statements
each year from the record holders of designated percentages of its shares of
beneficial interest disclosing the actual owners of such shares of beneficial
interest (as prescribed by Treasury Regulations). A list of those persons
failing or refusing to comply with such demand must be maintained as part of
COPT's records. A shareholder failing or refusing to comply with COPT's written
demand must submit with his tax return a similar statement disclosing the actual
ownership of COPT shares of beneficial interest and certain other information.
As of September 30, 2000, Constellation Real Estate, Inc. owned approximately
43.5% of the Common Shares outstanding, and one Series A Preferred Share
convertible into 1.8748 Common Shares. Under COPT's Declaration of Trust a
person is generally prohibited from owning more than 9.8% of the aggregate
outstanding Common Shares or more than 9.8% in value of the aggregate
outstanding shares of beneficial interest unless such person makes certain
representations to the Board of Trustees and the Board of Trustees ascertains
that ownership of a greater percentage of shares will not cause COPT to violate
either the 50% Limitation or the gross income tests described below. The Board
of Trustees has exempted Constellation Real Estate, Inc. from the 9.8%
limitation set forth in the Declaration of Trust and has determined that
Constellation Real Estate, Inc. may hold up to 45% of the outstanding Common
Shares. The Board of Trustees has determined, based upon representations made by
Constellation Real Estate, Inc., that this will not result in a violation of the
50% Limitation or otherwise adversely affect COPT's ability to qualify as a REIT
for Federal income tax purposes.
ASSET TESTS. At the close of each quarter of COPT's taxable year, COPT must
satisfy two tests relating to the nature of its assets (determined in accordance
with generally accepted accounting principles). First, at least 75% of the value
of COPT's total assets must be represented by interests in real property,
interests in mortgages on real property, shares in other REITs, cash, cash
items, government securities and qualified temporary investments. Second,
although the remaining 25% of COPT's assets generally may be invested without
restriction, securities in this class may not exceed (i) in the case of
securities of any one non-government issuer, 5% of the value of COPT's total
assets (the "REIT Value Test") or (ii) 10% of the outstanding voting securities
of any one such issuer (the "Issuer Voting Stock Test") (effective for taxable
years beginning after December 31, 2000, securities in this class may also not
exceed 10% of the total value of any such issuer (the "Issuer Value Test")).
Under the TREA, effective for COPT's taxable years beginning after December 31,
2000, the REIT Value Test, the Issuer Voting Stock Test or the Issuer Value Test
will not apply to securities held by a REIT in a "taxable REIT subsidiary." A
taxable REIT subsidiary is any corporation in which the REIT owns stock and with
which the REIT makes a joint election to be so treated. Any corporation in which
a REIT owns, directly or indirectly, shares possessing more than 35% of the
voting power or value of such corporation will automatically be treated as a
taxable REIT subsidiary (other than certain corporations which are wholly-owned
by the REIT and are treated as "qualified REIT subsidiaries"). In addition,
certain debt securities held by a REIT will not be taken into account for
purposes of the Issuer Value Test. Finally, certain "grandfathering" rules also
exempt from the Issuer Value Test securities owned by the REIT on July 12, 1999.
Where COPT invests in a partnership (such as the Operating Partnership), it will
be deemed to own a proportionate share of the partnership's assets, and the
partnership interest will not constitute a security for purposes of these tests.
Accordingly, COPT's investment in real properties through its interests in the
Operating Partnership (which itself holds real properties through other
partnerships) will constitute an investment in qualified assets for purposes of
the 75% asset test.
GROSS INCOME TESTS. There are two separate percentage tests relating to the
sources of COPT's gross income which must be satisfied for each taxable year.
For purposes of these tests, where COPT invests in a partnership, COPT will be
treated as receiving its share of the income and loss of the partnership, and
the gross income of the
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partnership will retain the same character in the hands of COPT as it has in the
hands of the partnership. The two tests are described below.
THE 75% TEST. At least 75% of COPT's gross income for the taxable year must
be "qualifying income." Qualifying income generally includes: (i) rents from
real property (except as modified below); (ii) interest on obligations secured
by mortgages on, or interests in, real property; (iii) gains from the sale or
other disposition of interests in real property and real estate mortgages, other
than gain from property held primarily for sale to customers in the ordinary
course of COPT's trade or business ("dealer property"); (iv) dividends or other
distributions on shares in other REITS, as well as gain from the sale of such
shares; (v) abatements and refunds of real property taxes; (vi) income from the
operation, and gain from the sale, of property acquired at or in lieu of a
foreclosure of the mortgage secured by such property ("foreclosure property");
and (vii) commitment fees received for agreeing to make loans secured by
mortgages on real property or to purchase or lease real property.
Rents received from a tenant will not, however, qualify as rents from real
property in satisfying the 75% gross income test (or the 95% gross income test
described below) if COPT, or an owner of 10% or more of COPT, directly or
constructively owns 10% or more of such tenant. Under the TREA, effective for
taxable years of COPT beginning after December 31, 2000, the foregoing rule will
not apply to rents received from a taxable REIT subsidiary, provided that either
(i) at least 90% of the leased property in respect of which COPT is receiving
such rents is occupied by persons other than such taxable REIT subsidiary or
(ii) such rents are received in respect of a "qualified lodging facility." In
addition, if rent attributable to personal property leased in connection with a
lease of real property is greater than 15% of the total rent received under the
lease, then the portion of rent attributable to such personal property will not
qualify as rents from real property. Moreover, an amount received or accrued
will not qualify as rents from real property (or as interest income) for
purposes of the 75% and 95% gross income tests if it is based in whole or in
part on the income or profits of any person, although an amount received or
accrued generally will not be excluded from "rents from real property" solely by
reason of being based on a fixed percentage or percentages of receipts or sales.
Finally, for rents received to qualify as rents from real property for purposes
of the 75% and 95% gross income tests, COPT generally must not operate or manage
the property or furnish or render services to customers, other than through an
"independent contractor" from whom COPT derives no income, or through a taxable
REIT subsidiary, except that the "independent contractor" or taxable REIT
subsidiary requirement does not apply to the extent that the services provided
by COPT are "usually or customarily rendered" in connection with the rental of
space for occupancy only, and are not otherwise considered "rendered to the
occupant for his convenience." In addition, COPT may directly perform a de
minimis amount of non-customary services. COPT believes that the services
provided with regard to COPT's properties by the operating partnership (or its
agents) are now (and, it is believed, will in the future be) usual or customary
services. Any services that cannot be provided directly by the Operating
Partnership will be performed by independent contractors.
THE 95% TEST. In addition to deriving 75% of its gross income from the
sources listed above, at least 95% of COPT's gross income for the taxable year
must be derived from the above-described qualifying income or from dividends,
interest, or gains from the sale or other disposition of stock or other
securities that are not dealer property. Dividends and interest on obligations
not collateralized by an interest in real property are included for purposes of
the 95% test, but not for purposes of the 75% test. COPT intends to monitor
closely its non-qualifying income and anticipates that non-qualifying income
from its activities will not result in COPT failing to satisfy either the 75% or
95% gross income test.
For purposes of determining whether COPT complies with the 75% and the 95%
gross income tests, gross income does not include income from prohibited
transactions. A "prohibited transaction" is a sale of dealer property (excluding
foreclosure property); however, a sale of property will not be a prohibited
transaction if such property is held for at least four years and certain other
requirements (relating to the number of properties sold in a year, their tax
bases and the cost of improvements made thereto) are satisfied.
Even if COPT fails to satisfy one or both of the 75% and 95% gross income
tests for any taxable year, it may still qualify as a REIT for such year if it
is entitled to relief under certain provisions of the Code. These relief
provisions will generally be available if: (i) COPT's failure to comply is due
to reasonable cause and not to willful neglect; (ii) COPT reports the nature and
amount of each item of its income included in the tests on a schedule attached
to its tax return; and (iii) any incorrect information on this schedule is not
due to fraud with intent to evade tax. If these relief provisions apply,
however, COPT will nonetheless be subject to a 100% tax on the greater of the
amount by which it fails either the 75% or 95% gross income test, multiplied by
a fraction intended to reflect
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COPT's profitability. Under the TREA, for COPT's taxable years beginning after
December 31, 2000, and only for purposes of determining the applicability of
such 100% tax, the 95% gross income test will be changed to a 90% gross income
test.
COMPLIANCE WITH INCOME TESTS. As of June 30, 2000, Constellation Real
Estate, Inc. and certain affiliated companies were obligated as tenants to pay
annualized office rents of approximately $843,000 with respect to properties
owned by the Operating Partnership. Some of this rental income may not
constitute qualifying rental income for purposes of the 75% and 95% gross income
tests. COPT expects, based on current rent levels, that receipt of such rental
income will not cause it to violate the 95% gross income test for the current
taxable year. Aside from this rental income, COPT does not expect that it will
earn material amounts of non-qualifying income from either Constellation Real
Estate, Inc. or its existing properties. Based on the foregoing, COPT expects
that it will continue to satisfy the 75% and 95% gross income tests. The fact
that affiliates of Constellation Real Estate, Inc. will be paying non-qualifying
income may, however, restrict the ability of COPT and the Operating Partnership
to acquire additional properties that generate non-qualifying income.
To avoid a violation of the 95% gross income test, the Operating Partnership
established Corporate Office Management, Inc. ("COMI") to own an interest in
Corporate Realty Management, LLC, the Operating Partnership's property
management company ("CRM"). As of September 30, 2000, COMI owned 100% of CRM.
COMI also owns 100% of Corporate Development Services, LLC ("CDS"), a company
that provides construction and development services predominantly to the
Operating Partnership, and 80% of Martin G. Knott and Associates, LLC ("MGK"), a
company that provides heating and air conditioning maintenance and repair
services predominantly to third parties. In addition, COMI had a service
agreement, extending through March 2000, with Constellation Real Estate, Inc.
for development and other services, since income from such services is also
considered non-qualifying income.
The Operating Partnership currently holds indebtedness issued by COMI and 95%
of the aggregate amount of voting and non-voting common stock issued by COMI,
but only holds 1% of the aggregate amount of voting common stock issued by COMI.
As discussed above, to satisfy the Issuer Voting Stock Test as in effect prior
to enactment of the TREA, COPT may not directly or indirectly hold 10% or more
of the voting stock of COMI.
Because it is a corporate entity (as opposed to a partnership) which is not
wholly-owned by COPT, the management fee and other service income earned by COMI
as a result of its ownership interest in CRM, CDS and MGK, or as a result of
management and other services performed by COMI or its subsidiaries, although it
is non-qualifying income, is not treated as non-qualifying income earned by COPT
for purposes of the 95% or 75% gross income tests. However, any interest or
dividends paid or distributed by COMI to the Operating Partnership is considered
qualifying income for purposes of the 95% test, but is not considered qualifying
income for purposes of the 75% test. To the extent that COMI earns net taxable
income from its activities, it is required to pay Federal and state income
taxes, which reduces the amount of dividends it is able to pay to the Operating
Partnership and its other shareholders.
Under the TREA, the Operating Partnership's ownership interest in COMI
would not satisfy the Issuer Value Test, because such interest represents more
than 10% of the total value of shares of all classes of stock in COMI.
Accordingly, absent the grandfathering rules discussed immediately below, the
interest in COMI owned by the Operating Partnership could jeopardize COPT's
status as a REIT, unless both COPT and COMI were to elect to treat COMI as a
taxable REIT subsidiary. Under the TREA, however, the Issuer Value Test does not
apply to securities held by a REIT on July 12, 1999. As the Operating
Partnership's interest in COMI was held on such date, such interest will not, by
itself, cause COPT to violate the Issuer Value Test or the REIT asset
qualification test described above. The foregoing grandfather rules cease to
apply to securities of a corporation on the first day after July 12, 1999 on
which such corporation either (i) engages in a substantial new line of business
or (ii) acquires any substantial new asset, other than, in each case, as a
result of certain tax-free exchange or reorganization transactions, or if
additional securities in such corporation are acquired after such date.
Accordingly, if COMI were to engage in a substantial new line of business or
acquire a substantial new asset in a taxable transaction (or if the Operating
Partnership were to acquire additional shares in COMI), in order to avoid
violating the Issuer Value Test it would be necessary for COPT and COMI to
jointly elect to treat COMI as a taxable REIT subsidiary. Such election would in
turn invoke other provisions added to the Code by the TREA, some of which could
independently affect the ability of COPT to maintain its status as a REIT.
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COPT believes that the changes effected by the TREA, including the imposition
of the Issuer Value Test, do not currently affect the legal status of its
indirect investment in COMI, or its status as a REIT. COPT intends to monitor
closely COMI's activities, however, in order to anticipate the possibility that
COMI will cease to be eligible for grandfathering treatment currently exempting
it from the Issuer Value Test. In addition, COPT intends to monitor this and any
other legislation, proposed or enacted, to assess the possible effect of any
such legislation on its future operations and tax profile.
COPT intends to continue to monitor its operations and investments in the
context of these standards so as to continue to satisfy the 75% and 95% gross
income tests. While the Operating Partnership or its affiliates provide certain
services with respect to the properties in which COPT owns interests and
possibly with respect to any newly acquired properties, COPT believes that for
purposes of the 75% and 95% gross income tests the services provided at such
properties and any other services and amenities provided by the Operating
Partnership or its agents with respect to such properties will be of the type
usually or customarily rendered in connection with the rental of space for
occupancy only and not rendered to the occupants of such properties. COPT
intends that services that cannot be provided directly by the Operating
Partnership or other agents will be performed by independent contractors.
ANNUAL DISTRIBUTION REQUIREMENTS. In order to qualify as a REIT, COPT is
required to distribute dividends to its shareholders each year in an amount at
least equal to (A) the sum of (i) 95% of COPT's REIT taxable income (computed
without regard to the dividends received deduction and COPT's net capital gain)
and (ii) 95% of the net income (after tax), if any, for foreclosure property,
minus (B) the sum of certain items of non-cash income. Under the TREA, for
COPT's taxable years beginning after December 31, 2000, the required
distributions will be calculated by reference to 90% of COPT's REIT taxable
income and net income from foreclosure property (as described above),
respectively. Such distributions must be paid in the taxable year to which they
relate, or in the following taxable year if declared before COPT timely files
its tax return for such year and if paid on or before the first regular dividend
payment after the declaration. To the extent that COPT does not distribute all
of its net capital gain or distributes at least 95% (90%, for taxable years
beginning after December 31, 2000), but less than 100%, of its REIT taxable
income, as adjusted, it will be subject to tax on the undistributed amount at
regular capital gain or ordinary corporate tax rates, as the case may be.
COPT intends to make timely distributions sufficient to satisfy the annual
distribution requirements described in the first sentence of the preceding
paragraph. In this regard, the Operating Partnership agreement authorizes COPT
in its capacity as General Partner to take such steps as may be necessary to
cause the Operating Partnership to distribute to its partners an amount
sufficient to permit COPT to meet the distribution requirements. It is possible
that COPT may not have sufficient cash or other liquid assets to meet the
above-described distribution requirement, either due to timing differences
between the actual receipt of income and actual payment of expenses on the one
hand, and the inclusion of such income and deduction of such expenses in
computing COPT's REIT taxable income on the other hand, or for other reasons.
COPT will monitor closely the relationship between its REIT taxable income and
cash flow and, if necessary, intends to borrow funds (or cause the Operating
Partnership or other affiliates to borrow funds) in order to satisfy the
distribution requirement. However, there can be no assurance that such borrowing
would be available at such time.
If COPT fails to meet the above-described distribution requirement as a
result of an adjustment to COPT's tax return by the Service, COPT may
retroactively cure the failure by paying a "deficiency dividend" (plus
applicable penalties and interest) within a specified period.
TAXATION OF SHAREHOLDERS
TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS. As long as COPT qualifies as a
REIT, distributions made to its taxable domestic shareholders out of current or
accumulated earnings and profits (and not designated as capital gain dividends)
will constitute dividends taxable as ordinary income, and corporate shareholders
will not be eligible for the dividends received deduction as to such amounts.
Distributions that are designated as capital gain dividends will be taxed as
gain from the sale or exchange of a capital asset (to the extent they do not
exceed COPT's actual net capital gain for the taxable year) without regard to
the period for which the shareholder has held its shares. In the event COPT
designates any portion of a dividend as a capital gain dividend, a shareholder's
share of such capital gain dividend would be an amount which bears the same
ratio to the total amount of dividends paid to such shareholder for the taxable
year as the total amount of capital gain dividends bears to the total amount of
all
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dividends paid on all classes of share for the taxable year. However, corporate
shareholders may be required to treat up to 20% of certain capital gain
dividends as ordinary income. COPT may elect to retain and pay income tax on any
net long-term capital gain, in which case its domestic shareholders would
include in their income as long-term capital gain their proportionate share of
such undistributed net long-term capital gain. A domestic shareholder would also
receive a refundable tax credit for such shareholder's proportionate share of
the tax paid by COPT on such retained capital gains and an increase in its basis
in its shares in an amount equal to the difference between the undistributed
long-term capital gains and the amount of tax paid by COPT. See the section
below entitled "Capital Gains and Losses".
Distributions in excess of current and accumulated earnings and profits will
not be taxable to a shareholder to the extent that they do not exceed the
adjusted basis of the shareholder's shares of beneficial interest, but rather
will reduce the adjusted basis of such shares. To the extent that such
distributions exceed the adjusted basis of a shareholder's shares of beneficial
interest, they will be included in income as short-term or long-term capital
gain (depending on the length of time the shares have been held), assuming the
shares are capital assets in the hands of the shareholder. In addition, any
dividend declared by COPT in October, November or December of any year and
payable to a shareholder of record on a specific date in any such month shall be
treated as both paid by COPT and received by the shareholder on December 31 of
such year, provided that the dividend is actually paid by COPT during January of
the following calendar year.
Domestic shareholders may not include in their individual income tax returns
any of COPT's net operating losses or capital losses. Instead, such losses would
be carried over by COPT for potential offset against future income (subject to
certain limitations). Distributions made by COPT and gain arising from the sale
or exchange of shares will not be treated as passive activity income, and, as a
result, shareholders generally will not be able to apply any "passive losses"
against such income and gain. In addition, taxable distributions from COPT
generally will be treated as investment income. Capital gain dividends
(including distributions treated as such) and capital gain from the disposition
of shares, however, will be treated as investment income only if a shareholder
so elects, in which case such capital gain will be taxed at ordinary income
rates. COPT will notify shareholders after the close of its taxable year as to
the portions of distributions attributable to that year that constitute ordinary
income, return of capital and capital gain.
In general, a domestic shareholder will realize capital gain or loss on the
disposition of COPT's shares of beneficial interest equal to the difference
between (i) the amount of cash and the fair market value of any property
received on such disposition, and (ii) the shareholder's adjusted basis of such
shares of beneficial interest. Such gain or loss generally will constitute
short-term capital gain or loss if the shareholder has not held such shares for
more than one year and long-term capital gain or loss if the shareholder has
held such shares for more than one year. See the section below entitled "Capital
Gains and Losses". Loss upon a sale or exchange of COPT's shares of beneficial
interest by a shareholder who has held such shares for six months or less (after
applying certain holding period rules) will be treated as a long-term capital
loss to the extent of distributions from COPT required to be treated by such
shareholder as long-term capital gain.
CAPITAL GAINS AND LOSSES. The maximum marginal individual income tax rate is
39.6%. The maximum tax rate on net capital gains applicable to individuals,
trusts and estates from the sale or exchange of capital assets held for more
than one year is 20%, and the maximum rate is reduced to 18% for assets acquired
after December 31, 2000 and held for more than five years. For individuals,
trusts and estates who would be subject to a maximum tax rate of 15%, the rate
on net capital gains is reduced to 10%, and, effective for taxable years
commencing after December 31, 2000, the rate is reduced to 8% for assets held
for more than five years. The maximum rate for net capital gains attributable to
the sale of depreciable real property held for more than 18 months is 25% to the
extent of the deductions for depreciation (other than certain depreciation
recapture taxable as ordinary income) with respect to such property.
Accordingly, the tax rate differential between capital gain and ordinary income
for noncorporate taxpayers may be significant. In addition, the characterization
of income as capital or ordinary may affect the deductibility of capital losses.
Capital losses not offset by capital gains may be deducted against a
noncorporate taxpayer's ordinary income only up to a maximum annual amount of
$3,000. Unused capital losses may be carried forward. All net capital gain of a
corporate taxpayer is subject to tax at ordinary corporate rates. A corporate
taxpayer can deduct capital losses only to the extent of capital gains, with
unused losses being carried back three years and forward five years.
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BACKUP WITHHOLDING. COPT will report to its domestic shareholders and the IRS
the amount of dividends paid during each calendar year and the amount of tax
withheld, if any, with respect thereto. Under the backup withholding rules, a
shareholder may be subject to backup withholding at the rate of 31% with respect
to dividends paid unless such holder (i) is a corporation or comes within
certain other exempt categories and, when required, demonstrates this fact or
(ii) provides a taxpayer identification number, certifies as to no loss of
exemption and otherwise complies with the applicable requirements of the backup
withholdings rules. Any amount paid as backup withholding will be creditable
against the shareholder's income tax liability. The United States Treasury has
recently issued final regulations (the "Final Regulations") regarding the
withholding and information reporting rules discussed above. In general, the
Final Regulations do not alter the substantive withholding and information
reporting requirements but unify current certification procedures and forms and
clarify and modify reliance standards. The Final Regulations are generally
effective for payments made on or after January 1, 2001, subject to certain
transition rules. Prospective investors should consult their own tax advisors
concerning the adoption of the Final Regulations and the potential effect on
their ownership of COPT's shares of beneficial interest.
In addition, COPT may be required to withhold a portion of capital gain
distributions made to shareholders that fail to certify their non-foreign status
to COPT. See section below entitled "Taxation of Foreign Shareholders".
TAXATION OF TAX-EXEMPT SHAREHOLDERS. The IRS has ruled that amounts
distributed as dividends by a REIT generally do not constitute unrelated
business taxable income ("UBTI") when received by a tax-exempt entity. Based on
that ruling, dividend income from COPT's shares of beneficial interest will not
be UBTI to a tax-exempt shareholder, provided that the tax-exempt shareholder
has not held its shares as "debt financed property" within the meaning of the
Code and such shares are not otherwise used in a trade or business. Similarly,
income from the sale of COPT's shares of beneficial interest will not constitute
UBTI unless such tax-exempt shareholder has held such shares as "debt financed
property" within the meaning of the Code or has used the shares in a trade or
business.
Notwithstanding the above, however, a portion of the dividends paid by a
"pension held REIT" will be treated as UBTI as to any trust which is described
in Section 401(a) of the Code, is tax-exempt under Section 501(a) of the Code (a
"qualified trust") and which holds more than 10% (by value) of the interests in
the REIT. A REIT is a "pension held REIT" if (i) it would not have qualified as
a REIT but for the application of a "look-through" exception to the 50%
Limitation applicable to qualified trusts, and (ii) either (1) at least one such
qualified trust holds more than 25% (by value) of the interests in the REIT, or
(2) one or more such qualified trusts, each of which owns more than 10% (by
value) of the interests in the REIT, hold in the aggregate more than 50% (by
value) of the interests in the REIT. The percentage of any REIT dividend treated
as UBTI is equal to the ratio of (i) the gross income (less direct expenses
related thereto) of the REIT from unrelated trades or businesses (determined as
if the REIT were a qualified trust) to (ii) the total gross income (less direct
expenses related thereto) of the REIT. A de minimis exception applies where this
percentage is less than 5% for any year. The provisions requiring qualified
trusts to treat a portion of REIT distributions as UBTI will not apply if the
REIT is able to satisfy the 50% Limitation without relying upon the
"look-through" exception with respect to qualified trusts. As a result of
certain limitations on transfer and ownership of COPT's shares of beneficial
interest contained in the Charter, COPT does not expect to be classified as a
"pension held REIT."
TAXATION OF FOREIGN SHAREHOLDERS. The rules governing the United States
Federal income taxation of the ownership and disposition of COPT's shares of
beneficial interest by persons that are, for purposes of such taxation,
nonresident alien individuals, foreign corporations, foreign partnerships and
other foreign shareholders (collectively, "Non-U.S. Shareholders") are complex
and no attempt will be made herein to provide more than a summary of such rules.
PROSPECTIVE NON-U.S. SHAREHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS TO
DETERMINE THE IMPACT OF FEDERAL, STATE, AND LOCAL INCOME TAX LAWS WITH REGARD TO
AN INVESTMENT IN COPT'S SHARES OF BENEFICIAL INTEREST, INCLUDING ANY REPORTING
REQUIREMENTS, AS WELL AS THE TAX TREATMENT OF SUCH AN INVESTMENT UNDER THEIR
HOME COUNTRY LAWS.
In general, Non-U.S. Shareholders will be subject to regular United States
Federal income taxation with respect to their investment in COPT's shares of
beneficial interest in the same manner as a U.S. shareholder (i.e., at graduated
rates on a net basis, after allowance of deductions) if such investment is
"effectively connected" with the conduct by such Non-U.S. Shareholder of a trade
or business in the United States. A Non-U.S. Shareholder that is a corporation
and that receives income with respect to its investment in COPT's shares of
beneficial interest that is (or is treated as) "effectively connected" with the
conduct of a trade or business in the United States may also be subject
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to the 30% branch profits tax imposed under Section 884 of the Code, which is
payable in addition to the regular United States corporate income tax. The
following discussion addresses only the Federal income taxation of Non-U.S.
Shareholders whose investment in COPT's shares of beneficial interest is not
"effectively connected" with the conduct of a trade or business in the United
States. Prospective investors whose investment in COPT's shares of beneficial
interest may be "effectively connected" with the conduct of a United States
trade or business should consult their own tax advisors as to the tax
consequences thereof.
Distributions that are not attributable to gain from sales or exchanges of
United States real property interests and that are not designated by COPT as
capital gains dividends will be treated as dividends of ordinary income to the
extent that they are made out of COPT's current or accumulated earnings and
profits. Such distributions ordinarily will be subject to a withholding tax
equal to 30% of the gross amount of the distribution unless an applicable tax
treaty reduces or eliminates that tax. Pursuant to the Final Regulations,
dividends paid to an address in a country outside the United States will no
longer be presumed to be paid to a resident of such country for purposes of
determining the applicability of withholding discussed above and the
availability of a reduced tax treaty rate. A Non-U.S. Shareholder who wishes to
claim the benefit of an applicable treaty rate will now be required to satisfy
certain certification and other requirements. Distributions that COPT makes in
excess of its current and accumulated earnings and profits will not be taxable
to a Non-U.S. Shareholder to the extent they do not exceed the adjusted basis of
such Non-U.S. Shareholder's shares, but rather will reduce the adjusted basis of
such shares (but not below zero). To the extent that such distributions exceed
the adjusted basis of a Non-U.S. Shareholder's shares, they will give rise to
tax liability if such Non-U.S. Shareholder would otherwise be subject to tax on
any gain from the sale or disposition of shares, as described below.
For withholding tax purposes, COPT is currently required to treat all
distributions as if made out of its current or accumulated earnings and profits
and thus intends to withhold at the rate of 30% (or a reduced treaty rate if
applicable) on the amount of any distribution (other than distributions
designated as capital gain dividends) made to a Non-U.S. Shareholder. Under the
Final Regulations, generally effective for distributions on or after January 1,
2001, COPT would not be required to withhold at the 30% rate on distributions
COPT reasonably estimates to be in excess of its current and accumulated
earnings and profits. If it cannot be determined at the time a distribution is
made whether such distribution will be in excess of current and accumulated
earnings and profits, the distribution will be subject to withholding at the
rate applicable to ordinary dividends. However, a Non-U.S. Shareholder may seek
a refund of such amounts from the IRS if it is subsequently determined that such
distribution was, in fact, in excess of its current or accumulated earnings and
profits, and the amount withheld exceeded the Non-U.S. Shareholder's United
States tax liability, if any, with respect to the distribution.
For any year in which COPT qualifies as a REIT, distributions that are
attributable to gain from sales or exchanges of United States real property
interests will be taxed to a Non-U.S. Shareholder under the provisions of the
Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). Under FIRPTA,
these distributions are taxed to a Non-U.S. Shareholder as if such gain were
effectively connected with the conduct of a United States trade or business.
Non-U.S. Shareholders would thus be taxed at the normal capital gain rates
applicable to domestic shareholders (subject to applicable alternative minimum
tax and special alternative minimum tax in the case of nonresident alien
individuals), without regard as to whether such distributions are designated by
COPT as capital gain dividends. Also, distributions subject to FIRPTA may be
subject to a 30% branch profits tax in the hands of a foreign corporate
shareholder not entitled to treaty exemption. COPT is required by Treasury
Regulations to withhold 35% of any distribution to a Non-U.S. Shareholder that
could be designated as a capital gain dividend. This amount is creditable
against the Non-U.S. Shareholder's FIRPTA tax liability.
Gain recognized by a Non-U.S. Shareholder upon a sale of COPT's shares of
beneficial interest generally will not be subject to United States taxation
unless such shares constitute a "United States real property interest" within
the meaning of FIRPTA. COPT's shares of beneficial interest will not constitute
a "United States real property interest" so long as COPT is a "domestically
controlled REIT." A "domestically controlled REIT" is generally a REIT in which
at all times during a specified testing period less than 50% in value of its
share was held directly or indirectly by Non-U.S. Shareholders. COPT believes
that it will be a "domestically controlled REIT" and therefore, the sale of
COPT's shares of beneficial interest will not be subject to taxation under
FIRPTA. However, because COPT's shares of beneficial interest will be publicly
traded, no assurance can be given that COPT will continue to be a "domestically
controlled REIT." Notwithstanding the foregoing, gain from the sale or exchange
of its shares not otherwise subject to FIRPTA generally will be taxable to a
Non-U.S. Shareholder if the Non-U.S. Shareholder is a nonresident alien
individual who is present in the United States for 183 days or more during the
taxable year and
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<PAGE>
has a "tax home" in the United States. In such case, the nonresident alien
individual will be subject to a 30% United States withholding tax on the amount
of such individual's gain.
If COPT does not qualify as or ceases to be a "domestically controlled REIT,"
whether gain arising from the sale or exchange by a Non-U.S. Shareholder of
COPT's shares of beneficial interest would be subject to U.S. taxation under
FIRPTA will depend on whether the shares are "regularly traded" (as defined in
applicable Treasury Regulations) on an established securities market (such as
the NYSE on which COPT's shares of beneficial interest are traded) and on the
size of the selling Non-U.S. Shareholder's interest in COPT. If the gain on the
sale of COPT's shares of beneficial interest were to be subject to tax under
FIRPTA, the Non-U.S. Shareholder would be subject to the same treatment as a
domestic shareholder with respect to such gain (subject to applicable
alternative minimum tax and a special alternative minimum tax in the case of
nonresident alien individuals and the possible application of the 30% branch
profits tax in the case of foreign corporations), and the purchaser would be
required to withhold and remit to the IRS 10% of the purchase price. In
addition, if COPT is not a "domestically controlled REIT," distributions in
excess of its current and accumulated earnings and profits would be subject to
withholding at a rate of 10%.
Dividends paid in the United States with respect to COPT's shares of
beneficial interest, and proceeds from the sale of COPT's shares of beneficial
interest, through a United States broker (or certain brokers having significant
connections with the United States) may be subject to the information reporting
requirements of the Code. Under the backup withholding rules, a shareholder may
be subject to backup withholding at the rate of 31% unless such shareholder (i)
is a corporation or comes within certain other exempt categories and, when
required, demonstrates this fact, or (ii) provides a taxpayer identification
number and certifies as to no loss of exemption, and otherwise complies with the
applicable requirements of the backup withholding rules. Non-U.S. Shareholders
are generally exempt from information reporting and backup withholding, but may
be required to provide a properly completed Form W-8 or otherwise comply with
applicable certification and identification procedures in order to prove their
exemption. Any amount paid as backup withholding will be creditable against the
Non-U.S. Shareholder's United States income tax liability.
The Final Regulations, originally issued by the United States Treasury on
October 6, 1997, affect the rules applicable to payments to foreign persons. In
general, the Final Regulations do not alter the substantive withholding and
information reporting requirements but unify current certification procedures
and modify reliance standards. In addition, the Final Regulations also address
certain issues relating to intermediary certification procedures designed to
simplify compliance by withholding agents. The Final Regulations are generally
effective for payments made on or after January 1, 2001, subject to certain
transition rules. Prospective investors should consult their own tax advisors
concerning the adoption of the Final Regulations and the potential effect on
their ownership of COPT's shares of beneficial interest.
OTHER TAX CONSIDERATIONS
EFFECT OF TAX STATUS OF THE OPERATING PARTNERSHIP ON REIT QUALIFICATION. All
of COPT's investments are through the operating partnership. COPT believes that
the operating partnership is properly treated as a partnership for tax purposes
(and not as an association taxable as a corporation). If, however, the operating
partnership were to be treated as an association taxable as a corporation, COPT
would cease to qualify as a REIT. Furthermore, in such a situation, the
operating partnership would be subject to corporate income taxes and COPT would
not be able to deduct its share of any losses generated by the operating
partnership in computing its taxable income.
TAX ALLOCATIONS WITH RESPECT TO THE PROPERTIES. The operating partnership was
formed, in part, by way of contributions of appreciated property. When property
is contributed to a partnership in exchange for an interest in the partnership,
the partnership generally takes a carryover basis in that property for tax
purposes equal to the adjusted basis of the contributing partner in the
property, rather than a basis equal to the fair market value of the property at
the time of contribution (this difference is referred to as a "Book-Tax
Difference"). The partnership agreement of the operating partnership requires
allocations of income, gain, loss and deduction with respect to contributed
Property to be made in a manner consistent with the special rules in Section
704(c) of the Code, and the regulations thereunder, which tend to eliminate the
Book-Tax Differences with respect to the contributed Properties over the
depreciable lives of the contributed Properties. However, because of certain
technical limitations, the special allocation rules of Section 704(c) may not
always entirely eliminate the Book-Tax Difference on an annual basis or with
respect to a specific taxable transaction such as a sale. Thus, the carryover
basis of the contributed
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properties in the hands of the operating partnership could cause COPT to be
allocated lower amounts of depreciation and other deductions for tax purposes
than would be allocated to COPT if all properties were to have a tax basis equal
to their fair market value at the time of acquisition. The foregoing principles
also apply in determining its earnings and profits for purposes of determining
the portion of distributions taxable as dividend income. The application of
these rules over time may result in a higher portion of distributions being
taxed as dividends than would have occurred had COPT purchased its interests in
all properties at their agreed value.
Treasury Regulations under Section 704(c) of the Code allow partnerships to
use any reasonable method of accounting for Book-Tax Differences so that the
contributing partner receives the tax benefits and burdens of any built-in gain
or loss associated with the property. The operating partnership has determined
to use the "traditional method" (which is specifically approved in the Treasury
Regulations) for accounting for Book-Tax Differences with respect to the
Contributed Properties.
STATE AND LOCAL TAXES. COPT and its shareholders may be subject to state or
local taxation in various state or local jurisdictions, including those in which
COPT or they transact business or reside. The state and local tax treatment of
us and its shareholders may not conform to the Federal income tax consequences
discussed above. Consequently, prospective shareholders should consult with
their own tax advisors regarding the effect of state, local and other tax laws
of any investment in COPT's shares of beneficial interest.
PLAN OF DISTRIBUTION
We may sell the securities offered pursuant to this prospectus and the
accompanying prospectus supplement to or through one or more underwriters or
dealers or may sell the securities to investors directly or through agents. Any
such underwriter or agent involved in the offer and sale of the securities will
be named in the applicable prospectus supplement. We may sell securities
directly to investors on our own behalf in those jurisdictions where we are
authorized to do so.
Underwriters may offer and sell the securities at a fixed price or prices,
which may be changed, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices. We also may,
from time to time, authorize dealers or agents to offer and sell these
securities upon such terms and conditions as may be set forth in the applicable
prospectus supplement. In connection with the sale of any of these securities,
underwriters may receive compensation from us in the form of underwriting
discounts or commissions and may also receive commissions from purchasers of the
securities for whom they may act as agent. Underwriters may sell the securities
to or through dealers, and such dealers may receive compensation in the form of
discounts, concessions or commissions from the underwriters or commissions from
the purchasers for which they may act as agents.
The Common Shares may also be sold in one or more of the following
transactions: (a) block transactions (which may involve crosses) in which a
broker-dealer may sell all or a portion of such shares as agent but may position
and resell all or a portion of the block as principal to facilitate the
transaction; (b) purchases by any such broker-dealer as principal and resale by
such broker-dealer for its own account pursuant to a prospectus supplement; (c)
a special offering, an exchange distribution or a secondary distribution in
accordance with applicable NYSE or other stock exchange rules; (d) ordinary
brokerage transactions and transactions in which any such broker-dealer solicits
purchasers; (e) sales "at the market" to or through a market maker or into an
existing trading market, on an exchange or otherwise, for such shares; and (f)
sales in other ways not involving market markers or established trading markets,
including direct sales to purchasers. In effecting sales, broker-dealers engaged
by the selling shareholders may arrange for other broker-dealers to participate.
Broker-dealers will receive commissions or other compensation from the selling
shareholders in amounts to be negotiated immediately prior to the sale that will
not exceed those customary in the types of transactions involved. Broker-dealers
may also receive compensation from purchasers of the Common Shares which is not
expected to exceed that customary in the types of transactions involved.
Any underwriting compensation paid by us to underwriters or agents in
connection with the offering of these securities, and any discounts or
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in the applicable prospectus supplement. Dealers and agents
participating in the distribution of the securities may be deemed to be
underwriters, and any discounts and commissions received by them and any profit
realized by them on resale of the securities may be deemed to be underwriting
discounts and commissions.
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Underwriters, dealers and agents may be entitled, under agreements entered
into with us, to indemnification against and contribution toward certain civil
liabilities, including liabilities under the Securities Act. Unless otherwise
set forth in the accompanying prospectus supplement, the obligations of any
underwriters to purchase any of these securities will be subject to certain
conditions precedent, and the underwriters will be obligated to purchase all of
such series of securities, if any are purchased.
Underwriters, dealers and agents may engage in transactions with, or perform
services for, us and our affiliates in the ordinary course of business.
In connection with the offering of the securities hereby, certain
underwriters, and selling group members and their respective affiliates may
engage in transactions that stabilize, maintain or otherwise affect the market
price of the applicable securities. Such transactions may include stabilization
transactions effected in accordance with Rule 104 of Regulation M promulgated by
the Securities and Exchange Commission (the "Commission") pursuant to which such
persons may bid for or purchase securities for the purpose of stabilizing their
market price. The underwriters in an offering of securities may also create a
"short position" for their account by selling more securities in connection with
the offering than they are committed to purchase from us. In such case, the
underwriters could cover all or a portion of such short position by either
purchasing securities in the open market following completion of the offering of
such securities or by exercising any over-allotment option granted to them by
us. In addition, the managing underwriter may impose "penalty bids" under
contractual arrangements with other underwriters, which means that they can
reclaim from an underwriter (or any selling group member participating in the
offering) for the account of the other underwriters, the selling concession with
respect to securities that are distributed in the offering but subsequently
purchased for the account of the underwriters in the open market. Any of the
transactions described in this paragraph or comparable transactions that are
described in any accompanying prospectus supplement may result in the
maintenance of the price of the securities at a level above that which might
otherwise prevail in the open market. None of such transactions described in
this paragraph or in an accompanying prospectus supplement are required to be
taken by any underwriters and, if they are undertaken, may be discontinued at
any time.
The Common Shares are listed on the New York Stock Exchange under the symbol
"OFC." The Series B Preferred Shares are listed on the New York Stock Exchange
under the symbol "OFC Pr B". Any new series of preferred shares or warrants will
be new issues of securities with no established trading market and may or may
not be listed in a national securities exchange. Any underwriters or agents to
or through which securities are sold by us may make a market in such securities,
but such underwriters or agents will not be obligated to do so and any of them
may discontinue any market making at any time without notice. No assurance can
be given as to the liquidity of or trading market for any securities sold by us.
EXPERTS
The financial statements incorporated in this prospectus by reference to the
Annual Report on Form 10-K for the year ended December 31, 1999, have been so
incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
LEGAL MATTERS
The validity of the securities offered hereby are being passed upon for COPT
by Morgan, Lewis & Bockius LLP. The opinion of counsel as described under the
heading "Federal Income Tax Matters" is being rendered by Morgan, Lewis &
Bockius LLP, which opinion is subject to various assumptions and is based on
current tax law. Certain legal matters may be passed upon for any of the
underwriters or agents by counsel named in the applicable prospectus supplement.
WHERE YOU CAN FIND MORE INFORMATION
COPT has filed a registration statement on Form S-3 with the Securities and
Exchange Commission in connection with this offering. In addition, COPT files
annual, quarterly, and current reports, proxy statements and other information
with the Securities and Exchange Commission. You may read and copy the
registration statement and any other documents filed by COPT at the Securities
and Exchange Commission's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Please call the Securities and Exchange Commission at
1-800-
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SEC-0330 for further information on the Public Reference Room. COPT's Securities
and Exchange Commission filings are also available to the public at the
Securities and Exchange Commission's Internet site at http://www.sec.gov.
This prospectus is part of the registration statement and does not contain
all of the information included in the registration statement. If a reference is
made in this prospectus or any prospectus supplement to any contract or other
document of COPT, the reference may not be complete and you should refer to the
exhibits that are a part of the registration statement for a copy of the
contract or document.
The Securities and Exchange Commission allows COPT to "incorporate by
reference" into this prospectus the information COPT files with the Commission,
which means that COPT can disclose important information to you by referring you
to those documents. Information incorporated by reference is part of this
prospectus. Later information filed with the Securities and Exchange Commission
will update and supersede this information.
COPT incorporates in this prospectus by reference the Annual Report on Form
10-K for the year ended December 31, 1999, the Quarterly Report on Form 10-Q for
the quarters ended March 31 and June 30, 2000, and any future filings made with
the Securities and Exchange Commission under Sections 13(a), 13(c), 14 or 15(d)
of the Securities Exchange Act of 1934 until this offering is completed.
You may request a copy of these filings, at no cost, by contacting COPT, Vice
President-Investor Relations, 8815 Centre Park Drive, Suite 400, Columbia,
Maryland 21045, by telephone at 410-992-7324, by facsimile at 410-740-1174, or
by e-mail at [email protected].
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PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses in connection with the issuance and distribution of the
securities being registered are set forth in the following table (all amounts
except the registration fee are estimated):
<TABLE>
<S> <C>
Registration fee -- Securities and Exchange
Commission $69,500
Accountant's fees and expenses 10,000
Legal fees and expenses 35,000
Miscellaneous 20,000
--------
TOTAL $134,500
========
</TABLE>
All expenses in connection with the issuance and distribution of the
securities being offered shall be borne by COPT.
ITEM 15. INDEMNIFICATION OF TRUSTEES AND OFFICERS.
The Maryland REIT Law permits a Maryland real estate investment trust to
include in its declaration of trust a provision limiting the liability of its
trustees and officers to the trust and its shareholders for money damages except
for liability resulting from (i) actual receipt of an improper benefit or profit
in money, property or services or (ii) active and deliberate dishonesty
established by a final judgment as being material to the cause of action. The
Declaration of Trust contains such a provision limiting such liability to the
maximum extent permitted by Maryland law.
The Declaration of Trust authorizes COPT, to the maximum extent permitted by
Maryland law, to obligate itself to indemnify and to pay or reimburse reasonable
expenses in advance of final disposition of a proceeding to (a) any present or
former Trustee or officer or (b) any individual who, while a Trustee of COPT and
at the request of COPT, serves or has served another real estate investment
trust, corporation, partnership, joint venture, trust, employee benefit plan or
any other enterprise as a trustee, director, officer, partner, employee or agent
of such entity from and against any claim or liability to which such person may
become subject or which such person may incur by reason of service in such
capacity. The Bylaws obligate COPT, to the maximum extent permitted by Maryland
law, to indemnify and to pay or reimburse reasonable expenses in advance of
final disposition of a proceeding to (i) any present or former Trustee or
officer who is made a party to the proceeding by reason of his or her service in
that capacity or (ii) any such Trustee or officer who, at the request of COPT,
serves or has served another real estate investment trust, corporation,
partnership, joint venture, trust, employee benefit plan or any other enterprise
as a trustee, director, officer, partner, employee or agent of such entity and
who is made a party to the proceeding by reason of his service in that capacity
against any claim or liability to which he may become subject by reason of his
or her status as a present or former Trustee or officer of COPT. The Declaration
of Trust and the Bylaws also permit COPT to provide indemnification to any
person who served a predecessor of COPT in any of the capacities described above
and to any employee or agent of COPT or a predecessor of COPT. The Bylaws
require COPT to indemnify a Trustee or officer who has been successful, on the
merits or otherwise, in the defense of any proceeding to which he or she is made
a party by reason of his or her service in that capacity.
The Maryland REIT Law permits a Maryland real estate investment trust to
indemnify, and to advance expenses to, its trustees and officers, to the same
extent as permitted by the MGCL for Trustees and officers of Maryland
corporations. The MGCL permits a corporation to indemnify its present and former
Trustees and officers, among others, against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by them in connection with
any proceeding to which they may be made a party by reason of their service in
those or other capacities unless it is established that (i) the act or omission
of the director or officer was material to the matter giving rise to the
proceeding and (a) was committed in bad faith or (b) was the result of active
and deliberate dishonesty, (ii) the director or officer actually received an
improper personal benefit in money, property or services or (iii) in the case of
any criminal proceeding, the director or officer had reasonable cause to believe
that the act or omission was unlawful. However, under the MGCL, a Maryland
corporation may not indemnify for an adverse judgment in a suit by or in the
right of the corporation or for a judgment of liability on the basis that
personal benefit
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<PAGE>
was improperly received, unless in either case a court orders indemnification
and then only for expenses. In addition, the MGCL permits a corporation to
advance reasonable expenses to a director or officer upon the corporation's
receipt of (a) a written affirmation by the director or officer of his or her
good-faith belief that he or she has met the standard of conduct necessary for
indemnification by the corporation and (b) a written undertaking by him or her
or on his or her behalf to repay the amount paid or reimbursed by the
corporation if it shall ultimately be determined that the standard of conduct
was not met. Under the MGCL, rights to indemnification and expenses are
nonexclusive, in that they need not be limited to those expressly provided by
statute.
The Maryland REIT Law and the Bylaws may permit indemnification for
liabilities arising under the Securities Act or the Exchange Act. The Board of
Trustees has been advised that, in the opinion of the Commission,
indemnification for liabilities arising under the Securities Act or the Exchange
Act is contrary to public policy and is therefore unenforceable, absent a
decision to the contrary by a court of appropriate jurisdiction.
ITEM 16. EXHIBITS.
EXHIBIT
NO. DESCRIPTION
4.1 Form of certificate for the Registrant's Common Shares of Beneficial
Interest, $0.01 par value per share (filed with the Registrant's
Registration Statement on Form S-4 (Commission File No. 333-45649)
and incorporated herein by reference.
4.2 Amended and Restated Declaration of Trust of Registrant (filed with
the Registrant's Registration Statement on Form S-4 (Commission File
No. 333-45649) and incorporated herein by reference).
4.3 Bylaws of Registrant (filed with the Registrant's Registration
Statement on Form S-4 (Commission File No. 333-45649) and
incorporated herein by reference).
4.4 Form of certificate for the Registrant's Common Shares of Beneficial
Interest, $0.01 par value per share (filed with the Registrant's
Registration Statement on Form S-4 (Commission File No. 333-45649)
and incorporated herein by reference).
4.5 Articles Supplementary of Corporate Office Properties Trust Series A
Convertible Preferred Shares, dated September 28, 1998 (filed with
the Registrant's Current Report on Form 8-K on October 13, 1998 and
incorporated herein by reference).
4.6.1 Second Amended and Restated Limited Partnership Agreement of the
Operating Partnership dated December 7, 1999 (filed with the
Registrant's 1999 Annual Report on Form 10-K on March 16, 2000 and
incorporated herein by reference).
4.6.2 First Amendment to Second Amended and Restated Limited Partnership
Agreement of the Operating Partnership, dated December 21, 1999
(filed with the Registrant's 1999 Annual Report on From 10-K on
March 16, 2000 and incorporated herein by reference).
4.6.3 Second Amendment to Second Amended and Restated Limited Partnership
Agreement of the Operating Partnership, dated December 21, 1999.
4.6.4 Third Amendment to Second Amended and Restated Limited Partnership
Agreement of the Operating Partnership, dated September 29, 2000.
4.7 Articles Supplementary of Corporate Office Properties Trust Series B
Convertible Preferred Shares, dated July 2, 1999 (filed with the
Company's Current Report on From 8-K on July 7, 1999 and incorporated
herein by reference).
4.8 Amended and Restated Registration Rights Agreement, dated March 16,
1998, for the benefit of certain shareholders of the Company (filed
with Company's Quarterly Report on Form 10-Q (Commission File No.
001-14023) on August 12, 1998 and incorporated by reference).
5.1 Opinion of Morgan, Lewis & Bockius LLP regarding the legality of the
securities being registered hereby (filed on February 22, 1999 with
Pre-Effective Amendment No. 1 to this registration statement).
8.1 Opinion of Morgan, Lewis & Bockius LLP as to certain tax matters.
12.1 Registrant's Current Report on Form 8-K dated October 25, 2000.
21.1 Subsidiaries of Registrant (filed with the Registrant's 1999 Annual
Report on Form 10-K and incorporated herein by reference).
23.1 Consent of Morgan, Lewis & Bockius LLP (included in Exhibit 5.1).
23.2 Consent of PricewaterhouseCoopers LLP (filed with the Registrant's
1999 Annual Report on Form 10-K and incorporated herein by
reference).
24.1 Powers of attorney (included on signature page to this amendment).
II-2
<PAGE>
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration
Statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement
(or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a
fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would
not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum
offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration
statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
Registration Statement or any material change to such
information in the Registration Statement;
PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) do
not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in
periodic reports filed with or furnished to the Securities and
Exchange Commission by the Registrant pursuant to Section 13
or Section 15(d) of the Securities Exchange Act of 1934 that
are incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered that remain
unsold at the termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for the purpose
of determining any liability under the Securities Act of 1933, each
filing of the Registrant's annual report pursuant to Section 13(a)
or Section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in this Registration Statement
shall be deemed to be a new registration statement relating to the
securities offered herein and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to Trustees, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions,
II-3
<PAGE>
or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of
expenses incurred or paid by a Trustee, officer or controlling
person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such Trustee, officer or
controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Columbia, State of Maryland on November 1, 2000.
CORPORATE OFFICE PROPERTIES TRUST
By: /s/ Randall M. Griffin
--------------------------------------
Name: Randall M. Griffin
Title: President and Chief Operating Officer
By: /s/ Roger A. Waesche, Jr.
--------------------------------------
Name: Roger A. Waesche, Jr.
Title: Senior Vice President and
Chief Financial Officer
<PAGE>
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and
Trustees of Corporate Office Properties Trust hereby severally constitute
Randall M. Griffin and Roger A. Waesche, Jr., and each of them singly, our true
and lawful attorneys with full power to them, and each of them singly, to sign
for us and in our names in the capacities indicated below, and any and all
amendments (including post-effective amendments) to this registration statement
and to file the same with all exhibits thereto, and generally to do all such
things in our names and in our capacities as officers and Trustees to enable
Corporate Office Properties Trust to comply with the provisions of the
Securities Act of 1933, as amended, and all requirements of the Securities and
Exchange Commission, hereby ratifying and confirming our signatures as they may
be signed by our said attorneys, or any of them, to said registration statement
and any and all amendments thereto.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed below by the following persons in the capacities and
on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
<S> <C> <C>
/s/ Jay H. Shidler Chairman of the Board and Trustee November 1, 2000
-------------------------------------------
Jay H. Shidler
/s/ Clay W. Hamlin, III Chief Executive Officer and Trustee November 1, 2000
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Clay W. Hamlin, III
/s/ Randall M. Griffin President and Chief Operating Officer
------------------------------------------- (Principal Executive Officer) November 1, 2000
Randall M. Griffin
/s/ Roger A. Waesche, Jr. Senior Vice President and Chief Financial Officer November 1, 2000
------------------------------------------- (Principal Accounting and Financial Officer)
Roger A. Waesche, Jr.
/s/ Kenneth D. Wethe Trustee November 1, 2000
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Kenneth D. Wethe
/s/ Robert L. Denton Trustee November 1, 2000
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Robert L. Denton
/s/ Kenneth S. Sweet, Jr. Trustee November 1, 2000
-------------------------------------------
Kenneth S. Sweet, Jr.
/s/ Steven D. Kesler Trustee November 1, 2000
-------------------------------------------
Steven D. Kesler
/s/ Edward A. Crooke Trustee November 1, 2000
-------------------------------------------
Edward A. Crooke
</TABLE>
