<PAGE>
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission file number 0-20047
CORPORATE OFFICE PROPERTIES TRUST
(Exact name of registrant as specified in its charter)
MARYLAND 23-2947217
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
8815 CENTRE PARK DRIVE, SUITE 400 21045
COLUMBIA, MD
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (410) 730-9092
----------------------------------------
Securities registered pursuant to Section 12(b) of the Act:
(Title of Each Class) (Name of Exchange on Which
Registered)
COMMON SHARE OF BENEFICIAL INTEREST, NEW YORK STOCK EXCHANGE
$0.01 PAR VALUE
SERIES B CUMULATIVE REDEEMABLE
PREFERRED SHARE OF BENEFICIAL INTEREST NEW YORK STOCK EXCHANGE
$0.01 PAR VALUE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the (1) registrant has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was $74,850,000 based on the closing price of such Shares on the New
York Stock Exchange on March 14, 2000. At March 14, 2000 17,658,546 shares of
the Registrant's Common Shares of Beneficial Interest, $0.01 par value, were
outstanding.
Portions of the annual shareholder report for the year ended December 31, 1999
are incorporated by reference into Parts I and II of this report and portions of
the proxy statement of the Registrant for its 2000 Annual Meeting of
Shareholders to be filed within 120 days after the end of the fiscal year
covered by this Form 10-K are incorporated by reference into Part III of this
Form 10-K.
================================================================================
<PAGE>
Table of Contents
Form 10-K
<TABLE>
PART I
<S> <C> <C>
ITEM 1. BUSINESS.....................................................................................3
ITEM 2. PROPERTIES...................................................................................9
ITEM 3. LEGAL PROCEEDINGS...........................................................................13
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS........................................13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.......................14
ITEM 6. SELECTED FINANCIAL DATA TABLE...............................................................14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS...............................................................................14
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..................................14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................................................14
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE........................................................................14
PART III
ITEM 10. TRUSTEES AND EXECUTIVE OFFICERS OF THE REGISTRANT...........................................14
ITEM 11. EXECUTIVE COMPENSATION......................................................................14
ITEM 12. SECURITY OWNERSHIP AND CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.............................14
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............................................14
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.............................14
</TABLE>
FORWARD-LOOKING STATEMENTS
This Form 10-K contains "forward-looking" statements, as defined in the
Private Securities Litigation Reform Act of 1995 that are based on our current
expectations, estimates and projections 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
publicly update 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 and
environmental requirements.
2
<PAGE>
PART I
ITEM 1. BUSINESS
OUR COMPANY
Corporate Office Properties Trust ("COPT") is a fully integrated and
self-managed real estate investment trust ("REIT"). We focus 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 December 31, 1999, we:
- - owned 77 suburban office properties in Maryland, Pennsylvania and New
Jersey containing approximately 5.9 million rentable square feet,
- - owned two retail properties containing approximately 191,000 rentable
square feet,
- - achieved a 97.5% occupancy rate on our properties,
- - had construction underway on five new buildings totaling approximately
407,000 square feet that were 49% pre-leased and redevelopment underway
on a 57,000 square foot existing building that was 100% pre-leased, and
- - owned options to purchase 72 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 December 31, 1999, we owned
approximately 60% of the outstanding Common Units and approximately 70% 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.
The Operating Partnership also owns the principal economic interest and,
collectively with our Chief Executive Officer and Chief Operating Officer, 49.5%
of the voting stock of Corporate Office Management, Inc. ("COMI"). COMI provides
us with asset management and managerial, financial and legal support. COMI also
has three subsidiaries: Corporate Realty Management, LLC ("CRM"), Corporate
Development Services, LLC ("CDS") and Martin G. Knott and Associates, LLC
("MGK"). CRM manages approximately 16.6 million square feet for us and for third
parties as of December 31, 1999 and also provides corporate facilities
management. CDS provides construction and development services predominantly to
us. MGK provides heating and air conditioning maintenance and repair services.
COMI owns 75% of CRM, 100% of CDS and 80% of MGK.
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, MD 21045 and our telephone number is (410) 730-9092.
3
<PAGE>
SIGNIFICANT 1999 DEVELOPMENTS
During 1999, we acquired 29 suburban office properties. A summary of these
acquisitions follows (dollars in thousands):
<TABLE>
<CAPTION>
Number
Date of of Total Rentable Initial
Project Name Location Acquisition Buildings Square Feet Cost
- --------------------------------- -------------------- ----------- ----------- -------------- --------
<S> <C> <C> <C> <C> <C>
Airport Square XXI Linthicum, MD 2/23/99 1 67,913 $ 6,751
Parkway Crossing Properties Hanover, MD 4/16/99 2 99,026 9,524
Commons Corporate Center (1) Hanover, MD 4/28/99 8 250,413 25,442
Princeton Executive Center Monmouth Junction, NJ 6/24/99 1 61,300 6,020
Gateway Central (2) Harrisburg, PA 8/12/99 3 55,726 5,960
Gateway International (3) Linthicum, MD 11/18/99 2 198,438 24,316
Corporate Gateway Center (4) Harrisburg, PA 12/3/99 9 417,138 40,082
Timonium Business Park Timonium, MD 12/21/99 2 233,623 30,001
Brown's Wharf (5) Baltimore, MD 12/21/99 1 103,670 10,607
</TABLE>
(1) Does not include $400 allocated to projects under construction and $50
relating to land under a ground lease.
(2) Acquired 89% ownership interest from an officer and Trustee of ours.
(3) Does not include $1,973 allocated to projects under construction.
(4) Acquired 49% interest on September 15, 1999. Acquired remaining 51%
interest on December 3, 1999.
(5) The Brown's Wharf property was sold on 6/24/99 and then contributed into
the Operating Partnership by the purchaser on 12/21/99 (see Note 4 to the
consolidated financial statements as of and for the year ended December 31,
1999 included in Exhibit 13.1 to this Form 10-K and incorporated by
reference).
During 1999, we also acquired six parcels of land that are contiguous to
certain of our operating properties and a 57,000 square foot warehouse facility
located in South Brunswick, New Jersey that we are redeveloping into office
space.
During 1999, we completed the construction of two office buildings totaling
202,219 square feet. The office buildings are located in Annapolis Junction,
Maryland and Columbia, Maryland. Costs incurred on these properties through
December 31, 1999 totaled $23.2 million. We also completed an expansion project
that increased the rentable square footage of one of our properties by 6,350
square feet. As of December 31, 1999 we had construction underway on five new
buildings and redevelopment underway on an existing building.
We sold nine properties during 1999 for $53.5 million, generating net
proceeds after property level debt repayments, transaction costs and operating
revenue and cost pro rations of $31.2 million. A summary of these sales follows
(dollars in thousands):
<TABLE>
<CAPTION>
Property Date of Total Rentable Sales
Project Name Location Type (1) Sale Square Feet Price
- --------------------- ------------------ -------- ------- -------------- ---------
<S> <C> <C> <C> <C> <C>
Cranberry Square Westminster, MD R 1/22/99 139,988 $ 18,900
Delafield Retail Delafield, WI R 2/26/99 52,800 3,303
Indianapolis Retail Indianapolis, IN R 3/09/99 67,541 5,735
Plymouth Retail Plymouth, MN R 3/09/99 67,510 5,465
Glendale Retail Glendale, WI R 5/04/99 36,248 1,900
Peru Retail Peru, IL R 6/16/99 60,232 3,750
Browns Wharf (2) Baltimore, MD O 6/24/99 103,670 10,575
Oconomowoc Retail Oconomowoc, WI R 6/25/99 39,272 2,575
Brandon One Riveria Beach, MD O 12/30/99 38,513 1,260
</TABLE>
(1) "R" indicates retail property; "O" indicates office property.
(2) The Brown's Wharf property was sold on 6/24/99 and then contributed into
the Operating Partnership by the purchaser on 12/21/99 (see Note 4 to the
consolidated financial statements as of and for the year ended December 31,
1999 included in Exhibit 13.1 to this Form 10-K and incorporated by
reference).
4
<PAGE>
A summary of our significant financing activities during 1999 follows:
- - we completed the sale of 1,250,000 Series B Cumulative Redeemable Preferred
Shares to the public at a price of $25.00 per share,
- - we issued 974,662 Series C Preferred Units in our Operating Partnership
valued at $25.00 per share,
- - we issued 577,251 Common Units in our Operating Partnership,
- - we received $165.2 million from new borrowing arrangements, and
- - we obtained a $50.0 million line of credit with Prudential Securities
Credit Corporation bearing an interest rate of LIBOR plus 1.5% on
outstanding borrowings (no borrowings were made under this loan during
1999).
SUBSEQUENT EVENT
On February 10, 2000, we entered into a $6.9 million construction loan
facility with Summit Bank to finance the redevelopment of a 57,000 square foot
warehouse facility into office space. This loan bears interest at LIBOR plus
1.75%. The loan matures on February 28, 2001 and may be extended for a two-year
period, subject to certain conditions.
OUR OPERATING STRATEGY
Our primary business objectives are to achieve sustainable long-term
growth in funds from operations per share and to maximize long-term shareholder
value. We seek to achieve these objectives by implementing our focused operating
and growth strategies. Key elements of this strategy include:
SUBURBAN OFFICE FOCUS. We focus on the ownership, management, leasing,
acquisition and development of suburban office properties. We believe office
buildings currently offer the strongest fundamentals of any real estate property
type, and suburban office properties offer us very attractive investment
opportunities. The three key factors driving the strong fundamentals of suburban
office properties are (i) increasing rental rates, (ii) low vacancy rates, and
(iii) a limited supply of new office product. Additionally, we believe that many
companies are relocating to, and expanding in, suburban locations because of
total lower costs, proximity to residential housing and better quality of life.
GEOGRAPHIC AND SUBMARKET FOCUS. We focus on operating in select,
demographically strong and growing markets, within the Mid-Atlantic region of
the United States, where we believe we can achieve the critical mass necessary
to maximize management efficiencies, operating synergies, tenant services and
competitive advantages through our acquisition, property management and
development programs. By focusing within specific submarkets where our
management has extensive experience and market knowledge, we believe we can
achieve submarket prominence that will lead to better operating results.
OFFICE PARK FOCUS. We focus on owning and operating properties located in
established suburban corporate office parks. We believe the suburban office park
environment generally attracts longer-term tenants, including high-quality
corporations seeking to attract and retain quality work forces, because these
parks are typically situated along major transportation routes with easy access
to support services, amenities and residential communities.
CORPORATE TENANTS. We focus on leasing to large, high-quality corporations
with significant space requirements. To enhance the stability of our cash flow,
we typically structure our leases with terms ranging from three to ten years. We
believe this strategy enables us to establish long-term relationships with
quality tenants and, coupled with our geographic and submarket focus, enhances
our ability to become the low-cost provider and the landlord of choice in our
targeted markets.
ACQUISITION STRATEGIES. We actively pursue the acquisition of suburban
office properties through our three-part acquisition strategy. This strategy
includes targeting: (i) entity acquisitions of significant portfolios along with
their management to establish prominent ownership positions in new submarkets
and enhance our management infrastructure and local expertise, (ii) portfolio
purchases to enhance our existing submarket positions as well as enter selective
new
5
<PAGE>
submarkets, and (iii) opportunistic acquisitions of individual properties in our
existing submarkets. We seek to make acquisitions at attractive yields and below
replacement costs. We also look at each acquisition for opportunities to
reposition the properties and achieve rental increases through re-leasing
activities.
PROPERTY DEVELOPMENT STRATEGIES. We balance our acquisition program through
selective development and expansion of suburban office properties when market
conditions and leasing opportunities support favorable risk-adjusted returns. We
pursue development opportunities principally in response to the needs of
existing and prospective new tenants. We develop sites that are in close
proximity to our existing properties. We believe developing such sites enhances
our ability to effectively meet tenant needs and efficiently provide critical
tenant services.
THIRD PARTY MANAGEMENT. In addition to operating and leasing our portfolio,
we provide, through CRM, property management and a full-range of fee-based
services to a wide variety of institutional owners. We believe this activity
provides us with an additional source of stable income and gives us competitive
advantages. These advantages include enhanced tenant satisfaction and property
performance and lead to potential tenant expansions, acquisitions and
build-to-suit development opportunities. Additionally, we believe CRM's
established infrastructure has the capacity to support a larger asset base and
will enhance our ability to expand our portfolio in existing and new submarkets
without significantly increasing our overhead.
TENANT SERVICES. Our investment through COMI in CRM, CDS and MGK has played
a vital role in maintaining our high levels of tenant satisfaction and
retention. We believe that further expanding our tenant service capabilities
will continue to contribute positively to the operations of our properties and
become an additional source of revenue and earnings. During 2000, CRM acquired
100% of the interests in Corporate Realty Advisors, an entity that provides
lease audit services. Other services we expect to begin providing in 2000
include energy management and concierge services.
INTERNAL GROWTH STRATEGIES. We aggressively manage our portfolio to
maximize the operating performance of each property through: (i) proactive
property management and leasing, (ii) achieving operating efficiencies through
increasing economies of scale, (iii) renewing tenant leases and re-tenanting at
increased rents where market conditions permit, and (iv) expanding our third
party property management business and other tenant and real estate service
capabilities. These strategies are designed to promote tenant satisfaction,
resulting in tenant retention and the attraction of new tenants.
FINANCING POLICY
We pursue a capitalization strategy aimed at maintaining a flexible capital
structure in order to facilitate consistent growth and performance through all
real estate and economic market conditions. Key components of our policy
include:
DEBT STRATEGY. We primarily utilize property-level mortgage debt as opposed
to corporate unsecured debt. We believe the commercial mortgage debt market is a
more mature and generally more stable market for real estate companies, which
provides us with greater access to capital on a more consistent basis and,
generally, on more favorable terms. Additionally, we seek to utilize long-term,
fixed rate debt which we believe enhances the stability of our cash flow. On a
consolidated basis, we seek to maintain a minimum debt service coverage ratio of
1.6 to 1.0, which we believe is generally consistent with the current minimum
investment grade requirement for mortgages securing commercial real estate. We
believe this ratio is appropriate for a seasoned portfolio of suburban office
properties.
EQUITY STRATEGY. We seek to maximize the benefits of our Operating
Partnership organizational structure by emphasizing the issuance of our
Operating Partnership units as an equity source to finance our property
acquisition program. This strategy provides prospective property sellers the
ability to defer taxable gains by receiving our units in lieu of cash and
reduces the need for us to access the equity and debt markets.
MORTGAGE LOANS PAYABLE
For information relating to future maturities of our mortgage loans
payable, you should refer to the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 7 to the Consolidated
Financial Statements included in Exhibit 13.1 to this Form 10-K which is
incorporated herein by reference.
6
<PAGE>
INDUSTRY SEGMENTS
We have five segments: Baltimore/Washington Corridor office, Greater
Philadelphia office, Northern/Central New Jersey office, Greater Harrisburg
office and retail. For information relating to these segments, you should refer
to Note 13 of our Consolidated Financial Statements included in Exhibit 13.1 to
this Form 10-K which is incorporated herein by reference.
EMPLOYEES
We, together with COMI and its subsidiaries, employed 149 persons as of
December 31, 1999.
COMPETITION
The commercial real estate market is highly competitive. Numerous
commercial properties compete for tenants with our properties and our
competitors are building additional properties in the markets in which our
properties are located. Some of these competing properties may be newer or have
more desirable locations than our properties. If the market does not absorb
newly constructed space, market vacancies will increase and market rents may
decline. As a result, we may have difficulty leasing space at our properties and
may be forced to lower the rents we charge on leases to compete effectively.
We also compete for the purchase of commercial property with many entities,
including other publicly-traded commercial REITs. Many of our competitors have
substantially greater financial resources than ours. In addition, our
competitors may be willing to accept lower returns on their investments. If our
competitors prevent us from buying the amount of properties that we have
targeted for acquisition, we may not be able to meet our property acquisition
and development goals.
MAJOR TENANTS
As of December 31, 1999, ten tenants accounted for 45.0% of our annualized
office rents. Two of these tenants accounted for approximately 23.3% 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 15.5% of our total annualized office
rents as of December 31, 1999. 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. The second largest tenant, Unisys
Corporation, represented 7.8% of our annualized office rents as of December 31,
1999 and 16.9% 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.
GEOGRAPHICAL CONCENTRATION
All of our office properties are located in the Mid-Atlantic region of the
United States, and 56.4% of our total revenues for the year ended December 31,
1999 was earned from our office properties located in the Baltimore/Washington
Corridor. Consequently, we do not have a broad geographical 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.
DEVELOPMENT AND CONSTRUCTION ACTIVITIES
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
and development delays and that project leasing will not occur.
7
<PAGE>
ENVIRONMENTAL MATTERS
We are subject to various Federal, state and local environmental laws.
These laws can impose liability on property owners or operators for the costs of
removal or remediation of certain hazardous substances released on a property,
even if the property owner was not responsible for the release of the hazardous
substances. The presence of hazardous substances on our properties may adversely
affect occupancy and our ability to sell or borrow against those properties. In
addition to the costs of government claims under environmental laws, private
plaintiffs may bring claims for personal injury or similar reasons. Various laws
also impose liability for the costs of removal or remediation of hazardous
substances at the disposal or treatment facility. Anyone who arranges for the
disposal or treatment of hazardous substances at such a facility is potentially
liable under such laws. These laws often impose liability whether or not the
facility is or ever was owned or operated by such person.
8
<PAGE>
ITEM 2. PROPERTIES
The following table provides certain information about our office
properties as of December 31, 1999:
<TABLE>
<CAPTION>
Total Rental
Percentage Percentage Revenue per
Year Occupied Total of Total Occupied
Built/ Rentable as of Rental Rental Square Feet Major Tenants
Property Location Renovated Square Feet 12/31/99(1) Revenue(2) Revenue (3) (4) (10% or more Rentable Sq. Ft.)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALTIMORE/WASHINGTON CORRIDOR:
ANNAPOLIS JUNCTION, MD
2730 Hercules Road 1990 240,336 100.00% $4,604,196 4.98% $19.16 U.S. Department of Defense (100%)
134 National
Business Pkwy 1999 93,482 100.00% 1,834,249 1.98% 19.62 Booz Allen Hamilton (74%)
Ameritrade Holding
Corporation (26%)
133 National
Business Pkwy 1997 88,666 100.00% 1,737,667 1.87% 19.60 e.spire Communications (67%)
Applied Signal Technology (33%)
141 National
Business Pkwy 1990 86,964 98.42% 1,508,830 1.63% 17.63 ITT Industries (46%)
J.G. Van Dyke & Associates (20%)
Harris Data Services Corp (14%)
135 National
Business Pkwy 1998 86,863 95.41% 1,566,286 1.69% 18.90 Credit Management Solutions (82%)
131 National
Business Pkwy 1990 68,906 98.26% 1,275,170 1.38% 18.83 TASC (36%)
e.spire Communications (35%)
U.S. Department of Defense (15%)
Intel Corporation (12%)
LINTHICUM, MD
1306 Concourse Drive 1990 113,831 97.46% 2,218,864 2.39% 20.00 PricewaterhouseCoopers (33%)
AT&T Local Services (26%)
Quest Communications (13%)
900 Elkridge Landing
Road 1982 97,139 100.00% 1,682,665 1.81% 17.32 First Annapolis Consulting (51%)
Booz Allen Hamilton (38%)
1199 Winterson Road 1988 96,636 100.00% 1,534,245 1.65% 15.88 U.S. Department of Defense (100%)
1302 Concourse Drive 1996 84,607 86.41% 1,422,386 1.53% 19.46 AETNA US Healthcare (20%)
Lucent Technologies (19%)
881 Elkridge Landing
Road 1986 73,572 100.00% 866,280 0.93% 11.77 U.S. Department of Defense (100%)
1099 Winterson Road 1988 70,569 100.00% 1,139,244 1.23% 16.14 Preferred Health Network (63%)
1190 Winterson Road 1987 68,567 100.00% 1,148,775 1.24% 16.75 Chesapeake Appraisal (58%)
U.S. Department of Defense (15%)
Motorola (14%)
849 International
Drive 1988 67,976 98.41% 1,158,983 1.25% 17.33 EMC Corporation (13%)
Coca Cola Bottling (11%)
U.S. Department of Defense (11%)
1201 Winterson Road 1985 67,903 100.00% 684,107 0.74% 10.07 Ciena Corporation (100%)
911 Elkridge Landing
Road 1985 67,806 100.00% 1,104,649 1.19% 16.29 U.S. Department of Defense (79%)
Nationwide Mutual Insurance (21%)
930 International
Drive 1986 57,140 100.00% 626,072 0.68% 10.96 Ciena Corporation (100%)
900 International
Drive 1986 57,140 100.00% 632,398 0.68% 11.07 Ciena Corporation (100%)
921 Elkridge Landing
Road 1983 54,057 100.00% 861,935 0.93% 15.94 Aerotek (100%)
939 Elkridge Landing
Road 1983 51,953 100.00% 796,952 0.86% 15.34 Agency Holding (68%)
U.S. Department of Defense (24%)
800 International
Drive 1988 50,612 100.00% 736,150 0.79% 14.54 Ciena Corporation (100%)
COLUMBIA, MD
7200 Riverwood Drive 1986 160,000 100.00% 2,770,640 2.99% 17.32 U.S. Department of Defense (100%)
6940 Columbia
Gateway Drive 1999 108,737 60.51% 1,428,314 1.54% 21.71 Magellan Behavioral Health (26%)
Remedy Corporation (14%)
Reliance Insurance (13%)
6950 Columbia
Gateway Drive 1998 107,778 100.00% 2,214,159 2.39% 20.54 Magellan Behavioral Health (100%)
6740 Alexander Bell
Drive 1989/1992 59,569 100.00% 1,355,651 1.46% 22.76 Johns Hopkins University (70%)
Amtel Corporation (16%)
Sky Alland Research (13%)
8815 Centre Park
Drive 1987 53,635 100.00% 1,079,595 1.16% 20.13 Corporate Office Management (25%)
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Total Rental
Percentage Percentage Revenue per
Year Occupied Total of Total Occupied
Built/ Rentable as of Rental Rental Square Feet Major Tenants
Property Location Renovated Square Feet 12/31/99(1) Revenue(2) Revenue (3) (4) (10% or more Rentable Sq. Ft.)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Lipman, Frizzel & Mitchell (16%)
Reap/REMAX (16%)
Corporate Realty Management, LLC(13%)
H.C. Copeland Associates (10%)
6716 Alexander Bell
Drive 1989/1992 51,980 91.18% 827,504 0.89% 17.46 Sun Microsystems (87%)
6760 Alexander Bell
Drive 1989/1992 37,248 100.00% 713,441 0.77% 19.15 Cadence Design Systems (65%)
HANOVER, MD
7467 Ridge Road 1990 73,773 100.00% 1,532,909 1.65% 20.78 Travelers Casualty and Surety (55%)
7318 Parkway Drive 1984 59,204 100.00% 632,627 0.68% 10.69 U.S. Department of Defense (100%)
1340 Ashton Road 1989 46,400 100.00% 595,351 0.64% 12.83 Lockheed Martin Corporation (100%)
7321 Parkway Drive 1984 39,822 100.00% 657,063 0.71% 16.50 U.S. Department of Defense (100%)
1334 Ashton Road 1989 37,565 96.77% 557,687 0.60% 15.34 Science Applications International
Corp. (60%)
Merrill Corporation (37%)
1331 Ashton Road 1989 29,936 100.00% 388,490 0.42% 12.98 Booz Allen Hamilton (71%)
Aerosol Monitoring (29%)
1350 Dorsey Road 1989 20,021 90.16% 253,713 0.27% 14.06 Aerotek (23%)
Noodles (14%)
Hunan Pagoda (12%)
Electronic System (11%)
1344 Ashton Road 1989 16,865 100.00% 334,004 0.36% 19.80 Titan Systems (28%)
Student Travel Services (23%)
AMP Corporation (16%)
Jani - King of Baltimore (14%)
Citizens National Bank (12%)
1341 Ashton Road 1989 15,825 70.87% 114,484 0.12% 10.21 Supertots Childcare (71%)
1343 Ashton Road 1989 9,962 100.00% 120,753 0.13% 12.12 Nauticus Corporation (100%)
Pepsi-Cola Bottling (17%)
LAUREL, MD
14502 Greenview Drive 1988 71,873 100.00% 1,239,028 1.34% 17.24 Sky Alland Research (26%)
Greenman-Pedersen (15%)
14504 Greenview Drive 1985 69,194 88.39% 1,058,220 1.14% 17.30 Great West Life & Annuity (17%)
Laurel Consulting Group (16%)
Moore USA (11%)
TIMONIUM, MD
375 W. Padonia Road 1986 100,804 100.00% 1,579,559 1.70% 15.67 Deutsche Bank Alex. Brown (84%)
9690 Deerco Road 1988 132,819 91.10% 2,483,260 2.68% 20.52 Fireman's Fund Insurance (22%)
AirTouch Paging of Virginia (12%)
OXON HILL, MD
6009-6011 Oxon Hill
Road 1990 181,236 100.00% 3,497,148 3.78% 19.30 U.S. Department of Treasury (47%)
Constellation Real Estate (22%)
BALTIMORE, MD
1615 - 1629 Thames
Street 1989 103,670 100.00% 1,655,549 1.79% 15.97 Johns Hopkins University (37%)
--------- --------- ----------- ------- -------
Lista's (14%)
Total Baltimore/Washington
Corridor 3,332,641 97.08% $56,229,252 60.64% $17.38
--------- --------- ----------- ------- -------
Greater Philadelphia:
BLUE BELL, PA
753 Jolly Road 1960/92-94 419,472 100.00% $3,572,761 3.85% $ 8.52 Unisys (100%)
785 Jolly Road 1970/1996 219,065 100.00% 2,618,611 2.82% 11.95 Unisys with 100% sublease to Merck
760 Jolly Road 1974/1994 208,854 100.00% 2,150,891 2.32% 10.30 Unisys (100%)
751 Jolly Road 1960/92-94 112,958 100.00% 962,095 1.04% 8.52 Unisys (100%)
--------- --------- ----------- ------- -------
Total Greater
Philadelphia 960,349 100.00% $9,304,358 10.03% $ 9.69
--------- --------- ----------- ------- -------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Total Rental
Percentage Percentage Revenue per
Year Occupied Total of Total Occupied
Built/ Rentable as of Rental Rental Square Feet Major Tenants
Property Location Renovated Square Feet 12/31/99(1) Revenue(2) Revenue (3) (4) (10% or more Rentable Sq. Ft.)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GREATER HARRISBURG:
HARRISBURG, PA
2605 Interstate Drive 1990 84,268 100.00% $1,200,468 1.30% $14.25 Commonwealth of Pennsylvania (56%)
Health Central (32%)
6345 Flank Drive 1989 69,443 100.00% 905,718 0.99% 13.04 Allstate Insurance (30%)
First Health Services (24%)
LWN Enterprises (15%)
Coventry Health Care (13%)
6340 Flank Drive 1988 68,200 100.00% 690,578 0.74% 10.13 Lancaster Lebanon (73%)
Merkert Enterprises (27%)
2601 Market Place 1989 67,753 100.00% 1,190,262 1.28% 17.57 Penn State Geisinger Systems (36%)
Ernst & Young LLP (26%)
Texas Eastern Pipeline
Company (26%)
5035 Ritter Road 1988 56,556 100.00% 710,352 0.77% 12.56 Commonwealth of Pennsylvania (82%)
6400 Flank Drive 1992 52,439 100.00% 743,503 0.80% 14.18 PA Coalition Against Violence (51%)
REM Organization (27%)
Mellon Bank (16%)
6360 Flank Drive 1988 46,500 100.00% 634,091 0.68% 13.64 Ikon Office Solutions (20%)
Health Spectrum Medical (15%)
Sentage / Muth & Mumma (15%)
Computer Applications (15%)
First Industrial Realty Trust (12%)
6385 Flank Drive 1995 32,800 100.00% 421,094 0.45% 12.84 Cowles Enthusiast Media (34%)
Orion Capital Companies (26%)
Pitney Bowes (21%)
Orion Consulting (11%)
5070 Ritter Road -
Building A 1989 32,000 100.00% 466,700 0.50% 14.58 Maryland Casualty Company (100%)
6405 Flank Drive 1991 32,000 100.00% 433,156 0.47% 13.54 Cowles Enthusiast Media (100%)
6380 Flank Drive 1991 32,000 87.50% 388,691 0.42% 13.88 McCormick, Taylor &
Associates (21%)
Myers & Stauffer (17%)
Critical Care System (13%)
SV Research (12%)
5070 Ritter Road - Coram (10%)
Building B 1989 28,000 81.09% 258,284 0.28% 11.38 Vale National Training Center (63%)
Pennsylvania Trauma System
Foundation (18%)
95 Shannon Road 1999 21,976 100.00% 282,071 0.30% 12.84 New World Pasta (100%)
75 Shannon Road 1999 20,887 81.45% 222,609 0.24% 13.09 McCormick, Taylor & Associates (81%)
85 Shannon Road 1999 12,863 100.00% 165,102 0.18% 12.84 New World Pasta (100%)
--------- --------- ----------- ------- -------
Total Greater
Harrisburg 657,685 98.00% $8,712,679 9.40% $13.52
--------- --------- ----------- ------- -------
Northern/Central New Jersey:
SOUTH BRUNSICK, NJ
431 Ridge Road 1958/1998 170,000 100.00% $3,369,678 3.64% $19.82 IBM with 84% sublease to AT&T Local
429 Ridge Road 1966/1996 142,385 100.00% 2,762,313 2.98% 19.40 AT&T Local Services (100%)
437 Ridge Road 1962/1996 30,000 100.00% 559,344 0.60% 18.64 IBM with 100% sublease to AT&T Local
(100%)
CRANBURY, NJ
19 Commerce 1989 65,277 100.00% 1,304,572 1.41% 19.99 The Associated Press (100%)
104 Interchange Plaza 1990 47,142 100.00% 1,046,886 1.13% 22.21 Turner Construction Company (24%)
Utica Mutual Insurance
Company (15%)
Laborer's International Union (13%)
Lanier Worldwide (12%)
Somerset Real Estate
Management (10%)
101 Interchange Plaza 1985 44,185 87.47% 874,400 0.94% 22.63 Ford Motor Credit Company (21%)
Arquest (16%)
Middlesex County Improvement Authority
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Total Rental
Percentage Percentage Revenue per
Year Occupied Total of Total Occupied
Built/ Rentable as of Rental Rental Square Feet Major Tenants
Property Location Renovated Square Feet 12/31/99(1) Revenue(2) Revenue (3) (4) (10% or more Rentable Sq. Ft.)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(13%)
Trans Union Corporation (11%)
47 Commerce 1992/1998 41,398 100.00% 483,603 0.52% 11.68 Somfy Systems (100%)
3 Centre Drive 1987 20,436 100.00% 372,219 0.40% 18.21 Matrix Development Group (100%)
7 Centre Drive 1989 19,466 100.00% 401,020 0.43% 20.60 Paradise Software (22%)
System Freight (17%)
Compugen (12%)
8 Centre Drive 1986 16,199 100.00% 348,249 0.38% 21.50 AON Risk Services (100%)
2 Centre Drive 1989 16,132 100.00% 418,438 0.45% 25.94 Summit Bancorp (100%)
FAIRFIELD, NJ
695 Route 46 1990 158,348 83.59% 2,528,021 2.73% 19.10 Pearson (22%)
United Healthcare Services (15%)
The Museum Company (12%)
Dean Witter Reynolds (12%)
710 Route 46 1985 101,791 94.28% 1,745,021 1.88% 18.18 Midsco (19%)
Radian International, LLC (12%)
Continental Casualty (12%)
Lincoln Financial Group (11%)
MONMOUTH, NJ
4301 Route 1 1986 61,300 100.00% 1,176,212 1.27% 19.19 Guest Supply (38%)
---------- --------- ----------- ------- -------
eCOM Server (16%)
Ikon Office Solutions (16%)
Total Northern/Central New
Jersey 934,059 96.00% $17,389,976 18.76% $19.39
---------- --------- ----------- ------- -------
TOTAL OFFICE PROPERTIES 5,884,734 97.49% $91,636,265 98.83% $15.97
---------- --------- ----------- ------- -------
</TABLE>
(1) This percentage is based upon all occupied space as of December 31,
1999.
(2) Total rental revenue is the monthly contractual base rent as of December
31, 1999 multiplied by 12 plus the estimated annualized expense
reimbursements under existing leases.
(3) This percentage represents the individual property's rental revenue to
our total rental revenue as of December 31, 1999.
(4) This total rent per occupied square foot is the property's total rental
revenue divided by that property's occupied square feet as of December
31, 1999.
The following table provides certain information about our retail properties as
of December 31, 1999:
<TABLE>
<CAPTION>
Total Rental
Year Rentable Percentage Percentage of Revenue per
Built/ Square Occupied as Total Rental Total Rental Occupied Major Tenants
Property Location Renovated Feet of 12/31/99(1) Revenue(2) Revenue (3) Square Feet (4) (10% or more Rentable Sq. Ft.)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EASTON, MD
322 Marlboro Street 1977/1997 145,203 95.69% $771,626 0.83% $5.55 Acme Markets (34%)
Peebles (24%)
MINOT, ND
2100 S. Broadway 1993 46,134 100.00% 312,211 0.34% 6.77 Nash-Finch Company (100%)
--------- ------- ----------- ------- -------
TOTAL RETAIL PROPERTIES 191,337 96.73% $1,083,837 1.17% $5.86
--------- ------- ----------- ------- -------
GRAND TOTAL 6,076,071 $92,720,102 100.00%
========= =========== =======
</TABLE>
(1) This percentage is based upon all leases signed and tenants occupying as
of December 31, 1999.
(2) Total rental revenue is the monthly contractual base rent as of December
31, 1999 multiplied by 12 plus the estimated annualized expense
reimbursements under existing leases.
(3) This percentage represents the individual property's rental revenue to
our total rental revenue as of December 31, 1999.
(4) This total rent per occupied square foot is the property's total rental
revenue divided by that property's occupied square feet as of December
31, 1999.
12
<PAGE>
The following table provides a summary schedule of the lease expirations
for leases in place as of December 31, 1999, assuming that none of the tenants
exercise renewal options (dollars in thousands, except per square foot amounts):
OFFICE AND RETAIL LEASE EXPIRATION ANALYSIS BY YEAR
<TABLE>
<CAPTION>
Percentage Total Rental
Square (1) of Total Revenue of
Number Footage Percentage of Total Rental Rental Expiring Leases
Year of of Leases of Leases Total Occupied Revenue of Revenue per Occupied
Expiration (2) Expiring Expiring Square Feet Expiring Leases Expiring Square Foot
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
2000 106 772,476 13.0% $13,576 14.64% $17.57
2001 70 589,401 10.0% 8,687 9.37% 14.74
2002 76 888,996 15.0% 14,292 15.41% 16.08
2003 69 763,862 12.9% 13,490 14.55% 17.66
2004 53 577,316 9.7% 10,374 11.19% 17.97
2005 10 154,483 2.6% 2,640 2.85% 17.09
2006 6 199,118 3.4% 3,122 3.37% 15.68
2007 6 171,499 2.9% 2,516 2.71% 14.67
2008 11 569,186 9.6% 10,633 11.47% 18.68
2009 11 1,189,625 20.1% 13,078 14.10% 10.99
2010 0 -- 0.0% -- 0.00% 0.00
2011 0 -- 0.0% -- 0.00% 0.00
2012 0 -- 0.0% -- 0.00% 0.00
2013 0 -- 0.0% -- 0.00% 0.00
2014 1 46,134 0.8% 312 0.34% 6.77
------- --------- -------- -------- --------
Total/Weighted Avg. 419 5,922,096 100.0% $92,720 100.00% $16.14
======= ========= ======== ======== ========
</TABLE>
(1) Total rental revenue is the monthly contractual base rent as of December 31,
1999 multiplied by 12 plus the estimated annualized expense reimbursements
under existing leases.
(2) Many of our government leases are subject to certain early termination
provisions which are customary to government leases. The year of lease
expiration was computed assuming no exercise of such early terminations.
ITEM 3. LEGAL PROCEEDINGS
We are not currently involved in any material litigation nor, to our
knowledge, is any material litigation currently threatened against the Company
(other than routine litigation arising in the ordinary course of business,
substantially all of which is expected to be covered by liability insurance).
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of our security holders during the
fourth quarter of 1999.
13
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Information for this item is incorporated herein by reference to the
section of Exhibit 13.1 entitled "Market for Registrant's Common Equity and
Related Shareholder Matters".
On December 21, 1999, we issued 974,662 Series C Preferred Units in our
Operating Partnership in connection with a property acquisition. The issuance of
these units is exempt from registration under Section 4 (2) of the Securities
Act of 1933, as amended. These units are convertible, subject to certain
restrictions, commencing December 21, 2000 into Common Units in the Operating
Partnership on the basis of 2.381 Common Units for each Series C Preferred Unit,
plus any accrued return. The Common Units would then be exchangeable for Common
Shares, subject to certain conditions.
ITEM 6. SELECTED FINANCIAL DATA
Information for this item is incorporated herein by reference to the
section of Exhibit 13.1 to this Form 10-K entitled "Selected Financial Data".
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Information for this item is incorporated herein by reference to the
section of Exhibit 13.1 to this Form 10-K entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information for this section is incorporated herein by reference to the
section of Exhibit 13.1 to this Form 10-K entitled "Quantitative and Qualitative
Disclosures about Market Risk".
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information for this section is incorporated herein by reference to the
Section of Exhibit 13.1 to this Form 10-K beginning on Page 13.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10, 11, 12 & 13. TRUSTEES AND EXECUTIVE OFFICERS OF THE REGISTRANT,
EXECUTIVE COMPENSATION, SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For the information required by Item 10, Item 11, Item 12 and Item 13, you
should refer to our definitive proxy statement relating to the 2000 Annual
Meeting of our Shareholders to be filed with the Securities and Exchange
Commission no later than 120 days after the end of the fiscal year covered by
this Form 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as exhibits to this Form 10-K:
14
<PAGE>
1. FINANCIAL STATEMENTS. Audited consolidated balance sheets as of
December 31, 1999 and 1998, and the related consolidated statements of
operations, of shareholders' equity, and of cash flows for each of the
three years in the period ended December 31, 1999 are included in
Exhibit 13.1 to this Form 10-K and are incorporated by reference.
2. FINANCIAL STATEMENT SCHEDULE. Audited Schedule III - Real Estate and
Accumulated Depreciation is included in Exhibit 13.2 to this Form 10-K
and is incorporated by reference.
(b) We filed no Current Reports on Form 8-K in the last quarter of the year
ended December 31, 1999.
(c) EXHIBITS. Refer to the Exhibit Index that follows.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------------- ----------------------------------------------------------
<S> <C> <C>
2.1 Agreement and Plan of Merger, dated January 31, 1998,
among the Registrant, the Maryland Company and the Company
(filed with the Trust's Registration Statement on Form S-4
(Commission File No. 333-45649) and incorporated herein by
reference).
2.2 Assignment of Partnership Interests, dated April 30, 1998,
between Airport Square Limited Partnership, Airport Square
Corporation, Camp Meade Corporation and COPT Airport
Square One LLC and COPT Airport Square Two LLC. (filed
with the Company's Current Report on Form 8-K on May 14,
1998 and incorporated herein by reference).
2.3 Assignment of Purchase and Sale Agreement, dated April 30,
1998, between Aetna Life Insurance Company and the
Operating Partnership. (filed with the Company's Current
Report on Form 8-K on May 14, 1998 and incorporated herein
by reference).
2.4 Assignment of Loan Purchase and Sale Agreement, dated
April 30, 1998, between Constellation Real Estate, Inc.
and the Operating Partnership. (filed with the Company's
Current Report on Form 8-K on May 14, 1998 and
incorporated herein by reference).
2.5 Purchase and Sale Agreement, dated April 1, 1998, between
Aetna Life Insurance Company and Airport Square Limited
Partnership (filed with the Company's Current Report on
Form 8-K on May 14, 1998 and incorporated herein by
reference).
2.6.1 Loan Purchase and Sale Agreement, dated March 13, 1998,
between Aetna Life Insurance Company and Constellation
Real Estate, Inc. (filed with the Company's Current Report
on Form 8-K on May 14, 1998 and incorporated herein by
reference).
2.6.2 Amendment to Loan Purchase and Sale Agreement, dated April
16, 1998, between Aetna Life Insurance Company and
Constellation Real Estate, Inc. (filed with the Company's
Current Report on Form 8-K on May 14, 1998 and
incorporated herein by reference).
2.7.1 Purchase and Sale Agreement, dated March 4, 1998, between
695 Rt. 46 Realty, LLC, 710 Rt. 46 Realty, LLC and COPT
Acquisitions, Inc. (filed with the Company's Current
Report on Form 8-K on June 10, 1998 and incorporated
herein by reference).
2.7.2 Letter Amendment to Purchase and Sale Agreement, dated
March 26, 1998, between 695 Rt. 46 Realty, LLC, 710 Rt. 46
Realty, LLC and COPT Acquisitions, Inc. (filed with the
Company's Current Report on Form 8-K on June 10, 1998 and
incorporated herein by reference).
2.8.1 Contribution Agreement between the Company and the
Operating Partnership and certain Constellation affiliates
(filed as Exhibit A of the Company's Schedule 14A
Information on
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------------- ----------------------------------------------------------
<S> <C> <C>
June 26, 1998 and incorporated herein by reference).
2.8.2 First Amendment to Contribution Agreement, dated July 16,
1998, between Constellation Properties, Inc. and certain
entities controlled by Constellation Properties, Inc.
(filed with the Company's Current Report on Form 8-K on
October 13, 1998 and incorporated herein by reference).
2.8.3 Second Amendment to Contribution Agreement, dated
September 28, 1998, between Constellation Properties, Inc.
and certain entities controlled by Constellation
Properties, Inc. (filed with the Company's Current Report
on Form 8-K on October 13, 1998 and incorporated herein by
reference).
2.9 Service Company Asset Contribution Agreement between the
Company and the Operating Partnership and certain
Constellation affiliates (filed as Exhibit B of the
Company's Schedule 14A Information on June 26, 1998 and
incorporated herein by reference).
2.10.1 Option Agreement, dated May 14, 1998, between the
Operating Partnership and NBP-III, LLC (a Constellation
affiliate) (filed as Exhibit C of the Company's Schedule
14A Information on June 26, 1998 and incorporated herein
by reference).
2.10.2 First Amendment to Option Agreement, dated June 22, 1998,
between the Operating Partnership and NBP-III, LLC (a
Constellation affiliate) (filed as Exhibit E of the
Company's Schedule 14A Information on June 26, 1998 and
incorporated herein by reference).
2.11.1 Option Agreement, dated May 14, 1998, between the
Operating Partnership and Constellation Gatespring II, LLC
(a Constellation affiliate) (filed as Exhibit D of the
Company's Schedule 14A Information on June 26, 1998 and
incorporated herein by reference).
2.11.2 First Amendment to Option Agreement, dated June 22, 1998,
between the Operating Partnership and Constellation
Gatespring II, LLC (a Constellation affiliate) (filed as
Exhibit F of the Company's Schedule 14A Information on
June 26, 1998 and incorporated herein by reference).
2.12 Option Agreement, dated September 28, 1998, between Jolly
Acres Limited Partnership, Arbitrage Land Limited
Partnership and the Operating Partnership (filed with the
Company's Current Report on Form 8-K on October 13, 1998
and incorporated herein by reference).
2.13 Right of First Refusal Agreement, dated September 28,
1998, between Constellation Properties, Inc. and the
Operating Partnership (filed with the Company's Current
Report on Form 8-K on October 13, 1998 and incorporated
herein by reference).
2.14 Right of First Refusal Agreement, dated September 28,
1998, between 257 Oxon, LLC and the Operating Partnership
(filed with the Company's Current Report on Form 8-K on
October 13, 1998 and incorporated herein by reference).
2.15 Contribution Agreement, dated September 30, 1998, between
COPT Acquisitions, Inc. and M.O.R. XXIX Associates Limited
Partnership (filed with the Company's Current Report on
Form 8-K on October 28, 1998 and incorporated herein by
reference).
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------------- ----------------------------------------------------------
<S> <C> <C>
2.16 Purchase and Sale Agreement, dated September 30, 1998,
between New England Life Pension Properties II: A Real
Estate Limited Partnership and COPT Acquisitions, Inc.
(filed with the Company's Current Report on Form 8-K on
October 28, 1998 and incorporated herein by reference).
2.17.1 Sale-Purchase Agreement, dated August 20, 1998 between
South Middlesex Industrial Park Associates, L.P. and SM
Monroe Associates and COPT Acquisitions, Inc. (filed with
the Company's Current Report on Form 8-K on October 28,
1998 and incorporated herein by reference).
2.17.2 First Amendment to Sale-Purchase Agreement, dated October
30, 1998, between South Middlesex Industrial Park
Associates, L.P. and SM Monroe Associates, L.P. and COPT
Acquisitions, Inc. (filed with the Company's Current
Report on Form 8-K on November 16, 1998 and incorporated
herein by reference).
2.18 Contribution Agreement, dated December 31, 1998, between
the Operating Partnership and M.O.R. 44 Gateway Associates
L.P., RA & DM, Inc. and M.R.U. L.P. (filed with the
Company's Current Report on Form 8-K on January 14, 1999
and incorporated herein by reference).
2.19.1 Purchase and Sale Agreement, dated December 31, 1998,
between Metropolitan Life Insurance Company and Corporate
Office Acquisitions, Inc. (filed with the Company's
Current Report on Form 8-K on January 14, 1999 and
incorporated herein by reference).
2.19.2 Amendment to Purchase and Sale Agreement, dated December
31, 1998, between Metropolitan Life Insurance Company,
DPA/Gateway L.P., Corporate Office Acquisitions, Inc.,
COPT Gateway, LLC and the Operating Partnership (filed
with the Company's Current Report on Form 8-K on January
14, 1999 and incorporated herein by reference).
2.20 Contribution Agreement, dated February 24, 1999, between
the Operating Partnership and John Parsinen, John D.
Parsinen, Jr., Enterprise Nautical, Inc. and Vernon Beck
(filed with the Company's Quarterly Report on Form 10-Q on
May 14, 1999 and incorporated herein by reference).
2.21 Agreement to Sell Partnership Interests, dated August 12,
1999, between Gateway Shannon Development Corporation,
Clay W. Hamlin, III and COPT Acquisitions, Inc. (filed
with the Company's Quarterly Report on Form 10-Q on
November 8, 1999 and incorporated herein by reference).
2.22 Agreement of Purchase and Sale, dated July 21, 1999,
between First Industrial Financing Partnership, L.P. and
COPT Acquisitions, Inc. (filed with the Company's
Quarterly Report on Form 10-Q on November 8, 1999 and
incorporated herein by reference).
2.23 Contribution Agreement, dated December 21, 1999, between
United Properties Group, Incorporated and COPT
Acquisitions, Inc.
3.1 Amended and Restated Declaration of Trust of Registrant
(filed with the Registrant's Registration Statement on
Form S-4 (Commission File No. 333-45649) and incorporated
herein by reference).
3.2 Bylaws of Registrant (filed with the Registrant's
Registration Statement on Form S-4
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------------- ----------------------------------------------------------
<S> <C> <C>
(Commission File No. 333-45649) and incorporated herein by
reference).
4.1 Form of certificate for the Registrant's Common Shares of
Beneficial Interest, $0.01 par value per share (filed with
the Registrant's Registration Statement on Form S-4
(Commission File No. 333-45649) and incorporated herein by
reference).
4.2 Amended and Restated Registration Rights Agreement, dated
March 16, 1998, for the benefit of certain shareholders of
the Company (filed with the Company's Quarterly Report on
Form 10-Q on August 12, 1998 and incorporated herein by
reference).
4.3 Articles Supplementary of Corporate Office Properties
Trust Series A Convertible Preferred Shares, dated
September 28, 1998 (filed with the Company's Current
Report on Form 8-K on October 13, 1998 and incorporated
herein by reference).
4.4.1 Second Amended and Restated Limited Partnership Agreement
of the Operating Partnership, dated December 7, 1999.
4.4.2 First Amendment to Second Amended and Restated Limited
Partnership Agreement of the Operating Partnership, dated
December 21, 1999.
4.5 Articles Supplementary of Corporate Office Properties
Trust Series B Convertible Preferred Shares, dated July 2,
1999 (filed with the Company's Current Report on Form 8-K
on July 7, 1999 and incorporated herein by reference).
10.1 Employment Agreement, dated December 16, 1999, between
Corporate Office Management, Inc., COPT and Clay W.
Hamlin, III.
10.2 Employment Agreement, dated December 16, 1999, between
Corporate Office Management, Inc., COPT and Randall M.
Griffin.
10.3 Employment Agreement, dated December 16, 1999, between
Corporate Office Management, Inc., COPT and Roger A.
Waesche, Jr.
10.4 Employment Agreement, dated December 16, 1999, between
Corporate Development Services, LLC, COPT and Dwight
Taylor.
10.5 Employment Agreement, dated December 16, 1999, between
Corporate Realty Management, LLC, COPT and Michael D.
Kaiser.
10.6 Restricted Share Agreement, dated December 16, 1999,
between Corporate Office Properties Trust and Randall M.
Griffin.
10.7 Restricted Share Agreement, dated December 16, 1999,
between Corporate Office Properties Trust and Roger A.
Waesche, Jr.
10.8 Restricted Share Agreement, dated December 16, 1999,
between Corporate Office Properties Trust and Dwight
Taylor.
10.9 Restricted Share Agreement, dated December 16, 1999,
between Corporate Office Properties Trust and Michael D.
Kaiser.
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------------- ----------------------------------------------------------
<S> <C> <C>
10.10 Management agreement between Registrant and Glacier
Realty, LLC (filed with the Company's Current Report on
Form 8-K on October 29, 1997, and incorporated herein by
reference).
10.11 Senior Secured Credit Agreement, dated October 13, 1997,
(filed with the Company's Current Report on Form 8-K on
October 29, 1997, and incorporated herein by reference).
10.12.1 Corporate Office Properties Trust 1998 Long Term Incentive
Plan (filed with the Registrant's Registration Statement
on Form S-4 (Commission File No. 333-45649) and
incorporated herein by reference).
10.12.2 Amendment No. 1 to Corporate Office Properties Trust 1998
Long Term Incentive Plan (filed with the Company's
Quarterly Report on Form 10-Q on August 13, 1999 and
incorporated herein by reference).
10.13 Stock Option Plan for Directors (filed with Royale
Investments, Inc.'s Form 10-KSB for the year ended
December 31, 1993 (Commission File No. 0-20047) and
incorporated herein
10.14 Lease Agreement between Blue Bell Investment Company, L.P.
and Unisys Corporation dated March 12, 1997 with respect
to lot A (filed with the Registrant's Registration
Statement on Form S-4 (Commission File No. 333-45649) and
incorporated herein by reference).
10.15 Lease Agreement between Blue Bell Investment Company, L.P.
and Unisys Corporation, dated March 12, 1997, with respect
to lot B (filed with the Registrant's Registration
Statement on Form S-4 (Commission File No. 333-45649) and
incorporated herein by reference).
10.16 Lease Agreement between Blue Bell Investment Company, L.P.
and Unisys Corporation, dated March 12, 1997, with respect
to lot C (filed with the Registrant's Registration
Statement on Form S-4 (Commission File No. 333-45649) and
incorporated herein by reference).
10.17 Senior Secured Revolving Credit Agreement, dated May 28,
1998, between the Company, the Operating Partnership, Any
Mortgaged Property Subsidiary and Bankers Trust Company
(filed with the Company's Current Report on Form 8-K on
June 10, 1998 and incorporated herein by reference).
10.18 Consulting Services Agreement, dated April 28, 1998,
between the Company and Net Lease Finance Corp., doing
business as Corporate Office Services (filed with the
Company's Current Report on Form 8-K on October 13, 1998
and incorporated herein by reference).
10.19 Project Consulting and Management Agreement, dated
September 28, 1998, between Constellation Properties, Inc.
and COMI (filed with the Company's Current Report on Form
8-K on October 13, 1998 and incorporated herein by
reference).
10.20 Promissory Note, dated October 22, 1998, between Teachers
Insurance and Annuity Association of America and the
Operating Partnership (filed with the Company's Quarterly
Report on Form 10-Q on November 13, 1998 and incorporated
herein by reference).
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------------- ----------------------------------------------------------
<S> <C> <C>
10.21 Indemnity Deed of Trust, Assignment of Leases and Rents
and Security Agreement, dated October 22, 1998, by
affiliates of the Operating Partnership for the benefit of
Teachers Insurance and Annuity Association of America
(filed with the Company's Quarterly Report on Form 10-Q on
November 13, 1998 and incorporated herein by reference).
10.22 Agreement for Services, dated September 28, 1998, between
the Company and Corporate Office Management, Inc. (filed
with the Company's Quarterly Report on Form 10-Q on May
14, 1999 and incorporated herein by reference).
10.23.1 Lease Agreement, dated September 28,1998, between St.
Barnabas Limited Partnership and Constellation Properties,
Inc. (filed with the Company's Quarterly Report on Form
10-Q on May 14, 1999 and incorporated herein by
reference).
10.23.2 First Amendment to Lease, dated December 31, 1998, between
St. Barnabas, LLC and Constellation Properties, Inc.
(filed with the Company's Quarterly Report on Form 10-Q on
May 14, 1999 and incorporated herein by reference).
10.24.1 Lease Agreement, dated August 3, 1998, between
Constellation Real Estate, Inc. and Constellation
Properties, Inc. (filed with the Company's Quarterly
Report on Form 10-Q on May 14, 1999 and incorporated
herein by reference).
10.24.2 First Amendment to Lease, dated December 30, 1998, between
Three Centre Park, LLC and Constellation Properties, Inc.
(filed with the Company's Quarterly Report on Form 10-Q on
May 14, 1999 and incorporated herein by reference).
10.25.1 Lease Agreement, dated April 27, 1993, between
Constellation Properties, Inc. and Baltimore Gas and
Electric Company (filed with the Company's Quarterly
Report on Form 10-Q on May 14, 1999 and incorporated
herein by reference).
10.25.2 First Amendment to Lease, dated December 9, 1998, between
COPT Brandon, LLC and Baltimore Gas and Electric Company
(filed with the Company's Quarterly Report on Form 10-Q on
May 14, 1999 and incorporated herein by reference).
10.26 Underwriting Agreement, dated June 29, 1999, between
Corporate Office Properties Trust and the underwriters of
the Series B Preferred Shares (filed with the Company's
Current Report on Form 8-K on July 7, 1999 and
incorporated herein by reference).
10.27 Contribution Rights Agreement, dated June 23, 1999,
between the Operating Partnership and United Properties
Group, Incorporated (filed with the Company's Quarterly
Report on Form 10-Q on August 13, 1999 and incorporated
herein by reference).
10.28 Promissory Note, dated September 30, 1999, between
Teachers Insurance and Annuity Association of America and
the Operating Partnership (filed with the Company's
Quarterly Report on Form 10-Q on November 8, 1999 and
incorporated herein by reference).
10.29 Indemnity Deed of Trust, Assignment of Leases and Rents
and Security Agreement, dated September 30, 1999, by
affiliates of the Operating Partnership for the benefit of
Teachers Insurance and Annuity Association of America
(filed with the Company's Quarterly Report on Form 10-Q on
November 8, 1999 and incorporated herein by reference).
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------------- ----------------------------------------------------------
<S> <C> <C>
10.30 Revolving Credit Agreement, dated December 29, 1999,
between Corporate Office Properties, L.P. and Prudential
Securities Credit Corp.
10.31 Option agreement, dated March 1998, between Corporate
Office Properties, L.P. and Blue Bell Land, L.P.
10.32 Option agreement, dated March 1998, between Corporate
Office Properties, L.P. and Comcourt Land, L.P.
13.1 Portions of the Annual Report of Corporate Office
Properties Trust as of and for the year ended December 31,
1999.
13.2 Schedule III - Real Estate and Accumulated Depreciation as
of December 31, 1999.
21.1 Subsidiaries of Registrant.
23.1 Consent of Independent Accountants.
27 Financial Data Schedule.
</TABLE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
CORPORATE OFFICE PROPERTIES TRUST
Date: March 16, 2000 By: /s/ Randall M. Griffin
------------------------------------------
Randall M. Griffin
President and Chief Operating Officer
Date: March 16, 2000 By: /s/ Roger A. Waesche, Jr.
------------------------------------------
Roger A. Waesche, Jr.
Senior Vice President and
Chief Financial Officer
21
<PAGE>
Pursuant to the requirements of the Securities Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C> <C>
/s/ Jay H. Shidler Chairman of the Board March 16, 2000
-------------------------------
(Jay H. Shidler) and Trustee
/s/ Clay W. Hamlin, III Chief Executive Officer and March 16, 2000
-------------------------------
(Clay W. Hamlin, III) Trustee
/s/ Randall M. Griffin President and Chief Operating March 16, 2000
-------------------------------
(Randall M. Griffin) Officer
/s/ Roger A. Waesche, Jr. Senior Vice President and Chief March 16, 2000
-------------------------------
(Roger A. Waesche) Financial Officer
/s/ Betsy Z. Cohen Trustee March 16, 2000
-------------------------------
(Betzy Z. Cohen)
/s/ Kenneth D. Wethe Trustee March 16, 2000
-------------------------------
(Kenneth D. Wethe)
/s/ Robert L. Denton Trustee March 16, 2000
-------------------------------
(Robert L. Denton)
/s/ William H. Walton Trustee March 16, 2000
-------------------------------
(William H. Walton)
/s/ Kenneth S. Sweet, Jr. Trustee March 16, 2000
-------------------------------
(Kenneth S. Sweet, Jr.)
/s/ Steven D. Kesler Trustee March 16, 2000
-------------------------------
(Steven D. Kesler)
/s/ Edward A. Crooke Trustee March 16, 2000
-------------------------------
(Edward A. Crooke)
</TABLE>
22
<PAGE>
Exhibit 2.23
CONTRIBUTION AGREEMENT
Between
COPT ACQUISITIONS, INC.
And
UNITED PROPERTIES GROUP, INCORPORATED
Dated as of December 3, 1999
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN
EXAMINATION OF THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE
MERITS AND RISKS INVOLVED. THE SECURITIES REFERENCED HEREIN HAVE NOT
BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR
REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT
CONFIRMED THE ACCURACY OR ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND
RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND THE APPLICABLE STATE
SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE
FINANCIAL RISK OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
1. DEFINITIONS..............................................................................................2
2. CONTRIBUTION.............................................................................................7
3. CONTRIBUTION CONSIDERATION...............................................................................8
4. LP UNITS; INVESTOR MATERIALS.............................................................................9
5. PARTNERSHIP LIABILITIES AND SALES OF REAL PROPERTY......................................................12
6. CLOSING.................................................................................................16
7. CONTRIBUTOR'S DELIVERIES................................................................................16
8. PROJECT INSPECTION......................................................................................16
9. TITLE AND SURVEY MATTERS................................................................................19
10. REPRESENTATIONS AND WARRANTIES AS TO THE CONTRIBUTED INTERESTS AND THE REAL PROPERTY....................20
11. REPRESENTATIONS AS TO SECURITIES AND RELATED MATTERS....................................................23
12. COVENANTS OF CONTRIBUTOR................................................................................25
13. INTENTIONALLY OMITTED...................................................................................28
14. ADDITIONAL CONDITIONS PRECEDENT TO CLOSING..............................................................28
15. INTENTIONALLY OMITTED...................................................................................30
16. CLOSING DELIVERIES......................................................................................30
17. PRORATIONS AND ADJUSTMENTS..............................................................................33
18. CLOSING EXPENSES........................................................................................34
19. DESTRUCTION, LOSS OR DIMINUTION OF REAL PROPERTY........................................................34
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
20. DEFAULT; INDEMNITY......................................................................................35
21. SUCCESSORS AND ASSIGNS..................................................................................38
22. LITIGATION..............................................................................................38
23. NOTICES.................................................................................................39
24. BENEFIT.................................................................................................40
25. LIMITATION OF LIABILITY.................................................................................40
26. BROKERAGE...............................................................................................40
27. REASONABLE EFFORTS......................................................................................41
28. MISCELLANEOUS...........................................................................................41
</TABLE>
<TABLE>
<CAPTION>
LIST OF EXHIBITS LIST OF SCHEDULES
- ---------------- -----------------
<S> <C>
A Listing and Legal Description of the Projects 4.1.2 LP Units Schedule
B Personal Property. 5.2 Project Contacts
C Investor Materials 10.5 Condemnations
D Contributor's Deliveries 10.6 Existing Violations
E SEC Reporting Requirements 10.7 Existing Litigation
F Audit Representation Letter 10.9 Existing Tenant Default
Notices
G Warrant Agreement. 10.10 Contracts
H Amendment to Partnership Agreement 10.12 Existing Environmental
Matters
10.13 Assumed Indebtedness
11.1.4 Ownership Interests
12.4 Disclosed Unperformed
Work
</TABLE>
II
THIS CONTRIBUTION AGREEMENT (this "AGREEMENT") is made and entered into
as of the 3rd day of December, 1999 (the "CONTRACT DATE"), by and among UNITED
PROPERTIES GROUP, INCORPORATED, a New York corporation ("CONTRIBUTOR"), the
other
<PAGE>
parties, if any, identified on the signature page hereto (collectively, together
with Contributor, the "LP UNIT RECIPIENTS") and COPT ACQUISITIONS, INC., a
Delaware corporation ("ACQUIROR").
BACKGROUND
A. Contributor is the owner of (i) one hundred percent (100%) of the
limited liability company member interests in 9690 Deereco Road LLC, a Maryland
limited liability company ("DEERECO"), (ii) one hundred percent (100%) of the
limited liability company member interests of Atrium Building LLC, a Maryland
limited liability company ("ATRIUM"), and (iii) one hundred percent (100%) of
the limited liability company member interests in Brown's Wharf, LLC, a Maryland
limited liability company ("BROWN'S WHARF"). Deereco, Atrium and Brown's Wharf
shall be referred to, from time to time, individually as an "Owner" and
collectively as the "OWNERS". Each Owner is the record and beneficial owner of
its respective Project (as defined below) identified on EXHIBIT A.
B. Each Project includes that certain building (the "BUILDING"),
containing the number of rentable square feet identified on EXHIBIT A, and is
located at and known as the address set forth on EXHIBIT A. Each Building is
leased by its Owner to tenants ("TENANTS") for office purposes. In this
Agreement, the term "PROJECT" shall mean: (i) each parcel of land described on
EXHIBIT A attached hereto (the "LAND"), together with all rights, easements and
interests appurtenant thereto, including any streets or other public ways
adjacent to the Land and any water or mineral rights owned by, or leased to,
Contributor or Owner; (ii) all improvements located on the Land, including the
Building, and all other structures, systems, and utilities associated with, and
utilized by, Contributor or Owner in the ownership and operation of the Building
(all such improvements being collectively referred to herein as the
"IMPROVEMENTS"), but excluding improvements, if any, owned by Tenants; (iii) all
personal property of every nature and description owned by Contributor or Owner
(excluding Inventory (as defined below)) and either (A) located on or in the
Land or Improvements, or (B) used in connection with the operation and
maintenance of the Project (collectively, the "PERSONAL PROPERTY"), including
all (if any) personal property listed on EXHIBIT B attached hereto; (iv) all
building materials, supplies, hardware, carpeting and other inventory owned by
Contributor or Owner and maintained in connection with Contributor's or Owner's
ownership and operation of the Land and/or Improvements (collectively, the
"INVENTORY"); (v) all intangible property owned by Contributor or Owner used or
useful in connection with the foregoing including all trademarks, tradenames,
development rights, entitlements, contract rights, tenant improvement loans,
guarantees, licenses, permits and warranties (collectively, the "INTANGIBLE
PERSONAL PROPERTY"); and (vi) Contributor's or Owner's interest in all leases
(including all amendments and guarantees related thereto) and other agreements
to occupy all or any portion of the Land and/or Improvements in effect on the
Contract Date or into which such Contributor or Owner enters
3
<PAGE>
after the Contract Date but prior to the Closing (as defined below) pursuant to
the express terms of this Agreement (collectively, the "LEASES").
C. Contributor and Acquiror desire to enter into this Agreement
relating to the contribution and conveyance of all of the limited liability
company member interests in Deereco, Atrium and Brown's Wharf (collectively, the
"CONTRIBUTED INTERESTS") in exchange for LP Units (as defined below) and, if
Acquiror so elects, the assumption of the Assumed Indebtedness (as defined
below).
AGREEMENT
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements contained in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
intending to be legally bound, the parties agree as follows:
10 DEFINITIONS.
All terms which are not otherwise defined in this Agreement
shall have the meaning set forth in this Section 1.
1.1. "ACCREDITED INVESTOR" shall have the meaning set
forth in Regulation D promulgated under the Securities Act of 1933, as amended.
1.2. "ACQUIROR" shall have the meaning set forth in the
opening paragraph of this Agreement.
1.3. "ACQUIROR INDEMNIFIED PARTY" shall have the meaning
set forth 20.3.1.
1.4. "ADVERSE TAX CONSEQUENCE" shall have the meaning set
forth in Section 5.3.2.
1.5. "AFFILIATE(S)" shall have the meaning set forth in
Section 21.
1.6. "AMENDMENT"shall have the meaning set forth in
Section 4.1.1.
1.7. "ASSET VALUE"shall have the meaning set forth in
Section 3.1.
1.8. "ASSIGNED CONTRACTS" shall have the meaning set forth
in Section 16.1.4.
4
<PAGE>
1.9. "ASSUMED INDEBTEDNESS" shall mean all of the
indebtedness of the Owners as of the Closing Date with respect to the Projects,
the outstanding principal balance of which (and other pertinent information) is
described on SCHEDULE 10.13 attached hereto, such indebtedness being the only
indebtedness that may, at Acquiror's election, be assumed by Acquiror in
connection with the transaction contemplated hereby. The Assumed Indebtedness is
evidenced and secured by the Existing Loan Documents.
1.10. "ATRIUM" shall have the meaning set forth in the
recitals to this Agreement.
1.11. "BROWN'S WHARF" shall have the meaning set forth in
the recitals to this Agreement.
1.12. "BUILDING" shall have the meaning set forth in the
recitals to this Agreement.
1.13. "CASH COMPONENT"shall have the meaning set forth in
Section 3.1.3.
1.14. "CLOSING" or "CLOSING DATE" shall have the meaning
set forth in Section 6 below.
1.15. "CLOSING STATEMENT" shall have the meaning set forth
in Section 16.1.12.
1.16. "CODE" shall have the meaning set forth in Section
5.3.1.
1.17. "COMMON UNITS" shall mean common units in the UPREIT.
1.18. "CONTRACT DATE" shall have the meaning set forth in
the opening paragraph to this Agreement.
1.19. "CONTRIBUTED INTERESTS" shall have the meaning set
forth in the recitals to this Agreement.
1.20. "CONTRIBUTION CONSIDERATION" shall have the meaning
set forth in Section 3.1.
1.21. "CONTRIBUTOR" shall have the meaning set forth in the
opening paragraph to this Agreement.
1.22. "CONTRIBUTOR'S DELIVERIES" shall have the meaning set
forth in Section 7.
5
<PAGE>
1.23. "CONVERSION SHARES" shall have the meaning set forth
in Section 4.1.4.
1.24. "DAMAGE" shall have the meaning set forth in Section
19.
1.25. "DEERECO" shall have the meaning set forth in the
recitals to this Agreement.
1.26. "EMINENT DOMAIN" shall have the meaning set forth in
Section 19.
1.27. "EXCHANGE" shall have the meaning set forth in
Section 5.4.
1.28. "EXISTING LOAN DOCUMENTS" shall mean the documents
evidencing or securing the Assumed Indebtedness, as described on SCHEDULE 10.13.
1.29. "GOVERNMENTAL AUTHORITY/AUTHORITIES" shall mean any
agency, commission, department or body of any municipal, township, county,
local, state or federal governmental or quasi-governmental regulatory unit,
entity or authority having jurisdiction or authority over all or any portion of
any Project or the management, operation, use or improvement thereof.
1.30. "HAZARDOUS SUBSTANCE" shall have the meaning set
forth in Section 10.12 below.
1.31. "IMPROVEMENTS" shall have the meaning set forth in
the recitals to this Agreement.
1.32. "INFORMATIONAL MATERIALS" shall have the meaning set
forth in Section 11.1.4 below.
1.33. "INTEREST HOLDER(S)" shall mean any direct
shareholders of Contributor.
1.34. "INTANGIBLE PERSONAL PROPERTY" shall have the meaning
set forth in the recitals to this Agreement.
1.35. "INVESTOR MATERIALS" shall have the meaning set forth
in Section 4.1.3.
1.36. "INVENTORY" shall have the meaning set forth in the
recitals to this Agreement.
1.37. "LAND" shall have the meaning set forth in the
recitals to this Agreement.
6
<PAGE>
1.38. "LEASES" shall have the meaning set forth in the
recitals to this Agreement.
1.39. "LENDER'S APPROVALS" shall have the meaning set forth
in Section 14.1.3.
1.40. "LOCK-UP PERIOD," as to the LP Units issued at the
Closing, shall mean the period equal to the longer of (a) one (1) year following
the Closing, and (b) the date on which a registration statement filed in respect
of such LP Units issued to the LP Unit Recipients pursuant to the Registration
Rights Agreement is declared effective. The foregoing notwithstanding, in no
event shall the Lock-Up Period extend more than two (2) years following Closing
hereunder.
1.41. "LOSSES" shall have the meaning set forth in Section
20.3.1.
1.42. "LP UNITS" shall mean the Common Units and the
Preferred Units collectively.
1.43. "LP UNIT AMOUNT" shall have the meaning set forth in
Section 3.1.1.
1.44. "LP UNIT RECIPIENTS" shall have the meaning set forth
in the opening paragraph to this Agreement.
1.45. "MAXIMUM AMOUNT" shall have the meaning set forth in
Section 5.1.2.
1.46. "NON-RECOGNITION CODE PROVISIONS" shall have the
meaning set forth in Section 5.1.1.
1.47. "NON-TAXABLE DISPOSITION PERIOD" shall mean the seven
(7) year period commencing on the Closing Date and ending on the seventh
anniversary of the Closing Date, as such period may be sooner terminated in
accordance with Section 5.
1.48. "OWNER(S)" shall have the meaning set forth in the
recitals to this Agreement.
1.49. "PARTNERSHIP AGREEMENT" shall mean the agreement of
limited partnership of the UPREIT, as amended from time to time prior to and
including the Contract Date.
1.50. "PERMITTED EXCEPTIONS" shall have the meaning set
forth in Section 9.1.
1.51. "PERSONAL PROPERTY" shall have the meaning set forth
in the recitals to this Agreement.
7
<PAGE>
1.52. "PREFERRED UNITS" shall mean convertible preferred
units in the UPREIT.
1.53. "PREFERRED UNIT PRICE" shall mean $25.00.
1.54. "PROHIBITED EXCEPTIONS" shall have the meaning set
forth in Section 9.1.
1.55. "PROJECT" shall have the meaning set forth in the
recitals to this Agreement.
1.56. "PROJECT CONTACTS" shall mean the individuals or
entitles designated on SCHEDULE 5.2.
1.57. "RECORDS" shall mean all books, records, tax returns,
correspondence, financial data, leases, and all other documents and matters,
public or private, maintained by Contributor, the Owners or their agents,
relating to receipts and expenditures pertaining to any Owner or any Project for
the three most recent full calendar years (or such shorter time period as
Contributor shall have owned the Contributed Interests) and the current calendar
year and all contracts, rental agreements and all other documents and matters,
public or private, maintained by Contributor, the Owners or their agents,
relating to operations of any Project.
1.58. "REGISTRATION RIGHTS AGREEMENT" shall mean the
Registration Rights Agreement dated March 16, 1998 (which is attached to the
Partnership Agreement as Exhibit 3), the benefits of which shall be conferred
upon the LP Unit Recipients at the Closing.
1.59. "REGULATORY VIOLATION NOTICE" shall have the meaning
set forth in Section 4.1.3.
1.60. "REIT" means Corporate Office Properties Trust, a
publicly traded Maryland real estate investment trust.
1.61. "SCHEDULES" shall have the meaning set forth in
Section 10.
1.62. "SEC" shall mean the Securities and Exchange
Commission.
1.63. "SECURITIES ACT" shall mean the Securities Act of
1933, as amended.
1.64. "SPOKESPERSON" shall have the meaning set forth in
Section 5.3.2.
1.65. "TAX RELATED EVENT" and "TAX RELATED NOTICE" shall
have the meanings set forth in Section 5.3.1.
8
<PAGE>
1.66. "TENANTS" shall have the meaning set forth in the
recitals to this Agreement.
1.67. "TITLE COMPANY" shall mean Chicago Title Insurance
Company.
1.68. "TITLE REPORT" shall have the meaning set forth in
Section 9.2.
1.69. "UPREIT" means Corporate Office Properties, L.P., a
Delaware limited partnership.
References to this "Agreement" shall mean this Agreement,
including all amendments, modifications and supplements hereto and any exhibits
or schedules to any of the foregoing, and shall refer to this Agreement as the
same may be in effect at the time such reference becomes operative. The words
"herein," "hereof" and "hereunder" and other words of similar import refer to
this Agreement as a whole, including the exhibits and schedules hereto, as the
same may from time to time be amended, modified, restated or supplemented, and
not to any particular article, section, subsection or clause contained in this
Agreement. The term "including" shall be interpreted to mean "including without
limitation." Wherever from the context it appears appropriate, each term stated
in either the singular or plural shall include the singular and the plural, and
pronouns stated in the masculine, feminine or neuter gender shall include the
masculine, the feminine and the neuter.
20 CONTRIBUTION.
2.1. ASSIGNMENT TO THE UPREIT. Immediately prior to the
Closing, Acquiror shall assign its entire right, title and interest in, to and
under this Agreement to the UPREIT, and the sole general partner of the UPREIT
shall be the REIT. Simultaneously with such assignment, the UPREIT shall assume
all of Acquiror's obligations and responsibilities under this Agreement.
2.2. CONTRIBUTION. At the Closing, Contributor agrees to
contribute and convey to the UPREIT, and Acquiror agrees to cause the UPREIT to
accept and take from Contributor, on the terms and conditions set forth in this
Agreement, all of Contributor's right, title and interest in and to the
Contributed Interests.
30 CONTRIBUTION CONSIDERATION.
3.1. PAYMENT OF CONTRIBUTION CONSIDERATION. In
consideration of the contribution of the Contributed Interests, and subject to
the terms of this Agreement, at the Closing, the UPREIT shall pay to Contributor
a sum equal to the aggregate undepreciated book
9
<PAGE>
value of the Projects (calculated by Contributor in accordance with GAAP as of
the Closing Date) (the "ASSET VALUE"). The Asset Value shall be paid in the
following manner:
3.1.1. The UPREIT shall issue up to 1,000,000
Preferred Units, at the Preferred Unit Price, having an aggregate value equal to
the lesser of (a) the Asset Value less the Assumed Indebtedness, or (b)
$25,000,000. In no event, however, shall the LP Unit Amount be less than
$23,861,633.30 (as applicable, the "LP UNIT AMOUNT").
3.1.2. Subject to Section 3.1.3 below, the UPREIT
may, in its sole and absolute discretion, assume the Assumed Indebtedness (as
such amount is updated on the Closing Date from the amount shown SCHEDULE
10.13).
3.1.3. The UPREIT shall pay in cash to Contributor
the balance of the Asset Value (e.g., the amount determined by subtracting
the LP Unit Amount and the Assumed Indebtedness from the Asset Value) (the "CASH
COMPONENT"); provided, however, that the UPREIT may, in its sole and absolute
discretion, direct Contributor to cause the Assumed Indebtedness to be paid off
at the Closing, in which case the Cash Component shall be increased by the
amount of the Assumed Indebtedness on the Closing Date. The Cash Component shall
be further adjusted by the positive or negative adjustments and prorations
described in Section 17 below, all of which shall be adjusted as of the Closing
Date.
The payment of the Cash Component, the assumption of the
Assumed Indebtedness and the issuance of the LP Units described in this Section
3.1 shall be collectively referred to herein as the "CONTRIBUTION
CONSIDERATION".
3.2. INTENTIONALLY OMITTED.
3.3. ASSUMPTION FEES, ETC. Contributor acknowledges and
agrees that Contributor shall be solely responsible for any and all fees and
costs imposed by the holder of the Assumed Indebtedness in connection with the
UPREIT's assumption of the Assumed Indebtedness (such as, but not limited to,
assumption fees, costs and expenses of the holder or servicer of the Existing
Loan Documents, etc.).
3.4. FRACTIONAL NUMBER OF LP UNITS. If the above-described
calculation of Contribution Consideration would result in a fractional number of
LP Units to be delivered to Contributor, the UPREIT shall round that fraction up
or down, as the case may be, to the nearest whole number of LP Units.
3.5. PREFERRED UNITS. The Preferred Units shall be
entitled to an annual preferred return of (a) 9% for each of the ten (10) years
following the Closing Date, (b) 10.5% for each of the next five years, and (c)
12% for each subsequent year, such preferred return to be
10
<PAGE>
paid, in each case, quarterly in arrears. Each of the Preferred Units shall be
entitled to a liquidation preference of $25.00 per unit, plus all accrued but
unpaid dividends. The Preferred Units shall be entitled to anti-dilution
protection to the same extent as the Warrants as set forth in the Warrant
Agreement annexed as EXHIBIT G. Each of the Preferred Units may be converted
into 2.381 Common Units on or after the date which is one (1) year after the
date the Preferred Units are issued to an LP Unit Recipient pursuant to this
Agreement. The UPREIT shall have the right to redeem for cash all outstanding
Preferred Units after the tenth (10th) anniversary of the Closing Date by giving
the holder(s) thereof not less than sixty (60) days' prior written notice.
3.6. WARRANTS. On the Closing Date, the UPREIT shall issue
to Contributor ten-year detachable warrants exercisable for additional Common
Units pursuant to a warrant agreement in substantially the form of EXHIBIT G.
40 LP UNITS; INVESTOR MATERIALS.
4.1. LP UNITS GENERALLY.
4.1.1. Subject to Section 3.5 above, the Preferred
Units shall be convertible into Common Units and the Common Units shall be
redeemable for shares of common stock of the REIT or cash (or a combination
thereof) in accordance with the procedures described herein and in the
Partnership Agreement. Contributor acknowledges that the LP Units are not
certificated and that, therefore, the issuance of the LP Units shall be
evidenced by the execution and delivery of an amendment to the Partnership
Agreement substantially in the form of EXHIBIT H, which amendment shall be
executed and delivered by the REIT at the Closing (the "AMENDMENT").
4.1.2. Contributor hereby directs the UPREIT to deliver the
LP Units at the Closing issued in the names of, and for distribution to, those
LP Unit Recipients set forth on SCHEDULE 4.1.2 attached hereto. Each LP Unit
Recipient shall receive the number and type of LP Units set forth on said
Schedule.
4.1.3. Contributor has delivered to Acquiror, and
has caused its Interest Holders and any other LP Unit Recipient to deliver to
Acquiror, or to any other party designated by Acquiror, a completed
representation letter in substantially the form set forth in EXHIBIT C attached
hereto, providing, among other things, information concerning each
Contributor's, each Interest Holder's and each LP Unit Recipient's status as an
Accredited Investor. Contributor shall provide or cause to be provided to
Acquiror, or to any other party designated by Acquiror, such other information
and documentation as may reasonably be requested by Acquiror in furtherance of
the issuance of the LP Units as contemplated hereby (together with the
information provided on EXHIBIT C, the "INVESTOR MATERIALS"). Notwithstanding
anything contained in this Agreement to the contrary, in the event that, in the
reasonable opinion of Acquiror, based on
11
<PAGE>
advice of its securities counsel, (x) any such person or entity providing
Investor Materials is not considered an Accredited Investor, (y) the proposed
issuance of LP Units hereunder might not qualify for the exemption from the
registration requirements of Section 5 of the Securities Act, or (z) the
proposed issuance of LP Units hereunder would violate any applicable federal or
state securities laws, rules or regulations, any agreement to which the REIT or
the UPREIT is privy, or any tax related or other legal rules, agreements or
constraints applicable to Acquiror, the REIT or the UPREIT, Acquiror shall so
advise Contributor, in writing (the "REGULATORY VIOLATION NOTICE") within five
(5) business days after such determination is made. In the event a Regulatory
Violation Notice is delivered for the reason set forth in clause (x) above, the
interest of each and every person or other entity with respect to which Acquiror
delivers a Regulatory Violation Notice shall be redeemed by Contributor (or
Contributor shall otherwise cause such person or other entity to no longer have
a direct or indirect interest in Contributor), at no cost to any or all of
Acquiror, the REIT and the UPREIT, at least two business days prior to the
Closing Date. In the event of any such redemption, SCHEDULE 4.1.2 shall be
revised to reflect the updated list of LP Unit Recipients and the revised
ownership percentages in the Projects resulting from such redemption. In the
event a Regulatory Violation Notice is delivered for another reason, this
Agreement shall terminate and no party shall have any further liability
hereunder except (i) as otherwise expressly set forth in this Agreement and (ii)
to the extent a breach of this Agreement gives rise to, or becomes the basis
for, the Regulatory Violation Notice.
4.1.4. Contributor hereby covenants and agrees that
it shall deliver or shall cause each of its partners, shareholders, members
and any other LP Unit Recipients to deliver to Acquiror, or to any other party
designated by Acquiror, any documentation that may be required under the
Partnership Agreement or any charter document of the REIT, and such other
information and documentation as may reasonably be requested by Acquiror, at
such time as any LP Units are redeemed for shares of common stock of the REIT
("CONVERSION SHARES"). The preceding covenant shall survive the Closing.
4.2. CERTAIN INFORMATIONAL MATERIALS. Contributor and the
other LP Unit Recipients hereby acknowledge and agree that the ownership of LP
Units by them and their respective rights and obligations as limited partners of
the UPREIT (including their right to transfer, encumber, pledge and exchange LP
Units) shall be subject to all of the express limitations, terms, provisions and
restrictions set forth in this Agreement and in the Partnership Agreement. In
that regard, Contributor and each of the other LP Unit Recipients hereby
covenants and agrees that, at the Closing, it shall execute any and all
documentation reasonably required by the UPREIT and the REIT to formally
memorialize the foregoing. Contributor and each of the other LP Unit Recipients
acknowledges that it has received and reviewed, prior to the Contract Date, (i)
the Partnership Agreement, (ii) the charter documents and bylaws of the REIT,
(iii) the REIT's Form 10-K for the year ended December 31, 1998, (iv) all Form
10-Qs and Form 8-Ks that have been filed by the REIT with the SEC since December
31, 1998, and (v) copies of all material press releases, proxy statements and
reports to shareholders issued since December
12
<PAGE>
31, 1998, and has otherwise had an opportunity to conduct a due diligence review
of the affairs of the UPREIT and the REIT and has been afforded the opportunity
to ask questions of, and receive additional information from, the REIT regarding
the business, operations, conditions (financial or otherwise) and the current
prospects of the REIT and the UPREIT.
4.3. LOCK-UP PERIOD. Each of the LP Unit Recipients agrees
that for the Lock-Up Period, it shall not, in any way or to any extent, redeem
(pursuant to the Partnership Agreement or otherwise), sell, transfer, assign,
pledge or encumber, or otherwise convey any or all of the LP Units delivered to
it in connection with this transaction and, if applicable, any Conversion
Shares.
4.4. TRANSFER REQUIREMENTS. After the Lock-Up Period, each
LP Unit Recipient may only sell, transfer, assign, pledge or encumber, or
otherwise convey any or all of the LP Units delivered to it and, if applicable,
any Conversion Shares, in strict compliance with this Agreement, the Partnership
Agreement, the charter documents of the REIT, the registration and other
provisions of the Securities Act (and the rules promulgated thereunder), any
state securities laws, the rules of the New York Stock Exchange and the
Registration Rights Agreement, in each case as may be applicable. A legend may
be placed on the face of the certificates evidencing the Conversion Shares to
notify the holder of the restrictions on transfer under applicable federal or
state securities laws. The provisions of this Section 4.4 shall survive the
Closing.
4.5. VOLUME RESTRICTION. From and after the expiration of
the Lock-Up Period, the aggregate amount of common stock of the REIT that the LP
Unit Recipient may sell (i) during any 10-trading day period shall not exceed 30
percent (30%) of the average of the daily trading volume of such stock (as
reported in The Wall Street Journal) for the thirty (30) trading days
immediately preceding the date on which the first sale of such stock during any
such 10-day period occurs, and (ii) during any calendar year shall not exceed
one-third of the Conversion Shares issuable upon redemption of the aggregate
amount of Common Units issued (including those issued in connection with any
conversion of Preferred Units) to such LP Unit Recipient at the Closing.
50 PARTNERSHIP LIABILITIES AND SALES OF REAL PROPERTY.
5.1. DISPOSITION OBLIGATIONS. Subject to this Section 5.1
and the provisions of Section 5.2 hereof, the UPREIT shall use its good faith,
reasonable and diligent efforts:
5.1.1. Not to sell or otherwise voluntarily dispose
of any Project in a taxable transaction on or before the expiration of the
Non-Taxable Disposition Period unless such sale or other voluntary disposition
(other than through a deed in lieu of foreclosure, a foreclosure action, or an
act of eminent domain) of any Project (and all assets received in
13
<PAGE>
exchange for such Project in which the REIT or the UPREIT has an adjusted tax
basis substituted from that of such Project) qualifies for non-recognition of
gain under the Code (for example, by means of exchanges contemplated under Code
Sections 351, 354, 355, 368, 721, 1031 (but only if there is no "boot") or
1033), in such manner as the Code provides from time to time (the
"NON-RECOGNITION CODE PROVISIONS"); provided, however, that the foregoing shall
not require the REIT and UPREIT, in their sole and absolute discretion, to sell,
or otherwise dispose of, or prevent the REIT and UPREIT, in their sole and
absolute discretion, from selling or otherwise disposing of any Project in a
transaction that would result in a loss for federal income tax purposes;
5.1.2. To maintain, on a continuous basis, an amount of
indebtedness for which Contributor (including, for this purpose, the
Interest Holders in Contributor or transferees of Contributor, collectively)
bears, or is deemed to bear, the "economic risk of loss" within the meaning of
Treasury Regulation Section 1.752-2(a) (including through the use of guarantee
arrangements or arrangements providing for the imposition of a deficit
restoration obligation on Contributor pursuant to an amendment to the
Partnership Agreement) or which is allocated to Contributor pursuant to Treasury
Regulation Section 1.752-3(a) equal to not less than $3,000,000 (the "MAXIMUM
AMOUNT");
5.1.3. To avoid a distribution of property that would
cause Contributor to recognize income or gain pursuant to the provisions
of either or both of Code Sections 704(c)(1)(B) and 737;
5.1.4. To avoid a termination of the UPREIT
pursuant to the provisions of Code Section 708(b)(1)(B); and
5.1.5. As long as Contributor remains as a partner
of the UPREIT, the REIT and/or UPREIT agree to utilize the "traditional
method," without curative allocations (as contemplated for in the Partnership
Agreement), of allocating gain and depreciation under Code Section 704(c) for
the Projects.
The provisions of this Section 5.1 shall survive the Closing.
5.2. LIMITATION ON DISPOSITION OBLIGATIONS.
Notwithstanding the provisions of Section 5.1, the obligation of the UPREIT to
undertake those activities set forth in Sections 5.1.1-5.1.4 hereof shall, in
all events, be subject to, and otherwise interpreted consistent with, the REIT's
fiduciary and statutory obligations to all partners (both present and future) in
the UPREIT, and to its stockholders, both present and future. Further, for
purposes of this Section 5 and except as otherwise provided in Section 5.3, the
LP Unit Recipients agree that neither the REIT nor the UPREIT shall be required
to obtain any approval, consent or waiver from, or take direction from, or
otherwise communicate with, any person or representative or entity concerning
14
<PAGE>
any Project, other than those certain persons (the "PROJECT CONTACTS")
designated on SCHEDULE 5.2 attached hereto (and at the addresses set forth
therein). Notification of the Project Contacts for any Project shall constitute
sufficient and effective notification to all Interest Holders associated with
the applicable Project, and written communications from the Project Contacts for
such Project shall bind all Interest Holders associated with, related to, or
having an interest in, such Project. The provisions of this Section 5.2 shall
survive the Closing.
5.3. NOTICE OF CERTAIN TRANSACTIONS.
5.3.1. In the event, on or before the expiration of
the Non-Taxable Disposition Period, the UPREIT expects any of the following
(each, a "TAX-RELATED EVENT") to occur: (A) a post-Closing sale of any Project;
(B) a reduction in the amount of indebtedness allocable to Contributor
(including, for this purpose, the Interest Holders in Contributor, or
transferees of Contributor, collectively) in a manner consistent with Section
5.1.2 hereof, to an amount that is less than the Maximum Amount (other than by
regularly or other scheduled principal payments); or (C) an attempt by the
UPREIT to effect a transfer of any Project as permitted by Section 5.1.1 above,
but the terms of Section 1031 of the Internal Revenue Code of 1986, as amended
(the "CODE") or the regulations promulgated thereunder have changed such that
the mechanics for implementing a tax-deferred exchange of real estate are
materially and adversely altered (whether with respect to the timing required to
identify and close upon an exchange property or otherwise) from those mechanics
in place as of the Contract Date, then the UPREIT shall give written notice of
such Tax-Related Event (a "TAX-RELATED NOTICE") to the Project Contacts as soon
as practicable after the occurrence of such event becomes reasonably likely, or,
if later, on the date on which the UPREIT is, in the reasonable judgment of its
securities counsel, legally permitted, under applicable federal and state
securities laws and regulations, and the rules and regulations of the New York
Stock Exchange, to disseminate such Tax-Related Notice to the Project Contacts.
5.3.2. Upon their receipt of a Tax-Related Notice,
the Project Contacts shall designate a single spokesperson from among them to
represent the Interest Holders in connection with the Tax-Related Event that
triggered the delivery of such Tax-Related Notice (the "SPOKESPERSON"). Each LP
Unit Recipient hereby irrevocably appoints any Spokesperson so designated as
their attorney-in-fact, with full power to grant in the name of and on behalf of
such LP Unit Recipient, any and all consents, waivers, approvals, and to execute
any and all documents required or appropriate to be executed, whether with
respect to this Agreement, the Partnership Agreement or otherwise; provided,
however, that such attorney-in-fact may only act within the scope necessitated
by the Tax-Related Event giving rise to the appointment of such Spokesperson.
The UPREIT and the REIT shall be entitled to rely on the first written notice
either of them receives that designates a Spokesperson with respect to a given
Tax-Related Event, and shall be under no obligation to deal with any person
other than the Spokesperson so designated in connection with the subject
Tax-Related Event as it relates to any LP Unit
15
<PAGE>
Recipient. The UPREIT and the REIT shall have no obligation to deal with any
person or entity whatsoever in connection with a Tax-Related Event unless and
until a Spokesperson is properly designated. The UPREIT and the REIT, and their
respective independent accountants, attorneys and other representatives and
advisors, shall cooperate with the Spokesperson in order to consider strategies
proposed by or through the Spokesperson (it being understood that neither the
REIT nor the UPREIT shall have any obligation whatsoever to propose any such
strategies), on behalf of any affected LP Unit Recipient, which strategies are
designed or intended to defer or mitigate any recognition of gain under the Code
by any LP Unit Recipient or any shareholder or partner in any LP Unit Recipient
(any such gain recognition being referred to herein as an "ADVERSE TAX
CONSEQUENCE") that may result from a Tax-Related Event, whether such strategies
involve any or all of the LP Unit Recipients (including Contributor) on a basis
independent of the REIT and UPREIT, or in conjunction with the REIT or the
UPREIT. Each party shall pay its own fees and expenses incurred in connection
with the procedure delineated in this Section 5.3.2. Under this Section 5.3.2,
the UPREIT and the REIT are only obligated to cooperate with the Spokesperson on
behalf of any LP Unit Recipient (or any partner, shareholder or member of any LP
Unit Recipient) who may be facing an Adverse Tax Consequence, in connection with
such LP Unit Recipient's determination of the efficacy of tax-deferral or
tax-mitigation alternatives proposed by or through the Spokesperson that may
involve the REIT or the UPREIT. In no event shall either the REIT or the UPREIT
be required to incur any expense (other than the cost of professional fees and
expenses and administrative expenses incurred in complying with this Section
5.3) in connection with its cooperation under this Section 5.3, nor shall any
transaction duly approved by the Board of Directors of the REIT that results in
a Tax-Related Event be required to be suspended, postponed, impeded or otherwise
adversely affected by virtue of any potential Adverse Tax Consequence. The
provisions of this Section 5.3 shall survive the Closing.
5.4. 721 EXCHANGE. The parties acknowledge that
Contributor intends to treat the contribution and conveyance of the Contributed
Interests in exchange for LP Units (the "EXCHANGE") as a tax-free partnership
contribution pursuant to Section 721 of the Code. Acquiror, the UPREIT and the
REIT shall cooperate in all reasonable respects with Contributor to effectuate
such Exchange; provided, however, that:
5.4.1. The Closing shall not be extended or delayed
by reason of such Exchange, unless Acquiror has breached its obligations to
Contributor under this Agreement;
5.4.2. None of Acquiror, the UPREIT or the REIT
shall be required to incur any additional extraordinary (as opposed to a normal,
customary and recurring) cost or expense as a result of such Exchange, other
than the cost of Acquiror's counsel in connection with the preparation of this
Agreement and the other documents contemplated by this Agreement.
Notwithstanding anything to the contrary in the foregoing sentence, the UPREIT
and the REIT shall be responsible for costs associated with any IRS audit made
directly of either or both of the
16
<PAGE>
UPREIT and the REIT relating to their respective operations (as opposed to an
audit that is ancillary to an audit made of any or all of the entities
comprising Contributor). Contributor hereby covenants and agrees that it shall,
promptly on demand, reimburse Acquiror, the UPREIT or the REIT for any
additional extraordinary cost or expense (as opposed to a normal, customary and
recurring cost or expense, such as the analysis or computation related to the
manner in which depreciation and built-in gain are allocated amongst the LP Unit
Recipients), including reasonable attorneys' fees (e.g. those in excess of the
cost of Acquiror's counsel in connection with the preparation of this Agreement
and the other documents contemplated by this Agreement), actually incurred by
any or all of Acquiror, the UPREIT and the REIT (i) as a result of the
characterization of the contribution of the Projects pursuant to this Agreement
as a tax-free partnership contribution pursuant to Section 721 of the Code, or
(ii) which is directly attributable to the Exchange;
5.4.3. Subject to the UPREIT's and the REIT's
performance and fulfillment in all material respects of the express covenants
and conditions contained in this Agreement, none of Acquiror, the UPREIT or the
REIT warrant, nor shall any of them be responsible for, the federal, state or
local tax consequences to Contributor, any or all of the Interest Holders and
any or all of the LP Unit Recipients resulting from either (i) the transactions
contemplated by this Agreement or (ii) the allocation, if any, of losses and
liabilities of the UPREIT to Contributor or any of the Interest Holders in
Contributor under the Partnership Agreement, the Code or Treasury Regulations
promulgated under the Code; and
5.4.4. Except as otherwise expressly set forth in
this Agreement and in the documents executed and delivered by Acquiror at the
Closing, none of Acquiror, the UPREIT nor the REIT shall incur any liability
under any document or agreement required to be executed or delivered in
connection with such Exchange.
The provisions of this Section 5.4 shall survive the Closing.
6. CLOSING. Except as otherwise provided in this Agreement, the closing
of the transaction contemplated by this Agreement (the "CLOSING") shall take
place on the date (the "CLOSING DATE") mutually agreed upon by the parties,
provided that the Closing Date shall occur no sooner than fifteen (15) days
after the Contract Date and no later than thirty (30) days after the Contract
Date. The Closing shall take place at the offices of Morgan, Lewis & Bockius
LLP, 1701 Market Street, Philadelphia, Pennsylvania 19103, at such other place
as may be mutually agreed upon by the parties, or in escrow at the offices of
the Title Company if mutually agreed upon by the parties.
7. CONTRIBUTOR'S DELIVERIES. Contributor shall cause each Project's
managing agent to make available to Acquiror, from and after the Contract Date,
at reasonable times and upon reasonable notice, all documents, contracts,
information, Records and exhibits
17
<PAGE>
that are in the possession of, or under the control of, Contributor that are
pertinent to the transaction that is the subject of this Agreement, including
without limitation the documents listed as "Contributor's Deliveries" on EXHIBIT
D attached hereto.
8. PROJECT INSPECTION.
8.1. BASIC PROJECT INSPECTION. From and after the Contract
Date, at reasonable times and upon reasonable notice (subject to the Leases and
the rights of the Tenants), Acquiror, its agents and representatives shall be
entitled to conduct inspections of any Project, which will include the rights
to: (i) enter upon the Land and Improvements to perform inspections and tests of
any Project, including inspection, evaluation and testing of the heating,
ventilation and air-conditioning systems and all components thereof, all
structural and mechanical systems within the Improvements, including sprinkler
systems, power lines and panels, air lines and compressors, automatic doors,
tanks, pumps, plumbing and all equipment, vehicles, and Personal Property; (ii)
examine and copy any and all Records; (iii) make investigations with regard to
zoning, environmental (including an environmental assessment as specified in
Section 8.2, which includes, but is not limited to, an analysis of the presence
of any asbestos, chlordane, formaldehyde or other Hazardous Substance in, under
or upon any Project, or any underground storage tanks on, or under, the Land),
building, code, regulatory and other legal or governmental requirements; and
(iv) make or obtain market studies and real estate tax analyses. Without
limitation of the foregoing, Acquiror or its designated independent or other
accountants may audit the Financial Statements (as defined in EXHIBIT D attached
hereto), and Contributor shall supply such documentation as Acquiror or its
accountants may reasonably request in order to complete such audit.
8.2. ENVIRONMENTAL ASSESSMENT. From and after the Contract
Date, at reasonable times and upon reasonable notice (subject to the Leases and
the rights of the Tenants), Acquiror or Acquiror's agent(s) shall have the right
to employ one or more environmental consultants or other professional(s) to
perform or complete such environmental inspections and assessments of any
Project as Acquiror deems necessary or desirable; provided, however, that
Acquiror shall not perform a "Phase II" environmental assessment or undertake
any other invasive physical tests at any Project without first obtaining
Contributor's approval to do so, which approval shall not be unreasonably
withheld or delayed; and provided further that prior to any such entry onto any
Project, Acquiror and its agent(s) shall furnish to Contributor certificates of
insurance for such coverage and in such amounts and with such carriers as shall
be reasonably acceptable to Contributor. Acquiror and its consultants shall also
have the right to undertake or complete a technical review of all documentation,
reports, plans, studies and information in possession or control of Contributor,
or its past or present environmental consultants, concerning or in any way
related to the environmental condition of any Project. In order to facilitate
the assessments and technical review, at reasonable times and upon reasonable
notice (subject to the Leases and the rights of the Tenants), Contributor shall
extend its reasonable cooperation (but
18
<PAGE>
without third party expense to Contributor) to Acquiror and its environmental
consultants, including providing access to all files and fully and completely
answering all questions (to the best of its knowledge).
8.3. ACQUIROR'S UNDERTAKING. Acquiror hereby covenants and
agrees that it shall cause all studies, investigations and inspections performed
at any Project pursuant to this Section 8 to be performed in a manner that does
not materially or unreasonably disturb or disrupt the tenancies at or business
operations of any Project. In the event that, as a result of Acquiror's exercise
of its rights under Sections 8.1 and 8.2, physical damage occurs to any Project,
then Acquiror shall promptly repair such damage, at Acquiror's sole cost and
expense, so as to return the applicable Project to substantially the same
condition as exists on the Contract Date. Acquiror hereby indemnifies, protects,
defends and holds Contributor harmless from and against any and all losses,
damages, claims, causes of action, judgments, damages, costs and expenses that
Contributor actually suffers or incurs as a direct result of any physical damage
caused to, in, or at any Project during the course of, or as a result of, any or
all of the studies, investigations and inspections that Acquiror elects to
perform (or causes to be performed) pursuant to this Section 8.
8.4. CONFIDENTIALITY. Each party agrees to maintain in
confidence, and not to disclose to any Tenant or its employees, the information
contained in this Agreement or pertaining to the transaction contemplated hereby
and the information and data furnished or made available by Contributor to
Acquiror, its agents and representatives in connection with Acquiror's
investigation of any Project and the transactions contemplated by this
Agreement; provided, however, that each party, its agents and representatives
may disclose such information and data (i) to such party's accountants,
attorneys, existing or prospective lenders, investment bankers, accountants,
underwriters, ratings agencies, partners, shareholders, consultants and other
advisors in connection with the transactions contemplated by this Agreement to
the extent that such representatives reasonably need to know (in the disclosing
party's reasonable discretion) such information and data in order to assist, and
perform services on behalf of, the disclosing party; (ii) to the extent required
by or appropriate under any applicable statute, law, regulation or Governmental
Authority (including the requirement to prepare and file Form 8-K and other
reports and filings required by the SEC and other regulatory entities, as
described in EXHIBIT E attached hereto) or by the New York Stock Exchange in
connection with the listing of the Conversion Shares; (iii) in connection with
any litigation that may arise between the parties in connection with the
transactions contemplated by this Agreement or otherwise relating to any Project
or any of them; (iv) to the extent such disclosure is required or appropriate in
connection with any securities offering or other capital markets or financing
transaction undertaken by the REIT; (v) to the extent such information and data
become generally available to the public other than as a result of disclosure by
the disclosing party or its agents or representatives; (vi) to the extent such
information and data become available to the disclosing party or its agents or
representatives from a third party who, insofar as is known to the disclosing
party, is not subject to a confidentiality obligation to the other party
hereunder; and (vii) to the extent necessary in
19
<PAGE>
order to comply with each party's respective covenants, agreements and
obligations under this Agreement. In the event the transactions contemplated by
this Agreement shall not be consummated, such confidentiality shall be
maintained indefinitely. Furthermore, Contributor and Acquiror acknowledge that,
notwithstanding any contrary term of this Section 8.4, Acquiror shall have the
right to issue a press release upon the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby, and Contributor
shall have the right to disclose this Agreement to Contributor's parent, who may
disclose it to its shareholders.
9. TITLE AND SURVEY MATTERS
9.1. TITLE. At the Closing, each Owner's title to the
Projects shall be free and clear of any mortgage liens, judgments and security
interests, except the Assumed Indebtedness if Acquiror elects to assume the same
("PROHIBITED EXCEPTIONS"). Acquiror acknowledges and agrees, however, that
Acquiror has agreed to accept the Contributed Interests and title to the
Projects subject to any and all covenants, restrictions, easements, rights of
way, Leases and other encumbrances and all encroachments and boundary disputes,
if there be any, excepting only Prohibited Exceptions, as aforesaid (all such
permitted title exceptions shall be the "PERMITTED EXCEPTIONS"). Acquiror shall
promptly cause Title Company to issue and deliver to Contributor a title
insurance report ("TITLE REPORT") for each of the Projects. If the Title Report
contains any Prohibited Exceptions, Contributor agrees to take the necessary
steps to remove such matters from record title to the Projects. In the event
Contributor fails to remove any or all of the Prohibited Exceptions prior to
Closing, Acquiror shall have the rights contained in Section 9.4. Any expenses
incurred in obtaining the Title Report (including, without limitation, expenses
incurred by an attorney in conducting the necessary title search) shall solely
be borne by Acquiror. The title insurance premium for the title policy
(inclusive of Acquiror's requested endorsements) shall also be solely borne by
Acquiror.
9.2. Notwithstanding anything to the contrary that may be
stated herein, excluding mortgage liens, judgments, security interests or other
encumbrances that were intended to be discharged of record upon Contributor's
acquisition, no mortgage lien, judgment, security interest or other encumbrance
in existence immediately preceding Contributor's acquisition of the Contributed
Interests, shall constitute a "Prohibited Encumbrance".
9.3. INTENTIONALLY OMITTED.
9.4. FAILURE REGARDING TITLE. In the event that as of
Closing, title to the Projects shall be other than in accordance with the
provisions of this Agreement, then Acquiror shall have the option, exercisable
by written notice to Contributor at or prior to Closing, of (1) accepting at
Closing such title as Contributor is able to convey and waiving any unsatisfied
condition precedent, with no deduction from or adjustment of the Purchase Price,
except to the extent of liens of a fixed or ascertainable amount not exceeding
the Cash Component, unless the
20
<PAGE>
lien was created voluntarily by Contributor, or (2) declining to proceed to
Closing. In the latter event, except as expressly set forth herein, all
obligations, liabilities and rights of the parties under this Agreement shall
terminate.
10. REPRESENTATIONS AND WARRANTIES AS TO THE CONTRIBUTED INTERESTS AND
THE REAL PROPERTY. Except (a) as otherwise set forth in the written schedules
attached to this Agreement (the "SCHEDULES") which set forth the exceptions to
the representations and warranties contained in this Section 10 and certain
other information called for by this Agreement (unless otherwise specified, (i)
each reference in this Agreement to any numbered schedule is a reference to that
numbered schedule which is included in the Schedules and (ii) no disclosure made
in any particular numbered schedule of the Schedules shall be deemed made in any
other numbered schedule of the Schedules unless expressly made therein (by
cross-reference or otherwise)), and (b) as disclosed in any document delivered
to Acquiror by Contributor or by any other information discovered by or known to
Acquiror or disclosed in writing to Acquiror by Contributor prior to the
Closing, Contributor, for itself and each of the Owners, represents and warrants
to Acquiror that the following matters are true and correct as of the Contract
Date and shall be true and correct as of the Closing Date:
10.1. CONTRIBUTOR'S AUTHORITY. Contributor is a corporation
duly organized and validly existing and in good standing under the laws of the
State of New York and has all requisite power and authority to enter into this
Agreement and perform its obligations hereunder and to carry on its business as
now conducted and to control the ownership, leasing and operation of the
Projects.
10.2. OWNER'S AUTHORITY. Each Owner is a limited liability
company duly organized, validly existing and in good standing under the laws of
the State of Maryland and has all requisite power and authority to carry on its
business as now conducted and to own, lease and operate its properties and
assets now owned or leased or operated by it. To the best of Contributor's
actual knowledge, no Project is encumbered by any mortgages, collateral or
conditional assignments, pledges, hypothecations, security interests and other
encumbrances (except for the Assumed Indebtedness), and each Owner holds good
and marketable title to its Project.
10.3. OWNERSHIP. Contributor holds one hundred percent
(100%) of the membership interests in each of the Owners, free and clear of all
mortgages, collateral or conditional assignments, pledges, hypothecations,
security interests and other encumbrances (except for the Assumed Indebtedness).
Each Owner, in turn, holds fee simple title to its Project, free and clear of
any Prohibited Exceptions.
10.4. NO CONFLICT. To the best of Contributor's actual
knowledge, the execution and delivery of this Agreement and the consummation of
the transactions contemplated
21
<PAGE>
hereunder on the part of Contributor do not and will not conflict with or
result in the breach of any material terms or provisions of, or constitute a
default under, or result in the creation or imposition of any lien, charge,
or encumbrance upon, any of the Contributed Interests or other assets of
Contributor or upon the Projects by reason of the terms of any contract,
mortgage, lien, lease, agreement, indenture, instrument or judgment to which
Contributor or any Owner is a party or which is or purports to be binding
upon Contributor or any Owner or which otherwise affects Contributor or any
Owner, which will not be discharged, assumed or released at Closing.
10.5. NO CONDEMNATION. Except as set forth in SCHEDULE 10.5,
to the best of Contributor's actual knowledge, no Owner has received any written
notice of any pending or contemplated condemnation, eminent domain or similar
proceeding with respect to all or any portion of its Project.
10.6. COMPLIANCE. Except as set forth in SCHEDULE 10.6, to the
best of Contributor's actual knowledge, no Owner has received written notice of
any existing violations of any federal, state, county or municipal laws,
ordinances, orders, codes, regulations, or requirements affecting its Project
which have not been cured.
10.7. LITIGATION. Except as set forth in SCHEDULE 10.7, to the
best of Contributor's actual knowledge, there is no material action, suit or
proceeding pending or threatened against the Projects, or arising out of the
ownership, management or operation of the Projects, this Agreement or the
transactions contemplated hereby.
10.8. FIRPTA. Contributor is not a "foreign person" as defined
in Section 1445(f)(3) of the Internal Revenue Code.
10.9. LEASES. There are no leases or occupancy agreements
currently in effect which affect the Projects other than the Leases listed on
the Rent Roll (as defined on EXHIBIT D), and to the best of Contributor's actual
knowledge, Contributor has paid in full all expenses connected with the
negotiation, execution and delivery of the Leases which are due and owing as of
the Agreement Date, including without limitation brokers' commissions, leasing
fees and recording fees (but excluding (i) any such commissions or fees, if any,
attributable to the term of the relevant Lease from and after the date of
Closing, (ii) any such commissions or fees, if any, attributable to extension,
renewal or expansion options executed after the date of Closing and (iii) any
tenant improvement allowance or credit which is not yet due and payable). No
Owner has received from any of its Tenants any written notices alleging any
breach or default by such Owner, as landlord, which remain uncured as of the
Contract Date, and no Owner has delivered to any of its Tenants written notices
alleging any breach or default by such Tenants which remain uncured as of the
Contract Date, except as set forth in SCHEDULE 10.9.
22
<PAGE>
10.10. CONTRACTS. There are no construction, management,
leasing, service, equipment, supply, maintenance or concession agreements in
effect with respect to the Projects other than those Contracts (as defined in
EXHIBIT D) set forth on SCHEDULE 10.10. No Owner has received from any
contracting parties under the Contracts any written notices alleging any breach
or default by such Owner which remain uncured as of the Contract Date, and no
Owner has delivered to such contracting parties written notices alleging any
breach or default by such contracting parties which remain uncured as of the
Contract Date, except as set forth in SCHEDULE 10.10.
10.11. WARRANTIES. There are no guaranties or warranties
relating to the design or construction of the Improvements or the installation,
use or repair of any Personal Property other than those Warranties set forth in
SCHEDULE 10.11.
10.12. ENVIRONMENTAL MATTERS. To the best of Contributor's
actual knowledge, except as set forth in SCHEDULE 10.12:
(a) There has not been placed or located on any of
the Projects by Contributor or any Owner, and there will not be placed or
located on any of the Projects prior to Closing by Contributor or any Owner, any
Hazardous Substance (as used herein, "HAZARDOUS SUBSTANCE" means any substance
deemed hazardous, toxic or dangerous, or other substance required to be
disclosed, reported, treated, removed, disposed of or cleaned-up by any
applicable federal, state or local law, ordinance, code or regulation in effect
on the date hereof, and includes, without limitation, lead paint,
polychlorinated biphenyls, petroleum-based products and asbestos); and
(b) There has not been manufactured, stored or
deposited by Contributor or any Owner on any of the Projects, any Hazardous
Substance, and neither Contributor nor any Owner has received written notice of
any proceeding or inquiry by any governmental authority with respect to the
possible presence of any Hazardous Substance on any of the Projects, including
the migration of any Hazardous Substances onto any of the Projects .
10.13. EXISTING LOAN DOCUMENTS. SCHEDULE 10.13 attached hereto
sets forth a true, correct and complete listing of all of the promissory notes,
mortgages and other loan documents evidencing or securing the Assumed
Indebtedness (the "EXISTING LOAN DOCUMENTS"), and Contributor has delivered
true, correct and complete copies of the Existing Loan Documents to Acquiror
prior to the date hereof as part of Contributor's Deliveries. Contributor has
complied with (and, prior to the Closing, shall continue to comply with) the
terms of, and all notices or correspondence received from the holder of the
Existing Loan Documents. Contributor has paid (and, at all times prior to the
Closing, shall pay) all sums due under the Existing Loan Documents. The Existing
Loan Documents are in full force and effect. Contributor is not in default under
the Existing Loan Documents beyond any applicable notice, grace or cure period,
23
<PAGE>
and there has not occurred any event which, with the giving of notice and/or the
passage of time, or both, would constitute a default by Contributor thereunder.
The outstanding principal amount of the Assumed Indebtedness is accurately set
forth on SCHEDULE 10.13. Following Acquiror's assumption thereof, Acquiror will
be entitled to prepay the Assumed Indebtedness by the payment of the outstanding
principal amount and the accrued interest as of the date of prepayment without
premium or penalty, or any fees and expenses due to the holder or servicer of
the Assumed Indebtedness.
10.14. Notwithstanding anything to the contrary that may be
stated herein, Acquiror may not invoke as a failure of a condition precedent to
Acquiror's obligation to close hereunder, the inaccuracy of a representation or
warranty of Contributor if the inaccuracy derives directly from a specific fact
or circumstance actually known to Acquiror prior to the date hereof which was in
existence on or prior to the date Contributor acquired the Contributed Assets.
11. REPRESENTATIONS AS TO SECURITIES AND RELATED MATTERS.
11.1. CONTRIBUTOR AND LP UNIT RECIPIENTS. Contributor
represents and warrants to Acquiror that the following matters are true and
correct as of the Contract Date and shall be true and correct as of the Closing
Date; and each LP Unit Recipient represents and warrants (but only as to itself)
to Acquiror that the matters set forth in Sections 11.1.1 and 11.1.4 are true
and correct as of the Contract Date and shall be true and correct as of the
Closing Date and covenant as follows:
11.1.1. Intentionally Omitted.
11.1.2. Intentionally Omitted.
11.1.3. Intentionally Omitted.
11.1.4. Each LP Unit Recipient represents that its LP
Units are being acquired by it with the present intention of holding such LP
Units for purposes of investment, and not with a view towards sale or any other
distribution. Each LP Unit Recipient recognizes that it may be required to bear
the economic risk of an investment in the LP Units for an indefinite period of
time. Contributor and each LP Unit Recipient is an Accredited Investor.
Contributor and each LP Unit Recipient has such knowledge and experience in
financial and business matters so as to be fully capable of evaluating the
merits and risks of an investment in the LP Units. No LP Units will be issued,
delivered or distributed to any person or entity who is other than an Accredited
Investor with respect to whom there has been delivered to Acquiror satisfactory
Investor Materials confirming the status of such person or entity as an
Accredited Investor. Each LP Unit Recipient has been furnished with the
informational materials described in Section 4.2 above (collectively, the
"INFORMATIONAL MATERIALS"), and has read and reviewed
24
<PAGE>
the Informational Materials and understands the contents thereof. The LP Unit
Recipients have been afforded the opportunity to ask questions of those persons
they consider appropriate and to obtain any additional information they desire
in respect of the LP Units and the business, operations, conditions (financial
and otherwise) and current prospects of the UPREIT and the REIT. The LP Unit
Recipients have consulted their own financial, legal and tax advisors with
respect to the economic, legal and tax consequences of delivery of the LP Units
and have not relied on the Informational Materials, Acquiror, the UPREIT, the
REIT or any of their officers, directors, affiliates or professional advisors
for such advice as to such consequences. Each of Contributor and its Interest
Holders is an Accredited Investor under Regulation D promulgated under the
Securities Act of 1933, as amended. No Contributor or LP Unit Recipient requires
the consent of any Interest Holder in order to consummate the transactions
contemplated by this Agreement, including to amend any partnership agreement,
operating agreement, charter or other governing document of Contributor or any
LP Unit Recipient. SCHEDULE 11.1.4 accurately sets forth (a) the direct
ownership interest of Contributor and each LP Unit Recipient, and (b) the
residence or, in the case of non-individual LP Unit Recipient or Contributor,
state in which it was formed.
11.2. ACQUIROR. Acquiror represents and warrants to
Contributor that the following matters are true and correct as of the Contract
Date and shall be true and correct as of the Closing Date:
11.2.1. The UPREIT is a limited partnership duly
authorized and validly existing under Delaware law. The performance of this
Agreement by the UPREIT has been duly authorized by the REIT in accordance with
the Partnership Agreement, and, upon the assignment of this Agreement to the
UPREIT, this Agreement will be binding on the UPREIT and enforceable against it
in accordance with its terms. The UPREIT has been at all times, and presently
intends to continue to be, classified as a partnership or a publicly traded
partnership taxable as a partnership for federal income tax purposes and not an
association taxable as a corporation or a publicly traded partnership taxable as
a corporation.
11.2.2. Acquiror is a corporation duly authorized and
validly existing under Delaware law. The execution and delivery of this
Agreement by Acquiror, and the performance of this Agreement by Acquiror, has
been duly authorized by Acquiror, and this Agreement is binding on Acquiror and
enforceable against it in accordance with its terms. No consent of any creditor,
investor, partner, shareholder, judicial or administrative body, Governmental
Authority, or other governmental body or agency, or other party to such
execution, delivery and performance by Acquiror is required. Neither the
execution of this Agreement nor the consummation of the transactions
contemplated hereby will (i) result in a breach of, default under, or
acceleration of, any agreement to which Acquiror is a party or by which Acquiror
is bound; or (ii) violate any restriction, court order, agreement or other legal
obligation to which Acquiror is subject.
25
<PAGE>
11.2.3. The REIT is a real estate investment trust
duly authorized and validly existing under Maryland law. The performance of this
Agreement by the REIT, as general partner of the UPREIT, has been duly
authorized by the REIT, and this Agreement is binding on the REIT, as general
partner of the UPREIT, and enforceable against it, as general partner of the
UPREIT, in accordance with its terms.
11.2.4. LITIGATION. To the best of Acquiror's actual
knowledge, there is no material action, suit or proceeding pending or threatened
against Acquiror, the UPREIT or the REIT which is expected to have a material
adverse affect on Acquiror, the UPREIT or the REIT, or impair the ability of
Acquiror to complete the transactions contemplated hereby.
12. COVENANTS OF CONTRIBUTOR. Effective from the execution of this
Agreement until the Closing or termination of this Agreement, Contributor, for
itself and each Owner, hereby covenants with Acquiror as follows:
12.1. LEASES. No Owner shall amend in any material respect or
terminate any Lease, nor shall any Owner execute any new lease, license, or
other agreement affecting the ownership or operation of all or any portion of
any Project or for personal property, equipment, or vehicles, without in each
case Acquiror's prior written approval, which approval shall not be unreasonably
withheld or delayed.
12.2. NEW CONTRACTS. No Owner shall enter into any contract
with respect to the ownership and operation of all or any portion of any Project
that will survive the Closing, or that would otherwise affect the use, operation
or enjoyment of the applicable Project, without Acquiror's prior written
approval, which approval may granted or denied in Acquiror's reasonable
discretion, except for service contracts entered into in the ordinary course of
business that are terminable, without charge or penalty, on not more than 30
days' notice, for which no approval shall be required.
12.3. OPERATION OF PROJECT. Each Owner shall operate and
manage its Project in the same manner as presently operated and managed,
maintaining present services (including pest control), and shall maintain the
Project in its present repair and order, normal wear and tear excepted; shall
keep on hand sufficient materials, supplies, equipment and other Personal
Property for the efficient operation and management of the Project in its
present manner; and shall perform, when due, all of its obligations under the
Existing Loan Documents, Leases, Contracts, Governmental Approvals (as defined
on EXHIBIT D) and other agreements relating to the Project and otherwise in
accordance with applicable laws, ordinances, rules and regulations affecting the
Project. None of the Personal Property, fixtures or Inventory shall be removed
from any Project, unless replaced by personal property, fixtures or inventory of
equal or greater utility and value.
26
<PAGE>
12.4. PRE-CLOSING EXPENSES. Each Owner has paid or will pay or
cause to be paid in full, prior to the Closing, all bills and invoices received
prior to the Closing Date for labor, goods, material and services of any kind
relating to its Project and utility charges for the period prior to the Closing.
Contributor shall pay to Acquiror promptly upon demand all bills and invoices
received after the Closing Date for labor, goods, material and services of any
kind relating to any Project and utility charges for the period prior to the
Closing. Except as disclosed in SCHEDULE 12.4, any alterations, installations,
decorations and other work required to be performed on or prior to the Closing
under any and all agreements affecting any Project have been or will, by the
Closing, be completed and paid for in full.
12.5. GOOD FAITH. All actions required pursuant to this
Agreement that are necessary to effectuate the transaction contemplated herein
will be taken promptly and in good faith by Contributor, each Owner and
Acquiror, and each party shall furnish the other with such documents or further
assurances as the requesting party may reasonably require.
12.6. NO ASSIGNMENT. After the Contract Date and prior to the
Closing, neither Contributor nor any Owner shall assign, alienate, lien,
encumber or otherwise transfer all or any part of its Project or any interest
therein.
12.7. AVAILABILITY OF RECORDS, AUDIT REPRESENTATION LETTER.
12.7.1. If the Closing Date occurs after March 31,
2000, then upon Acquiror's reasonable request, for a period of two years after
the Closing, Contributor shall (i) make the Records available to Acquiror for
inspection, copying and audit by Acquiror's designated accountants; and (ii)
cooperate with Acquiror (without any third party expense to Contributor) in
obtaining any and all permits, licenses, authorizations, and other Governmental
Approvals necessary for the operation of the Project. Without limitation of the
foregoing in this Section 12.7, if the Closing Date occurs after March 31, 2000,
then Contributor agrees to abide by the terms of EXHIBIT E attached hereto. If
the Closing Date occurs after March 31, 2000, then at any time before or within
two years after the Closing, Contributor further agrees to provide to the
Acquiror's designated independent auditor, upon the reasonable request of
Acquiror or such auditor, (x) access (to the same extent to which Acquiror would
be entitled to such access) to the books and records of the Projects and all
related information (including the information listed on EXHIBIT E) regarding
the period for which Acquiror is required to have the Projects audited under the
regulations of the SEC, and (y) a representation letter delivered by Contributor
regarding the books and records of the Project, in substantially the form as
attached hereto as EXHIBIT F.
12.7.2. In addition, if the Closing Date occurs after
March 31, 2000, then during such two year period Contributor shall provide, and
cooperate in all reasonable respects in providing, Acquiror with copies of, or
access to, such factual information as may be reasonably
27
<PAGE>
requested by Acquiror, and in the possession or control of Contributor, to
enable the REIT to issue one or more press releases concerning the transaction
that is the subject of this Agreement, to file a Current Report on Form 8-K (as
specified on EXHIBIT E attached hereto), if, as and when such filing may be
required by the SEC and to make any other filings that may be required by any
Governmental Authority. The obligation of Contributor to cooperate in providing
Acquiror with such information for Acquiror to file its Current Report on Form
8-K shall survive the Closing.
12.8. CHANGE IN CONDITIONS. Contributor shall promptly notify
Acquiror of any change in any condition with respect to any Project or of the
occurrence of any event or circumstance that makes any representation or
warranty of Contributor to Acquiror under this Agreement untrue or misleading,
or any covenant of Acquiror under this Agreement incapable or less likely of
being performed, it being understood that Contributor's obligation to provide
notice to Acquiror under this Section 12.8 shall in no way relieve Contributor
of any liability for a breach by Contributor of any of its representations,
warranties or covenants under this Agreement.
12.9. CORPORATE STRUCTURE. From the Contract Date through and
including the Closing Date, Contributor shall maintain the same composition of
its direct shareholders as exists on the Contract Date, unless otherwise
expressly provided in this Agreement or consented to by Acquiror in writing.
12.10. CURE OF VIOLATIONS. On or before the Closing Date,
Contributor shall cure (or escrow sufficient funds at the Closing with the Title
Company to cure) all violation(s) of law, code, ordinance or regulation that
arise and are the subject of any written notice issued by a Governmental
Authority with respect to any Project during the period of Contributor's
ownership of the Contributed Interests.
13. INTENTIONALLY OMITTED
14. ADDITIONAL CONDITIONS PRECEDENT TO CLOSING.
14.1. ACQUIROR'S ADDITIONAL CONDITIONS PRECEDENT. In addition
to the other conditions enumerated in this Agreement, the following shall be
conditions precedent to Acquiror's obligation to close hereunder:
14.1.1. PHYSICAL CONDITION. The physical condition of
Project shall be substantially the same on the Closing Date as on the Contract
Date, reasonable wear and tear excepted, unless the alteration of said physical
condition is the result of Damage. Without limiting the generality of the
foregoing, the parties acknowledge and agree that the failure by
28
<PAGE>
Contributor to cure any violation described in Section 12.10 shall be a failure
of this condition precedent.
14.1.2. PENDING ACTIONS. At the Closing, there shall
be no administrative agency, litigation or governmental proceeding of any kind
whatsoever, pending or threatened with respect to the Project, (i) that, after
the Closing, would, in Acquiror's reasonable discretion, materially and
adversely affect the value or marketability of the Project or the ability of
Acquiror to operate the Project in the manner it is being operated on the
Contract Date, or (ii) for the purpose of enjoining or preventing, or which
questions the validity or legality of, the transactions contemplated hereby.
14.1.3. ASSUMED INDEBTEDNESS. Contributor shall
provide to Acquiror a letter from the holder of the Existing Loan Documents that
relates to Assumed Indebtedness (if Acquiror elects to assume the same in
accordance with Section 3.1) dated no earlier than ten (10) days prior to the
Closing Date, (i) approving the transfer of the applicable Contributed Interests
to the UPREIT subject to the Assumed Indebtedness, (ii) setting forth the amount
of principal and interest outstanding on the Closing Date and confirming either
(a) that there are no other amounts due thereunder, or (b) if any other amounts
are due, stating the amount and nature thereof (which amounts shall in any event
be paid by Contributor), and (iii) confirming, to the knowledge of such holders,
the absence of any defaults under the Existing Loan Documents. Such letter shall
be referred to as the "LENDER'S APPROVALS."
14.1.4. OWNERS. The direct shareholders of
Contributor on the Closing Date shall be the same as on the Contract Date.
14.1.5. BANKRUPTCY. As of the Closing Date, neither
Contributor, any Owner, nor any Project shall be the subject of any bankruptcy
proceeding for which approval of this transaction has not been given and issued
by the applicable bankruptcy court.
14.1.6. REPRESENTATIONS AND WARRANTIES TRUE. The
representations and warranties of Contributor contained in this Agreement that
are qualified by materiality shall be true and correct as of the Closing Date,
and the other representations and warranties of Contributor contained in this
Agreement shall be true and correct as of the Closing Date in all material
respects; provided, however, that if any representation or warranty is not true
and correct as of the Closing Date, the same shall not constitute a failure of
this condition precedent unless the same was willfully caused by Contributor.
14.1.7. COVENANTS PERFORMED. All covenants of
Contributor required to be performed on or prior to the Closing Date shall have
been performed in all material respects.
29
<PAGE>
14.2. CONTRIBUTOR'S ADDITIONAL CONDITIONS PRECEDENT. In
addition to the other conditions enumerated in this Agreement, including the
condition set forth in Section 2.1, the following shall be conditions precedent
to Contributor's obligation to close hereunder:
14.2.1. REPRESENTATIONS AND WARRANTIES. The
representations and warranties of Acquiror contained in this Agreement that are
qualified by materiality shall be true and correct as of the Closing Date, and
the other representations and warranties of Contributor contained in this
Agreement shall be true and correct as of the Closing Date in all material
respects.
14.2.2. COVENANTS. All material covenants of Acquiror
required to be performed on or prior to the Closing Date shall have been
performed.
14.2.3. PENDING ACTIONS. At the Closing, there shall
be no administrative agency, litigation or governmental proceeding of any kind
whatsoever, pending or threatened, for the purpose of enjoining or preventing,
or which questions the validity or legality of, the transactions contemplated
hereby.
14.2.4. BANKRUPTCY. As of the Closing Date, neither
Acquiror, the REIT nor the UPREIT shall be the subject of any bankruptcy
proceeding for which approval of this transaction has not been given and issued
by the applicable bankruptcy court.
14.2.5. NO MATERIAL ADVERSE CHANGE. There shall have
occurred no material adverse change in the business, operations, condition
(financial or otherwise), properties or assets of the REIT or the UPREIT since
the Contract Date.
15. INTENTIONALLY OMITTED.
16. CLOSING DELIVERIES.
16.1. CONTRIBUTOR'S DELIVERIES. At the Closing (or such other
times as may be specified below), Contributor shall deliver or cause to be
delivered to Acquiror the following, each in form and substance reasonably
acceptable to Contributor and Acquiror and their respective counsel:
16.1.1. ASSIGNMENT OF CONTRIBUTED INTERESTS. An
assignment by Contributor of the Contributed Interest and its certificate of its
withdrawal from Deereco, Atrium and Brown's Wharf.
30
<PAGE>
16.1.2. RELEASE. A release from Contributor releasing
each Owner and the UPREIT from any obligations and liabilities with respect to
any matter arising from business done, transactions entered into or events
occurring prior to the Closing Date.
16.1.3. LENDER'S APPROVALS. The Lender's Approvals
from the holders of all of the Assumed Indebtedness in conformity with SECTION
14.1.3.
16.1.4. KEYS. Keys to all locks located at the
Project (to the extent in Contributor's possession or control);
16.1.5. AFFIDAVIT OF TITLE AND ALTA STATEMENT. As to
each Project, an Affidavit of Title (or comparable document) limited solely to
status of parties in possession, absence of outstanding contracts of sale and
mechanics' and/or materialman liens and such additional affidavits as the Title
Company shall reasonably require in order to issue an owner's policy of title
insurance (or any appropriate endorsement, including without limitation
"non-imputation" and "same as survey" endorsements (if available), to any
Owner's existing policy of title insurance, if any, insuring the Owner's title
as of the Closing Date and in the amount of the applicable portion of the Asset
Value) free of any Prohibited Exceptions;
16.1.6. LETTER TO TENANTS. A letter executed by the
applicable Owner and, if applicable, its management agent, addressed to each
Tenant, in form reasonably acceptable to Acquiror, notifying each Tenant of the
transfer of its Project and directing payment of all rents accruing after the
Closing Date to be made to Acquiror or at its direction;
16.1.7. INTENTIONALLY OMITTED.
16.1.8. ORIGINAL DOCUMENTS. To the extent not
previously delivered to Acquiror, originals of the Leases, Assigned Contracts
and Governmental Approvals that are in Contributor's possession or control (or,
if the originals have been lost or destroyed, copies that are in Contributor's
possession or control certified by Contributor as true, correct and complete);
16.1.9. CLOSING STATEMENT. A closing statement
conforming to the proration and other relevant provisions of this Agreement (the
"CLOSING STATEMENT") duly executed by Contributor;
16.1.10. PLANS AND SPECIFICATIONS. All plans and
specifications relating to the Project in Contributor's possession or control;
16.1.11. TAX BILLS. Copies of the most currently
available Tax Bills to the extent not previously delivered to Acquiror;
31
<PAGE>
16.1.12. ENTITY TRANSFER CERTIFICATE. Entity transfer
certifications confirming that Contributor is a "United States Person" within
the meaning of Section 1445 of the Internal Revenue Code of 1986, as amended;
16.1.13. RENT ROLL. An updated Rent Roll, prepared as
of the Closing Date, certified by Contributor to be true, complete and correct
through the Closing Date;
16.1.14. PARTNERSHIP DELIVERIES; WARRANT AGREEMENT.
The documents that are referred to in the Partnership Agreement (as amended) in
connection with the admission of an additional limited partner (including the
Amendment) and the warrant agreement contemplated by Section 3.6 above, each of
such documents to be duly executed by Contributor or other person or entity
receiving LP Units hereunder;
16.1.15. LP UNITS SCHEDULE. The LP Units Schedule set
forth on SCHEDULE 4.1.2, duly executed by Contributor;
16.1.16. CLOSING CERTIFICATE. A certificate, signed
by Contributor and the LP Unit Recipients, certifying to the UPREIT that (a) the
representations and warranties of Contributor contained in this Agreement that
are qualified by materiality are true and correct as of the Closing Date and the
other representations and warranties of Contributor contained in this Agreement
are true and correct as of the Closing Date in all material respects, and (b)
all material covenants required to be performed by Contributor prior to the
Closing Date have been performed;
16.1.17. OTHER. Such other documents and instruments
as may reasonably be required by Acquiror (including those of Contributor's
Deliveries in Contributor's possession or control that have not previously been
delivered to Acquiror), its (or its underwriters' or lenders') counsel or the
Title Company and that may be necessary to consummate the transactions that are
the subject of this Agreement and to otherwise give effect to the agreements of
the parties hereto. After the Closing, Contributor shall, without cost to
Contributor, execute and deliver to Acquiror such further documents and
instruments as Acquiror shall reasonably request to effect these transactions
and otherwise effect the agreements of the parties hereto.
16.2. ACQUIROR'S DELIVERIES. Unless previously delivered to
Contributor, at the Closing (or such other times as may be specified below),
Acquiror shall cause to be delivered to Contributor the following, each in form
and substance reasonably acceptable to Contributor and Acquiror and their
respective counsel:
16.2.1. REGISTRATION CONFIRMATION. A certificate from
the UPREIT certifying as to the registration of the LP Units in the books and
records of the UPREIT and the
32
<PAGE>
ownership by Contributor of such LP Units, together with a copy of such books
and records showing such ownership;
16.2.2. PARTNERSHIP AGREEMENT. A copy of the
Partnership Agreement, duly certified by the secretary of the REIT as true,
complete and correct;
16.2.3. AMENDMENT; WARRANT AGREEMENT. The Amendment
and the warrant agreement contemplated by Section 3.6 above, duly executed by
the REIT;
16.2.4. ORGANIZATIONAL DOCUMENTS. A copy certified by
the Secretary of State of the State of Delaware and Maryland, respectively, of
the Articles of Incorporation of Acquiror and the REIT and a good standing
certificate for Acquiror and the REIT; (ii) a copy certified by the Secretary of
State of the State of Delaware of the certificate of limited partnership of the
UPREIT and a good standing certificate for the UPREIT; and (iii) a copy,
certified by the secretary of the REIT, of the resolutions of the REIT's board
of trustees, authorizing the transactions described herein;
16.2.5. CLOSING STATEMENT. The Closing Statement,
duly executed by the UPREIT;
16.2.6. REGISTRATION RIGHTS CONFIRMATION. An
acknowledgment by the REIT that Contributor is entitled to the benefits of the
Registration Rights Agreement as a result of its admission as a limited partner
in the UPREIT;
16.2.7. ASSIGNMENT. The assignment by Acquiror of its
rights and obligations hereunder to the UPREIT;
16.2.8. LP UNITS SCHEDULE. The LP Units Schedule set
forth on SCHEDULE 4.1.2, duly executed by the UPREIT;
16.2.9. TENANTS LETTER. A letter to Tenants described
in Section 16.1.6 above, duly executed by the UPREIT; and
16.2.10. CLOSING CERTIFICATE. A certificate, signed
by Acquiror, certifying to the Contributor that (a) the representations and
warranties of Acquiror contained in this Agreement that are qualified by
materiality are true and correct as of the Closing Date and the other
representations and warranties of Acquiror contained in this Agreement are true
and correct as of the Closing Date in all material respects, and (b) all
material covenants required to be performed by Acquiror prior to the Closing
Date have been performed;
33
<PAGE>
16.2.11. OTHER. Such other documents and instruments
as may reasonably be required by Contributor, the LP Unit Recipient or its or
their respective counsel or the Title Company and that are necessary to
consummate the transactions which are the subject of this Agreement and to
otherwise effect the agreements of the parties hereto. After Closing, the UPREIT
shall, without cost to the UPREIT, execute and deliver to Contributor such
further documents and instruments as Contributor shall reasonably request to
effect these transactions and otherwise effect the agreements of the parties
hereto.
16.2.12. RELEASE. A release from the UPREIT and each
Owner releasing Contributor from any obligations and liabilities with respect to
any matter arising from business done, transactions entered into or events
occurring after the Closing Date.
17. PRORATIONS AND ADJUSTMENTS. The following shall be prorated and
adjusted between Contributor and Acquiror as of the Closing Date, except as
otherwise specified:
Except to the extent otherwise expressly provided in this
Agreement, with respect to apportionments hereunder for the Deereco and Atrium
Projects, all matters that were described in the contract of sale for the
Deereco and Atrium Projects by which Contributor acquired the limited liability
company interests in Deereco and Atrium (the "DEERECO/ATRIUM CONTRACT") as
matters to be apportioned between the seller and purchaser at the Closing under
the Deereco/Atrium Contract, shall be similarly apportioned between Contributor
and Acquiror at the closing hereunder in accordance with the provisions of the
Deereco/Atrium Contract. Except to the extent otherwise expressly provided in
this Agreement, with respect to apportionments hereunder for the Brown's Wharf
Project, all matters that were described in the contract of sale for the Brown's
Wharf Project by which Contributor acquired the limited liability company
interests in Brown's Wharf (the "BROWN'S WHARF CONTRACT") as matters to be
apportioned between the seller and purchaser at the closing under the Brown's
Wharf Contract, shall be similarly apportioned between Contributor and Acquiror
at the Closing hereunder in accordance with the provisions of the Brown's Wharf
Contract.
17.1. Distributions in respect of the LP Units acquired by the
LP Unit Recipients shall begin to accrue from and after the Closing Date
(notwithstanding the fact that such date may not be the applicable Record Date
under the Partnership Agreement), and the amount of distributions paid or to be
paid to the LP Unit Recipients for any quarter shall be prorated accordingly;
17.2. Such other items that are customarily prorated in
transactions of this nature shall be ratably prorated.
For purposes of calculating prorations, Acquiror shall be deemed to be
in title to the Project, and therefore entitled to the income therefrom and
responsible for the expenses thereof,
34
<PAGE>
for the entire Closing Date. All such prorations shall be made on the basis of
the actual number of days of the year and month that shall have elapsed as of
the Closing Date. Bills received after the Closing that relate to expenses
incurred, services performed or other amounts allocable to the period prior to
the Closing Date shall be paid, in cash, by Contributor, to the extent due and
owing. Bills received by Contributor after the Closing Date that relate to
expenses incurred, services performed or other amounts allocable to the period
on or after the Closing Date, shall be paid, in cash, by the Acquiror, to the
extent due and owing.
18. CLOSING EXPENSES. Unless the Assumed Indebtedness is assumed by
Acquiror (in which case the provisions of Section 3.3 shall apply), Contributor
will pay the entire cost of all release fees, prepayment fees and any other fees
in connection with the payoff, release and satisfaction of the Assumed
Indebtedness and all fees imposed by its accountants and attorneys in connection
with this Agreement and the transaction contemplated hereunder. The provisions
of this Section 18 shall survive the Closing without time limitation.
19. DESTRUCTION, LOSS OR DIMINUTION OF REAL PROPERTY. If, prior to the
Closing, all or any portion of any Project is damaged by fire or other natural
casualty (collectively, "DAMAGE"), or is taken or made subject to condemnation,
eminent domain or other governmental acquisition proceedings (collectively,
"EMINENT DOMAIN"), then the following procedures shall apply:
19.1. Acquiror shall close and take the Project in question as
diminished by the Damage or Eminent Domain, as the case may be, subject to a
reduction in the Contribution Consideration otherwise due at the Closing, in the
amount set forth in Section 19.2 below.
19.2. At the Closing, Contributor shall assign or pay over to
Acquiror all proceeds of Contributor's casualty insurance proceeds in the case
of any Damage (or condemnation awards in the case of any Eminent Domain). In
addition, in the case of any Damage, to the extent such amounts are insufficient
to pay for the full cost of the repair or replacement of the Project (whether by
reason of a deductible, uninsured amount or otherwise), Acquiror shall proceed
to close on all of the Projects subject to a reduction in the Contribution
Consideration equal to the difference between (a) the amount assigned or paid
over to Acquiror, and (b) the amount required to pay for the full cost of the
repair or replacement of the Project. Contributor shall fully cooperate with
Acquiror in the adjustment and settlement of the insurance claim or governmental
acquisition proceeding and if, as of the Closing, the insurance proceeds (or
condemnation award) assignable to Acquiror shall not have been collected from
the insurer or Governmental Authority, then a cash credit in the amount thereof
shall be given to Acquiror, to be repaid to Contributor out of and upon
Acquiror's actual receipt of insurance proceeds (or condemnation award). The
proceeds and benefits under any rent loss or business interruption policies
attributable to the period following the Closing shall likewise be transferred
and paid over (and, if applicable, likewise credited on an interim basis) to
Acquiror.
35
<PAGE>
19.3. In the event of a dispute between Contributor and
Acquiror with respect to the full cost of repair and/or replacement with respect
to the matters set forth in this Section 19, an engineer designated by
Contributor and an engineer designated by Acquiror shall select an independent
engineer licensed to practice in the jurisdiction where the Project in question
is located who shall resolve such dispute. All fees, costs and expenses of such
third engineer so selected shall be shared equally by Acquiror and Contributor.
20. DEFAULT; INDEMNITY.
20.1. DEFAULT BY CONTRIBUTOR. In the event that the express
conditions of Contributor's obligations under this Agreement have been satisfied
(or have been waived or deemed waived), and Acquiror has complied with all
material terms and conditions set forth in this Agreement to be complied with by
Acquiror prior to or at Closing, and Contributor is unwilling or otherwise fails
to consummate Closing, then Contributor shall promptly reimburse Acquiror for
Acquiror's actual, documented, out-of-pocket expenses incurred in anticipation
of consummating the Closing, up to Twenty-Five Thousand Dollars ($25,000), and
thereupon Contributor shall, except as expressly provided in this Agreement,
have no further obligation or liability to Acquiror under this Agreement, and
this Agreement shall be null and void. In the alternative, and the foregoing
notwithstanding, Acquiror shall have the right to seek specific performance of
Contributor's obligation to contribute the Contributed Interests and complete
the Closing hereunder. The foregoing enumerated remedies shall be Acquiror's
sole and exclusive remedies hereunder at law or in equity.
20.2. DEFAULT BY ACQUIROR. In the event that the express
conditions of Acquiror's obligations under this Agreement have been satisfied
(or have been waived or deemed waived), and Contributor has complied with all
material terms and conditions set forth in this Agreement to be complied with by
Contributor prior to or at Closing, and Acquiror is unwilling or otherwise fails
to consummate Closing, then Acquiror shall promptly reimburse Contributor for
Contributor's actual, documented, out-of-pocket expenses incurred in
anticipation of consummating the Closing, up to Twenty-Five Thousand Dollars
($25,000), and thereupon Acquiror shall, except as expressly provided in this
Agreement, have no further obligation or liability to Contributor under this
Agreement, and this Agreement shall be null and void. In the alternative, and
the foregoing notwithstanding, Contributor shall have the right to seek specific
performance of Acquiror's obligation to acquire the Contributed Interests, pay
the Contribution Consideration and complete Closing hereunder. The foregoing
enumerated remedies shall be Contributor's sole and exclusive remedies hereunder
at law or in equity.
20.3. INDEMNIFICATION.
36
<PAGE>
20.3.1. ACQUIROR, THE REIT AND THE UPREIT.
Contributor and each LP Unit Recipient, jointly and severally, agree to and do
hereby indemnify, defend and hold harmless Acquiror, the UPREIT and the REIT,
each of their respective Affiliates, partners, members, officers, directors,
shareholders, agents and the employees of any of them, and each of their
respective successors and assigns (collectively, the "ACQUIROR INDEMNIFIED
PARTIES"), from and against any and all claims, losses, demands, liabilities,
suits, administrative proceedings, causes of action, costs and damages suffered
by any Acquiror Indemnified Party, but excluding consequential damages, and
reasonable attorneys' fees of counsel selected by any Acquiror Indemnified Party
and other costs of defense, incurred, arising against, or suffered by any
Acquiror Indemnified Party, both known and unknown, present and future, at law
or in equity (collectively, "LOSSES"), arising out of, by virtue of or related
in any way to, a breach of any representation, warranty or covenant of
Contributor set forth in this Agreement, whether discovered before or after the
Closing.
20.3.2. CONTRIBUTOR AND THE LP UNIT RECIPIENTS.
Acquiror agrees to and does hereby indemnify, defend and hold harmless
Contributor and the LP Unit Recipients and each of their respective partners,
officers, directors, shareholders, agents and employees, and each of their
successors and assigns, from and against any and all Losses arising out of, by
virtue of or related in any way to, a breach of any representation, warranty or
covenant of Acquiror set forth in this Agreement, whether discovered before or
after the Closing.
20.3.3. LIMITATIONS.
20.3.3.1 All representations and warranties
set forth in this Agreement shall survive the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby,
regardless of any investigation made by the parties hereto or their
representatives, for a period ending on the date which is one year after the
Closing Date; PROVIDED, HOWEVER, that any claim based on a representation or
warranty actually known by the indemnifying person to be untrue, without any
affirmative duty of investigation, shall survive without limit; PROVIDED
FURTHER, HOWEVER, that no claim for breach of a representation or warranty may
be brought under this Agreement unless written notice of such claim (stating the
date of discovery thereof and the factual basis therefor in reasonable detail)
shall have been given on or prior to the last day of the survival period (in
which event each such representation and warranty shall survive until such claim
is finally resolved and all obligations with respect thereto are fully
satisfied). With respect to any claim validly alleging a breach of a
representation or warranty hereunder filed within the period set forth above,
the obligation to indemnify pursuant to this Section 20.3 shall survive without
limit. All covenants, agreements and undertakings hereunder shall survive the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, regardless of any investigation made by the
parties hereto or their representatives, without limit (except to the extent
expressly provided herein).
37
<PAGE>
20.3.3.2 To the extent that any
Contributor's representation or warranty hereunder relates to a specific fact or
circumstance which occurred on or prior to Contributor's acquisition of the
Contributed Interests, the survival period applicable to such representation or
warranty hereunder shall expire contemporaneously with the expiration of the
survival period for the corresponding representation or warranty in the
Deereco/Atrium Contract or the Brown's Wharf Contract, as the case may be.
20.3.3.3 The indemnification obligations
hereunder shall be limited to claims made prior to the last date of survival of
the applicable representation, warranty or covenant referred to in this
Agreement.
20.3.3.4 The amount of the indemnifying
party's liability under this Agreement shall be determined taking into account
(A) any applicable insurance proceeds actually received by the indemnified
party, and (B) any other savings realized in connection with such liability that
actually reduce the overall impact of the Losses upon the indemnified party.
20.3.3.5 Each indemnified party shall give
reasonably prompt notice to each indemnifying party of any action or proceeding
commenced against the indemnified party in respect of which indemnity may be
sought hereunder, but failure so to notify an indemnifying party (i) shall not
relieve it from any liability which it may have under any indemnity provided
herein unless and to the extent it did not otherwise learn of such action and
the lack of notice by the indemnified party results in the forfeiture by the
indemnifying party of substantial rights and defenses and (ii) shall not, in any
event, relieve the indemnifying party from any obligations to any indemnified
party hereunder other than its indemnification obligation. If the indemnifying
party so elects within a reasonable time after receipt of such notice, the
indemnifying party may assume the defense of such action or proceeding at such
indemnifying party's own expense with counsel chosen by the indemnifying party
and reasonably acceptable to the indemnified party. If an indemnifying party
does not assume such defense, after having received the notice referred to in
the first sentence of this Section 20.3.3.5, the indemnifying party or parties
will pay the reasonable fees and expenses of counsel for the indemnified party
or parties. In such event however, no indemnifying party will be liable for any
settlement effected without the written consent of such indemnifying party.
Except as specific in this Section 20.3.3.5, if an indemnifying party is
entitled to assume, and assumes, the defense of such action or proceeding in
accordance with this Section, such indemnifying party shall not be liable for
any fees and expenses of counsel for the indemnified parties incurred thereafter
in connection with such action or proceeding.
21. SUCCESSORS AND ASSIGNS. The terms, conditions and covenants of this
Agreement shall be binding upon and shall inure to the benefit of the parties
and their respective nominees, successors, beneficiaries and permitted assigns.
Neither party hereto shall have any right to assign this Agreement or its rights
hereunder; provided, however, subject to the
38
<PAGE>
provisions of Section 2.1 hereof, Acquiror shall prior to Closing assign its
right, title and interest under this Agreement to the UPREIT (or a successor
partnership) but shall not otherwise assign any of its rights hereunder.
22. LITIGATION. In the event of litigation between the parties with
respect to the Project, this Agreement, the performance of their respective
obligations hereunder or the effect of a termination under this Agreement, the
losing party shall pay all costs and expenses incurred by the prevailing party
in connection with such litigation, including reasonable attorneys' fees of
counsel selected by the prevailing party. The parties hereby further acknowledge
and agree that in the event of litigation between them, as contemplated above,
and the resolution of that litigation through compromise, settlement, or partial
judgment, the court before which such litigation is initially brought shall have
the right to allocate responsibility, between Contributor and Acquiror, for all
costs and expenses (including attorneys' reasonable fees) incurred by both
Contributor and Acquiror in the pursuit of that litigation resolved through
compromise, settlement or partial judgment. Notwithstanding any provision of
this Agreement to the contrary, the obligations of the parties under this
Section 22 shall survive termination of this Agreement and the Closing, if
applicable.
23. NOTICES. Any notice, demand or request which may be permitted,
required or desired to be given in connection therewith shall be given in
writing and directed to Contributor and Acquiror as follows:
Contributor: United Properties Group, Incorporated
305 W. Grand Avenue, Suite 100
Montvale, New Jersey 07645
Attention: Joseph S. Thompson
Telephone: (201) 505-4080
Facsimile: (201) 505-0481
With a copy to
its attorneys: LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, New York 10019-5389
Attention: James Verscaj, Esquire
Telephone: (212) 424-8000
Facsimile: (212) 424-8500
Acquiror: COPT ACQUISITIONS, INC.
c/o Corporate Office Properties Trust
8815 Centre Park Drive, Suite 400
Columbia, MD 21045
39
<PAGE>
Attention: John H. Gurley, Esq.
Telephone: (410) 730-9092
Facsimile: (410) 740-1174
With a copy to
its attorneys: MORGAN, LEWIS & BOCKIUS LLP
1701 Market Street
Philadelphia, PA 19103
Attention: Eric L. Stern, Esquire
Telephone: (215) 963-5000
Facsimile: (215) 963-5299
Notices shall be deemed properly delivered and received when and if
either (i) personally delivered, including via confirmed facsimile; (ii) on the
first business day after deposit with a commercial overnight courier for
delivery on the next business day; or (iii) five (5) days after having be sent
via registered or certified first class mail, postage prepaid, return receipt
requested. Any party may change its address for delivery of notices by properly
notifying the others pursuant to this Section 23.
24. BENEFIT. This Agreement is for the benefit only of the parties
hereto and their nominees, successors, beneficiaries and assignees as permitted
in Section 21 above and no other person or entity shall be entitled to rely
hereon, receive any benefit herefrom or enforce against any party hereto any
provision hereof.
25. LIMITATION OF LIABILITY. All liabilities and obligations of
Acquiror under this Agreement shall be those of Acquiror only. Subject to the
consummation of the Assignment, Contributor shall not, under any circumstances,
look to any person or entity other than Acquiror, including any Affiliate of
Acquiror, for performance or satisfaction of Acquiror's obligations and
liabilities in connection with this Agreement. Without limiting the foregoing,
none of the REIT or any Affiliate of Acquiror or their respective members,
partners and shareholders shall incur any liability under any document or
agreement required in connection with this Agreement, and Acquiror shall not be
required (in connection with this Agreement) to execute any document or
agreement. that does not expressly exculpate and release such parties and their
respective successors, assigns, affiliates, officers, shareholders, partners,
employees, agents and representatives from any liability or obligation arising
out of, or in connection with, this Agreement. Except as otherwise specifically
provided in this Agreement, none of the UPREIT, the REIT and Acquiror shall
assume or discharge any debts, obligations, liabilities or commitments of
Contributor, whether accrued now or hereafter, fixed or contingent, known or
unknown.
40
<PAGE>
26. BROKERAGE. Acquiror and Contributor each represents to the other
that it has not dealt with any broker or agent in connection with this
transaction Each party hereby indemnifies and holds harmless the other party
from all loss, cost and expense (including reasonable attorneys' fees) arising
out of a breach of its representation or undertaking set forth in this Section
26. The provisions of this Section 26 shall survive Closing or the termination
of this Agreement.
27. REASONABLE EFFORTS. Contributor and Acquiror shall use their
reasonable, diligent and good faith efforts, and shall cooperate with and assist
each other in their efforts, to obtain any and all consents and approvals of
third parties (including governmental authorities) to the transaction
contemplated hereby, and to otherwise perform as may be necessary or otherwise
reasonably requested by the other party to effectuate the transfer of the
Project to Acquiror in accordance with, and to otherwise carry out the purposes
of, this Agreement.
28. MISCELLANEOUS.
28.1. ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding between the parties with respect to the transaction contemplated
herein, and all prior or contemporaneous oral agreements, understandings,
representations and statements, and all prior written agreements,
understandings, letters of intent and proposals are merged into this Agreement.
Neither this Agreement nor any provisions hereof may be waived, modified,
amended, discharged or terminated except by an instrument in writing signed by
the party against which the enforcement of such waiver, modification, amendment,
discharge or termination is sought, and then only to the extent set forth in
such instrument.
28.2. TIME OF THE ESSENCE. Time is of the essence of this
Agreement. If any, date herein set forth for the performance of any obligations
by Contributor or Acquiror or for the delivery of any instrument or notice as
herein provided should be on a Saturday, Sunday or legal holiday, the compliance
with such obligations or delivery shall be deemed acceptable on the next
business day following such Saturday, Sunday or legal holiday. As used herein,
the term "legal holiday" means any state or federal holiday for which financial
institutions or post offices are generally closed in the State of Maryland for
observance thereof.
28.3. CONDITIONS PRECEDENT. The obligations of the parties to
consummate the transactions contemplated hereby are subject to the express
conditions precedent set forth in this Agreement, each of which is for the sole
benefit of the applicable party and may be waived at any time by written notice
thereof from such party to the other. The waiver of any particular condition
precedent shall not constitute the waiver of any other.
41
<PAGE>
28.4. CONSTRUCTION. This Agreement shall not be construed more
strictly against one party than against the other merely by virtue of the fact
that it may have been prepared by counsel for one of the parties, it being
recognized that both Contributor and Acquiror have contributed substantially and
materially to the preparation of this Agreement. The headings of various
Sections in this Agreement are for convenience only, and are not to be utilized
in construing the content or meaning of the substantive provisions hereof.
28.5. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Maryland.
28.6. PARTIAL INVALIDITY. The provisions hereof shall be
deemed independent and severable, and the invalidity or partial invalidity or
enforceability of any one provision shall not affect the validity of
enforceability of any other provision hereof.
28.7. EXPENSES. Except and to the extent as otherwise
expressly provided to the contrary herein, Acquiror and Contributor shall each
bear its own respective costs and expenses relating to the transactions
contemplated hereby, including fees and expenses of legal counsel or other
representatives for the services used, hired or connected with the proposed
transactions mentioned above.
28.8. CERTAIN SECURITIES MATTERS. No sale of LP Units is
intended by the parties by virtue of their execution of this Agreement. Any sale
of LP Units referred to in this Agreement will occur, if at all, upon the
Closing.
28.9. CERTAIN SCHEDULES. Schedules 10.5, 10.6, 10.7, 10.9,
10.10, 10.11 and 10.12 hereto which are incomplete as of June 23, 1999 shall be
prepared by Contributor and appended hereto prior to the Contract Date.
Contributor shall not knowingly create or suffer the creation of matters which
shall be the subject of such disclosure schedules and shall use reasonable
efforts to notify Acquiror as promptly as possible once Contributor acquires
knowledge of any such matters.
28.10. COUNTERPARTS. This Agreement may be executed in any
number of identical counterparts, any of which may contain the signatures of
less than all parties, and all of which together shall constitute a single
agreement.
[SIGNATURE PAGE FOLLOWS THIS PAGE]
42
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Contribution Agreement the day and year first above written
CONTRIBUTOR AND LP UNIT RECIPIENT:
UNITED PROPERTIES GROUP, INCORPORATED,
a New York corporation
By: /s/ Joseph S. Thompson
--------------------------
Name: Joseph S. Thompson
Its: Vice President
ACQUIROR:
COPT ACQUISITIONS, INC., a Delaware corporation
By: /s/ John Harris Gurley
--------------------------
Name: John Harris Gurley
Its: Vice President
43
<PAGE>
LISTING AND LEGAL DESCRIPTION OF EACH PROJECT
<TABLE>
<CAPTION>
OWNER PROJECT STREET ADDRESS COUNTY STATE RSF.
- ----- ---------------------- -------------- ------- ---------
<S> <C> <C> <C> <C>
Deereco 9690 Deereco Road Baltimore MD 132,819
Atrium 375 Padonia Road West Baltimore MD 100,804
Brown's Wharf 1615, 1625 & 1629 Thames Street Baltimore MD 103,670
</TABLE>
[LEGAL DESCRIPTIONS TO BE ATTACHED]
A-1
<PAGE>
CORPORATE OFFICE PROPERTIES, L.P.
SECOND AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND
MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND THE APPLICABLE STATE SECURITIES LAWS PURSUANT TO A
REGISTRATION OR EXEMPTION THEREFROM.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - - INTERPRETIVE PROVISIONS............................................................................1
SECTION 1.1 Certain Definitions...............................................................1
SECTION 1.2 Rules of Construction............................................................13
ARTICLE II - CONTINUATION.......................................................................................14
SECTION 2.1 Continuation.....................................................................14
SECTION 2.2 Name.............................................................................14
SECTION 2.3 Place of Business; Registered Office; Registered Agent...........................14
ARTICLE III - BUSINESS PURPOSE..................................................................................14
SECTION 3.1 Business.........................................................................14
SECTION 3.2 Authorized Activities............................................................15
ARTICLE IV - CAPITAL CONTRIBUTION...............................................................................15
SECTION 4.1 Capital Contributions............................................................15
SECTION 4.2 Additional Partnership Interests.................................................15
SECTION 4.3 No Third Party Beneficiaries.....................................................16
SECTION 4.4 Capital Accounts.................................................................17
SECTION 4.5 Return of Capital Account; Interest..............................................18
SECTION 4.6 Preemptive Rights................................................................19
ARTICLE V - ALLOCATIONS AND DISTRIBUTIONS.......................................................................19
SECTION 5.1 Limited Liability................................................................19
SECTION 5.2 Profits, Losses and Distributive Shares..........................................19
SECTION 5.3 Distributions....................................................................25
SECTION 5.4 Distributions upon Liquidation...................................................26
SECTION 5.5 Amounts Withheld.................................................................26
SECTION 5.6 Restricted Distributions.........................................................26
SECTION 5.7 Preferred Limited Partner Priority...............................................26
ARTICLE VI - PARTNERSHIP MANAGEMENT.............................................................................27
SECTION 6.1 Management and Control of Partnership Business...................................27
SECTION 6.2 No Management by Limited Partners; Limitation of Liability.......................27
SECTION 6.3 Limitations on Partners..........................................................28
SECTION 6.4 Business with Affiliates.........................................................28
SECTION 6.5 Compensation; Reimbursement of Expenses..........................................29
SECTION 6.6 Liability for Acts and Omissions.................................................29
SECTION 6.7 Indemnification..................................................................30
ARTICLE VII - ADMINISTRATIVE, FINANCIAL AND TAX MATTERS.........................................................30
SECTION 7.1 Books and Records................................................................30
SECTION 7.2 Annual Audit and Accounting......................................................30
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
SECTION 7.3 Partnership Funds................................................................31
SECTION 7.4 Reports and Notices..............................................................31
SECTION 7.5 Tax Matters......................................................................31
SECTION 7.6 Withholding......................................................................32
ARTICLE VIII - TRANSFER OF PARTNERSHIP INTERESTS; ADMISSION OF PARTNERS........................................32
SECTION 8.1 Transfer by General Partner......................................................32
SECTION 8.2 Obligations of a Prior General Partner...........................................33
SECTION 8.3 Successor General Partner........................................................33
SECTION 8.4 Restrictions on Transfer and Withdrawal by Limited Partner.......................33
SECTION 8.5 Substituted Limited Partner......................................................35
SECTION 8.6 Timing and Effect of Transfers...................................................35
SECTION 8.7 Additional Limited Partners......................................................35
SECTION 8.8 Amendment of Agreement and Certificate...........................................36
SECTION 8.9 Pledges..........................................................................36
ARTICLE IX - REDEMPTION AND CONVERSION..........................................................................36
SECTION 9.1 Right of Redemption..............................................................36
SECTION 9.2 Timing of Redemption.............................................................36
SECTION 9.3 Redemption Price.................................................................37
SECTION 9.4 Assumption of Redemption Obligation..............................................37
SECTION 9.5 Further Assurances; Certain Representations......................................37
SECTION 9.6 Effect of Redemption.............................................................37
SECTION 9.7 Registration Rights..............................................................38
SECTION 9.8 Conversion.......................................................................38
SECTION 9.9 Redemption Restriction...........................................................39
SECTION 9.10 Special Event....................................................................39
ARTICLE X - DISSOLUTION AND LIQUIDATION.........................................................................41
SECTION 10.1 Term and Dissolution.............................................................41
SECTION 10.2 Liquidation of Partnership Assets................................................41
SECTION 10.3 Effect of Treasury Regulations...................................................43
SECTION 10.4 Time for Winding-Up..............................................................44
ARTICLE XI - AMENDMENTS AND MEETINGS............................................................................44
SECTION 11.1 Amendment Procedure..............................................................44
SECTION 11.2 Meetings and Voting..............................................................45
ARTICLE XII - MISCELLANEOUS PROVISIONS..........................................................................45
SECTION 12.1 Title to Property................................................................45
SECTION 12.2 Other Activities of Limited Partners and Preferred Limited Partners..............46
SECTION 12.3 Power of Attorney................................................................46
SECTION 12.4 Notices..........................................................................47
SECTION 12.5 Further Assurances...............................................................47
SECTION 12.6 Titles and Captions..............................................................48
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
SECTION 12.7 Applicable Law...................................................................48
SECTION 12.8 Binding Agreement................................................................48
SECTION 12.9 Waiver of Partition..............................................................48
SECTION 12.10 Counterparts and Effectiveness...................................................48
SECTION 12.11 Survival of Representations......................................................48
SECTION 12.12 Entire Agreement.................................................................48
SECTION 12.13 Authorization and Consent........................................................48
SECTION 12.14 Merger...........................................................................49
</TABLE>
EXHIBIT 1 Schedule of Partners
EXHIBIT 2 Form of Redemption or Conversion Notice
EXHIBIT 3 Amended and Restated Registration Rights Agreement
-iii-
<PAGE>
CORPORATE OFFICE PROPERTIES, L.P.
SECOND AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT
The undersigned, being the sole general partner and the initial
Limited Partners of CORPORATE OFFICE PROPERTIES, L.P. (the "Partnership"), a
limited partnership formed under the Delaware Revised Uniform Limited
Partnership Act, do hereby enter into this Second Amended and Restated
Partnership Agreement as of this ____ day of December, 1999.
R E C I T A L S:
A. The Partnership was formed pursuant to a Certificate of Limited
Partnership filed on October 10, 1997 with the Secretary of State of the State
of Delaware under the name "FCO, L.P." following the execution of a Limited
Partnership Agreement dated October 14, 1997 (the "Original Partnership
Agreement") among the General Partner's predecessor and the Initial Limited
Partners.
B. The Partnership changed its name to Corporate Office Properties,
L.P. as of January 1, 1998.
C. The General Partner was reformed as a Maryland real estate
investment trust on March 16, 1998.
D. The General Partner, the Limited Partners and the Preferred
Limited Partners amended and restated the Original Partnership Agreement on
March 16, 1998 (the "First Amended and Restated Partnership Agreement").
E. The General Partner, the Limited Partners and the Preferred
Limited Partners desire to set forth the understandings and agreements,
including certain rights and obligations, among the Partners (as hereinafter
defined) with respect to the Partnership. This Agreement amends, restates and
supersedes the First Amended and Restated Partnership Agreement in its entirety.
- --------------------------------------------------------------------------------
ARTICLE I - - INTERPRETIVE PROVISIONS
- --------------------------------------------------------------------------------
SECTION 1.1 CERTAIN DEFINITIONS. The following terms have the
definitions hereinafter indicated whenever used in this Agreement with initial
capital letters:
ACT: The Delaware Revised Uniform Limited Partnership Act, Sections
17-101 to 17-1111 of the Delaware Code, Title 6, as amended from time to time.
ADDITIONAL LIMITED PARTNER/PREFERRED LIMITED PARTNER: A Person admitted
to the Partnership as a Limited Partner or Preferred Limited Partner in
accordance with Section 8.7
-1-
<PAGE>
hereof and who is shown as such on the books and records of the Partnership in
such Person's capacity as a limited partner of the Partnership.
ADJUSTED CAPITAL ACCOUNT: With respect to any Partner, such Partner's
Capital Account maintained in accordance with Section 4.4 hereof, as of the end
of the relevant Fiscal Year of the Partnership, after giving effect to the
following adjustments:
(A) Credit to such Capital Account such Partner's share of
Partnership Minimum Gain determined in accordance with Treasury Regulations
Section 1.704-2(g)(1) and such Partner's share of Partner Minimum Gain
determined in accordance with Treasury Regulations Section 1.7042(i)(5).
(B) Debit to such Capital Account the items described in
Treasury Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
The foregoing definition of "Adjusted Capital Account" is intended to
comply with the provisions of Treasury Regulations Sections 1.704-1(b)(2)(ii)
and 1.704-2 and shall be interpreted consistently therewith.
ADJUSTED CAPITAL ACCOUNT DEFICIT: With respect to any Partner, the
deficit balance, if any, in that Partner's Adjusted Capital Account as of the
end of the relevant Fiscal Year of the Partnership.
AFFILIATE: With respect to any referenced Person, (i) a member of such
Person's immediate family; (ii) any Person who directly or indirectly owns,
controls or holds the power to vote ten percent (10%) or more of the outstanding
voting interests or securities of the Person in question; (iii) any Person ten
percent (10%) or more of whose outstanding interests or securities are directly
or indirectly owned, controlled, or held with power to vote by the Person in
question; (iv) any Person directly or indirectly controlling, controlled by, or
under direct or indirect common control with the Person in question; (v) if the
Person in question is a corporation, any executive officer or director of such
Person or of any corporation directly or indirectly controlling such Person; and
(vi) if the Person in question is a partnership, any general partner of the
partnership or any limited partner owning or controlling ten percent (10%) or
more of either the capital or profits interest in such partnership. As used
herein, "control" shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract, or
otherwise.
AGREED VALUE: In the case of any (i) Contributed Property acquired
pursuant to a Contribution Agreement, the value of such Contributed Property as
set forth in or determined pursuant to such Contribution Agreement or, if no
such value is set forth or determined for such Contributed Property, the portion
of the consideration provided for under such Contribution Agreement allocable to
such Contributed Property, as determined by the General Partner in its
reasonable discretion, (ii) Contributed Property acquired other than pursuant to
a Contribution Agreement, the fair market value of such property at the time of
contribution, as determined by the General Partner using such method of
valuation as it may adopt in its reasonable discretion
-2-
<PAGE>
and (iii) property distributed to a Partner by the Partnership, the
Partnership's Book Value of such property at the time such property is
distributed without taking into account, in the case of each of (i), (ii) and
(iii), the amount of any related indebtedness assumed by the Partnership (or the
Partner in the case of clause (iii)) or to which the Contributed Property is
taken subject.
AGREEMENT: This Second Amended and Restated Limited Partnership
Agreement and all Exhibits attached hereto, as the same may be amended or
restated and in effect from time to time which are hereby incorporated by
reference and made a part of this Agreement.
ASSIGNEE: Any Person to whom one or more Partnership Units or Preferred
Units have been Transferred as permitted under this Agreement but who has not
become a Substituted Limited Partner/Preferred Limited Partner in accordance
with the provisions hereof.
BANKRUPTCY: Either (i) a referenced Person's making an assignment for
the benefit of creditors, (ii) the filing by a referenced Person of a voluntary
petition in bankruptcy, (iii) a referenced Person's being adjudged insolvent or
having entered against such referenced Person an order for relief in any
bankruptcy or insolvency proceeding, (iv) the filing by a referenced Person of
an answer seeking any reorganization, composition, readjustment, liquidation,
dissolution, or similar relief under any law or regulation, (v) the filing by a
referenced Person of an answer or other pleading admitting or failing to contest
the material allegations of a petition filed against such referenced Person in
any proceeding of reorganization, composition, readjustment, liquidation,
dissolution, or for similar relief under any statute, law or regulation or (vi)
a referenced Person's seeking, consenting to, or acquiescing in the appointment
of a trustee, receiver or liquidator for all or substantially all of such
referenced Person's property (or court appointment of such trustee, receiver or
liquidator). The foregoing is intended to supersede the events listed in Section
17-402(a)(4) and (5) of the Act.
BOOK-TAX DISPARITY: With respect to any item of Contributed Property,
or property the Book Value of which has been adjusted in accordance with Section
4.4(D), as of the date of determination, the difference between the Book Value
of such property and the adjusted basis of such property for federal income tax
purposes.
BOOK VALUE: With respect to any Contributed Property, the Agreed Value
of such property reduced (but not below zero) by all Depreciation with respect
to such property properly charged to the Partners' Capital Accounts and with
respect to any other asset, the asset's adjusted basis for federal income tax
purposes; PROVIDED, HOWEVER, (a) the Book Value of all Partnership Assets shall
be adjusted in the event of a revaluation of Partnership Assets in accordance
with Section 4.4(D) hereof, (b) the Book Value of any Partnership Asset
distributed to any Partner shall be the fair market value of such asset on the
date of distribution as determined by the General Partner and (c) such Book
Value shall be adjusted by the Depreciation taken into account with respect to
such asset for purposes of computing Profits and Losses.
-3-
<PAGE>
CAPITAL ACCOUNT: The account maintained by the Partnership for each
Partner described in Section 4.4 hereof.
CAPITAL CONTRIBUTION: The total amount of cash or cash equivalents and
the Agreed Value (reduced to take into account the amount of any related
indebtedness assumed by the Partnership, or to which the Contributed Property is
subject) of Contributed Property which a Partner contributes or is deemed to
contribute to the Partnership pursuant to the terms of this Agreement.
CASH PAYMENT: The payment to a Redeeming Party of a cash amount
determined by multiplying (i) the number of Partnership Units tendered for
redemption by such Redeeming Party pursuant to a validly proffered Redemption
Notice by (ii) the Unit Value with respect to such Partnership Units.
CERTIFICATE: The Partnership's Certificate of Limited Partnership filed
in the office of the Secretary of State of the State of Delaware, as amended
from time to time.
CODE: The Internal Revenue Code of 1986, as amended from time to time.
CONSENT: Either the written consent of a Person or the affirmative vote
of such Person at a meeting duly called and held pursuant to this Agreement, as
the case may be, to do the act or thing for which the consent or vote is
required or solicited, or the act of granting such consent or vote, as the
context may require.
CONSTELLATION AGREEMENTS: Those certain agreements, dated May 14, 1998,
by and among the General Partner, the Partnership and the Constellation Real
Estate Group, Inc., and certain partnerships and other entities, pursuant to
which certain real property, partnership and membership interests in certain
entities which hold real property or mortgages secured by real property, and
certain other assets were contributed to the General Partner in exchange for
REIT Shares.
CONSTELLATION ASSETS: Properties contributed to the General Partner in
exchange for REIT Shares, pursuant to the Constellation Agreements.
CONTRIBUTED PROPERTY: Each property or other asset (excluding cash and
cash equivalents) contributed or deemed contributed to the Partnership (whether
as a result of a Code Section 708 termination or otherwise). For the avoidance
of doubt, the properties and assets held by the partnership constituting the
Contributed Interests (as defined in the Formation Agreement) shall constitute
Contributed Properties to the extent the Contributed Interests are acquired by
the Partnership.
CONTRIBUTION AGREEMENTS: Those certain agreements among one or more
Persons and the Partnership pursuant to which, INTER ALIA, such Persons directly
or indirectly contributed property to the Partnership in exchange for
Partnership Units or Preferred Units or are to contribute property to the
Partnership in exchange for Partnership Units or Preferred Units including,
without limitation, the Formation Agreement.
-4-
<PAGE>
CONVERSION COMMENCEMENT DATE: The date when Preferred Units which are
convertible into Partnership Units first become convertible.
CONVERSION FACTOR: The number of Partnership Units issuable upon the
conversion of each Preferred Unit of a class or series which are convertible
into Partnership Units.
CONVERSION NOTICE: A Notice to the General Partner by a converting
Preferred Limited Partner, substantially in the form attached as EXHIBIT 2,
pursuant to which such Preferred Limited Partner requests the conversion of
Preferred Units in accordance with Section 9.8 hereof.
COPT: Corporate Office Properties Trust, a Maryland real estate
investment trust.
DEPRECIATION: For each Fiscal Year or other period, an amount equal to
the depreciation, amortization or other cost recovery deduction allowable with
respect to an asset for such year or other period, except that if the Book Value
of an asset differs from its adjusted basis for federal income tax purposes at
the beginning of such year or other period, Depreciation shall be adjusted as
necessary so as to be an amount which bears the same ratio to such beginning
Book Value as the federal income tax depreciation, amortization, or other cost
recovery deduction for such year or other period bears to the beginning adjusted
tax basis; PROVIDED, HOWEVER, that if the federal income tax depreciation,
amortization or other cost recovery deduction for such year or other period is
zero, Depreciation for such year or other period shall be determined with
reference to such beginning Book Value using any reasonable method approved by
the General Partner.
DISTRIBUTABLE CASH: With respect to any period, and without
duplication:
(i) all cash receipts of the Partnership during such period
from all sources;
(ii) LESS all cash disbursements of the Partnership during
such period, including, without limitation, disbursements for operating
expenses, taxes, debt service (including, without limitation, the payment of
principal, premium and interest), redemption of Partnership Interests and
capital expenditures;
(iii) LESS amounts added to reserves in the reasonable
discretion of the General Partner;
(iv) PLUS amounts withdrawn from reserves in the reasonable
discretion of the General Partner.
DISTRIBUTION PERIOD: With respect to any series of Preferred Units
issued to the General Partner pursuant to Section 4.2(B) of this Agreement, the
Distribution Period shall correspond to the distribution period of the related
issuance of securities by the General Partner as provided in Section 4.2(B) of
this Agreement. With respect to Preferred Units issued by the
-5-
<PAGE>
Partnership to Persons other than the General Partner, the Distribution Period
shall be set forth on the Addendum to EXHIBIT 1 hereto or otherwise set forth in
an amendment to this Agreement.
DISTRIBUTION PERIOD COMMENCEMENT DATE: The date which begins any
Distribution Period.
ERISA: The Employee Retirement Income Security Act of 1976, as amended
from time to time.
FISCAL YEAR: The calendar year or such other twelve (12) month period
designated by the General Partner.
FORMATION AGREEMENT: The Formation/Contribution Agreement dated as of
September 7, 1997 by and among Royale, H/SIC Corporation, Strategic Facility
Investors, Inc., South Brunswick Investment Company, LLC, Comcourt Investment
Corporation, Gateway Shannon Development Corporation, Crown Advisors, Inc.,
Vernon R. Beck and John Parsinen, as the same has heretofore been and hereafter
may at any time be amended, modified and supplemented and in effect.
GENERAL PARTNER: COPT, and its respective successor(s) who or which
become Successor General Partner(s) in accordance with the terms of this
Agreement, in its capacity as general partner of the Partnership.
GENERAL PARTNER INTEREST: A Partnership Interest held by the General
Partner that is a general partner interest. A General Partner Interest may be
expressed as a number of Partnership Units.
INITIAL LIMITED PARTNERS: Those Persons initially admitted to the
Partnership as Limited Partners in connection with the contribution of property
to the Partnership in accordance with the Formation Agreement and the other
Contribution Agreements.
INVOLUNTARY WITHDRAWAL: As to any (i) individual shall mean such
individual's death, incapacity or final, unappealable adjudication of
incompetence, (ii) corporation shall mean its dissolution or revocation of its
charter (unless such revocation is promptly corrected upon notice thereof),
(iii) partnership shall mean the dissolution and commencement of winding-up of
its affairs, (iv) trust shall mean the termination of the trust (but not the
substitution of trustees), (v) estate shall mean the distribution by the
fiduciary of the estate's complete interest in the Partnership and (vi) Partner
shall mean the Bankruptcy of such Partner.
IRS: The Internal Revenue Service, which administers the internal
revenue laws of the United States.
JUNIOR PREFERRED UNITS: Preferred Units which rank junior to the Senior
Preferred Units, and prior and senior to the Partnership Units, in the payment
of Priority Return Amounts and Liquidation Preferences. Junior Preferred Units
shall be identified on the Addendum to EXHIBIT 1 hereto or otherwise set forth
in an amendment to this Agreement. Each class or series of Preferred Units which
is denominated Junior Preferred Units shall be entitled to
-6-
<PAGE>
allocations and distributions with respect to Priority Return Amounts and
Liquidation Preferences on a PARI PASSU basis with each other class or series of
Junior Preferred Units. If after their due date the full amount of all accrued
Priority Return Amounts have not been distributed with respect to all Junior
Preferred Units pursuant to Article V, no distribution shall be made to the
holders of Partnership Units pursuant to that Article. Until the holders of
Junior Preferred Units have been paid Liquidation Preferences and all Priority
Return Amounts in connection with the liquidation of the Partnership pursuant to
Section 10.2, no distribution shall be made to the holders of Partnership Units
in connection with such liquidation pursuant to that Section.
LIMITED PARTNER: Those Persons listed as holding Partnership Units on
EXHIBIT 1 attached hereto and made a part hereof, as such Exhibit may be amended
from time to time, including any Person who becomes a Substituted Limited
Partner or an Additional Limited Partner in accordance with the terms of this
Agreement in such Person's capacity as a limited partner of the Partnership;
PROVIDED, HOWEVER, that such term shall not include the Preferred Limited
Partners.
LIMITED PARTNER INTEREST: A Partnership Interest held by a Limited
Partner that is a limited partner interest. A Limited Partner Interest may be
expressed as a number of Partnership Units.
LIQUIDATION PREFERENCE: The amount of the liquidation preference, if
any, of each class or series of Preferred Units determined by the General
Partner in accordance with Section 4.2(A) or (B), whichever is applicable, and
identified on the Addendum to EXHIBIT 1 hereto or otherwise set forth in an
amendment to this Agreement.
NONRECOURSE LIABILITY: A liability as defined in Treasury Regulations
Section 1.704-2(b)(3).
NOTICE: A writing containing the information required by this Agreement
to be communicated to a Person and delivered to such Person in accordance with
Section 12.4; PROVIDED, HOWEVER, that any written communication containing such
information actually received by such Person shall constitute Notice for all
purposes of this Agreement.
PARTNER MINIMUM GAIN: The gain (regardless of character) which would be
realized by the Partnership if property of the Partnership subject to a partner
nonrecourse debt (as such term is defined in Treasury Regulations Section
1.704-2(b)(4)) were disposed of in full satisfaction of such debt on the
relevant date. The adjusted basis of property subject to more than one partner
nonrecourse debt shall be allocated in a manner consistent with the allocation
of basis for purposes of determining Partnership Minimum Gain hereunder. Partner
Minimum Gain shall be computed hereunder using the Book Value, rather than the
adjusted tax basis, of the Partnership property in accordance with Treasury
Regulations Section 1.704-2(d)(3).
PARTNER NONRECOURSE DEDUCTIONS: With respect to any partner nonrecourse
debt (as such term is defined in Treasury Regulations Section 1.704-2(b)(4)),
the increase in Partner Minimum Gain during the tax year plus any increase in
Partner Minimum Gain for a prior tax
-7-
<PAGE>
year which has not previously generated a Partner Nonrecourse Deduction
hereunder. The determination of which Partnership items constitute Partner
Nonrecourse Deductions shall be made in a manner consistent with the manner in
which Partnership Nonrecourse Deductions are determined hereunder.
PARTNERS: The General Partner, the Preferred Limited Partners and the
Limited Partners as a group. The term "Partner" shall mean a General Partner, a
Preferred Limited Partner or a Limited Partner. Such terms shall be deemed to
include such other Persons who become Partners pursuant to the terms of this
Agreement.
PARTNERSHIP: The Delaware limited partnership referred to herein as
CORPORATE OFFICE PROPERTIES, L.P., as such partnership may from time to time be
constituted.
PARTNERSHIP ASSETS: At any particular time, any assets or property
(real or personal, tangible or intangible, choate or inchoate, fixed or
contingent) owned by the Partnership.
PARTNERSHIP INTEREST OR INTEREST: As to any Partner, such Partner's
ownership interest in the Partnership and including such Partner's right to
distributions under this Agreement and any other rights or benefits which such
Partner has in the Partnership, together with any and all obligations of such
Person to comply with the terms and provisions of this Agreement. A Partnership
Interest may be expressed as a number of Partnership Units or Preferred Units.
PARTNERSHIP MINIMUM GAIN: The aggregate gain (regardless of character)
which would be realized by the Partnership if all of the property of the
Partnership subject to nonrecourse debt (other than partner nonrecourse debt as
such term is defined in Treasury Regulations Section 1.704-2(b)(4)) were
disposed of in full satisfaction of such debt and for no other consideration on
the relevant date. In the case of any Nonrecourse Liability of the Partnership
which is not secured by a mortgage with respect to any specific property of the
Partnership, any and all property of the Partnership to which the holder of said
liability has recourse shall be treated as subject to such Nonrecourse Liability
for purposes of the preceding sentence. Partnership Minimum Gain shall be
computed separately for each Nonrecourse Liability of the Partnership. For this
purpose, the adjusted basis of property subject to two or more liabilities of
equal priority shall be allocated among such liabilities in proportion to the
outstanding balance of such liabilities, and the adjusted basis of property
subject to two or more liabilities of unequal priority shall be allocated to the
liability of inferior priority only to the extent of the excess, if any, of the
adjusted basis of such property over the outstanding balance of the liability of
superior priority. Partnership Minimum Gain shall be computed hereunder using
the Book Value, rather than the adjusted tax basis, of the Partnership property
in accordance with Treasury Regulations Section 1.704-2(d)(3).
PARTNERSHIP NONRECOURSE DEDUCTIONS: The amount of Partnership
deductions equal to the increase, if any, in the amount of the aggregate
Partnership Minimum Gain during the tax year (plus any increase in Partnership
Minimum Gain for a prior tax year which has not
-8-
<PAGE>
previously generated a Partnership Nonrecourse Deduction) reduced (but not below
zero) by the aggregate distributions made during the tax year of the proceeds of
a Nonrecourse Liability of the Partnership which are attributable to an increase
in Partnership Minimum Gain within the meaning of Treasury Regulations Section
1.704-2(d). The Partnership Nonrecourse Deductions for a Partnership tax year
shall consist first of depreciation or cost recovery deductions with respect to
each property of the Partnership giving rise to such increase in Partnership
Minimum Gain on a PRO RATA basis to the extent of each such increase, with any
excess made up PRO RATA of all items of deduction.
PARTNERSHIP UNIT: A fractional, undivided share of the Partnership
Interests (other than Partnership Interests represented by Preferred Units) of
all the Partners heretofore or hereafter admitted to the Partnership pursuant to
Section 4.1 or 4.2 hereof.
PERCENTAGE INTEREST: As to any Partner (other than the Preferred
Limited Partners), the percentage in the Partnership, as determined by dividing
the Partnership Units then owned by such Partner by the total number of
Partnership Units then outstanding, as the same may be automatically adjusted
from time to time to reflect the issuance and redemption of Partnership Units in
accordance with this Agreement, without requiring the amendment of EXHIBIT 1 to
reflect any such issuance or redemption.
PERSON: Any individual, partnership, limited liability company,
corporation, trust or other entity.
PREFERRED LIMITED PARTNER: Those Persons listed as holding Preferred
Units on EXHIBIT 1 attached hereto and made a part hereof, as such EXHIBIT 1 may
be amended from time to time, in their capacity as limited partners in the
Partnership holding Preferred Units, including any Person who becomes a
Substituted Preferred Limited Partner or an Additional Preferred Limited Partner
in accordance with the terms of this Agreement and including the General
Partner, but only in its capacity as the holder of Preferred Units.
PREFERRED UNIT: A portion of the Partnership Interest held by a
Preferred Limited Partner or the General Partner that represents a unit of
preferred interest in the Partnership as identified on EXHIBIT 1 to this
Agreement or the Addendum to EXHIBIT 1 (or otherwise set forth in an amendment
to this Agreement) and a unit of any other class or series of preferred interest
in the Partnership that may be issued to a Partner in the future in accordance
with Section 4.2(A) or (B) hereof.
PRIORITY RETURN AMOUNT: For each Distribution Period, for each Partner
holding any class or series of Preferred Units, the Priority Return Percentage
times the Liquidation Preference times the number of Preferred Units held by
such Partner as set forth on the Addendum to EXHIBIT 1 (or otherwise set forth
in an amendment to this Agreement). In the case of any Preferred Units issued
during a Distribution Period, the Priority Return Amount attributable to such
Preferred Units for such Distribution Period shall be pro rated to reflect the
portion of such Distribution Period during which such Preferred Units were
outstanding.
-9-
<PAGE>
PRIORITY RETURN PERCENTAGE: That percentage set forth on the Addendum
to Exhibit 1 (or otherwise set forth in an amendment to this Agreement) used to
calculate the Priority Return Amount.
PROFITS AND LOSSES: For each Fiscal Year or other period, an amount
equal to the Partnership's taxable income or loss (as the case may be) for such
year or period, determined in accordance with Code Section 703(a) (for this
purpose, all items of income, gain, loss or deduction required to be stated
separately pursuant to Code Section 703(a)(1) shall be included in taxable
income or loss), with the following adjustments:
(i) Any income of the Partnership that is exempt from
federal income tax and not otherwise taken into account in computing Profits or
Losses pursuant to this definition shall be added to such taxable income or
loss;
(ii) Any expenditures of the Partnership described in Code
Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures
pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise
taken into account in computing Profits or Losses pursuant to this definition,
shall be subtracted from such taxable income or loss;
(iii) Gain or loss resulting from any disposition of
Partnership property with respect to which gain or loss is recognized for
federal income tax purposes shall be computed by reference to the Book Value of
the property disposed of notwithstanding that the adjusted tax basis of such
property differs from such Book Value;
(iv) In lieu of the depreciation, amortization, and other
cost recovery deductions taken into account in computing such taxable income or
loss, there shall be taken into account Depreciation for such Fiscal Year or
other period, computed in accordance with the definition of "Depreciation"
herein; and
(v) In the event that any item of income, gain, loss or
deduction that has been included in the initial computation of Profit or Loss is
subject to the special allocation rules of Sections 5.2(C) and 5.2(D), Profit or
Loss shall be recomputed without regard to such item.
REDEEMING PARTY: A Limited Partner or Assignee (other than the General
Partner) who tenders Partnership Units for redemption pursuant to a Redemption
Notice.
REDEMPTION DATE: The date for redemption of Partnership Units as set
forth in Section 9.2.
REDEMPTION NOTICE: A Notice to the General Partner by a Redeeming
Party, substantially in the form attached as EXHIBIT 2, pursuant to which the
Redeeming Party requests the redemption of Partnership Units in accordance with
Article IX.
-10-
<PAGE>
REDEMPTION OBLIGATION: The obligation of the Partnership to redeem the
Partnership Units as set forth in Section 9.1(A).
REDEMPTION PERIOD: The 45-day period immediately following the
filing with the SEC by the General Partner of an annual report of the General
Partner on Form 10-K or a quarterly report of the General Partner on Form 10-Q
or such other period or periods as the General Partner may otherwise determine
from time to time.
REDEMPTION RESTRICTION: A restriction on the ability of the Partnership
to redeem the Partnership Units as set forth in Section 9.1(A).
REDEMPTION RIGHTS: The rights of redemption, if any, applicable to
Preferred Units. With respect to any series of Preferred Units issued to the
General Partner pursuant to Section 4.2(B) of this Agreement, the Redemption
Rights shall correspond to the redemption rights of the related issuance of
securities by the General Partner as provided in Section 4.2(B) of this
Agreement. With respect to Preferred Units issued by the Partnership to Persons
other than the General Partner, the Redemption Rights with respect to such
Preferred Units shall be set forth on the Addendum to EXHIBIT 1 hereto or
otherwise set forth in an amendment to this Agreement.
REGISTRATION RIGHTS AGREEMENT: An Amended and Restated Registration
Rights Agreement, substantially in the form of EXHIBIT 3 hereto, as the same may
have heretofore or may hereafter be amended or restated and in effect from time
to time, pursuant to which COPT agrees, among other things, to register under
the Securities Act of 1933, as amended, REIT Shares issued in connection with
Share Payments made under Article IX hereof.
REIT: A real estate investment trust, as defined in Code Section 856.
REIT CHARTER: The Amended and Restated Declaration of Trust of COPT
filed with the State Department of Assessments and Taxation of Maryland on March
3, 1998, as the same may have been heretofore or may hereafter be amended or
restated and in effect from time to time.
REIT SHARE: A common share of beneficial interest representing an
ownership interest in the General Partner.
REIT SHARE RIGHTS: Rights to acquire additional REIT Shares issued to
all holders of REIT Shares, whether in the form of rights, options, warrants or
convertible or exchangeable securities, to the extent the same have been issued
without additional consideration after the initial acquisition of such REIT
Shares.
SEC: The Securities and Exchange Commission.
SENIOR PREFERRED UNITS: Preferred Units which rank prior and senior to
the Junior Preferred Units and the Partnership Units with respect to the payment
of Priority Return Amounts and Liquidation Preferences. Senior Preferred Units
shall be identified on the Addendum to EXHIBIT 1 (or otherwise set forth in an
amendment to this Agreement). Each class or series of Preferred Units which are
denominated as Senior Preferred Units shall be entitled to
-11-
<PAGE>
allocations and distributions with respect to Priority Return Amounts and
Liquidation Preferences on a PARI PASSU basis with each other class or series of
Senior Preferred Units. If after their due date the full amount of all accrued
Priority Return Amounts have not been distributed with respect to all Senior
Preferred Units pursuant to Article V, no distribution shall be made to the
holders of Junior Preferred Units or Partnership Units pursuant to that Article.
Until the holders of Senior Preferred Units have been paid Liquidation
Preferences and all Priority Return Amounts in connection with the liquidation
of the Partnership pursuant to Section 10.2, no distribution shall be made to
the holders of Junior Preferred Units or Partnership Units in connection with
such liquidation pursuant to that Section.
SERIES A PREFERRED REIT SHARES: Series A Convertible Preferred Shares
of Beneficial Interest in the General Partner, issued pursuant to Articles
Supplementary of COPT, dated September 29, 1998.
SERIES A PREFERRED UNIT: One of the Preferred Units issued to the
General Partner in connection with the contribution of the Constellation Assets
to the Partnership by the General Partner, and any other Preferred Unit issued
after the date hereof with the same rights and preferences"
SHARE PAYMENT: The payment to a Redeeming Party of a number of REIT
Shares determined by multiplying (i) the number of Partnership Units tendered
for redemption by such Redeeming Party pursuant to a validly proffered
Redemption Notice by (ii) the Conversion Factor. In the event the General
Partner grants any REIT Share Rights on or after the date of this Agreement and
prior to such payment, any Share Payment shall include for the Redeeming Party
such Redeeming Party's ratable share of such REIT Share Rights other than REIT
Share Rights which have expired.
SUBSIDIARY: With respect to any Person, any corporation or other entity
of which a majority of (i) the voting power of the voting equity securities or
(ii) the outstanding equity interests is owned, directly or indirectly, by such
Person.
SUBSTITUTED LIMITED PARTNER/PREFERRED LIMITED PARTNER: That Person or
those Persons admitted to the Partnership as a substitute Limited Partner or
substitute Preferred Limited Partner, in accordance with the provisions of this
Agreement, in such Person's capacity as a limited partner of the Partnership. A
Substituted Limited Partner or Substituted Preferred Limited Partner, upon
admission as such, shall succeed to the rights, privileges and liabilities of
the predecessor in interest as a Limited Partner or Preferred Limited Partner.
SUCCESSOR GENERAL PARTNER: Any Person who is admitted to the
Partnership as substitute General Partner pursuant to this Agreement, in its
capacity as a general partner of the Partnership. A Successor General Partner,
upon its admission as such, shall succeed to the rights, privileges and
liabilities of its predecessor in interest as General Partner, in accordance
with the provisions of the Act.
TAX MATTERS PARTNER: The General Partner or such other Partner who
becomes Tax Matters Partner pursuant to the terms of this Agreement.
-12-
<PAGE>
TERMINATING CAPITAL TRANSACTION: The sale or other disposition of all
or substantially all of the Partnership Assets or a related series of
transactions that, taken together, result in the sale or other disposition of
all or substantially all of the Partnership Assets.
TRANSFER: With respect to any Partnership Interest shall mean a
transaction in which a Partner assigns his Partnership Interest to another
Person and includes any sale, assignment, gift, exchange or other disposition by
law or otherwise; PROVIDED, HOWEVER, the redemption or conversion of any
Partnership Interest pursuant to Article IX hereof shall not constitute a
"transfer" for purposes hereof. "Transfers," "Transferring" and "Transferred"
shall have correlative meanings.
TREASURY REGULATIONS: The Income Tax Regulations promulgated under the
Code, as such regulations may be amended from time to time.
UNIT VALUE: With respect to any Partnership Unit, the average of the
daily market price for a REIT Share for the ten (10) consecutive trading days
immediately preceding the date of receipt of a Redemption Notice by the General
Partner multiplied by the Conversion Factor. If the REIT Shares are traded on a
securities exchange or the NASDAQ Small Cap Market or National Market System,
the market price for each such trading day shall be the reported last sale price
on such day or, if no sales take place on such day, the average of the closing
bid and asked prices on such day. If the REIT Shares are not traded on a
securities exchange or the NASDAQ Small Cap Market or National Market System,
the market price for each such trading day shall be determined by the General
Partner using any reasonable method of valuation. If a Share Payment would
include any REIT Share Rights, the value of such REIT Share Rights shall be
determined by the General Partner using any reasonable method of valuation,
taking into account the Unit Value determined hereunder and the factors used to
make such determination and the value of such REIT Share Rights shall be
included in the Unit Value.
SECTION 1.2 RULES OF CONSTRUCTION. The following rules of construction
shall apply to this Agreement:
(A) All section headings in this Agreement are for
convenience of reference only and are not intended to qualify the meaning of any
section.
(B) All personal pronouns used in this Agreement, whether
used in the masculine, feminine or neuter gender, shall include all other
genders; the singular shall include the plural, and VICE VERSA, as the context
may require.
(C) Each provision of this Agreement shall be considered
severable from the rest, and if any provision of this Agreement or its
application to any Person or circumstances shall be held invalid and contrary to
any existing or future law or unenforceable to any extent, the remainder of this
Agreement and the application of any other provision to any Person or
circumstances shall not be affected thereby and shall be interpreted and
enforced to the greatest extent permitted by law so as to give effect to the
original intent of the parties hereto.
(D) Unless otherwise specifically and expressly limited in
the context, any reference herein to a decision, determination, act, action,
exercise of a right, power or
-13-
<PAGE>
privilege, or other procedure by the General Partner shall mean and refer to the
decision, determination, act, action, exercise or other procedure by the General
Partner in its sole and absolute discretion.
- --------------------------------------------------------------------------------
ARTICLE II - CONTINUATION
- --------------------------------------------------------------------------------
SECTION 2.1 CONTINUATION. The Partners hereby continue the Partnership
as a limited partnership under the Act and the Persons listed on EXHIBIT 1 as
Partners shall continue as Partners in the Partnership. The General Partner
shall take all action required by law to perfect and maintain the Partnership as
a limited partnership under the Act and under the laws of all other
jurisdictions in which the Partnership may elect to conduct business, including
but not limited to the filing of amendments to the Certificate with the Delaware
Secretary of State, and qualification of the Partnership as a foreign limited
partnership in the jurisdictions in which such qualification shall be required,
as determined by the General Partner. The General Partner shall also promptly
register the Partnership under applicable assumed or fictitious name statutes or
similar laws.
SECTION 2.2 NAME. The name of the Partnership is CORPORATE OFFICE
PROPERTIES, L.P. The General Partner may adopt such assumed or fictitious names
as it deems appropriate in connection with the qualifications and registrations
referred to in Section 2.1.
SECTION 2.3 PLACE OF BUSINESS; REGISTERED OFFICE; REGISTERED AGENT. The
principal office of the Partnership is located at 8815 Centre Park Drive, Suite
400, Columbia, Maryland 21045-2272, which office may be changed to such other
place as the General Partner may from time to time designate. The Partnership
may establish offices for the Partnership within or without the State of
Delaware as may be determined by the General Partner. The address of the
Partnership's initial registered office and the initial registered agent for the
Partnership in the State of Delaware is The Corporation Trust Company, whose
address is c/o Corporation Trust Center, 1209 Orange Street, Wilmington,
Delaware 19801. The Partnership's registered office and agent may be changed by
the General Partner.
- --------------------------------------------------------------------------------
ARTICLE III - BUSINESS PURPOSE
- --------------------------------------------------------------------------------
SECTION 3.1 BUSINESS. The business of the Partnership shall be (i)
conducting any business that may be lawfully conducted by a limited partnership
pursuant to the Act including, without limitation, acquiring, owning, managing,
developing, leasing, marketing,
-14-
<PAGE>
operating and, if and when appropriate, selling, commercial, industrial, office
and net leased retail properties, (ii) entering into any partnership, joint
venture or other relationship to engage in any of the foregoing or the ownership
of interests in any entity engaged in any of the foregoing, (iii) making loans,
guarantees, indemnities or other financial accommodations and borrowing money
and pledging its assets to secure the repayment thereof, (iv) doing any of the
foregoing with respect to any Affiliate or Subsidiary and (v) doing anything
necessary or incidental to the foregoing; PROVIDED, HOWEVER, that business of
the Partnership shall be limited so as to permit the General Partner to elect
and maintain its status as a REIT (unless the General Partner determines no
longer to qualify as a REIT).
SECTION 3.2 AUTHORIZED ACTIVITIES. In carrying out the purposes of the
Partnership, but subject to all other provisions of this Agreement, the
Partnership is authorized to engage in any kind of lawful activity, and perform
and carry out contracts of any kind, necessary or advisable in connection with
the accomplishment of the purposes and business of the Partnership described
herein and for the protection and benefit of the Partnership; PROVIDED that the
General Partner shall not be obligated to cause the Partnership to take, or
refrain from taking, any action which, in the judgment of the General Partner,
(i) could adversely affect the ability of the General Partner to qualify and
continue to qualify as a REIT, (ii) could subject the General Partner to
additional taxes under Code Section 857 or 4981 or (iii) could violate any law
or regulation of any governmental body or agency having jurisdiction over the
General Partner or its securities.
- --------------------------------------------------------------------------------
ARTICLE IV - CAPITAL CONTRIBUTION
- --------------------------------------------------------------------------------
SECTION 4.1 CAPITAL CONTRIBUTIONS.
(A) Upon the contribution to the Partnership of property in
accordance with a Contribution Agreement, Partnership Units and/or Preferred
Units shall be issued in accordance with, and as contemplated by, such
Contribution Agreement, and the Persons receiving such Partnership Units and/or
Preferred Units shall become Partners and shall be deemed to have made a Capital
Contribution. EXHIBIT 1 sets forth the number of Partnership Units and Preferred
Units owned by each Partner. Except as set forth in Section 4.2 (regarding
issuance of additional Partnership Units) or Section 7.6 (regarding withholding
obligations) hereof, no Partner shall be required under any circumstances to
contribute to the capital of the Partnership any amount beyond that sum required
pursuant to this Article IV.
(B) Anything in the foregoing Section 4.1(A) or elsewhere in
this Agreement notwithstanding, the Partnership Units held by the General
Partner shall, at all times, be deemed to be general partner interests in the
Partnership and shall constitute the General Partner Interests.
SECTION 4.2 ADDITIONAL PARTNERSHIP INTERESTS.
(A) The Partnership may issue additional Limited Partner
Interests in
-15-
<PAGE>
the form of Partnership Units or Preferred Units for any Partnership purpose at
any time or from time to time to any Partner or other Person (other than the
General Partner, except in accordance with Section 4.2(B) below).
(B) The Partnership also may from time to time issue to the
General Partner additional Partnership Interests in such classes and having such
designations, preferences and relative rights (including preferences and rights
senior to the existing relative Limited Partner Interests) as shall be
determined by the General Partner in accordance with the Act and governing law.
Except as provided in Article IX, any such issuance of Partnership Units,
Preferred Units or Partnership Interests to the General Partner shall be
conditioned upon (i) the undertaking by the General Partner of a related
issuance of its shares of beneficial interest (with such shares having
designations, rights and preferences such that the economic rights of the
holders of such shares of beneficial interest are substantially similar to the
rights of the additional Partnership Interests issued to the General Partner)
and the General Partner making a Capital Contribution (a) in an amount equal to
the net proceeds raised in the issuance of such shares of beneficial interest,
in the event such shares of beneficial interest are sold for cash or cash
equivalents or (b) of the property received in consideration for such shares of
beneficial interest, in the event such shares of beneficial interest are issued
in consideration for other property or (ii) the issuance by the General Partner
of shares of beneficial interest under any stock option or bonus plan and the
General Partner making a Capital Contribution in an amount equal to the exercise
price of the option exercised pursuant to such stock option or other bonus plan.
(C) Except as contemplated by Article IX (regarding
redemptions) or Section 4.2(B), the General Partner shall not issue any (i)
additional REIT Shares, (ii) rights, options or warrants containing the right to
subscribe for or purchase REIT Shares (other than options granted under the
General Partner's Stock Option Plan for Non-Employee Directors, 1998 Long Term
Incentive Plan, as amended or as may be amended, or any stock option or similar
plan for officers, directors and employees of the General Partner or any of its
Affiliates) or (iii) securities convertible or exchangeable into REIT Shares
(collectively, "Additional REIT Securities") other than to all holders of REIT
Shares, PRO RATA, unless (x) the Partnership issues to the General Partner (i)
Partnership Interests, (ii) rights, options or warrants containing the right to
subscribe for or purchase Partnership Interests or (iii) securities convertible
or exchangeable into Partnership Interests such that the General Partner
receives an economic interest in the Partnership substantially similar to the
economic interest in the General Partner represented by the Additional REIT
Securities and (y) the General Partner contributes to the Partnership the net
proceeds from, or the property received in consideration for, the issuance of
the Additional REIT Securities and the exercise of any rights contained in any
Additional REIT Securities.
SECTION 4.3 NO THIRD PARTY BENEFICIARIES. The provisions of this
Agreement, including the foregoing provisions of this Article IV, are not
intended to be for the benefit of any creditor of the Partnership or other
Person to whom any debts, liabilities or obligations are owed by (or who
otherwise has any claim against) the Partnership or any of the Partners and no
such creditor or other Person shall obtain any right under any such provision
against the Partnership or any of the Partners by reason of any debt, liability
or obligation (or otherwise).
-16-
<PAGE>
SECTION 4.4 CAPITAL ACCOUNTS.
(A) The Partnership shall establish and maintain a separate
Capital Account for each Partner in accordance with Code Section 704 and
Treasury Regulations Section 1.704-1(b)(2)(iv). The Capital Account of each
Partner shall be credited with:
(1) the amount of all Capital Contributions made to the
Partnership by such Partner in accordance with this Agreement; plus
(2) all income and gain of the Partnership computed in
accordance with this Section 4.4 and allocated to such Partner pursuant to
Article V (including for purposes of this Section 4.4(A), income and gain exempt
from tax);
and shall be debited with the sum of:
(1) all losses or deductions of the Partnership
computed in accordance with this Section 4.4 and allocated to such Partner
pursuant to Article V;
(2) such Partner's distributive share of expenditures
of the Partnership described in Code Section 705(a)(2)(B); and
(3) all cash and the Agreed Value (reduced to take into
account the amount of any related indebtedness assumed by the Partner, or to
which the distributed property is subject) of any property actually distributed
or deemed distributed by the Partnership to such Partner pursuant to the terms
of this Agreement.
Any reference in any section or subsection of this Agreement to the
Capital Account of a Partner shall be deemed to refer to such Capital Account as
the same may be credited or debited from time to time as set forth above.
(B) For purposes of computing the amount of any item of
income, gain, deduction or loss to be reflected in the Partners' Capital
Accounts, the determination, recognition and classification of each such item
shall be the same as its determination, recognition and classification for
federal income tax purposes, determined in accordance with Code Section 703(a),
with the following adjustments:
(1) any income, gain or loss attributable to the
taxable disposition of any Partnership Asset shall be determined by treating the
adjusted basis of such property as of the date of such disposition as equal to
the Book Value of such property as of such date;
(2) the computation of all items of income, gain, loss
and deduction shall be made without regard to any Code Section 754 election that
may be made by the Partnership, except to the extent required in accordance with
the provisions of Treasury Regulations Section 1.704-1(b)(2)(iv)(m);
(3) in lieu of depreciation, amortization and other
cost recovery
-17-
<PAGE>
deductions taken into account in computing Profit and Loss, there shall be taken
into account Depreciation for such Fiscal Year; and
(4) in the event the Book Value of any Partnership
Asset is adjusted pursuant to Section 4.4(D) below, the amount of such
adjustment shall be treated as gain or loss from the disposition of such asset.
(C) Any transferee of a Partnership Interest shall succeed
to a PRO RATA portion of the transferor's Capital Account transferred unless
such Transfer causes a Code Section 708 termination of the Partnership, in which
case the Book Value of all Partnership Assets shall be adjusted immediately
prior to the deemed distribution pursuant thereto as provided in Section 4.4(D).
(D) Consistent with the provisions of Treasury Regulations
Section 1.704-1(b)(2)(iv)(f), (i) immediately prior to the acquisition of an
additional Partnership Interest by any new or existing Partner in connection
with the contribution of money or other property (other than a DE MINIMIS
amount) to the Partnership, (ii) immediately prior to the distribution by the
Partnership to a Partner of Partnership property (other than a DE MINIMIS
amount) as consideration for a Partnership Interest and (iii) immediately prior
to the liquidation of the Partnership as defined in Treasury Regulations Section
1.704-1(b)(2)(ii)(g), the Book Value of all Partnership Assets shall be revalued
upward or downward to reflect the fair market value of each such Partnership
Asset as determined by the General Partner using such reasonable method of
valuation as it may adopt unless the General Partner shall determine that such
revaluation is not necessary to maintain Capital Accounts in accordance with
Treasury Regulations Section 1.704-1(b)(2)(iv).
(E) The foregoing provisions of this Section 4.4 are
intended to comply with Treasury Regulations Section 1.704-1(b) and shall be
interpreted and applied in a manner consistent with such Treasury Regulations.
In the event the General Partner shall determine that it is prudent to modify
the manner in which the Partners' Capital Accounts are computed hereunder in
order to comply with such Treasury Regulations, the General Partner may make
such modification if such modification is not likely to have a material effect
on the amount or timing of any distribution to any Partner under the terms of
this Agreement and the General Partner notifies the other Partners in writing of
such modification prior to making such modification.
SECTION 4.5 RETURN OF CAPITAL ACCOUNT; INTEREST. Except as otherwise
specifically provided in this Agreement, (i) no Partner shall have any right to
withdraw or reduce its Capital Contributions or Capital Account, or to demand
and receive property other than cash from the Partnership in return for its
Capital Contributions or Capital Account; (ii) no Partner shall have any
priority over any other Partners as to the return of its Capital Contributions
or Capital Account; (iii) any return of Capital Contributions or Capital
Accounts to the Partners shall be solely from the Partnership Assets, and no
Partner shall be personally liable for any such return; and (iv) no interest
shall be paid by the Partnership on Capital Contributions or on balances in
Partners' Capital Accounts.
-18-
<PAGE>
SECTION 4.6 PREEMPTIVE RIGHTS. No Person shall have any preemptive or
similar rights with respect to the issuance or sale of additional Partnership
Units or Preferred Units.
- --------------------------------------------------------------------------------
ARTICLE V - ALLOCATIONS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
SECTION 5.1 LIMITED LIABILITY. For bookkeeping purposes, the Profits of
the Partnership shall be shared, and the Losses of the Partnership shall be
borne, by the Partners as provided in Section 5.2 below; PROVIDED, HOWEVER, that
except as required by the Act or as expressly provided in this Agreement,
neither any Limited Partner (in its capacity as a Limited Partner) nor any
Preferred Limited Partner (in its capacity as a Preferred Limited Partner) shall
be personally liable for losses, costs, expenses, liabilities or obligations of
the Partnership in excess of its Capital Contribution required under Article IV
hereof.
SECTION 5.2 PROFITS, LOSSES AND DISTRIBUTIVE SHARES
(A) Profits. After giving effect to the special allocations,
if any, provided in Section 5.2(C) and (D), Profits in each Fiscal Year shall be
allocated in the following order:
(1) First, to the General Partner until the cumulative
Profits allocated to the General Partner under this Section 5.2(A)(1) equal the
cumulative Losses allocated to such Partner under Section 5.2(B)(4);
(2) Second, to the Preferred Limited Partners in the
proportion to the cumulative Losses allocated to such Partners under Section
5.2(B)(3), until the cumulative Profits allocated to such Partners under this
Section 5.2(A)(2) equal the cumulative Losses allocated to such Partners under
Section 5.2(B)(3);
(3) Third, to each Partner in proportion to the
cumulative Losses allocated to such Partner under Section 5.2(B)(2), until the
cumulative Profits allocated to such Partner under this Section 5.2(A)(3) equal
the cumulative Losses allocated to such Partner under Section 5.2(B)(2);
(4) Fourth, to each Partner in proportion to the
cumulative Losses allocated to such Partner under Section 5.2(B)(1), until the
cumulative Profits allocated to such Partner under this Section 5.2(A)(4) equal
the cumulative Losses allocated to such Partner under Section 5.2(B)(1);
(5) Fifth, to the Preferred Limited Partners in an
amount equal to the excess of (x) the Priority Return Amount for each
Distribution Period or portion thereof that ends on or prior to the close of the
Fiscal Year over (y) the cumulative Profits previously allocated under this
Section 5.2(B)(5); and
(6) Then, the balance, if any, to the Partners (other
than the Preferred Limited Partners, with respect to their Preferred Units) in
accordance with their
-19-
<PAGE>
respective Percentage Interests.
The allocation of Profits to any Preferred Limited Partner under
Section 5.2(A)(5) shall be appropriately prorated in the case of Preferred Units
that are outstanding for less than all of any Distribution Period.
(B) Losses. After giving effect to the special allocations,
if any, provided in Section 5.2(C) and (D), Losses in each Fiscal Year shall be
allocated in the following order of priority:
(1) First, to the Partners (other than the Preferred
Limited Partners, with respect to their Preferred Units), in accordance with
their respective Percentage Interests, but not in excess of the positive Capital
Account balance of any Partner prior to the allocation provided for in this
Section 5.2(B)(1);
(2) Second, to the Partners (other than the Preferred
Limited Partners, with respect to their Preferred Units) with positive Adjusted
Capital Account balances prior to the allocation provided for in this Section
5.2(B)(2), in proportion to the amount of such balances until all such balances
are reduced to zero;
(3) Third, to the Preferred Limited Partners in
proportion to their Adjusted Capital Account balances until their Adjusted
Capital Accounts are reduced to zero; and
(4) Thereafter, to the General Partner;
PROVIDED, HOWEVER, that this Section 5.2(B) shall control, notwithstanding any
reallocation or adjustment of taxable income, loss or other items by the
Internal Revenue Service or any other taxing authority.
(C) Special Allocations. Except as otherwise provided in
this Agreement, the following special allocations will be made in the following
order and priority:
(1) Partnership Minimum Gain Chargeback.
Notwithstanding any other provision of this Article V, if there is a net
decrease in Partnership Minimum Gain during any tax year or other period for
which allocations are made, each Partner will be specially allocated items of
Partnership income and gain for that tax year or other period (and, if
necessary, subsequent periods) in an amount equal to such Partner's share of the
net decrease in Partnership Minimum Gain during such tax year or other period
determined in accordance with Treasury Regulations Section 1.704-2(g).
Allocations pursuant to the preceding sentence shall be made in proportion to
the respective amounts required to be allocated to each Partner pursuant
thereto. The items to be so allocated shall be determined in accordance with
Treasury Regulations Sections 1.704-2(f)(6) and 1.704-2(j)(2). This Section
5.2(C)(1) is intended to comply with the minimum gain chargeback requirements
set forth in Treasury Regulations Section 1.704-2(f) and shall be interpreted
consistently therewith, including the exceptions to the minimum gain chargeback
requirement set forth in Treasury Regulations Section 1.704-2(f) and -(3). If
the General Partner concludes, after consultation with tax counsel, that the
Partnership
-20-
<PAGE>
meets the requirements for a waiver of the minimum gain chargeback requirement
as set forth in Treasury Regulations Section 1.704-2(f)(4), the General Partner
may take steps reasonably necessary or appropriate in order to obtain such
waiver.
(2) Partner Nonrecourse Debt Minimum Gain Chargeback.
Notwithstanding any other provision of this Section (other than Section
5.2(C)(1) which shall be applied before this Section 5.2(C)(2)), if there is a
net decrease in Partner Minimum Gain during any tax year or other period for
which allocations are made, each Partner with a share of Partner Minimum Gain
determined in accordance with Treasury Regulations Section 1.704-2(i)(5) shall
be specially allocated items of Partnership income and gain for that period
(and, if necessary, subsequent periods) in an amount equal to such Partner's
share of the net decrease in Partner Minimum Gain determined in accordance with
Treasury Regulations Section 1.704-2(i)(4). The items to be so allocated shall
be determined in accordance with Treasury Regulations Sections 1.704-2(i)(4) and
1.704-2(j)(2)(ii). This Section 5.2(C)(2) is intended to comply with the minimum
gain chargeback requirements of Treasury Regulations Section 1.704-2(i)(4) and
shall be interpreted consistently therewith, including the exceptions set forth
in Treasury Regulations Section 1.704-2(f)(2) and (3) to the extent such
exceptions apply to Treasury Regulations Section 1.704-2(i)(4). If the General
Partner concludes, after consultation with tax counsel, that the Partnership
meets the requirements for a waiver of the Partner Minimum Gain chargeback
requirement set forth in Treasury Regulations Section 1.704-2(f), but only to
the extent such exception applies to Treasury Regulations Section 1.704-2(i)(4),
the General Partner may take steps necessary or appropriate to obtain such
waiver.
(3) Qualified Income Offset. A Partner who unexpectedly
receives any adjustment, allocation or distribution described in Treasury
Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6) will be specially
allocated items of Partnership income and gain in an amount and manner
sufficient to eliminate, to the extent required by Treasury Regulations Section
1.704-1(b)(2)(ii)(d), the Adjusted Capital Account Deficit of the Partner as
quickly as possible; PROVIDED that an allocation pursuant to this Section
5.2(C)(3) shall be made if and only to the extent that such Partner would have
an Adjusted Capital Account Deficit after all other allocations provided for in
this Article V have been tentatively made as if this Section 5.2(C)(3) were not
contained in this Agreement.
(4) Partnership Nonrecourse Deductions. Partnership
Nonrecourse Deductions for any taxable year or other period for which
allocations are made will be allocated among the Partners in proportion to their
respective Partnership Interests in the Partnership.
(5) Partner Nonrecourse Deductions. Notwithstanding
anything to the contrary in this Agreement, any Partner Nonrecourse Deductions
for any taxable year or other period for which allocations are made will be
allocated to the Partner who bears the economic risk of loss with respect to the
liability to which the Partner Nonrecourse Deductions are attributable in
accordance with Treasury Regulations Section 1.704-2(i).
(6) Code Section 754 Adjustments. To the extent an
adjustment to the adjusted tax basis of any Partnership asset under Code Section
734(b) or
-21-
<PAGE>
743(b) is required to be taken into account in determining Capital Accounts
under Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(2) or (4), the amount of
the adjustment to the Capital Accounts will be treated as an item of gain (if
the adjustment increases the basis of the asset) or loss (if the adjustment
decreases the basis of the asset), and the gain or loss will be specially
allocated to the Partners in a manner consistent with the manner in which their
Capital Accounts are required to be adjusted under Treasury Regulations Section
1.704-1(b)(2)(iv)(m).
(7) Depreciation Recapture. In the event there is any
recapture of Depreciation or investment tax credit, the allocation thereof shall
be made among the Partners in the same proportion as the deduction for such
Depreciation or investment tax credit was allocated.
(8) Interest in Partnership. Notwithstanding any other
provision of this Agreement, no allocation of Profit or Loss (or item of Profit
or Loss) will be made to a Partner if the allocation would not have "economic
effect" under Treasury Regulations Section 1.704-1(b)(2)(ii)(a) or otherwise
would not be in accordance with the Partner's interest in the Partnership within
the meaning of Treasury Regulations Section 1.704-1(b)(3).
(9) In the event that during any taxable year any
Preferred Units are converted, pursuant to Section 9.8(A), into Partnership
Units prior to a distribution having been made under Section 5.3(A) of an unpaid
Priority Return Amount with respect to such Preferred Units, there shall be
allocated to the Partner who held such converted Preferred Units items of loss
and deduction in an amount equal to the excess of (a) allocations previously
made with respect to such converted Preferred Units pursuant to Section
5.2(A)(5) over (b) the Priority Return Amount previously distributed or
remaining to be distributed with respect to such converted Preferred Units
pursuant to Sections 5.3(A), 9.8(A) and 9.8(B).
(D) Curative Allocations. The allocations set forth in
Section 5.2(C)(1) through (8) (the "Regulatory Allocations") are intended to
comply with certain requirements of Treasury Regulations Sections 1.704-1(b) and
1.704-2. The Regulatory Allocations may not be consistent with the manner in
which the Partners intend to divide Partnership distributions. Accordingly, the
General Partner is authorized to further allocate Profits, Losses, and other
items among the Partners in a reasonable manner so as to prevent the Regulatory
Allocations from distorting the manner in which Partnership distributions would
be divided among the Partners under Section 5.3, but for application of the
Regulatory Allocations. In general, the reallocation will be accomplished by
specially allocating other Profits, Losses and items of income, gain, loss and
deduction, to the extent they exist, among the Partners so that the net amount
of the Regulatory Allocations and the special allocations to each Partner is
zero. The General Partner may accomplish this result in any reasonable manner
that is consistent with Code Section 704 and the related Treasury Regulations.
(E) Tax Allocations.
(1) Except as otherwise provided in Section 5.2(E)(2),
each item of income, gain, loss and deduction shall be allocated for federal
income tax purposes in the same manner as each correlative item of income, gain,
loss or deduction is allocated for book
-22-
<PAGE>
purposes pursuant to the provisions of Section 5.2 hereof.
(2) Notwithstanding anything to the contrary in this
Article V, in an attempt to eliminate any Book-Tax Disparity with respect to a
Contributed Property, items of income, gain, loss or deduction with respect to
each such property shall be allocated for federal income tax purposes among the
Partners as follows:
(a) DEPRECIATION, AMORTIZATION AND OTHER COST
RECOVERY ITEMS. In the case of each Contributed Property
with a Book-Tax Disparity, any item of depreciation,
amortization or other cost recovery allowance
attributable to such property shall be allocated as
follows: (x) first, to Partners (the "Non-Contributing
Partners") other than the Partners who contributed such
property to the Partnership (or are deemed to have
contributed the property pursuant to Section 4.1(A) (the
"Contributing Partners") in an amount up to the book
allocation of such items made to the Non-Contributing
Partners pursuant to Section 5.2 hereof, PRO RATA in
proportion to the respective amount of book items so
allocated to the Non-Contributing Partners pursuant to
Section 5.2 hereof; and (y) any remaining depreciation,
amortization or other cost recovery allowance to the
Contributing Partners in proportion to their Percentage
Interests. In no event shall the total depreciation,
amortization or other cost recovery allowance allocated
hereunder exceed the amount of the Partnership's
depreciation, amortization or other cost recovery
allowance with respect to such property.
(b) GAIN OR LOSS ON DISPOSITION. In the event the
Partnership sells or otherwise disposes of a Contributed
Property with a Book-Tax Disparity, any gain or loss
recognized by the Partnership in connection with such
sale or other disposition shall be allocated among the
Partners as follows: (x) first, any gain or loss shall
be allocated to the Contributing Partners in proportion
to their Percentage Interests to the extent required to
eliminate any Book-Tax Disparity with respect to such
property; and (y) any remaining gain or loss shall be
allocated among the Partners in the same manner that the
correlative items of book gain or loss are allocated
among the Partners pursuant to Section 5.2 hereof.
(3) In the event the Book Value of a Partnership Asset
(including a Contributed Property) is adjusted pursuant to Section 4.4(D)
hereof, and such asset has not been deemed contributed to a new partnership,
with the contributing partnership then being liquidated pursuant to Code Section
708 subsequent thereto, all items of income, gain, loss or deduction in respect
of such property shall be allocated for federal income tax purposes among the
Partners in the same manner as provided in Section 5.2(E)(2) hereof to take into
account any variation between the fair market value of the property, as
determined by the General Partner using such reasonable method of valuation as
it may adopt, and the Book Value
-23-
<PAGE>
of such property, both determined as of the date of such adjustment.
(4) The General Partner shall have the authority to
elect alternative methods to eliminate the Book-Tax Disparity with respect to
one or more Contributed Properties, as permitted by Treasury Regulations
Sections 1.704-3 and 1.704-3T, and such election shall be binding on all of the
Partners.
(5) The Partners hereby intend that the allocation of
tax items pursuant to this Section 5.2(E) comply with the requirements of Code
Section 704(c) and Treasury Regulations Sections 1.704-3 and 1.704-3T.
(6) The allocation of items of income, gain, loss or
deduction pursuant to this Section 5.2(E) are solely for federal, state and
local income tax purposes, and the Capital Account balances of the Partners
shall be adjusted solely for allocations of "book" items in respect of
Partnership Assets pursuant to Section 5.2(A), (B), (C), (D) and (F) hereof.
(F) Other Allocation Rules. The following rules will apply
to the calculation and allocation of Profits, Losses and other items:
(1) Except as otherwise provided in this Agreement, all
Profits, Losses and other items allocated to the Partners will be allocated
among them in proportion to their Percentage Interests.
(2) For purposes of determining the Profits, Losses or
any other item allocable to any period, Profits, Losses and other items will be
determined on a daily, monthly or other basis, as determined by the General
Partner using any permissible method under Code Section 706 and the related
Treasury Regulations.
(3) Except as otherwise provided in this Agreement, all
items of Partnership income, gain, loss and deduction, and other allocations not
provided for in this Agreement will be divided among the Partners in the same
proportions as they share Profits and Losses; PROVIDED that any credits shall be
allocated in accordance with Treasury Regulations Section 1.704-1(b)(4)(ii).
(4) For purposes of Treasury Regulations Section
1.752-3(a), the Partners hereby agree that any nonrecourse liabilities of the
Partnership in excess of the sum of (i) the Partnership Minimum Gain and (ii)
the aggregate amount of taxable gain that would be allocated to the Partners
under Section 704(c) (or in the same manner as Section 704(c) in connection with
a revaluation of Partnership property) if the Partnership disposed of (in a
taxable transaction) all Partnership property subject to one or more nonrecourse
liabilities of the Partnership in full satisfaction of such liabilities and for
no other consideration, shall be allocated among the Partners in accordance with
their respective shares of Profits. The General Partner shall have discretion in
any Fiscal Year to allocate such excess nonrecourse liabilities among the
Partners (a) in a manner reasonably consistent with allocations (that have
substantial economic effect) of some other significant item of Partnership
income or gain or (b) in accordance with the manner in which it is reasonably
expected that the deductions attributable to the excess nonrecourse liabilities
will be allocated.
-24-
<PAGE>
(G) Partner Acknowledgment. The Partners agree to be bound
by the provisions of this Section 5.2 in reporting their shares of Partnership
income, gain, loss, deduction and credit for income tax purposes.
(H) Regulatory Compliance. The foregoing provisions of this
Section 5.2 relating to the allocation of Profits, Losses and other items for
federal income tax purposes are intended to comply with Treasury Regulations
Sections 1.704-1(b), 1.704-2, 1.704-3 and 1.704-3T and shall be interpreted and
applied in a manner consistent with such Treasury Regulations.
SECTION 5.3 DISTRIBUTIONS.
(A) Distributable Cash for each Fiscal Year shall be
distributed in the following order of priority:
(1) First, the General Partner shall cause the
Partnership to distribute to the holder of each Preferred Unit an amount in cash
equal to the cumulative undistributed Priority Return Amount on December 31,
March 31, June 30 and September 30 of each year, commencing on March 31, 1998
(or in the case of a Preferred Unit with an issuance date after March 31, 1998,
on the first such distribution date following the applicable issuance date);
PROVIDED that, if any such distribution date shall be a Saturday, Sunday or day
on which banking institutions in the State of New York are authorized or
obligated by law to close, or a day which is declared a national or New York
State holiday (any of the foregoing, a "Non-business Day"), then such
distribution shall be made on the next succeeding day which is not a
Non-business Day. In any case in which a Preferred Unit is outstanding for less
than all of one or more Distribution Periods, the amount distributable to the
Preferred Limited Partner in respect of such Unit shall be appropriately
adjusted on the basis of a 360-day year consisting of twelve 30-day months.
(2) Second, there shall be distributed with respect to
each Partnership Unit an amount equal on a per Unit basis to the amount
distributed (other than in REIT Shares) by the General Partner on its common
shares during the Fiscal Year (other than a liquidating distribution), except
that (i) the first distribution paid to a Limited Partner with respect to newly
issued Partnership Units shall be prorated to reflect the actual portion of the
Distribution Period for which the distribution is being paid during which such
Partnership Units were outstanding, and (ii) the first distribution made to the
General Partner with respect to Partnership Units newly issued to the General
Partner pursuant to Section 4.2(B) hereof shall be pro rated to the same extent
(if any) by which the first dividends payable on the REIT Shares newly issued by
the General Partner are subject to proration. To the extent practicable,
distributions under this paragraph shall be made at the same time as the
dividend distributions made by the General Partner on its REIT Shares.
(3) Third, there shall be distributed to each holder of
a Limited Partner Interest an amount equal to (x) the product of the taxable
income and gain allocated to such holder for the Fiscal Year under Section
5.2(E) and the maximum federal income tax rate plus 7% reduced by (y) the
distributions received by such holder under Section 5.3(A)(2) during the Fiscal
Year. To the extent practicable, distributions under this paragraph shall be
made in sufficient time to permit Limited Partners to pay required installments
of estimated tax and the
-25-
<PAGE>
final tax payment for the taxable year.
(B) After giving effect to Section 5.3(A), the General
Partner shall have the authority to cause the Partnership to make other
distributions from time to time as it determines, including without limitation,
distributions that are sufficient to enable the General Partner to (i) maintain
its status as a REIT, (ii) avoid the imposition of any tax under Code Section
857 and (iii) avoid the imposition of any excise tax under Code Section 4981.
(C) Distributions pursuant to Section 5.3(B) shall be made
PRO RATA among the Partners of record on the Record Date established by the
General Partner for the distribution, in accordance with their respective
Percentage Interests, without regard to the length of time the record holder has
been such. Notwithstanding the foregoing, the General Partner may pro rate any
distributions pursuant to Section 5.3(A)(2) appropriately in the case of
Partnership Units that are outstanding for less than all of any Distribution
Period.
(D) The General Partner shall use its reasonable efforts to
make distributions to the Partners so as to preclude any distribution or portion
thereof from being treated as part of a sale of property to the Partnership by a
Partner under Section 707 of the Code or the Treasury Regulations thereunder;
PROVIDED that the General Partner and the Partnership shall not have liability
to a Limited Partner under any circumstances as a result of any distribution to
a Partner being so treated.
SECTION 5.4 DISTRIBUTIONS UPON LIQUIDATION. Notwithstanding any other
provision hereof, proceeds of a Terminating Capital Transaction and other
distributions following dissolution of the Partnership shall be distributed to
the Partners in accordance with Section 10.2.
SECTION 5.5 AMOUNTS WITHHELD. All amounts withheld pursuant to the Code
or any provision of state or local tax law and Section 7.6 of this Agreement
with respect to any allocation, payment or distribution to the General Partner,
the Preferred Limited Partners, the Limited Partners or Assignees shall be
treated as amounts distributed to such General Partner, the Preferred Limited
Partners, the Limited Partners or Assignees, as applicable, pursuant to Section
5.3 of this Agreement.
SECTION 5.6 RESTRICTED DISTRIBUTIONS. Notwithstanding any provision to
the contrary contained in this Agreement, the Partnership, and the General
Partner on behalf of the Partnership, shall not make a distribution to a Partner
on account of its interest in the Partnership if such distribution would violate
Section 17-607 of the Act or other applicable law.
SECTION 5.7 PREFERRED LIMITED PARTNER PRIORITY. Allocations and
distributions in connection with this Article V to Preferred Limited Partners
holding Senior Preferred Units and/or Junior Preferred Units shall be made first
to Preferred Limited Partners with respect to classes or series of Preferred
Units which are Senior Preferred Units, and thereafter to Preferred Limited
Partners with respect to classes or series of Preferred Units which are Junior
Preferred Units. After distribution of all accrued but unpaid Priority Return
Amounts,
-26-
<PAGE>
the Preferred Limited Partner shall be entitled to no further payment under
Article V of the Agreement with respect to such Preferred Unit.
- --------------------------------------------------------------------------------
ARTICLE VI - PARTNERSHIP MANAGEMENT
- --------------------------------------------------------------------------------
SECTION 6.1 MANAGEMENT AND CONTROL OF PARTNERSHIP BUSINESS
(A) Except as otherwise expressly provided or limited by the
provisions of this Agreement, the General Partner shall have full, exclusive and
complete discretion to manage the business and affairs of the Partnership, to
make all decisions affecting the business and affairs of the Partnership and to
take all such action as it deems necessary or appropriate to accomplish the
purposes of the Partnership as set forth herein. Except as set forth in this
Agreement, neither the Limited Partners nor the Preferred Limited Partners shall
have any authority, right, or power to bind the Partnership, or to manage, or to
participate in the management of the business and affairs of the Partnership in
any manner whatsoever. Such management shall in every respect be the full and
complete responsibility of the General Partner alone as herein provided.
(B) In carrying out the purposes of the Partnership, the
General Partner shall be authorized to take all actions it deems necessary and
appropriate to carry on the business of the Partnership. The Limited Partners
and the Preferred Limited Partners, by execution hereof, agree that the General
Partner is authorized to execute, deliver and perform any agreement and/or
transaction on behalf of the Partnership, without their further Consent, unless
this Agreement expressly provides otherwise.
(C) The General Partner and its Affiliates may acquire
Limited Partner Interests or Preferred Units from Limited Partners or Preferred
Limited Partners who agree so to Transfer Limited Partner Interests or Preferred
Units acquired from the Partnership in accordance with Section 4.2(A). Any
Limited Partner Interest or Preferred Limited Partner Interest acquired by the
General Partner shall be automatically converted into a General Partner
Interest. Upon acquisition of any Limited Partner Interest or Preferred Limited
Partner Interest by an Affiliate of the General Partner, such Affiliate shall
have all the rights of a Limited Partner or Preferred Limited Partner, as the
case may be.
SECTION 6.2 NO MANAGEMENT BY LIMITED PARTNERS; LIMITATION OF LIABILITY.
Neither the Limited Partners, in their capacity as Limited Partners, nor the
Preferred Limited Partners, in their capacity as Preferred Limited Partners,
shall take part in the day-to-day management, operation or control of the
business and affairs of the Partnership or have any right, power, or authority
to act for or on behalf of or to bind the Partnership or transact any business
in the name of the Partnership. Neither the Limited Partners, in their capacity
as Limited Partners, nor the Preferred Limited Partners, in their capacity as
Preferred Limited Partners, shall have any rights other than those specifically
provided herein or granted by law where consistent with a valid provision
hereof. Any approvals rendered or withheld by the Limited Partners or the
Preferred Limited Partners pursuant to this Agreement shall be deemed as
consultation with or
-27-
<PAGE>
advice to the General Partner in connection with the business of the Partnership
and, in accordance with the Act, shall not be deemed as participation by the
Limited Partners or the Preferred Limited Partners in the business of the
Partnership and are not intended to create any inference that the Limited
Partners or the Preferred Limited Partners should be classified as general
partners under the Act.
(A) Neither any Limited Partner nor any Preferred Limited
Partner shall have any liability under this Agreement except with respect to
withholding under Section 7104 of the Code, in connection with any express
provision of this Agreement by such Limited Partner or Preferred Limited Partner
or as provided in the Act.
(B) The General Partner shall not take any action which
would subject a Limited Partner (in its capacity as Limited Partner) or a
Preferred Limited Partner (in its capacity as a Preferred Limited Partner) to
liability as a general partner.
(C) No Partner shall take any action that would result in
the Partnership being treated as an association taxable as a corporation, or as
a corporation, for federal income tax purposes.
SECTION 6.3 LIMITATIONS ON PARTNERS. No Partner or Affiliate of a
Partner shall have any authority to perform (i) any act in violation of any
applicable law or regulation thereunder, (ii) any act prohibited by Section
6.2(C), or (iii) any act which is required to be Consented to or ratified
pursuant to this Agreement without such Consent or ratification.
(A) No action shall be taken by a Partner if it would cause
the Partnership to be treated as an association taxable as a corporation for
federal income tax purposes or, without the Consent of the General Partner, as a
publicly traded partnership within the meaning of Section 7.6 of the Code. A
determination of whether such action will have the above-described effect shall
be based upon a declaratory judgment or similar relief obtained from a court of
competent jurisdiction, a favorable ruling from the IRS or the receipt of a
written opinion of counsel.
SECTION 6.4 BUSINESS WITH AFFILIATES. The General Partner, in its
discretion, may cause the Partnership to transact business with any Partner or
its Affiliates for goods or services reasonably required in the conduct of the
Partnership's business; PROVIDED that any such transaction shall be effected
only on terms competitive with those that may be obtained in the marketplace
from unaffiliated Persons. The foregoing proviso shall not apply to transactions
between the Partnership and its Subsidiaries. In addition, neither the General
Partner nor any Affiliate of the General Partner may sell, transfer or otherwise
convey any property to, or purchase any property from, the Partnership, except
(i) on terms competitive with those that may be obtained in the marketplace from
unaffiliated Persons or (ii) where the General Partner determines, in its sole
judgment, that such sale, transfer or conveyance confers benefits on the General
Partner or the Partnership in respect of matters of tax or corporate or
financial structure; PROVIDED, in the case of this clause (ii), such sale,
transfer or conveyance is not being effected for the purpose of materially
disadvantaging the Limited Partners.
-28-
<PAGE>
(A) In furtherance of Section 6.4(A), the Partnership may
lend or contribute to its Subsidiaries on terms and conditions established by
the General Partner.
SECTION 6.5 COMPENSATION; REIMBURSEMENT OF EXPENSES. In consideration
for the General Partner's services to the Partnership in its capacity as General
Partner, the Partnership shall pay on behalf of or reimburse to the General
Partner all expenses of the General Partner incurred in connection with the
management of the business and affairs of the Partnership, including all
employee compensation of employees of the General Partner related to services
performed for the Partnership and indemnity or other payments made pursuant to
agreements entered into in furtherance of the Partnership's business. Except as
otherwise set forth in this Agreement, the General Partner shall be fully and
entirely reimbursed by the Partnership for any and all direct and indirect costs
and expenses incurred in connection with the formation and continuation of the
Partnership pursuant to this Agreement. In addition, the General Partner shall
be reimbursed by the Partnership for all expenses incurred by the General
Partner in connection with issuance of additional Partnership Interests.
SECTION 6.6 LIABILITY FOR ACTS AND OMISSIONS. The General Partner shall
not be liable, responsible or accountable in damages or otherwise to the
Partnership or any of the other Partners for any act or omission performed or
omitted in good faith on behalf of the Partnership and in a manner reasonably
believed to be (i) within the scope of the authority granted by this Agreement
and (ii) in the best interests of the Partnership or the shareholders of the
General Partner. In exercising its authority hereunder, the General Partner may,
but shall not be under any obligation to, take into account the tax consequences
to any Partner of any action it undertakes on behalf of the Partnership. Neither
the General Partner nor the Partnership shall have any liability as a result of
any income tax liability incurred by a Partner as a result of any action or
inaction of the General Partner hereunder in good faith and, by their execution
of this Agreement, the Limited Partners and the Preferred Limited Partners
acknowledge the foregoing.
(A) Unless otherwise prohibited hereunder, the General
Partner shall be entitled to exercise any of the powers granted to it and
perform any of the duties required of it under this Agreement directly or
through any agent. The General Partner shall not be responsible for any
misconduct or negligence on the part of any agent; PROVIDED that the General
Partner selected or appointed such agent in good faith.
(B) The General Partner acknowledges that it owes fiduciary
duties both to its shareholders and to the Limited Partners and the Preferred
Limited Partners and it shall use its reasonable efforts to discharge such
duties to each; PROVIDED, HOWEVER, that in the event of a conflict between the
interests of the shareholders of the General Partner and the interests of the
Limited Partners or the Preferred Limited Partners, the Limited Partners and the
Preferred Limited Partners agree that the General Partner shall discharge its
fiduciary duties to the Limited Partners and the Preferred Limited Partners by
acting in the best interests of the General Partner's shareholders. Nothing
contained in the preceding sentence shall be construed as entitling the General
Partner to realize any profit or gain from any transaction between the General
Partner and the Partnership (except in connection with a distribution in
accordance with this Agreement), including from the lending of money by the
General Partner to the Partnership or the contribution of property by the
General Partner to the Partnership, it being understood
-29-
<PAGE>
that in any such transaction the General Partner shall be entitled to cost
recovery only.
The provisions of this Agreement, to the extent that they restrict the
duties and liabilities of the General Partner otherwise existing at law or in
equity, are agreed by the Partners to replace such other duties and liabilities
of the General Partner.
SECTION 6.7 INDEMNIFICATION. The Partnership shall indemnify the
General Partner and each director, officer and shareholder of the General
Partner and each Person (including any Affiliate) designated as an agent by
the General Partner in its reasonable discretion (each, an "Indemnified
Party") to the fullest extent permitted under the Act (including any
procedures set forth therein regarding advancement of expenses to such
Indemnified Party) from and against any and all losses, claims, damages,
liabilities, expenses (including reasonable attorneys' fees), judgments,
fines, settlements and any other amounts out of or in connection with any
claims, demands, actions, suits or proceedings (civil, criminal or
administrative) relating to or resulting (directly or indirectly) from the
operations of the Partnership, in which such Indemnified Party becomes
involved, or reasonably believes it may become involved, as a result of the
capacity referred to above.
(A) The Partnership shall have the authority to purchase and
maintain such insurance policies on behalf of the Indemnified Parties as the
General Partner shall determine, which policies may cover those liabilities the
General Partner reasonably believes may be incurred by an Indemnified Party in
connection with the operation of the business of the Partnership. The right to
procure such insurance on behalf of the Indemnified Parties shall in no way
mitigate or otherwise affect the right of any such Indemnified Party to
indemnification pursuant to Section 6.7(A) hereof.
(B) The provisions of this Section 6.7 are for the benefit
of the Indemnified Parties, their heirs, executors, guardians, conservators,
successors, assigns and administrators and shall not be deemed to create any
rights in or benefit to any other Person.
- --------------------------------------------------------------------------------
ARTICLE VII - ADMINISTRATIVE, FINANCIAL AND TAX MATTERS
- --------------------------------------------------------------------------------
SECTION 7.1 BOOKS AND RECORDS. The General Partner shall maintain at
the office of the Partnership full and accurate books of the Partnership showing
all receipts and expenditures, assets and liabilities, profits and losses, names
and current addresses of Partners, and all other records necessary for recording
the Partnership's business and affairs. Each Limited Partner and Preferred
Limited Partner shall have, upon written demand and at such Limited Partner's or
Preferred Limited Partner's expense, as the case may be, the right to receive
true and complete information regarding Partnership matters to the extent
required (and subject to the limitations) under Delaware law.
SECTION 7.2 ANNUAL AUDIT AND ACCOUNTING. The books and records of the
Partnership shall be kept for financial and tax reporting purposes on the
accrual basis of accounting in accordance with generally accepted accounting
principles ("GAAP"). The
-30-
<PAGE>
accounts of the Partnership shall be audited annually by a nationally recognized
accounting firm of independent public accountants selected by the General
Partner (the "Independent Accountants").
SECTION 7.3 PARTNERSHIP FUNDS. The General Partner shall have
responsibility for the safekeeping and use of all funds and assets of the
Partnership, whether or not in its direct or indirect possession or control. All
funds of the Partnership not otherwise invested shall be deposited in one or
more accounts maintained in such banking institutions as the General Partner
shall determine, and withdrawals shall be made only in the regular course of
Partnership business on such signatures as the General Partner may from time to
time determine.
SECTION 7.4 REPORTS AND NOTICES. The General Partner shall provide all
Partners with the following reports no later than the dates indicated or as soon
thereafter as circumstances permit:
(A) By March 31 of each year, IRS Form 1065 and Schedule
K-1, or similar forms as may be required by the IRS, stating each Partner's
allocable share of income, gain, loss, deduction or credit for the prior Fiscal
Year;
(B) Within ninety (90) days after the end of each of the
first three (3) fiscal quarters, as of the last day of the fiscal quarter, a
report containing unaudited financial statements of the Partnership, or of the
General Partner if such statements are prepared on a consolidated basis with the
General Partner, and such other information as may be legally required or
determined to be appropriate by the General Partner; and
(C) Within one hundred twenty (120) days after the end of
each Fiscal Year, as of the close of the Fiscal Year, an annual report
containing audited financial statements of the Partnership, or of the General
Partner if such statements are prepared on a consolidated basis with the General
Partner, presented in accordance with GAAP and certified by the Independent
Accountants.
SECTION 7.5 TAX MATTERS. The General Partner shall be the Tax Matters
Partner of the Partnership for federal income tax matters pursuant to Code
Section 6231(a)(7)(A). The Tax Matters Partner is authorized and required to
represent the Partnership (at the expense of the Partnership) in connection with
all examinations of the affairs of the Partnership by any federal, state, or
local tax authorities, including any resulting administrative and judicial
proceedings, and to expend funds of the Partnership for professional services
and costs associated therewith. The Tax Matters Partner shall deliver to the
Limited Partners and Preferred Limited Partners within ten (10) business days of
the receipt thereof a copy of any notice or other communication with respect to
the Partnership received from the IRS (or other governmental tax authority), or
any court, in each case with respect to any administrative or judicial
proceeding involving the Partnership. The Partners agree to cooperate with each
other in connection with the conduct of all proceedings pursuant to this Section
7.5(A).
(A) The Tax Matters Partner shall receive no compensation
for its services in such capacity. If the Tax Matters Partner incurs any costs
related to any tax audit,
-31-
<PAGE>
declaration of any tax deficiency or any administrative proceeding or litigation
involving any Partnership tax matter, such amount shall be an expense of the
Partnership and the Tax Matters Partner shall be entitled to full reimbursement
therefor.
(B) The General Partner shall cause to be prepared all
federal, state and local income tax returns required of the Partnership at the
Partnership's expense.
(C) Except as set forth herein, the General Partner shall
determine whether to make (and, if necessary, revoke) any tax election available
to the Partnership under the Code or any state tax law; PROVIDED, HOWEVER, upon
the request of any Partner, the General Partner shall make the election under
Code Section 754 and the Treasury Regulations promulgated thereunder. The
Partnership shall elect to deduct expenses, if any, incurred by it in organizing
the Partnership in accordance with the provisions of Code Section 709.
SECTION 7.6 WITHHOLDING. Each Partner hereby authorizes the Partnership
to withhold from or pay to any taxing authority on behalf of such Partner any
tax that the General Partner determines the Partnership is required to withhold
or pay with respect to any amount distributable or allocable to such Partner.
Any amount paid to any taxing authority which does not constitute a reduction in
the amount otherwise distributable to such Partner shall be treated as a loan
from the Partnership to such Partner, which loan shall bear interest at the
"prime rate" as published from time to time in THE WALL STREET JOURNAL plus two
(2) percentage points, and shall be repaid within ten (10) business days after
request for repayment from the General Partner. The obligation to repay any such
loan shall be secured by such Partner's Partnership Interest and each Partner
hereby grants the Partnership a security interest in his Partnership Interest
for the purposes set forth in this Section 7.6, this Section 7.6 being intended
to serve as a security agreement for purposes of the Uniform Commercial Code
with the Partnership having in respect hereof all of the remedies of a secured
party under the Uniform Commercial Code. Each Partner agrees to take such
reasonable actions as the General Partner may request to perfect and continue
the perfection of the security interest granted hereby. In the event any Partner
fails to repay any deemed loan pursuant to this Section 7.6, the Partnership
shall be entitled to avail itself of any rights and remedies it may have.
Furthermore, upon the expiration of ten (10) business days after demand for
payment, the General Partner shall have the right, but not the obligation, to
make the payment to the Partnership on behalf of the defaulting Partner and
thereupon be subrogated to the rights of the Partnership with respect to such
defaulting Partner.
- --------------------------------------------------------------------------------
ARTICLE VIII - TRANSFER OF PARTNERSHIP INTERESTS;
ADMISSION OF PARTNERS
- --------------------------------------------------------------------------------
SECTION 8.1 TRANSFER BY GENERAL PARTNER. The General Partner may not
voluntarily withdraw or, except as provided in Section 8.2, Transfer all or any
portion of its General Partner Interest. Notwithstanding the foregoing, the
General Partner may pledge its General Partner Interest in furtherance of the
Partnership's business (including, without
-32-
<PAGE>
limitation, in connection with a loan agreement under which the Partnership is a
borrower) without the Consent of any Partner.
SECTION 8.2 OBLIGATIONS OF A PRIOR GENERAL PARTNER. Upon an Involuntary
Withdrawal of the General Partner, the General Partner's Interest may be
transferred to a successor with the Consent of the holders of a majority of each
of the Partnership Units and the Preferred Units, voting separately. The
transferring General Partner shall (i) remain liable for all obligations and
liabilities (other than Partnership liabilities payable solely from Partnership
Assets) incurred by it as General Partner before the effective date of such
event and (ii) pay all costs associated with the admission of its Successor
General Partner. However, such General Partner shall be free of and held
harmless by the Partnership against any obligation or liability incurred on
account of the activities of the Partnership from and after the effective date
of such event, except as provided in this Agreement.
SECTION 8.3 SUCCESSOR GENERAL PARTNER. A successor to all of a General
Partner's General Partner Interest who has been approved in accordance with
Section 8.2 shall be admitted as the Successor General Partner, effective
immediately prior to the Transfer. Any such Successor shall carry on the
business of the Partnership without dissolution. In addition, the following
conditions must be satisfied:
(A) The Person shall have accepted and agreed to be bound by
all the terms and provisions of this Agreement by executing a counterpart
thereof and such other documents or instruments as may be required or
appropriate in order to effect the admission of such Person as a General
Partner;
(B) An amendment to this Agreement evidencing the admission
of such Person as a General Partner shall have been executed by all General
Partners and an amendment to the Certificate shall have been filed as required
by the Act; and
(C) Any Consent required under Section 11.1(A) hereof shall
have been obtained.
SECTION 8.4 RESTRICTIONS ON TRANSFER AND WITHDRAWAL BY LIMITED PARTNER.
(A) Subject to the provisions of Section 8.4(D), no Limited
Partner or Preferred Limited Partner may Transfer all or any portion of its
Partnership Interest without first obtaining the Consent of the General Partner,
which Consent may be granted or withheld in the sole and absolute discretion of
the General Partner. Any such purported Transfer undertaken without such Consent
shall be considered to be null and void AB INITIO and shall not be given effect.
(B) No Limited Partner or Preferred Limited Partner may
withdraw from the Partnership other than as a result of a permitted Transfer
(i.e., a Transfer consented to as contemplated by clause (A) above or clause (D)
below or a Transfer pursuant to clause (C) below) of all of such Limited
Partner's Partnership Units or such Preferred Limited Partner's Preferred Units
pursuant to this Article VIII or pursuant to a redemption or exchange of all of
-33-
<PAGE>
such Limited Partner's or Preferred Limited Partner's Partnership Units pursuant
to Article IX. Upon the permitted Transfer or redemption of all of a Limited
Partner's or Preferred Limited Partner's Partnership Interests, such Limited
Partner or Preferred Limited Partner shall cease to be a Limited Partner or
Preferred Limited Partner, as the case may be.
(C) Upon the Involuntary Withdrawal of any Limited Partner
or Preferred Limited Partner (which shall under no circumstance in and of itself
cause the dissolution of the Partnership), the executor, administrator, trustee,
guardian, receiver or conservator of such Limited Partner's or Preferred Limited
Partner's estate shall become a Substituted Limited Partner or Substituted
Preferred Limited Partner upon compliance with the provisions of Section
8.5(A)(1)-(3).
(D) Subject to clause (E) below, a Limited Partner or
Preferred Limited Partner may Transfer, with the Consent of the General Partner,
all or a portion of such Limited Partner's or Preferred Limited Partner's
Partnership Interests to (a) a parent or parents, spouse, natural or adopted
descendant or brother or sister, or a trust created by such Limited Partner or
Preferred Limited Partner for the benefit of such Limited Partner or Preferred
Limited Partner and/or any such Person(s), of which trust such Limited Partner
or Preferred Limited Partner or any such Person(s) is a trustee, (b) a
corporation controlled by a Person or Persons named in (a) above, (c) if the
Limited Partner or Preferred Limited Partner is an entity, its beneficial
owners, or (d) a family limited partnership comprised of members of the family
of a Limited Partner or a Preferred Limited Partner, and the General Partner
shall grant its Consent to any Transfer pursuant to this Section 8.4(D) unless
such Transfer, in the reasonable judgment of the General Partner, would cause
(or have the potential to cause) the General Partner to fail to qualify for
taxation as a REIT, in which case the General Partner shall have the sole and
absolute discretion to refuse to permit such Transfer, and any purported
Transfer in violation of this Section 8.4(D) shall be null and void AB INITIO
and shall not be given effect.
(E) No Transfer of Limited Partnership Interests or
Preferred Limited Partner Partnership Interests shall be made if such Transfer
would (i) in the opinion of Partnership counsel, cause the Partnership to be
terminated for federal income tax purposes or to be treated as an association
taxable as a corporation (rather than a partnership) for federal income tax
purposes; (ii) be effected through an "established securities market" or a
"secondary market (or the substantial equivalent thereof)" within the meaning of
Code Section 7704 and the Treasury Regulations thereunder; (iii) in the opinion
of Partnership counsel, violate the provisions of applicable securities laws;
(iv) violate the terms of (or result in a default or acceleration under) any
law, rule, regulation, agreement or commitment binding on the Partnership; (v)
cause the Partnership to become, with respect to any employee benefit plan
subject to Title I of ERISA, a "party-in-interest" (as defined in Section 3(14)
of ERISA) or a "disqualified person" (as defined in Section 4975(e) of the
Code); (vi) in the opinion of counsel to the Partnership, cause any portion of
the underlying assets of the Partnership to constitute assets of any employee
benefit plan pursuant to Department of Labor Regulations Section 2510.3-101; or
(vii) result in a deemed distribution to any Partner attributable to a failure
to meet the requirements of Treasury Regulations Section 1.752-2(d)(1), unless
such Partner consents thereto.
-34-
<PAGE>
(F) Prior to the consummation of any Transfer under this
Section 8.4, the transferor and/or the transferee shall deliver to the General
Partner such opinions, certificates and other documents as the General Partner
shall request in connection with such Transfer.
SECTION 8.5 SUBSTITUTED LIMITED PARTNER.
(A) No transferee shall become a Substituted Limited Partner
or Substituted Preferred Limited Partner in place of its assignor unless and
until the following conditions have been satisfied:
(1) The assignor and transferee file a Notice or other
evidence of Transfer and such other information reasonably required by the
General Partner, including, without limitation, names, addresses and telephone
numbers of the assignor and transferee;
(2) The transferee executes, adopts and acknowledges
this Agreement, or a counterpart hereto, and such other documents as may be
reasonably requested by the General Partner, including without limitation, all
documents necessary to comply with applicable tax and/or securities rules and
regulations; and
(3) The assignor or transferee pays all costs and
fees incurred or charged by the Partnership to effect the Transfer and
substitution.
(B) If a transferee of a Limited Partner or Preferred
Limited Partner does not become a Substituted Limited Partner or Substituted
Preferred Limited Partner pursuant to Section 8.5(A), such transferee shall be
an Assignee and shall not have any rights to require any information on account
of the Partnership's business, to inspect the Partnership's books or to vote or
otherwise take part in the affairs of the Partnership (such Partnership
Interests being deemed to have been voted in the same proportion as all other
Partnership Interests held by Limited Partners or Preferred Limited Partners, as
the case may be, have been voted). Such Assignee shall be entitled, however, to
all the rights of an assignee of a limited partner interest under the Act. Any
Assignee wishing to Transfer the Partnership Units acquired shall be subject to
the restrictions set forth in this Article VIII.
SECTION 8.6 TIMING AND EFFECT OF TRANSFERS. Unless the General Partner
agrees otherwise, Transfers under this Article VIII may only be made as of the
first day of a fiscal quarter of the Partnership. Upon any Transfer of a
Partnership Interest in accordance with this Article VIII or redemption of a
Partnership Interest in accordance with Article IX, the Partnership shall
allocate all items of Profit and Loss between the assignor and the transferee in
accordance with Section 5.2(F)(2) hereof. The assignor shall have the right to
receive all distributions as to which the Record Date precedes the date of
Transfer and the transferee shall have the right to receive all distributions
thereafter.
SECTION 8.7 ADDITIONAL LIMITED PARTNERS. Other than in accordance with
the transactions specified in the Contribution Agreements, after the initial
execution of this Agreement and the admission to the Partnership of the Initial
Limited Partners, any Person making a Capital Contribution to the Partnership in
accordance herewith shall be admitted as an Additional Limited Partner or
Additional Preferred Limited Partner only (i) with the Consent of
-35-
<PAGE>
the General Partner and (ii) upon execution, adoption and acknowledgment of this
Agreement, or a counterpart hereto, and such other documents as may be
reasonably requested by the General Partner, including, without limitation, the
power of attorney required under Section 12.3. Upon satisfaction of the
foregoing requirements, such Person shall be admitted as an Additional Limited
Partner or Additional Preferred Limited Partner effective on the date upon which
the name of such Person is recorded on the books of the Partnership.
SECTION 8.8 AMENDMENT OF AGREEMENT AND CERTIFICATE. Upon any admission
of a Person as a Partner to the Partnership, the General Partner shall make any
necessary amendment to this Agreement to reflect such admission and, if required
by the Act, to cause to be filed an amendment to the Certificate.
SECTION 8.9 PLEDGES. No Limited Partner or Preferred Limited Partner
may pledge, mortgage, hypothecate or encumber any Limited Partnership Interest
or Preferred Limited Partner Partnership Interest, without first obtaining the
Consent of the General Partner, which Consent may be granted or withheld in the
sole and absolute discretion of the General Partner. Any such purported pledge,
mortgage, hypothecation or encumbrance undertaken without such Consent shall be
considered null and void AB INITIO and shall not be given effect.
- --------------------------------------------------------------------------------
ARTICLE IX - REDEMPTION AND CONVERSION
- --------------------------------------------------------------------------------
SECTION 9.1 RIGHT OF REDEMPTION.
(A) Subject to compliance with (v) the Act, (w) the terms
and conditions of the REIT Charter, (x) all requirements under the Code
applicable to real estate investment trusts, (y) Title 8 of the Corporations and
Associations Article of the Annotated Code of Maryland, as amended, or any other
law as in effect from time to time and (z) any applicable rule or policy of any
stock exchange or self-regulatory organization (a "Redemption Restriction"),
except if prohibited by other contractual obligations, during each Redemption
Period each Redeeming Party shall have the right to exercise its Redemption
Rights by providing the General Partner with a Redemption Notice. A Limited
Partner may invoke its rights under this Article IX with respect to one or more
Partnership Units or all of the Partnership Units held by such Limited Partner.
Upon the General Partner's receipt of a Redemption Notice from a Redeeming
Party, the Partnership shall be obligated (subject to the existence of any
Redemption Restriction) to redeem the Partnership Units from such Redeeming
Party (the "Redemption Obligation").
(B) Upon receipt of a Redemption Notice from a Redeeming
Party, the General Partner shall either (i) cause the Partnership to redeem the
Partnership Units tendered in the Redemption Notice, (ii) assume the Redemption
Obligation, as set forth in Section 9.4, or (iii) provide written Notice to the
Redeeming Party of each applicable Redemption Restriction.
SECTION 9.2 TIMING OF REDEMPTION. The Redemption Obligation (or the
obligation to provide Notice of an applicable Redemption Restriction, if one
exists) shall mature
-36-
<PAGE>
on the date which is seven (7) business days after the receipt by the General
Partner of a Redemption Notice from the Redeeming Party (the "Redemption Date").
SECTION 9.3 REDEMPTION PRICE. On or before the Redemption Date, the
Partnership (or the General Partner if it elects pursuant to Section 9.4) shall
deliver to the Redeeming Party, in the sole and absolute discretion of the
General Partner, either (i) a Share Payment or (ii) a Cash Payment; PROVIDED,
HOWEVER, that a Share Payment shall not be made, and a Cash Payment shall
instead be made in all cases, if, in the sole and absolute discretion of the
General Partner, the making of a Share Payment would result in a material risk
of termination of the General Partner's status as a REIT under the Code. In
order to enable the Partnership to effect a redemption by making a Share Payment
pursuant to this Section 9.3, the General Partner in its sole and absolute
discretion may issue to the Partnership the number of REIT Shares required to
make such Share Payment in exchange for the issuance to the General Partner of
Partnership Units equal in number to the quotient of the number of REIT Shares
issued and the Conversion Factor. Any such Partnership Unit redeemed by the
Partnership shall be deemed canceled.
SECTION 9.4 ASSUMPTION OF REDEMPTION OBLIGATION. Upon receipt of a
Redemption Notice, the General Partner, in its sole and absolute discretion,
shall have the right to assume the Redemption Obligation of the Partnership. In
such case, the General Partner shall be substituted for the Partnership for all
purposes of this Article IX and, upon acquisition of the Partnership Units
tendered by the Redeeming Party pursuant to the Redemption Notice shall be
treated for all purposes of this Agreement as the owner of such Partnership
Units. Such Partnership Units shall constitute General Partner Interests. Such
exchange transaction shall be treated for federal income tax purposes by the
Partnership, the General Partner and the Redeeming Party as a sale by the
Redeeming Party as seller to the General Partner as purchaser.
SECTION 9.5 FURTHER ASSURANCES; CERTAIN REPRESENTATIONS. Each party to
this Agreement agrees to execute any documents deemed reasonably necessary by
the General Partner to evidence the of issuance of any Share Payment to a
Redeeming Party. Each Limited Partner and Preferred Limited Partner, by
executing this Agreement, shall be deemed to have represented to the General
Partner and the Partnership that (i) its acquisition of its Partnership Interest
is or will be made as a principal for its own account, for investment purposes
only and not with a view to the resale or distribution of such Partnership
Interest and (ii) if it shall receive REIT Shares pursuant to this Article IX
other than pursuant to an effective registration statement under the Securities
Act of 1933, as amended, that its acquisition of such REIT Shares is or will be
made as a principal for its own account, for investment purposes only and not
with a view to the resale or distribution of such REIT Shares and agrees that
such REIT Shares may bear a legend to the effect that such REIT Shares have not
been so registered and may not be sold other than pursuant to such a
registration statement or an exemption from the registration requirements of
such Act.
SECTION 9.6 EFFECT OF REDEMPTION. Upon the satisfaction of the
Redemption Obligation by the Partnership or the General Partner, as the case may
be, the Redeeming Party shall have no further right to receive any Partnership
distributions in respect of the Partnership Units so redeemed and shall be
deemed to have represented to the Partnership
-37-
<PAGE>
and the General Partner that the Partnership Units tendered for redemption are
not subject to any liens, claims or encumbrances.
SECTION 9.7 REGISTRATION RIGHTS. In the event a Limited Partner
receives REIT Shares in connection with a redemption of Partnership Units
pursuant to this Article IX, such Limited Partner shall be entitled to have such
REIT Shares registered under the Securities Act of 1933, as amended, as provided
in the Registration Rights Agreement.
SECTION 9.8 CONVERSION.
(A) (1) Each Limited Partner holding Preferred Units which
are convertible into Partnership Units under the terms of this Agreement shall
have the right, at any time or from time to time, to convert after the
Conversion Commencement Date applicable to such Preferred Units some or all of
such Preferred Units into Partnership Units, effective upon January 1, April 1,
July 1 or October 1 of any year, by providing the General Partner with a
Conversion Notice not less than 30 days prior to the effective date of such
conversion. Upon the effective date of any such conversion, each Preferred Unit
which is the subject of such conversion shall be converted, without necessity of
any further action by the General Partner, into that number of Partnership Units
the Limited Partner is entitled to receive on such conversion equal to the
applicable Conversion Factor plus an amount of cash equal to the accrued
Priority Return Amount in respect of such Preferred Unit. With respect to any
series of Preferred Units issued to the General Partner pursuant to Section
4.2(B) of this Agreement, the Conversion Commencement Date and the applicable
Conversion Factor shall be the conversion commencement date and conversion
factor of the related issuance of securities by the General Partner as provided
in Section 4.2(B) of this Agreement. With respect to preferred units issued by
the Partnership to Persons other than the General Partner, the Conversion
Commencement Date and the Conversion Factor shall be set forth on the Addendum
to EXHIBIT 1 hereto or otherwise set forth in an amendment to this Agreement. In
any case in which the conversion into Partnership Units would result in the
issuance of a fractional Partnership Unit, the General Partner shall pay the
converting Limiting Partner cash in lieu of issuance of a fractional Partnership
Unit, with the value of such fractional interest being determined by the Unit
Value applicable on the date of conversion.
(2) Other classes of Preferred Units, if any, issued to
Limited Partners after the date hereof shall be convertible into Partnership
Units on such terms as may be agreed by the Partnership and the holder of such
Preferred Units, and the right to convert such Preferred Units shall be subject
to such further restrictions and limitations as may be agreed upon.
(3) At such time as any Series A Preferred REIT Shares
issued by the General Partner are converted into REIT Shares by the holder
thereof, an equal number of Series A Preferred Units held by the General Partner
shall automatically be converted into a number of Partnership Units equal to the
number of REIT Shares issued by the General Partner upon the conversion of such
Series A Preferred REIT Shares.
(4) In any case in which the conversion into
Partnership Units
-38-
<PAGE>
under this Section 9.8(A) would result in the issuance of a fractional
Partnership Unit, the General Partner shall pay the converting Partner cash in
lieu of issuance of a fractional Partnership Unit, with the value of such
fractional interest being determined by reference to the Unit Value applicable
on the date of conversion.
(B) In any case in which there is an unpaid Priority Return
Amount with respect to a Preferred Unit that is converted pursuant to paragraph
(A) of this Section, the converting Partner shall continue to have the right to
distributions (and allocations) under Article V and Section 10.2 of this
Agreement as if the converting Partner continued to hold the converted Preferred
Unit until the unpaid distributions (and related allocations) have been paid (or
allocated). Notwithstanding anything to the contrary in this Section 9.8(B) or
Section 5.3(A)(1) hereof, in any case in which there is an unpaid Priority
Return Amount with respect to a Series A Preferred Unit that is converted
pursuant to Section 9.8(A) hereof, the converting Partner shall be entitled to
distributions (and allocations) under Article V and Section 10.2 of this
Agreement to the same extent and in the same amount as the holder of the Series
A Preferred REIT Shares with respect to which such Series A Preferred Units are
being converted is entitled to receive dividends from the General Partner upon
the conversion of such Series A Preferred REIT Shares.
SECTION 9.9 REDEMPTION RESTRICTION.
(A) The General Partner shall not take, or cause to be
taken, any action which would cause a Redemption Restriction to exist or
continue.
(B) The General Partner shall, at its cost and expense,
take, or cause to be taken, all such actions that may be necessary or desirable
to mitigate the existence or effect of any Redemption Restriction and to
facilitate and make effective the rights of redemption and conversion provided
in this Article IX.
SECTION 9.10 SPECIAL EVENT
(A) Notwithstanding any provision of this Agreement to the
contrary, upon the occurrence of a Special Event (whether before or after
September 1, 1998), each Redeeming Party shall immediately have the
unconditional right (irrespective of whether a Redemption Restriction exists or
could thereby be created other than a Redemption Restriction under the Act) to
require the Partnership to redeem all or a portion of the Partnership Units held
by such Redeeming Party by providing the General Partner with a Redemption
Notice. A Limited Partner may invoke its rights under this Section 9.10 with
respect to one or more Partnership Units or all of the Partnership Units held by
such Limited Partner. Any such redemption shall otherwise be governed by and
effected and implemented pursuant to this Article IX as if no Redemption
Restriction existed.
(B) Notwithstanding any provision of this Agreement to the
contrary, upon the occurrence of a Special Event (whether before or after
October 1, 1999), each Preferred Limited Partner shall have the right effective
upon the happening of such Special Event, at any
-39-
<PAGE>
time or from time to time, to convert some or all of its Preferred Units into
Limited Partner Interests by providing the General Partner with a Conversion
Notice. Any such conversion shall otherwise be governed by and effected and
implemented pursuant to this Article IX.
(C) "Special Event" means the occurrence of any of the
following:
(1) any person or group (as such terms are used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended
("Exchange Act")) other than the Permitted Holders, directly or indirectly,
makes an offer to purchase or commences a tender offer for REIT Shares such
that, after acquiring all such REIT Shares offered to be acquired or tendered
for, such person or group would then be the "beneficial owner" (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of 20% or
more of the total number of REIT Shares then issued and outstanding; or
(2) any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act), other than one or more Permitted Holders,
is or becomes the beneficial owner (as defined in clause (C)(1) above, except
that for purposes of this clause (II) such person shall be deemed to have
"beneficial ownership" of all shares that any such person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time), directly or indirectly, of more than 20% of the total voting power
represented by all the REIT Shares then outstanding; or
(3) during any period of two consecutive years,
individuals who at the beginning of such period constituted the Board of
Trustees of COPT (together with any new directors whose election by such Board
of Trustees or whose nomination for election by the shareholders of COPT was
approved by a vote of 66 2/3% of the directors of COPT then still in office who
were either trustees at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Trustees of COPT then in office; or
the merger or consolidation of COPT with or into another Person or the
merger or consolidation of another Person with or into COPT, or the sale of all
or substantially all the assets of COPT to another Person (other than a Person
that is controlled by the Permitted Holders in the aggregate), and, in the case
of any such merger or consolidation, the securities of COPT that are outstanding
immediately prior to such transaction and which represent 100% of the aggregate
voting power of the REIT Shares are changed into or exchanged for cash,
securities or property.
(D) "Permitted Holders" means Jay H. Shidler, Clay W. Hamlin
III, Westbrook Real Estate Fund I, L.P. and Westbrook Real Estate Co. Investment
Partnership I, L.P. and any corporation, partnership, trust, estate or other
legal entity controlled by any of the foregoing Persons (or jointly controlled
by Messrs. Shidler and Hamlin).
-40-
<PAGE>
- --------------------------------------------------------------------------------
ARTICLE X - DISSOLUTION AND LIQUIDATION
- --------------------------------------------------------------------------------
SECTION 10.1 TERM AND DISSOLUTION. The Partnership commenced as of
October 10, 1997, and shall continue until October 31, 2096, at which time the
Partnership shall dissolve, or until dissolution occurs prior to that date at
any time there are no Limited Partners of the Partnership and for any one of the
following reasons:
(A) An Involuntary Withdrawal or a voluntary withdrawal,
even though in violation of this Agreement, of the General Partner or any other
event that causes the General Partner to cease to be a general partner under the
Act (other than a Transfer to a Successor General Partner in accordance with
Article VIII) unless, within ninety (90) days after such event, a majority of
the Limited Partners remaining agree in writing to the continuation of the
Partnership and to the appointment, effective as of the date of such event, of a
Successor General Partner;
(B) Entry of a decree of judicial dissolution of the
Partnership under the Act;
(C) The sale, exchange or other disposition of all or
substantially all of the Partnership Assets; or
(D) The affirmative vote of the holders of not less than
two-thirds of the Limited Partner Interests.
For purposes of this Section 10.1 and Section 10.2, Preferred Units
shall be treated as if they have been converted on the date of any such vote
into Limited Partner Interests pursuant to Section 9.8 and the Preferred Limited
Partners holding such Preferred Units shall be treated as Limited Partners.
SECTION 10.2 LIQUIDATION OF PARTNERSHIP ASSETS
(A) Subject to Section 10.2(E), in the event of dissolution
pursuant to Section 10.1, the Partnership shall continue solely for purposes of
winding up the affairs of, achieving a final termination of, and satisfaction of
the creditors of, the Partnership. The General Partner (or, if there is no
General Partner remaining, any Person elected by a majority in interest of the
Limited Partners (the "Liquidator")) shall be responsible for oversight of the
winding-up and termination of the Partnership. The Liquidator shall obtain a
full accounting of the assets and liabilities of the Partnership and such
Partnership Assets shall be liquidated (including, at the discretion of the
Liquidator, in exchange, in whole or in part, for REIT Shares) as promptly as
the Liquidator is able to do so without any undue loss in value, with the
proceeds therefrom applied and distributed in the following order:
(1) First, to creditors, including partners who are
creditors, in satisfaction of liabilities of the Partnership (whether by payment
or the making of reasonable
-41-
<PAGE>
provision for payment thereof), other than liabilities for distributions to
Partners and former Partners;
(2) Second, to the Preferred Limited Partners holding
Preferred Units entitled to a Liquidation Preference in amounts equal to the
Liquidation Preference;
(3) Third, to the Preferred Limited Partners holding
Preferred Units entitled to Priority Return Amounts in amounts equal to any
unpaid Priority Return Amounts;
(4) Fourth, to Partners and former Partners in
satisfaction of liabilities for distributions; and
(5) The balance, if any, to the Partners in accordance
with their positive Capital Accounts after giving effect to all contributions,
distributions (including, without limitation, distributions pursuant to Section
10.2(A)(2)) and allocations for all periods; provided, however, that after
distribution of the Liquidation Preference and Priority Return Amounts, a
Preferred Limited Partner shall be entitled to no further payment pursuant to
this Section with respect to such Preferred Unit.
Distributions made pursuant to this Section 10.2(A) to Preferred
Limited Partners holding Senior Preferred Units and/or Junior Preferred Units
shall be made first to the Preferred Limited Partners with respect to classes or
series of Preferred Units which are Senior Preferred Units, and thereafter to
Preferred Limited Partners with respect to classes or series of Preferred Units
which are Junior Preferred Units.
(B) In accordance with Section 10.2(A), the Liquidator shall
proceed without any unnecessary delay to sell and otherwise liquidate the
Partnership Assets; PROVIDED, HOWEVER, that if the Liquidator shall determine
that an immediate sale of part or all of the Partnership Assets would cause
undue loss to the Partners, the Liquidator may defer the liquidation except (i)
to the extent provided by the Act or (ii) as may be necessary to satisfy the
debts and liabilities of the Partnership to Persons other than the Partners.
(C) If, in the sole and absolute discretion of the
Liquidator, there are Partnership Assets that the Liquidator will not be able to
liquidate, or if the liquidation of such assets would result in undue loss to
the Partners, the Liquidator may distribute such Partnership Assets to the
Partners in kind, in lieu of cash, as tenants-in-common in accordance with the
priorities set forth in Section 10.2(A). The foregoing notwithstanding, such
in-kind distributions shall only be made if in the Liquidator's good
faith-judgment that is in the best interest of the Partners.
(D) Upon the complete liquidation and distribution of the
Partnership Assets, the Partners shall cease to be partners of the Partnership,
and the Liquidator shall execute, acknowledge and cause to be filed all
certificates and notices required by law to terminate the Partnership. Upon the
dissolution of the Partnership pursuant to Section 10.1, the Liquidator shall
cause to be prepared, and shall furnish to each Partner, a statement setting
forth the assets and liabilities of the Partnership. Promptly following the
complete liquidation and
-42-
<PAGE>
distribution of the Partnership Assets, the Liquidator shall furnish to each
Partner a statement showing the manner in which the Partnership Assets were
liquidated and distributed.
(E) Notwithstanding the foregoing provisions of this Section
10.2, in the event that the Partnership shall dissolve as a result of the type
expiration of the term provided for herein or as a result of the occurrence of
an event of the type described in Section 10.1(B) or (C), then each Limited
Partner shall be deemed to have delivered a Redemption Notice on the date of
such dissolution. In connection with each such Redemption Notice, the General
Partner shall have the option, subject to the Act, of either (i) complying with
the redemption procedures contained in Article IX or (ii) at the request of any
Limited Partner, delivering to such Limited Partner Partnership property
approximately equal in value (after taking into account the liabilities herein
referred to) to the amount otherwise distributable to such Partner under Section
10.2(A)(4) hereof upon the assumption by such Limited Partner of such Limited
Partner's proportionate share of the Partnership's liabilities and payment by
such Limited Partner (or the Partnership) of any excess (or deficiency) of the
value of the property so delivered over the amount otherwise distributable to
such Partner under Section 10.2(A)(4). In lieu of requiring such Limited Partner
to assume its proportionate share of Partnership liabilities, the General
Partner may, subject to the Act, deliver to such Limited Partner unencumbered
Partnership property approximately equal in value to the amount otherwise
distributable to such Partner under Section 10.2(A)(4). In furtherance of the
foregoing, a Partner may be compelled to accept a distribution of any asset in
kind from the Partnership despite the fact that the percentage of the assets
distributed to such Partner, exceeds the percentage of that asset which is equal
to the percentage in which he shares in distributions from the Partnership.
SECTION 10.3 EFFECT OF TREASURY REGULATIONS.
(A) In the event the Partnership is "liquidated" within the
meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)(g) and there has been
a dissolution of the Partnership under Section 10.1 hereof, distributions shall
be made pursuant to this Article X to the General Partner, the Limited Partners,
and the Preferred Limited Partners who have positive Capital Accounts in
compliance with Treasury Regulations Section 1.704-1(b)(2)(ii)(b)(2). If any
Partner has a deficit balance in its Capital Account (after giving effect to all
contributions (without regard to this Section 10.3(A)), distributions and
allocations), such Partner shall have no obligation to make any contribution to
the capital of the Partnership. Any deficit restoration obligation pursuant to
the provisions hereof shall be for the benefit of creditors of the Partnership
or any other Person to whom any debts, liabilities, or obligations are owed by
(or who otherwise has any claim against) the Partnership or the General Partner,
in its capacity as general partner of the Partnership.
(B) In the event the Partnership is "liquidated" within the
meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)(g) but there has been
no dissolution of the Partnership under Section 10.1 hereof, then the
Partnership Assets shall not be liquidated, the Partnership's liabilities shall
not be paid or discharged and the Partnership's affairs shall not be wound up.
In the event of such a liquidation there shall be deemed to have been a
distribution of Partnership Assets in kind to the Partners in accordance with
their respective Capital Accounts followed by a recontribution of the
Partnership Assets by the Partners also in accordance with
-43-
<PAGE>
their respective Capital Accounts.
SECTION 10.4 TIME FOR WINDING-UP. Anything in this Article X
notwithstanding, a reasonable time shall be allowed for the orderly winding-up
of the business and affairs of the Partnership and the liquidation of the
Partnership Assets in order to minimize any potential for losses as a result of
such process. During the period of winding-up, this Agreement shall remain in
full force and effect and shall govern the rights and relationships of the
Partners INTER SE.
- --------------------------------------------------------------------------------
ARTICLE XI - AMENDMENTS AND MEETINGS
- --------------------------------------------------------------------------------
SECTION 11.1 AMENDMENT PROCEDURE.
(A) Amendments to this Agreement may be proposed by the
General Partner. An amendment proposed at any time when the General Partner
holds less than 90% of all Partnership Units will be adopted and effective only
if it receives the Consent of the holders of a majority of each of the
Partnership Units and Preferred Units, voting separately, not then held by the
General Partner and an amendment proposed at any time when the General Partner
holds 90% or more of all Partnership Units and Preferred Units may be made by
the General Partner without the Consent of any Limited Partner or Preferred
Limited Partner; PROVIDED, HOWEVER, no amendment shall be adopted if it would
(i) convert a Limited Partner's Partnership Interest or Preferred Limited
Partner's Preferred Units into a general partner interest, (ii) increase the
liability of a Limited Partner or a Preferred Limited Partner under this
Agreement, (iii) except as otherwise permitted in this Agreement, alter the
amount or the Partner's rights to distributions set forth in Article V or X, or
the allocations set forth in Article IV, (iv) alter or modify any aspect of the
Partner's rights with respect to redemption of Partnership Units or conversion
of Preferred Units, (v) cause the early termination of the Partnership (other
than pursuant to the terms hereof) or (vi) amend this Section 11.1(A), in each
case without the Consent of each Partner adversely affected thereby. In
connection with any proposed amendment of this Agreement requiring Consent, the
General Partner shall either call a meeting to solicit the vote of the Partners
or seek the written vote of the Partners to such amendment. In the case of a
request for a written vote, the General Partner shall be authorized to impose
such reasonable time limitations for response, but in no event less than ten
(10) days, with the failure to respond being deemed a vote consistent with the
vote of the General Partner.
(B) Notwithstanding the foregoing, Amendments may be made to
this Agreement by the General Partner, without the Consent of any Limited
Partner or Preferred Limited Partner, to (i) add to the representations, duties
or obligations of the General Partner or surrender any right or power granted to
the General Partner herein; (ii) cure any ambiguity, correct or supplement any
provision herein which may be inconsistent with any other provision herein or
make any other provisions with respect to matters or questions arising hereunder
which will not be inconsistent with any other provision hereof; (iii) reflect
the admission, substitution, termination or withdrawal of Partners in accordance
with this Agreement (including the issuance
-44-
<PAGE>
of Partnership Units and Preferred Units to a Partner (including the General
Partner) in accordance with the requirements of Section 4.2(A) or (B) hereof,
and the designation of the preferences and rights of any such Preferred Units);
or (iv) satisfy any requirements, conditions or guidelines contained in any
order, directive, opinion, ruling or regulation of a federal or state agency or
contained in federal or state law. The General Partner shall reasonably promptly
notify the Limited Partners and Preferred Limited Partners whenever it exercises
its authority pursuant to this Section 11.1(B).
(C) Within ten (10) days of the making of any proposal to
amend this Agreement, the General Partner shall give all Partners Notice of such
proposal (along with the text of the proposed amendment and a statement of its
purposes).
SECTION 11.2 MEETINGS AND VOTING.
(A) Meetings of Partners may be called by the General
Partner. The General Partner shall give all Partners Notice of the purpose of
such proposed meeting not less than seven (7) days nor more than thirty (30)
days prior to the date of the meeting. Meetings shall be held at a reasonable
time and place selected by the General Partner. Whenever the vote or Consent of
Partners is permitted or required hereunder, such vote or Consent shall be
requested by the General Partner and may be given by the Partners in the same
manner as set forth for a vote with respect to an amendment to this Agreement in
Section 11.1(A).
(B) Any action required or permitted to be taken at a
meeting of the Partners may be taken without a meeting if a written Consent
setting forth the action to be taken is signed by the Partners owning Percentage
Interests required to vote in favor of such action, which Consent may be
evidenced in one or more instruments (for this purpose Preferred Units and
Preferred Limited Partners shall be treated as provided in Section 10.1(D) in
the case of a vote pursuant to such Section). Consents need not be solicited
from any other Partner if the written Consent of a sufficient number of Partners
has been obtained to take the action for which such solicitation was required.
(C) Each Limited Partner and each Preferred Limited Partner
may authorize any Person or Persons, including without limitation the General
Partner, to act for him by proxy on all matters on which a Limited Partner or a
Preferred Limited Partner may participate. Every proxy (i) must be signed by the
Limited Partner, the Preferred Limited Partner or their attorney-in-fact, (ii)
shall expire eleven (11) months from the date thereof unless the proxy provides
otherwise and (iii) shall be revocable at the discretion of the Limited Partner
or Preferred Limited Partner granting such proxy.
- --------------------------------------------------------------------------------
ARTICLE XII - MISCELLANEOUS PROVISIONS
- --------------------------------------------------------------------------------
SECTION 12.1 TITLE TO PROPERTY. All property owned by the Partnership,
whether real or personal, tangible or intangible, shall be deemed to be owned by
the Partnership
-45-
<PAGE>
as an entity, and no Partner, individually, shall have any ownership of such
property. The Partnership may hold any of its assets in its own name or in the
name of its nominee, which nominee may be one or more individuals, corporations,
partnerships, limited liability companies, trusts or other entities.
SECTION 12.2 OTHER ACTIVITIES OF LIMITED PARTNERS AND PREFERRED LIMITED
PARTNERS. Except as expressly provided otherwise in this Agreement or in any
other agreement entered into by a Limited Partner or a Preferred Limited Partner
or any Affiliate of a Limited Partner or a Preferred Limited Partner and the
Partnership, the General Partner or any Subsidiary of the Partnership or the
General Partner, any Limited Partner or Preferred Limited Partner or any
Affiliate of any Limited Partner or Preferred Limited Partner may engage in, or
possess an interest in, other business ventures of every nature and description,
independently or with others, including, without limitation, real estate
business ventures, whether or not such other enterprises shall be in competition
with any activities of the Partnership, the General Partner or any Subsidiary of
the Partnership or the General Partner; and neither the Partnership, the General
Partner, any such Subsidiary nor the other Partners shall have any right by
virtue of this Agreement in and to such independent ventures or to the income or
profits derived therefrom.
SECTION 12.3 POWER OF ATTORNEY.
(A) Each Partner hereby irrevocably appoints and empowers
the General Partner (which term shall include the Liquidator, in the event of a
liquidation, for purposes of this Section 12.3) and each of their authorized
officers and attorneys-in-fact with full power of substitution as his true and
lawful agent and attorney-in-fact, with full power and authority in his name,
place and stead to:
(1) make, execute, acknowledge, publish and file in the
appropriate public offices (a) any duly approved amendments to the Certificate
pursuant to the Act and to the laws of any state in which such documents are
required to be filed; (b) any certificates, instruments or documents as may be
required by, or may be appropriate under, the laws of any state or other
jurisdiction in which the Partnership is doing or intends to do business; (c)
any other instrument which may be required to be filed by the Partnership under
the laws of any state or by any governmental agency, or which the General
Partner deems advisable to file; (d) any documents which may be required to
effect the continuation of the Partnership, the admission, withdrawal or
substitution of any Partner pursuant to Article VIII, dissolution and
termination of the Partnership pursuant to Article X, or the surrender of any
rights or the assumption of any additional responsibilities by the General
Partner; (e) any document which may be required to effect an amendment to this
Agreement, to the extent such amendment is permitted by Section 11.1; and (f)
all instruments (including this Agreement and amendments and restatements
hereof) relating to the determination of the rights, preferences and privileges
of any class or series of Partnership Interests issued pursuant to Section
4.2(B) of this Agreement; and
(2) sign, execute, swear to and acknowledge all voting
ballots,
-46-
<PAGE>
Consents, approvals, waivers, certificates and other instruments appropriate or
necessary, in the sole discretion of the General Partner, to make, evidence,
give, confirm or ratify any vote, consent, approval, agreement or other action
which is made or given by the Partners hereunder or is consistent with the terms
of this Agreement and appropriate or necessary, in the sole discretion of the
General Partner, to effectuate the terms or intent of this Agreement.
(B) Nothing herein contained shall be construed as
authorizing the General Partner to amend this Agreement except in accordance
with Article XI or as may be otherwise expressly provided for in this Agreement.
(C) The foregoing grant of authority (i) is a special power
of attorney, coupled with an interest, and it shall survive the disability or
Involuntary Withdrawal of any Partner and shall extend to such Partner's heirs,
executors, guardians, conservators, successors, assigns and personal
representatives; (ii) may be exercised by the General Partner for each and every
Partner acting as attorney-in-fact for each and every Partner; and (iii) shall
survive the Transfer by a Limited Partner or Preferred Limited Partner of all or
any portion of its Partnership Interest and shall be fully binding upon such
transferee; except that the power of attorney shall survive such assignment with
respect to the assignor Limited Partner or Preferred Limited Partner for the
sole purpose of enabling the General Partner to execute, acknowledge and file
any instrument necessary to effect the admission of the transferee as a
Substituted Limited Partner or Substituted Preferred Limited Partner. Each
Partner hereby agrees to be bound by any representations made by the General
Partner acting in good faith pursuant to such power of attorney. Each Partner
shall execute and deliver to the General Partner, within fifteen (15) days after
receipt of the General Partner's request therefor, such further designations,
powers of attorney and other instruments as the General Partner deems necessary
to effectuate this Agreement and the purposes of the Partnership.
SECTION 12.4 NOTICES. All Notices and other communications provided for
or permitted hereunder shall be made in writing by hand delivery, registered
first-class mail, telex, telecopier, or any courier guaranteeing overnight
delivery, (i) if to a Limited Partner or a Preferred Limited Partner, at the
most current address given by such Limited Partner or Preferred Limited Partner
to the General Partner by means of a Notice given in accordance with the
provisions of this Section 12.4, which address initially is the address
contained in the records of the General Partner or the Partnership, or (ii) if
to the General Partner or the Partnership, Corporate Office Properties Trust,
8815 Centre Park Drive, Suite 400, Columbia, Maryland 21045-2272, Attn:
President.
All such Notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if hand delivered; five business days
after being deposited in the mail, postage prepaid, if mailed; when answered
back, if telexed; or when receipt is acknowledged, if telecopied.
SECTION 12.5 FURTHER ASSURANCES. The parties agree to execute and
deliver all such documents, provide all such information and take or refrain
from taking any action as may be necessary or desirable to achieve the purposes
of this Agreement and the Partnership.
-47-
<PAGE>
SECTION 12.6 TITLES AND CAPTIONS. All article or section titles or
captions in this Agreement are solely for convenience and shall not be deemed to
be part of this Agreement or otherwise define, limit or extend the scope or
intent of any provision hereof.
SECTION 12.7 APPLICABLE LAW. This Agreement, and the application or
interpretation thereof, shall be governed exclusively by its terms and by the
laws of the State of Delaware, without regard to its principles of conflicts of
laws.
SECTION 12.8 BINDING AGREEMENT. This Agreement shall be binding upon
the parties hereto, their heirs, executors, personal representatives, successors
and assigns.
SECTION 12.9 WAIVER OF PARTITION. Each of the parties hereto
irrevocably waives during the term of the Partnership any right that it may have
to maintain any action for partition with respect to any property of the
Partnership.
SECTION 12.10 COUNTERPARTS AND EFFECTIVENESS. This Agreement may be
executed in several counterparts, which shall be treated as originals for all
purposes, and all so executed shall constitute one agreement, binding on all of
the parties hereto, notwithstanding that all the parties are not signatory to
the original or the same counterpart. Any such counterpart shall be admissible
into evidence as an original hereof against each Person who executed it. The
execution of this Agreement and delivery thereof by facsimile shall be
sufficient for all purposes, and shall be binding upon any party who so
executes.
SECTION 12.11 SURVIVAL OF REPRESENTATIONS. All representations and
warranties herein shall survive the dissolution and final liquidation of the
Partnership.
SECTION 12.12 ENTIRE AGREEMENT. This Agreement (and all Exhibits
hereto) contains the entire understanding among the parties hereto and
supersedes all prior written or oral agreements among them respecting the within
subject matter, unless otherwise provided herein. There are no representations,
agreements, arrangements or understandings, oral or written, among the Partners
hereto relating to the subject matter of this Agreement which are not fully
expressed herein and in said Exhibits.
SECTION 12.13 Authorization and Consent. The General Partner, each
Limited Partner and each Preferred Limited Partner hereby authorizes the General
Partner, in the name and on behalf of the Partnership, to execute, deliver and
perform the Senior Secured Credit Agreement dated as of September 30, 1997, and
all amendments thereto ("Credit Agreement") between Royale Investments, Inc.
("Royale"), the Partnership, FCO Holdings, Inc., Blue Bell Investment Company,
L.P., South Brunswick Investors, L.P., Comcourt Investors, L.P. and 6385 Flank
Drive, L.P., as Loan parties, and Bankers Trust Company, as Banker, and each of
the Security Documents (as defined in the Credit Agreement) to which it is to be
a party or by which it is to be bound and to execute and deliver in the name and
on behalf of the Partnership such instruments, agreements and documents and to
take or refrain from taking all such action as it in its sole discretion shall
deem necessary, desirable or advisable in connection with the foregoing and in
connection with the Formation Agreement.
-48-
<PAGE>
SECTION 12.14 MERGER. The Partnership may merge with, or consolidate
into, another business entity (as defined in Section 17-211(a) of the Act) upon
approval by the General Partner and the Consent of the holders of a majority of
each of the Partnership Units and the Preferred Units, voting separately. In
accordance with Section 17-211 of the Act (including Section 17-211(g)),
notwithstanding anything to the contrary contained in this Agreement, an
agreement of merger or consolidation approved by the General Partner and
Consented to by the holders of a majority of each of the Partnership Units and
the Preferred Units, voting separately, may (A) effect any amendment to this
Agreement, or (B) effect the adoption of a new partnership agreement for the
Partnership if it is the surviving or resulting limited partnership of the
merger or consolidation. Any amendment to this Agreement or adoption of a new
partnership agreement made pursuant to the foregoing sentence shall be effective
at the effective time or date of the merger or consolidation. The provisions of
this Section shall not be construed to limit the accomplishment of a merger or
of any of the matters referred to herein by any other means otherwise permitted
by law.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-49-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the parties hereto as of the day and year first above written.
CORPORATE OFFICE PROPERTIES TRUST Shidler Equities, L.P.
By: /s/ Randall M. Griffin By: /s/ Illegible
--------------------------------- --------------------------------
Name: Randall M. Griffin Name:
Title: President Title:
LBCW LIMITED PARTNERSHIP CHLB PARTNERSHIP
By: /s/ Clay W. Hamlin, III By: /s/ Clay W. Hamlin, III
--------------------------------- --------------------------------
Name: Clay W. Hamlin, III Name: Clay W. Hamlin, III
Title: General Partner Title: General Partner
JUNE Y.I. ITO TRUST FREDERICK K. ITO TRUST
By: By:
--------------------------------- --------------------------------
Name: Name:
Title: Title:
TIGER SOUTH BRUNSWICK, L.L.C. M.O.R. COMMONS LIMITED PARTNERSHIP
By: By:
--------------------------------- --------------------------------
Name: Name:
Title: Title:
WESTBROOK REAL ESTATE FUND I, L.P. WESTBROOK REAL ESTATE
INVESTMENT PARTNERSHIP I, L.P.
By: By:
--------------------------------- --------------------------------
Name: Name:
Title: Title:
M.O.R. XXIX ASSOCIATES M.O.R. 44 GATEWAY ASSOCIATES
LIMITED PARTNERSHIP LIMITED PARTNERSHIP
By: By:
--------------------------------- --------------------------------
Name: Name:
Title: Title:
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
-50-
<PAGE>
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
ENTERPRISE NAUTICAL, INC. NEW PARKWAY DOMAIN
GROUP ENTERPRISES, LLC
By: By:
--------------------------------- --------------------------------
Name: Name:
Title: Title:
/s/ Jay H. Shidler /s/ Clay W. Hamlin, III
- ------------------------------------ -----------------------------------
Jay H. Shidler Clay W. Hamlin, III
/s/ Robert L. Denton /s/ James K. Davis
- ------------------------------------ -----------------------------------
Robert L. Denton James K. Davis
- ------------------------------------ -----------------------------------
John E. De B. Blockey Henry D. Bullock
Trustee of the John E. de B. Blockey
Living Trust dated 9/12/88
/s/ Denise J. Liszewski
- ------------------------------------ -----------------------------------
Bernice Reger Denise J. Liszewski
/s/ David P. Hartsfield
- ------------------------------------ -----------------------------------
Samuel Tang David P. Hartsfield
- ------------------------------------ -----------------------------------
Lawrence J. Taff Kimberly F. Acquino
/s/ John Parsinen
- ------------------------------------- ----------------------------------
John Parsinen John Edward De Burgh Blockey
- ------------------------------------ -----------------------------------
John D. Parsinen, Jr. Sanda Juanita Blockey
-51-
<PAGE>
Exhibit 1
SCHEDULE OF PARTNERS
<TABLE>
<CAPTION>
Series A Series B
Preferred Preferred
Partnership Partnership Partnership
Units Units Units
-----------------------------------------------
<S> <C> <C> <C>
GENERAL PARTNER
Corporate Office Properties Trust 15,503,088 984,308 1,250,000
LIMITED PARTNERS AND PREFERRED LIMITED PARTNERS
Jay H. Shidler 452,878
Shidler Equities, L.P. 2,217,182
Clay W. Hamlin, III 417,138
LBCW Limited Partnership 3,246,007
CHLB Partnership 212,316
Robert L. Denton 434,910
James K. Davis 51,589
John E. De B. Blockey, Trustee of the John E. de B. Blockey 300,625
Living Trust dated 9/12/88
Henry D. Bullock 116,553
Frederick K. Ito Trust 29,140
June Y.I. Ito Trust 29,135
Bernice Reger 268,671
Tiger South Brunswick, L.L.C. 6,778
Westbrook Real Estate Fund I, L.P. 792,279
Westbrook Real Estate Co. Investment Partnership I, L.P. 78,488
Denise J. Liszewski 34,333
Samuel Tang 22,889
David P. Hartsfield 30,519
Lawrence J. Taff 13,733
Kimberly F. Acquino 5,874
M.O.R. XXIX Associates Limited Partnership 148,381
M.O.R. 44 Gateway Associates Limited Partnership 1
Enterprise Nautical, Inc. 100,000
John Parsinen 90,000
John D. Parsinen, Jr. 10,000
New Parkway Domain Group Enterprises, LLC 326,768
M.O.R. Commons Limited Partnership 7
John Edward De Burgh Blockey and Sanda Juanita Blockey 50,476
-----------------------------------------------
24,989,758 984,308 1,250,000
-------------- --------- ----------
-------------- --------- ----------
</TABLE>
<PAGE>
Exhibit 1 Addendum
<TABLE>
<CAPTION>
Series Priority Conversion
Preferred Preferred No. of Liquidation Return Conversion Commencement
Units Limited Partner Units Preference Percentage* Priority Factor Date
- ----- --------------- --------- ----------- ----------- -------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
A General Partner 984,308 $25 1.375% Senior 1.8748 **
B General Partner 1,250,000 $25 2.50% Senior None N/A
</TABLE>
* Priority Return Percentage is expressed as a percentage of the Liquidation
Preference per Distribution Period.
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST L.P.
EXHIBIT 2
TO
LIMITED PARTNERSHIP AGREEMENT
FORM OF REDEMPTION OR CONVERSION NOTICE
REDEMPTION [CONVERSION] NOTICE
The undersigned hereby irrevocably (i) elects to exercise its
[redemption] [conversion] rights contained in ARTICLE IX of the Limited
Partnership Agreement of Corporate Office Properties, L.P. (the "Partnership
Agreement") with respect to an aggregate of __________ [Partnership Units]
[Preferred Units], (ii) surrenders such [Partnership Units] [Preferred Units]
and all right, title and interest therein and (iii) directs that the [REIT
Shares (or applicable cash amount if so determined by the General Partner in
accordance with the Partnership Agreement)] [Units of Limited Partner Interest]
deliverable upon [redemption] [conversion] of such [Partnership Units]
[Preferred Units] be delivered to the address specified below. Terms used above
which are defined in the Partnership Agreement are used herein are defined
therein.
Dated:
------------------------------
Name of Limited Partner or Preferred
Limited Partner:
--------------------
Social Security or
Federal Employer ID Number:
-----------------
-----------------------------------------
(Signature of Limited Partner or Preferred
Limited Partner)
-----------------------------------------
(Street Address)
-----------------------------------------
(City) (State) (Zip Code)
Signature Guaranteed by:
------------------------------------------
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST, L.P.
EXHIBIT 3
TO
LIMITED PARTNERSHIP AGREEMENT
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
<PAGE>
FIRST AMENDMENT
TO
SECOND AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
OF
CORPORATE OFFICE PROPERTIES, L.P.
THIS FIRST AMENDMENT (the "Amendment") to the Second Amended and
Restated Limited Partnership Agreement of Corporate Office Properties, L.P., a
Delaware limited partnership (the "Partnership"), is made and entered into as of
December 21, 1999, by the undersigned.
RECITALS
A. The Partnership is a limited partnership organized under the
Delaware Revised Uniform Limited Partnership Act and governed by that certain
Seconded Amended and Restated Limited Partnership Agreement dated as of December
7, 1999 (the "Partnership Agreement").
B. The sole general partner of the Partnership is Corporate Office
Properties Trust, a real estate investment trust formed under the laws of the
State of Maryland (the "General Partner").
C. Pursuant to Section 11.1(B) of the Partnership Agreement, the
General Partner desires to correct certain provisions of the Partnership
Agreement which are ambiguous and conflict with other provisions of the
Partnership Agreement.
NOW THEREFORE, the General Partner, intending to be legally bound,
hereby amends the Partnership Agreement as follows, effective as of the date set
forth above.
1. The foregoing recitals to this Amendment are hereby incorporated in
and made a part of this Amendment. Capitalized terms used in this Amendment not
defined herein shall have the meaning set forth in the Partnership Agreement.
2. Section 1.1 of the Partnership Agreement is amended by (i) deleting
the term "Redemption Rights," which such term was erroneously included in the
Partnership Agreement, (ii) adding the defined term "Redemption Ratio,"
initially equal to 1.0 and subject to anti-dilution adjustment, for the purpose
of redeeming Partnership Units for REIT Shares, which such concept was
erroneously deleted from the Partnership Agreement, and (iii) amending and
restating the terms "Share Payment" and "Unit Value" in order to (A) substitute
the new term "Redemption Ratio" for the incorrectly used term "Conversion
Factor" and (B) correct the "Share Payment" term by adding a fractional share
provision, as follows:
"REDEMPTION RATIO: The ratio (carried out to four decimal
places) applied when redeeming Partnership Units for REIT
Shares, which shall initially be 1.0. In the event that on or
after the date of this Agreement the General Partner (i)
declares or pays a dividend on its outstanding REIT Shares in
REIT Shares or makes a
<PAGE>
distribution to all holders of its outstanding REIT Shares in
REIT Shares, (ii) subdivides its outstanding REIT Shares or
(iii) combines its outstanding REIT Shares into a smaller
number of REIT Shares, the Redemption Ratio shall be adjusted
by multiplying the Redemption Ratio by a fraction, the
numerator of which shall be the number of REIT Shares issued
and outstanding on the record date (assuming for such purposes
that such dividend, distribution, subdivision or combination
has occurred as of such time), and the denominator of which
shall be the actual number of REIT Shares (determined without
the above assumption) issued and outstanding on the record
date for such dividend, distribution, subdivision or
combination. In the event that the Partnership (a) declares or
pays a distribution on the outstanding Partnership Units or
makes a distribution to all Partners in Partnership Units, (b)
subdivides the outstanding Partnership Units or (c) combines
the outstanding Partnership Units into a smaller number of
Partnership Units, the Redemption Ratio shall be adjusted by
multiplying the Redemption Ratio by a fraction, the numerator
of which shall be the actual number of Partnership Units
issued and outstanding on the record date (determined without
giving effect to such dividend, distribution, subdivision or
combination), and the denominator of which shall be the actual
member of Partnership Units (determined after giving effect to
such dividend, distribution, subdivision or combination)
issued and outstanding on such record date. Any adjustment to
the Redemption Ratio shall become effective immediately after
the effective date of such event retroactive to the record
date, if any, for such event.
SHARE PAYMENT: The payment to a Redeeming Party of a number of
REIT Shares determined by multiplying (i) the number of
Partnership Units tendered for redemption by such Redeeming
Party pursuant to a validly proffered Redemption Notice by
(ii) the Redemption Ratio. In the event the General Partner
grants any REIT Share Rights on or after the date of this
Agreement and prior to such payment, any Share Payment shall
include for the Redeeming Party such Redeeming Party's ratable
share of such REIT Share Rights other than REIT Share Rights
which have expired. In any case in which the Share Payment
would result in the issuance of a fractional REIT Share, the
General Partner shall pay the converting Redeeming Party cash
in lieu of issuance of a fractional REIT Share, with the value
of such fractional interest being determined by reference to
the Unit Value applicable on the Redemption Date.
UNIT VALUE: With respect to any Partnership Unit, the average
of the daily market price for a REIT Share for the ten (10)
consecutive trading days immediately preceding the date of
receipt of a Redemption Notice by the General Partner
multiplied by the Redemption Ratio. If the REIT Shares are
traded on a securities exchange or the NASDAQ Small Cap Market
or National Market System, the market price for each such
trading day shall be the reported last sale price on such day
or, if no sales take place on such day, the average of the
closing bid and asked prices on such day. If the REIT Shares
are not traded on a securities exchange or the NASDAQ Small
Cap Market or National Market System, the market price for
each such trading day shall be determined by the
2
<PAGE>
General Partner using any reasonable method of valuation. If a
Share Payment would include any REIT Share Rights, the value
of such REIT Share Rights shall be determined by the General
Partner using any reasonable method of valuation, taking into
account the Unit Value determined hereunder and the factors
used to make such determination and the value of such REIT
Share Rights shall be included in the Unit Value."
3. Section 9.1(A) of the Partnership Agreement is amended and restated in
order to delete the sole use in the Partnership Agreement of the term
"Redemption Rights," as follows:
"(A) Subject to compliance with (v) the Act, (w) the terms and
conditions of the REIT Charter, (x) all requirements under the
Code applicable to real estate investment trusts, (y) Title 8
of the Corporations and Associations Article of the Annotated
Code of Maryland, as amended, or any other law as in effect
from time to time and (z) any applicable rule or policy of any
stock exchange or self-regulatory organization (a "Redemption
Restriction"), except if prohibited by other contractual
obligations, during each Redemption Period each Redeeming
Party shall have the right to redeem its Partnership Units by
providing the General Partner with a Redemption Notice. A
Limited Partner may invoke its rights under this Article IX
with respect to one or more Partnership Units or all of the
Partnership Units held by such Limited Partner. Upon the
General Partner's receipt of a Redemption Notice from a
Redeeming Party, the Partnership shall be obligated (subject
to the existence of any Redemption Restriction) to redeem the
Partnership Units from such Redeeming Party (the "Redemption
Obligation")."
4. Section 9.3 of the Partnership Agreement is amended and restated in
order to delete the incorrect use of the term "Conversion Ratio," as follows:
"SECTION 9.3 REDEMPTION PRICE. On or before the Redemption
Date, the Partnership (or the General Partner if it elects
pursuant to Section 9.4) shall deliver to the Redeeming Party,
in the sole and absolute discretion of the General Partner,
either (i) a Share Payment or (ii) a Cash Payment; provided,
however, that a Share Payment shall not be made, and a Cash
Payment shall instead be made in all cases, if, in the sole
and absolute discretion of the General Partner, the making of
a Share Payment would result in a material risk of termination
of the General Partner's status as a REIT under the Code. In
order to enable the Partnership to effect a redemption by
making a Share Payment pursuant to this Section 9.3, the
General Partner in its sole and absolute discretion may issue
to the Partnership the number of REIT Shares required to make
such Share Payment in exchange for the issuance to the General
Partner of Partnership Units equal in number to the quotient
of the number of REIT Shares issued divided by the Redemption
Ratio. Any such Partnership Unit redeemed by the Redeeming
Party shall be deemed canceled."
3
<PAGE>
In witness whereof, the General Partner has executed this Amendment as
of the day and year first above written.
CORPORATE OFFICE PROPERTIES TRUST, a
Maryland Real Estate Investment Trust
By: /s/ ROGER A. WAESCHE, JR.
-------------------------------------
Name: Roger A. Waesche, Jr.
Its: Senior Vice President
5
<PAGE>
Exhibit 10.1
EMPLOYMENT AGREEMENT
CLAY W. HAMLIN, III
This Employment Agreement (this "Agreement"), is made and entered into
as of the 16th day of December, 1999, by and between Corporate Office
Management, Inc., a Maryland corporation (the "Employer"), and Corporate Office
Properties Trust, a Maryland business trust ("COPT"), and Clay W. Hamlin, III
(the "Executive").
RECITALS
A. The Executive and the predecessor general partner of COPT executed
an agreement effective as of October 14, 1997 providing for the employment of
the Executive by the Employer upon the terms and conditions therein stated (the
"Prior Agreement").
B. The Employer and COPT wish to terminate the Prior Agreement and to
renegotiate a new agreement to assure itself of the continued services of the
Executive for the period provided in this Agreement and the Executive is willing
to continue in the employ of the Employer on a full-time basis for said period,
and upon the other terms and conditions hereinafter provided.
C. The Employer recognizes that circumstances may arise in which a
change of control of the Employer or COPT, through acquisition or otherwise, may
occur, thereby causing uncertainty of employment without regard to the
competence or past contributions of the Executive, and that such uncertainty may
result in the loss of valuable services of the Executive. Accordingly, the
Employer and the Executive wish to provide reasonable security to the Executive
against changes in the employment relationship in the event of any such change
of control.
D. COPT has agreed to become a party to this Agreement for the purpose
of assuming the liabilities, obligations and duties of the Employer to the
extent provided herein.
E. It is the intention of the Employer and the Executive that,
notwithstanding the date of execution hereof, the Prior Agreement shall be
terminated and this Agreement shall become effective as of July 1, 1999.
NOW, THEREFORE, in consideration of the premises and of the covenants
and agreements hereinafter contained, it is covenanted and agreed by and between
the parties hereto as follows:
AGREEMENTS
1. TERMINATION OF PRIOR AGREEMENT. The Prior Agreement is hereby
terminated and this Agreement shall become effective as of July 1, 1999 (the
"Effective Date").
<PAGE>
2. POSITION AND DUTIES. As of the Effective Date, the Employer hereby
employs the Executive as the Chief Executive Officer of the Employer, or in such
other capacity as shall be mutually agreed between the Employer and the
Executive. During the period of the Executive's employment hereunder, the
Executive shall devote his best efforts and full business time, energy, skills
and attention to the business and affairs of the Employer. The Executive's
duties and authority shall consist of and include all duties and authority
customarily performed and held by persons holding equivalent positions with
business organizations similar in nature and size to the Employer, as such
duties and authority are reasonably defined, modified and delegated from time to
time by the Board of Directors of the Employer (the "Board"). The Executive
shall have the powers necessary to perform the duties assigned to him, and shall
be provided such supporting services, staff, secretarial and other assistance,
office space and accouterments as shall be reasonably necessary and appropriate
in the light of such assigned duties.
3. COMPENSATION. As compensation for the services to be provided by the
Executive hereunder, the Executive shall receive the following compensation and
other benefits:
(a) BASE SALARY. The Executive shall receive an aggregate
annual minimum "Base Salary" at the annualized rate of One Hundred Thousand
Dollars ($100,000) per annum, payable in periodic installments in accordance
with the regular payroll practices of the Employer. Such Base Salary shall be
subject to review annually by the Board and Compensation Committee of COPT
("Compensation Committee") during the term hereof, in accordance with the
established compensation policies of the Compensation Committee.
(b) PERFORMANCE BONUS. The Executive shall be entitled to an
annual cash "Performance Bonus," payable within ninety (90) days after the end
of the fiscal year of the Employer the amount (if any) of which shall be
determined by the Board based upon the recommendation of the Compensation
Committee.
(c) BENEFITS. The Executive shall be entitled to all
perquisites extended to similarly situated executives, as such are stated in the
Employer's Executive Perquisite Policy (the "Perquisite Policy") promulgated for
the Board or the Compensation Committee, and which Perquisite Policy is hereby
incorporated by reference, as amended by the Board or the Compensation Committee
from time to time. In addition, the Executive shall be entitled to participate
in all plans and benefits generally, from time to time, accorded to employees of
the Employer ("Benefit Plans"), all as determined by the Board from time to time
based upon the input of the Compensation Committee. Executive shall also receive
additional benefits as follows:
(i) a one thousand dollar ($1,000.00) per month
automobile allowance; and
(ii) eight thousand five hundred dollars ($8,500) per
year for personal financial planning and personal income tax
preparation.
2
<PAGE>
(d) WITHHOLDING. The Employer shall be entitled to withhold,
from amounts payable to the Executive hereunder, any federal, state or local
withholding or other taxes or charges which it is from time to time required to
withhold. The Employer shall be entitled to rely upon the opinion of its
independent accountants, with regard to any question concerning the amount or
requirement of any such withholding.
4. TERM AND TERMINATION.
(a) BASIC TERM. The Executive's employment hereunder shall be
for a basic term commencing as of the Effective Date and terminating on December
31, 2000. The Executive's term of employment shall automatically be extended for
a continuous self-renewing one (1) year term without further action of the
parties unless either party shall have served written notice on the other prior
to the expiration of the Basic Term or any renewal term of its intention that
this Agreement shall terminate prior to the end of the Basic Term or any renewal
term.
(b) PREMATURE TERMINATION.
(i) In the event of the termination of the employment
of the Executive under this Agreement by the Employer for any
reason other than expiration of the term hereof, termination
upon disability in accordance with the provisions of paragraph
(f) of this Section 4, or a "for-cause" termination in
accordance with the provisions of paragraph (d) of this
Section 4, then notwithstanding any actual or allegedly
available alternative employment or other mitigation of
damages by or available to the Executive, the Executive shall
be entitled to a "Termination Payment" equal to the sum of:
(w) two (2) times the rate of annualized Base Salary then
payable to the Executive, plus (x) two (2) times the average
of the two (2) most recent annual Performance Bonuses that the
Executive received; provided, however that if the Executive
has been employed by the Employer for fewer than two (2)
years, then the amount set forth in (x) above shall be equal
to two (2) times the average of the annual Performance Bonus
that the Executive has theretofore received from the Employer.
For purposes of calculating the Termination Payment amounts
due, the Executive's employment with the Employer shall be
agreed to have commenced on July 1, 1999. In the event of a
termination governed by this subparagraph (b) of Section 4,
the Employer shall also: (y) continue for the Executive
(provided that such items are not available to him by virtue
of other employment secured after termination) the
perquisites, plans and benefits provided under the Employer's
Perquisite Policy and Benefit Plans as of and after the date
of termination, [all items in (y) being collectively referred
to as "Post-Termination Perquisites and Benefits"], for the
lesser of the number of full months the Executive has
theretofore been employed by the Employer (but not less than
twelve (12) months)or twenty four (24) months following such
termination. The payments and benefits provided under (w), (x)
and (y) above by the Employer shall not be offset against or
diminish any other compensation or benefits accrued as of the
date of termination.
3
<PAGE>
(ii) Any cash payments to the Executive under this
Section 4(b) will be made monthly over twelve (12) months,
unless otherwise mutually agreed by the parties to minimize
the Executives' tax burden in any year.
(c) CONSTRUCTIVE TERMINATION. If at any time during the term
of this Agreement, except in connection with a "for-cause" termination pursuant
to paragraph (d) of this Section 4, the Executive is Constructively Discharged
(as hereinafter defined), then the Executive shall have the right, by written
notice to the Employer given within one hundred and twenty (120) days of such
Constructive Discharge, to terminate his services hereunder, effective as of
thirty (30) days after such notice, and the Executive shall have no rights or
obligations under this Agreement other than as provided in Sections 5 and 6
hereof. The Executive shall in such event be entitled to a Termination Payment
of Base Salary and Performance Bonus compensation as well as all of the
Post-Termination Perquisites and Benefits, as if such termination of his
employment had been effectuated pursuant to paragraph (b) of this Section 4.
For purposes of this Agreement, the Executive shall be deemed
to have been "Constructively Discharged" upon the occurrence of any one of the
following events:
(i) The Executive is not re-elected to, or is removed
from, the position with the Employer as set forth in Section 2
hereof, other than as a result of the Executive's election or
appointment to positions of equal or superior scope and
responsibility; or
(ii) The Executive shall fail to be vested by the
Employer with the powers, authority and support services
normally attendant to any of said offices; or
(iii) The Employer shall notify the Executive that
the employment of the Executive will be terminated or
materially modified in the future or that the Executive will
be Constructively Discharged in the future; or
(iv) The Employer changes the primary employment
location of the Executive to a place that is more than fifty
(50) miles from the primary employment location, 8815 Centre
Park Drive, Columbia, Maryland 21045, as of the Effective Date
of this Agreement; or
(v) The Employer otherwise commits a material breach
of its obligations under this Agreement.
(d) TERMINATION FOR CAUSE. The employment of the Executive and
this Agreement may be terminated "for-cause" as hereinafter defined. Termination
"for- cause" shall mean the termination of employment on the basis or as a
result of (i) a material violation by the Executive of any applicable material
law or regulation respecting the business of the Employer; (ii) the Executive
being found guilty of, or being publicly associated with, to the Employer's
detriment, a felony or an act of dishonesty in connection with the performance
of his duties as an officer of the Employer, or the Executive's commission of an
act which in the
4
<PAGE>
opinion of a reasonable third party disqualifies the Executive from serving as
an officer or director of the Employer; or (iii) the willful or negligent
failure of the Executive to perform his duties hereunder in any material
respect. The Executive shall be entitled to at least thirty (30) days' prior
written notice of the Employer's intention to terminate his employment for any
cause (except the Executive's death), specifying the grounds for such
termination, affording the Executive a reasonable opportunity to cure any
conduct or act (if curable) alleged as grounds for such termination, and a
reasonable opportunity to present to the Board his position regarding any
dispute relating to the existence of such cause. In the event the Employer
terminates the Executive's employment "for cause" the Executive shall be
entitled only to the Base Salary through the date of the termination of the
Executive's employment "for cause" and any other additional benefit in
accordance with applicable plans, programs or agreements with the Employer.
(e) TERMINATION UPON DEATH. In the event payments are due and
owing under this Agreement at the death of the Executive, such payments shall be
made to such beneficiary, designee or fiduciary as Executive may have designated
in writing, or failing such designation, to the executor or administrator of his
estate, in full settlement and satisfaction of all claims and demands on behalf
of the Executive. Such payments shall be in addition to any other death benefits
of the Employer made available for the benefit of the Executive, and in full
settlement and satisfaction of all payments provided for in this Agreement.
(f) TERMINATION UPON DISABILITY. The Employer may terminate
the Executive's employment after the Executive is determined to be disabled
under the long-term disability program of the Employer then covering the
Executive or by a physician engaged by the Employer and reasonably approved by
the Executive. In the event of a dispute regarding the Executive's "disability,"
such dispute shall be resolved through arbitration as provided in paragraph (d)
of Section 11 hereof, except that the arbitrator appointed by the American
Arbitration Association shall be a duly licensed medical doctor. The Executive
shall be entitled to the compensation and benefits provided for under this
Agreement during any period of incapacitation occurring during the term of this
Agreement, and occurring prior to the establishment of the Executive's
"disability" during which the Executive is unable to work due to a physical or
mental infirmity. Notwithstanding anything contained in this Agreement to the
contrary, until the date specified in a notice of termination relating to the
Executive's disability, the Executive shall be entitled to return to his
positions with the Employer as set forth in this Agreement, in which event no
disability of the Executive will be deemed to have occurred.
(g) TERMINATION UPON CHANGE OF CONTROL.
(i) In the event of a Change in Control (as defined
below) and the termination of the Executive's employment by
Executive or by the Employer under either 1 or 2 below, the
Executive shall be entitled to a Termination Payment equal to
the sum of: (w) three (3) times the rate of annualized Base
Salary then payable to the Executive ; plus (x) three (3)
times the average of the three (3) most recent annual
Performance Bonuses that the Executive received; provided,
however, that if the Executive has been employed by the
Employer for fewer than three (3) years, then the amount set
forth in (x) above shall be equal to
5
<PAGE>
three (3) times the average of the annual Performance Bonuses
that the Executive has theretofore received from the Employer.
The Employer shall also continue for the Executive the
Post-Termination Perquisites and Benefits for the same period
and to the same extent as provided in paragraph (b) of this
Section 4. The following shall constitute termination under
this paragraph:
1 . The Executive terminates his employment under
this Agreement pursuant to a written notice to that effect
delivered to the Board within six (6) months after the
occurrence of the Change in Control.
2. Executive's employment is terminated, including
Constructively Discharged, by the Employer or its successor
either in contemplation of or after Change in Control, other
than on a for-cause basis.
(ii) For purposes of this paragraph, the term "Change in
Control" shall mean the following occurring after the date of this
Agreement:
1. The consummation of the acquisition by any person
(as such term is defined in Section 13(d) or 14(d) of the
Securities Exchange Act of 1934, as amended (the " 1934 Act")
of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the 1934 Act) of fifty percent (50%) or more
of the combined voting power embodied in the then-outstanding
voting securities of COPT or the Employer; or
2. Approval by the stockholders of COPT or the
Employer of: (1) a merger or consolidation of COPT or the
Employer, if the stockholders of COPT or the Employer
immediately before such merger or consolidation do not, as a
result of such merger or consolidation, own, directly or
indirectly, more than fifty percent (50%) of the combined
voting power of the then outstanding voting securities of the
entity resulting from such merger or consolidation in
substantially the same proportion as was represented by their
ownership of the combined voting power of the voting
securities of COPT or the Employer outstanding immediately
before such merger or consolidation; or (2) a complete or
substantial liquidation or dissolution, or an agreement for
the sale or other disposition, of all or substantially all of
the assets of COPT or the Employer.
Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur solely because fifty percent (50%) or more of the combined voting
then-outstanding securities is acquired by: (1) a trustee or other fiduciary
holding securities under one or more employee benefit plans maintained for
employees of the entity; or (2) any corporation or other entity which,
immediately prior to such acquisition, is owned directly or indirectly by the
stockholders of COPT or the Employer in the same proportion as their ownership
of stock in COPT or the Employer immediately prior to such acquisition.
(iii) If it is determined, in the opinion of the
Employer's independent accountants, in consultation with the
Employer's independent counsel, that any
6
<PAGE>
amount payable to the Executive by the Employer under this
Agreement, or any other plan or agreement under which the
Executive participates or is a party, would constitute an
"Excess Parachute Payment" within the meaning of Section 280G
of the Internal Revenue Code of 1986, as amended (the "Code")
and be subject to the excise tax imposed by Section 4999 of
the Code (the "Excise Tax"), the Employer shall pay to the
Executive a "grossing-up" amount equal to the amount of such
Excise Tax and all federal and state income or other taxes
with respect to payment of the amount of such Excise Tax,
including all such taxes with respect to any such grossing-up
amount. If at a later date, the Internal Revenue Service
assesses a deficiency against the Executive for the Excise Tax
which is greater than that which was determined at the time
such amounts were paid, the Employer shall pay to the
Executive the amount of such unreimbursed Excise Tax plus any
interest, penalties and professional fees or expenses,
incurred by the Executive as a result of such assessment,
including all such taxes with respect to any such additional
amount. The highest marginal tax rate applicable to
individuals at the time of payment of such amounts will be
used for purposes of determining the federal and state income
and other taxes with respect thereto. The Employer shall
withhold from any amounts paid under this Agreement the amount
of any Excise Tax or other federal, state or local taxes then
required to be withheld. Computations of the amount of any
grossing-up supplemental compensation paid under this
subparagraph shall be made by the Employer's independent
accountants, in consultation with the Employer's independent
legal counsel. The Employer shall pay all accountant and legal
counsel fees and expenses.
(h) VOLUNTARY TERMINATION. In the event of a termination of
employment by the Executive on his own initiative, other than a termination due
to death, disability or a Constructive Discharge, the Executive shall have the
same entitlements as provided in paragraph (d) of this Section 4 for a
termination "for-cause."
5. CONFIDENTIALITY AND LOYALTY. The Executive acknowledges that
heretofore or hereafter during the course of his employment he has produced and
received, and may hereafter produce, receive and otherwise have access to
various materials, records, data, trade secrets and information not generally
available to the public (collectively, "Confidential Information") regarding the
Employer and its subsidiaries and affiliates. Accordingly, during and subsequent
to termination of this Agreement, the Executive shall hold in confidence and not
directly or indirectly disclose, use, copy or make lists of any such
Confidential Information, except to the extent that such information is or
thereafter becomes lawfully available from public sources, or such disclosure is
authorized in writing by the Employer, required by law or by any competent
administrative agency or judicial authority, or otherwise as reasonably
necessary or appropriate in connection with the performance by the Executive of
his duties hereunder. All records, files, documents, computer diskettes,
computer programs and other computer-generated material, as well as all other
materials or copies thereof relating to the Employer's business, which the
Executive shall prepare or use, shall be and remain the sole property of the
Employer, shall not be removed from the Employer's premises without its written
consent, and shall be promptly returned to the Employer upon termination of the
Executive's employment hereunder.
7
<PAGE>
The Executive agrees to abide by the Employer's reasonable policies, as in
effect from time to time, respecting confidentiality and the avoidance of
interests conflicting with those of the Employer.
6. NON-COMPETITION COVENANT.
(a) RESTRICTIVE COVENANT. The Employer and the Executive have
jointly reviewed the tenant lists, property submittals, logs, broker lists, and
operations of the Employer, and have agreed that as an essential ingredient of
and in consideration of this Agreement and the payment of the amounts described
in Sections 3 and 4 hereof, the Executive hereby agrees that, except with the
express prior written consent of the Employer, for a period equal to the lesser
of the number of FULL months the Executive has at any time been employed by the
Employer or twenty-four (24) months after the termination of the Executive's
employment with the Employer (the "Restrictive Period"), he will not directly or
indirectly compete with the business of the Employer, including, but not by way
of limitation, by directly or indirectly owning, managing, operating,
controlling, financing, or by directly or indirectly serving as an employee,
officer or director of or consultant to, or by soliciting or inducing, or
attempting to solicit or induce, any employee or agent of Employer to terminate
employment with Employer and become employed by any person, firm, partnership,
corporation, trust or other entity which owns or operates a business similar to
that of the Employer (the "Restrictive Covenant"). For purposes of this
subparagraph (a), a business shall be considered "similar" to that of the
Employer if it is engaged in the acquisition, development, ownership, operation,
management or leasing of suburban office property (i) in any geographic market
or submarket in which the Employer owns more than 750,000 s.f. of properties
either as of the date hereof or as of the date of termination of the Executive's
employment. If the Executive violates the Restrictive Covenant and the Employer
brings legal action for injunctive or other relief, the Employer shall not, as a
result of the time involved in obtaining such relief, be deprived of the benefit
of the FULL period of the Restrictive Covenant. Accordingly, the Restrictive
Covenant shall be deemed to have the duration specified in this paragraph (a)
computed from the date the relief is granted but reduced by the time between the
period when the Restrictive Period began to run and the date of the first
violation of the Restrictive Covenant by the Executive. In the event that a
successor of the Employer assumes and agrees to perform this Agreement or
otherwise acquires the Employer, this Restrictive Covenant shall continue to
apply only to the primary service area of the Employer as it existed immediately
before such assumption or acquisition and shall not apply to any of the
successor's other offices or markets. The foregoing Restrictive Covenant shall
not prohibit the Executive from owning, directly or indirectly, capital stock or
similar securities which are listed on a securities exchange or quoted on the
National Association of Securities Dealers Automated Quotation System which do
not represent more than five percent (5%) of the outstanding capital stock of
any corporation.
(b) REMEDIES FOR BREACH OF RESTRICTIVE COVENANT. The Executive
acknowledges that the restrictions contained in Sections 5 and 6 of this
Agreement are reasonable and necessary for the protection of the legitimate
proprietary business interests of the Employer; that any violation of these
restrictions would cause substantial injury to the Employer and such interests;
that the Employer would not have entered into this Agreement with the Executive
without receiving the additional consideration offered by the Executive in
binding
8
<PAGE>
himself to these restrictions; and that such restrictions were a material
inducement to the Employer to enter into this Agreement. In the event of any
violation or threatened violation of these restrictions, the Employer shall be
relieved of any further obligations under this Agreement, shall be entitled to
any rights, remedies or damages available at law, in equity or otherwise under
this Agreement, and shall be entitled to preliminary and temporary injunctive
relief granted by a court of competent jurisdiction to prevent or restrain any
such violation by the Executive and any and all persons directly or indirectly
acting for or with him, as the case may be, while awaiting the decision of the
arbitrator selected in accordance with paragraph (d) of Section 11 of this
Agreement, which decision, if rendered adverse to the Executive, may include
permanent injunctive relief to be granted by the court.
7. INTERCORPORATE TRANSFERS. If the Executive shall be voluntarily
transferred to an affiliate of the Employer, such transfer shall not be deemed
to terminate or modify this Agreement, and the employing corporation to which
the Executive shall have been transferred shall, for all purposes of this
Agreement, be construed as standing in the same place and stead as the Employer
as of the date of such transfer. For purposes hereof, an affiliate of the
Employer shall mean any corporation or other entity directly or indirectly
controlling, controlled by, or under common control with the Employer. The
Employer shall be secondarily liable to the Executive for the obligations
hereunder in the event the affiliate of the Employer cannot or refuses to honor
such obligations. For all relevant purposes hereof, the tenure of the Executive
shall be deemed to include the aggregate term of his employment by the Employer
or its affiliate.
8. INTEREST IN ASSETS. Neither the Executive nor his estate shall
acquire hereunder any rights in funds or assets of the Employer, otherwise than
by and through the actual payment of amounts payable hereunder; nor shall the
Executive or his estate have any power to transfer, assign (except into a trust
for purposes of estate planning), anticipate, hypothecate or otherwise encumber
in advance any of said payments; nor shall any of such payments be subject to
seizure for the payment of any debt, judgment, alimony, separate maintenance or
be transferable by operation of law in the event of bankruptcy, insolvency or
otherwise of the Executive.
9. INDEMNIFICATION.
(a) The Employer shall provide the Executive (including his
heirs, personal representatives, executors and administrators), during the term
of this Agreement and thereafter throughout all applicable limitations periods,
with coverage under the Employer's then-current directors' and officers'
liability insurance policy, at the Employer's expense.
(b) In addition to the insurance coverage provided for in
paragraph (a) of this Section 9, the Employer shall defend, hold harmless and
indemnify the Executive (and his heirs, personal representatives, executors and
administrators) to the fullest extent permitted under applicable law, and
subject to the requirements, limitations and specifications set forth in the
Bylaws and other organizational documents of the Employer, against all expenses
and liabilities reasonably incurred by him in connection with or arising out of
any action, suit or proceeding in which he may be involved by reason of his
having been an officer of the Employer (whether or not he continues to be an
officer at the time of incurring such expenses or liabilities), such
9
<PAGE>
expenses and liabilities to include, but not be limited to, judgments, court
costs and attorneys' fees and the cost of reasonable settlements.
(c) In the event the Executive becomes a party, or is
threatened to be made a party, to any action, suit or proceeding for which the
Employer has agreed to provide insurance coverage or indemnification under this
Section 9, the Employer shall, to the full extent permitted under applicable
law, advance all expenses (including the reasonable attorneys' fees of the
attorneys selected by Employer and approved by Executive for the representation
of the Executive), judgments, fines and amounts paid in settlement (collectively
"Expenses") incurred by the Executive in connection with the investigation,
defense, settlement, or appeal of any threatened, pending or completed action,
suit or proceeding, subject to receipt by the Employer of a written undertaking
from the Executive covenanting: (i) to reimburse the Employer for all Expenses
actually paid by the Employer to or on behalf of the Executive in the event it
shall be ultimately determined that the Executive is not entitled to
indemnification by the Employer for such Expenses; and (ii) to assign to the
Employer all rights of the Executive to insurance proceeds, under any policy of
directors' and officers' liability insurance or otherwise, to the extent of the
amount of Expenses actually paid by the Employer to or on behalf of the
Executive.
10. ASSUMPTION BY COPT. By its execution of this Agreement, COPT agrees
to be secondarily liable to the Executive, and shall assume the liabilities,
obligations and duties of the Employer as contained in this Agreement in the
event the Employer can not or refuses to honor such obligations.
11. GENERAL PROVISIONS.
(a) SUCCESSORS; ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the Executive, the Employer and his and its
respective personal representatives, successors and assigns, and any successor
or assign of the Employer shall be deemed the "Employer" hereunder. The Employer
shall require any successor to all or substantially all of the business and/or
assets of the Employer, whether directly or indirectly, by purchase, merger,
consolidation, acquisition of stock, or otherwise, by an agreement in form and
substance satisfactory to the Executive, expressly to assume and agree to
perform this Agreement in the same manner and to the same extent as the Employer
would be required to perform if no such succession had taken place. No rights or
obligations of the Executive under this Agreement may be assigned or transferred
by the Executive other than his rights to compensation and benefits, which may
be transferred only by will or by operation of law.
(b) ENTIRE AGREEMENT; MODIFICATIONS. This Agreement
constitutes the entire agreement between the parties respecting the subject
matter hereof, and supersedes all prior negotiations, undertakings, agreements
and arrangements with respect thereto, whether written or oral. Except as
otherwise explicitly provided herein, this Agreement may not be amended or
modified except by written agreement signed by the Executive and the Employer.
(c) ENFORCEMENT AND GOVERNING LAW. The provisions of this
Agreement shall be regarded as divisible and separate; if any of said provisions
should be declared invalid or unenforceable by a court of competent
jurisdiction, the validity and
10
<PAGE>
enforceability of the remaining provisions shall not be affected thereby. This
Agreement shall be construed and the legal relations of the parties hereto shall
be determined in accordance with the laws of the State of Maryland as it
constitutes the situs of the corporation and the employment hereunder, without
reference to the law regarding conflicts of law.
(d) ARBITRATION. Except as provided in paragraph (b) of
Section 6, any dispute or controversy arising under or in connection with this
Agreement or the Executive's employment by the Employer shall be settled
exclusively by arbitration, conducted by a single arbitrator sitting in
Baltimore, MD in accordance with the rules of the American Arbitration
Association (the "AAA") then in effect. The arbitrator shall be selected by the
parties from a list of eleven (11) arbitrators provided by the AAA, provided
that no arbitrator shall be related to or affiliated with either of the parties.
No later than ten (10) days after the list of proposed arbitrators is received
by the parties, the parties, or their respective representatives, shall meet at
a mutually convenient location in Baltimore, Maryland, or telephonically. At
that meeting, the party who sought arbitration shall eliminate one (1) proposed
arbitrator and then the other party shall eliminate one (1) proposed arbitrator.
The parties shall continue to alternatively eliminate names from the list of
proposed arbitrators in this manner until each party has eliminated five (5)
proposed arbitrators. The remaining arbitrator shall arbitrate the dispute. Each
party shall submit, in writing, the specific requested action or decision it
wishes to take, or make, with respect to the matter in dispute, and the
arbitrator shall be obligated to choose one (1) party's specific requested
action or decision, without being permitted to effectuate any compromise or
"new" position; provided, however, that the arbitrator is authorized to award
amounts not in dispute during the pendency of any dispute or controversy arising
under or in connection with this Agreement. The Employer shall bear the cost of
all counsel, experts or other representatives that are retained by both parties,
together with all costs of the arbitration proceeding, including, without
limitation, the fees, costs and expenses imposed or incurred by the arbitrator.
Judgment may be entered on the arbitrator's award in any court having
jurisdiction; including, if applicable, entry of a permanent injunction under
paragraph (b) of Section 6.
(e) PRESS RELEASES AND PUBLIC DISCLOSURE. Any press release or
other public communication by either the Executive or the Employer with any
other person concerning the terms, conditions or circumstances of Executive's
employment, or the termination of such employment, shall be subject to prior
written approval of both the Executive and the Employer, subject to the proviso
that the Employer shall be entitled to make requisite and appropriate public
disclosure of the terms of this Agreement, without the Executive's consent or
approval, as required under applicable statutes, and the rules and regulations
of the Securities and Exchange Commission and the Stock Exchange on which the
shares of Employer may from time to time be listed.
(f) WAIVER. No waiver by either party at any time of any
breach by the other party of, or compliance with, any condition or provision of
this Agreement to be performed by the other party, shall be deemed a waiver of
any similar or dissimilar provisions or conditions at the same time or any prior
or subsequent time.
(g) NOTICES. Notices given pursuant to this Agreement shall be
in writing, and shall be deemed given when received, and, if mailed, shall be
mailed by United States
11
<PAGE>
registered or certified mail, return receipt requested, postage prepaid. Notices
to the Employer shall be addressed to the principal headquarters of the
Employer, Attention: Chairman. Notices to the Executive shall be sent to the
address set forth below the Executive's signature on this Agreement, or to such
other address as the party to be notified shall have given to the other.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
"Employer" "Executive"
Corporate Office Management, Inc., a
Maryland corporation
By:
--------------------------------- --------------------------------------
Clay W. Hamlin, III
Corporate Office Properties Trust, a Maryland
business trust
By:
--------------------------------
12
<PAGE>
Exhibit 10.2
EMPLOYMENT AGREEMENT
RANDALL M. GRIFFIN
This Employment Agreement (this "Agreement"), is made and entered into
as of the 16th day of December, 1999, by and between Corporate Office
Management, Inc., a Maryland corporation (the "Employer"), and Corporate Office
Properties Trust, a Maryland business trust ("COPT"), and Randall M.
Griffin (the "Executive").
RECITALS
A. The Executive and Employer executed an agreement effective as of
September 28, 1998 providing for the employment of the Executive by the Employer
upon the terms and conditions therein stated (the "Prior Agreement").
B. The Employer wishes to terminate the Prior Agreement and to
renegotiate a new agreement to assure itself of the continued services of the
Executive for the period provided in this Agreement and the Executive is willing
to continue in the employ of the Employer on a full-time basis for said period,
and upon the other terms and conditions hereinafter provided.
C. The Employer recognizes that circumstances may arise in which a
change of control of the Employer or COPT, through acquisition or otherwise, may
occur, thereby causing uncertainty of employment without regard to the
competence or past contributions of the Executive, and that such uncertainty may
result in the loss of valuable services of the Executive. Accordingly, the
Employer and the Executive wish to provide reasonable security to the Executive
against changes in the employment relationship in the event of any such change
of control.
D. COPT has agreed to become a party to this Agreement for the purpose
of assuming the liabilities, obligations and duties of the Employer to the
extent provided herein.
E. It is the intention of the Employer and the Executive that,
notwithstanding the date of execution hereof, the Prior Agreement shall be
terminated and this Agreement shall become effective as of July 1, 1999.
NOW, THEREFORE, in consideration of the premises and of the covenants
and agreements hereinafter contained, it is covenanted and agreed by and between
the parties hereto as follows:
AGREEMENTS
1. TERMINATION OF PRIOR AGREEMENT. The Prior Agreement is hereby
terminated and this Agreement shall become effective as of July 1, 1999 (the
"Effective Date").
2. POSITION AND DUTIES. As of the Effective Date, the Employer hereby
employs the Executive as the President and Chief Operating Officer of the
Employer, or in such
<PAGE>
other capacity as shall be mutually agreed between the Employer and the
Executive. During the period of the Executive's employment hereunder, the
Executive shall devote his best efforts and full business time, energy, skills
and attention to the business and affairs of the Employer. The Executive's
duties and authority shall consist of and include all duties and authority
customarily performed and held by persons holding equivalent positions with
business organizations similar in nature and size to the Employer, as such
duties and authority are reasonably defined, modified and delegated from time to
time by the Board of Directors of the Employer (the "Board"). The Executive
shall have the powers necessary to perform the duties assigned to him, and shall
be provided such supporting services, staff, secretarial and other assistance,
office space and accouterments as shall be reasonably necessary and appropriate
in the light of such assigned duties.
3. COMPENSATION. As compensation for the services to be provided by the
Executive hereunder, the Executive shall receive the following compensation and
other benefits:
(a) BASE SALARY. The Executive shall receive an aggregate
annual minimum "Base Salary" at the annualized rate of Three Hundred Fifty
Thousand dollars ($350,000) per annum, payable in periodic installments in
accordance with the regular payroll practices of the Employer. Such Base Salary
shall be subject to review annually by the Board and Compensation Committee of
COPT ("Compensation Committee") during the term hereof, in accordance with the
established compensation policies of the Compensation Committee.
(b) PERFORMANCE BONUS. The Executive shall be entitled to an
annual cash "Performance Bonus," payable within ninety (90) days after the end
of the fiscal year of the Employer the amount (if any) of which shall be
determined by the Board based upon the recommendation of the Compensation
Committee.
(c) STOCK OPTION/RESTRICTED SHARES. Executive shall be
entitled to stock options and/or restricted shares as determined by the
Compensation Committee and the Board.
(d) BENEFITS. The Executive shall be entitled to all
perquisites extended to similarly situated executives, as such are stated in the
Employer's Executive Perquisite Policy (the "Perquisite Policy") promulgated for
the Board or the Compensation Committee, and which Perquisite Policy is hereby
incorporated by reference, as amended by the Board or the Compensation Committee
from time to time. In addition, the Executive shall be entitled to participate
in all plans and benefits generally, from time to time, accorded to employees of
the Employer ("Benefit Plans"), all as determined by the Board from time to time
based upon the input of the Compensation Committee. Executive shall also receive
additional benefits as follows:
(i) a one thousand dollar ($1,000.00) per month
automobile allowance;
(ii) four thousand dollars ($4,000) per year for
personal financial planning and personal income tax
preparation; and
2
<PAGE>
(iii) the Employer shall pay to the Executive 25% of
the amount includible in income of the Executive upon the
vesting of restricted shares granted to the Executive, plus
25% of all taxes with respect to such grossing up amount.
(e) WITHHOLDING. The Employer shall be entitled to withhold,
from amounts payable to the Executive hereunder, any federal, state or local
withholding or other taxes or charges which it is from time to time required to
withhold. The Employer shall be entitled to rely upon the opinion of its
independent accountants, with regard to any question concerning the amount or
requirement of any such withholding.
4. TERM AND TERMINATION.
(a) BASIC TERM. The Executive's employment hereunder shall be
for a five (5) year basic term, commencing as of the Effective Date. After the
third year of the basic term, the Executive's term of employment shall
automatically be extended for a continuous self-renewing three (3) year term
without further action of the parties unless either party shall have served
written notice on the other prior to the expiration of the third year of the
Basic Term of its intention that this Agreement shall terminate at the end of
the five (5) year basic term. Subject to the foregoing and other applicable
terms of this Agreement, this Agreement may be terminated by either party, with
or without cause, effective as of the first (1st) business day after written
notice to that effect is delivered to the other party.
(b) PREMATURE TERMINATION.
(i) In the event of the termination of the employment
of the Executive under this Agreement by the Employer for any
reason other than expiration of the term hereof, termination
upon disability in accordance with the provisions of paragraph
(f) of this Section 4, or a "for-cause" termination in
accordance with the provisions of paragraph (d) of this
Section 4, then notwithstanding any actual or allegedly
available alternative employment or other mitigation of
damages by or available to the Executive, the Executive shall
be entitled to a "Termination Payment" equal to the sum of:
(w) three (3) times the rate of annualized Base Salary then
payable to the Executive, plus (x) 3 times the average of the
three (3) most recent annual Performance Bonuses that the
Executive received; provided, however that if the Executive
has been employed by the Employer fewer than three (3) years,
than the amount set forth in (x) above, shall be equal to
three (3) times the average of the annual Performance Bonuses
that the Executive has theretofore received from the Employer.
For purposes of calculating the Termination Payment amounts
due, the Executive's employment with the Employer shall be
agreed to have commenced on July 1, 1999. In the event of a
termination governed by this subparagraph (b) of Section 4,
the Employer shall also: (y) allow a period of eighteen (18)
months following the termination of employment for the
Executive (but in no event beyond the expiration of any option
term or period specified in the option agreement with the
Executive) to exercise any options granted under any stock
option or share incentive plan
3
<PAGE>
established by Employer or COPT ("Stock Plan"); and (z)
continue for the Executive (provided that such items are not
available to him by virtue of other employment secured after
termination) the perquisites, plans and benefits provided
under the Employer's Perquisite Policy and Benefit Plans as of
and after the date of termination, [all items in (z) being
collectively referred to as "Post-Termination Perquisites and
Benefits"], for the lesser of the number of full months the
Executive has theretofore been employed by the Employer (but
not less than twelve (12) months)or twenty four (24) months
following such termination. The payments and benefits provided
under (w), (x), (y) and (z) above by the Employer shall not be
offset against or diminish any other compensation or benefits
accrued as of the date of termination.
(ii) Notwithstanding the vesting schedule otherwise
applicable, in the event of a termination governed by this
subparagraph (b) of Section 4, the Executive shall be fully
vested in all of the Executive's options and restricted shares
under any Stock Plan or similar program.
(iii) Any cash payments to the Executive under this
Section 4(b) will be made monthly over twelve (12) months,
unless otherwise mutually agreed by the parties to minimize
the Executives' tax burden in any year.
(c) CONSTRUCTIVE TERMINATION. If at any time during the term
of this Agreement, except in connection with a "for-cause" termination pursuant
to paragraph (d) of this Section 4, the Executive is Constructively Discharged
(as hereinafter defined), then the Executive shall have the right, by written
notice to the Employer given within one hundred and twenty (120) days of such
Constructive Discharge, to terminate his services hereunder, effective as of
thirty (30) days after such notice, and the Executive shall have no rights or
obligations under this Agreement other than as provided in Sections 5 and 6
hereof. The Executive shall in such event be entitled to a Termination Payment
of Base Salary and Performance Bonus compensation as well as all of the
Post-Termination Perquisites and Benefits, as if such termination of his
employment had been effectuated pursuant to paragraph (b) of this Section 4.
For purposes of this Agreement, the Executive shall be deemed
to have been "Constructively Discharged" upon the occurrence of any one of the
following events:
(i) The Executive is not re-elected to, or is removed
from, the position with the Employer as set forth in Section 2
hereof, other than as a result of the Executive's election or
appointment to positions of equal or superior scope and
responsibility; or
(ii) The Executive shall fail to be vested by the
Employer with the powers, authority and support services
normally attendant to any of said offices; or
4
<PAGE>
(iii) The Employer shall notify the Executive that
the employment of the Executive will be terminated or
materially modified in the future or that the Executive will
be Constructively Discharged in the future; or
(iv) The Employer changes the primary employment
location of the Executive to a place that is more than fifty
(50) miles from the primary employment location, 8815 Centre
Park Drive, Columbia, Maryland 21045, as of the Effective Date
of this Agreement; or
(v) The Employer otherwise commits a material breach
of its obligations under this Agreement.
(d) TERMINATION FOR CAUSE. The employment of the Executive and
this Agreement may be terminated "for-cause" as hereinafter defined. Termination
"for- cause" shall mean the termination of employment on the basis or as a
result of (i) a material violation by the Executive of any applicable material
law or regulation respecting the business of the Employer; (ii) the Executive
being found guilty of, or being publicly associated with, to the Employer's
detriment, a felony or an act of dishonesty in connection with the performance
of his duties as an officer of the Employer, or the Executive's commission of an
act which in the opinion of a reasonable third party disqualifies the Executive
from serving as an officer or director of the Employer; or (iii) the willful or
negligent failure of the Executive to perform his duties hereunder in any
material respect. The Executive shall be entitled to at least thirty (30) days'
prior written notice of the Employer's intention to terminate his employment for
any cause (except the Executive's death), specifying the grounds for such
termination, affording the Executive a reasonable opportunity to cure any
conduct or act (if curable) alleged as grounds for such termination, and a
reasonable opportunity to present to the Board his position regarding any
dispute relating to the existence of such cause. In the event the Employer
terminates the Executive's employment "for cause" the Executive shall be
entitled only to the Base Salary through the date of the termination of the
Executive's employment "for cause" and any other additional benefit in
accordance with applicable plans, programs or agreements with the Employer.
(e) TERMINATION UPON DEATH. In the event payments are due and
owing under this Agreement at the death of the Executive, such payments shall be
made to such beneficiary, designee or fiduciary as Executive may have designated
in writing, or failing such designation, to the executor or administrator of his
estate, in full settlement and satisfaction of all claims and demands on behalf
of the Executive. Such payments shall be in addition to any other death benefits
of the Employer made available for the benefit of the Executive, and in full
settlement and satisfaction of all payments provided for in this Agreement.
Notwithstanding the vesting schedule otherwise applicable in the event of a
termination governed by this subparagraph (e) of Section 4, all of options and
restricted shares granted to the Executive under any Stock Plan or similar
program shall be fully vested.
(f) TERMINATION UPON DISABILITY. The Employer may terminate
the Executive's employment after the Executive is determined to be disabled
under the long-term disability program of the Employer then covering the
Executive or by a physician engaged by the
5
<PAGE>
Employer and reasonably approved by the Executive. In the event of a dispute
regarding the Executive's "disability," such dispute shall be resolved through
arbitration as provided in paragraph (d) of Section 11 hereof, except that the
arbitrator appointed by the American Arbitration Association shall be a duly
licensed medical doctor. The Executive shall be entitled to the compensation and
benefits provided for under this Agreement during any period of incapacitation
occurring during the term of this Agreement, and occurring prior to the
establishment of the Executive's "disability" during which the Executive is
unable to work due to a physical or mental infirmity. Notwithstanding anything
contained in this Agreement to the contrary, until the date specified in a
notice of termination relating to the Executive's disability, the Executive
shall be entitled to return to his positions with the Employer as set forth in
this Agreement, in which event no disability of the Executive will be deemed to
have occurred. Notwithstanding the vesting schedule otherwise applicable, in the
event of a termination governed by this subparagraph (f) of Section 4, the
Executive shall be fully vested in all of the Executive's options and restricted
shares under any Stock Plan or similar program.
(g) TERMINATION UPON CHANGE OF CONTROL.
(i) In the event of a Change in Control (as defined
below) and the termination of the Executive's employment by
Executive or by the Employer under either 1 or 2 below, the
Executive shall be entitled to a Termination Payment equal to
the sum of: (w) the rate of annualized Base Salary then
payable to the Executive multiplied by the number of years
then remaining in the contract term (but not less than three
(3) years); plus (x) the average of the three (3) most recent
Performance Bonuses that the Executive received (or if less,
the average of the annual Performance Bonuses that the
Executive has theretofore received from the Employer)
multiplied by the number of years then remaining in the
contract term (but not less than three (3) years). The
Employer shall also continue for the Executive the
Post-Termination Perquisites and Benefits as provided in
paragraph (b) of this Section 4; provided, however, that
notwithstanding the vesting schedule otherwise applicable,
immediately following a Change in Control (whether or not the
Executive's employment is terminated), the Executive shall be
fully vested in all of Executive's options and restricted
shares outstanding under any Stock Plan or similar program and
shall be allowed a period of eighteen (18) months following
the termination of employment of the Executive for the
Executive's exercise of such options. The following shall
constitute termination under this paragraph:
1 . The Executive terminates his employment under
this Agreement pursuant to a written notice to that effect
delivered to the Board within six (6) months after the
occurrence of the Change in Control.
2. Executive's employment is terminated, including
Constructively Discharged, by the Employer or its successor
either in contemplation of or after Change in Control, other
than on a for-cause basis.
6
<PAGE>
(ii) For purposes of this paragraph, the term "Change in
Control" shall mean the following occurring after the date of this Agreement:
1. The consummation of the acquisition by any person
(as such term is defined in Section 13(d) or 14(d) of the
Securities Exchange Act of 1934, as amended (the " 1934 Act")
of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the 1934 Act) of fifty percent (50%) or more
of the combined voting power embodied in the then-outstanding
voting securities of COPT or the Employer; or
2. Approval by the stockholders of COPT or the
Employer of: (1) a merger or consolidation of COPT or the
Employer, if the stockholders of COPT or the Employer
immediately before such merger or consolidation do not, as a
result of such merger or consolidation, own, directly or
indirectly, more than fifty percent (50%) of the combined
voting power of the then outstanding voting securities of the
entity resulting from such merger or consolidation in
substantially the same proportion as was represented by their
ownership of the combined voting power of the voting
securities of COPT or the Employer outstanding immediately
before such merger or consolidation; or (2) a complete or
substantial liquidation or dissolution, or an agreement for
the sale or other disposition, of all or substantially all of
the assets of COPT or the Employer.
Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur solely because fifty percent (50%) or more of the combined voting
then-outstanding securities is acquired by: (1) a trustee or other fiduciary
holding securities under one or more employee benefit plans maintained for
employees of the entity; or (2) any corporation or other entity which,
immediately prior to such acquisition, is owned directly or indirectly by the
stockholders of COPT or the Employer in the same proportion as their ownership
of stock in COPT or the Employer immediately prior to such acquisition.
(iii) If it is determined, in the opinion of the
Employer's independent accountants, in consultation with the
Employer's independent counsel, that any amount payable to the
Executive by the Employer under this Agreement, or any other
plan or agreement under which the Executive participates or is
a party, would constitute an "Excess Parachute Payment" within
the meaning of Section 280G of the Internal Revenue Code of
1986, as amended (the "Code") and be subject to the excise tax
imposed by Section 4999 of the Code (the "Excise Tax"), the
Employer shall pay to the Executive a "grossing-up" amount
equal to the amount of such Excise Tax and all federal and
state income or other taxes with respect to payment of the
amount of such Excise Tax, including all such taxes with
respect to any such grossing-up amount. If at a later date,
the Internal Revenue Service assesses a deficiency against the
Executive for the Excise Tax which is greater than that which
was determined at the time such amounts were paid, the
Employer shall pay to the Executive the amount of such
unreimbursed Excise Tax plus any interest, penalties and
professional fees or expenses, incurred by the Executive as a
result of such assessment, including all such taxes with
7
<PAGE>
respect to any such additional amount. The highest marginal
tax rate applicable to individuals at the time of payment of
such amounts will be used for purposes of determining the
federal and state income and other taxes with respect thereto.
The Employer shall withhold from any amounts paid under this
Agreement the amount of any Excise Tax or other federal, state
or local taxes then required to be withheld. Computations of
the amount of any grossing-up supplemental compensation paid
under this subparagraph shall be made by the Employer's
independent accountants, in consultation with the Employer's
independent legal counsel. The Employer shall pay all
accountant and legal counsel fees and expenses.
(h) VOLUNTARY TERMINATION. In the event of a termination of
employment by the Executive on his own initiative, other than a termination due
to death, disability or a Constructive Discharge, the Executive shall have the
same entitlements as provided in paragraph (d) of this Section 4 for a
termination "for-cause."
5. CONFIDENTIALITY AND LOYALTY. The Executive acknowledges that
heretofore or hereafter during the course of his employment he has produced and
received, and may hereafter produce, receive and otherwise have access to
various materials, records, data, trade secrets and information not generally
available to the public (collectively, "Confidential Information") regarding the
Employer and its subsidiaries and affiliates. Accordingly, during and subsequent
to termination of this Agreement, the Executive shall hold in confidence and not
directly or indirectly disclose, use, copy or make lists of any such
Confidential Information, except to the extent that such information is or
thereafter becomes lawfully available from public sources, or such disclosure is
authorized in writing by the Employer, required by law or by any competent
administrative agency or judicial authority, or otherwise as reasonably
necessary or appropriate in connection with the performance by the Executive of
his duties hereunder. All records, files, documents, computer diskettes,
computer programs and other computer-generated material, as well as all other
materials or copies thereof relating to the Employer's business, which the
Executive shall prepare or use, shall be and remain the sole property of the
Employer, shall not be removed from the Employer's premises without its written
consent, and shall be promptly returned to the Employer upon termination of the
Executive's employment hereunder. The Executive agrees to abide by the
Employer's reasonable policies, as in effect from time to time, respecting
confidentiality and the avoidance of interests conflicting with those of the
Employer.
6. NON-COMPETITION COVENANT.
(a) RESTRICTIVE COVENANT. The Employer and the Executive have
jointly reviewed the tenant lists, property submittals, logs, broker lists, and
operations of the Employer, and have agreed that as an essential ingredient of
and in consideration of this Agreement and the payment of the amounts described
in Sections 3 and 4 hereof, the Executive hereby agrees that, except with the
express prior written consent of the Employer, for a period equal to the lesser
of the number of FULL months the Executive has at any time been employed by the
Employer or twenty-four (24) months after the termination of the Executive's
employment with the Employer (the "Restrictive Period"), he will not directly or
indirectly compete with the
8
<PAGE>
business of the Employer, including, but not by way of limitation, by directly
or indirectly owning, managing, operating, controlling, financing, or by
directly or indirectly serving as an employee, officer or director of or
consultant to, or by soliciting or inducing, or attempting to solicit or induce,
any employee or agent of Employer to terminate employment with Employer and
become employed by any person, firm, partnership, corporation, trust or other
entity which owns or operates a business similar to that of the Employer (the
"Restrictive Covenant"). For purposes of this subparagraph (a), a business shall
be considered "similar" to that of the Employer if it is engaged in the
acquisition, development, ownership, operation, management or leasing of
suburban office property (i) in any geographic market or submarket in which the
Employer owns more than 750,000 s.f. of properties either as of the date hereof
or as of the date of termination of the Executive's employment. If the Executive
violates the Restrictive Covenant and the Employer brings legal action for
injunctive or other relief, the Employer shall not, as a result of the time
involved in obtaining such relief, be deprived of the benefit of the FULL period
of the Restrictive Covenant. Accordingly, the Restrictive Covenant shall be
deemed to have the duration specified in this paragraph (a) computed from the
date the relief is granted but reduced by the time between the period when the
Restrictive Period began to run and the date of the first violation of the
Restrictive Covenant by the Executive. In the event that a successor of the
Employer assumes and agrees to perform this Agreement or otherwise acquires the
Employer, this Restrictive Covenant shall continue to apply only to the primary
service area of the Employer as it existed immediately before such assumption or
acquisition and shall not apply to any of the successor's other offices or
markets. The foregoing Restrictive Covenant shall not prohibit the Executive
from owning, directly or indirectly, capital stock or similar securities which
are listed on a securities exchange or quoted on the National Association of
Securities Dealers Automated Quotation System which do not represent more than
five percent (5%) of the outstanding capital stock of any corporation.
(b) REMEDIES FOR BREACH OF RESTRICTIVE COVENANT. The Executive
acknowledges that the restrictions contained in Sections 5 and 6 of this
Agreement are reasonable and necessary for the protection of the legitimate
proprietary business interests of the Employer; that any violation of these
restrictions would cause substantial injury to the Employer and such interests;
that the Employer would not have entered into this Agreement with the Executive
without receiving the additional consideration offered by the Executive in
binding himself to these restrictions; and that such restrictions were a
material inducement to the Employer to enter into this Agreement. In the event
of any violation or threatened violation of these restrictions, the Employer
shall be relieved of any further obligations under this Agreement, shall be
entitled to any rights, remedies or damages available at law, in equity or
otherwise under this Agreement, and shall be entitled to preliminary and
temporary injunctive relief granted by a court of competent jurisdiction to
prevent or restrain any such violation by the Executive and any and all persons
directly or indirectly acting for or with him, as the case may be, while
awaiting the decision of the arbitrator selected in accordance with paragraph
(d) of Section 11 of this Agreement, which decision, if rendered adverse to the
Executive, may include permanent injunctive relief to be granted by the court.
7. INTERCORPORATE TRANSFERS. If the Executive shall be voluntarily
transferred to an affiliate of the Employer, such transfer shall not be deemed
to terminate or modify this Agreement, and the employing corporation to which
the Executive shall have been
9
<PAGE>
transferred shall, for all purposes of this Agreement, be construed as standing
in the same place and stead as the Employer as of the date of such transfer. For
purposes hereof, an affiliate of the Employer shall mean any corporation or
other entity directly or indirectly controlling, controlled by, or under common
control with the Employer. The Employer shall be secondarily liable to the
Executive for the obligations hereunder in the event the affiliate of the
Employer cannot or refuses to honor such obligations. For all relevant purposes
hereof, the tenure of the Executive shall be deemed to include the aggregate
term of his employment by the Employer or its affiliate.
8. INTEREST IN ASSETS. Neither the Executive nor his estate shall
acquire hereunder any rights in funds or assets of the Employer, otherwise than
by and through the actual payment of amounts payable hereunder; nor shall the
Executive or his estate have any power to transfer, assign (except into a trust
for purposes of estate planning), anticipate, hypothecate or otherwise encumber
in advance any of said payments; nor shall any of such payments be subject to
seizure for the payment of any debt, judgment, alimony, separate maintenance or
be transferable by operation of law in the event of bankruptcy, insolvency or
otherwise of the Executive.
9. INDEMNIFICATION.
(a) The Employer shall provide the Executive (including his
heirs, personal representatives, executors and administrators), during the term
of this Agreement and thereafter throughout all applicable limitations periods,
with coverage under the Employer's then-current directors' and officers'
liability insurance policy, at the Employer's expense.
(b) In addition to the insurance coverage provided for in
paragraph (a) of this Section 9, the Employer shall defend, hold harmless and
indemnify the Executive (and his heirs, personal representatives, executors and
administrators) to the fullest extent permitted under applicable law, and
subject to the requirements, limitations and specifications set forth in the
Bylaws and other organizational documents of the Employer, against all expenses
and liabilities reasonably incurred by him in connection with or arising out of
any action, suit or proceeding in which he may be involved by reason of his
having been an officer of the Employer (whether or not he continues to be an
officer at the time of incurring such expenses or liabilities), such expenses
and liabilities to include, but not be limited to, judgments, court costs and
attorneys' fees and the cost of reasonable settlements.
(c) In the event the Executive becomes a party, or is
threatened to be made a party, to any action, suit or proceeding for which the
Employer has agreed to provide insurance coverage or indemnification under this
Section 9, the Employer shall, to the full extent permitted under applicable
law, advance all expenses (including the reasonable attorneys' fees of the
attorneys selected by Employer and approved by Executive for the representation
of the Executive), judgments, fines and amounts paid in settlement (collectively
"Expenses") incurred by the Executive in connection with the investigation,
defense, settlement, or appeal of any threatened, pending or completed action,
suit or proceeding, subject to receipt by the Employer of a written undertaking
from the Executive covenanting: (i) to reimburse the Employer for all Expenses
actually paid by the Employer to or on behalf of the Executive in the event it
shall be ultimately determined that the Executive is not entitled to
indemnification by the Employer for
10
<PAGE>
such Expenses; and (ii) to assign to the Employer all rights of the Executive to
insurance proceeds, under any policy of directors' and officers' liability
insurance or otherwise, to the extent of the amount of Expenses actually paid by
the Employer to or on behalf of the Executive.
10. ASSUMPTION BY COPT. By its execution of this Agreement, COPT agrees
to be secondarily liable to the Executive, and shall assume the liabilities,
obligations and duties of the Employer as contained in this Agreement in the
event the Employer can not or refuses to honor such obligations.
11. GENERAL PROVISIONS.
(a) SUCCESSORS; ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the Executive, the Employer and his and its
respective personal representatives, successors and assigns, and any successor
or assign of the Employer shall be deemed the "Employer" hereunder. The Employer
shall require any successor to all or substantially all of the business and/or
assets of the Employer, whether directly or indirectly, by purchase, merger,
consolidation, acquisition of stock, or otherwise, by an agreement in form and
substance satisfactory to the Executive, expressly to assume and agree to
perform this Agreement in the same manner and to the same extent as the Employer
would be required to perform if no such succession had taken place. No rights or
obligations of the Executive under this Agreement may be assigned or transferred
by the Executive other than his rights to compensation and benefits, which may
be transferred only by will or by operation of law.
(b) ENTIRE AGREEMENT; MODIFICATIONS. This Agreement
constitutes the entire agreement between the parties respecting the subject
matter hereof, and supersedes all prior negotiations, undertakings, agreements
and arrangements with respect thereto, whether written or oral. Except as
otherwise explicitly provided herein, this Agreement may not be amended or
modified except by written agreement signed by the Executive and the Employer.
(c) ENFORCEMENT AND GOVERNING LAW. The provisions of this
Agreement shall be regarded as divisible and separate; if any of said provisions
should be declared invalid or unenforceable by a court of competent
jurisdiction, the validity and enforceability of the remaining provisions shall
not be affected thereby. This Agreement shall be construed and the legal
relations of the parties hereto shall be determined in accordance with the laws
of the State of Maryland as it constitutes the situs of the corporation and the
employment hereunder, without reference to the law regarding conflicts of law.
(d) ARBITRATION. Except as provided in paragraph (b) of
Section 6, any dispute or controversy arising under or in connection with this
Agreement or the Executive's employment by the Employer shall be settled
exclusively by arbitration, conducted by a single arbitrator sitting in
Baltimore, MD in accordance with the rules of the American Arbitration
Association (the "AAA") then in effect. The arbitrator shall be selected by the
parties from a list of eleven (11) arbitrators provided by the AAA, provided
that no arbitrator shall be related to or affiliated with either of the parties.
No later than ten (10) days after the list of proposed arbitrators is received
by the parties, the parties, or their respective representatives, shall meet at
a mutually convenient location in Baltimore, Maryland, or telephonically. At
that meeting, the
11
<PAGE>
party who sought arbitration shall eliminate one (1) proposed arbitrator and
then the other party shall eliminate one (1) proposed arbitrator. The parties
shall continue to alternatively eliminate names from the list of proposed
arbitrators in this manner until each party has eliminated five (5) proposed
arbitrators. The remaining arbitrator shall arbitrate the dispute. Each party
shall submit, in writing, the specific requested action or decision it wishes to
take, or make, with respect to the matter in dispute, and the arbitrator shall
be obligated to choose one (1) party's specific requested action or decision,
without being permitted to effectuate any compromise or "new" position;
provided, however, that the arbitrator is authorized to award amounts not in
dispute during the pendency of any dispute or controversy arising under or in
connection with this Agreement. The Employer shall bear the cost of all counsel,
experts or other representatives that are retained by both parties, together
with all costs of the arbitration proceeding, including, without limitation, the
fees, costs and expenses imposed or incurred by the arbitrator. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; including,
if applicable, entry of a permanent injunction under paragraph (b) of Section 6.
(e) PRESS RELEASES AND PUBLIC DISCLOSURE. Any press release or
other public communication by either the Executive or the Employer with any
other person concerning the terms, conditions or circumstances of Executive's
employment, or the termination of such employment, shall be subject to prior
written approval of both the Executive and the Employer, subject to the proviso
that the Employer shall be entitled to make requisite and appropriate public
disclosure of the terms of this Agreement, without the Executive's consent or
approval, as required under applicable statutes, and the rules and regulations
of the Securities and Exchange Commission and the Stock Exchange on which the
shares of Employer may from time to time be listed.
(f) WAIVER. No waiver by either party at any time of any
breach by the other party of, or compliance with, any condition or provision of
this Agreement to be performed by the other party, shall be deemed a waiver of
any similar or dissimilar provisions or conditions at the same time or any prior
or subsequent time.
(g) NOTICES. Notices given pursuant to this Agreement shall be
in writing, and shall be deemed given when received, and, if mailed, shall be
mailed by United States registered or certified mail, return receipt requested,
postage prepaid. Notices to the Employer shall be addressed to the principal
headquarters of the Employer, Attention: Chairman. Notices to the Executive
shall be sent to the address set forth below the Executive's signature on this
Agreement, or to such other address as the party to be notified shall have given
to the other.
12
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
"Employer" "Executive"
Corporate Office Management, Inc., a
Maryland corporation
By: _______________________________ ___________________________________
Clay W. Hamlin, III, CEO Randall M. Griffin
Corporate Office Properties Trust, a Maryland
business trust
By: _______________________________
Clay W. Hamlin, III, CEO
13
<PAGE>
Exhibit 10.3
EMPLOYMENT AGREEMENT
ROGER A. WAESCHE, JR.
This Employment Agreement (this "Agreement"), is made and entered into
as of the 16th day of December, 1999, by and between Corporate Office
Management, Inc., a Maryland corporation (the "Employer"), and Corporate Office
Properties Trust, a Maryland business trust ("COPT"), and Roger A. Waesche, Jr.
(the "Executive").
RECITALS
A. The Executive and Employer executed an agreement effective as of
September 28, 1998 providing for the employment of the Executive by the Employer
upon the terms and conditions therein stated (the "Prior Agreement").
B. The Employer wishes to terminate the Prior Agreement and to
renegotiate a new agreement to assure itself of the continued services of the
Executive for the period provided in this Agreement and the Executive is willing
to continue in the employ of the Employer on a full-time basis for said period,
and upon the other terms and conditions hereinafter provided.
C. The Employer recognizes that circumstances may arise in which a
change of control of the Employer or COPT, through acquisition or otherwise, may
occur, thereby causing uncertainty of employment without regard to the
competence or past contributions of the Executive, and that such uncertainty may
result in the loss of valuable services of the Executive. Accordingly, the
Employer and the Executive wish to provide reasonable security to the Executive
against changes in the employment relationship in the event of any such change
of control.
D. COPT has agreed to become a party to this Agreement for the purpose
of assuming the liabilities, obligations and duties of the Employer to the
extent provided herein.
E. It is the intention of the Employer and the Executive that,
notwithstanding the date of execution hereof, the Prior Agreement shall be
terminated and this Agreement shall become effective as of July 1, 1999.
NOW, THEREFORE, in consideration of the premises and of the covenants
and agreements hereinafter contained, it is covenanted and agreed by and between
the parties hereto as follows:
AGREEMENTS
1. TERMINATION OF PRIOR AGREEMENT. The Prior Agreement is hereby
terminated and this Agreement shall become effective as of July 1, 1999 (the
"Effective Date").
2. POSITION AND DUTIES. As of the Effective Date, the Employer hereby
employs the Executive as Senior Vice-President and Chief Financial Officer of
the Employer, or
<PAGE>
in such other capacity as shall be mutually agreed between the Employer and the
Executive. During the period of the Executive's employment hereunder, the
Executive shall devote his best efforts and full business time, energy, skills
and attention to the business and affairs of the Employer. The Executive's
duties and authority shall consist of and include all duties and authority
customarily performed and held by persons holding equivalent positions with
business organizations similar in nature and size to the Employer, as such
duties and authority are reasonably defined, modified and delegated from time to
time by the Board of Directors of the Employer (the "Board"). The Executive
shall have the powers necessary to perform the duties assigned to him, and shall
be provided such supporting services, staff, secretarial and other assistance,
office space and accouterments as shall be reasonably necessary and appropriate
in the light of such assigned duties.
3. COMPENSATION. As compensation for the services to be provided by the
Executive hereunder, the Executive shall receive the following compensation and
other benefits:
(a) BASE SALARY. The Executive shall receive an aggregate
annual minimum "Base Salary" at the annualized rate of One Hundred Seventy-Five
Thousand Dollars ($175,000) per annum, payable in periodic installments in
accordance with the regular payroll practices of the Employer. Such Base Salary
shall be subject to review annually by the Board and Compensation Committee of
COPT ("Compensation Committee") during the term hereof, in accordance with the
established compensation policies of the Compensation Committee.
(b) PERFORMANCE BONUS. The Executive shall be entitled to an
annual cash "Performance Bonus," payable within ninety (90) days after the end
of the fiscal year of the Employer the amount (if any) of which shall be
determined by the Board based upon the recommendation of the Compensation
Committee.
(c) STOCK OPTION/RESTRICTED SHARES. Executive shall be
entitled to stock options and/or restricted shares as determined by the
Compensation Committee and the Board.
(d) BENEFITS. The Executive shall be entitled to all
perquisites extended to similarly situated executives, as such are stated in the
Employer's Executive Perquisite Policy (the "Perquisite Policy") promulgated for
the Board or the Compensation Committee, and which Perquisite Policy is hereby
incorporated by reference, as amended by the Board or the Compensation Committee
from time to time. In addition, the Executive shall be entitled to participate
in all plans and benefits generally, from time to time, accorded to employees of
the Employer ("Benefit Plans"), all as determined by the Board from time to time
based upon the input of the Compensation Committee. Executive shall also receive
additional benefits as follows:
(i) a six hundred twenty-five dollar ($625.00) per
month automobile allowance; and
2
<PAGE>
(ii) the Employer shall pay to the Executive 25% of
the amount includible in income of the Executive upon the
vesting of restricted shares granted to the Executive, plus
25% of all taxes with respect to such grossing up amount.
(e) WITHHOLDING. The Employer shall be entitled to withhold,
from amounts payable to the Executive hereunder, any federal, state or local
withholding or other taxes or charges which it is from time to time required to
withhold. The Employer shall be entitled to rely upon the opinion of its
independent accountants, with regard to any question concerning the amount or
requirement of any such withholding.
4. TERM AND TERMINATION.
(a) BASIC TERM. The Executive's employment hereunder shall be
for a continuous self-renewing three (3) year term, commencing as of the
Effective Date, unless terminated by either party, with or without cause,
effective as of the first (1st) business day after written notice to that effect
is delivered to the other party.
(b) PREMATURE TERMINATION.
(i) In the event of the termination of the employment
of the Executive under this Agreement by the Employer for any
reason other than expiration of the term hereof, termination
upon disability in accordance with the provisions of paragraph
(f) of this Section 4, or a "for-cause" termination in
accordance with the provisions of paragraph (d) of this
Section 4, then notwithstanding any actual or allegedly
available alternative employment or other mitigation of
damages by or available to the Executive, the Executive shall
be entitled to a "Termination Payment" equal to the sum of:
(w) three (3) times the rate of annualized Base Salary then
payable to the Executive, plus (x) three (3) times the average
of the three (3) most recent annual Performance Bonuses that
the Executive received; provided, however, that if the
Executive has been employed by the Employer for fewer than
three (3) years, then the amount set forth in (x) above, shall
be equal to three (3) times the average of the annual
Performance Bonuses that the Executive has theretofore
received from the Employer. For purposes of calculating the
Termination Payment amounts due, the Executive's employment
with the Employer shall be agreed to have commenced on July 1,
1999. In the event of a termination governed by this
subparagraph (b) of Section 4, the Employer shall also: (y)
allow a period of eighteen (18) months following the
termination of employment for the Executive (but in no event
beyond the expiration of any option term or period specified
in the option agreement with the Executive) to exercise any
options granted under any stock option or share incentive plan
established by Employer or COPT ("Stock Plan"); and (z)
continue for the Executive (provided that such items are not
available to him by virtue of other employment secured after
termination) the perquisites, plans and benefits provided
under the Employer's Perquisite Policy and Benefit Plans as of
and after the date of termination, [all items in (z) being
collectively referred to as "Post-Termination Perquisites and
Benefits"], for the lesser of the number of full
3
<PAGE>
months the Executive has theretofore been employed by the
Employer (but not less than twelve (12) months)or twenty four
(24) months following such termination. The payments and
benefits provided under (w), (x), (y) and (z) above by the
Employer shall not be offset against or diminish any other
compensation or benefits accrued as of the date of
termination.
(ii) Notwithstanding the vesting schedule otherwise
applicable, in the event of a termination governed by this
subparagraph (b) of Section 4, the Executive shall be fully
vested in all of the Executive's options and restricted shares
under any Stock Plan or similar program.
(iii) Any cash payments to the Executive under this
Section 4(b) will be made monthly over twelve (12) months,
unless otherwise mutually agreed by the parties to minimize
the Executives' tax burden in any year.
(c) CONSTRUCTIVE TERMINATION. If at any time during the term
of this Agreement, except in connection with a "for-cause" termination pursuant
to paragraph (d) of this Section 4, the Executive is Constructively Discharged
(as hereinafter defined), then the Executive shall have the right, by written
notice to the Employer given within one hundred and twenty (120) days of such
Constructive Discharge, to terminate his services hereunder, effective as of
thirty (30) days after such notice, and the Executive shall have no rights or
obligations under this Agreement other than as provided in Sections 5 and 6
hereof. The Executive shall in such event be entitled to a Termination Payment
of Base Salary and Performance Bonus compensation as well as all of the
Post-Termination Perquisites and Benefits, as if such termination of his
employment had been effectuated pursuant to paragraph (b) of this Section 4.
For purposes of this Agreement, the Executive shall be deemed
to have been "Constructively Discharged" upon the occurrence of any one of the
following events:
(i) The Executive is not re-elected to, or is removed
from, the position with the Employer as set forth in Section 2
hereof, other than as a result of the Executive's election or
appointment to positions of equal or superior scope and
responsibility; or
(ii) The Executive shall fail to be vested by the
Employer with the powers, authority and support services
normally attendant to any of said offices; or
(iii) The Employer shall notify the Executive that
the employment of the Executive will be terminated or
materially modified in the future or that the Executive will
be Constructively Discharged in the future; or
(iv) The Employer changes the primary employment
location of the Executive to a place that is more than fifty
(50) miles from the primary employment location, 8815 Centre
Park Drive, Columbia, Maryland 21045, as of the Effective Date
of this Agreement; or
4
<PAGE>
(v) The Employer otherwise commits a material breach
of its obligations under this Agreement.
(d) TERMINATION FOR CAUSE. The employment of the Executive and
this Agreement may be terminated "for-cause" as hereinafter defined. Termination
"for- cause" shall mean the termination of employment on the basis or as a
result of (i) a material violation by the Executive of any applicable material
law or regulation respecting the business of the Employer; (ii) the Executive
being found guilty of, or being publicly associated with, to the Employer's
detriment, a felony or an act of dishonesty in connection with the performance
of his duties as an officer of the Employer, or the Executive's commission of an
act which in the opinion of a reasonable third party disqualifies the Executive
from serving as an officer or director of the Employer; or (iii) the willful or
negligent failure of the Executive to perform his duties hereunder in any
material respect. The Executive shall be entitled to at least thirty (30) days'
prior written notice of the Employer's intention to terminate his employment for
any cause (except the Executive's death), specifying the grounds for such
termination, affording the Executive a reasonable opportunity to cure any
conduct or act (if curable) alleged as grounds for such termination, and a
reasonable opportunity to present to the Board his position regarding any
dispute relating to the existence of such cause. In the event the Employer
terminates the Executive's employment "for cause" the Executive shall be
entitled only to the Base Salary through the date of the termination of the
Executive's employment "for cause" and any other additional benefit in
accordance with applicable plans, programs or agreements with the Employer.
(e) TERMINATION UPON DEATH. In the event payments are due and
owing under this Agreement at the death of the Executive, such payments shall be
made to such beneficiary, designee or fiduciary as Executive may have designated
in writing, or failing such designation, to the executor or administrator of his
estate, in full settlement and satisfaction of all claims and demands on behalf
of the Executive. Such payments shall be in addition to any other death benefits
of the Employer made available for the benefit of the Executive, and in full
settlement and satisfaction of all payments provided for in this Agreement.
Notwithstanding the vesting schedule otherwise applicable in the event of a
termination governed by this subparagraph (e) of Section 4, all of options and
restricted shares granted to the Executive under any Stock Plan or similar
program shall be fully vested.
(f) TERMINATION UPON DISABILITY. The Employer may terminate
the Executive's employment after the Executive is determined to be disabled
under the long-term disability program of the Employer then covering the
Executive or by a physician engaged by the Employer and reasonably approved by
the Executive. In the event of a dispute regarding the Executive's "disability,"
such dispute shall be resolved through arbitration as provided in paragraph (d)
of Section 11 hereof, except that the arbitrator appointed by the American
Arbitration Association shall be a duly licensed medical doctor. The Executive
shall be entitled to the compensation and benefits provided for under this
Agreement during any period of incapacitation occurring during the term of this
Agreement, and occurring prior to the establishment of the Executive's
"disability" during which the Executive is unable to work due to a physical or
mental infirmity. Notwithstanding anything contained in this Agreement to the
5
<PAGE>
contrary, until the date specified in a notice of termination relating to the
Executive's disability, the Executive shall be entitled to return to his
positions with the Employer as set forth in this Agreement, in which event no
disability of the Executive will be deemed to have occurred. Notwithstanding the
vesting schedule otherwise applicable, in the event of a termination governed by
this subparagraph (f) of Section 4, the Executive shall be fully vested in all
of the Executive's options and restricted shares under any Stock Plan or similar
program.
(g) TERMINATION UPON CHANGE OF CONTROL.
(i) In the event of a Change in Control (as defined
below) and the termination of the Executive's employment by
Executive or by the Employer under either 1 or 2 below, the
Executive shall be entitled to a Termination Payment equal to
the sum of: (w) three (3) times the rate of annualized Base
Salary then payable to the Executive, plus (x) three (3) times
the average of the three (3) most recent annual Performance
Bonuses that the Executive received; provided, however, that
if the Executive has been employed by the Employer for fewer
than three (3) years, then the amount set forth in (x), above,
shall be equal to three (3) times the average of the annual
Performance Bonuses that the Executive has theretofore
received from the Employer. The Employer shall also continue
for the Executive the Post-Termination Perquisites and
Benefits for the same period and to the same extent as
provided in paragraph (b) of this Section 4; provided,
however, that notwithstanding the vesting schedule otherwise
applicable, immediately following a Change in Control (whether
or not the Executive's employment is terminated), the
Executive shall be fully vested in all of Executive's options
and restricted shares outstanding under any Stock Plan or
similar program and shall be allowed a period of eighteen (18)
months following the termination of employment of the
Executive for the Executive's exercise of such options. The
following shall constitute termination under this paragraph:
1 . The Executive terminates his employment under
this Agreement pursuant to a written notice to that effect
delivered to the Board within six (6) months after the
occurrence of the Change in Control.
2. Executive's employment is terminated, including
Constructively Discharged, by the Employer or its successor
either in contemplation of or after Change in Control, other
than on a for-cause basis.
(ii) For purposes of this paragraph, the term "Change in
Control" shall mean the following occurring after the date of this
Agreement:
1. The consummation of the acquisition by any person
(as such term is defined in Section 13(d) or 14(d) of the
Securities Exchange Act of 1934, as amended (the " 1934 Act")
of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the 1934 Act) of fifty percent (50%) or more
of the combined voting power embodied in the then-outstanding
voting securities of COPT or the Employer; or
6
<PAGE>
2. Approval by the stockholders of COPT or the
Employer of: (1) a merger or consolidation of COPT or the
Employer, if the stockholders of COPT or the Employer
immediately before such merger or consolidation do not, as a
result of such merger or consolidation, own, directly or
indirectly, more than fifty percent (50%) of the combined
voting power of the then outstanding voting securities of the
entity resulting from such merger or consolidation in
substantially the same proportion as was represented by their
ownership of the combined voting power of the voting
securities of COPT or the Employer outstanding immediately
before such merger or consolidation; or (2) a complete or
substantial liquidation or dissolution, or an agreement for
the sale or other disposition, of all or substantially all of
the assets of COPT or the Employer.
Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur solely because fifty percent (50%) or more of the combined voting
then-outstanding securities is acquired by: (1) a trustee or other fiduciary
holding securities under one or more employee benefit plans maintained for
employees of the entity; or (2) any corporation or other entity which,
immediately prior to such acquisition, is owned directly or indirectly by the
stockholders of COPT or the Employer in the same proportion as their ownership
of stock in COPT or the Employer immediately prior to such acquisition.
(iii) If it is determined, in the opinion of the
Employer's independent accountants, in consultation with the
Employer's independent counsel, that any amount payable to the
Executive by the Employer under this Agreement, or any other
plan or agreement under which the Executive participates or is
a party, would constitute an "Excess Parachute Payment" within
the meaning of Section 280G of the Internal Revenue Code of
1986, as amended (the "Code") and be subject to the excise tax
imposed by Section 4999 of the Code (the "Excise Tax"), the
Employer shall pay to the Executive a "grossing-up" amount
equal to the amount of such Excise Tax and all federal and
state income or other taxes with respect to payment of the
amount of such Excise Tax, including all such taxes with
respect to any such grossing-up amount. If at a later date,
the Internal Revenue Service assesses a deficiency against the
Executive for the Excise Tax which is greater than that which
was determined at the time such amounts were paid, the
Employer shall pay to the Executive the amount of such
unreimbursed Excise Tax plus any interest, penalties and
professional fees or expenses, incurred by the Executive as a
result of such assessment, including all such taxes with
respect to any such additional amount. The highest marginal
tax rate applicable to individuals at the time of payment of
such amounts will be used for purposes of determining the
federal and state income and other taxes with respect thereto.
The Employer shall withhold from any amounts paid under this
Agreement the amount of any Excise Tax or other federal, state
or local taxes then required to be withheld. Computations of
the amount of any grossing-up supplemental compensation paid
under this subparagraph shall be made by the Employer's
independent accountants, in consultation with the Employer's
independent legal
7
<PAGE>
counsel. The Employer shall pay all accountant and legal
counsel fees and expenses.
(h) VOLUNTARY TERMINATION. In the event of a termination of
employment by the Executive on his own initiative, other than a termination due
to death, disability or a Constructive Discharge, the Executive shall have the
same entitlements as provided in paragraph (d) of this Section 4 for a
termination "for-cause."
5. CONFIDENTIALITY AND LOYALTY. The Executive acknowledges that
heretofore or hereafter during the course of his employment he has produced and
received, and may hereafter produce, receive and otherwise have access to
various materials, records, data, trade secrets and information not generally
available to the public (collectively, "Confidential Information") regarding the
Employer and its subsidiaries and affiliates. Accordingly, during and subsequent
to termination of this Agreement, the Executive shall hold in confidence and not
directly or indirectly disclose, use, copy or make lists of any such
Confidential Information, except to the extent that such information is or
thereafter becomes lawfully available from public sources, or such disclosure is
authorized in writing by the Employer, required by law or by any competent
administrative agency or judicial authority, or otherwise as reasonably
necessary or appropriate in connection with the performance by the Executive of
his duties hereunder. All records, files, documents, computer diskettes,
computer programs and other computer-generated material, as well as all other
materials or copies thereof relating to the Employer's business, which the
Executive shall prepare or use, shall be and remain the sole property of the
Employer, shall not be removed from the Employer's premises without its written
consent, and shall be promptly returned to the Employer upon termination of the
Executive's employment hereunder. The Executive agrees to abide by the
Employer's reasonable policies, as in effect from time to time, respecting
confidentiality and the avoidance of interests conflicting with those of the
Employer.
6. NON-COMPETITION COVENANT.
(a) RESTRICTIVE COVENANT. The Employer and the Executive have
jointly reviewed the tenant lists, property submittals, logs, broker lists, and
operations of the Employer, and have agreed that as an essential ingredient of
and in consideration of this Agreement and the payment of the amounts described
in Sections 3 and 4 hereof, the Executive hereby agrees that, except with the
express prior written consent of the Employer, for a period equal to the lesser
of the number of FULL months the Executive has at any time been employed by the
Employer or twenty-four (24) months after the termination of the Executive's
employment with the Employer (the "Restrictive Period"), he will not directly or
indirectly compete with the business of the Employer, including, but not by way
of limitation, by directly or indirectly owning, managing, operating,
controlling, financing, or by directly or indirectly serving as an employee,
officer or director of or consultant to, or by soliciting or inducing, or
attempting to solicit or induce, any employee or agent of Employer to terminate
employment with Employer and become employed by any person, firm, partnership,
corporation, trust or other entity which owns or operates a business similar to
that of the Employer (the "Restrictive Covenant"). For purposes of this
subparagraph (a), a business shall be considered "similar" to that of the
Employer if it is engaged in the acquisition, development, ownership, operation,
management or
8
<PAGE>
leasing of suburban office property (i) in any geographic market or submarket in
which the Employer owns more than 750,000 s.f. of properties either as of the
date hereof or as of the date of termination of the Executive's employment. If
the Executive violates the Restrictive Covenant and the Employer brings legal
action for injunctive or other relief, the Employer shall not, as a result of
the time involved in obtaining such relief, be deprived of the benefit of the
FULL period of the Restrictive Covenant. Accordingly, the Restrictive Covenant
shall be deemed to have the duration specified in this paragraph (a) computed
from the date the relief is granted but reduced by the time between the period
when the Restrictive Period began to run and the date of the first violation of
the Restrictive Covenant by the Executive. In the event that a successor of the
Employer assumes and agrees to perform this Agreement or otherwise acquires the
Employer, this Restrictive Covenant shall continue to apply only to the primary
service area of the Employer as it existed immediately before such assumption or
acquisition and shall not apply to any of the successor's other offices or
markets. The foregoing Restrictive Covenant shall not prohibit the Executive
from owning, directly or indirectly, capital stock or similar securities which
are listed on a securities exchange or quoted on the National Association of
Securities Dealers Automated Quotation System which do not represent more than
five percent (5%) of the outstanding capital stock of any corporation.
(b) REMEDIES FOR BREACH OF RESTRICTIVE COVENANT. The Executive
acknowledges that the restrictions contained in Sections 5 and 6 of this
Agreement are reasonable and necessary for the protection of the legitimate
proprietary business interests of the Employer; that any violation of these
restrictions would cause substantial injury to the Employer and such interests;
that the Employer would not have entered into this Agreement with the Executive
without receiving the additional consideration offered by the Executive in
binding himself to these restrictions; and that such restrictions were a
material inducement to the Employer to enter into this Agreement. In the event
of any violation or threatened violation of these restrictions, the Employer
shall be relieved of any further obligations under this Agreement, shall be
entitled to any rights, remedies or damages available at law, in equity or
otherwise under this Agreement, and shall be entitled to preliminary and
temporary injunctive relief granted by a court of competent jurisdiction to
prevent or restrain any such violation by the Executive and any and all persons
directly or indirectly acting for or with him, as the case may be, while
awaiting the decision of the arbitrator selected in accordance with paragraph
(d) of Section 11 of this Agreement, which decision, if rendered adverse to the
Executive, may include permanent injunctive relief to be granted by the court.
7. INTERCORPORATE TRANSFERS. If the Executive shall be voluntarily
transferred to an affiliate of the Employer, such transfer shall not be deemed
to terminate or modify this Agreement, and the employing corporation to which
the Executive shall have been transferred shall, for all purposes of this
Agreement, be construed as standing in the same place and stead as the Employer
as of the date of such transfer. For purposes hereof, an affiliate of the
Employer shall mean any corporation or other entity directly or indirectly
controlling, controlled by, or under common control with the Employer. The
Employer shall be secondarily liable to the Executive for the obligations
hereunder in the event the affiliate of the Employer cannot or refuses to honor
such obligations. For all relevant purposes hereof, the tenure of the Executive
shall be deemed to include the aggregate term of his employment by the Employer
or its affiliate.
9
<PAGE>
8. INTEREST IN ASSETS. Neither the Executive nor his estate shall
acquire hereunder any rights in funds or assets of the Employer, otherwise than
by and through the actual payment of amounts payable hereunder; nor shall the
Executive or his estate have any power to transfer, assign (except into a trust
for purposes of estate planning), anticipate, hypothecate or otherwise encumber
in advance any of said payments; nor shall any of such payments be subject to
seizure for the payment of any debt, judgment, alimony, separate maintenance or
be transferable by operation of law in the event of bankruptcy, insolvency or
otherwise of the Executive.
9. INDEMNIFICATION.
(a) The Employer shall provide the Executive (including his
heirs, personal representatives, executors and administrators), during the term
of this Agreement and thereafter throughout all applicable limitations periods,
with coverage under the Employer's then-current directors' and officers'
liability insurance policy, at the Employer's expense.
(b) In addition to the insurance coverage provided for in
paragraph (a) of this Section 9, the Employer shall defend, hold harmless and
indemnify the Executive (and his heirs, personal representatives, executors and
administrators) to the fullest extent permitted under applicable law, and
subject to the requirements, limitations and specifications set forth in the
Bylaws and other organizational documents of the Employer, against all expenses
and liabilities reasonably incurred by him in connection with or arising out of
any action, suit or proceeding in which he may be involved by reason of his
having been an officer of the Employer (whether or not he continues to be an
officer at the time of incurring such expenses or liabilities), such expenses
and liabilities to include, but not be limited to, judgments, court costs and
attorneys' fees and the cost of reasonable settlements.
(c) In the event the Executive becomes a party, or is
threatened to be made a party, to any action, suit or proceeding for which the
Employer has agreed to provide insurance coverage or indemnification under this
Section 9, the Employer shall, to the full extent permitted under applicable
law, advance all expenses (including the reasonable attorneys' fees of the
attorneys selected by Employer and approved by Executive for the representation
of the Executive), judgments, fines and amounts paid in settlement (collectively
"Expenses") incurred by the Executive in connection with the investigation,
defense, settlement, or appeal of any threatened, pending or completed action,
suit or proceeding, subject to receipt by the Employer of a written undertaking
from the Executive covenanting: (i) to reimburse the Employer for all Expenses
actually paid by the Employer to or on behalf of the Executive in the event it
shall be ultimately determined that the Executive is not entitled to
indemnification by the Employer for such Expenses; and (ii) to assign to the
Employer all rights of the Executive to insurance proceeds, under any policy of
directors' and officers' liability insurance or otherwise, to the extent of the
amount of Expenses actually paid by the Employer to or on behalf of the
Executive.
10. ASSUMPTION BY COPT. By its execution of this Agreement, COPT agrees
to be secondarily liable to the Executive, and shall assume the liabilities,
obligations and duties of the Employer as contained in this Agreement in the
event the Employer can not or refuses to honor such obligations.
10
<PAGE>
11. GENERAL PROVISIONS.
(a) SUCCESSORS; ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the Executive, the Employer and his and its
respective personal representatives, successors and assigns, and any successor
or assign of the Employer shall be deemed the "Employer" hereunder. The Employer
shall require any successor to all or substantially all of the business and/or
assets of the Employer, whether directly or indirectly, by purchase, merger,
consolidation, acquisition of stock, or otherwise, by an agreement in form and
substance satisfactory to the Executive, expressly to assume and agree to
perform this Agreement in the same manner and to the same extent as the Employer
would be required to perform if no such succession had taken place. No rights or
obligations of the Executive under this Agreement may be assigned or transferred
by the Executive other than his rights to compensation and benefits, which may
be transferred only by will or by operation of law.
(b) ENTIRE AGREEMENT; MODIFICATIONS. This Agreement
constitutes the entire agreement between the parties respecting the subject
matter hereof, and supersedes all prior negotiations, undertakings, agreements
and arrangements with respect thereto, whether written or oral. Except as
otherwise explicitly provided herein, this Agreement may not be amended or
modified except by written agreement signed by the Executive and the Employer.
(c) ENFORCEMENT AND GOVERNING LAW. The provisions of this
Agreement shall be regarded as divisible and separate; if any of said provisions
should be declared invalid or unenforceable by a court of competent
jurisdiction, the validity and enforceability of the remaining provisions shall
not be affected thereby. This Agreement shall be construed and the legal
relations of the parties hereto shall be determined in accordance with the laws
of the State of Maryland as it constitutes the situs of the corporation and the
employment hereunder, without reference to the law regarding conflicts of law.
(d) ARBITRATION. Except as provided in paragraph (b) of
Section 6, any dispute or controversy arising under or in connection with this
Agreement or the Executive's employment by the Employer shall be settled
exclusively by arbitration, conducted by a single arbitrator sitting in
Baltimore, MD in accordance with the rules of the American Arbitration
Association (the "AAA") then in effect. The arbitrator shall be selected by the
parties from a list of eleven (11) arbitrators provided by the AAA, provided
that no arbitrator shall be related to or affiliated with either of the parties.
No later than ten (10) days after the list of proposed arbitrators is received
by the parties, the parties, or their respective representatives, shall meet at
a mutually convenient location in Baltimore, Maryland, or telephonically. At
that meeting, the party who sought arbitration shall eliminate one (1) proposed
arbitrator and then the other party shall eliminate one (1) proposed arbitrator.
The parties shall continue to alternatively eliminate names from the list of
proposed arbitrators in this manner until each party has eliminated five (5)
proposed arbitrators. The remaining arbitrator shall arbitrate the dispute. Each
party shall submit, in writing, the specific requested action or decision it
wishes to take, or make, with respect to the matter in dispute, and the
arbitrator shall be obligated to choose one (1) party's specific requested
action or decision, without being permitted to effectuate any compromise or
"new" position; provided, however, that the arbitrator is authorized to award
amounts not in dispute during the
11
<PAGE>
pendency of any dispute or controversy arising under or in connection with this
Agreement. The Employer shall bear the cost of all counsel, experts or other
representatives that are retained by both parties, together with all costs of
the arbitration proceeding, including, without limitation, the fees, costs and
expenses imposed or incurred by the arbitrator. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; including, if applicable,
entry of a permanent injunction under paragraph (b) of Section 6.
(e) PRESS RELEASES AND PUBLIC DISCLOSURE. Any press release or
other public communication by either the Executive or the Employer with any
other person concerning the terms, conditions or circumstances of Executive's
employment, or the termination of such employment, shall be subject to prior
written approval of both the Executive and the Employer, subject to the proviso
that the Employer shall be entitled to make requisite and appropriate public
disclosure of the terms of this Agreement, without the Executive's consent or
approval, as required under applicable statutes, and the rules and regulations
of the Securities and Exchange Commission and the Stock Exchange on which the
shares of Employer may from time to time be listed.
(f) WAIVER. No waiver by either party at any time of any
breach by the other party of, or compliance with, any condition or provision of
this Agreement to be performed by the other party, shall be deemed a waiver of
any similar or dissimilar provisions or conditions at the same time or any prior
or subsequent time.
(g) NOTICES. Notices given pursuant to this Agreement shall be
in writing, and shall be deemed given when received, and, if mailed, shall be
mailed by United States registered or certified mail, return receipt requested,
postage prepaid. Notices to the Employer shall be addressed to the principal
headquarters of the Employer, Attention: Chairman. Notices to the Executive
shall be sent to the address set forth below the Executive's signature on this
Agreement, or to such other address as the party to be notified shall have given
to the other.
12
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
"Employer" "Executive"
Corporate Office Management, Inc., a
Maryland corporation
By: /s/ CLAY W. HAMLIN, III, CEO /s/ ROGER A. WAESCHE, JR.
---------------------------------- ----------------------------------
Clay W. Hamlin, III, CEO Roger A. Waesche, Jr.
Corporate Office Properties Trust, a Maryland
business trust
By: /s/ CLAY W. HAMLIN, III, CEO
---------------------------------
Clay W. Hamlin, III, CEO
13
<PAGE>
Exhibit 10.4
EMPLOYMENT AGREEMENT
DWIGHT TAYLOR
This Employment Agreement (this "Agreement"), is made and entered
into as of the 16th day of December, 1999, by and between Corporate
Development Services, LLC, a Maryland limited liability company (the
"Employer"), and Corporate Office Properties Trust, a Maryland business trust
("COPT"), and Dwight Taylor (the "Executive").
RECITALS
A. The Employer wishes to employ the Executive and to assure itself of
the services of the Executive for the period provided in this Agreement and the
Executive is willing to continue in the employ of the Employer on a full-time
basis for said period, and upon the other terms and conditions hereinafter
provided.
B. The Employer recognizes that circumstances may arise in which a
change of control of the Employer or COPT, through acquisition or otherwise, may
occur, thereby causing uncertainty of employment without regard to the
competence or past contributions of the Executive, and that such uncertainty may
result in the loss of valuable services of the Executive. Accordingly, the
Employer and the Executive wish to provide reasonable security to the Executive
against changes in the employment relationship in the event of any such change
of control.
C. COPT has agreed to become a party to this Agreement for the purpose
of assuming the liabilities, obligations and duties of the Employer to the
extent provided herein.
D. It is the intention of the Employer and the Executive that,
notwithstanding the date of execution hereof, this Agreement shall become
effective as of September 15, 1999.
NOW, THEREFORE, in consideration of the premises and of the covenants
and agreements hereinafter contained, it is covenanted and agreed by and between
the parties hereto as follows:
AGREEMENTS
1. EFFECTIVE DATE. This Agreement shall become effective as of
September 15, 1999 (the "Effective Date").
2. POSITION AND DUTIES. As of the Effective Date, the Employer hereby
employs the Executive as President of the Employer, or in such other capacity as
shall be mutually agreed between the Employer and the Executive. During the
period of the Executive's employment hereunder, the Executive shall devote his
best efforts and full business time, energy, skills and attention to the
business and affairs of the Employer. The Executive's duties and authority shall
consist of and include all duties and authority customarily performed and held
by persons holding equivalent positions with business organizations similar in
nature and size to the
<PAGE>
Employer, as such duties and authority are reasonably defined, modified and
delegated from time to time by the Board of Directors or other governing body of
the Employer (the "Board"). The Executive shall have the powers necessary to
perform the duties assigned to him, and shall be provided such supporting
services, staff, secretarial and other assistance, office space and
accouterments as shall be reasonably necessary and appropriate in the light of
such assigned duties.
3. COMPENSATION. As compensation for the services to be provided by the
Executive hereunder, the Executive shall receive the following compensation and
other benefits:
(a) BASE SALARY. The Executive shall receive an aggregate
annual minimum "Base Salary" at the annualized rate of One Hundred Fifty
Thousand Dollars ($150,000) per annum, payable in periodic installments in
accordance with the regular payroll practices of the Employer. Such Base Salary
shall be subject to review annually by the Board and Compensation Committee of
COPT ("Compensation Committee") during the term hereof, in accordance with the
established compensation policies of the Compensation Committee.
(b) PERFORMANCE BONUS. The Executive shall be entitled to an
annual cash "Performance Bonus," payable within ninety (90) days after the end
of the fiscal year of the Employer the amount (if any) of which shall be
determined by the Board based upon the recommendation of the Compensation
Committee.
(c) STOCK OPTION/RESTRICTED SHARES. Executive shall be
entitled to stock options and/or restricted shares as determined by the
Compensation Committee and the Board.
(d) BENEFITS. The Executive shall be entitled to all
perquisites extended to similarly situated executives, as such are stated in the
Employer's Executive Perquisite Policy (the "Perquisite Policy") promulgated for
the Board or the Compensation Committee, and which Perquisite Policy is hereby
incorporated by reference, as amended by the Board or the Compensation Committee
from time to time. In addition, the Executive shall be entitled to participate
in all plans and benefits generally, from time to time, accorded to employees of
the Employer ("Benefit Plans"), all as determined by the Board from time to time
based upon the input of the Compensation Committee. Executive shall also receive
additional benefits as follows:
(i) a seven hundred fifty dollar ($750.00) per month
automobile allowance; and
(ii) the Employer shall pay to the Executive 25% of
the amount includible in income of the Executive upon the
vesting of restricted shares granted to the Executive, plus
25% of all taxes with respect to such grossing up amount.
(e) WITHHOLDING. The Employer shall be entitled to withhold,
from amounts payable to the Executive hereunder, any federal, state or local
withholding or other taxes or charges which it is from time to time required to
withhold. The Employer shall be
2
<PAGE>
entitled to rely upon the opinion of its independent accountants, with regard to
any question concerning the amount or requirement of any such withholding.
4. TERM AND TERMINATION.
(a) BASIC TERM. The Executive's employment hereunder shall be
for a continuous and self-renewing three (3) year term, commencing as of the
Effective Date, unless terminated by either party, with or without cause,
effective as of the first (1st) business day after written notice to that effect
is delivered to the other party.
(b) PREMATURE TERMINATION.
(i) In the event of the termination of the employment
of the Executive under this Agreement by the Employer for any
reason other than expiration of the term hereof, termination
upon disability in accordance with the provisions of paragraph
(f) of this Section 4, or a "for-cause" termination in
accordance with the provisions of paragraph (d) of this
Section 4, then notwithstanding any actual or allegedly
available alternative employment or other mitigation of
damages by or available to the Executive, the Executive shall
be entitled to a "Termination Payment" equal to the sum of:
(w) three (3) times the rate of annualized Base Salary then
payable to the Executive, plus (x) three (3) times the average
of the three (3) most recent annual Performance Bonuses that
the Executive received; provided, however, that if the
Executive has been employed by the Employer for fewer than
three (3) years, then the amount set forth in (x) above, shall
be equal to three (3) times the average of the annual
Performance Bonuses that the Executive theretofore received
from the Employer. For purposes of calculating the Termination
Payment amounts due, the Executive's employment with the
Employer shall be agreed to have commenced on September 15,
1999. In the event of a termination governed by this
subparagraph (b) of Section 4, the Employer shall also: (y)
allow a period of eighteen (18) months following the
termination of employment for the Executive (but in no event
beyond the expiration of any option term or period specified
in the option agreement with the Executive) to exercise any
options granted under any stock option or share incentive plan
established by Employer or COPT ("Stock Plan"); and (z)
continue for the Executive (provided that such items are not
available to him by virtue of other employment secured after
termination) the perquisites, plans and benefits provided
under the Employer's Perquisite Policy and Benefit Plans as of
and after the date of termination, [all items in (z) being
collectively referred to as "Post-Termination Perquisites and
Benefits"], for the lesser of the number of full months the
Executive has theretofore been employed by the Employer (but
not less than twelve (12) months)or twenty four (24) months
following such termination. The payments and benefits provided
under (w), (x), (y) and (z) above by the Employer shall not be
offset against or diminish any other compensation or benefits
accrued as of the date of termination.
3
<PAGE>
(ii) Notwithstanding the vesting schedule otherwise
applicable, in the event of a termination governed by this
subparagraph (b) of Section 4, the Executive shall be fully
vested in all of the Executive's options and restricted shares
under any Stock Plan or similar program.
(iii) Any cash payments to the Executive under this
Section 4(b) will be made monthly over twelve (12) months,
unless otherwise mutually agreed by the parties to minimize
the Executives' tax burden in any year.
(c) CONSTRUCTIVE TERMINATION. If at any time during the term
of this Agreement, except in connection with a "for-cause" termination pursuant
to paragraph (d) of this Section 4, the Executive is Constructively Discharged
(as hereinafter defined), then the Executive shall have the right, by written
notice to the Employer given within one hundred and twenty (120) days of such
Constructive Discharge, to terminate his services hereunder, effective as of
thirty (30) days after such notice, and the Executive shall have no rights or
obligations under this Agreement other than as provided in Sections 5 and 6
hereof. The Executive shall in such event be entitled to a Termination Payment
of Base Salary and Performance Bonus compensation as well as all of the
Post-Termination Perquisites and Benefits, as if such termination of his
employment had been effectuated pursuant to paragraph (b) of this Section 4.
For purposes of this Agreement, the Executive shall be deemed
to have been "Constructively Discharged" upon the occurrence of any one of the
following events:
(i) The Executive is not re-elected to, or is removed
from, the position with the Employer as set forth in Section 2
hereof, other than as a result of the Executive's election or
appointment to positions of equal or superior scope and
responsibility; or
(ii) The Executive shall fail to be vested by the
Employer with the powers, authority and support services
normally attendant to any of said offices; or
(iii) The Employer shall notify the Executive that
the employment of the Executive will be terminated or
materially modified in the future or that the Executive will
be Constructively Discharged in the future; or
(iv) The Employer changes the primary employment
location of the Executive to a place that is more than fifty
(50) miles from the primary employment location, 8815 Centre
Park Drive, Columbia, Maryland 21045, as of the Effective Date
of this Agreement; or
(v) The Employer otherwise commits a material breach
of its obligations under this Agreement.
(d) TERMINATION FOR CAUSE. The employment of the Executive and
this Agreement may be terminated "for-cause" as hereinafter defined. Termination
"for- cause"
4
<PAGE>
shall mean the termination of employment on the basis or as a result of (i) a
material violation by the Executive of any applicable material law or regulation
respecting the business of the Employer; (ii) the Executive being found guilty
of, or being publicly associated with, to the Employer's detriment, a felony or
an act of dishonesty in connection with the performance of his duties as an
officer of the Employer, or the Executive's commission of an act which in the
opinion of a reasonable third party disqualifies the Executive from serving as
an officer or director of the Employer; or (iii) the willful or negligent
failure of the Executive to perform his duties hereunder in any material
respect. The Executive shall be entitled to at least thirty (30) days' prior
written notice of the Employer's intention to terminate his employment for any
cause (except the Executive's death), specifying the grounds for such
termination, affording the Executive a reasonable opportunity to cure any
conduct or act (if curable) alleged as grounds for such termination, and a
reasonable opportunity to present to the Board his position regarding any
dispute relating to the existence of such cause. In the event the Employer
terminates the Executive's employment "for cause" the Executive shall be
entitled only to the Base Salary through the date of the termination of the
Executive's employment "for cause" and any other additional benefit in
accordance with applicable plans, programs or agreements with the Employer.
(e) TERMINATION UPON DEATH. In the event payments are due and
owing under this Agreement at the death of the Executive, such payments shall be
made to such beneficiary, designee or fiduciary as Executive may have designated
in writing, or failing such designation, to the executor or administrator of his
estate, in full settlement and satisfaction of all claims and demands on behalf
of the Executive. Such payments shall be in addition to any other death benefits
of the Employer made available for the benefit of the Executive, and in full
settlement and satisfaction of all payments provided for in this Agreement.
Notwithstanding the vesting schedule otherwise applicable in the event of a
termination governed by this subparagraph (e) of Section 4, all of options and
restricted shares granted to the Executive under any Stock Plan or similar
program shall be fully vested.
(f) TERMINATION UPON DISABILITY. The Employer may terminate
the Executive's employment after the Executive is determined to be disabled
under the long-term disability program of the Employer then covering the
Executive or by a physician engaged by the Employer and reasonably approved by
the Executive. In the event of a dispute regarding the Executive's "disability,"
such dispute shall be resolved through arbitration as provided in paragraph (d)
of Section 11 hereof, except that the arbitrator appointed by the American
Arbitration Association shall be a duly licensed medical doctor. The Executive
shall be entitled to the compensation and benefits provided for under this
Agreement during any period of incapacitation occurring during the term of this
Agreement, and occurring prior to the establishment of the Executive's
"disability" during which the Executive is unable to work due to a physical or
mental infirmity. Notwithstanding anything contained in this Agreement to the
contrary, until the date specified in a notice of termination relating to the
Executive's disability, the Executive shall be entitled to return to his
positions with the Employer as set forth in this Agreement, in which event no
disability of the Executive will be deemed to have occurred. Notwithstanding the
vesting schedule otherwise applicable, in the event of a termination governed by
this subparagraph (f) of Section 4, the Executive shall be fully vested in all
of the Executive's options and restricted shares under any Stock Plan or similar
program.
5
<PAGE>
(g) TERMINATION UPON CHANGE OF CONTROL.
(i) In the event of a Change in Control (as defined
below) and the termination of the Executive's employment by
Executive or by the Employer under either 1 or 2 below, the
Executive shall be entitled to a Termination Payment equal to
the sum of: (w) three times the rate of annualized Base Salary
then payable to the executive, plus (x) three times the
average of the three (3) most recent annual Performance
Bonuses that the Executive received; provided, however, that
if the executive has been employed by the Employer for fewer
than three (3) years, then the amount set forth in (x) above,
shall be equal to three (3) times the average of the annual
Performance Bonuses that the Executive has theretofore
received from the Employer. The Employer shall also continue
for the Executive the Post-Termination Perquisites and
Benefits for the same period and to the same extent as
provided in paragraph (b) of this Section 4; provided,
however, that notwithstanding the vesting schedule otherwise
applicable, immediately following a Change in Control (whether
or not the Executive's employment is terminated), the
Executive shall be fully vested in all of Executive's options
and restricted shares outstanding under any Stock Plan or
similar program and shall be allowed a period of eighteen (18)
months following the termination of employment of the
Executive for the Executive's exercise of such options. The
following shall constitute termination under this paragraph:
1 . The Executive terminates his employment under
this Agreement pursuant to a written notice to that effect
delivered to the Board within six (6) months after the
occurrence of the Change in Control.
2. Executive's employment is terminated, including
Constructively Discharged, by the Employer or its successor
either in contemplation of or after Change in Control, other
than on a for-cause basis.
(ii) For purposes of this paragraph, the term "Change in
Control" shall mean the following occurring after the date of this
Agreement:
1. The consummation of the acquisition by any person
(as such term is defined in Section 13(d) or 14(d) of the
Securities Exchange Act of 1934, as amended (the " 1934 Act")
of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the 1934 Act) of fifty percent (50%) or more
of the combined voting power embodied in the then-outstanding
voting securities of COPT or the Employer; or
2. Approval by the stockholders of COPT or the
Employer of: (1) a merger or consolidation of COPT or the
Employer, if the stockholders of COPT or the Employer
immediately before such merger or consolidation do not, as a
result of such merger or consolidation, own, directly or
indirectly, more than fifty percent (50%) of the combined
voting power of the then outstanding voting securities of the
entity resulting from such merger or consolidation in
substantially the same proportion as was represented by their
ownership of the combined voting power of the voting
6
<PAGE>
securities of COPT or the Employer outstanding immediately
before such merger or consolidation; or (2) a complete or
substantial liquidation or dissolution, or an agreement for
the sale or other disposition, of all or substantially all of
the assets of COPT or the Employer.
Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur solely because fifty percent (50%) or more of the combined voting
then-outstanding securities is acquired by: (1) a trustee or other fiduciary
holding securities under one or more employee benefit plans maintained for
employees of the entity; or (2) any corporation or other entity which,
immediately prior to such acquisition, is owned directly or indirectly by the
stockholders of COPT or the Employer in the same proportion as their ownership
of stock in COPT or the Employer immediately prior to such acquisition.
(iii) If it is determined, in the opinion of the
Employer's independent accountants, in consultation with the
Employer's independent counsel, that any amount payable to the
Executive by the Employer under this Agreement, or any other
plan or agreement under which the Executive participates or is
a party, would constitute an "Excess Parachute Payment" within
the meaning of Section 280G of the Internal Revenue Code of
1986, as amended (the "Code") and be subject to the excise tax
imposed by Section 4999 of the Code (the "Excise Tax"), the
Employer shall pay to the Executive a "grossing-up" amount
equal to the amount of such Excise Tax and all federal and
state income or other taxes with respect to payment of the
amount of such Excise Tax, including all such taxes with
respect to any such grossing-up amount. If at a later date,
the Internal Revenue Service assesses a deficiency against the
Executive for the Excise Tax which is greater than that which
was determined at the time such amounts were paid, the
Employer shall pay to the Executive the amount of such
unreimbursed Excise Tax plus any interest, penalties and
professional fees or expenses, incurred by the Executive as a
result of such assessment, including all such taxes with
respect to any such additional amount. The highest marginal
tax rate applicable to individuals at the time of payment of
such amounts will be used for purposes of determining the
federal and state income and other taxes with respect thereto.
The Employer shall withhold from any amounts paid under this
Agreement the amount of any Excise Tax or other federal, state
or local taxes then required to be withheld. Computations of
the amount of any grossing-up supplemental compensation paid
under this subparagraph shall be made by the Employer's
independent accountants, in consultation with the Employer's
independent legal counsel. The Employer shall pay all
accountant and legal counsel fees and expenses.
(h) VOLUNTARY TERMINATION. In the event of a termination of
employment by the Executive on his own initiative, other than a termination due
to death, disability or a Constructive Discharge, the Executive shall have the
same entitlements as provided in paragraph (d) of this Section 4 for a
termination "for-cause."
7
<PAGE>
5. CONFIDENTIALITY AND LOYALTY. The Executive acknowledges that
heretofore or hereafter during the course of his employment he has produced and
received, and may hereafter produce, receive and otherwise have access to
various materials, records, data, trade secrets and information not generally
available to the public (collectively, "Confidential Information") regarding the
Employer and its subsidiaries and affiliates. Accordingly, during and subsequent
to termination of this Agreement, the Executive shall hold in confidence and not
directly or indirectly disclose, use, copy or make lists of any such
Confidential Information, except to the extent that such information is or
thereafter becomes lawfully available from public sources, or such disclosure is
authorized in writing by the Employer, required by law or by any competent
administrative agency or judicial authority, or otherwise as reasonably
necessary or appropriate in connection with the performance by the Executive of
his duties hereunder. All records, files, documents, computer diskettes,
computer programs and other computer-generated material, as well as all other
materials or copies thereof relating to the Employer's business, which the
Executive shall prepare or use, shall be and remain the sole property of the
Employer, shall not be removed from the Employer's premises without its written
consent, and shall be promptly returned to the Employer upon termination of the
Executive's employment hereunder. The Executive agrees to abide by the
Employer's reasonable policies, as in effect from time to time, respecting
confidentiality and the avoidance of interests conflicting with those of the
Employer.
6. NON-COMPETITION COVENANT.
(a) RESTRICTIVE COVENANT. The Employer and the Executive have
jointly reviewed the tenant lists, property submittals, logs, broker lists, and
operations of the Employer, and have agreed that as an essential ingredient of
and in consideration of this Agreement and the payment of the amounts described
in Sections 3 and 4 hereof, the Executive hereby agrees that, except with the
express prior written consent of the Employer, for a period equal to the lesser
of the number of FULL months the Executive has at any time been employed by the
Employer or twenty-four (24) months after the termination of the Executive's
employment with the Employer (the "Restrictive Period"), he will not directly or
indirectly compete with the business of the Employer, including, but not by way
of limitation, by directly or indirectly owning, managing, operating,
controlling, financing, or by directly or indirectly serving as an employee,
officer or director of or consultant to, or by soliciting or inducing, or
attempting to solicit or induce, any employee or agent of Employer to terminate
employment with Employer and become employed by any person, firm, partnership,
corporation, trust or other entity which owns or operates a business similar to
that of the Employer (the "Restrictive Covenant"). For purposes of this
subparagraph (a), a business shall be considered "similar" to that of the
Employer if it is engaged in the acquisition, development, ownership, operation,
management or leasing of suburban office property (i) in any geographic market
or submarket in which the Employer owns more than 750,000 s.f. of properties
either as of the date hereof or as of the date of termination of the Executive's
employment. If the Executive violates the Restrictive Covenant and the Employer
brings legal action for injunctive or other relief, the Employer shall not, as a
result of the time involved in obtaining such relief, be deprived of the benefit
of the FULL period of the Restrictive Covenant. Accordingly, the Restrictive
Covenant shall be deemed to have the duration specified in this paragraph (a)
computed from the date the relief is granted but reduced
8
<PAGE>
by the time between the period when the Restrictive Period began to run and the
date of the first violation of the Restrictive Covenant by the Executive. In the
event that a successor of the Employer assumes and agrees to perform this
Agreement or otherwise acquires the Employer, this Restrictive Covenant shall
continue to apply only to the primary service area of the Employer as it existed
immediately before such assumption or acquisition and shall not apply to any of
the successor's other offices or markets. The foregoing Restrictive Covenant
shall not prohibit the Executive from owning, directly or indirectly, capital
stock or similar securities which are listed on a securities exchange or quoted
on the National Association of Securities Dealers Automated Quotation System
which do not represent more than five percent (5%) of the outstanding capital
stock of any corporation.
(b) REMEDIES FOR BREACH OF RESTRICTIVE COVENANT. The Executive
acknowledges that the restrictions contained in Sections 5 and 6 of this
Agreement are reasonable and necessary for the protection of the legitimate
proprietary business interests of the Employer; that any violation of these
restrictions would cause substantial injury to the Employer and such interests;
that the Employer would not have entered into this Agreement with the Executive
without receiving the additional consideration offered by the Executive in
binding himself to these restrictions; and that such restrictions were a
material inducement to the Employer to enter into this Agreement. In the event
of any violation or threatened violation of these restrictions, the Employer
shall be relieved of any further obligations under this Agreement, shall be
entitled to any rights, remedies or damages available at law, in equity or
otherwise under this Agreement, and shall be entitled to preliminary and
temporary injunctive relief granted by a court of competent jurisdiction to
prevent or restrain any such violation by the Executive and any and all persons
directly or indirectly acting for or with him, as the case may be, while
awaiting the decision of the arbitrator selected in accordance with paragraph
(d) of Section 11 of this Agreement, which decision, if rendered adverse to the
Executive, may include permanent injunctive relief to be granted by the court.
7. INTERCORPORATE TRANSFERS. If the Executive shall be voluntarily
transferred to an affiliate of the Employer, such transfer shall not be deemed
to terminate or modify this Agreement, and the employing corporation to which
the Executive shall have been transferred shall, for all purposes of this
Agreement, be construed as standing in the same place and stead as the Employer
as of the date of such transfer. For purposes hereof, an affiliate of the
Employer shall mean any corporation or other entity directly or indirectly
controlling, controlled by, or under common control with the Employer. The
Employer shall be secondarily liable to the Executive for the obligations
hereunder in the event the affiliate of the Employer cannot or refuses to honor
such obligations. For all relevant purposes hereof, the tenure of the Executive
shall be deemed to include the aggregate term of his employment by the Employer
or its affiliate.
8. INTEREST IN ASSETS. Neither the Executive nor his estate shall
acquire hereunder any rights in funds or assets of the Employer, otherwise than
by and through the actual payment of amounts payable hereunder; nor shall the
Executive or his estate have any power to transfer, assign (except into a trust
for purposes of estate planning), anticipate, hypothecate or otherwise encumber
in advance any of said payments; nor shall any of such payments be subject to
seizure for the payment of any debt, judgment, alimony, separate maintenance or
be
9
<PAGE>
transferable by operation of law in the event of bankruptcy, insolvency or
otherwise of the Executive.
9. INDEMNIFICATION.
(a) The Employer shall provide the Executive (including his
heirs, personal representatives, executors and administrators), during the term
of this Agreement and thereafter throughout all applicable limitations periods,
with coverage under the Employer's then-current directors' and officers'
liability insurance policy, at the Employer's expense.
(b) In addition to the insurance coverage provided for in
paragraph (a) of this Section 9, the Employer shall defend, hold harmless and
indemnify the Executive (and his heirs, personal representatives, executors and
administrators) to the fullest extent permitted under applicable law, and
subject to the requirements, limitations and specifications set forth in the
Bylaws and other organizational documents of the Employer, against all expenses
and liabilities reasonably incurred by him in connection with or arising out of
any action, suit or proceeding in which he may be involved by reason of his
having been an officer of the Employer (whether or not he continues to be an
officer at the time of incurring such expenses or liabilities), such expenses
and liabilities to include, but not be limited to, judgments, court costs and
attorneys' fees and the cost of reasonable settlements.
(c) In the event the Executive becomes a party, or is
threatened to be made a party, to any action, suit or proceeding for which the
Employer has agreed to provide insurance coverage or indemnification under this
Section 9, the Employer shall, to the full extent permitted under applicable
law, advance all expenses (including the reasonable attorneys' fees of the
attorneys selected by Employer and approved by Executive for the representation
of the Executive), judgments, fines and amounts paid in settlement (collectively
"Expenses") incurred by the Executive in connection with the investigation,
defense, settlement, or appeal of any threatened, pending or completed action,
suit or proceeding, subject to receipt by the Employer of a written undertaking
from the Executive covenanting: (i) to reimburse the Employer for all Expenses
actually paid by the Employer to or on behalf of the Executive in the event it
shall be ultimately determined that the Executive is not entitled to
indemnification by the Employer for such Expenses; and (ii) to assign to the
Employer all rights of the Executive to insurance proceeds, under any policy of
directors' and officers' liability insurance or otherwise, to the extent of the
amount of Expenses actually paid by the Employer to or on behalf of the
Executive.
10. ASSUMPTION BY COPT. By its execution of this Agreement, COPT agrees
to be secondarily liable to the Executive, and shall assume the liabilities,
obligations and duties of the Employer as contained in this Agreement in the
event the Employer can not or refuses to honor such obligations.
11. GENERAL PROVISIONS.
(a) SUCCESSORS; ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the Executive, the Employer and his and its
respective personal representatives, successors and assigns, and any successor
or assign of the Employer shall be
10
<PAGE>
deemed the "Employer" hereunder. The Employer shall require any successor to all
or substantially all of the business and/or assets of the Employer, whether
directly or indirectly, by purchase, merger, consolidation, acquisition of
stock, or otherwise, by an agreement in form and substance satisfactory to the
Executive, expressly to assume and agree to perform this Agreement in the same
manner and to the same extent as the Employer would be required to perform if no
such succession had taken place. No rights or obligations of the Executive under
this Agreement may be assigned or transferred by the Executive other than his
rights to compensation and benefits, which may be transferred only by will or by
operation of law.
(b) ENTIRE AGREEMENT; MODIFICATIONS. This Agreement
constitutes the entire agreement between the parties respecting the subject
matter hereof, and supersedes all prior negotiations, undertakings, agreements
and arrangements with respect thereto, whether written or oral. Except as
otherwise explicitly provided herein, this Agreement may not be amended or
modified except by written agreement signed by the Executive and the Employer.
(c) ENFORCEMENT AND GOVERNING LAW. The provisions of this
Agreement shall be regarded as divisible and separate; if any of said provisions
should be declared invalid or unenforceable by a court of competent
jurisdiction, the validity and enforceability of the remaining provisions shall
not be affected thereby. This Agreement shall be construed and the legal
relations of the parties hereto shall be determined in accordance with the laws
of the State of Maryland as it constitutes the situs of the corporation and the
employment hereunder, without reference to the law regarding conflicts of law.
(d) ARBITRATION. Except as provided in paragraph (b) of
Section 6, any dispute or controversy arising under or in connection with this
Agreement or the Executive's employment by the Employer shall be settled
exclusively by arbitration, conducted by a single arbitrator sitting in
Baltimore, MD in accordance with the rules of the American Arbitration
Association (the "AAA") then in effect. The arbitrator shall be selected by the
parties from a list of eleven (11) arbitrators provided by the AAA, provided
that no arbitrator shall be related to or affiliated with either of the parties.
No later than ten (10) days after the list of proposed arbitrators is received
by the parties, the parties, or their respective representatives, shall meet at
a mutually convenient location in Baltimore, Maryland, or telephonically. At
that meeting, the party who sought arbitration shall eliminate one (1) proposed
arbitrator and then the other party shall eliminate one (1) proposed arbitrator.
The parties shall continue to alternatively eliminate names from the list of
proposed arbitrators in this manner until each party has eliminated five (5)
proposed arbitrators. The remaining arbitrator shall arbitrate the dispute. Each
party shall submit, in writing, the specific requested action or decision it
wishes to take, or make, with respect to the matter in dispute, and the
arbitrator shall be obligated to choose one (1) party's specific requested
action or decision, without being permitted to effectuate any compromise or
"new" position; provided, however, that the arbitrator is authorized to award
amounts not in dispute during the pendency of any dispute or controversy arising
under or in connection with this Agreement. The Employer shall bear the cost of
all counsel, experts or other representatives that are retained by both parties,
together with all costs of the arbitration proceeding, including, without
limitation, the fees, costs and expenses imposed or incurred by the arbitrator.
Judgment may be entered on the arbitrator's award in any court having
jurisdiction; including, if applicable, entry of a permanent injunction under
paragraph (b) of Section 6.
11
<PAGE>
(e) PRESS RELEASES AND PUBLIC DISCLOSURE. Any press release or
other public communication by either the Executive or the Employer with any
other person concerning the terms, conditions or circumstances of Executive's
employment, or the termination of such employment, shall be subject to prior
written approval of both the Executive and the Employer, subject to the proviso
that the Employer shall be entitled to make requisite and appropriate public
disclosure of the terms of this Agreement, without the Executive's consent or
approval, as required under applicable statutes, and the rules and regulations
of the Securities and Exchange Commission and the Stock Exchange on which the
shares of Employer may from time to time be listed.
(f) WAIVER. No waiver by either party at any time of any
breach by the other party of, or compliance with, any condition or provision of
this Agreement to be performed by the other party, shall be deemed a waiver of
any similar or dissimilar provisions or conditions at the same time or any prior
or subsequent time.
(g) NOTICES. Notices given pursuant to this Agreement shall be
in writing, and shall be deemed given when received, and, if mailed, shall be
mailed by United States registered or certified mail, return receipt requested,
postage prepaid. Notices to the Employer shall be addressed to the principal
headquarters of the Employer, Attention: Chairman. Notices to the Executive
shall be sent to the address set forth below the Executive's signature on this
Agreement, or to such other address as the party to be notified shall have given
to the other.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
"Employer" "Executive"
Corporate Development Services, LLC, a
Maryland limited liability company
By: /s/ Randall M. Griffin /s/ Dwight Taylor
--------------------------------- -------------------------------------
Randall M. Griffin, CHRM Dwight Taylor
Corporate Office Properties Trust, a Maryland
business trust
By: /s/ Randall M. Griffin
-----------------------------------
Randall M. Griffin, President & CEO
12
<PAGE>
Exhibit 10.5
EMPLOYMENT AGREEMENT
MICHAEL D. KAISER
This Employment Agreement (this "Agreement"), is made and entered into
as of the 16th day of December, 1999, by and between Corporate Realty
Management, LLC, a Maryland limited liability company (the "Employer"), and
Corporate Office Properties Trust, a Maryland business trust ("COPT"), and
Michael D. Kaiser (the "Executive").
RECITALS
A. The Executive and Employer executed an agreement effective as of
September 28, 1998 providing for the employment of the Executive by the Employer
upon the terms and conditions therein stated (the "Prior Agreement").
B. The Employer wishes to terminate the Prior Agreement and to
renegotiate a new agreement to assure itself of the continued services of the
Executive for the period provided in this Agreement and the Executive is willing
to continue in the employ of the Employer on a full-time basis for said period,
and upon the other terms and conditions hereinafter provided.
C. The Employer recognizes that circumstances may arise in which a
change of control of the Employer or COPT, through acquisition or otherwise, may
occur, thereby causing uncertainty of employment without regard to the
competence or past contributions of the Executive, and that such uncertainty may
result in the loss of valuable services of the Executive. Accordingly, the
Employer and the Executive wish to provide reasonable security to the Executive
against changes in the employment relationship in the event of any such change
of control.
D. COPT has agreed to become a party to this Agreement for the purpose
of assuming the liabilities, obligations and duties of the Employer to the
extent provided herein.
E. It is the intention of the Employer and the Executive that,
notwithstanding the date of execution hereof, the Prior Agreement shall be
terminated and this Agreement shall become effective as of July 1, 1999.
NOW, THEREFORE, in consideration of the premises and of the covenants
and agreements hereinafter contained, it is covenanted and agreed by and between
the parties hereto as follows:
AGREEMENTS
1. TERMINATION OF PRIOR AGREEMENT. The Prior Agreement is hereby
terminated and this Agreement shall become effective as of July 1, 1999 (the
"Effective Date").
2. POSITION AND DUTIES. As of the Effective Date, the Employer hereby
employs the Executive as the President of the Employer, or in such other
capacity as shall be
<PAGE>
mutually agreed between the Employer and the Executive. During the period of the
Executive's employment hereunder, the Executive shall devote his best efforts
and full business time, energy, skills and attention to the business and affairs
of the Employer. The Executive's duties and authority shall consist of and
include all duties and authority customarily performed and held by persons
holding equivalent positions with business organizations similar in nature and
size to the Employer, as such duties and authority are reasonably defined,
modified and delegated from time to time by the Board of Directors of the
Employer (the "Board"). The Executive shall have the powers necessary to perform
the duties assigned to him, and shall be provided such supporting services,
staff, secretarial and other assistance, office space and accouterments as shall
be reasonably necessary and appropriate in the light of such assigned duties.
3. COMPENSATION. As compensation for the services to be provided by the
Executive hereunder, the Executive shall receive the following compensation and
other benefits:
(a) BASE SALARY. The Executive shall receive an aggregate
annual minimum "Base Salary" at the annualized rate of One Hundred Thirty-Eight
Thousand Dollars ($138,000) per annum, payable in periodic installments in
accordance with the regular payroll practices of the Employer. Such Base Salary
shall be subject to review annually by the Board and Compensation Committee of
COPT ("Compensation Committee") during the term hereof, in accordance with the
established compensation policies of the Compensation Committee.
(b) PERFORMANCE BONUS. The Executive shall be entitled to an
annual cash "Performance Bonus," payable within ninety (90) days after the end
of the fiscal year of the Employer the amount (if any) of which shall be
determined by the Board based upon the recommendation of the Compensation
Committee.
(c) STOCK OPTION/RESTRICTED SHARES. Executive shall be
entitled to stock options and/or restricted shares as determined by the
Compensation Committee and the Board.
(d) BENEFITS. The Executive shall be entitled to all
perquisites extended to similarly situated executives, as such are stated in the
Employer's Executive Perquisite Policy (the "Perquisite Policy") promulgated for
the Board or the Compensation Committee, and which Perquisite Policy is hereby
incorporated by reference, as amended by the Board or the Compensation Committee
from time to time. In addition, the Executive shall be entitled to participate
in all plans and benefits generally, from time to time, accorded to employees of
the Employer ("Benefit Plans"), all as determined by the Board from time to time
based upon the input of the Compensation Committee. Executive shall also receive
additional benefits as follows:
(i) a seven hundred fifty dollar ($750.00) per month
automobile allowance; and
(ii) the Employer shall pay to the Executive 25% of
the amount includible in income of the Executive upon the
vesting of restricted shares granted to the Executive, plus
25% of all taxes with respect to such grossing up amount.
2
<PAGE>
(e) WITHHOLDING. The Employer shall be entitled to withhold,
from amounts payable to the Executive hereunder, any federal, state or local
withholding or other taxes or charges which it is from time to time required to
withhold. The Employer shall be entitled to rely upon the opinion of its
independent accountants, with regard to any question concerning the amount or
requirement of any such withholding.
4. TERM AND TERMINATION.
(a) BASIC TERM. The Executive's employment hereunder shall be
for a continuous and self-renewing three (3) year term, commencing as of the
Effective Date, unless terminated by either party, with or without cause,
effective as of the first (1st) business day after written notice to that effect
is delivered to the other party.
(b) PREMATURE TERMINATION.
(i) In the event of the termination of the employment
of the Executive under this Agreement by the Employer for any
reason other than expiration of the term hereof, termination
upon disability in accordance with the provisions of paragraph
(f) of this Section 4, or a "for-cause" termination in
accordance with the provisions of paragraph (d) of this
Section 4, then notwithstanding any actual or allegedly
available alternative employment or other mitigation of
damages by or available to the Executive, the Executive shall
be entitled to a "Termination Payment" equal to the sum of:
(w) three (3) times the rate of annualized Bonus Salary then
payable to the Executive; plus (x) three (3) times the average
of the three (3) most recent annual Performance Bonuses that
the Executive received; provided, however, that if the
Executive has been employed by the Employer for fewer than 3
years, then the amount set forth in (x), above, shall be equal
to three (3) times the average of the annual Performance
Bonuses that the Executive theretofore received from the
Employer. For purposes of calculating the Termination Payment
amounts due, the Executive's employment with the Employer
shall be agreed to have commenced on July 1, 1999. In the
event of a termination governed by this subparagraph (b) of
Section 4, the Employer shall also: (y) allow a period of
eighteen (18) months following the termination of employment
for the Executive (but in no event beyond the expiration of
any option term or period specified in the option agreement
with the Executive) to exercise any options granted under any
stock option or share incentive plan established by Employer
or COPT ("Stock Plan"); and (z) continue for the Executive
(provided that such items are not available to him by virtue
of other employment secured after termination) the
perquisites, plans and benefits provided under the Employer's
Perquisite Policy and Benefit Plans as of and after the date
of termination, [all items in (z) being collectively referred
to as "Post-Termination Perquisites and Benefits"], for the
lesser of the number of full months the Executive has
theretofore been employed by the Employer (but not less than
twelve (12) months)or twenty four (24) months following such
termination. The payments and benefits provided under (w),
(x), (y) and (z) above
3
<PAGE>
by the Employer shall not be offset against or diminish any
other compensation or benefits accrued as of the date of
termination.
(ii) Notwithstanding the vesting schedule otherwise
applicable, in the event of a termination governed by this
subparagraph (b) of Section 4, the Executive shall be fully
vested in all of the Executive's options and restricted shares
under any Stock Plan or similar program.
(iii) Any cash payments to the Executive under this
Section 4(b) will be made monthly over twelve (12) months,
unless otherwise mutually agreed by the parties to minimize
the Executives' tax burden in any year.
(c) CONSTRUCTIVE TERMINATION. If at any time during the term
of this Agreement, except in connection with a "for-cause" termination pursuant
to paragraph (d) of this Section 4, the Executive is Constructively Discharged
(as hereinafter defined), then the Executive shall have the right, by written
notice to the Employer given within one hundred and twenty (120) days of such
Constructive Discharge, to terminate his services hereunder, effective as of
thirty (30) days after such notice, and the Executive shall have no rights or
obligations under this Agreement other than as provided in Sections 5 and 6
hereof. The Executive shall in such event be entitled to a Termination Payment
of Base Salary and Performance Bonus compensation as well as all of the
Post-Termination Perquisites and Benefits, as if such termination of his
employment had been effectuated pursuant to paragraph (b) of this Section 4.
For purposes of this Agreement, the Executive shall be deemed
to have been "Constructively Discharged" upon the occurrence of any one of the
following events:
(i) The Executive is not re-elected to, or is removed
from, the position with the Employer as set forth in Section 2
hereof, other than as a result of the Executive's election or
appointment to positions of equal or superior scope and
responsibility; or
(ii) The Executive shall fail to be vested by the
Employer with the powers, authority and support services
normally attendant to any of said offices; or
(iii) The Employer shall notify the Executive that
the employment of the Executive will be terminated or
materially modified in the future or that the Executive will
be Constructively Discharged in the future; or
(iv) The Employer changes the primary employment
location of the Executive to a place that is more than fifty
(50) miles from the primary employment location, 8815 Centre
Park Drive, Columbia, Maryland 21045, as of the Effective Date
of this Agreement; or
(v) The Employer otherwise commits a material breach
of its obligations under this Agreement.
4
<PAGE>
(d) TERMINATION FOR CAUSE. The employment of the Executive and
this Agreement may be terminated "for-cause" as hereinafter defined. Termination
"for- cause" shall mean the termination of employment on the basis or as a
result of (i) a material violation by the Executive of any applicable material
law or regulation respecting the business of the Employer; (ii) the Executive
being found guilty of, or being publicly associated with, to the Employer's
detriment, a felony or an act of dishonesty in connection with the performance
of his duties as an officer of the Employer, or the Executive's commission of an
act which in the opinion of a reasonable third party disqualifies the Executive
from serving as an officer or director of the Employer; or (iii) the willful or
negligent failure of the Executive to perform his duties hereunder in any
material respect. The Executive shall be entitled to at least thirty (30) days'
prior written notice of the Employer's intention to terminate his employment for
any cause (except the Executive's death), specifying the grounds for such
termination, affording the Executive a reasonable opportunity to cure any
conduct or act (if curable) alleged as grounds for such termination, and a
reasonable opportunity to present to the Board his position regarding any
dispute relating to the existence of such cause. In the event the Employer
terminates the Executive's employment "for cause" the Executive shall be
entitled only to the Base Salary through the date of the termination of the
Executive's employment "for cause" and any other additional benefit in
accordance with applicable plans, programs or agreements with the Employer.
(e) TERMINATION UPON DEATH. In the event payments are due and
owing under this Agreement at the death of the Executive, such payments shall be
made to such beneficiary, designee or fiduciary as Executive may have designated
in writing, or failing such designation, to the executor or administrator of his
estate, in full settlement and satisfaction of all claims and demands on behalf
of the Executive. Such payments shall be in addition to any other death benefits
of the Employer made available for the benefit of the Executive, and in full
settlement and satisfaction of all payments provided for in this Agreement.
Notwithstanding the vesting schedule otherwise applicable in the event of a
termination governed by this subparagraph (e) of Section 4, all of options and
restricted shares granted to the Executive under any Stock Plan or similar
program shall be fully vested.
(f) TERMINATION UPON DISABILITY. The Employer may terminate
the Executive's employment after the Executive is determined to be disabled
under the long-term disability program of the Employer then covering the
Executive or by a physician engaged by the Employer and reasonably approved by
the Executive. In the event of a dispute regarding the Executive's "disability,"
such dispute shall be resolved through arbitration as provided in paragraph (d)
of Section 11 hereof, except that the arbitrator appointed by the American
Arbitration Association shall be a duly licensed medical doctor. The Executive
shall be entitled to the compensation and benefits provided for under this
Agreement during any period of incapacitation occurring during the term of this
Agreement, and occurring prior to the establishment of the Executive's
"disability" during which the Executive is unable to work due to a physical or
mental infirmity. Notwithstanding anything contained in this Agreement to the
contrary, until the date specified in a notice of termination relating to the
Executive's disability, the Executive shall be entitled to return to his
positions with the Employer as set forth in this Agreement, in which event no
disability of the Executive will be deemed to have occurred.
5
<PAGE>
Notwithstanding the vesting schedule otherwise applicable, in the event of a
termination governed by this subparagraph (f) of Section 4, the Executive shall
be fully vested in all of the Executive's options and restricted shares under
any Stock Plan or similar program.
(g) TERMINATION UPON CHANGE OF CONTROL.
(i) In the event of a Change in Control (as defined
below) and the termination of the Executive's employment by
Executive or by the Employer under either 1 or 2 below, the
Executive shall be entitled to a Termination Payment equal to
the sum of (w) three (3) times the rate of annualized Base
Salary then payable to the Executive, plus (x) three (3) times
the average of the three (3) most recent annual Performance
Bonuses that the Executive received; provided, however, that
if the Executive has been employed by the Employer for fewer
than three (3) years, than the amount set forth in (x), above
shall be equal to three (3) times the average of the annual
Performance Bonuses that the Executive has theretofore
received from the Employer. The Employer shall also continue
for the Executive the Post-Termination Perquisites and
Benefits for the same period and to the same extent as
provided in paragraph (b) of this Section 4; provided,
however, that notwithstanding the vesting schedule otherwise
applicable, immediately following a Change in Control (whether
or not the Executive's employment is terminated), the
Executive shall be fully vested in all of Executive's options
and restricted shares outstanding under any Stock Plan or
similar program and shall be allowed a period of eighteen (18)
months following the termination of employment of the
Executive for the Executive's exercise of such options. The
following shall constitute termination under this paragraph:
1 . The Executive terminates his employment under
this Agreement pursuant to a written notice to that effect
delivered to the Board within six (6) months after the
occurrence of the Change in Control.
2. Executive's employment is terminated, including
Constructively Discharged, by the Employer or its successor
either in contemplation of or after Change in Control, other
than on a for-cause basis.
(ii) For purposes of this paragraph, the term "Change in
Control" shall mean the following occurring after the date of this
Agreement:
1. The consummation of the acquisition by any person
(as such term is defined in Section 13(d) or 14(d) of the
Securities Exchange Act of 1934, as amended (the " 1934 Act")
of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the 1934 Act) of fifty percent (50%) or more
of the combined voting power embodied in the then-outstanding
voting securities of COPT or the Employer; or
2. Approval by the stockholders of COPT or the
Employer of: (1) a merger or consolidation of COPT or the
Employer, if the stockholders of COPT
6
<PAGE>
or the Employer immediately before such merger or
consolidation do not, as a result of such merger or
consolidation, own, directly or indirectly, more than fifty
percent (50%) of the combined voting power of the then
outstanding voting securities of the entity resulting from
such merger or consolidation in substantially the same
proportion as was represented by their ownership of the
combined voting power of the voting securities of COPT or the
Employer outstanding immediately before such merger or
consolidation; or (2) a complete or substantial liquidation or
dissolution, or an agreement for the sale or other
disposition, of all or substantially all of the assets of COPT
or the Employer.
Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur solely because fifty percent (50%) or more of the combined voting
then-outstanding securities is acquired by: (1) a trustee or other fiduciary
holding securities under one or more employee benefit plans maintained for
employees of the entity; or (2) any corporation or other entity which,
immediately prior to such acquisition, is owned directly or indirectly by the
stockholders of COPT or the Employer in the same proportion as their ownership
of stock in COPT or the Employer immediately prior to such acquisition.
(iii) If it is determined, in the opinion of the
Employer's independent accountants, in consultation with the
Employer's independent counsel, that any amount payable to the
Executive by the Employer under this Agreement, or any other
plan or agreement under which the Executive participates or is
a party, would constitute an "Excess Parachute Payment" within
the meaning of Section 280G of the Internal Revenue Code of
1986, as amended (the "Code") and be subject to the excise tax
imposed by Section 4999 of the Code (the "Excise Tax"), the
Employer shall pay to the Executive a "grossing-up" amount
equal to the amount of such Excise Tax and all federal and
state income or other taxes with respect to payment of the
amount of such Excise Tax, including all such taxes with
respect to any such grossing-up amount. If at a later date,
the Internal Revenue Service assesses a deficiency against the
Executive for the Excise Tax which is greater than that which
was determined at the time such amounts were paid, the
Employer shall pay to the Executive the amount of such
unreimbursed Excise Tax plus any interest, penalties and
professional fees or expenses, incurred by the Executive as a
result of such assessment, including all such taxes with
respect to any such additional amount. The highest marginal
tax rate applicable to individuals at the time of payment of
such amounts will be used for purposes of determining the
federal and state income and other taxes with respect thereto.
The Employer shall withhold from any amounts paid under this
Agreement the amount of any Excise Tax or other federal, state
or local taxes then required to be withheld. Computations of
the amount of any grossing-up supplemental compensation paid
under this subparagraph shall be made by the Employer's
independent accountants, in consultation with the Employer's
independent legal counsel. The Employer shall pay all
accountant and legal counsel fees and expenses.
7
<PAGE>
(h) VOLUNTARY TERMINATION. In the event of a termination of
employment by the Executive on his own initiative, other than a termination due
to death, disability or a Constructive Discharge, the Executive shall have the
same entitlements as provided in paragraph (d) of this Section 4 for a
termination "for-cause."
5. CONFIDENTIALITY AND LOYALTY. The Executive acknowledges that
heretofore or hereafter during the course of his employment he has produced and
received, and may hereafter produce, receive and otherwise have access to
various materials, records, data, trade secrets and information not generally
available to the public (collectively, "Confidential Information") regarding the
Employer and its subsidiaries and affiliates. Accordingly, during and subsequent
to termination of this Agreement, the Executive shall hold in confidence and not
directly or indirectly disclose, use, copy or make lists of any such
Confidential Information, except to the extent that such information is or
thereafter becomes lawfully available from public sources, or such disclosure is
authorized in writing by the Employer, required by law or by any competent
administrative agency or judicial authority, or otherwise as reasonably
necessary or appropriate in connection with the performance by the Executive of
his duties hereunder. All records, files, documents, computer diskettes,
computer programs and other computer-generated material, as well as all other
materials or copies thereof relating to the Employer's business, which the
Executive shall prepare or use, shall be and remain the sole property of the
Employer, shall not be removed from the Employer's premises without its written
consent, and shall be promptly returned to the Employer upon termination of the
Executive's employment hereunder. The Executive agrees to abide by the
Employer's reasonable policies, as in effect from time to time, respecting
confidentiality and the avoidance of interests conflicting with those of the
Employer.
6. NON-COMPETITION COVENANT.
(a) RESTRICTIVE COVENANT. The Employer and the Executive have
jointly reviewed the tenant lists, property submittals, logs, broker lists, and
operations of the Employer, and have agreed that as an essential ingredient of
and in consideration of this Agreement and the payment of the amounts described
in Sections 3 and 4 hereof, the Executive hereby agrees that, except with the
express prior written consent of the Employer, for a period equal to the lesser
of the number of FULL months the Executive has at any time been employed by the
Employer or twenty-four (24) months after the termination of the Executive's
employment with the Employer (the "Restrictive Period"), he will not directly or
indirectly compete with the business of the Employer, including, but not by way
of limitation, by directly or indirectly owning, managing, operating,
controlling, financing, or by directly or indirectly serving as an employee,
officer or director of or consultant to, or by soliciting or inducing, or
attempting to solicit or induce, any employee or agent of Employer to terminate
employment with Employer and become employed by any person, firm, partnership,
corporation, trust or other entity which owns or operates a business similar to
that of the Employer (the "Restrictive Covenant"). For purposes of this
subparagraph (a), a business shall be considered "similar" to that of the
Employer if it is engaged in the acquisition, development, ownership, operation,
management or leasing of suburban office property (i) in any geographic market
or submarket in which the Employer owns more than 750,000 s.f. of properties
either as of the date hereof or as of the date of termination of the Executive's
employment. If the Executive violates the Restrictive Covenant
8
<PAGE>
and the Employer brings legal action for injunctive or other relief, the
Employer shall not, as a result of the time involved in obtaining such relief,
be deprived of the benefit of the FULL period of the Restrictive Covenant.
Accordingly, the Restrictive Covenant shall be deemed to have the duration
specified in this paragraph (a) computed from the date the relief is granted but
reduced by the time between the period when the Restrictive Period began to run
and the date of the first violation of the Restrictive Covenant by the
Executive. In the event that a successor of the Employer assumes and agrees to
perform this Agreement or otherwise acquires the Employer, this Restrictive
Covenant shall continue to apply only to the primary service area of the
Employer as it existed immediately before such assumption or acquisition and
shall not apply to any of the successor's other offices or markets. The
foregoing Restrictive Covenant shall not prohibit the Executive from owning,
directly or indirectly, capital stock or similar securities which are listed on
a securities exchange or quoted on the National Association of Securities
Dealers Automated Quotation System which do not represent more than five percent
(5%) of the outstanding capital stock of any corporation.
(b) REMEDIES FOR BREACH OF RESTRICTIVE COVENANT. The Executive
acknowledges that the restrictions contained in Sections 5 and 6 of this
Agreement are reasonable and necessary for the protection of the legitimate
proprietary business interests of the Employer; that any violation of these
restrictions would cause substantial injury to the Employer and such interests;
that the Employer would not have entered into this Agreement with the Executive
without receiving the additional consideration offered by the Executive in
binding himself to these restrictions; and that such restrictions were a
material inducement to the Employer to enter into this Agreement. In the event
of any violation or threatened violation of these restrictions, the Employer
shall be relieved of any further obligations under this Agreement, shall be
entitled to any rights, remedies or damages available at law, in equity or
otherwise under this Agreement, and shall be entitled to preliminary and
temporary injunctive relief granted by a court of competent jurisdiction to
prevent or restrain any such violation by the Executive and any and all persons
directly or indirectly acting for or with him, as the case may be, while
awaiting the decision of the arbitrator selected in accordance with paragraph
(d) of Section 11 of this Agreement, which decision, if rendered adverse to the
Executive, may include permanent injunctive relief to be granted by the court.
7. INTERCORPORATE TRANSFERS. If the Executive shall be voluntarily
transferred to an affiliate of the Employer, such transfer shall not be deemed
to terminate or modify this Agreement, and the employing corporation to which
the Executive shall have been transferred shall, for all purposes of this
Agreement, be construed as standing in the same place and stead as the Employer
as of the date of such transfer. For purposes hereof, an affiliate of the
Employer shall mean any corporation or other entity directly or indirectly
controlling, controlled by, or under common control with the Employer. The
Employer shall be secondarily liable to the Executive for the obligations
hereunder in the event the affiliate of the Employer cannot or refuses to honor
such obligations. For all relevant purposes hereof, the tenure of the Executive
shall be deemed to include the aggregate term of his employment by the Employer
or its affiliate.
8. INTEREST IN ASSETS. Neither the Executive nor his estate shall
acquire hereunder any rights in funds or assets of the Employer, otherwise than
by and through the actual payment of amounts payable hereunder; nor shall the
Executive or his estate have any power to
9
<PAGE>
transfer, assign (except into a trust for purposes of estate planning),
anticipate, hypothecate or otherwise encumber in advance any of said payments;
nor shall any of such payments be subject to seizure for the payment of any
debt, judgment, alimony, separate maintenance or be transferable by operation of
law in the event of bankruptcy, insolvency or otherwise of the Executive.
9. INDEMNIFICATION.
(a) The Employer shall provide the Executive (including his
heirs, personal representatives, executors and administrators), during the term
of this Agreement and thereafter throughout all applicable limitations periods,
with coverage under the Employer's then-current directors' and officers'
liability insurance policy, at the Employer's expense.
(b) In addition to the insurance coverage provided for in
paragraph (a) of this Section 9, the Employer shall defend, hold harmless and
indemnify the Executive (and his heirs, personal representatives, executors and
administrators) to the fullest extent permitted under applicable law, and
subject to the requirements, limitations and specifications set forth in the
Bylaws and other organizational documents of the Employer, against all expenses
and liabilities reasonably incurred by him in connection with or arising out of
any action, suit or proceeding in which he may be involved by reason of his
having been an officer of the Employer (whether or not he continues to be an
officer at the time of incurring such expenses or liabilities), such expenses
and liabilities to include, but not be limited to, judgments, court costs and
attorneys' fees and the cost of reasonable settlements.
(c) In the event the Executive becomes a party, or is
threatened to be made a party, to any action, suit or proceeding for which the
Employer has agreed to provide insurance coverage or indemnification under this
Section 9, the Employer shall, to the full extent permitted under applicable
law, advance all expenses (including the reasonable attorneys' fees of the
attorneys selected by Employer and approved by Executive for the representation
of the Executive), judgments, fines and amounts paid in settlement (collectively
"Expenses") incurred by the Executive in connection with the investigation,
defense, settlement, or appeal of any threatened, pending or completed action,
suit or proceeding, subject to receipt by the Employer of a written undertaking
from the Executive covenanting: (i) to reimburse the Employer for all Expenses
actually paid by the Employer to or on behalf of the Executive in the event it
shall be ultimately determined that the Executive is not entitled to
indemnification by the Employer for such Expenses; and (ii) to assign to the
Employer all rights of the Executive to insurance proceeds, under any policy of
directors' and officers' liability insurance or otherwise, to the extent of the
amount of Expenses actually paid by the Employer to or on behalf of the
Executive.
10. ASSUMPTION BY COPT. By its execution of this Agreement, COPT agrees
to be secondarily liable to the Executive, and shall assume the liabilities,
obligations and duties of the Employer as contained in this Agreement in the
event the Employer can not or refuses to honor such obligations.
10
<PAGE>
11. GENERAL PROVISIONS.
(a) SUCCESSORS; ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the Executive, the Employer and his and its
respective personal representatives, successors and assigns, and any successor
or assign of the Employer shall be deemed the "Employer" hereunder. The Employer
shall require any successor to all or substantially all of the business and/or
assets of the Employer, whether directly or indirectly, by purchase, merger,
consolidation, acquisition of stock, or otherwise, by an agreement in form and
substance satisfactory to the Executive, expressly to assume and agree to
perform this Agreement in the same manner and to the same extent as the Employer
would be required to perform if no such succession had taken place. No rights or
obligations of the Executive under this Agreement may be assigned or transferred
by the Executive other than his rights to compensation and benefits, which may
be transferred only by will or by operation of law.
(b) ENTIRE AGREEMENT; MODIFICATIONS. This Agreement
constitutes the entire agreement between the parties respecting the subject
matter hereof, and supersedes all prior negotiations, undertakings, agreements
and arrangements with respect thereto, whether written or oral. Except as
otherwise explicitly provided herein, this Agreement may not be amended or
modified except by written agreement signed by the Executive and the Employer.
(c) ENFORCEMENT AND GOVERNING LAW. The provisions of this
Agreement shall be regarded as divisible and separate; if any of said provisions
should be declared invalid or unenforceable by a court of competent
jurisdiction, the validity and enforceability of the remaining provisions shall
not be affected thereby. This Agreement shall be construed and the legal
relations of the parties hereto shall be determined in accordance with the laws
of the State of Maryland as it constitutes the situs of the corporation and the
employment hereunder, without reference to the law regarding conflicts of law.
(d) ARBITRATION. Except as provided in paragraph (b) of
Section 6, any dispute or controversy arising under or in connection with this
Agreement or the Executive's employment by the Employer shall be settled
exclusively by arbitration, conducted by a single arbitrator sitting in
Baltimore, MD in accordance with the rules of the American Arbitration
Association (the "AAA") then in effect. The arbitrator shall be selected by the
parties from a list of eleven (11) arbitrators provided by the AAA, provided
that no arbitrator shall be related to or affiliated with either of the parties.
No later than ten (10) days after the list of proposed arbitrators is received
by the parties, the parties, or their respective representatives, shall meet at
a mutually convenient location in Baltimore, Maryland, or telephonically. At
that meeting, the party who sought arbitration shall eliminate one (1) proposed
arbitrator and then the other party shall eliminate one (1) proposed arbitrator.
The parties shall continue to alternatively eliminate names from the list of
proposed arbitrators in this manner until each party has eliminated five (5)
proposed arbitrators. The remaining arbitrator shall arbitrate the dispute. Each
party shall submit, in writing, the specific requested action or decision it
wishes to take, or make, with respect to the matter in dispute, and the
arbitrator shall be obligated to choose one (1) party's specific requested
action or decision, without being permitted to effectuate any compromise or
"new" position; provided, however, that the arbitrator is authorized to award
amounts not in dispute during the pendency of any dispute or controversy arising
under or in connection with this Agreement. The
11
<PAGE>
Employer shall bear the cost of all counsel, experts or other representatives
that are retained by both parties, together with all costs of the arbitration
proceeding, including, without limitation, the fees, costs and expenses imposed
or incurred by the arbitrator. Judgment may be entered on the arbitrator's award
in any court having jurisdiction; including, if applicable, entry of a permanent
injunction under paragraph (b) of Section 6.
(e) PRESS RELEASES AND PUBLIC DISCLOSURE. Any press release or
other public communication by either the Executive or the Employer with any
other person concerning the terms, conditions or circumstances of Executive's
employment, or the termination of such employment, shall be subject to prior
written approval of both the Executive and the Employer, subject to the proviso
that the Employer shall be entitled to make requisite and appropriate public
disclosure of the terms of this Agreement, without the Executive's consent or
approval, as required under applicable statutes, and the rules and regulations
of the Securities and Exchange Commission and the Stock Exchange on which the
shares of Employer may from time to time be listed.
(f) WAIVER. No waiver by either party at any time of any
breach by the other party of, or compliance with, any condition or provision of
this Agreement to be performed by the other party, shall be deemed a waiver of
any similar or dissimilar provisions or conditions at the same time or any prior
or subsequent time.
(g) NOTICES. Notices given pursuant to this Agreement shall be
in writing, and shall be deemed given when received, and, if mailed, shall be
mailed by United States registered or certified mail, return receipt requested,
postage prepaid. Notices to the Employer shall be addressed to the principal
headquarters of the Employer, Attention: Chairman. Notices to the Executive
shall be sent to the address set forth below the Executive's signature on this
Agreement, or to such other address as the party to be notified shall have given
to the other.
12
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
"Employer" "Executive"
Corporate Realty Management, LLC, a
Maryland limited liability company
By: /s/ Randall M. Griffin /s/ Michael D. Kaiser
--------------------------------- -------------------------------------
Randall M. Griffin, CHRM Michael D. Kaiser
Corporate Office Properties Trust, a Maryland
business trust
By: /s/ Clay W. Hamlin, III
--------------------------------
Clay W. Hamlin, III, CEO
13
<PAGE>
Exhibit 10.6
[1999 GRANT]
RESTRICTED SHARE AGREEMENT
AGREEMENT made as of the 16th day of December, 1999, between Corporate Office
Properties Trust, a Maryland business trust (the "Company"), and Randall M.
Griffin ("Employee").
1. AWARD.
(a) SHARES. Pursuant to the Corporate Office Properties Trust 1998 Long Term
Incentive Plan (the "Plan"), 300,000 common shares (the "Restricted Shares") of
beneficial interest, $0.01 par value per share, of the Company, shall be issued
as hereinafter provided in Employee's name subject to certain restrictions
thereon. The date of this award shall be December 16, 1999 (the "Grant Date").
(b) ISSUANCE OF RESTRICTED SHARES. The Restricted Shares shall be issued upon
acceptance hereof by Employee and upon satisfaction of the conditions of this
Agreement.
(c) PLAN INCORPORATED. Employee acknowledges receipt of a copy of the Plan, and
agrees that this award of Restricted Shares shall be subject to all of the terms
and conditions set forth in the Plan, including future amendments thereto, if
any, pursuant to the terms thereof, which Plan is incorporated herein by
reference as a part of this Agreement.
2. RESTRICTED SHARES. Employee hereby accepts the Restricted Shares when issued
and agrees with respect thereto as follows:
(a) FORFEITURE RESTRICTIONS. The Restricted Shares shall be subject to the
Forfeiture Restrictions (as hereinafter defined) from the date of this Agreement
through December 31, 2004 (the "Restricted Period"). The Restricted Shares may
not be sold, assigned, pledged, exchanged, hypothecated or otherwise
transferred, encumbered or disposed of during the Restricted Period to the
extent then subject to the Forfeiture Restrictions. To the extent the
Forfeitures Restrictions have not lapsed at the end of the Restricted Period as
provided in subparagraph (b) of this Paragraph 2, Employee shall, for no
consideration, forfeit to the Company all Restricted Shares to the extent then
subject to the Forfeiture Restrictions. The prohibition against transfer and the
obligation for forfeit and surrender Restricted Shares to the Company are herein
referred to as "Forfeiture Restrictions." The Forfeiture Restrictions shall be
binding upon and enforceable against any transferee of Restricted Shares.
(b) LAPSE OF FORFEITURE RESTRICTIONS. The Forfeiture Restrictions shall lapse as
to the Restricted Shares in accordance with the following schedule provided that
Employee has
<PAGE>
been continuously employed by the Company or a Subsidiary or Affiliate from the
date of this Agreement through the lapse date. On January 1, 2000 the Forfeiture
Restrictions shall lapse as to 15,625 Restricted Shares without regard to any
performance criteria. Thereafter, Forfeiture Restrictions shall lapse according
to the following schedule provided that annual performance targets are achieved:
<TABLE>
<CAPTION>
Total
Number of Restricted
Shares as to Which
Year Forfeiture Restrictions Lapse
---- -----------------------------
<S> <C>
2000 29,924
2001 44,901
2002 44,901
2003 74,836
2004 89,803
</TABLE>
For the purpose of the foregoing, annual performance targets will be achieved
only upon the Company's achievement of at least an annual 10% year over year
growth in Funds from Operations (FFO) or an annual 15% total shareholder return.
Annual growth in FFO and annual shareholder return shall be cumulative over the
Restricted Period such that performance goals will be considered achieved for
any year during the Restricted Period if the annual growth in FFO or annual
shareholder return in such year meets the annual targets after taking into
account the annual growth in FFO or annual shareholder return in any prior or
subsequent year during the Restricted Period. An example of the manner in which
the foregoing performance standards are intended to operate is attached hereto
as Exhibit A. To the extent annual performance targets are not achieved by the
end of the Restricted Period, the Employee shall forfeit to the Company the
Restricted Shares for which the Forfeiture Restrictions have not lapsed by that
date.
Notwithstanding the foregoing, the Forfeiture Restrictions shall lapse as to all
of the Restricted Shares on the earlier of (i) the occurrence of a Change of
Control (as such term is defined in the Plan), or (ii) the date Employee's
employment with the Company, its Subsidiaries and Affiliates is terminated for
any reason other than a termination by the Employee's employer for "Cause" or a
voluntary termination by the Employee. In the event Employee's employment is
terminated for any reason, the Compensation Committee of the Board (the
"Committee"), may, in the Committee's sole discretion, approve the lapse of
Forfeiture Restrictions as to any or all Restricted Shares still subject to such
restrictions, such lapse to be effective on the date of such approval or
Employee's termination date, if later.
To the extent that any Restricted Shares are vested solely as a result of the
Employee's termination of employment pursuant to the foregoing, such shares
shall be subject to a right of first refusal in favor of the Company with
respect to all (but not less than all) of such shares in the event the Employee
proposes to sell or otherwise transfer such shares to any other person. The
Employee shall notify the Company prior to any such transfer
2
<PAGE>
(and in the absence of such prior notice any such transfer shall be void). The
Company's right of repurchase shall be exercisable with respect to such shares
within the thirty (30) day period following the date the Employee gives notice
to the Company of the proposed transfer. The purchase price of the shares
repurchased by the Company hereunder shall be "Fair Market Value" (as defined in
the Plan). If the Company exercises its right of first refusal, the sale shall
be consummated within five (5) days of the date the Company elects to exercise
its right.
(c) DIVIDENDS AND VOTING RIGHTS. The Employee shall be entitled to receive any
dividends paid with respect to shares of Restricted Shares that become payable
during the Restricted Period; provided however, that no dividends shall be
payable to or for the benefit of the Employee with respect to record dates
occurring prior to the Grant Date, or with respect to record dates occurring on
or after the date, if any, on which the Employee has forfeited the Restricted
Shares. The Employee shall be entitled to vote the Restricted Shares during the
Restricted Period to the same extent as would have been applicable to the
Employee if the Employee was then vested in the shares; provided, however, that
the Employee shall not be entitled to vote the shares with respect to record
dates for such voting rights arising prior to the Grant Date, or with respect to
record dates occurring on or after the date, if any, on which the Employee has
forfeited the Restricted Shares.
(d) CERTIFICATES. A certificate evidencing the Restricted Shares shall be issued
by the Company in Employee's name, or at the option of the Company, in the name
of a nominee of the Company, pursuant to which Employee shall have voting rights
and shall be entitled to receive all dividends as hereinabove stated unless and
until the Restricted Shares are forfeited pursuant to the provisions of this
Agreement. The certificate shall bear a legend evidencing the nature of the
Restricted Shares, and the Company may cause the certificate to be delivered
upon issuance to the Secretary of the Company or to such other depository as may
be designated by the Company as depository for safekeeping until the forfeiture
occurs or the Forfeiture Restrictions lapse pursuant to the terms of the Plan
and this award. Upon request of the Committee or its delegate, Employee shall
deliver to the Company a stock power, endorsed in blank, relating to the
Restricted Shares then subject to the Forfeiture Restrictions. Upon the lapse of
the Forfeiture Restrictions without forfeiture, the Company shall cause a new
certificate or certificates to be issued without legend in the name of Employee
for the shares upon which forfeiture Restrictions lapsed. Notwithstanding any
other provisions of this Agreement, the issuance or delivery of any shares of
Stock (whether subject to restrictions or unrestricted) may be postponed for
such period as may be required to comply with applicable requirements of any
national securities exchange or any requirements under any law or regulation
applicable to the issuance or delivery of such shares. The Company shall not be
obligated to issue or deliver any shares of Stock if the issuance or delivery
thereof shall constitute a violation of any provision of any law or of any
regulation of any governmental authority or any national securities exchange.
3. WITHHOLDING OF TAX. To the extent that the receipt of the Restricted Shares
or the lapse of any Forfeiture Restrictions results in income to Employee for
federal or state income tax purposes, Employee shall deliver to the Company at
the time of such receipt
3
<PAGE>
or lapse, as the case may be, such amount of money or shares of unrestricted
Shares as the Company may require to meet its withholding obligation under
applicable tax laws or regulations, and, if Employee fails to do so, the Company
is authorized to withhold from any cash or Share remuneration then or thereafter
payable to Employee any tax required to be withheld by reason of such resulting
compensation income.
4. STATUS OF SHARES. Employee agrees that the Restricted Shares will not be sold
or otherwise disposed of in any manner which could constitute a violation of any
applicable federal or state securities laws. Employee also agrees (i) that the
certificates representing the Restricted Shares may bear such legend or legends
as the Company deems appropriate in order to assure compliance with applicable
securities laws, (ii) that the Company may refuse to register the transfer of
the Restricted Shares on the share transfer records of the Company if such
proposed transfer would be in the opinion of counsel satisfactory to the Company
constitute a violation of any applicable securities law and (iii) that the
Company may give related instructions to is transfer agent, if any, to stop
registration of the transfer of the Restricted Shares.
5. EMPLOYMENT RELATIONSHIP. For purposes of this Agreement, Employee shall be
considered to be in the employment of the Company as long as Employee remains an
employee of either the Company, any successor entity or a Subsidiary or
Affiliate as defined in the Plan) of the Company or any successor. Any question
as to whether and when there has been a termination of such employment, and the
cause of such termination, shall be determined by the Committee, or its
delegate, as appropriate, and its determination shall be final.
6. COMMITTEE'S POWERS. No provision contained in this Agreement shall in any way
terminate, modify or alter, or be construed or interpreted as terminating,
modifying or altering any of the powers, rights or authority vested in the
Committee or, to the extent delegated, in its delegate pursuant to the terms of
the Plan or resolutions adopted in furtherance of the Plan, including, without
limitation, the right to make certain determinations and elections with respect
to the Restricted Shares.
7. BINDING EFFECT. This Agreement shall be binding upon and inure to the benefit
of any successors to the Company and all persons lawfully claiming under
Employee.
8. GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Maryland.
4
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed by
an officer thereunto duly authorized, and Employee has executed this Agreement,
all as of the date first above written.
EMPLOYEE CORPORATE OFFICE
PROPERTIES TRUST
/s/ Randall M. Griffin /s/ Illegible
- ------------------------------ By:---------------------------------
Randall M. Griffin
5
<PAGE>
EXHIBIT A
RESTRICTED SHARES
- - Year 2000 FFO increases by 11% but total shareholder return is 13% in which
case the year 2000 forfeiture restrictions lapse because the FFO target is
achieved.
- - Year 2001 FFO increases by 8% but total shareholder return is 20% in which
case the year 2001 forfeiture restrictions lapse because the total
shareholder return target is achieved with 20% and cumulatively exceeds 30%
(15%x2) even though annual and cumulative FFO target is not achieved.
- - Year 2002 FFO increases by 8% and total shareholder return is 7% in which
case the forfeiture restrictions do not lapse because neither the FFO or
total shareholder targets have cumulatively been achieved.
- - Year 2003 FFO increases by 16% and total shareholder return is 7% in which
case the forfeiture restrictions for both 2002 and 2003 lapse because the
FFO target has been achieved on a cumulative basis (43% versus 40% target).
- - Year 2004 FFO decreased 10% and total shareholder return decreased 5%.
Forfeiture restrictions for 2004 do not lapse because neither target is
achieved on a cumulative basis. However, there is no impact on the lapse of
the forfeiture restrictions for years prior to 2004.
6
<PAGE>
Exhibit 10.7
RESTRICTED SHARE AGREEMENT
AGREEMENT made as of the 16th day of December, 1999, between Corporate Office
Properties Trust, a Maryland business trust (the "Company"), and Roger A.
Waesche, Jr. ("Employee").
1. AWARD.
(a) SHARES. Pursuant to the Corporate Office Properties Trust 1998 Long Term
Incentive Plan (the "Plan"), 78,125 common shares (the "Restricted Shares") of
beneficial interest, $0.01 par value per share, of the Company, shall be issued
as hereinafter provided in Employee's name subject to certain restrictions
thereon. The date of this award shall be December 16, 1999 (the "Grant Date").
(b) ISSUANCE OF RESTRICTED SHARES. The Restricted Shares shall be issued upon
acceptance hereof by Employee and upon satisfaction of the conditions of this
Agreement.
(c) PLAN INCORPORATED. Employee acknowledges receipt of a copy of the Plan, and
agrees that this award of Restricted Shares shall be subject to all of the terms
and conditions set forth in the Plan, including future amendments thereto, if
any, pursuant to the terms thereof, which Plan is incorporated herein by
reference as a part of this Agreement.
2. RESTRICTED SHARES. Employee hereby accepts the Restricted Shares when issued
and agrees with respect thereto as follows:
(a) FORFEITURE RESTRICTIONS. The Restricted Shares shall be subject to the
Forfeiture Restrictions (as hereinafter defined) from the date of this Agreement
through December 31, 2004 (the "Restricted Period"). The Restricted Shares may
not be sold, assigned, pledged, exchanged, hypothecated or otherwise
transferred, encumbered or disposed of during the Restricted Period to the
extent then subject to the Forfeiture Restrictions. To the extent the
Forfeitures Restrictions have not lapsed at the end of the Restricted Period as
provided in subparagraph (b) of this Paragraph 2, Employee shall, for no
consideration, forfeit to the Company all Restricted Shares to the extent then
subject to the Forfeiture Restrictions. The prohibition against transfer and the
obligation for forfeit and surrender Restricted Shares to the Company are herein
referred to as "Forfeiture Restrictions." The Forfeiture Restrictions shall be
binding upon and enforceable against any transferee of Restricted Shares.
(b) LAPSE OF FORFEITURE RESTRICTIONS. The Forfeiture Restrictions shall lapse as
to the Restricted Shares in accordance with the following schedule provided that
Employee has been continuously employed by the Company or a Subsidiary or
Affiliate from the date of this Agreement through the lapse date. On January 1,
2000 the Forfeiture Restrictions shall lapse as to 5% of the Restricted Shares
without regard to any
<PAGE>
performance criteria. Thereafter, Forfeiture Restrictions shall lapse according
to the following schedule provided that annual performance targets are achieved:
<TABLE>
<CAPTION>
Percentage of Total
Number of Restricted
Shares as to Which
Year Forfeiture Restrictions Lapse
---- -----------------------------
<S> <C>
2000 10%
2001 15%
2002 15%
2003 25%
2004 30%
</TABLE>
For the purpose of the foregoing, annual performance targets will be achieved
only upon the Company's achievement of at least an annual 10% year over year
growth in Funds from Operations (FFO) or an annual 15% total shareholder return.
Annual growth in FFO and annual shareholder return shall be cumulative over the
Restricted Period such that performance goals will be considered achieved for
any year during the Restricted Period if the annual growth in FFO or annual
shareholder return in such year meets the annual targets after taking into
account the annual growth in FFO or annual shareholder return in any prior or
subsequent year during the Restricted Period. An example of the manner in which
the foregoing performance standards are intended to operate is attached hereto
as Exhibit A. To the extent annual performance targets are not achieved by the
end of the Restricted Period, the Employee shall forfeit to the Company the
Restricted Shares for which the Forfeiture Restrictions have not lapsed by that
date.
Notwithstanding the foregoing, the Forfeiture Restrictions shall lapse as to all
of the Restricted Shares on the earlier of (i) the occurrence of a Change of
Control (as such term is defined in the Plan), or (ii) the date Employee's
employment with the Company, its Subsidiaries and Affiliates is terminated for
any reason other than a termination by the Employee's employer for "Cause" or a
voluntary termination by the Employee. In the event Employee's employment is
terminated for any reason, the Compensation Committee of the Board (the
"Committee"), may, in the Committee's sole discretion, approve the lapse of
Forfeiture Restrictions as to any or all Restricted Shares still subject to such
restrictions, such lapse to be effective on the date of such approval or
Employee's termination date, if later.
To the extent that any Restricted Shares are vested solely as a result of the
Employee's termination of employment pursuant to the foregoing, such shares
shall be subject to a right of first refusal in favor of the Company with
respect to all (but not less than all) of such shares in the event the Employee
proposes to sell or otherwise transfer such shares to any other person. The
Employee shall notify the Company prior to any such transfer (and in the absence
of such prior notice any such transfer shall be void). The Company's right of
repurchase shall be exercisable with respect to such shares within the thirty
(30) day period following the date the Employee gives notice to the Company of
the proposed
2
<PAGE>
transfer. The purchase price of the shares repurchased by the Company hereunder
shall be "Fair Market Value" (as defined in the Plan). If the Company exercises
its right of first refusal, the sale shall be consummated within five (5) days
of the date the Company elects to exercise its right.
(c) DIVIDENDS AND VOTING RIGHTS. The Employee shall be entitled to receive any
dividends paid with respect to shares of Restricted Shares that become payable
during the Restricted Period; provided however, that no dividends shall be
payable to or for the benefit of the Employee with respect to record dates
occurring prior to the Grant Date, or with respect to record dates occurring on
or after the date, if any, on which the Employee has forfeited the Restricted
Shares. The Employee shall be entitled to vote the Restricted Shares during the
Restricted Period to the same extent as would have been applicable to the
Employee if the Employee was then vested in the shares; provided, however, that
the Employee shall not be entitled to vote the shares with respect to record
dates for such voting rights arising prior to the Grant Date, or with respect to
record dates occurring on or after the date, if any, on which the Employee has
forfeited the Restricted Shares.
(d) CERTIFICATES. A certificate evidencing the Restricted Shares shall be issued
by the Company in Employee's name, or at the option of the Company, in the name
of a nominee of the Company, pursuant to which Employee shall have voting rights
and shall be entitled to receive all dividends as hereinabove stated unless and
until the Restricted Shares are forfeited pursuant to the provisions of this
Agreement. The certificate shall bear a legend evidencing the nature of the
Restricted Shares, and the Company may cause the certificate to be delivered
upon issuance to the Secretary of the Company or to such other depository as may
be designated by the Company as depository for safekeeping until the forfeiture
occurs or the Forfeiture Restrictions lapse pursuant to the terms of the Plan
and this award. Upon request of the Committee or its delegate, Employee shall
deliver to the Company a stock power, endorsed in blank, relating to the
Restricted Shares then subject to the Forfeiture Restrictions. Upon the lapse of
the Forfeiture Restrictions without forfeiture, the Company shall cause a new
certificate or certificates to be issued without legend in the name of Employee
for the shares upon which forfeiture Restrictions lapsed. Notwithstanding any
other provisions of this Agreement, the issuance or delivery of any shares of
Stock (whether subject to restrictions or unrestricted) may be postponed for
such period as may be required to comply with applicable requirements of any
national securities exchange or any requirements under any law or regulation
applicable to the issuance or delivery of such shares. The Company shall not be
obligated to issue or deliver any shares of Stock if the issuance or delivery
thereof shall constitute a violation of any provision of any law or of any
regulation of any governmental authority or any national securities exchange.
3. WITHHOLDING OF TAX. To the extent that the receipt of the Restricted Shares
or the lapse of any Forfeiture Restrictions results in income to Employee for
federal or state income tax purposes, Employee shall deliver to the Company at
the time of such receipt or lapse, as the case may be, such amount of money or
shares of unrestricted Shares as the Company may require to meet its withholding
obligation under applicable tax laws or regulations, and, if Employee fails to
do so, the Company is authorized to withhold from
3
<PAGE>
any cash or Share remuneration then or thereafter payable to Employee any tax
required to be withheld by reason of such resulting compensation income.
4. STATUS OF SHARES. Employee agrees that the Restricted Shares will not be sold
or otherwise disposed of in any manner which could constitute a violation of any
applicable federal or state securities laws. Employee also agrees (i) that the
certificates representing the Restricted Shares may bear such legend or legends
as the Company deems appropriate in order to assure compliance with applicable
securities laws, (ii) that the Company may refuse to register the transfer of
the Restricted Shares on the share transfer records of the Company if such
proposed transfer would be in the opinion of counsel satisfactory to the Company
constitute a violation of any applicable securities law and (iii) that the
Company may give related instructions to is transfer agent, if any, to stop
registration of the transfer of the Restricted Shares.
5. EMPLOYMENT RELATIONSHIP. For purposes of this Agreement, Employee shall be
considered to be in the employment of the Company as long as Employee remains an
employee of either the Company, any successor entity or a Subsidiary or
Affiliate as defined in the Plan) of the Company or any successor. Any question
as to whether and when there has been a termination of such employment, and the
cause of such termination, shall be determined by the Committee, or its
delegate, as appropriate, and its determination shall be final.
6. COMMITTEE'S POWERS. No provision contained in this Agreement shall in any way
terminate, modify or alter, or be construed or interpreted as terminating,
modifying or altering any of the powers, rights or authority vested in the
Committee or, to the extent delegated, in its delegate pursuant to the terms of
the Plan or resolutions adopted in furtherance of the Plan, including, without
limitation, the right to make certain determinations and elections with respect
to the Restricted Shares.
7. BINDING EFFECT. This Agreement shall be binding upon and inure to the benefit
of any successors to the Company and all persons lawfully claiming under
Employee.
8. GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Maryland.
4
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed by
an officer thereunto duly authorized, and Employee has executed this Agreement,
all as of the date first above written.
EMPLOYEE CORPORATE OFFICE
PROPERTIES TRUST
/s/ Roger A. Waesche, Jr. /s/ Illegible
- ------------------------------ By:---------------------------------
Roger A. Waesche, Jr.
5
<PAGE>
EXHIBIT A
RESTRICTED SHARES
- - Year 2000 FFO increases by 11% but total shareholder return is 13% in which
case the year 2000 forfeiture restrictions lapse because the FFO target is
achieved.
- - Year 2001 FFO increases by 8% but total shareholder return is 20% in which
case the year 2001 forfeiture restrictions lapse because the total
shareholder return target is achieved with 20% and cumulatively exceeds 30%
(15%x2) even though annual and cumulative FFO target is not achieved.
- - Year 2002 FFO increases by 8% and total shareholder return is 7% in which
case the forfeiture restrictions do not lapse because neither the FFO or
total shareholder targets have cumulatively been achieved.
- - Year 2003 FFO increases by 16% and total shareholder return is 7% in which
case the forfeiture restrictions for both 2002 and 2003 lapse because the
FFO target has been achieved on a cumulative basis (43% versus 40% target).
- - Year 2004 FFO decreased 10% and total shareholder return decreased 5%.
Forfeiture restrictions for 2004 do not lapse because neither target is
achieved on a cumulative basis. However, there is no impact on the lapse of
the forfeiture restrictions for years prior to 2004.
6
<PAGE>
Exhibit 10.8
RESTRICTED SHARE AGREEMENT
AGREEMENT made as of the 16th day of December, 1999, between Corporate Office
Properties Trust, a Maryland business trust (the "Company"), and Dwight Taylor
("Employee").
1. AWARD.
(a) SHARES. Pursuant to the Corporate Office Properties Trust 1998 Long Term
Incentive Plan (the "Plan"), 43,750 common shares (the "Restricted Shares") of
beneficial interest, $0.01 par value per share, of the Company, shall be issued
as hereinafter provided in Employee's name subject to certain restrictions
thereon. The date of this award shall be December 16, 1999 (the "Grant Date").
(b) ISSUANCE OF RESTRICTED SHARES. The Restricted Shares shall be issued upon
acceptance hereof by Employee and upon satisfaction of the conditions of this
Agreement.
(c) PLAN INCORPORATED. Employee acknowledges receipt of a copy of the Plan, and
agrees that this award of Restricted Shares shall be subject to all of the terms
and conditions set forth in the Plan, including future amendments thereto, if
any, pursuant to the terms thereof, which Plan is incorporated herein by
reference as a part of this Agreement.
2. RESTRICTED SHARES. Employee hereby accepts the Restricted Shares when issued
and agrees with respect thereto as follows:
(a) FORFEITURE RESTRICTIONS. The Restricted Shares shall be subject to the
Forfeiture Restrictions (as hereinafter defined) from the date of this Agreement
through December 31, 2004 (the "Restricted Period"). The Restricted Shares may
not be sold, assigned, pledged, exchanged, hypothecated or otherwise
transferred, encumbered or disposed of during the Restricted Period to the
extent then subject to the Forfeiture Restrictions. To the extent the
Forfeitures Restrictions have not lapsed at the end of the Restricted Period as
provided in subparagraph (b) of this Paragraph 2, Employee shall, for no
consideration, forfeit to the Company all Restricted Shares to the extent then
subject to the Forfeiture Restrictions. The prohibition against transfer and the
obligation for forfeit and surrender Restricted Shares to the Company are herein
referred to as "Forfeiture Restrictions." The Forfeiture Restrictions shall be
binding upon and enforceable against any transferee of Restricted Shares.
(b) LAPSE OF FORFEITURE RESTRICTIONS. The Forfeiture Restrictions shall lapse as
to the Restricted Shares in accordance with the following schedule provided that
Employee has been continuously employed by the Company or a Subsidiary or
Affiliate from the date of this Agreement through the lapse date. On December
31, 1999 the Forfeiture Restrictions shall lapse as to 5% of the Restricted
Shares without regard to any
<PAGE>
performance criteria. Thereafter, Forfeiture Restrictions shall lapse according
to the following schedule provided that annual performance targets are achieved:
<TABLE>
<CAPTION>
Percentage of Total
Number of Restricted
Shares as to Which
Year Forfeiture Restrictions Lapse
---- -----------------------------
<S> <C>
2000 10%
2001 15%
2002 15%
2003 25%
2004 30%
</TABLE>
For the purpose of the foregoing, annual performance targets will be achieved
only upon the Company's achievement of at least an annual 10% year over year
growth in Funds from Operations (FFO) or an annual 15% total shareholder return.
Annual growth in FFO and annual shareholder return shall be cumulative over the
Restricted Period such that performance goals will be considered achieved for
any year during the Restricted Period if the annual growth in FFO or annual
shareholder return in such year meets the annual targets after taking into
account the annual growth in FFO or annual shareholder return in any prior or
subsequent year during the Restricted Period. An example of the manner in which
the foregoing performance standards are intended to operate is attached hereto
as Exhibit A. To the extent annual performance targets are not achieved by the
end of the Restricted Period, the Employee shall forfeit to the Company the
Restricted Shares for which the Forfeiture Restrictions have not lapsed by that
date.
Notwithstanding the foregoing, the Forfeiture Restrictions shall lapse as to all
of the Restricted Shares on the earlier of (i) the occurrence of a Change of
Control (as such term is defined in the Plan), or (ii) the date Employee's
employment with the Company, its Subsidiaries and Affiliates is terminated for
any reason other than a termination by the Employee's employer for "Cause" or a
voluntary termination by the Employee. In the event Employee's employment is
terminated for any reason, the Compensation Committee of the Board (the
"Committee"), may, in the Committee's sole discretion, approve the lapse of
Forfeiture Restrictions as to any or all Restricted Shares still subject to such
restrictions, such lapse to be effective on the date of such approval or
Employee's termination date, if later.
To the extent that any Restricted Shares are vested solely as a result of the
Employee's termination of employment pursuant to the foregoing, such shares
shall be subject to a right of first refusal in favor of the Company with
respect to all (but not less than all) of such shares in the event the Employee
proposes to sell or otherwise transfer such shares to any other person. The
Employee shall notify the Company prior to any such transfer (and in the absence
of such prior notice any such transfer shall be void). The Company's right of
repurchase shall be exercisable with respect to such shares within the thirty
(30) day period following the date the Employee gives notice to the Company of
the proposed
2
<PAGE>
transfer. The purchase price of the shares repurchased by the Company hereunder
shall be "Fair Market Value" (as defined in the Plan). If the Company exercises
its right of first refusal, the sale shall be consummated within five (5) days
of the date the Company elects to exercise its right.
(c) DIVIDENDS AND VOTING RIGHTS. The Employee shall be entitled to receive any
dividends paid with respect to shares of Restricted Shares that become payable
during the Restricted Period; provided however, that no dividends shall be
payable to or for the benefit of the Employee with respect to record dates
occurring prior to the Grant Date, or with respect to record dates occurring on
or after the date, if any, on which the Employee has forfeited the Restricted
Shares. The Employee shall be entitled to vote the Restricted Shares during the
Restricted Period to the same extent as would have been applicable to the
Employee if the Employee was then vested in the shares; provided, however, that
the Employee shall not be entitled to vote the shares with respect to record
dates for such voting rights arising prior to the Grant Date, or with respect to
record dates occurring on or after the date, if any, on which the Employee has
forfeited the Restricted Shares.
(d) CERTIFICATES. A certificate evidencing the Restricted Shares shall be issued
by the Company in Employee's name, or at the option of the Company, in the name
of a nominee of the Company, pursuant to which Employee shall have voting rights
and shall be entitled to receive all dividends as hereinabove stated unless and
until the Restricted Shares are forfeited pursuant to the provisions of this
Agreement. The certificate shall bear a legend evidencing the nature of the
Restricted Shares, and the Company may cause the certificate to be delivered
upon issuance to the Secretary of the Company or to such other depository as may
be designated by the Company as depository for safekeeping until the forfeiture
occurs or the Forfeiture Restrictions lapse pursuant to the terms of the Plan
and this award. Upon request of the Committee or its delegate, Employee shall
deliver to the Company a stock power, endorsed in blank, relating to the
Restricted Shares then subject to the Forfeiture Restrictions. Upon the lapse of
the Forfeiture Restrictions without forfeiture, the Company shall cause a new
certificate or certificates to be issued without legend in the name of Employee
for the shares upon which forfeiture Restrictions lapsed. Notwithstanding any
other provisions of this Agreement, the issuance or delivery of any shares of
Stock (whether subject to restrictions or unrestricted) may be postponed for
such period as may be required to comply with applicable requirements of any
national securities exchange or any requirements under any law or regulation
applicable to the issuance or delivery of such shares. The Company shall not be
obligated to issue or deliver any shares of Stock if the issuance or delivery
thereof shall constitute a violation of any provision of any law or of any
regulation of any governmental authority or any national securities exchange.
3. WITHHOLDING OF TAX. To the extent that the receipt of the Restricted Shares
or the lapse of any Forfeiture Restrictions results in income to Employee for
federal or state income tax purposes, Employee shall deliver to the Company at
the time of such receipt or lapse, as the case may be, such amount of money or
shares of unrestricted Shares as the Company may require to meet its withholding
obligation under applicable tax laws or regulations, and, if Employee fails to
do so, the Company is authorized to withhold from
3
<PAGE>
any cash or Share remuneration then or thereafter payable to Employee any tax
required to be withheld by reason of such resulting compensation income.
4. STATUS OF SHARES. Employee agrees that the Restricted Shares will not be sold
or otherwise disposed of in any manner which could constitute a violation of any
applicable federal or state securities laws. Employee also agrees (i) that the
certificates representing the Restricted Shares may bear such legend or legends
as the Company deems appropriate in order to assure compliance with applicable
securities laws, (ii) that the Company may refuse to register the transfer of
the Restricted Shares on the share transfer records of the Company if such
proposed transfer would be in the opinion of counsel satisfactory to the Company
constitute a violation of any applicable securities law and (iii) that the
Company may give related instructions to is transfer agent, if any, to stop
registration of the transfer of the Restricted Shares.
5. EMPLOYMENT RELATIONSHIP. For purposes of this Agreement, Employee shall be
considered to be in the employment of the Company as long as Employee remains an
employee of either the Company, any successor entity or a Subsidiary or
Affiliate as defined in the Plan) of the Company or any successor. Any question
as to whether and when there has been a termination of such employment, and the
cause of such termination, shall be determined by the Committee, or its
delegate, as appropriate, and its determination shall be final.
6. COMMITTEE'S POWERS. No provision contained in this Agreement shall in any way
terminate, modify or alter, or be construed or interpreted as terminating,
modifying or altering any of the powers, rights or authority vested in the
Committee or, to the extent delegated, in its delegate pursuant to the terms of
the Plan or resolutions adopted in furtherance of the Plan, including, without
limitation, the right to make certain determinations and elections with respect
to the Restricted Shares.
7. BINDING EFFECT. This Agreement shall be binding upon and inure to the benefit
of any successors to the Company and all persons lawfully claiming under
Employee.
8. GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Maryland.
4
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed by
an officer thereunto duly authorized, and Employee has executed this Agreement,
all as of the date first above written.
EMPLOYEE CORPORATE OFFICE
PROPERTIES TRUST
/s/ Dwight Taylor By:
- ----------------------------- ---------------------------
Dwight Taylor
5
<PAGE>
EXHIBIT A
RESTRICTED SHARES
- - Year 2000 FFO increases by 11% but total shareholder return is 13% in which
case the year 2000 forfeiture restrictions lapse because the FFO target is
achieved.
- - Year 2001 FFO increases by 8% but total shareholder return is 20% in which
case the year 2001 forfeiture restrictions lapse because the total
shareholder return target is achieved with 20% and cumulatively exceeds 30%
(15%x2) even though annual and cumulative FFO target is not achieved.
- - Year 2002 FFO increases by 8% and total shareholder return is 7% in which
case the forfeiture restrictions do not lapse because neither the FFO or
total shareholder targets have cumulatively been achieved.
- - Year 2003 FFO increases by 16% and total shareholder return is 7% in which
case the forfeiture restrictions for both 2002 and 2003 lapse because the
FFO target has been achieved on a cumulative basis (43% versus 40% target).
- - Year 2004 FFO decreased 10% and total shareholder return decreased 5%.
Forfeiture restrictions for 2004 do not lapse because neither target is
achieved on a cumulative basis. However, there is no impact on the lapse of
the forfeiture restrictions for years prior to 2004.
6
<PAGE>
Exhibit 10.9
RESTRICTED SHARE AGREEMENT
AGREEMENT made as of the 16th day of December, 1999, between Corporate Office
Properties Trust, a Maryland business trust (the "Company"), and Michael D.
Kaiser ("Employee").
1. AWARD.
(a) SHARES. Pursuant to the Corporate Office Properties Trust 1998 Long Term
Incentive Plan (the "Plan"), 50,000 common shares (the "Restricted Shares") of
beneficial interest, $0.01 par value per share, of the Company, shall be issued
as hereinafter provided in Employee's name subject to certain restrictions
thereon. The date of this award shall be December 16, 1999 (the "Grant Date").
(b) ISSUANCE OF RESTRICTED SHARES. The Restricted Shares shall be issued upon
acceptance hereof by Employee and upon satisfaction of the conditions of this
Agreement.
(c) PLAN INCORPORATED. Employee acknowledges receipt of a copy of the Plan, and
agrees that this award of Restricted Shares shall be subject to all of the terms
and conditions set forth in the Plan, including future amendments thereto, if
any, pursuant to the terms thereof, which Plan is incorporated herein by
reference as a part of this Agreement.
2. RESTRICTED SHARES. Employee hereby accepts the Restricted Shares when issued
and agrees with respect thereto as follows:
(a) FORFEITURE RESTRICTIONS. The Restricted Shares shall be subject to the
Forfeiture Restrictions (as hereinafter defined) from the date of this Agreement
through December 31, 2004 (the "Restricted Period"). The Restricted Shares may
not be sold, assigned, pledged, exchanged, hypothecated or otherwise
transferred, encumbered or disposed of during the Restricted Period to the
extent then subject to the Forfeiture Restrictions. To the extent the
Forfeitures Restrictions have not lapsed at the end of the Restricted Period as
provided in subparagraph (b) of this Paragraph 2, Employee shall, for no
consideration, forfeit to the Company all Restricted Shares to the extent then
subject to the Forfeiture Restrictions. The prohibition against transfer and the
obligation for forfeit and surrender Restricted Shares to the Company are herein
referred to as "Forfeiture Restrictions." The Forfeiture Restrictions shall be
binding upon and enforceable against any transferee of Restricted Shares.
(b) LAPSE OF FORFEITURE RESTRICTIONS. The Forfeiture Restrictions shall lapse as
to the Restricted Shares in accordance with the following schedule provided that
Employee has been continuously employed by the Company or a Subsidiary or
Affiliate from the date of this Agreement through the lapse date. On December
31, 1999 the Forfeiture Restrictions shall lapse as to 5% of the Restricted
Shares without regard to any
<PAGE>
performance criteria. Thereafter, Forfeiture Restrictions shall lapse according
to the following schedule provided that annual performance targets are achieved:
<TABLE>
<CAPTION>
Percentage of Total
Number of Restricted
Shares as to Which
Year Forfeiture Restrictions Lapse
---- -----------------------------
<S> <C> <C>
2000 10%
2001 15%
2002 15%
2003 25%
2004 30%
</TABLE>
For the purpose of the foregoing, annual performance targets will be achieved
only upon the Company's achievement of at least an annual 10% year over year
growth in Funds from Operations (FFO) or an annual 15% total shareholder return.
Annual growth in FFO and annual shareholder return shall be cumulative over the
Restricted Period such that performance goals will be considered achieved for
any year during the Restricted Period if the annual growth in FFO or annual
shareholder return in such year meets the annual targets after taking into
account the annual growth in FFO or annual shareholder return in any prior or
subsequent year during the Restricted Period. An example of the manner in which
the foregoing performance standards are intended to operate is attached hereto
as Exhibit A. To the extent annual performance targets are not achieved by the
end of the Restricted Period, the Employee shall forfeit to the Company the
Restricted Shares for which the Forfeiture Restrictions have not lapsed by that
date.
Notwithstanding the foregoing, the Forfeiture Restrictions shall lapse as to all
of the Restricted Shares on the earlier of (i) the occurrence of a Change of
Control (as such term is defined in the Plan), or (ii) the date Employee's
employment with the Company, its Subsidiaries and Affiliates is terminated for
any reason other than a termination by the Employee's employer for "Cause" or a
voluntary termination by the Employee. In the event Employee's employment is
terminated for any reason, the Compensation Committee of the Board (the
"Committee"), may, in the Committee's sole discretion, approve the lapse of
Forfeiture Restrictions as to any or all Restricted Shares still subject to such
restrictions, such lapse to be effective on the date of such approval or
Employee's termination date, if later.
To the extent that any Restricted Shares are vested solely as a result of the
Employee's termination of employment pursuant to the foregoing, such shares
shall be subject to a right of first refusal in favor of the Company with
respect to all (but not less than all) of such shares in the event the Employee
proposes to sell or otherwise transfer such shares to any other person. The
Employee shall notify the Company prior to any such transfer (and in the absence
of such prior notice any such transfer shall be void). The Company's right of
repurchase shall be exercisable with respect to such shares within the thirty
(30) day period following the date the Employee gives notice to the Company of
the proposed
2
<PAGE>
transfer. The purchase price of the shares repurchased by the Company hereunder
shall be "Fair Market Value" (as defined in the Plan). If the Company exercises
its right of first refusal, the sale shall be consummated within five (5) days
of the date the Company elects to exercise its right.
(c) DIVIDENDS AND VOTING RIGHTS. The Employee shall be entitled to receive any
dividends paid with respect to shares of Restricted Shares that become payable
during the Restricted Period; provided however, that no dividends shall be
payable to or for the benefit of the Employee with respect to record dates
occurring prior to the Grant Date, or with respect to record dates occurring on
or after the date, if any, on which the Employee has forfeited the Restricted
Shares. The Employee shall be entitled to vote the Restricted Shares during the
Restricted Period to the same extent as would have been applicable to the
Employee if the Employee was then vested in the shares; provided, however, that
the Employee shall not be entitled to vote the shares with respect to record
dates for such voting rights arising prior to the Grant Date, or with respect to
record dates occurring on or after the date, if any, on which the Employee has
forfeited the Restricted Shares.
(d) CERTIFICATES. A certificate evidencing the Restricted Shares shall be issued
by the Company in Employee's name, or at the option of the Company, in the name
of a nominee of the Company, pursuant to which Employee shall have voting rights
and shall be entitled to receive all dividends as hereinabove stated unless and
until the Restricted Shares are forfeited pursuant to the provisions of this
Agreement. The certificate shall bear a legend evidencing the nature of the
Restricted Shares, and the Company may cause the certificate to be delivered
upon issuance to the Secretary of the Company or to such other depository as may
be designated by the Company as depository for safekeeping until the forfeiture
occurs or the Forfeiture Restrictions lapse pursuant to the terms of the Plan
and this award. Upon request of the Committee or its delegate, Employee shall
deliver to the Company a stock power, endorsed in blank, relating to the
Restricted Shares then subject to the Forfeiture Restrictions. Upon the lapse of
the Forfeiture Restrictions without forfeiture, the Company shall cause a new
certificate or certificates to be issued without legend in the name of Employee
for the shares upon which forfeiture Restrictions lapsed. Notwithstanding any
other provisions of this Agreement, the issuance or delivery of any shares of
Stock (whether subject to restrictions or unrestricted) may be postponed for
such period as may be required to comply with applicable requirements of any
national securities exchange or any requirements under any law or regulation
applicable to the issuance or delivery of such shares. The Company shall not be
obligated to issue or deliver any shares of Stock if the issuance or delivery
thereof shall constitute a violation of any provision of any law or of any
regulation of any governmental authority or any national securities exchange.
3. WITHHOLDING OF TAX. To the extent that the receipt of the Restricted Shares
or the lapse of any Forfeiture Restrictions results in income to Employee for
federal or state income tax purposes, Employee shall deliver to the Company at
the time of such receipt or lapse, as the case may be, such amount of money or
shares of unrestricted Shares as the Company may require to meet its withholding
obligation under applicable tax laws or regulations, and, if Employee fails to
do so, the Company is authorized to withhold from
3
<PAGE>
any cash or Share remuneration then or thereafter payable to Employee any tax
required to be withheld by reason of such resulting compensation income.
4. STATUS OF SHARES. Employee agrees that the Restricted Shares will not be sold
or otherwise disposed of in any manner which could constitute a violation of any
applicable federal or state securities laws. Employee also agrees (i) that the
certificates representing the Restricted Shares may bear such legend or legends
as the Company deems appropriate in order to assure compliance with applicable
securities laws, (ii) that the Company may refuse to register the transfer of
the Restricted Shares on the share transfer records of the Company if such
proposed transfer would be in the opinion of counsel satisfactory to the Company
constitute a violation of any applicable securities law and (iii) that the
Company may give related instructions to is transfer agent, if any, to stop
registration of the transfer of the Restricted Shares.
5. EMPLOYMENT RELATIONSHIP. For purposes of this Agreement, Employee shall be
considered to be in the employment of the Company as long as Employee remains an
employee of either the Company, any successor entity or a Subsidiary or
Affiliate as defined in the Plan) of the Company or any successor. Any question
as to whether and when there has been a termination of such employment, and the
cause of such termination, shall be determined by the Committee, or its
delegate, as appropriate, and its determination shall be final.
6. COMMITTEE'S POWERS. No provision contained in this Agreement shall in any way
terminate, modify or alter, or be construed or interpreted as terminating,
modifying or altering any of the powers, rights or authority vested in the
Committee or, to the extent delegated, in its delegate pursuant to the terms of
the Plan or resolutions adopted in furtherance of the Plan, including, without
limitation, the right to make certain determinations and elections with respect
to the Restricted Shares.
7. BINDING EFFECT. This Agreement shall be binding upon and inure to the benefit
of any successors to the Company and all persons lawfully claiming under
Employee.
8. GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Maryland.
4
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed by
an officer thereunto duly authorized, and Employee has executed this Agreement,
all as of the date first above written.
EMPLOYEE CORPORATE OFFICE
PROPERTIES TRUST
/s/ Michael D. Kaiser By:
- ----------------------------------- --------------------------------
Michael D. Kaiser
5
<PAGE>
EXHIBIT A
RESTRICTED SHARES
- - Year 2000 FFO increases by 11% but total shareholder return is 13% in which
case the year 2000 forfeiture restrictions lapse because the FFO target is
achieved.
- - Year 2001 FFO increases by 8% but total shareholder return is 20% in which
case the year 2001 forfeiture restrictions lapse because the total
shareholder return target is achieved with 20% and cumulatively exceeds 30%
(15%x2) even though annual and cumulative FFO target is not achieved.
- - Year 2002 FFO increases by 8% and total shareholder return is 7% in which
case the forfeiture restrictions do not lapse because neither the FFO or
total shareholder targets have cumulatively been achieved.
- - Year 2003 FFO increases by 16% and total shareholder return is 7% in which
case the forfeiture restrictions for both 2002 and 2003 lapse because the
FFO target has been achieved on a cumulative basis (43% versus 40% target).
- - Year 2004 FFO decreased 10% and total shareholder return decreased 5%.
Forfeiture restrictions for 2004 do not lapse because neither target is
achieved on a cumulative basis. However, there is no impact on the lapse of
the forfeiture restrictions for years prior to 2004.
6
<PAGE>
<PAGE>
Exhibit 10.30
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
REVOLVING CREDIT AGREEMENT
BETWEEN
CORPORATE OFFICE PROPERTIES, L.P., AS BORROWER,
CORPORATE OFFICE PROPERTIES TRUST, AS GUARANTOR, AND
ANY COLLATERAL PROPERTY SUBSIDIARY, WHICH MAY NOW BE OR
HEREAFTER BECOMES A PARTY TO THIS AGREEMENT,
COLLECTIVELY AS LOAN PARTIES
AND
PRUDENTIAL SECURITIES CREDIT CORP., AS LENDER
DATED AS OF
DECEMBER 28, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
i
<PAGE>
REVOLVING CREDIT AGREEMENT
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
PREAMBLE.......................................................................................1
ARTICLE 1. DEFINITIONS........................................................................1
Section 1.01. Certain Defined Terms........................................................1
Section 1.02. Accounting and Banking Terms................................................19
Section 1.03. Discretion..................................................................19
ARTICLE 2. THE CREDIT FACILITIES.............................................................19
Section 2.01. The Credit Facilities.......................................................19
Section 2.02. The Loans; Procedure for Borrowing..........................................20
Section 2.03. Rate of Interest; Calculation of Interest...................................22
Section 2.04. Indemnity and Funding Losses................................................23
Section 2.05. Mandatory Prepayments.......................................................23
Section 2.06. Optional Prepayments........................................................24
Section 2.07. Payments....................................................................24
Section 2.08. Application of Payments.....................................................25
Section 2.09. Use of Loan Proceeds........................................................25
Section 2.10. Fees........................................................................25
Section 2.11. Increased Costs.............................................................26
Section 2.12. LIBOR Alternate Rate........................................................26
Section 2.13. Additional Disbursement......................................................27
Section 2.14 Release of Properties........................................................27
Section 2.15 Right of First Offer.........................................................28
ARTICLE 3. REPRESENTATIONS AND WARRANTIES....................................................29
Section 3.01. Organization and Powers; REIT Status........................................29
Section 3.02. Power and Authorization.....................................................29
Section 3.03. Permits; Compliance with Laws...............................................29
Section 3.04. No Legal Bar................................................................30
Section 3.05. Litigation..................................................................30
Section 3.06. Solvency....................................................................30
Section 3.07. The Collateral..............................................................30
Section 3.08. Capitalization..............................................................31
Section 3.09. No Default..................................................................31
Section 3.10. No Secondary Liabilities....................................................31
Section 3.11. Taxes.......................................................................31
Section 3.12. Financial Statements and Condition..........................................32
Section 3.13. ERISA; Labor Relations......................................................32
Section 3.14. Environmental Matters.......................................................32
Section 3.15. Correct Information.........................................................33
Section 3.16. Investment Company Act......................................................34
Section 3.17. Margin Regulations..........................................................34
Section 3.18. Leases......................................................................34
Section 3.19. Insurance...................................................................34
Section 3.20. Brokers.....................................................................34
ARTICLE 4. CONDITIONS PRECEDENT..............................................................34
Section 4.01. Conditions Precedent to Effectiveness.......................................34
Section 4.02. Conditions Precedent to Initial and Subsequent Fundings.....................37
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
ARTICLE 5. AFFIRMATIVE COVENANTS.............................................................42
Section 5.01. Maintenance of Existence, Properties and REIT Status........................43
Section 5.02. Insurance...................................................................43
Section 5.03. Punctual Payment............................................................44
Section 5.04. Payment of Liabilities......................................................44
Section 5.05. Compliance with Laws........................................................44
Section 5.06. Payment of Taxes, Etc.......................................................44
Section 5.07. Financial Statements and Other Information..................................44
Section 5.08. Accounts and Reports........................................................46
Section 5.09. Inspection; Audit...........................................................46
Section 5.10. UCC Filings.................................................................47
Section 5.11 Deleted prior to execution..................................................47
Section 5.12. Reserves....................................................................47
Section 5.13. Operational Documents.......................................................47
Section 5.14. Environmental Compliance....................................................48
Section 5.15. Disclosure..................................................................48
Section 5.16 Deferred Maintenance.........................................................48
Section 5.17 Capitalization...............................................................49
ARTICLE 6. NEGATIVE COVENANTS................................................................49
Section 6.01. Indebtedness................................................................49
Section 6.02. Liens.......................................................................50
Section 6.03. Contingent Obligations......................................................50
Section 6.04. Fundamental Changes.........................................................51
Section 6.05. Dispositions of Assets......................................................51
Section 6.06. Sales and Leasebacks........................................................51
Section 6.07. Dividends and Redemptions...................................................51
Section 6.08. Amendment of Certain Agreements.............................................52
Section 6.09. Certain Other Transactions..................................................52
Section 6.10. Transactions with Affiliates and Certain Other Persons......................52
Section 6.11. Fiscal Year.................................................................52
Section 6.12. ERISA.......................................................................52
Section 6.13. Regulations G, T, U and X...................................................52
Section 6.14. Environmental Compliance....................................................53
Section 6.15 Ownership of Collateral Property Subsidiaries...............................53
ARTICLE 7. FINANCIAL COVENANTS...............................................................53
Section 7.01. Minimum Consolidated Interest Converage.....................................53
Section 7.02. Maximum Consolidated Unhedged Floating Rate Debt............................53
Section 7.03. Maximum Consolidated Total Indebtedness.....................................53
Section 7.04. Financial Reporting Tests...................................................53
Section 7.05. Minimum Net Worth...........................................................54
ARTICLE 8. EVENTS OF DEFAULT.................................................................54
Section 8.01. Events of Default...........................................................54
Section 8.02. Remedies Upon an Event of Default...........................................56
ARTICLE 9. MISCELLANEOUS.....................................................................57
Section 9.01. Notices.....................................................................57
Section 9.02. Survival of this Agreement..................................................58
Section 9.03. Indemnity...................................................................58
Section 9.04. Costs, Expenses and Taxes...................................................59
Section 9.05. Further Assurances..........................................................60
Section 9.06. Amendment and Waiver........................................................60
Section 9.07. Remedies Cumulative.........................................................61
Section 9.08. Marshaling, Recourse to Security: Payments Set Aside........................61
Section 9.09. Setoff......................................................................61
Section 9.10. Binding Effect..............................................................62
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
Section 9.11. Applicable Law..............................................................62
Section 9.12. Consent to Jurisdiction and Service of Process; Waiver of Jury Trial........62
Section 9.13. Inconsistencies.............................................................62
Section 9.14. Performance of Obligations..................................................63
Section 9.15. Assignment; Participation...................................................63
Section 9.16. Confidentiality.............................................................63
Section 9.17. Construction................................................................63
Section 9.18. Entire Agreement............................................................64
Section 9.19. Severability................................................................64
Section 9.20. Headings....................................................................64
Section 9.21. Execution of Counterparts...................................................64
Section 9.22. Limitation of Liability.....................................................64
Section 9.23 Addition of Collateral Property Subsidiaries................................65
</TABLE>
iv
<PAGE>
EXHIBITS:
- ---------
Exhibit A Form of Approved Lease
Exhibit B Form of Assignment of Leases and Rents
Exhibit C Form of Assignment of Management Agreements
Exhibit D Form of Collateral Assignment
Exhibit E Form of Deed of Trust /Mortgage
Exhibit F Form of Environmental Indemnity
Exhibit G Form of Estoppel Certificate
Exhibit H Deleted prior to execution
Exhibit I Form of Subordination Agreement
Exhibit J Form of Notice of Borrowing
Exhibit K Form of Secured Note
Exhibit L Form of Notice of Optional Prepayment
Exhibit M Form of Opinion of Counsel
Exhibit N Form of Indemnity and Guaranty of Recourse Obligations
Exhibit O Form of Compliance Certificate
SCHEDULES:
- ----------
Schedule 2.13 Additional Disbursement
Schedule 3.05 Litigation
Schedule 3.07 Existing Liens
Schedule 3.14 Environmental Matters
Schedule 3.19 Insurance Policies
Schedule 4.02 (c)(iii) Rent Rolls
Schedule 4.02(l) Title Insurance Requirements
Schedule 4.02(m) Survey Requirements
Schedule 5.16 Deferred Maintenance
Schedule 5.17 Capitalization
Schedule 6.01 Existing Indebtedness
v
<PAGE>
REVOLVING CREDIT AGREEMENT
--------------------------
THIS REVOLVING CREDIT AGREEMENT dated as of December 28, 1999 (this
"AGREEMENT") between CORPORATE OFFICE PROPERTIES, L.P., a Delaware limited
partnership (the "BORROWER"),CORPORATE OFFICE PROPERTIES TRUST, a Maryland real
estate investment trust ("COPT") and any COLLATERAL PROPERTY SUBSIDIARY (a
"COLLATERAL PROPERTY SUBSIDIARY") which may now be or hereafter become a party
to this Agreement, and PRUDENTIAL SECURITIES CREDIT CORP., a Delaware
corporation (the "LENDER"),
W I T N E S S E T H:
--------------------
WHEREAS, the Borrower desires to Borrow from Lender on a revolving
credit basis up to FIFTY MILLION AND 00/00 DOLLARS ($50,000,000) in connection
with (i) the funding of certain acquisition and development activities by the
Borrower, (ii) the funding of the Transaction Costs (as hereinafter defined);
and (iii) the funding of Borrower's working capital requirements in connection
with its general business purposes; and
WHEREAS, the Lender is willing to extend the financial accommodations
contemplated hereby to the Borrower on the terms and conditions set forth
herein.
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
ARTICLE 1. DEFINITIONS
Section 1.01. CERTAIN DEFINED TERMS As used in this Agreement, the
following terms shall have the following meanings:
"ACQUISITION" has the meaning set forth in the recitals hereto.
"ACQUISITION DOCUMENTS" means each purchase agreement to be entered
into between and among the Borrower and the seller or sellers of each
Acquisition Property in connection with the purchase of such Acquisition
Property and all of the other agreements, documents and instruments entered into
in connection therewith.
"ACQUISITION PROPERTIES" means 100% fee simple ownership interests in
office properties that (i) are being acquired by the Borrower using, in part,
the proceeds of the Loans, (ii) satisfy the applicable conditions precedent and
covenants set forth in this Agreement, and (iii) are located in the mid-Atlantic
region of the United States of America and are otherwise generally consistent
with the Borrower's existing office properties.
"ADDITIONAL DISBURSEMENTS" has the meaning set forth in Section 2.13
hereof.
1
<PAGE>
"AFFILIATE" means any (i) officer, director, shareholder, member or
partner of the Borrower, (ii) Person that directly or indirectly controls, is
controlled by, or is under common control with the Borrower, and (iii) Person in
which 10% or more of the ownership interest of such Person is owned by a
shareholder, member or partner of the Borrower. For purposes of this definition,
"control" of a person means the possession, directly or indirectly, of the power
to direct or cause the direction of its management and policies, whether through
the ownership of voting capital stock, by contract or otherwise, and the terms
"controlled" and "common control" shall have correlative meanings. In no event
shall the Lender be deemed to be an Affiliate of the Borrower.
"AGREEMENT" and "CREDIT AGREEMENT" means this Credit Agreement, as the
same from time to time may be amended, modified, supplemented, extended or
restated.
"APPLICABLE MARGIN" means one hundred fifty (150) basis points.
"APPROVED BANK" means banks which have (i) (a) a minimum net worth of
$500,000,000 and/or total assets of $10,000,000,000, and (ii) a minimum long
term debt rating of (a) BBB+ or higher by S&P, and (b) Baal or higher by
Moody's.
"APPROVED LEASE" means a Lease in the form of EXHIBIT A hereto.
"ASSIGNMENTS OF LEASES" mean, collectively, the Assignment of Leases
and Rents to be entered into between the Borrower and the Lender, in each case,
in the form of EXHIBIT B hereto as a condition to the making of a Loan, as the
same may from time to time be amended, modified, supplemented or extended.
"ASSIGNMENTS OF MANAGEMENT AGREEMENTS" mean, collectively, (i) the
Assignment of Property Management Agreements dated as of the Closing Date
between the Borrower and the Lender, and (ii) the Assignment of Property
Management Agreements to be entered into between the Borrower and the Lender, in
each case, in the form of EXHIBIT C hereto, as the same may from time to time be
amended, modified, supplemented or extended.
"ASSIGNMENTS" mean, collectively, the Assignments of Leases, the
Assignments of Management Agreements and the Collateral Assignments.
"AUTHORIZED PERSON" means Roger A. Waesche, Jr. or John Harris Gurley
or such other individual designated in writing by the Borrower as being
authorized by the Borrower to provide the Lender with any and all notices
required to be made hereunder by the Borrower; which authorizations shall remain
in full force and effect, and may be conclusively relied on by the Lender in all
circumstances, until the Lender actually receives a written notice from the
Borrower stating otherwise.
2
<PAGE>
"AVAILABLE COMMITMENT" means, as at any date at which the same is to be
determined, the amount equal to (i) the Commitment, minus (ii) the aggregate
amount of all Loans then outstanding, minus (iii) the aggregate amount of all
outstanding Reserves.
"BANKRUPTCY CODE" means Title 11 of the United States Code (11 U.S.C.
101 ET SEQ.), as amended from time to time, and any successor statute.
"BASE LIBOR" in respect of each Interest Period means a rate per annum
equal to the rate at which U.S. dollar deposits, in an amount equal to the
aggregate principal amount of the relative Loan or Loans which is to be
outstanding during such Interest Period, for delivery on the first day of such
Interest Period with 30-day maturities, (i) are offered in immediately available
funds in the London Interbank Market to the appropriate office of the Lender by
leading banks in the Eurodollar market, (ii) are quoted on the Dow Jones
Telerate, a division of Dow Jones & Company, Inc., or (iii) are quoted on any
comparable alternative source selected by the Lender, in the case of the first
Interest Period for each Loan, at such time as the Lender elects on the first
Business Day of such Interest Period and, in the case of all other Interest
Periods, at 11:00 a.m., London time, on the first Business Day of such Interest
Period.
"BASE RATE" means, for any day, the per annum fluctuating rate of
interest equal to the higher of (i) the interest rate announced by the Lender as
its Dollar base rate from time to time in New York, New York, and (ii) the
Federal Funds Rate plus one-half of one percent (.5%). The interest rate
announced by the Lender as its Dollar base rate from time to time in New York,
New York on December 15, 1999 was 7.75%.
"BORROWER" has the meaning set forth in the recitals hereto and
includes its successors and assigns.
"BORROWING DATE" means, with respect to any Loan, the Business Day on
which the Lender makes such Loan pursuant to a Notice of Borrowing given
pursuant to Section 2.02(b)(i) hereof.
"BREAKAGE FEE" means the cost (including any hedging loss or negative
carry on the hedge position), if any, to the Lender associated with the negative
carry or breaking of all or a portion of any hedging arrangement entered into by
the Lender to reduce its interest rate risk due to changes in LIBOR in
connection with any prepayment on the Loans or the Borrower's failure to borrow.
"BUILDING CONDITION REPORT" has the meaning set forth in Section 4.02
(e) hereof.
"BUSINESS DAY" means any day on which dealings in currencies and
exchange (including, without limitation, U.S. dollar deposits in the London
Interbank Market) between banks may be carried on in New York, New York or the
City of London, England, other than a Saturday or
3
<PAGE>
Sunday or any other day on which banks in New York, New York or the City of
London, England are authorized or required by law to close.
"CLOSING DATE" means December __, 1999, the date on which this
Agreement is signed by the parties hereto at the offices of Pryor Cashman
Sherman & Flynn LLP at 410 Park Avenue, New York, New York 10022 or at such
other place as the Lender may determine.
"COLLATERAL" means all property and interest in property in or against
which the owner thereof shall have granted, or purported to have granted, a
security interest or Lien in favor of the Lender under the Loan Documents as
security for the Obligations of the Borrower to the Lender and, if such owner is
a Person other than the Borrower, for such owner's obligations to the Lender,
and shall include, without limitation the Collateral Properties.
"COLLATERAL ASSIGNMENTS" mean, collectively, the Collateral Assignment
Agreement to be entered into between the Borrower and the Lender, in each case,
in the form of EXHIBIT D hereto, as a condition to the making of a Loan, as the
same may from time to time be amended, modified, supplemented or extended.
"COLLATERAL DOCUMENTS" mean without limitation, collectively, the
Mortgages, the Deeds of Trust, the Assignments and the title insurance and other
insurance policies endorsed to name the Lender as a first mortgagee and/or
additional insured required under Section 5.02 hereof and under the Mortgages,
and the Deeds of Trust.
"COLLATERAL PROPERTIES" mean, collectively, (a) the Acquisition
Properties, (b) the existing properties of the Borrower in which the Borrower
owns a 100% fee simple interest and that (i) are acceptable to Lender in all
respects in its sole discretion which, at Borrower's option are pledged as
collateral for the Note, (ii) are office properties located in the mid Atlantic
region of the United States of America that are generally consistent with the
Borrower's existing office properties, (iii) are pledged to, and encumbered in
favor of, the Lender by the Borrower in the same manner in which Acquisition
Properties are pledged to and encumbered in favor of Lender, and (iv) satisfy
the applicable conditions precedent and covenants set forth in this Agreement
and the Collateral Documents in the same manner and on the same terms as set
forth with respect to an Acquisition Property, and (c) all other assets and
interest related to the development, use and operation of the Acquisition
Properties and other existing properties described in (b) hereof. Lender shall
have the right to reject any property which Borrower proposes to be included as
a Collateral Property.
"COLLATERAL PROPERTY SUBSIDIARY" means any single purpose, wholly owned
Subsidiary of COPT or Borrower that owns any Collateral Property.
"COMMITMENT" means $50,000,000.
"COMPLIANCE CERTIFICATE" means a certificate substantially in the form
annexed hereto as Exhibit O delivered by Borrower to Lender pursuant to Section
5.07(b) hereof.
4
<PAGE>
"CONSOLIDATED ADJUSTED NET INCOME" means, for any period and without
duplication, for Borrower and its Subsidiaries, the sum of the amounts for such
period of (i) Consolidated Net Income, (ii) Consolidated Interest Expense, (iii)
provisions for taxes based on income, (iv) total depreciation expense, (v) total
amortization expense, (vi) gains or losses on the sales of Mortgaged Properties
and other Properties, debt restructurings or other nonrecurring expenses, and
(vii) income expense attributable to minority interest; less a recurring capital
expense reserve equal to $0.15 per net rentable square foot for all Properties,
and as adjusted in a manner acceptable to Lender for (x) unconsolidated
partnerships, joint ventures and similar entities, and (y) straight line rents,
all of the foregoing as determined on a consolidated basis for Borrower and its
Subsidiaries in conformity with GAAP.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, total interest
expense (including that portion attributable to capital leases in accordance
with GAAP and capitalized interest) of Borrower and its Subsidiaries on a
consolidated basis with respect to all outstanding Indebtedness of Borrower and
its Subsidiaries, such interest to be calculated for purposes of this Agreement
against the outstanding principal amounts such Indebtedness as follows:
(a) for the Loans, using a constant based on the then current Yield as
of the date of determination, plus the Market Spread, instead of
the interest rates actually applicable thereto;
(b) for all other fixed rate Indebtedness, at the interest rates
actually applicable thereto; and
(c) for all other variable rate Indebtedness, using a constant based
on the Yield plus the Market Spread, instead of the interest rates
actually applicable thereto.
"CONSOLIDATED NET INCOME" means, for any period, the net income (or
loss) of Borrower and its Subsidiaries on a consolidated basis for such period
taken as a single accounting period determined in conformity with GAAP; provided
that there shall be excluded (i) the income (or loss) of any Person (other than
a Subsidiary of Borrower) in which any other Person (other than Borrower or any
of its Subsidiaries) has a joint interest, except to the extent of the amount of
dividends or other distributions actually paid to Borrower or any of its
Subsidiaries by such Person during such period, (ii) the income (or loss) of any
Person accrued prior to the date it becomes a Subsidiary of Borrower or is
merged into or consolidated with Borrower or any of its Subsidiaries or that
Person's assets are acquired by Borrower or any of its Subsidiaries, (iii) the
income of any Subsidiary of Borrower to the extent that the declaration or
payment of dividends or similar distributions by that Subsidiary of that income
is not at the time permitted by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Subsidiary, (iv) any after-tax gains or losses
attributable to any disposition of any assets of Borrower or its Subsidiaries or
returned surplus assets of any Pension Plan, and (v) (to the extent not included
in clauses (i) through (iv) above) any net extraordinary gains or net non-cash
extraordinary losses.
5
<PAGE>
"CONSOLIDATED TANGIBLE NET WORTH" means, as at any date of
determination, the shareholders' equity of Borrower and its Subsidiaries
(determined on a book basis), plus accumulated depreciation, less Intangible
Assets, on a consolidated basis determined in conformity with GAAP.
"CONSOLIDATED TOTAL ASSETS" means, at any date of determination, total
assets of Borrower and its Subsidiaries on a consolidated basis which may
properly be classified as assets in conformity with GAAP plus, in the event that
any guarantees of indebtedness of non-consolidated joint ventures are included
in the calculation of Consolidated Total Liabilities for such period pursuant to
clause (iii) of the definition of Consolidated Total Liabilities, the pro rata
share of Borrower or such Subsidiary in the assets of such non-consolidated
joint venture. The value of any real property asset included in Consolidated
Total Assets shall be determined by capitalizing the Consolidated Adjusted Net
income using a 9.5% capitalization rate; provided, however, in the case of: (a)
any real property asset owned less than one year, the value of such asset shall
be determined by using the aggregate purchase price for such asset; and (b) any
real property asset which is under development, the value of such asset shall be
determined by using the direct costs incurred in connection with such
development until the earlier of: (i) 30 months following the commencement of
construction of such asset and (ii) 12 months following receipt of a certificate
of occupancy, or the equivalent, with respect to such asset.
"CONSOLIDATED TOTAL INDEBTEDNESS" means, as of any date of
determination, the sum of the following, without duplication: (i) all
Indebtedness of Borrower and its Subsidiaries, determined on a consolidated
basis; plus (ii) all Contingent Obligations of Borrower and its Subsidiaries;
plus (iii) all Guaranties of Borrower or any of its Subsidiaries; plus (iv) all
letter of credit reimbursement agreement obligations.
"CONSOLIDATED TOTAL LIABILITIES" means, as at any date of
determination, the sum of each of the following, without duplication, for
Borrower and its Subsidiaries, on a consolidated basis, (i) all indebtedness for
borrowed money, (ii) any obligation owed for all or any part of the deferred
purchase price of assets or services which would be shown to be a liability (or
on the liability side of the balance sheet) in accordance with GAAP, (iii) all
guaranteed obligations including any guaranteed indebtedness of consolidated or
non-consolidated joint ventures, (iv) the maximum amount of all letters of
credit issued or acceptance facilities established for the account of Borrower
or any of its Subsidiaries, and, without duplication, all drafts drawn
thereunder (other than letters of credit offset by a like amount of Cash or
government securities held in escrow to secure such letter of credit and draws
thereunder), (v) all capitalized lease obligations, (vi) all indebtedness (A) of
another Person secured by any Lien on any property or asset owned or held by
Borrower or any of its Subsidiaries regardless of whether the indebtedness
secured thereby shall have been assumed by Borrower or such Subsidiary or is
non-recourse to the credit of Borrower or such Subsidiary, and (B) of any
consolidated Affiliate of Borrower whether or not such indebtedness has been
assumed by Borrower, (vii) indebtedness created or arising under any conditional
sale or title retention agreement, and (viii) withdrawal liability or
insufficiency under ERISA or under any qualified plan or related trust;
including
6
<PAGE>
within the foregoing, trade payables and accrued expenses arising or incurred in
the ordinary course of business.
"CUSTOMARY PERMITTED LIENS" means: (a) Liens (other than any Lien
imposed under Environmental Laws or ERISA) arising as a matter of law to secure
payment of taxes, assessments or charges owing to any Governmental Authority but
which are not yet due or which are being contested in good faith by appropriate
proceedings or other appropriate actions and with respect to which adequate
reserves or other appropriate provisions are being maintained in accordance with
GAAP; (b) statutory Liens of landlords and Liens of carriers, warehousemen and
other Liens (other than any Lien imposed under Environmental Laws or ERISA)
imposed by law, created in the ordinary course of business and for amounts not
yet due (or which are being contested in good faith by appropriate proceedings
or other appropriate actions which are sufficient to prevent imminent
foreclosure of such Liens, are promptly instituted and diligently conducted) and
with respect to which adequate reserves or other appropriate provisions are
being maintained in accordance with GAAP; (c) Liens (other than any Lien imposed
under Environmental Laws or ERISA) incurred or deposits made in the ordinary
course of business (including, without limitation, security deposits for leases,
surety bonds and appeal bonds) in connection with workers' compensation,
unemployment insurance and other types of social security benefits or to secure
the performance of tenders, bids, contracts (other than for the repayment or
guarantee of borrowed money or purchase money obligations), statutory
obligations and other similar obligations or arising as a result of progress
payments under government contracts; (d) easements (including, without
limitation, reciprocal easement agreements and utility agreements),
rights-of-way, covenants, consents, reservations, encroachments, minor defects
or irregularities in title, variations and other restrictions, charges or
encumbrances (whether or not recorded) affecting the use of real property, which
individually or in the aggregate do not or are not reasonably likely to have a
Material Adverse Effect on the conduct of a Borrower and/or any of its
Subsidiaries, its business or on the use of such real property or on the value
to or marketability by such Borrower or such Subsidiary of its interests in such
real property; and (e) extensions, renewals or replacements of any Lien referred
to in clauses (a) through (d) above; PROVIDED, HOWEVER, that (i) the principal
amount of the obligation secured thereby is not increased, except as otherwise
permitted by such clauses in the first instance, and (ii) any such extension,
renewal or replacement is limited to the property originally encumbered thereby.
"DEBT SERVICE COVERAGE" means, as of the date of determination, a ratio
based upon, among other things, operating income, all operating expenses and
reserves (including, among other reserves, a capital expense reserve, as
provided in this definition), payments of debt service on the Loan or Loans
being tested assuming a twenty-five (25) year amortization of the Loan or Loans
being tested, as of the date of determination, and an interest rate equal to the
Yield plus the Market Spread, and such other items of income and expense as
Lender may apply in its underwriting standards and criteria, in determining Debt
Service Coverage. For purposes of determining Debt Service Coverage, Lender
shall apply a capital expense reserve (the "Capital Expense Reserve") of twenty
cents ($.20) per square foot for each Collateral Property, or such lesser amount
based upon an engineering or structural report prepared by an engineer hired by
7
<PAGE>
Borrower and approved by Lender; provided however, in no event shall the Capital
Expense Reserve equal less than fifteen cents ($.15) per square foot. The
determination of Debt Service Coverage and the factors used therein, shall be in
Lender's sole but reasonable discretion which determination shall be binding and
conclusive absent manifest error.
"DEEDS OF TRUST" mean, collectively, the Deeds of Trust, Security
Agreements and Assignments of Leases and Rents and Indemnity Deeds of Trust to
be entered into between the Borrower and/or Collateral Property Subsidiary and
the Lender, in each case substantially in the form of EXHIBIT E hereto, as a
condition to the making of a Loan, as the same may from time to time be amended,
modified, supplemented or extended.
"DEFAULT" means any event which is, or with the lapse of time or giving
of notice, or both, would be, an Event of Default.
"DOLLARS" and "$" means lawful money of the United States of America.
Any reference in this Agreement to payment in "Dollars" or "$" means payment in
Dollar funds immediately available for use by the Lender in New York, New York.
"ENVIRONMENTAL CLAIM" means any third party (including, without
limitation, governmental authorities and employees) action, lawsuit,
investigation, claim, proceeding, order, decree, consent agreement, notice of
violation or other legal proceeding (collectively an "ACTION") (including,
without limitation, any Action under OSHA or any similar law relating to the
safety or health of employees) which seeks to impose liability for (i)
pollution, contamination, protection, clean-up, restoration, destruction, loss
or injury to or of the air, surface water, groundwater, land (including, without
limitation, surface and subsurface strata) or other natural resources; (ii)
solid, gaseous or liquid Waste generation, handling, transportation, treatment,
processing, clean-up, storage, disposal, recycling or reclamation; (iii)
exposure to pollutants, contaminants, hazardous materials, hazardous substances,
toxic materials or substances, or Wastes; (iv) the safety or health of
employees; (v) the manufacture, generation, processing, distribution, use,
treatment, storage, disposal, transport, recycling, reclamation or handling of
chemical substances, pollutants, contaminants, hazardous materials, hazardous
substances, toxic materials or substances, (vi) Wastes or (vii) noise. An
"ENVIRONMENTAL CLAIM" includes, but is not limited to, a common law action, as
well as a legal proceeding initiated or brought by any federal, state or local
executive, legislative, judicial, regulatory or administrative agency, board or
authority or any third party to issue, modify, adopt, terminate or enforce the
provisions of an Environmental Permit or to modify, adopt, terminate or enforce
a Requirement of Environmental Law, to the extent that such a proceeding
attempts to redress violations or alleged violations of the applicable
Environmental Permit or Requirement of Environmental Law.
"ENVIRONMENTAL INDEMNITIES" mean, collectively, (i) the Environmental
Indemnity dated as of the Closing Date between the Borrower and the Lender, and
(ii) the Environmental Indemnity to be entered into between the Borrower and the
Lender, in each case, in the form of
8
<PAGE>
EXHIBIT F hereto, as the same may from time to time be amended, modified,
supplemented or extended.
"ENVIRONMENTAL LAWS" shall mean any federal, state, local and foreign
laws, regulations, codes, ordinances, plans, orders, decrees, judgments,
injunctions, notices or demand letters issued, promulgated or entered thereunder
by any Governmental Authority relating to pollution or protection of the
environment, including, without limitation, laws relating to reclamation of land
or waterways and laws relating to emissions, discharges, releases or threatened
releases of pollutants, contaminants, hazardous materials, hazardous substances,
toxic materials or substances, or Wastes into the environment or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of pollutants, contaminants, hazardous
materials, hazardous substances, toxic materials or substances, or Wastes, or
otherwise relating to worker health and safety or public health and safety to
which the Borrower and its Subsidiaries are subject, including, without
limitation, the Clean Air Act, as amended, the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980 ("CERCLA"), as amended, the
Federal Water Pollution Control Act, as amended, the Occupational Safety and
Health Act of 1970 ("OSHA"), as amended, the Resource Conservation and Recovery
Act of 1976 ("RCRA"), as amended, the Safe Drinking Water Act, as amended, the
Toxic Substances Control Act, as amended, the Superfund Amendments and
Reauthorization Act of 1986, as amended, and any other environmental
conservation or protection laws.
"ENVIRONMENTAL LIABILITIES" means all costs arising from or related to
any Environmental Claim, Environmental Permit or Requirement of Environmental
Law (including, without limitation, all costs arising under any theory or
process of recovery or relief, at law or in equity), whether based on
negligence, strict liability, RCRA, CERCLA or otherwise, including, but not
limited to, remedial, removal, response, restoration, abatement, investigative,
monitoring, personal injury, death and property damage costs, and any other
related costs, expenses, losses, damages, penalties, fines, liabilities and
obligations, including, without limitation, attorneys' fees, court costs and
interest paid or accrued.
"ENVIRONMENTAL MATTERS" means any and all matters relating to any
Requirement of Environmental Law, Environmental Claim or Environmental Permit.
"ENVIRONMENTAL PERMIT" means any permit, license, notice, order,
approval or other authorization under any applicable law, rule, regulation or
other requirement of the United States or of any state, municipality or other
subdivision thereof relating to (i) pollution or protection of the environment
or safety and health, including, without limitation, all laws, rules,
regulations or other requirements relating to emissions, discharges, releases or
threatened releases of pollutants, contaminants, hazardous materials, hazardous
substances, toxic materials or substances, or Wastes into or on the air, surface
water, groundwater or land (including, without limitation, surface and
subsurface strata), or (ii) the manufacture, generation, processing,
distribution, use, treatment, storage, disposal, transport, recycling,
reclamation or handling of chemical substances, pollutants, contaminants,
hazardous materials, hazardous substances, toxic materials or substances, or
Wastes.
9
<PAGE>
"ENVIRONMENTAL REPORTS" means the Environmental Reports delivered to
the Lender pursuant to Section 4.02(d) hereof.
"EQUITY PROCEEDS" means the cash proceeds (net of underwriting
discounts and commissions and other reasonable costs associated therewith) from
the issuance of any equity Securities of Borrower or any of its Subsidiaries,
including additional issuances of common shares, preferred shares or Partnership
Interests.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor statute.
"ERISA AFFILIATE" means each Person (as defined in Section 3(9) of
ERISA) that is a member of any "controlled group" (as defined in Section
4001(14) of ERISA) that includes the Borrower.
"ERISA TERMINATION EVENT" means (i) any Reportable Event, (ii) the
withdrawal of the Borrower or any of its ERISA Affiliates from a Plan during a
Plan year in which it was a "substantial employer" as defined in Section
4001(a)(2) of ERISA, (iii) the filing of a notice of intent to terminate a Plan
or to treat any Plan amendment as a termination under Section 4041 of ERISA,
(iv) any Plan amendment or the occurrence of any event that constitutes a
"partial termination" (within the meaning of Section 411(d)(3) of the IRC) with
respect to any Plan, (v) the institution of proceedings to terminate a Plan or
the appointment of a trustee by the PBGC pursuant to Section 4044 of ERISA or
(vi) any event or condition that might constitute grounds under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to administer, any
Plan.
"ESTOPPEL CERTIFICATES" mean, collectively, the Estoppel Certificates
to be entered into by the tenants of the Collateral Properties in favor of the
Lender, in each case, in the form of EXHIBIT G hereto, as the same may from time
to time be amended, modified, supplemented or extended by Lender, as a condition
to the making of a Loan.
"EVENT OF DEFAULT" means any event specified as such in Section 8.01
hereof.
"EXPIRATION DATE" means the earlier of (i) the first anniversary of the
first Loan under this Agreement or (ii) 365 days from the Closing Date. The
Expiration Date is subject to Section 2.01(b) hereof. At no time shall the
Expiration Date be more than three hundred sixty five (365) days from any day
during the term hereof, inclusive of any extension period granted by Lender.
"FEDERAL FUNDS RATE" means, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average
of the rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers on such day, as published by
the Federal Reserve Bank of New York on the Business Day next succeeding such
day, PROVIDED, that (i) if the day for which such rate is to be
10
<PAGE>
determined is not a Business Day, the Federal Funds Rate for such day shall be
such rate on such transactions on the next preceding Business Day as so
published on the next succeeding Business Day, and (ii) if such rate is not so
published for any Business Day, the Federal Funds Rate for such Business Day
shall be the average rate charged to the Lender, directly or indirectly, on such
Business Day on such transactions as determined by the Lender.
"FISCAL QUARTER" means each of the four periods of three months of each
year, ending on the last day of each March, June, September and December, which
in the aggregate constitute a Fiscal Year.
"FISCAL YEAR" means the fiscal year ending on December 31.
"GAAP" means generally accepted accounting principles (i) in the United
States of America as in effect from time to time set forth in the opinions and
pronouncements of the Accounting Principles Board and the American Institute of
the Certified Public Accountants and the statements and pronouncements of the
Financial Accounting Standards Board, or in such other statements by such other
entity as may be in general use by significant segments of the accounting
profession, which are applicable to the circumstances as of the date of
determination, and (ii) which are consistently applied in form and substance.
"GOVERNMENTAL AUTHORITY" means any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"INDEBTEDNESS" means (without duplication), with respect to any Person,
all obligations, contingent and otherwise, which, in accordance with GAAP, would
be included in determining total liabilities as shown on the liabilities side of
a balance sheet of such Person as at any date at which the amount thereof is to
be determined, but in any event and as well including, the Note, all other
amounts due under the Loan Documents, any contingent obligations arising due to
all guarantees, endorsements (other than endorsements for collection or deposits
in the ordinary course of business) and all other contingent obligations whether
or not in respect of any Indebtedness of others, deferred taxes and accrued
obligations, all liabilities secured by any mortgage, pledge or lien existing on
property owned or acquired subject to such mortgage, pledge or lien, whether or
not the liability secured thereby shall have been assumed, and all lease
obligations.
"IDOT" means the Indemnity Deed of Trust to be entered into by Borrower
or any Collateral Property Subsidiary with respect to any Collateral Property
located in the State of Maryland, in each case substantially in the form of
Exhibit E attached hereto and otherwise in form and substance acceptable to
Lender and its counsel, , as a condition to the making of a Loan, as the same
may from time to time be amended, modified, supplemented or extended.
"INITIAL BORROWING DATE" means the first Borrowing Date on which the
first Loan is made hereunder.
11
<PAGE>
"INTEREST EXPENSES" of any Person shall mean, for any period, the
interest expenses incurred, accrued or paid of such Person for such period on
the aggregate principal amount of their Indebtedness, determined in accordance
with GAAP.
"INTEREST PERIOD" means a period commencing, in each instance, on the
first day of a calendar month and ending on the last day of such month provided,
however, that in the case of any Loan which is made on other than the first day
of a calendar month, the first Interest Period for such Loan shall commence on
the Borrowing Date of such Loan and end on the last day of the calendar month in
which the Borrowing Date occurs; PROVIDED, HOWEVER, that no Interest Period for
any Loan shall extend beyond the Expiration Date.
"INTEREST RATE AGREEMENT" means any interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement or similar agreement
or arrangement designed to protect the Borrower or any of its Subsidiaries
against fluctuations in interest rates, which agreement or approval shall be
approved by Lender as to form and substance; provided, however, that such
approval by Lender shall not be required if such agreement (i) shall have a
minimum term of two (2) years, or, in the case of loans pursuant to which
interest shall accrue at a rate other than a fixed rate, a term equal to the
term of such floating rate loan (to the extent the term of floating rate loan is
less than two(2) years, (ii) shall have the effect of capping the interest rates
covered thereby at a rate equal to or lower than the Interest Rate Cap at the
time of purchase or execution, and (iii) shall be with an Approved Bank,
provided that it is acknowledged and agreed that the Borrower shall have no
obligation to replace any Interest Rate Agreement even if the counterparty
thereto shall cease to be an Approved Bank.
"IRC" means the Internal Revenue Code of 1986, as amended from time to
time, and any successor statute.
"INTEREST RATE CAP" means the Treasury Rate plus 3%.
"JURISDICTONAL CAPPED MORTGAGES" shall collectively mean the
Mortgage(s) or Deed(s) of Trust now or hereafter covering Collateral Property
located in any state in which the mortgage recording tax or other cost of
recording a mortgage or deed of trust is not de minimus and, therefore, which
secures a maximum original principal amount of indebtedness which is less than
the Commitment, whether for the purpose of limiting the debt secured by such
Mortgage or Deed of Trust and the mortgage recording taxes payable in connection
therewith or otherwise with the approval of Lender.
12
<PAGE>
"KNOWLEDGE" means, with respect to any Person, what such Person knows
or should have known, in each case, after due inquiry.
"LEASES" mean, collectively, all of the leases now existing or
hereafter entered into in connection with the Collateral Properties.
"LENDER" has the meaning given to it in the preamble of this Agreement,
and its successors, participants and assigns (including any Person who becomes a
holder of the Note).
"LENDER'S OFFICE" means the Lender's principal office at One New York
Plaza, New York, New York 10292.
"LIBOR" in respect of each Interest Period shall be the rate per annum
equal to the product arrived at by multiplying the Base LIBOR applicable to such
Interest Period by a fraction (expressed as a decimal), the numerator of which
shall be the number one and the denominator of which shall be the number one
minus the aggregate reserve percentages (expressed as a decimal) from time to
time established by the Board of Governors of the United States Federal Reserve
System and any other Governmental Authority to which the Lender is now or
hereafter subject, including, without limitation, any reserve on "Eurocurrency
Liabilities" (as defined in Regulation D of the Board of Governors of the United
States Federal Reserve System) at the ratios provided in such Regulation from
time to time, it being agreed that the Loans shall be deemed to constitute
Eurocurrency Liabilities and it being further agreed that such Eurocurrency
Liabilities shall be deemed to be subject to such reserve requirements without
the benefit of or credit for prorations, exceptions or offsets that may be
available to the Lender from time to time under such Regulation and irrespective
of whether the Lender actually maintain all or any portion of such reserve.
"LIEN" means, with respect to any Person, (i) any lien (including,
without limitation, any statutory lien), mortgage, hypothecation, privilege,
security interest, pledge, encumbrance, charge (general or special, floating or
fixed) or conditional sale or other title retention arrangement (including,
without limitation, the rights of a lessor under a capital lease to the property
leased thereunder) or other security interest of any kind upon any property or
assets of any character of such Person, whether now owned or hereafter acquired
by such Person, or upon the income or profits therefrom, (ii) the transfer,
pledge or assignment by such Person of any of its property or assets for the
purpose of subjecting the same to the payment of any indebtedness of such Person
or others in priority to the payment by such Person of its general creditors,
(iii) any sale, assignment, pledge or other transfer by such Person of its
accounts receivable, contract rights, general intangibles or chattel paper with
recourse, and (iv) any agreement to give or do any of the foregoing.
"LOAN" or "LOANS" means the loans made pursuant to Section 2.02(a)
hereof.
"LOAN AVAILABILITY PERIOD" means the period from and including the
Closing Date to the date which is three (3) months prior to the Expiration Date.
13
<PAGE>
"LOAN DOCUMENTS" mean, collectively, this Agreement, the Note, the
Collateral Documents, the Estoppel Certificates, the Subordination Agreements,
the Environmental Indemnities, the Indemnities and Guaranties of Recourse
Obligation, and all other documents, agreements, instruments and certificates
executed and delivered by, or on behalf of, the Borrower in connection with the
transactions contemplated by this Agreement.
"LOAN PARTY" means the Borrower, COPT and each Collateral Property
Subsidiary.
"LOAN-TO-VALUE RATIO" means, as of the date of determination, a ratio
taking into account, among other things, the sum of the outstanding Loan being
tested, the proceeds of which were used to acquire the applicable Collateral
Property, the outstanding Reserves, if any, applicable to such Collateral
Property, the market value of such Collateral Property applying a capitalization
rate of 9.5%, and such other factors as Lender shall apply in its underwriting
standards and criteria in determining the Loan-to-Value Ratio. Such
determination shall be made by Lender in its sole but reasonable discretion,
which determination shall be binding and conclusive absent manifest error.
Lender shall have the right, in its sole discretion, to apply a higher or lower
capitalization rate for any period following the one (1) year anniversary of the
Closing Date if the Maturity Date is extended as permitted herein.
"MARKET SPREAD" two hundred thirty (230) basis points above the Yield.
Lender shall have the right, in its sole discretion, to designate a higher or
lower number of basis points as the Market Spread for any period following the
one (1) year anniversary of the Closing Date, if the Maturity Date is extended
as permitted herein.
"MATERIAL ADVERSE CHANGE" of the Borrower or its Subsidiaries means a
material adverse change in the business, condition (financial or otherwise),
assets, properties or operations of the Borrower or Subsidiary.
"MATERIAL ADVERSE EFFECT" means any set of circumstances or events
which (i) would have any material adverse effect whatsoever upon the validity or
enforceability of this Agreement, the Note or any other Related Document, (ii)
is or would reasonably be expected to have a material adverse effect on the
business, condition (financial or other), assets, properties or operations of
the Borrower or its Subsidiaries, as the case may be and as applicable, (iii)
would materially impair the Borrower's or its Subsidiaries' ability to fulfill
their respective obligations under the terms and conditions of this Agreement or
the other Related Documents to which they are a party thereto, or (iv) would
materially impair the Lender's rights in or to, or have a material adverse
effect on, the Collateral.
"MEMORANDA OF LEASE" mean, collectively, each memorandum of lease
describing a Lease and recorded in the appropriate filing offices of the
respective jurisdiction except that a memorandum of lease shall not be recorded
with respect to Leases made in connection with any Collateral Property located
in the State of Maryland.
14
<PAGE>
"MODIFICATIONS" has the meaning set forth in Section 4.02(f) hereof.
"MOODY'S" means Moody's Investors Service, Inc. or any successor to the
business thereof.
"MORTGAGES" mean, collectively, the Mortgages, Security Agreements and
Assignments of Leases and Rents to be entered into between the Borrower and the
Lender, in each case, substantially in the form of EXHIBIT E hereto, as a
condition to the making of a Loan, as the same may from time to time be amended,
modified, supplemented or extended.
"NET INCOME" of any Person means, for any period taken as one
accounting period, the net income (or loss) of such Person for such period after
eliminating all intercompany items, determined in accordance with GAAP;
PROVIDED, HOWEVER, that there shall be excluded (i) the income (or loss) of such
Person in which any other Person has a joint interest, except to the extent of
the amount of dividends or other distributions actually paid to such Person by
such other Person during such period, (ii) except to the extent includable
pursuant to the foregoing clause (i), the income (or loss) of any Person accrued
prior to the date it becomes a Subsidiary of such Person or is merged into or
consolidated with such Person or that Person's assets are acquired by such
Person, and (iii) any extraordinary gains or losses and gains or losses from
sales of assets (other than sales of inventory in the ordinary course of
business), determined in accordance with GAAP.
"NET WORTH" of any Person shall mean, for any period, the excess of (i)
Total Assets, over (ii) Total Liabilities.
"NOTE" shall mean the Secured Promissory Note in the form of Exhibit K.
"NOTICE OF BORROWING" has the meaning given to it in Section 2.02(b)(i)
hereof.
"NOTICE OF OPTIONAL PREPAYMENT" has the meaning given to it in Section
2.06 hereof.
"OBLIGATIONS" means, as to the Borrower, all liabilities, obligations
and indebtedness of the Borrower to the Lender of any and every kind and nature
(including, without limitation, principal payments, interest charges, late fees,
default interest, other charges and expenses, attorneys' fees, maintenance,
commitment and other fees chargeable to the Borrower by the Lender and future
advances made to or for the benefit of such Person), whether arising under this
Agreement, under any of the Related Documents, under any refinancing or
modification of the credit facilities provided under this Agreement or any of
the Related Documents, pursuant to any arrangement, agreement or understanding
hereafter among the Borrower and the Lender or otherwise, or acquired by the
Lender from any other source, whether now or hereafter owing, arising, due or
payable from the Borrower to the Lender, whether before or after the filing of a
proceeding under the Bankruptcy Code by or against the Borrower, regardless of
how evidenced, created, incurred, acquired or owing, whether primary, secondary,
direct, contingent, fixed or otherwise, including, without limitation,
obligations or guarantees of performance or payment.
15
<PAGE>
"OPERATIONAL DOCUMENTS" mean and include without limitation,
collectively, the Acquisition Documents, the Leases, the Memoranda of Lease, the
Building Condition Reports, the Environmental Reports and the Service
Agreements.
"PARTNERSHIP INTERESTS" means the general and/or limited partnership
interests (including all partnership units, all rights under partnership
agreements and all rights to distributions) of such Person that is a
partnership.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
thereto.
"PERMITS" shall have the meaning set forth in Section 3.03 hereof.
"PERMITTED USE OF FUNDS" The proceeds of the Loans shall be used by
Borrower for no purpose other than: (i) to fund certain of Borrower's
acquisition, redevelopment and development activities that (a) satisfy the
applicable covenants set forth in this Agreement and (b) are located in the
mid-Atlantic region of the United States and are otherwise generally consistent
with Borrower's existing properties; and (ii) to fund Borrower's working capital
requirements in connection with its general business purposes.
"PERSON" means an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture, Governmental Authority or other entity of whatever
nature.
"PLAN" means any "Employee Benefit Plan" (as defined in Section 3(3) of
ERISA) as covered by any provision of ERISA and as maintained, or otherwise
contributed to, or at any time during the five calendar year period immediately
preceding the date of this Agreement was maintained or otherwise contributed to,
by the Borrower, or any ERISA Affiliate of the Borrower for the benefit of the
respective employees of the Borrower or an ERISA Affiliate of the Borrower.
"PML" has the meaning set forth in Section 4.02(e) hereof.
"PROHIBITED TRANSACTION" means any "prohibited transaction" (within the
meaning of Section 406 of ERISA or Section 4975 of the IRC) with respect to any
Plan for which transaction no statutory exemption is not available.
"REGULATIONS D, G, T, U AND/OR X" means Regulations D, G, T, U and/or X
of the Board of Governors of the Federal Reserve System, as in effect from time
to time.
"REIT" means a "real estate investment trust" as defined in Sections
856-860 of the IRC.
"REGULATORY CHANGE" means the introduction of, or any change in, United
States federal, state or local laws or regulations (including Regulation D) or
treaties or foreign laws or
16
<PAGE>
regulations after the Closing Date or the adoption or making after such date of
any interpretations, directives, guidelines or requests applying generally to a
class of banks and/or financial institutions, including the Lender, of or under
any United States federal, state, or local rules or regulations or any treaties
or foreign laws or regulations (whether or not having the force of law) by any
court or monetary or Governmental Authority charged with the interpretation or
administration thereof. Notwithstanding the foregoing, a "Regulatory Change"
shall not include any change in the aggregate reserve percentages included in
the definition of "LIBOR" which are from time to time established by the Board
of Governors of the United States Federal Reserve System and any other
Governmental Authority to which the Lender is now or hereafter subject
(including, without limitation, any reserve on "Eurocurrency Liabilities" (as
defined in Regulation D of the Board of Governors of the United States Federal
Reserve System)).
"RELATED DOCUMENTS" means, collectively, the Loan Documents and the
Operational Documents.
"RELEASE" and "Releases" means a release or releases of a Collateral
Property from the applicable Mortgage(s) or Deed(s) of Trust in the manner and
upon compliance with the requirements, terms and conditions set forth in Section
2.14 hereof.
"RELEASE PROPERTY" has the meaning set forth in Section 2.14 hereof.
"RELEASE PRICE" has the meaning set forth in Section 2.14 hereof.
"REPAIRS" has the meaning set forth in Section 5.16 hereof.
"REPORTABLE EVENT" means any "reportable event" described in Section
4043(b) of ERISA with respect to which the 30 day notice requirement set forth
in Section 4043(a) of ERISA has not been waived by the PBGC that occurs or has
occurred in connection with any Plan.
"REQUIREMENTS OF ENVIRONMENTAL LAW" means any and all requirements
imposed by and provisions of any law, rule, regulation, order, decision or
decree of any federal, state or local executive, legislative, judicial,
regulatory or administrative agency, board or authority which relate to (i)
pollution, contamination, protection, clean-up, restoration, destruction, loss
or injury to or of the air, surface water, groundwater, land (including, without
limitation, surface and subsurface strata) or other natural resources; (ii)
solid, gaseous or liquid Waste generation, handling, transportation, treatment,
processing, clean-up, storage, disposal, recycling or reclamation; (iii)
exposure to pollutants, contaminants, hazardous materials, hazardous substances,
toxic materials or substances, or Wastes; (iv) the safety or health of employees
(other than social security laws); (v) the manufacture, generation, processing,
distribution, use, treatment, storage, disposal, transport, recycling,
reclamation or handling of chemical substances, pollutants, contaminants,
hazardous materials, hazardous substances, toxic materials or substances, or
Wastes; or (vi) noise.
17
<PAGE>
"RESERVES" mean the reserves, maintained in accordance with customary
real estate practices for loans of a similar type, established by the Borrower,
and reasonably approved by Lender, at the closing of each applicable Loan
against the availability under this Agreement in the amount equal to 125% of the
costs of the Modifications.
"SECURITIES" mean all shares, options, membership interests,
partnership interests, participations or other equivalents (regardless of how
designated) of or in a corporation, limited liability company, partnership or
equivalent entity, whether voting or non-voting, including, without limitation,
common stock, preferred stock, warrants, convertible debentures and all
agreements, instruments and documents convertible, in whole or in part, into any
one or more of or all of the foregoing.
"SERVICE AGREEMENTS" mean, collectively, the material management,
operational and service agreements entered into in connection with the
Acquisition Properties.
"SUBORDINATION AGREEMENTS" mean, collectively, the Subordination,
Non-Disturbance and Attornment Agreements to be entered into between the tenants
of the Collateral Properties and the Lender, in each case, in the form of
EXHIBIT J hereto, as a condition to the making of a Loan, as the same may from
time to time be amended, modified, supplemented or extended.
"SUBSIDIARY" means, with respect to any Person, any corporation,
limited liability company, partnership or equivalent entity of which more than
50% of the outstanding Securities having ordinary voting power to elect or
appoint a majority of the Board of Directors, managers, general partners or
equivalent positions of such corporation, limited liability company, partnership
or equivalent entity is at the time directly or indirectly owned by such Person,
or by one or more other Subsidiaries of such Person.
"S&P" means Standard & Poor's, a division of the McGraw Hill Companies,
or any successor to the business thereof.
"TOTAL ASSETS" of any Person shall mean, at the date of determination,
all assets of such Person which would, determined in accordance with GAAP, be
classified on a balance sheet as an asset.
"TOTAL LIABILITIES" of any Person shall mean, at the date of
determination, all liabilities of such Person which would, determined in
accordance with GAAP, be classified on a balance sheet as a liabilities.
"TRANSACTION COSTS" means the fees, costs and expenses payable by the
Borrower pursuant to this Agreement or in connection herewith and the fees,
costs and expenses payable by the Borrower in connection with the Loan
Documents, in each case including, but not limited to, attorney's fees and
expenses.
18
<PAGE>
"TREASURY RATE" means, as of any date of determination, a rate equal to
the Yield as reported in Federal Reserve Statistical Release H.15-Selected
Interest Rate, published most recently prior to the date the applicable Treasury
Rate is being determined.
"WASTE" or "WASTES" means any material or substance that is defined,
identified or regulated as a waste, solid waste or hazardous waste pursuant to
any applicable federal, state or local law, rule, regulation, order, decision or
decree, including, without limitation, Section 1004 of the RCRA. As used in this
Agreement the phrase "pollutants, contaminants, hazardous materials, hazardous
substances, toxic materials or substances, or Wastes", includes, without
limitation, in each instance, asbestos, polychlorinated biphenyl's, radioactive
materials, oil, petroleum, petroleum products and waste oils.
"WITHOUT RECOURSE" or "WITHOUT RECOURSE" means with reference to any
obligation or liability, any obligation or liability for which the obligor
thereunder is not liable or obligated other than as to its interest in a
designated Acquisition Property or the Collateral Properties or other
specifically identified asset only, subject to such limited exceptions to the
non-recourse nature of such obligation or liability, such as fraud,
misappropriation, misapplication and environmental indemnities, as are usual and
customary in like transactions involving institutional lenders at the time of
the incurrence of such obligation or liability.
"YIELD" means the yield to maturity for the then current non-callable
ten (10) year U.S. Treasury Bond.
Section 1.02. ACCOUNTING AND BANKING TERMS. All accounting and banking
terms not specifically defined herein shall be construed in the case of
accounting terms, in accordance with GAAP and, in the case of banking terms, in
accordance with general practice among commercial banks and financial
institutions in New York, New York.
Section 1.03. DISCRETION. Whenever it is provided in this Agreement or
in any of the Loan Documents that (i) the Lender exercises any right given to it
to approve or disapprove, (ii) any arrangement or term is to be satisfactory to
the Lender, or (iii) any other decision or determination is to be made by the
Lender, the decision of the Lender to approve or disapprove, all decisions that
arrangements or terms are satisfactory or not satisfactory and all other
decisions and determinations made by the Lender, shall be in the reasonable
discretion of the Lender, except as may be otherwise expressly and specifically
provided herein to be in Lender's (a) sole discretion, (b) sole and absolute
discretion, or (c) sole, but reasonable discretion.
ARTICLE 2. THE CREDIT FACILITIES
Section 2.01. THE CREDIT FACILITIES; RIGHT TO EXTEND. (a) At all times
during the Loan Availability Period (or earlier termination of the Loan
Availability Period hereunder), subject to the terms and conditions and relying
upon the representations and warranties hereinafter set forth, the Lender agrees
to make available to the Borrower, one or more Loans on a revolving
19
<PAGE>
credit basis in the aggregate principal amount of up to the Available
Commitment, to be made to the Borrower upon the request of an Authorized Person
in multiple advances, each on a Borrowing Date. The funds advanced pursuant to
the Loans shall be used only for Permitted Uses of Funds. All of the Loans shall
be without recourse to the Borrower subject, however, to certain limitations and
exclusions as required by Lender. In addition, all of the Loans are hereby
cross-collateralized and cross-defaulted with each other and are hereby
cross-defaulted with other Indebtedness of the Loan Parties which, when
originally extended had or has a principal amount of not less than $75,000,000
or which provided or provides for advances in the aggregate of not less than
$75,000,000, and shall be cross-defaulted with that certain secured credit
facility dated as of May 28, 1998 between Bankers Trust Company, as agent and
lender, and the Loan Parties (the "BT Facility").
(b) Borrower may, by notice to Lender given at least thirty (30) days
prior to the date Borrower submits the Compliance Certificate required by
Section 5.07(b), request a three (3) month extension of the Expiration Date,
which request shall be granted or denied in writing by Lender, in Lender's sole
discretion. Lender shall make its determination within ten (10) business days
following Lender's receipt of any and all documentation required by Lender in
order to process each such request, including, but not limited to (i) the
Compliance Certificate, (ii) the Trust's most recent quarterly report on Form
10Q filed with the Securities and Exchange Commission for the Fiscal Quarter
ending immediately prior to Borrower's request for such extension, (iii) the
most recent operating statements for each Collateral Property, (iv) the most
recent rent rolls for each of the Collateral Properties, and (v) such other
information requested by Lender from time to time. Lender's failure to respond
to Borrower's request within such ten (10) day period shall be deemed to be a
denial of Borrower's request for such extension. The granting of one or more
extensions of the Expiration Date shall not be deemed to be a consent to any one
or more subsequent requests for extensions, and any extensions may be
conditioned on such requirements as Lender shall elect.
At no time shall the Expiration Date be more than three hundred sixty
five (365) days from any day during the term hereof, inclusive of any extension
period granted by Lender.
Section 2.02. THE LOANS; PROCEDURE FOR BORROWING. (a) The Loans shall
be evidenced by the Note executed on the Closing Date by Borrower in the form of
EXHIBIT K attached hereto, and secured by Collateral Documents for each Loan.
Each and all of which shall mature on the Expiration Date and bear interest for
the period from the Borrowing Date thereof to the date of payment in full
thereof on the unpaid principal amount thereof from time to time outstanding, at
the applicable interest rates per annum determined and payable as specified in
Section 2.03 hereof. The Loans shall be administered by the Lender; PROVIDED,
HOWEVER, that the Lender may elect, at its expense, to have the Loans
administered and serviced by a third party.
(b)(i) Each request for a Loan shall be made upon written notice in the
form of EXHIBIT J hereto (a "NOTICE OF BORROWING") given by an Authorized Person
of the Borrower to the Lender not later than 11:00 a.m. (New York City time) on
the third (3rd) Business Day prior to the requested Borrowing Date. Such notice
shall be made by telecopy or telephone, confirmed
20
<PAGE>
immediately in writing, by delivery of a Notice of Borrowing specifying therein
(A) the requested Borrowing Date, which shall not, in any event, be later than
three (3) months prior to the Expiration Date, (B) the aggregate amount of the
Loans therein requested to be made, which amount shall not be greater than the
Available Commitment or less than One Hundred Thousand and No/100 Dollars
($100,000.00) and in multiples of not less than Ten Thousand and No/100 Dollars
($10,000.00). The Notice of Borrowing shall be irrevocable and shall bind the
Borrower to borrow in accordance with such notice. Upon fulfillment of the
applicable conditions set forth herein, the Lender may, in its sole discretion,
make such Loan available to the Borrower by disbursing such proceeds as an
Authorized Person of the Borrower may instruct the Lender in advance in writing.
Lender shall not be required to fund more than three (3) Loan advances in any
thirty (30) day period.
(ii) The obligations of the Borrower to pay the principal of and
interest on the Loans shall be evidenced by the Note in favor of the Lender duly
executed and delivered by the Borrower on the Closing Date. All Loans to
Borrower pursuant to this Agreement and all payments of the principal of such
Loans to Lender shall be recorded by Lender on the schedule annexed to the Note
and by specific reference made a part thereof. The amounts of principal
indicated by said Schedule as outstanding or accrued and unpaid, as the case may
be, shall constitute rebuttable presumptive evidence of the principal
outstanding and the accrued and unpaid interest on the Loans; provided, that any
failure or error on the part of Lender in recording any Loan on such Schedule
shall not limit the obligation of Borrower to pay all principal of and interest
accruing on the Loans. Although the Note shall be dated on the Closing Date,
interest in respect thereof shall be payable only on the outstanding principal
amounts of each Loan from the date of the making of such Loan until the
principal amount thereof shall be paid in full in accordance with this
Agreement.
(iii) Borrower and the Trust shall evidence their liability on account
of the limitations and exclusions from the without recourse nature of their
obligations by each of their execution of an Indemnity and Guaranty of Recourse
Obligations in the form of EXHIBIT N hereto.
(c) The obligation of Lender to make a Loan shall be subject to the
following, in each instance, giving effect to the Loan then requested by
Borrower:
(i) If the Loan is in connection with an Acquisition Property, the
Loan-To-Value Ratio of each Acquisition Property shall not exceed 65% and each
such Acquisition Property shall have a Debt Service Coverage ratio equal to or
greater than 1.25 to 1.0;
(ii) the Loan-To-Value Ratio for the Collateral Properties, in the
aggregate shall not exceed 65%, and the Debt Service Coverage ratio for the
Collateral Properties, in the aggregate shall be equal to or greater than 1.25
to 1.0;
(iii) the Loan Amount to be funded for an Acquisition Property shall
equal the lesser of (A) 65% of the value of the Acquisition Property, as
determined by Lender in its sole discretion taking into account the factors
considered by Lender in determining an Individual Loan-To-Value Ratio, (B) 65%
of the final purchase price of the Acquisition Property, after
21
<PAGE>
taking into account any credits or adjustments thereto, and (C) an amount such
that the Acquisition Property can satisfy a Debt Service Coverage ratio equal to
or greater than 1.25 to 1.0;
(iv) the conditions set forth in Article 4.0 shall have been
satisfied or complied with to Lender's satisfaction in its sole discretion; and
(v) the Mortgages of record for the Collateral Properties shall
equal the amount of the Loans then outstanding plus the amount of the Loan then
being requested by Borrower.
(d) In each instance throughout this Agreement, all determinations
of Loan-to-Value Ratios and Debt Service Coverage ratios shall be made by Lender
in its sole but reasonable discretion taking into account Lender's then
applicable underwriting standards and criteria. Such determination shall be
binding and conclusive absent manifest error.
Section 2.03. RATE OF INTEREST; CALCULATION OF INTEREST. (a) Each Loan
shall bear interest on the unpaid principal amount thereof from the Borrowing
Date until such principal amount is paid in full at a rate or rates per annum
determined in accordance with this Section 2.03 or Section 2.12, if applicable.
The Borrower shall pay interest on the unpaid amount of each Loan at the rate
per annum for each Interest Period equal to the sum of (i) LIBOR in effect from
time to time applicable to each Interest Period for such Loan, plus (ii) the
Applicable Margin. Interest shall be payable in arrears on the third (3rd)
business day of each calendar month, commencing with the first calendar month
immediately following the Borrowing Date and ending on the date the principal
amount of such Loan shall be paid or prepaid, to the extent of the interest
accrued on the principal amount of such Loan so paid or prepaid.
(b) From and after the occurrence of any Event of Default under Section
8.01 hereof, and for so long as such Event of Default shall continue (after as
well as before judgment), the unpaid principal amount of each Loan and any other
amount then due and payable but not yet paid hereunder shall bear interest at a
rate per annum equal to the then interest rate of such outstanding Loan
determined in accordance with clause (a) above PLUS five hundred (500) basis
points per annum, payable on demand. Overdue interest shall be compounded and
bear interest, to the extent permitted by law, on each date for payment of
interest on the Loans hereunder. The Borrower shall pay a late charge of four
percent (4%) of each monthly payment not paid within ten (10) days after the
date upon which such payment was due (which amount the Borrower and the Lender
agree is a fair and reasonable estimate of the Lender's damages in light of all
of the facts and circumstances as of the date of this Agreement). Such late
charge shall be due and payable by the Borrower concurrently with the late
payment for which such charge is assessed hereunder.
(c) Interest shall be calculated on a basis of a 360-day year for the
actual number of days elapsed during the Interest Period on the balance
outstanding during such Interest Period. To the extent that interest is required
to be calculated at the Base Rate plus the Applicable Margin pursuant to Section
2.12 hereof, any change in the interest rate on the Loans shall become effective
as of the opening of business on the day on which such change in the Base Rate
22
<PAGE>
becomes effective. The Lender shall, as soon as practicable, notify the
Borrower of the effective date and the amount of each such change in the Base
Rate; PROVIDED, HOWEVER, that any failure by the Lender to give the Borrower any
such notice shall not affect the application of such change in the Base Rate.
Each determination of an interest rate by the Lender pursuant to any provision
of this Agreement shall be, absent manifest error, deemed to be correct.
(d) Anything herein to the contrary notwithstanding, the obligations of
the Borrower under this Agreement and the Note shall be subject to the
limitation that payments of interest shall not be required to the extent that
receipt thereof would be contrary to provisions of law applicable to the Lender
limiting rates of interest which may be charged or collected by the Lender. If
the Borrower pays the Lender interest in excess of the maximum amount permitted
by applicable law, such excess shall be applied in reduction of the principal
balance of the Note, and any remaining excess shall be refunded to the Borrower.
Section 2.04. INDEMNITY AND FUNDING LOSSES. The Borrower hereby agrees
to indemnify the Lender and to reimburse and hold the Lender harmless from any
Breakage Fees, loss, liability, cost or actual out-of-pocket expense (including,
without limitation, reasonable attorney's fees and expenses for the Lender
incurred in connection with any action or proceeding between or among the
Borrower and any Lender or between the Lender and any third party or otherwise)
that the Lender may sustain or incur as a consequence of (a) a default by the
Borrower in the payment of principal of, or interest on, any Loan, (b) a default
by the Borrower in borrowing (or in fulfilling on or before the requested
Borrowing Date the applicable conditions set forth in Article 4 hereof with
respect to such borrowing), (c) a default by the Borrower in making any
prepayment after notice thereof has been given in accordance with Section 2.05
or 2.06 hereof, or (d) the Borrower making any payment of principal with respect
to any Loan on a day other than the last day of the Interest Period applicable
thereto. The Lender shall deliver to the Borrower a certificate as to the amount
of such loss, liability, cost or expense, which certificate shall be conclusive
in absence of manifest error. This covenant shall survive payment of the Loans
and termination of this Agreement as to claims arising prior to the indefeasible
payment in full of the Loans.
Section 2.05. MANDATORY PREPAYMENTS. (a) EXCESS OF COMMITMENT. If at
any time the aggregate unpaid principal amount of the Loans outstanding exceeds
the Commitment, the Borrower shall immediately repay such Loans as Lender shall
require, without premium or penalty, in a principal amount at least equal to
such excess and in a minimum amount equal to $10,000 or any larger whole
multiple of $10,000, together with accrued interest on the amount prepaid to the
date of repayment.
(b) FINANCIAL REPORTING TESTS. If at any time (i) the
Loan-To-Value Ratio for the Collateral Properties in the aggregate exceeds 75%
or (ii) the Debt Service Coverage ratio for the Collateral Properties in the
aggregate is less than 1.25 to 1.0, the Borrower shall promptly, but in no event
later than ten (10) days after notice from Lender, either (I) prepay a portion
of the Loans designated by Lender in its sole discretion, or (II) grant the
Lender a first and only mortgage lien, in form and substance satisfactory to the
Lender, in certain of its existing properties which are
23
<PAGE>
currently unencumbered, and otherwise pledge to and encumber in favor of Lender
such property as if it were an Acquisition Property, which have a Loan-To-Value
Ratio equal to or less than 65%, and a Debt Service Coverage ratio equal to or
greater than 1.25 to 1.0, and are otherwise satisfactory to the Lender in all
respects in Lender's sole discretion; in either case so that (x) the
Loan-To-Value Ratio of the Collateral Properties in the aggregate does not
exceed 70%, (y) the Debt Service Coverage ratio for the Collateral Properties in
the aggregate equals or is greater than 1.25 to 1.0, and (z) the Loans are
otherwise in compliance with the provisions of Section 7 hereof. Any such
prepayment shall be accompanied by the attendant Breakage Fees.
(c) ASSET SALES. Subject to Section 6.05 hereof, the Borrower
shall apply all net proceeds of any Collateral sales as a mandatory prepayment
of the Loan without penalty or premium. Subject to Section 2.08 hereof, all such
amounts designated for mandatory prepayment, as aforesaid, shall be applied to
the respective scheduled principal payments outstanding (i) first to Borrower's
indebtedness with respect to such Collateral and then (ii) in accordance with
Section 2.05(b) hereof.
Section 2.06. OPTIONAL PREPAYMENTS. The Borrower may, upon at least two
(2) Business Days prior notice to the Lender, voluntarily prepay any Loan in
whole at any time or in part from time to time, with accrued interest to the
date of such prepayment on the amount prepaid but, subject to Section 2.04(d)
hereof, in an amount not less than $100,000 or an integral multiple of $100,000
in excess thereof, and so long as in each such instance the remaining Loans, in
the aggregate, have a Debt Service Coverage ratio equal to or greater than 1.25
to 1.0 and a Loan-To-Value Ratio that shall not exceed 75% based on the Lender's
underwriting standards and determination, in its sole but reasonable discretion.
Each such notice shall be made by an Authorized Person of the Borrower by
telecopy or telephone, confirmed immediately in writing, by delivery of a Notice
of Optional Prepayment, substantially in the form of EXHIBIT L hereto,
specifying therein (i) the proposed date of such prepayment, and (ii) the
aggregate amount of the particular Loan(s) therein proposed to be prepaid. Each
Notice of Optional Prepayment shall be irrevocable and shall bind the Borrower
to make such prepayment in accordance with such notice. Any amounts prepaid
pursuant to this Section 2.06 may be re-borrowed by Borrower during the Loan
Availability Period in accordance with the terms and conditions of this
Agreement.
Borrower shall not be entitled to make an optional prepayment, if,
after giving effect to the prepayment as requested in a Notice of Optional
Prepayment, the financial reporting tests set forth in Section 2.05(b) shall not
be satisfied, unless the "make whole" provisions of said Section are complied
with by Borrower.
Section 2.07. PAYMENTS. All payments (including prepayments) to be made
by the Borrower under this Agreement shall be made by wire transfer to the
Lender, in Dollars and in immediately available funds, at such place or places
as the Lender may from time to time designate by written notice to the Borrower.
All payments to be made hereunder by the Borrower shall be made without setoff,
counterclaim or defense. If any payment hereunder
24
<PAGE>
becomes due and payable on a day other than a Business Day, the due date of such
payment shall be extended to the next succeeding Business Day and, with respect
to payments of principal, interest thereon shall be payable at the applicable
rate during such extension; PROVIDED, HOWEVER, that no such payments of each
Loan shall extend beyond the Expiration Date.
Section 2.08. APPLICATION OF PAYMENTS. All payments of principal under
this Agreement shall be applied to Loan or Loans then outstanding in such manner
and order of priority as the Lender shall elect in its sole and absolute
discretion. Notwithstanding the foregoing, the amounts secured by any
Jurisdictional Capped Mortgage shall not be reduced in connection with any
payments of principal which the Lender has the right to apply to the Loans in
such manner and order as Lender shall elect in its sole and absolute discretion
in accordance with the immediately preceding sentence until the aggregate
maximum principal amount secured by such Jurisdictional Capped Mortgage(s) shall
exceed the total principal amount of all Loans then outstanding. In any such
event, the Lender will determine in its sole discretion which Mortgages or Deeds
of Trust comprising such Jurisdictional Capped Mortgages are to be reduced.
Section 2.09. USE OF LOAN PROCEEDS. The Borrower shall use the proceeds
of the Loans for the Permitted Uses of Funds only provided however that any
acquisition complies with the provisions of Section 7.04 and Article 4 hereof
and the other covenants contained herein.
Section 2.10. FEES. (a) Upon Borrower's signing of this Agreement, a
non-refundable commitment fee (the "Commitment Fee") shall be deemed earned in
full by Lender and shall be due and payable to Lender, as set forth below:
(i) A Commitment Fee in the amount of $62,500 shall be due and
payable by Borrower on account of the credit facility being made available to
Borrower by Lender pursuant to the terms of this Agreement, provided that Lender
receives payment thereof on or prior to December 31, 1999.
(ii) In the event that Lender has not received the payment
described in 2.10(a)(i) on or prior to December 31, 1999, then a Commitment Fee
in the amount of $3,500 shall be payable by Borrower on account of the credit
facility being made available to Borrower by Lender pursuant to the terms of
this Agreement.
(iii) In all events, the obligation of the Lender to make any Loan
(including any Loans to be made on the Closing Date) shall be subject to
Lender's receipt of the fees set forth in (a) or (b) hereof , as applicable,
prior to the relevant Borrowing Date.
(b) A non-refundable expense reimbursement fee payable to the
Lender by the Borrower on the Closing Date and on each Borrowing Date
thereafter. Such expense reimbursement fee shall include any fees and expenses
incurred or paid by Lender in connection with the processing, underwriting or
closing of a Loan including, without limitation, property inspection fees,
appraisal fees, attorney fees, fees for title insurance, recording fees and
taxes,
25
<PAGE>
travel expenses of Lender's personnel or Lender's attorneys, and other
out-of-pocket expenses incurred by Lender.
Section 2.11. INCREASED COSTS. If any Regulatory Change: (a) subjects
the Lender to any tax of any kind whatsoever with respect to this Agreement, the
Note or any Loan or changes the basis of taxation of payments to the Lender of
principal, interest, commitment fees, or any other amount payable hereunder in
any of the foregoing (except for changes in the rate of tax on the overall net
income of the Lender); (b) imposes, modifies or holds applicable to the Lender
(or any corporation controlling the Lender) any reserve or capital adequacy
requirements or liquidity ratios or requires the Lender or any corporation
controlling the Lender) to make special deposits against or in respect of assets
or liabilities of, deposits with or for the account of, or credit extended by,
the Lender; or (c) imposes on the Lender any other condition affecting this
Agreement, the Note or the Loans; and the result of any of the foregoing is (i)
to increase the cost to the Lender of making or maintaining Loans or to reduce
any amount received or receivable by the Lender hereunder, (ii) to require the
Lender (or any corporation controlling the Lender) to make any payment to any
fiscal, monetary, regulatory or other authority calculated on or by reference to
any amount received or receivable by the Lender under this Agreement or the
Note, or (iii) to reduce the rate of return on the Lender's capital as a
consequence of its obligations hereunder to a level below that which the Lender
could have achieved but for such adoption, change or compliance (taking into
consideration the Lender's policies with respect to capital adequacy), in any
case by an amount deemed by the Lender to be material, then, in any such case,
the Borrower shall promptly pay the Lender (or such corporation controlling the
Lender), on its written demand, any additional amount necessary to compensate
the Lender (or such corporation) for such additional cost, reduced amount
receivable or reduction in rate of return with respect to this Agreement, the
Note or the Loans, together with interest on such amount from the date demanded
until payment in full thereof at the rate per annum applicable to Loans,
calculated on the basis of a 360-day year for the actual days elapsed. If the
Lender becomes entitled to claim any additional amount pursuant to this Section
2.11, the Lender shall promptly submit to the Borrower a certificate as to any
additional amount payable pursuant to the first sentence of this Section 2.11,
which amount shall be, absent manifest error, presumed to be correct; PROVIDED,
HOWEVER, that the determination thereof is made on a reasonable basis. In
determining such amount, the Lender shall use any reasonable averaging and
attribution methods.
Section 2.12. LIBOR ALTERNATE RATE In the event, and on each occasion,
that on the day of the commencement of a particular Interest Period, the Lender
determines in good faith (which determination shall be conclusive and binding
upon the Borrower) that (a) U.S. dollar deposits, in an amount equal to the
aggregate principal amount of the Loans which are outstanding during such
Interest Period, for delivery on the first day of such Interest Period and for
the number of days in such Interest Period, are not generally available in the
London Interbank Market or the circumstances affecting the London Interbank
Market make it impractical to determine LIBOR, or (b) any Regulatory Change
shall make it unlawful for the Lender to make or maintain LIBOR with respect to
any Loan or to fund any Loan at LIBOR in the London Interbank Market or to give
effect to its obligations hereunder, then the outstanding principal amount of
the Loans shall
26
<PAGE>
bear interest at an interest rate equal to the Base Rate plus the Applicable
Margin, unless and until the Lender shall have determined in good faith (which
determination shall be conclusive and binding upon the Borrower) that the
aforesaid circumstances no longer exist, whereupon the interest rate applicable
to such Loans shall be converted back to an interest rate equal to LIBOR plus
the Applicable Margin, determined in the manner set forth above as of the
commencement of the next Interest Period.
Section 2.13. ADDITIONAL DISBURSEMENT. (a) Lender may agree, from time
to time with respect to certain Collateral Properties to advance to Borrower an
amount which is less than the principal amount of the Loan secured by such
Collateral Properties. In that event, Lender shall prepare a SCHEDULE 2.13 to
this Agreement which shall become a part hereof and set forth the additional
disbursements which Lender shall make to Borrower with respect to the Collateral
Properties identified on such Schedule (the "Additional Disbursement") subject
to the terms of this Section 2.13.
(b) Upon and with a request by Borrower for an Additional
Disbursement, Borrower shall provide evidence in all respects satisfactory to
Lender that: (i) additional rentals which support the Additional Disbursement
are derived from leases under which the lease term has commenced; (ii) the
lessees or tenants under such leases are acceptable to Lender; (iii) assuming
the Additional Disbursement, the requirements set forth in Sections 7.01 and
7.03 hereof are met; and, (iv) no Event of Default has occurred or is
continuing.
(c) Lender shall make no more than two Additional Disbursements
with respect to the Collateral Properties identified on any SCHEDULE 2.13
hereto. Borrower's right to request such Additional Disbursements shall
terminate 180 days from the Borrowing Date set forth on the applicable SCHEDULE
2.13. No Additional Disbursement shall be made by Lender in an amount less than
One Hundred Thousand ($100,000.00) Dollars.
Section 2.14. RELEASE OF PROPERTIES. Upon Borrower's written request
received from time to time, Lender shall release one (1) or more individual
Collateral Properties from the lien of the Loan Documents ("Release Property"),
upon the following terms and conditions:
(a) Borrower's written request shall be received by Lender at
least sixty (60) days prior to the date of the requested release (the "Release
Date").
(b) At the time of the request and the time of the release; there shall
be no event of default under the Loan Documents, and there shall exist no
condition or state of facts which with the passage of time or the giving of
notice or both, would constitute a default under the Loan Documents.
(c) Each Release Property released shall be the entire property
identified with the applicable Loan.
27
<PAGE>
(d) For each Release Property, Borrower shall have either (i) made the
"Release Price" payment to Lender, in an amount equal to 100% of the principal
balance of the Loan applicable to the Release Property, together with any
interest due thereon plus any applicable Breakage Fees, or (ii) shall have
substituted certain of its existing properties, which are currently
unencumbered, which have a Loan-To-Value Ratio equal to or less than 65%, and a
Debt Service Coverage ratio equal to or greater than 1.25 to 1.0, and are
otherwise satisfactory to Lender in Lender's sole discretion, for the Release
Property. If Lender is prepared to accept a substitute property for the Release
Property, Borrower shall execute and deliver any and all documents required by
Lender in order for such substituted property to be a Collateral Property,
including without limitation, the Loan Documents.
(e) At the time of the release, Lender shall have the right to
recalculate the Debt Service Coverage ratio and the Loan-To-Value Ratio. If on
the date of determination, the aggregate Debt Service Coverage ratio for the
Collateral Properties (excluding the Release Property) is less than 1.25 to 1.0
or the aggregate Loan-To-Value Ratio for the Collateral Properties (excluding
the Release Property) is greater than 75%, Borrower shall be obligated to make a
mandatory prepayment in accordance with, and as provided in, Section 2.05(b) as
a condition to Lender's consent to any requested release.
(f) Borrower shall pay to Lender any and all of Lender's costs and
expenses incurred with respect to any request for a release whether or not
Lender consents to such release. Such costs and expenses may include, without
limitation, all escrow, closing and recording costs including, but not limited
to, the cost of preparing and delivering any reconveyance documentation and
modification of the Loan Documents, including legal fees and costs, the cost of
any title insurance endorsements that Lender may require, any expenses incurred
by the Lender in connection with the partial release, the acceptance of any
substitute property and any sums then due and payable under the Loan Documents.
(g) the Mortgages of record for the Collateral Properties shall equal
the amount of the remaining Loans including any payments or re-borrowings of
principal by Borrower as of the date of the Release.
(h) Such other terms and conditions, and execution of such other
documents, as Lender shall reasonably require.
Section 2.15. RIGHT OF FIRST OFFER. Borrower acknowledges that as an
inducement to make the Loan, Lender shall have the right of first offer to
provide directly (or arrange with a third party lender to provide) to Borrower
any replacement financing with respect to any or all of the Collateral
Properties (the "REPLACEMENT LOAN"). With respect to such right of first offer,
if Borrower seeks any replacement financing with respect to any or all of the
Collateral Properties, Borrower shall so notify Lender in writing (the
"REPLACEMENT LOAN NOTICE"), which Replacement Loan Notice shall be accompanied
by the material terms and conditions of the financing sought by Borrower.
Borrower covenants and agrees that the terms and conditions set forth in the
Replacement Loan Notice shall be on the then generally available and current
market terms and conditions for loans being made by institutional lenders to
borrowers similar to the
28
<PAGE>
Borrower and secured by properties similar to the Collateral Property which is
the subject of the Replacement Loan Notice. If Lender advises Borrower within
twenty (20) days of receipt of the Replacement Loan Notice, that Lender
preliminarily believes it can provide the financing sought by Borrower, then
Borrower agrees to commence a customary loan application process with Lender,
and to exclusively pursue same with Lender. If Lender advises Borrower that it
cannot provide the financing sought by Borrower, Borrower shall have the right
to apply to a third party lender of Borrower's choice for such financing. If
Borrower is prepared to make a loan application, or accept a loan commitment
from a third party lender, Borrower shall promptly notify Lender of the terms
and conditions Borrower is intending to accept from such third party lender.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES
In order to induce the Lender to enter into this Agreement and to
extend the financial accommodations hereunder, each of the Loan Parties hereby
represents and warrants to the Lender that:
Section 3.01. ORGANIZATION AND POWERS; REIT STATUS. COPT is a real
estate investment trust duly organized and validly existing and in good standing
under the laws of the State of Maryland. The Borrower is a limited partnership
duly organized and validly existing and in good standing under the laws of the
State of Delaware. The Borrower is duly qualified to do business as a foreign
corporation or entity and is in good standing in each jurisdiction (other than
the state of its respective incorporation or organization) in which the conduct
of its respective business or the ownership or operation of its respective
properties or assets makes such qualification necessary, except where the
failure to so qualify would not have a Material Adverse Effect. Each Loan Party
has full power and authority to own its respective properties and assets and
carry on its respective business as now conducted. COPT has not taken any action
that would prevent it from maintaining its qualification as a REIT.
Section 3.02. POWER AND AUTHORIZATION. (a) Each Loan Party has full
power, right and legal authority to execute, deliver and perform its respective
obligations under this Agreement, the Note and such of the other Related
Documents, to which it is a party. Each Loan Party has taken all actions
necessary to authorize the execution and delivery of, and the performance of its
obligations under such documents and to make borrowings by the Borrower under
this Agreement, as the case may be. This Agreement, the Note and such of the
other Related Documents to which it is a party, constitute legal, valid and
binding obligations of the Borrower and the other Loan Parties enforceable
against each of them in accordance with their respective terms subject to the
effect of any applicable bankruptcy, insolvency, reorganization or moratorium or
similar laws affecting the rights of creditors generally. No consent of any
person, and no consent, license, approval or authorization, or registration or
declaration with, any Governmental Authority, which has not been obtained, taken
or made (other than the financing statements and filings required to be filed
pursuant to this Agreement and the Related Documents, which have been delivered
to the Lender for filing on the Closing Date and on the date of the closing of
each Loan, as the case may be), is required in connection with the
29
<PAGE>
execution, delivery or performance by each Loan Party of this Agreement, the
Note or the other Related Documents to which it is a party, or the making of
borrowings by any Loan Party under this Agreement.
Section 3.03. PERMITS; COMPLIANCE WITH LAWS. (A) The Borrower or such
other applicable Loan Party has all permits, licenses and governmental
franchises and other authorizations from all Governmental Authorities
(collectively, the "PERMITS") that are necessary to own and operate its business
as presently being conducted and as contemplated to be conducted immediately
after the Closing Date and the date of the closing of each Loan. All such
Permits are valid and subsisting and in full force and effect. (B) Each Loan
Party is in compliance with the terms of such Permits and all statutes, laws,
ordinances, governmental rules or regulations (including Environmental Laws) and
all judgments, orders or decrees (federal, state, local or foreign) to which it
is subject, except for violations of which would not have a Material Adverse
Effect.
Section 3.04. NO LEGAL BAR. The execution, delivery and performance by
the Borrower and any other Loan Party of this Agreement, the Note and such of
the other Related Documents to which it is a party, and the making of borrowings
hereunder by any such Loan Party, do not and will not (i) violate or contravene
any provisions of any existing law, statute, rule, regulation or ordinance or
charter document, (ii) violate or contravene any provision of any order or
decree of any court or Governmental Authority to which the Borrower or any Loan
Party or any of its properties or assets are subject, (iii) violate or
contravene any provision of any mortgage, indenture, security agreement,
contract, undertaking or other agreement or instrument to which the Borrower is
a party or which purports to be binding upon either of it or any of its
properties or assets, except for violations or contravention of which would not
have a Material Adverse Effect, or (iv) result in the creation or imposition of
any Lien on any of the properties of the Borrower or any Loan Party (other than
as created pursuant to the Loan Documents) pursuant to the provisions of any
mortgage, indenture, security agreement, contract, undertaking or other
agreement or instrument.
Section 3.05. LITIGATION. There are no judgments or any litigation or
administrative proceedings of or before any court or Governmental Authority now
pending, nor, to the knowledge of the Borrower, are any such litigation or
proceedings now threatened, against the Borrower or any of its properties,
involving an individual claim in excess of $200,000 or claims in the aggregate
in excess of $300,000, except as disclosed in SCHEDULE 3.05, nor, to the
knowledge of the Borrower, is there a valid basis for the initiation of any such
litigation or proceeding, including those set forth in SCHEDULE 3.05.
Section 3.06. SOLVENCY. Immediately after giving effect to each of the
financing transactions contemplated hereby on and after each Borrowing Date, the
Borrower and, if applicable, any Collateral Property Subsidiary, is solvent. For
purposes of this Section 3.06, the term "solvent" means that, at the time of
said determination, (i) the fair value of such Person's assets exceeds the
aggregate sum of its liabilities (including, without limitation, contingent
liabilities), (ii) such Person is able to pay its debts as they mature, (iii)
the property owned by
30
<PAGE>
such Person has a value in excess of the total aggregate sum required to pay its
debts, and (iv) such Person has capital sufficient to carry on its business.
Section 3.07. THE COLLATERAL. The chief places of business and chief
executive offices of the Borrower, and the offices where the Borrower keeps its
respective books and records concerning any of the Collateral are located at the
addresses specified in the Collateral Documents. The Borrower, or if applicable,
a Collateral Property Subsidiary, owns the Collateral in which it has granted a
security interest and Lien in favor of the Lender pursuant to the Loan
Documents, free and clear of any Lien, security interest charge or encumbrance,
except as otherwise expressly permitted by Section 6.02 hereof or the Related
Documents or as otherwise disclosed in SCHEDULE 3.07 hereto. All financing
statements and filings required to be filed, and all related required fees and
taxes, have been delivered to the Lender for filing and recording, and all other
steps required to be taken have been taken, so that upon proper filing and
recording in the proper offices Lender shall have, a valid, perfected, first
priority continuing and enforceable security interest in and Lien on the
Collateral and such security interest and Lien ranks prior to any other security
interest in or Lien upon the Collateral.
Section 3.08. CAPITALIZATION. The authorized capital stock or
partnership interest, as the case may be, of the Borrower is validly issued,
fully paid and nonassessable.
Section 3.09. NO DEFAULT. The Borrower is not in default in any respect
in the payment or performance (i) of any of its respective material obligations
for the payment of money, or (ii) under any material franchise, license or
leasehold interest and no default has occurred and is continuing.
Section 3.10. NO SECONDARY LIABILITIES. There are no outstanding
contracts of guaranty or suretyship made by the Borrower, nor is the Borrower
subject to any other material contingent liability or obligation required to be
shown on the financial statements of the Borrower, except (a) as shown on such
financial statements referred to in Section 3.12 hereof, and (b) the endorsement
of negotiable instruments for deposit or collection or similar transactions in
the ordinary course of business. To the knowledge of the Borrower, the Borrower
is not a party to any materially burdensome contract or agreement, or subject to
any charter or other corporate restriction adversely affecting in any material
manner its respective management, business, assets, properties, assets,
operations, prospects or condition (financial or other).
Section 3.11. TAXES. The Borrower has timely filed, or caused to be
filed, all federal, state, local and foreign tax returns that are required to be
filed by it and has paid, or caused to be paid, all taxes, assessments, interest
and penalties thereon, on or before the due dates thereof, unless such tax,
assessment, charge, levy, claim is actively being contested in good faith by
appropriate proceedings and there has been set aside on the books of such Person
adequate reserves in accordance with GAAP applied with respect thereto. There
are no material claims pending or, to the knowledge of the Borrower, proposed or
threatened against the Borrower for past federal, state or local taxes, except
those, if any, as to which proper reserves, determined in accordance with GAAP,
are reflected in the most recent financial statements. All such tax
31
<PAGE>
reports or returns fairly reflect the taxes of the Borrower for the periods
covered thereby. No Internal Revenue Service or other tax audit of the Borrower
has occurred, is pending or, to the knowledge of the Borrower, threatened, and
the results of any completed audits are properly reflected in the financial
statements.
Section 3.12. FINANCIAL STATEMENTS AND CONDITION. The unaudited
consolidated financial statements of the Borrower and COPT as of September 30,
1999 prepared by management, true, complete and accurate copies of each of which
were delivered to the Lender on or before the Closing Date, (i) present fairly
the financial position of the Borrower and COPT, as applicable, on a
consolidated basis as of the dates of said statements, and the results of
operations of the Borrower for the periods covered by said statements of
earnings are in accordance with GAAP, except, in each case, as disclosed
therein, (ii) have been prepared in conformity in all material respects with
GAAP, and (iii) disclose all liabilities, direct and contingent, required to be
shown in accordance with such principles. As of September 30, 1999, there were
no material obligations or liabilities, direct or indirect, fixed or contingent,
which are not reflected in such financial statements and that are required to be
so reflected thereon under GAAP. No Material Adverse Change has occurred since
September 30, 1999.
Section 3.13. ERISA; LABOR RELATIONS (A) No Reportable Event has
occurred during the five-year period prior to the date on which this
representation is made or deemed made with respect to any Plan, and each Plan
has complied in all material respects with the applicable provisions of ERISA
and the Code. The present value of all accrued benefits under each Plan
maintained by the Borrower, any Loan Party or any ERISA Affiliate (based on
those assumptions used to fund the Plans) did not, as of the last annual
valuation date prior to the date on which this representation is made or deemed
made, exceed the value of the assets of such Plan allocable to such accrued
benefits. There are no multiemployer plans. Neither the Borrower nor any Loan
Party or any of its ERISA Affiliates has had a complete or partial withdrawal
from any multiemployer plan. The present value (determined using actuarial and
other assumptions which are reasonable in respect of the benefits provided and
the employees participating) of the liability of the Borrower, any Loan Party
and each ERISA Affiliate for post retirement benefits to be provided to their
current and former employees under Plans which are welfare benefit plans (as
defined in Section 3(1) of ERISA) does not, in the aggregate, exceed the assets
under all such Plans allocable to such benefits. (B) Neither the Borrower nor
any Loan Party is a party to any collective bargaining agreement. There are no
lockouts, strikes, labor disputes or other material controversies pending
between the Borrower, any Loan Party and any of its employees, which in the
aggregate, might have a Material Adverse Effect.
Section 3.14. ENVIRONMENTAL MATTERS. Except as disclosed in SCHEDULE
3.14 hereto, the Borrower, and any Collateral Property Subsidiary, as
applicable, and each respective parcel of real property owned or leased by it
are in material compliance with all Environmental Laws and Requirements of
Environmental Law; there are no conditions existing currently or, to the
knowledge of the Borrower or any Collateral Property Subsidiary, likely to exist
that would subject the Borrower or any Collateral Property Subsidiary to
damages, penalties, injunctive relief or cleanup costs in an aggregate amount
exceeding $200,000 under any Environmental
32
<PAGE>
Matters or assertions thereof, or which require or are likely to require
cleanup, removal, remedial action or other response pursuant to Environmental
Laws by the Borrower; neither the Borrower nor any Collateral Property
Subsidiary is a party to any Environmental Claim or litigation or administrative
proceedings involving an individual claim in excess of $200,000 or claims in the
aggregate in excess of $300,000, nor so far as is known by the Borrower or any
Collateral Property Subsidiary, is any such litigation or administrative
proceeding threatened against the Borrower or any Collateral Property
Subsidiary, which asserts or alleges that the Borrower or any Collateral
Property Subsidiary has violated or is violating Environmental Laws or
Environmental Permits in any material respect or that the Borrower or any
Collateral Property Subsidiary is required to clean up, remove or take remedial
or other responsive action due to the disposal, depositing, storage, discharge,
leaking or other release of any hazardous substances or materials; neither the
Borrower nor any Collateral Property Subsidiary nor any respective parcel of
real property owned or leased by it are subject to any Environmental Claim or
judgment, decree, order or citation related to or arising out of Environmental
Matters involving an individual claim in excess of $200,000 or claims in the
aggregate in excess of $300,000 and the Borrower and any Collateral Property
Subsidiary has not been named or listed as a potentially responsible party by
any Governmental Authority in a matter arising under any Environmental Matters
involving an individual claim in excess of $200,000 or claims in the aggregate
in excess of $300,000; the Borrower and/or any Collateral Property Subsidiary,
as applicable, has obtained all Environmental Permits from governmental
authorities required under Environmental Laws relative to each parcel of real
property owned or leased by it; the Borrower and/or any Collateral Property
Subsidiary, as applicable, is in compliance in any material respect with all
terms and conditions of Environmental Permits, and is also in compliance in all
material respects with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in any federal, state or local law or any regulations, code, plan,
order, decree or judgment relating to public health and safety, worker health
and safety and pollution or protection of the environment or any notice or
demand letter issued, entered, promulgated or approved thereunder, except where
the failure to so comply would not have a Material Adverse Effect; the Borrower
and/or any Collateral Property Subsidiary, as applicable, has not received
notice (whether written or oral), specifying that certain facts, events or
conditions, interfere with or prevent continued compliance with, or give rise to
any liability involving an individual claim in excess of $200,000 or claims in
the aggregate in excess of $300,000 under any law, common law or regulation,
related to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling, or the emission, discharge, release or
threatened release into the environment, of any pollutant, contaminant, or
hazardous or toxic material or Waste; and there are not now, nor to the
knowledge of the Borrower have there ever been, materials stored, spilled,
deposited, treated, recycled or disposed of on, under or at any parcel of real
property owned or leased by the Borrower and/or any Collateral Property
Subsidiary, as applicable, or stored, spilled, deposited, treated, recycled or
disposed of at the direction of the Borrower and/or any Collateral Property
Subsidiary, as applicable, present in soils or ground water, that would require
cleanup, removal or some other remedial action under Environmental Laws.
33
<PAGE>
Section 3.15. CORRECT INFORMATION. The information, exhibits and
reports furnished in writing by, or on behalf of, the Borrower and any other
Loan Party to the Lender in connection with the negotiation and preparation of
this Agreement and the other Loan Documents are true and correct and do not
contain any omissions or misstatements of fact that would make the statements
contained therein misleading or incomplete in any material respect, which
omissions or misstatements could have, individually or in the aggregate, a
Material Adverse Effect. There is no fact now known to the Borrower or COPT that
has not been disclosed to the Lender that materially adversely affects the
management, business, assets, properties, operations or condition (financial or
other) of the Borrower and/or COPT.
Section 3.16. INVESTMENT COMPANY ACT. The Borrower is not an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940, as amended, or subject to any
other statute that regulates the incurring of indebtedness for borrowed money.
Section 3.17. MARGIN REGULATIONS. The Borrower is not engaged in the
business of extending credit for the purpose of purchasing or carrying "margin
stock" or "margin securities" (within the meaning of Regulation U), none of the
Obligations or liabilities of the Borrower are secured, directly or indirectly,
by "margin stock" or "margin securities", and no part of the proceeds of any
extension of credit hereunder will be used for the purpose, whether immediate,
incidental or ultimate, of purchasing or carrying any margin stock" or "margin
securities", or in a manner which would breach of contravene any of Regulations
G, T, U, or X.
Section 3.18. LEASES. Complete and correct copies of all Leases under
which Borrower or any Collateral Property Subsidiary is lessor have been
delivered to Lender and are the only leases of real property under which
Borrower or such Collateral Property Subsidiary is a lessor. Each Lease and
lease is valid and subsisting and is not in default in any material respect, nor
has the Borrower or any Collateral Property Subsidiary received any written
notice of its default under the Leases and leases.
Section 3.19. INSURANCE. SCHEDULE 3.19 hereto sets forth a summary of
all insurance policies maintained by the Borrower or the Collateral Property
Subsidiary, as applicable, as of the date of closing of each Loan. In addition
to the requirements set forth in the Collateral Documents, the insurance
maintained by the Borrower or the Collateral Property Subsidiary, as applicable,
is in amounts and of a nature as is customarily maintained by Persons conducting
operations similar to that of the Borrower or such Collateral Property
Subsidiary, and is with insurance carriers who are rated by A. M. Best Company's
Rating Service as "A" or better or are otherwise satisfactory to the Lender.
Section 3.20. BROKERS. The Borrower represents that it has not engaged
or authorized any broker, finder or similar agent who would be entitled to a
commission or other fee in respect of this Agreement.
34
<PAGE>
ARTICLE 4. CONDITIONS PRECEDENT
Section 4.01. CONDITIONS PRECEDENT TO EFFECTIVENESS. The obligations of
the Lender to execute and deliver this Agreement and proceed to the Closing Date
are subject to the fulfillment of the following conditions precedent. The Lender
shall have received on or before the Closing Date each of the following
documents and instruments, each dated such date, in form and substance
satisfactory to the Lender and its counsel:
(a) The Note, executed and delivered on behalf of Borrower by each of
the general partners of Borrower.
(b) a certificate of the Secretary of COPT or other appropriate
authorized Persons, dated as of the Closing Date, certifying (i) that attached
thereto are true and complete copies of the resolutions of the Board of
Directors or authorized persons of COPT, the general partner of Borrower
authorizing the execution, delivery and performance by the Borrower of this
Agreement, the borrowings hereunder by the Borrower and the execution, delivery
and performance by the Borrower of the Note and such of the Related Documents to
which it is a party, (ii) that said resolutions are all the resolutions adopted
by the Board of Directors or authorized persons of the Borrower in connection
with the transactions contemplated thereby and are in full force and effect
without modification as of such date, and (iii) as to the incumbency and
signatures of each of its trust managers or other appropriate authorized Persons
executing this Agreement, the Note and such of the Related Documents to which it
is a party;
(c) (i) copies of the applicable charter documents of the Borrower,
certified as of a recent date by the Secretary of State of the State of its
formation and organization; (ii) certificates of said Secretary of State as to
the due organization, existence and good standing of the Borrower, as of a
recent date; (iii) certificates of good standing of the Secretary of State of
each jurisdiction in which the Borrower is qualified to do business; and (iv) a
certificate of the Secretary, trust manager or other appropriate authorized
Person of the Borrower dated the Closing Date, certifying (A) that attached
thereto are true, correct and complete copies of the applicable charter
documents as is in effect on the date of such certification, and (B) that such
charter documents have not been amended since the date of the last amendment
thereto indicated in the certificate of the Secretary of State furnished
pursuant to clause (i) above;
(d) (i) copies of the applicable charter documents of COPT, certified
as of a recent date by the Secretary, trust manager or other appropriate
authorized Person of COPT; (ii) certificates of good standing of the Secretary
of State of each jurisdiction in which COPT is qualified to do business; and
(iii) a certificate of the Secretary, trust manager or other appropriate
authorized Person of COPT dated the Closing Date, certifying (A) that attached
thereto are true, correct and complete copies of the applicable charter
documents as is in effect on the date of such certification, and (B) that such
charter documents have not been amended since the date of the last amendment
thereto indicated in the certificate of the Secretary of State furnished
pursuant to clause (i) above;
35
<PAGE>
(e) the applicable Related Documents are duly executed by all the
parties thereto (other than the Lender);
(f) the Borrower shall have delivered to the Lender at least ten (10)
Business Days prior to the Closing Date all appropriate Uniform Commercial Code,
tax lien, judgment and bankruptcy searches, dated as of a date that is within a
recent date of the Closing Date;
(g) evidence that all actions necessary or, in the opinion of the
Lender and its counsel, desirable, to create and perfect the security interests
and other Liens granted under the Loan Documents, have been duly taken, that
there are no security interests as senior to the security interests granted in
favor of the Lender with respect to any of the Acquisition Properties and/or
Collateral Properties, and the security interests granted to Lender at the time
of the creation or perfection of any such security interest or Lien has not been
reduced or diminished in any manner;
(h) an opinion of John Harris Gurley, Esq.,counsel to the Borrower,
substantially in the form of EXHIBIT M hereto;
(i) such resolutions, consents, approvals or acknowledgments with
respect to such of the transactions hereunder as may be necessary or as the
Lender or its counsel may deem appropriate;
(j) the Borrower shall have delivered to the Lender at least fifteen
(15) Business Days prior to the Closing Date the financial statements set forth
in Section 3.12 hereof;
(k) a certificate showing that, at the time of the Closing Date and
after giving effect to the initial funding hereunder and the consummation of all
other transactions contemplated by this Agreement and the Loan Documents, (i)
the representations and warranties contained in this Agreement and in the other
Related Documents shall be true and correct on and as of such date and no
representation made or information supplied to the Lender shall have proven to
be inaccurate or misleading in any material respect; and (ii) no Event of
Default or Default shall have occurred; and the Lender shall have received a
certificate of the Borrower signed on its behalf by its president or chief
financial officer that (A) no Material Adverse Change has occurred since
September 30, 1999; (B) no material litigation or administrative proceeding of
or before any court or governmental body or agency is pending or threatened
against the Borrower or any of its properties except as set forth on Schedule
4.01 hereto; and (C) the Borrower is in compliance with all pertinent federal,
state and local laws, rules and regulations, including, without limitation,
those with respect to ERISA, OSHA and all Environmental Laws, except where the
violation of which would not have a Material Adverse Effect;
(l) evidence that, as of the Closing Date, the Borrower has paid all
past and current premiums due and payable on its existing insurance policies,
and has delivered to the Lender at least ten (10) Business Days prior to the
Closing Date all loss payee/additional insured
36
<PAGE>
endorsements, duly executed, required under Section 5.02 hereof or the
Collateral Documents to be delivered on or before the Closing Date;
(m) payment in full of all amounts then due and payable under the terms
of this Agreement, including, without limitation, (i) all of the fees payable to
the Lender pursuant to this Agreement, and (ii) all of the Lender's
out-of-pocket expenses (including, without limitation, the reasonable fees and
disbursements of the Lender's counsel, subject to the overall limitations
contained in Section 9.04(a) hereof); and
(n) such other and further documents as the Lender and its counsel may
have reasonably requested and all legal matters incident to this Agreement, the
transactions contemplated hereby and the Loans shall be reasonably satisfactory
to the Lender and its counsel.
Section 4.02. CONDITIONS PRECEDENT TO INITIAL AND SUBSEQUENT FUNDINGS.
The obligation of the Lender to make any Loan (including any Loans to be made on
the Closing Date) shall be subject to the fulfillment of the following
conditions precedent at least fifteen (15) Business Days (unless otherwise noted
below) prior to the relevant Borrowing Date:
(a) the intended use of the funds advanced pursuant to any Loan shall
be a Permitted Use of Funds, and Lender shall have received a breakdown of the
application of all funds theretofore advanced hereunder, including fees and
expenses, which shall be satisfactory to Lender in its sole and absolute
discretion.
(b) the Lender shall have received notice by the Borrower and a Notice
of Borrowing required by Section 2.02 hereof no later than 3:00 p.m. on the
third (3rd) Business Day prior to the proposed Borrowing Date and Lender shall
have, in its sole and absolute discretion, approved the Loan requested in the
Notice of Borrowing, and the intended use of funds indicated therein;
(c)(i) the representations and warranties set forth in Article 3 hereof
and in the other Related Documents shall be true and correct on and as of such
Borrowing Date as though made on and as of such date and no representation made
or information supplied to the Lender shall have proven to be inaccurate or
misleading in any material respect; (ii) Each of the Loan Parties, including any
Collateral Property Subsidiary shall then be in compliance with all the terms
and provisions of this Agreement, the Note and the other Related Documents to
which it is a party, including, without limitation, the requirement that the
proposed Acquisition Properties satisfy the Financial Covenants and other
criteria set forth herein and in the Loan Documents; (iii) no Event of Default
or Default shall have occurred and be continuing; (iv) no Material Adverse
Change shall have occurred since September 30, 1999; (v) the income and expenses
of the Collateral Properties, the Leases, the occupancy of the Collateral
Properties and all other features of the transaction, including the financial
condition of the Loan Parties, any of its subsidiaries, as represented to the
Lender in any loan application or in any other documents and communications
presented to the Lender in order to induce the Lender to make the Loans shall
not have materially adversely changed; (vi) no material litigation or
administrative proceeding of or before any court or governmental body or agency
is pending or threatened against the Borrower or any Loan Party
37
<PAGE>
or any of its properties; (vii) the Borrower and any other Loan Party, as
applicable, is in compliance with all pertinent federal, state and local laws,
rules and regulations, including, without limitation, those with respect to
ERISA, OSHA and all Environmental Laws, except where the violation of which
would not have a Material Adverse Effect; (viii) none of the Collateral
Properties shall have suffered material damage, which has not been repaired to
the Lender's satisfaction; (ix) none of the Collateral Properties shall have
been taken in condemnation or other similar proceeding, nor shall any such
proceeding be pending; (x) there shall have been no material structural change
in the physical condition of any portion of the Collateral Properties; (xi) to
the best of Borrower's knowledge, no notices of violations of any municipal
ordinances shall have been filed against the Collateral Properties by any
municipal department; (xii) none of the Borrower, its Subsidiaries, any
Collateral Property Subsidiary, any tenant under any Lease deemed by the Lender
to be material to the Lender's security nor any guarantor of any such Lease
shall be the subject of any bankruptcy, reorganization, insolvency or similar
proceeding; and (xiii) the Lender shall have received a certificate of the
Borrower and/or any Loan Party, signed on its behalf by its president or its
chief financial officer to such effect;
(d) the Lender shall have received, at the Borrower's, or any
Collateral Property Subsidiary's, as applicable, expense and in form and
substance satisfactory to the Lender, (i) detailed historical operating
statements (for a minimum of a trailing 12-month period) of each Collateral
Property; (ii) the Borrower's or any Collateral Property Subsidiary's cash flow
projections, as applicable, relating to each Collateral Property; (iii) all
applicable detailed rent rolls relating to each Collateral Property; (iv) true,
accurate and complete copies of the Borrower's books and records relating to
each Collateral Property and all material contracts, including, but not limited
to, all Leases and abstracts; and (v) the Borrower's or any Collateral Property
Subsidiary's complete underwriting analysis , as applicable, relating to each
Collateral Property.
(e) the Lender shall have received, at the Borrower's or any Collateral
Property Subsidiary's expense, as applicable, a written analysis and
environmental report (each an "ENVIRONMENTAL REPORT") with respect to the
following environmental conditions relating to each Collateral Property, which
shall be in form and substance satisfactory to the Lender and prepared no
earlier than six (6) months prior to the respective Borrowing Date by
independent qualified environmental professionals satisfactory to the Lender,
which analysis shall include, without limitation, (i) a Phase I environmental
site assessment assessing the presence of environmental contaminants and
asbestos, PCBs or storage tanks at such Collateral Properties conducted in
accordance with ASTM Standard E 1527-93, or any successor thereto published by
ASTM, and (ii) such further site assessments as the Lender may require due to
the results obtained in clause (i) above; the Borrower shall have obtained
permission for such environmental professional to enter upon the Collateral
Properties for purposes of conducting such environmental assessment; such
Environmental Report shall meet the Lender's requirements, shall be certified to
the Lender and its successors and assigns, and the Lender and its successors and
assigns shall be entitled to rely on such environmental assessment and such
Environmental Report; no environmental condition at any Collateral Property
shall have been discovered which is unacceptable to the Lender;
38
<PAGE>
(f) the Lender shall have received an engineer's building condition
report in form and substance satisfactory to the Lender, prepared no earlier
than six (6) months prior to the respective Borrowing Date by an independent
qualified consulting engineer satisfactory to the Lender, and any additional or
supplemental reports that may be required by the Lender (collectively, the
"BUILDING CONDITION REPORT"), which reports shall (i) evaluate the physical
condition of the Collateral Properties, identifying conditions requiring
immediate or near term attention and estimate the approximate cost of
remediation, and (ii) include, without limitation, information regarding
compliance with the Americans with Disabilities Act; the Lender shall not have
received any unsatisfactory engineer's report or site inspection conducted by
the Lender or any engineering firm retained by the Lender; such Building
Condition Report shall meet the Lender's requirements, shall be certified to the
Lender and its successors and assigns, and the Lender and its successors and
assigns shall be entitled to rely on such Building Condition Report. If the
Building Condition Report shall recommend modifications to such Collateral
Properties which shall be equal to or greater than one dollar ($1.00) per square
foot per Collateral Property (collectively the "Modifications"), Lender shall
have the right to require Borrower to establish Reserves for such Modifications.
(g) the Lender shall have received, in form and substance satisfactory
to the Lender, true, correct and complete copies (including any and all
amendments or modifications thereto) of (i) all of the Operational Documents,
and (ii) all third party reports requested by the Lender relating to each
Collateral Property, prepared by qualified firms approved by the Lender;
(h) the Lender shall have received all fees payable pursuant to this
Agreement, including, without limitation, (i) all of the fees payable to the
Lender pursuant to this Agreement, and (ii) all of the Lender's out-of-pocket
expenses (including, without limitation, the reasonable fees and disbursements
of the Lender's counsel);
(i) the Lender shall receive a favorable legal opinion of the
Borrower's and the Collateral Property Subsidiary's counsel, in form and
substance satisfactory to the Lender and its counsel in their sole discretion,
as to the due execution, authorization and enforceability of the Loan Documents
and as to such other matters, including due perfection of the Lender's security
interests and liens on the Collateral as the Lender may reasonably request, and
the Lender shall have received the favorable opinion of the Lender's local
counsel, if necessary, as to such matters as the Lender may reasonably require;
(j) the Lender shall have received all appropriate Uniform Commercial
Code, tax lien, judgment and bankruptcy searches, dated as of a date that is
within a recent date of the date of the closing of such Loan;
(k) the Lender shall have received evidence that all actions necessary
or, in the opinion of the Lender and its counsel, desirable, to create and
perfect the security interests and other Liens granted under the Loan Documents,
have been duly taken, that there are no security interests as senior to the
security interests granted in favor of the Lender, and the security
39
<PAGE>
interests granted to Lender at the time of the creation or perfection of any
such security interest or Lien has not been reduced or diminished in any manner;
(l) Lender shall have received an ALTA extended coverage mortgagee form
of title insurance policy, with a deletion of the creditor's rights exception
and otherwise conforming to the Lender's title insurance requirements set forth
in Section 4.02(l) hereto, together with such reinsurance as the Lender may
require from title insurance companies acceptable to the Lender insuring the
first mortgage Liens on the properties, subject only to matters acceptable to
the Lender, in respect of each parcel covered by each Mortgage or Deed of Trust.
Each such policy shall (i) be in the amount of the Mortgage or Deed of Trust
being insured thereunder, (ii) be issued at ordinary rates; (iii) insure that
the Mortgage or Deed of Trust insured thereby creates a valid first Lien on such
parcel free and clear of all defects and encumbrances, except such as may be
approved by Lender; (iv) be in the form of ALTA Loan Policy-1992, or such other
form as shall be acceptable to Lender; (vi) contain such endorsements and
affirmative coverage as Lender may request, including, but not limited to, any
endorsements necessary to evidence that Lender is insured in an amount equal to
the amount of the Loans then outstanding after giving effect to any payments or
re-borrowing of principal by Borrower and/or such Collateral Property Subsidiary
as of the date of the issuance of such title insurance to the extent same are
available; (vii) be issued by title companies satisfactory to Lender (including
such title companies acting as co-insurers or reinsurers, at the option of
Lender); and (viii) otherwise conform hereto. Lender shall have received
evidence satisfactory to it that all premiums in respect of such policy, and all
charges for endorsements and mortgage recording tax, if any, have been paid in
full.
(m) the Lender shall have received a survey of the Collateral
Properties being acquired and/or pledged and mortgaged to the Lender in
connection with the requested Loan dated or re-dated to within 60 days of the
closing of such Loan which (i) was prepared by a surveyor registered or licensed
in the jurisdiction in which such property is located, containing the legal
metes and bounds description of the property and a certification from the
surveyor to the Lender and the title insurance company in form and substance
reasonably satisfactory to the Lender, (ii) substantially conforms to the
Lender's survey requirements set forth in SCHEDULE 4.02(M) hereto, and (iii) is
otherwise in form and substance reasonably satisfactory to the Lender;
(n) the Lender shall have received a duly executed Estoppel Certificate
and Subordination Agreement from tenants under Leases comprising, in the
aggregate, 80% of the rentable square footage in the Collateral Properties
including, in all events from those tenants with Leases covering a minimum of
10,000 square feet or 10% of the rentable square footage (a "Major Tenant") in
the Collateral Property, completed in a manner acceptable to Lender in its sole
discretion; PROVIDED, HOWEVER, that to the extent that Estoppel Certificates are
not delivered for certain tenants, other than a Major Tenant, the Lender may, in
its sole discretion, accept an Estoppel Certificate from the Borrower with
respect to such tenant's occupancy at the Collateral Properties certified by
such Borrower as being true, correct and complete;
(o) the Lender shall have received evidence, in form and substance
satisfactory to the Lender that (i) the Collateral Properties are served by all
utilities required for the current or contemplated use thereof, (ii) all utility
service is provided by public utilities and the Collateral
40
<PAGE>
Properties have accepted or is equipped to accept such utility service, (iii)
all public roads and streets necessary for service of and access to the
Collateral Properties for the current or contemplated use thereof have been
completed, are serviceable and all-weather and are physically and legally open
for use by the public, and (iv) the Collateral Properties are served by public
water and sewer systems;
(p) the Lender shall have received such consents, approvals or
acknowledgments with respect to such of the transactions hereunder as may be
necessary or as the Lender or its counsel may deem appropriate;
(q) evidence that, as of the date of the closing of such Loan, the
Borrower and any Collateral Property Subsidiary has paid all past and current
premiums due and payable on its existing insurance policies, and has delivered
to the Lender all loss payee/additional insured endorsements, duly executed,
required under Section 5.02 hereof or the Collateral Documents to be delivered
on or before such date of closing;
(r) evidence that the Borrower and/or the Collateral Property
Subsidiary has satisfied all of the conditions precedent set forth in the
Collateral Documents; and
(s) the Lender shall have received such other and further documents,
certificates, reports and other information with respect to the Borrower, the
Collateral Property Subsidiary or any other Loan Party or relating to the
transactions contemplated by this Agreement as Lender may reasonably request,
all of which shall be satisfactory in form and substance to Lender.
(t) after giving effect to such Loan and the application of proceeds
therefrom, no Default or Event of Default shall have occurred and be continuing
on and as of the date such Loan is made.
(u) Lender shall have received payment of all fees and expenses then
due to Lender and its counsel;
(v) Lender shall have received a favorable legal opinion of Borrower's
and the applicable Collateral Property Subsidiary's counsel as to the due
execution, authorization and enforceability of any proposed Collateral Property
and, in connection therewith, such matters as Lender may reasonably require;
(w) Borrower or such Collateral Property Subsidiary, as applicable,
shall have paid all mortgage recording taxes payable (if any) in each
jurisdiction in which any Collateral Property is located. Without limiting the
generality of the foregoing, and notwithstanding anything to the contrary
contained in any Loan Document, Borrower or such Collateral Property Subsidiary,
as applicable , acknowledges and agrees that, to the extent there is a payment
of principal of the Loans which results in the aggregate outstanding principal
amount of the Loans being less than the aggregate maximum principal amount of
the Loans secured by any Mortgage(s) (whether or not such aggregate outstanding
principal amount of the Loans was originally less than the aggregate maximum
principal amount of the Loans secured by such Mortgage(s) prior to such
41
<PAGE>
payment), then (A) Borrower or such Collateral Property Subsidiary, as
applicable ,shall pay any and all additional mortgage recording taxes in
connection with any future Borrowing pursuant to this Agreement so that the
Mortgages or Deeds of Trust in existence at or prior to such Borrowing will
secure, in accordance with applicable law, the amount of such Borrowing up to
the aggregate maximum original principal amount secured by such Mortgages or
Deeds of Trust, and (B) if and to the extent that Lender determines in good
faith that any such additional mortgage recording taxes are so due and payable
in connection with any such future Borrowing and unless Borrower or such
Collateral Property Subsidiary, as applicable ,shall have presented to Lender
evidence, satisfactory to Lender, that any such additional mortgage recording
taxes are not so due and payable, Borrower or such Collateral Property
Subsidiary, as applicable, shall pay such additional mortgage recording taxes to
the appropriate governmental taxing authorities;
(x) Lender shall have received evidence that the Mortgages or Deeds of
Trust of record shall secure the full amounts of the Loans then outstanding,
after giving effect to any payments or re-borrowings of principal by Borrower;
(y) Lender shall be granted a valid first mortgage lien on each
Collateral Property subject only to such liens as are acceptable to Lender. The
Lien shall be in the amount of the Commitment, unless the Collateral Property is
located in any jurisdiction in which the mortgage recording tax or other cost of
recording a mortgage or deed of trust is not de minimus, in which event the Lien
shall be in an amount equal to one hundred twenty five percent (125%) of the
fair market value of such Collateral Property, which amount shall be determined
by Lender in its sole but reasonable discretion using Lender's then applicable
underwriting standards and criteria;
(z) Each Collateral Property Subsidiary shall have executed and
delivered to Lender (i) a Guaranty in favor of Lender in form and substance
satisfactory to Lender; (ii) an allonge to the Note in the amount of the
Borrowing with respect to each Borrowing; (iii) counterparts of all Loan
Documents executed by Borrower in connection with each Borrowing; (iv) and shall
otherwise comply with each of the requirements in this Section 4.02 and this
Agreement;
(aa) the Lender shall receive a favorable legal opinion of Borrower's
counsel, who shall be licensed to practice in the State of New York and shall
otherwise be reasonably acceptable to Lender, in form and substance reasonably
satisfactory to the Lender and its counsel in their sole discretion, as to the
enforceability of this Agreement under New York law and such other matters as
the Lender may reasonably require, prior to the initial funding hereunder; and
(bb) Lender agrees that it shall reasonably consider such modifications
to any and all exhibits to this Agreement as Borrower shall request prior to the
initial funding hereunder.
ARTICLE 5. AFFIRMATIVE COVENANTS
Each of the Loan Parties hereby covenants and agrees that, from and
after the date of execution of this Agreement and so long as any amount may be
borrowed hereunder or is
42
<PAGE>
otherwise due to the Lender under this Agreement or any Loan Document is not
indefeasibly repaid in full, such Loan Party shall comply and shall cause each
of their respective Subsidiaries to comply with each of the following covenants:
Section 5.01. MAINTENANCE OF EXISTENCE, PROPERTIES AND REIT STATUS. (a)
Each of the Loan Parties shall do or cause to be done all things necessary to
preserve and keep in full force and effect its existence and continue to conduct
its business substantially as now and proposed to be conducted. Each of the Loan
Parties shall (i) do or cause to be done all things necessary to preserve and
keep in full force and effect all of its other rights and franchises, and comply
with all laws applicable to it, except for violations thereof which would not
have a Material Adverse Effect; (ii) at all times, maintain, preserve and
protect all material franchises and Intellectual Property; and (iii) preserve
all the remainder of its material properties and keep the same in good repair,
working order and condition and from time to time make, or cause to be made, all
necessary and proper repairs, renewals and replacements, betterments and
improvements thereto so that the business carried on in connection therewith may
be properly conducted at all times. (b) COPT shall at all times (i) conduct its
affairs and the affairs of its Subsidiaries in a manner so as to maintain its
status as a REIT and shall not take any action which could lead to its
disqualification as a REIT; (ii) not engage in any business other than the
business of acting as a REIT; and (iii) cause its common shares to be duly
listed on the New York Stock Exchange and timely file all reports required to be
filed by it in connection therewith.
Section 5.02. INSURANCE. (A) The Borrower or the Collateral Property
Subsidiary, as applicable, will maintain or cause to be maintained, at its own
expense, the insurance required under the provisions of Paragraph 3 of the
Mortgages or Deeds of Trust with respect to its Collateral Properties and
business. Not later than ten (10) Business Days prior to the renewal,
replacement or material modification of any policy or program required to be
maintained by this Section 5.02, the Borrower shall deliver or cause to be
delivered to the Lender a detailed schedule setting forth for each such policy
or program: (i) the amount of such policy, (ii) the risks and amounts (with
deductibles) insured against by such policy, (iii) the name of the insurer and
each insured party under such policy, (iv) the policy number of such policy and
(v) a comparison of such policy with the policy so renewed, replaced or
modified. The Borrower will, if so requested by the Lender, deliver to the
Lender the original policy of such insurance and, as often as the Lender may
reasonably request, a report of a reputable insurance broker with respect to
such insurance. Further, the Borrower will, at the request of the Lender, duly
execute and deliver instruments of assignment of such insurance policies to
comply with the requirements of this Section 5.02 and cause the respective
insurers to acknowledge notice of such assignment.
(B) The Borrower or any Collateral Property Subsidiary, as applicable,
will use all and any insurance proceeds from property damage/casualty insurance
or condemnation awards it receives in accordance with the terms of Paragraph 4
of the Mortgages; PROVIDED, HOWEVER, that in the event that (i) a Default or
Event of Default has occurred and is continuing, or (ii) no Default or Event of
Default has occurred and is continuing and the individual or aggregate amount of
any and all such insurance proceeds or condemnation awards exceeds $250,000,
then the Borrower will not restore or replace such Collateral Property without
the prior written
43
<PAGE>
consent of the Lender, and absent such consent, such insurance proceeds or
condemnation awards shall forthwith be paid to the Lender and applied to the
permanent reduction of the Obligations of the Borrower and any Collateral
Property Subsidiary, as applicable, then outstanding, without penalty or premium
but subject to Section 2.04 hereof, in such order as the Lender shall determine.
(C) Within two (2) Business Days after the occurrence of any damage to,
or loss or taking of, any Collateral Property of the Borrower in excess of
$100,000, the Borrower will, provide to the Lender written notice (or telephone
notice promptly confirmed in writing) thereof and a description of the property
damaged, lost or taken.
Section 5.03. PUNCTUAL PAYMENT. The Borrower shall duly and punctually
pay the principal of and interest on the Note and any other amount due under
this Agreement or any of the Related Documents to which it is a party,
including, without limitation, the amounts payable under Section 2.09 hereof.
Section 5.04. PAYMENT OF LIABILITIES. The Borrower will pay and
discharge in the ordinary course of business, where applicable, all of its
obligations and liabilities (including, without limitation, tax liabilities and
other governmental charges), except where the same may be contested in good
faith by appropriate proceedings, and maintain in accordance with GAAP
appropriate reserves for any of the same.
Section 5.05. COMPLIANCE WITH LAWS. The Borrower and all Loan Parties
will observe and comply with all applicable material laws, statutes, rules,
regulations or other requirements having the force of law, including, without
limitation, all Environmental Laws.
Section 5.06. PAYMENT OF TAXES, ETC The Borrower or any Collateral
Property Subsidiary, as applicable, will pay and discharge all lawful taxes,
assessments, and governmental charges or levies imposed upon it, or upon its
income or profits, or upon any of the Collateral Property, before the same shall
become in default or within ten (10) days thereafter, as well as all lawful
claims for labor, materials, and supplies which, if unpaid, might become a Lien
or charge upon such property or any part thereof within ten (10) days
thereafter, as well as all lawful claims for labor, materials, and supplies
which, if unpaid, might become a Lien or charge upon any Collateral Property or
any part thereof within ten (10) days of such claims being due and payable;
PROVIDED, HOWEVER, that no such tax, assessment, charge, levy, claim need be
paid and discharged so long as the validity thereof shall be contested in good
faith by appropriate proceedings and there shall have been set aside on the
books of such Person adequate reserves in accordance with GAAP applied with
respect thereto, but such tax, assessment, charge, levy, or claim shall be paid
before the property subject thereto shall be sold to satisfy any Lien which had
attached as security therefor.
Section 5.07. FINANCIAL STATEMENTS AND OTHER INFORMATION. The Borrower
shall furnish to the Lender, in form and substance acceptable to the Lender and
at the Borrower's expense:
44
<PAGE>
(a) within ninety (90) days after the end of each Fiscal Year, audited
consolidated balance sheets of COPT and its Subsidiaries as at the end of such
Fiscal Year and the related audited consolidated statements of income and
changes in financial position of COPT and its Subsidiaries for such Fiscal Year,
prepared in accordance with GAAP, including consolidated financial reports with
all related schedules and notes attached thereto, setting forth, in each case,
in comparative form, corresponding figures from the preceding Fiscal Year, all
in reasonable detail, prepared by management and audited by and with an
unqualified certification of, nationally recognized independent certified public
accountants satisfactory to the Lender, together with a certificate or
certificates signed by the chief financial officer of COPT stating (i) whether
COPT and its Subsidiaries is then or has been in violation of any covenants
pertaining to this Agreement or pertaining to any other debt covenant of the
Borrower or its Subsidiaries and that, to their knowledge, no event has occurred
which, with the passage of time or the giving of notice or both, would
constitute any such violation, and (ii) (A) setting forth, in each case, in
comparative form, corresponding figures for such Fiscal Year from the annual
budget, in reasonable detail, (B) calculating and stating each of the financial
covenants contained in Article 7 hereof, and (C) commenting upon the financial
statements to an extent reasonably satisfactory to the Lender, as requested by
the Lender;
(b) within forty-five (45) days after the end of each Fiscal Quarter,
quarterly unaudited consolidated balance sheets of the Borrower and its
Subsidiaries as at the end of such Fiscal Quarter and the related unaudited
consolidated statements of income and changes in financial position of the
Borrower and its Subsidiaries as at the end of such Fiscal Quarter, prepared in
accordance with GAAP and accompanied by a Compliance Certificate in favor of
Lender and such other parties as Lender shall require which have an interest in
this Agreement signed by the chief financial officer of the Borrower (i) setting
forth in each case, in comparative form, figures for the preceding twelve (12)
month period, calculated on a trailing twelve (12) month basis, ending on the
last day of such Fiscal Quarter and for the corresponding Fiscal Quarter in the
annual budget and figures for the corresponding Fiscal Quarter in the preceding
Fiscal Year, all in reasonable detail, (ii) calculating and stating each of the
financial covenants contained in Article 7 hereof, and (iii) commenting upon the
financial statements to an extent reasonably satisfactory to the Lender, as
requested by the Lender;
(c) within thirty (30) days after the end of each Fiscal Quarter,
quarterly operating statements for each Collateral Property, all in reasonable
detail, certified by the chief financial officer of the Borrower;
(d) within thirty (30) days after the end of each Fiscal Quarter,
quarterly rent rolls for each Collateral Property, all in reasonable detail, and
accompanied by a certificate signed by the chief financial officer of COPT in
such form as is reasonably satisfactory to Lender;
(e) immediately upon any revision to any of the financial statements
referred to in clauses (a) or (b) above, such financial statements, as revised;
45
<PAGE>
(f) within ten (10) days of filing, true, complete and correct copies
of all federal, state, local and foreign tax returns that are required to be
filed by COPT, including, without limitation, all related schedules and annexes
to such tax returns;
(g) as soon as available, a true copy of any "management letter" or
other communication to the Borrower, its officers, general partners, managers,
members or Board of Directors by its accountants regarding matters which arose
or were ascertained during the course of the audit and which said accountants
determined ought to be brought to management's attention;
(h) upon the occurrence and continuation of an Event of Default,
appraisals of any of the assets of the Borrower as the Lender may from time to
time request; PROVIDED, HOWEVER, that nothing herein shall prevent the Lender
from obtaining such appraisals at any time prior to the indefeasible payment in
full of the obligations if such appraisals are at the Lender's expense;
(i) immediately upon any officer, director, general partner, manager or
member of any Loan Party obtaining knowledge (i) of any condition or event which
constitutes a Default or Event of Default, (ii) of any condition or event which,
in the opinion of management of any Loan Party, would have a Material Adverse
Effect, (iii) that any Person has given any notice to any Loan Party or taken
any other action with respect to a claimed default or event or condition of the
type referred to in clause (f) of Section 8 hereof, or (iv) of the institution
of any litigation involving claims against the Borrower equal to or greater than
$200,000 with respect to any single cause of action or $300,000 with respect to
the aggregate of all causes of action or any adverse determination in any
litigation involving a potential liability to any Loan Party equal to or greater
than $200,000 with respect to any single cause of action or $300,000 with
respect to the aggregate of all causes of action, an officers' certificate
specifying the nature and period of existence of any such condition or event, or
specifying the notice given or action taken by such holder or Person and the
nature of such claimed Default, Event of Default, event or condition, and what
action, if any, the Borrower has taken, is taking or proposes to take with
respect thereto;
(j) immediately upon any Loan Party becoming aware, with respect to any
Loan Party of the occurrence of (i) the occurrence or expected occurrence of any
Reportable Event with respect to any Plan, or any withdrawal from, or the
termination, reorganization or insolvency of any multiemployer plan or (ii) the
institution of proceedings or the taking of any other action by the PBGC or any
Loan Party or any ERISA Affiliate or any multi-employer plan with respect to the
withdrawal from, or the terminating, reorganization or insolvency of, any Plan;
and
(k) as soon as practicable, such other information concerning the
financial affairs and condition (financial or otherwise) of any Loan Party as
the Lender may from time to time reasonably request.
Section 5.08. ACCOUNTS AND REPORTS. The Borrower and any Collateral
Property Subsidiary will keep accurate records and books of account in which
complete, accurate and
46
<PAGE>
correct entries will be made of all dealings or transactions in relation to its
businesses and affairs, as applicable, and the Collateral.
Section 5.09. INSPECTION; AUDIT. (A) The Borrower, or any Collateral
Property Subsidiary, as applicable, at its own expense, will permit any
authorized representative designated by the Lender, upon reasonable advance
notice, to (i) visit and inspect its properties and condition, (ii) to discuss
their respective affairs, finances and accounts with its officers, general
partners, managers, members or directors, and (iii) after an Event of Default to
audit its books and records related thereto, at such reasonable times and as
often as may be reasonably requested by the Lender. Borrower's ability to permit
Lender or its representatives access to any Collateral Property shall be subject
to the rights of tenants as set forth in the Leases. (B) Upon the occurrence and
continuation of an Event of Default, the Borrower, at its own expense, will
provide to the Lender, at the request of the Lender made from time to time,
environmental audit reports in form and substance satisfactory to the Lender.
(C) At any time other than (i) in connection with Sections 2.05(b), 2.12,
4.02(d) or 5.11 hereof, or (ii) upon the occurrence and continuation of an Event
of Default, the Borrower, or any Collateral Property Subsidiary, as applicable,
at the Lender's expense, will provide to the Lender, at the request of the
Lender made from time to time, environmental audit reports in form and substance
satisfactory to the Lender.
Section 5.10. UCC FILINGS. Within thirty (30) days of the each
Borrowing Date, the Borrower shall deliver to the Lender UCC search reports
evidencing UCC filings made in each jurisdiction required in the Collateral
Documents.
Section 5.11 [Deleted Prior to Execution.]
Section 5.12. RESERVES. The Borrower and/or any Collateral Property
Subsidiary, as applicable, shall (i) maintain each Reserve until such time as
the applicable Modifications are fully completed, and (ii) complete such
Modifications within 180 days after the closing of such Loan. All fees and
expenses in connection with the Building Condition Report and the Modifications
shall be paid by the Borrower or the Collateral Property Subsidiary, as
applicable.
Section 5.13. OPERATIONAL DOCUMENTS. (i) Borrower shall submit to
Lender as part of any Loan request made by Borrower to Lender, copies of any and
all Operational Documents affecting the Collateral Property which is the subject
of the Loan request. Lender shall have the right, in its sole discretion, to
decline to fund any Loan based upon Lender's review of such Operational
Documents.
(ii) (A) For so long as a Loan remains outstanding with respect to a
Collateral Property, the Borrower, or a Collateral Property Subsidiary, as
applicable, shall deliver any additional Operational Documents for such
Collateral Property to the Lender for its consent prior to the Borrower or such
Collateral Property Subsidiary, as applicable, entering into such Operational
Document, accompanied by a summary of the material terms and conditions of such
Operation Document; PROVIDED, HOWEVER, that (i) the Borrower or Collateral
Property Subsidiary, as applicable, may enter into a proposed Lease without the
consent of Lender if (a) such Lease is on
47
<PAGE>
the form of the Approved Lease, (b) the aggregate premises demised to the
tenant, or an affiliate thereof in the Collateral Property, is less than 25,000
square feet, (c) the lease term is less than ten (10) years and, (d) the lease
is otherwise on fair market terms and conditions; (ii) Borrower or such
Collateral Property Subsidiary, as applicable,, without Lender's prior consent,
may modify any Lease originally entered into without Lender's consent so long as
after giving effect to the modification, the Lease would not have initially been
subject to Lender's consent, and (iii) the consent of Lender is not required
with respect to Service Agreements which are terminable upon less than thirty
(30) days notice. (B) Each Operational Document shall be in full force and
effect and free from default by either party. (C) All rights of the Borrower
under the Operational Documents shall be assigned to the Lender, and the Lender,
at its option, may require the parties to any such Operational Document to enter
into an agreement with the Lender which shall provide that (i) copies of all
notices given or received under any such Operational Document shall be sent to
the Lender, (ii) the Lender shall have the right, but not the obligation, to
perform any term, condition or agreement of the Borrower under any such
Operational Document and to cure any default of the Borrower under any such
Operational Document within specified additional time periods, and (iii) such
other provisions as the Lender may require. (D) The Borrower shall deliver each
proposed Lease and any and all amendments, supplements or other modification of
each Lease to the Lender for its consent prior to the Borrower entering into
same unless the Borrower is permitted to enter into such instrument as provided
in sub-section (A)(i) above, and Lender agrees that it will provide its comments
to same or its consent or disapproval of same within five (5) business days of
its receipt thereof. (E) Borrower shall deliver to Lender fully executed copies
of any Leases or amendments, supplements or modifications thereof, within ten
(10) days after execution thereof.
Section 5.14. ENVIRONMENTAL COMPLIANCE. The Loan Parties acknowledge
and agree that, based on any information in any Environmental Report delivered
to the Lender pursuant to Section 4.02(d) hereof or on any uncertainties raised
thereby, the Lender reserves the absolute right, in its sole and exclusive
discretion, to decline to fund any Loan for the acquisition of the Collateral
Properties, to impose additional conditions that must be met prior to or after
the closing of such Loan (including but not limited to requiring additional
investigation into environmental conditions in connection with the Collateral
Properties, testing and sampling of soil, water, air, building materials, or
other substances or materials), and/or to change any terms and conditions of any
Loan, including but not limited to the principal amount thereof, the interest
rate, representations and warranties, covenants, guaranties, indemnities, and/or
other terms and conditions of each Loan.
Section 5.15. DISCLOSURE. Each Loan Party shall give notice to the
Lender promptly upon such Loan Party obtaining knowledge of a specific claim
against the Lender or its officers, directors, employees, agents, Affiliates or
any Person under the Lender's control, by any Loan Party, for any action or
failure to act by the Lender, or any officer, director, employee, agent or
Affiliate of the Lender, or any Person under the Lender's control. The failure
to disclose any such specific claim within 180 days shall constitute an
irrevocable waiver and forgiveness of such claim by the Loan Parties.
48
<PAGE>
Section 5.16. DEFERRED MAINTENANCE. (a)Attached hereto as SCHEDULE 5.16
is a list of certain repair items Borrower or such Collateral Property
Subsidiary, as applicable, has agreed to complete on the Collateral Properties
identified therein within 6 months of the Borrowing Date (the "Repairs"). Such
Repairs shall be completed in a good and workmanlike manner and shall in all
respects be acceptable to Lender. Evidence of the completion or progress toward
the completion of such Repairs as evidenced by a certificate of completion or
other documentation satisfactory to Lender from the contractor or engineer
performing or supervising such Repairs shall be provided to Lender monthly on
the first day of the month next following the month of the Borrowing Date.
(b) Lender reserves the right, in its sole discretion, to waive the
requirement that certain Repairs be completed. Borrower or a Collateral Property
Subsidiary, as applicable, may request a waiver with respect to certain Repairs
and shall submit evidence to Lender in support of such waiver for review and
evaluation by Lender.
(c) Borrower and such Collateral Property Subsidiary, as applicable,
covenants and agrees that each of the Repairs and all materials, equipment,
fixtures, or any other item comprising a part of any Repair shall be
constructed, installed or completed, as applicable, free and clear of all
mechanic's, materialman's or other liens.
(d) All Repairs shall comply with all applicable laws, ordinances,
rules and regulations of all governmental authorities having jurisdiction over
the Collateral Properties and applicable insurance requirements including,
without limitation, applicable building codes, special use permits,
environmental regulations, and requirements of insurance underwriters.
Section 5.17. CAPITALIZATION. Within ten (10) days of the Closing Date
and upon the request of Lender, Borrower shall deliver to Lender SCHEDULE 5.17
to be attached hereto, and made a part hereof, setting forth: any and all
outstanding subscriptions, warrants, options, convertible securities or other
rights (contingent or other), or commitments therefor, to subscribe for,
purchase or acquire any Securities or to pay any dividends on any Securities, or
to distribute to any holders of Securities any properties or assets of the
Borrower, and all Subsidiaries, partnerships, joint ventures, limited liability
companies or other similar entities or business corporations in which Borrower,
COPT, or any Subsidiary has an interest.
ARTICLE 6. NEGATIVE COVENANTS
The Borrower hereby covenants and agrees that, from and after the date
of execution of this Agreement and so long as any amount may be borrowed
hereunder or is otherwise due to the Lender under this Agreement or any Loan
Document is not indefeasibly repaid in full, the Borrower shall comply with each
of the following covenants:
Section 6.01. INDEBTEDNESS. The Borrower shall not directly or
indirectly, create, incur, assume or otherwise become or remain liable with
respect to any Indebtedness, other than: (a) Indebtedness of the Borrower to the
Lender incurred pursuant to this Agreement or the other
49
<PAGE>
Loan Documents; (b) Indebtedness of the Borrower which is secured by the Liens
referred to in Section 6.02(c) hereof and incurred in the normal course of
business in connection with installment purchases or Capitalized Leases of
equipment or fixed assets located on or related to any Collateral Properties, in
an aggregate amount not exceeding $400,000 at any time outstanding; (c)
Indebtedness of the Borrower which is secured by Liens incurred in connection
with the purchase or acquisition of equipment or fixed assets not located on or
related to any Collateral Properties, as security for the deferred purchase or
acquisition price of such equipment or assets, each of which Liens shall (i)
extend only to the equipment or fixed assets so purchased or acquired, (ii)
secure only up to 100% of the deferred purchase or acquisition price thereof,
and (iii) be incurred in the normal course of business; (d) taxes, assessments,
and governmental charges with respect to the Borrower to the extent that payment
thereof shall not at the time be required to be made pursuant to the provisions
of Section 5.06 hereof; (e) current trade accounts payable or accrued expenses,
operating lease obligations, customer deposits and deferred liabilities other
than for borrowed money, all incurred and continuing in the ordinary course of
business, exclusive of trade accounts payable and operating lease obligations
which remain unpaid for a period longer than six months after the same shall
have become due and payable, unless they shall be contested in good faith and,
where appropriate, by appropriate proceedings and there shall have been set
aside on the books of the Borrower adequate reserves in accordance with GAAP;
(f) Indebtedness expressly permitted by Section 6.03 hereof; (g) unsecured
Indebtedness in an aggregate amount not to exceed at any time $25,000,000; (h)
Indebtedness secured by a mortgage or deed of trust on real property that (i) is
not a Collateral Property, (ii) secures only up to 100% of the fair market value
of each particular property, and (iii) is incurred in the normal course of
business; or (i) existing Indebtedness, not otherwise listed in clauses (a)
through (h) above, listed on SCHEDULE 6.01 hereto.
Section 6.02. LIENS. The Borrower, and any Collateral Property
Subsidiary, as applicable, shall not directly or indirectly, create, incur,
assume or permit to exist any Lien on or with respect to any of the Collateral,
whether now owned or hereafter acquired, except (a) Liens arising under the Loan
Documents in favor of the Lender, (b) Customary Permitted Liens, (c) Liens
incurred in connection with the purchase or acquisition of equipment or fixed
assets, as security for the deferred purchase or acquisition price of such
equipment or assets, each of which Liens shall extend only to the equipment or
fixed assets so purchased or acquired and shall secure only up to 100% of the
deferred purchase or acquisition price thereof; PROVIDED, HOWEVER, that the
aggregate amount of all Indebtedness secured by such Liens shall not exceed at
any time the Indebtedness permitted under Section 6.01(b) hereof minus the
aggregate amount of all then outstanding capitalized leases, (d) other existing
Liens disclosed on SCHEDULE 3.07 hereto, (e) extensions, renewals or
replacements of any Lien referred to in clauses (a), (c) and (d) above;
PROVIDED, HOWEVER, that (i) in the case of clause (c) above, the principal
amount of the obligation secured thereby is not increased, and (ii) any such
extension, renewal or replacement is limited to the property originally
encumbered thereby.
Section 6.03. CONTINGENT OBLIGATIONS. Any Loan Party shall not directly
or indirectly, create, incur, assume or otherwise become or remain liable with
respect to any contingent Indebtedness or other obligation or liability of any
Person, other than (i) guaranties resulting
50
<PAGE>
from endorsement of negotiable instruments for collection in the ordinary course
of business; (ii) non-recourse guaranties of the Indebtedness of single asset
Subsidiaries of such Loan Party; (iii) warranties with respect to performance,
and not relating to Indebtedness of any Person, which have been or are made in
the ordinary course of business of such Person to its customers; and (iv)
guaranties made by COPT or Borrower in connection with construction loans or
asset purchase agreements entered into by any single asset Subsidiaries.
Section 6.04. FUNDAMENTAL CHANGES. (A) The Loan Parties shall not enter
into any merger or consolidation with, or liquidate, wind-up or dissolve into,
any other Person if immediately after such transaction, the stockholders of COPT
immediately prior to such transaction shall hold less than a majority of the
total voting power entitled to vote in the election of directors, managers or
trustees of the Person surviving such transaction. (B) Borrower and COPT shall
not convey, lease, sell, transfer or otherwise dispose of, in one transaction or
a series of related transactions, all or a majority of its business, property or
assets, whether now or hereafter acquired. (C) The Loan Parties shall not
purchase or acquire all or substantially all of the business, properties, assets
or Securities of any Person, without the prior written consent of the Lender, if
such event would result in or constitute a violation of any other
representation, warranty or covenant contained herein . (D) The Loan Parties
shall not change the nature of its respective business as currently conducted or
as contemplated hereunder to be conducted if it results in a Material Adverse
Change to any of the Loan Parties, or engage in any new business which is not an
integral part of its business as currently conducted if such action shall have a
Material Adverse Effect on the Loan Parties and/or the transactions contemplated
by this Agreement . (E) Borrower shall not permit the acquisition by any Person
or group (within the meaning of Section 13(d)(3) of the Securities Exchange Act
of 1934, as amended) of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Securities Exchange Act of 1934, as amended) of 30% or
more of the voting power of the outstanding shares of common stock of COPT.
Lender acknowledges that as of the date hereof, Constellation Real Estate, Inc.
is the holder of approximately 42% of the outstanding shares of stock of COPT.
(F) On any date, 50% or more of the members of the Board of Directors of
Borrower shall have been (i) members of the Board of Directors of Borrower on
the date twelve (12) months prior to such date, or (ii) approved (by
recommendation, nomination, election or otherwise) by Persons who constitute at
least a majority of the members of the Board of Directors of Borrower as such
Board of Directors was constituted on the date twelve (12) months prior to such
date.
Section 6.05. DISPOSITIONS OF ASSETS. The Borrower shall not assign,
sell, lease or otherwise dispose of, whether by sale, merger, consolidation,
liquidation, dissolution, abandonment or otherwise, any of the Collateral,
except for (a) if the Loan corresponding to such Collateral Property being
disposed is paid in full and, after giving effect to such disposition, (i) all
of the remaining Collateral Properties comply with Section 7.03 hereof, as
measured as of such disposition date, (ii) the Borrower complies with Sections
7.01 and 7.02 hereof, as measured as of such disposition date, or (iii) no
Default or Event of Default shall occur, and (b) dispositions consented to in
advance in writing by the Lender.
51
<PAGE>
Section 6.06. SALES AND LEASEBACKS. The Borrower shall not become
liable directly or indirectly, with respect to any lease, whether a capital
lease or any other lease, of any property (whether real or personal or mixed),
whether now owned or hereafter acquired, which the Borrower has sold or
transferred, or is to sell or transfer, to any other Person.
Section 6.07. DIVIDENDS AND REDEMPTIONS. COPT shall not declare, pay or
make any dividend or other distribution of assets, properties, cash, rights,
obligations or Securities on account of any shares of its Securities, including,
without limitation, by redemption, purchase, retirement or other acquisition,
except (a) dividends or distributions payable during any Fiscal year in an
amount not to exceed eighty percent (80%) of the total of funds from operations
as reported in COPT's corresponding Form 10Q filed with the Securities and
Exchange Commission, or (b) as otherwise consented to in advance in writing by
the Lender.
Section 6.08. AMENDMENT OF CERTAIN AGREEMENTS. The Loan Parties shall
not make any amendment or modification to its charter or organizational
documents, or the Related Documents, without the prior written consent of the
Lender, unless (i) in the case of a Lease, such amendment or modification is an
immaterial departure from the form of Approved Lease and does not result in
terms that would not be reasonably considered to be fair market terms or (ii) in
the case of a charter document or organizational document, such amendment or
modification is associated with the contribution of assets and the admission of
limited partners into Borrower.
Section 6.09. CERTAIN OTHER TRANSACTIONS. The Loan Parties shall not
enter into any transaction that materially adversely affects the Collateral.
Section 6.10. TRANSACTIONS WITH AFFILIATES AND CERTAIN OTHER PERSONS.
The Loan Parties shall not directly or indirectly, enter into or permit to exist
any transaction (including, without limitation, the purchase, sale, lease, or
exchange of any property and guarantees and assumptions of obligations of an
Affiliate) with any stockholder, officer, director, employee, partner, member or
Affiliate of any Loan Party, other than (i) transactions on an arms-length basis
on terms no less favorable to such party than if such Affiliate was not an
Affiliate of such party; (ii) the payment of salary and other customary
compensation for a similarly situated business of its directors, officers and
employees in the ordinary course of its business; (iii) management and leasing
agreements which are entered into in the ordinary course of the Borrower's
business, are consistent with existing similar agreements of the Borrower and
are customary in the industry; and (iv) transactions consented to in advance in
writing by the Lender, in its sole and absolute discretion.
Section 6.11. FISCAL YEAR. Neither COPT nor any of its Subsidiaries
shall change its Fiscal Year.
Section 6.12. ERISA. The Loan Parties shall not be or become obligated
to PBGC in excess of $100,000 or be or become obligated to the Internal Revenue
Service with respect to excise or other penalty taxes provided for in Section
4975 of the IRC in excess of $100,000. The
52
<PAGE>
Borrower shall not seek any waiver from the minimum funding standard set forth
under Section 302 of ERISA or Section 412 of the IRC or engage in any material
Prohibited Transaction with respect to any Plan.
Section 6.13. REGULATIONS G, T, U AND X. The Loan Parties shall not
apply, directly or indirectly, any part of the proceeds of the Loans for the
purpose, whether immediate, incidental or ultimate, of purchasing or carrying
any "margin security" as defined in Regulation U or for the purpose of reducing
or retiring any Indebtedness which was originally incurred for any such purpose,
or in violation of Regulation G, T, U or X.
Section 6.14. ENVIRONMENTAL COMPLIANCE. Each of the Loan Parties shall
not permit its real or personal property to be (a) the site of the disposal or
release of any product or Waste that is now or later regulated by or subject to
any Environmental Law or any other pollutant, contaminant or Waste; (b) the
source of any such contamination of any adjacent property or of any groundwater
or surface water; or (c) the source of any air emissions in excess of any legal
limit now or later in effect.
Section 6.15. OWNERSHIP OF COLLATERAL PROPERTY SUBSIDIARIES. The Loan
Parties shall not permit any of the Collateral Property Subsidiaries to cease to
be a single purpose wholly owned Subsidiary of COPT or Borrower. Borrower shall
not cease to be a Subsidiary of COPT and the financial statements of Borrower
shall not cease to be consolidated with the financial statements of COPT in
accordance with GAAP.
ARTICLE 7. FINANCIAL COVENANTS
Each Loan Party covenants and agrees that, from and after the date of
execution of this Agreement and so long as any amount may be borrowed hereunder
or is otherwise due to the Lender under this Agreement or any Loan Document is
not indefeasibly repaid in full, the Loan Parties shall comply with and shall
cause each of their respective Subsidiaries to comply with each of the following
covenants:
Section 7.01 MINIMUM CONSOLIDATED INTEREST COVERAGE. As of the last day
of any Fiscal Quarter, the Loan Parties shall not permit the ratio of
Consolidated Adjusted Net Income to Consolidated Interest Expense to be less
than 1.75 to 1.0; (such amounts to be determined with reference to the preceding
twelve (12) month period ending on such last day);
Section 7.02 MAXIMUM CONSOLIDATED UNHEDGED FLOATING RATE DEBT. The Loan
Parties shall not at any time permit Consolidated Total Indebtedness subject to
a variable interest rate that is not subject to Interest Rate Agreements to
exceed 20% of Consolidated Total Assets. Borrower shall submit evidence of
compliance with the requirements governing Interest Rate Agreements with the
Compliance Certificates delivered to Lender pursuant to Section 5.07(b) hereof.
53
<PAGE>
Section 7.03. MAXIMUM CONSOLIDATED TOTAL INDEBTEDNESS. The Loan Parties
shall not at any time permit Consolidated Total Indebtedness to exceed 65% of
Consolidated Total Assets.
Section 7.04. FINANCIAL REPORTING TESTS. At any time during each Fiscal
Quarter, measured as of the last day of such Fiscal Quarter for the Fiscal
Quarter then ended, the Loan-To-Value Ratio of the Collateral Properties in the
aggregate shall not exceed 75%, based on the Lender's underwriting standards and
determination and the Debt Service Coverage ratio of each Collateral Property
shall be equal to or greater than 1.25 to 1.0.
Section 7.05. MINIMUM NET WORTH. At any time during each Fiscal Quarter
the Net Worth of COPT and its Subsidiaries, on a consolidated basis, shall not
be less than (i) $175,000,000 plus (ii) 80% of any Equity Proceeds received by
Borrower and its subsidiaries (other than from Borrower and its Subsidiaries)
after the Closing Date.
ARTICLE 8. EVENTS OF DEFAULT
Section 8.01. EVENTS OF DEFAULT. Each of the following events or
conditions shall constitute an Event of Default under this Agreement:
(a) the Borrower shall fail to pay, within two (2) business days after
the date when due, any installment of principal (including mandatory
prepayments) of any Loan, any interest on any Loan or any other amount due and
payable hereunder or with respect to any Loan;
(b) any representation, warranty or statement given in this Agreement
or in any other Related Document by any party thereto (other than the Lender) or
in any certificate, opinion, report, financial statement or other written
statement furnished at any time pursuant to this Agreement shall prove to be or
have been untrue or misleading in any material respect as of the date on which
it is made or deemed to be made;
(c)(i) any Loan Party shall fail to perform, keep or observe in any
respect any covenant or condition contained in Sections 5.01, 5.03, 5.04
(provided such obligations and liabilities referred to in Section 5.04 are
accelerated), 5.06, 5.07, 5.08, 5.09, 5.10, 5.11, 5.12, 5.13, 5.15 and 5.16
hereof or Articles 6 or 7 hereof, or (ii) any Loan Party shall fail to perform,
keep or observe in any respect any covenant or condition contained in Sections
5.02, 5.04 (provided such obligations and liabilities referred to in Section
5.04 are not accelerated), 5.05 and 5.14 hereof and such failure shall not be
cured to the Lender's reasonable satisfaction within ten (10) business days
after the occurrence of such failure;
(d) any Loan Party or any other party to a Related Document (other than
the Lender) shall fail to perform, keep or observe in any respect any other
term, provision, condition, covenant, waiver, warranty or representation
contained in this Agreement or in any other Related Document to which it is a
party that is required to be performed, kept or observed by any Loan Party or
any party to a Related Document, other than the Lender, and the same, if
curable, shall
54
<PAGE>
not be cured to the Lender's satisfaction within ten (10) business days after
the occurrence of such failure;
(e)(i) the Lender shall not have at any time first priority perfected
Liens and security interests in all of the Collateral, (ii) any of the Related
Documents shall at any time for any reason cease to be in full force and effect
or shall be declared to be null and void, or the validity or enforceability
thereof shall be contested by any of the parties thereto (other than the
Lender), or (iii) any of such parties shall deny that it has any or any further
liability or obligation thereunder at a time when it in fact does have such
liabilities or obligations thereunder;
(f) any Loan Party shall fail to (i) pay all or any portion of any
Indebtedness due in connection with the Banker's Trust Facility or any other
Indebtedness the aggregate principal amount of which is in excess of $75,000,000
(other than the Obligations) when due (whether by stated maturity, required
prepayment, acceleration, demand or otherwise) after the expiration of any
applicable grace periods; or (ii) perform or observe any term, covenant or
condition to be performed on its part or to be observed under any loan
agreement, credit agreement, mortgage, indenture or other instrument relating to
such Indebtedness, when required to be performed or observed;
(g) any Loan Party permits either an individual judgment against it in
excess of $200,000 or judgments against it in excess of $300,000 in the
aggregate, to remain unstayed, unbonded or not discharged for a period of more
than thirty (30) days, unless such judgment is being contested in good faith and
the Loan Party has established reserves in accordance with GAAP that are
satisfactory to the Lender;
(h) any of the operations or business of any Loan Party is suspended,
other than in the ordinary course of its business which has a Material Adverse
Effect;
(i) a Loan Party or any Subsidiary commences any case, proceeding or
other action relating to it in bankruptcy or seeking reorganization,
liquidation, dissolution, winding-up, arrangement, composition, compromise,
readjustment of its debts or any other relief under any bankruptcy, insolvency,
reorganization, liquidation, dissolution, arrangement, composition, compromise,
readjustment of debt or similar act or law of any jurisdiction, now or hereafter
existing, or consents to; approves of, or acquiesces in, any such case,
proceeding or other action, or applies for a receiver, trustee or custodian for
itself or for all or a substantial part of its properties or assets, or makes an
assignment for the benefit of creditors, or fails generally to pay its debts as
they mature or admits in writing its inability to pay its debts as they mature,
or is adjudicated insolvent or bankrupt;
(j) there is commenced against a Loan Party or any Subsidiary any case
or proceeding or any other action is taken against a Loan Party or such
Subsidiary in bankruptcy or seeking reorganization, liquidation, dissolution,
winding-up, arrangement, composition, compromise, readjustment of its debts or
any other relief under any bankruptcy, insolvency, reorganization, liquidation,
dissolution, arrangement, composition, compromise, readjustment of debt or
similar
55
<PAGE>
act or law of any jurisdiction, now or hereafter existing; or there is appointed
a receiver, trustee or custodian for the Loan Party or such Subsidiary or for
all or a substantial part of their respective properties or assets; or there is
issued a warrant of attachment, execution or similar process against any
substantial part of the properties or assets of the Loan Party or such
Subsidiary; and any such event continues for thirty (30) days undismissed,
unstayed, unbonded or undischarged;
(k) (i) any Loan Party or any of its Subsidiaries engages in any
Prohibited Transaction involving any Plan; (ii) any "accumulated funding
deficiency" (as defined in Section 302 of ERISA) that is not waived exists for
more than sixty (60) days with respect to any Plan; (iii) a Reportable Event
occurs with respect to, or proceedings commence to have a trustee appointed, or
a trustee is appointed, to administer or to terminate, any Plan, which
Reportable Event or institution of proceedings is likely to result in the
termination of such Plan for purposes of Title IV of ERISA and, in the case of a
Reportable Event, the continuance of such Reportable Event unremedied for 10
days after notice of such Reportable Event pursuant to Section 4043(a), (c) or
(d) of ERISA is given or the continuance of such proceedings for ten (10) days
after commencement thereof, as the case may be; (iv) the Loan Party or any of
its Subsidiaries fully or partially withdraws from any multi-employer Plan;
PROVIDED, HOWEVER, that any event or condition described in any of clauses (i)
through (iv) of this paragraph (k) shall not constitute an Event of Default
unless such event or condition, together with all other such events or
conditions (if any), is likely to subject such Loan Party to any tax, penalty or
other liabilities in the aggregate material in relation to the management,
business, properties, assets, operations or condition (financial or other) of
the Loan Party or such Subsidiary; or (v) any Plan terminates for purposes of
Title IV of ERISA, or PBGC institutes proceedings for the involuntary
termination of any Plan, in either case, with a vested unfunded liability of
$100,000 or more;
(l) there shall occur a cessation of a substantial part of the business
of any Loan Party for a period which significantly affects such Loan Party's
capacity to continue its respective business; or any Loan Party shall suffer the
loss or revocation of any license or Permit now held or hereafter acquired by
such Loan Party which is necessary to the continued or lawful operation of a
part of its respective business that would have a Material Adverse Effect; or
any Loan Party shall be enjoined, restrained or in any way prevented by court,
governmental or administrative order from conducting all or any part of its
respective business affairs for a period of thirty (30) days which would have a
Material Adverse Effect; or any Lease shall be canceled or terminated by the
other party to such Lease prior to the expiration of its stated term which
individually or in the aggregate which would have a Material Adverse Effect;
(m) a Material Adverse Change shall have occurred; or
(n) the occurrence of any event of default under any Indebtedness
(other than the Indebtedness represented by this Agreement) which would permit
the holder thereunder to accelerate such Indebtedness or exercise any other
rights or remedies available to such holder.
56
<PAGE>
Section 8.02. REMEDIES UPON AN EVENT OF DEFAULT. If any Event of
Default shall have occurred and be continuing, the Lender may by notice to any
Loan Party (i) declare the commitment of the Lender to make Loans hereunder to
be terminated, whereupon the same shall forthwith terminate, (ii) sell or
dispose of the Loans in a commercially reasonable manner and/or (iii) declare
any or all of the Loans, all interest thereon, any accrued and unpaid fees and
all other amounts payable hereunder or in respect of such Loans to be forthwith
due and payable, whereupon they shall become and be forthwith due and payable,
without presentment, demand, protest, or further notice of any kind, all of
which are hereby expressly waived by each Loan Party and each of their
respective Subsidiaries. Notwithstanding the foregoing, upon the occurrence of
any Event of Default described in Sections 8.01(i) or (j) above, the commitment
of the Lender to make Loans shall automatically be terminated and the Loans, all
interest thereon and all accrued and unpaid fees and all other amounts payable
hereunder or in respect of the Loans shall immediately become due and payable,
without any requirement on the part of the Lender to give notice, or make
declaration, of any kind regarding such Event of Default and without
presentment, demand, protest or any other requirement on the part of the Lender,
all of which are hereby expressly waived by each Loan Party and each of their
respective Subsidiaries.
ARTICLE 9. MISCELLANEOUS
Section 9.01. NOTICES. All notices hereunder shall be in writing and
shall be conclusively deemed to have been received and shall be effective,
except as explicitly otherwise noted, (i) on the day on which delivered if
delivered personally, or transmitted by telecopier (followed by a mailed written
confirmation), (ii) on the next Business Day if delivered by a nationally
recognized overnight courier (such as Federal Express), or (iii) three (3)
Business Days after the date on which the same is mailed by certified United
States mail, postage prepaid, and shall be addressed:
(a) in the case of the Borrower, to:
Corporate Office Properties, L.P.
c/o Corporate Office Properties Trust
8815 Centre Park Drive
Columbia, Maryland 21045
Attention: General Counsel
Telecopier No.: (410) 992-7534
(b) in the case of the Lender, to:
Prudential Securities Credit Corp.
One New York Plaza
New York, New York 10292
Attention: Michael Moore, Director
Telecopier No.: (212) 778-3194
Attention: Lainie Kaye, Vice President
57
<PAGE>
Telecopier No.: (212) 778-5099
Attention: Michael Pierro, Vice President
Telecopier No.: (212) 778-2239
Prudential Securities Credit Corp.
One Seaport Plaza
199 Water Street
New York, New York 10292
Attention: Fred Robustelli, First Vice President
Telecopier No.: (212) 214-7938
With a copy (other than copies of any Notice of Borrowing) to:
Pryor, Cashman, Sherman & Flynn LLP
410 Park Avenue
New York, New York 10022
Attention: Andrew S. Levine, Esq.
Telecopier No.: (212) 326-0806
or at such other address as the party giving such notice shall have been advised
of in writing for such purpose by the party to which the same is directed.
Section 9.02. SURVIVAL OF THIS AGREEMENT. All covenants, agreements,
representations and warranties made herein, or in the Loan Documents or in any
certificate delivered pursuant hereto or thereto shall survive the execution by
the Borrower and delivery to the Lender of this Agreement, the Note and the
other Loan Documents and the making and repayment of the Loans hereunder, and
shall continue in full force and effect so long as any Obligations of the
Borrower remains outstanding and unpaid or this Agreement remains in effect.
Section 9.03. INDEMNITY. Each Loan Party and its respective
Subsidiaries agrees to defend, protect, indemnify and hold harmless the Lender
and each of its Affiliates, officers, directors, employees, agents, attorneys
and consultants (collectively called the "INDEMNITEES") from and against any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, claims, costs, expenses and disbursements of any kind or nature
whatsoever (including, without limitation, the reasonable fees and disbursements
of counsel for such Indemnitees incurred in connection with any action or
proceeding between or among any Loan Party and any Indemnitee or between any
Indemnitee and any third party or otherwise, whether or not relating to any
investigative, administrative or judicial proceeding and whether or not such
Indemnitees shall be designated a party thereto), imposed on, incurred by, or
asserted against such Indemnitees (whether direct, indirect, special,
consequential, punitive or treble and whether based on any federal, state or
local, or foreign, laws or other statutory regulations, including, without
limitation, Environmental Laws, securities and commercial laws and regulations,
under common law or at equitable cause, or on contract or otherwise) in any
manner relating to or arising out of this Agreement or any of the Related
Documents, or any act, event or transaction
58
<PAGE>
related or attendant thereto or contemplated hereby, or any action or inaction
by any Indemnitee under or in connection therewith, any commitment of the Lender
hereunder, or the making of the Loans, or the management of such Loans, or the
use or intended use of the proceeds of any Loan, advance or other financial
accommodation provided hereunder, or any ERISA liabilities, or the use or
intended use of the Collateral Properties or any accident or injury occurring on
the Collateral Properties, or any claims asserted against the Lender by reason
of its alleged obligations under any Lease, or the payment of any brokerage
commission to anyone in connection with funding the Loans, or any
misrepresentation made by any Loan Party or any of their respective Subsidiaries
to the Lender in the Loan Documents, including, in each such case, any
allegation of any such matters, whether meritorious or not (collectively, the
"INDEMNIFIED MATTERS"); PROVIDED, HOWEVER, that any Loan Party and their
respective Subsidiaries shall not have any obligation to any Indemnitee
hereunder with respect to Indemnified Matters directly caused by or resulting
primarily from the willful misconduct or gross negligence of such Indemnitee.
The covenants of each of the Loan Parties contained in this Section 9.03 shall
survive the payment in full of all amounts due and payable under this Agreement
or any of the Loan Documents and the full satisfaction of all other Obligations
of the Borrower.
Section 9.04. COSTS, EXPENSES AND TAXES. (a) Each Loan Party agrees to
pay on demand (i) all reasonable out-of-pocket costs and expenses incurred by
the Lender in connection with the preparation, execution, delivery, filing,
recording, and administration of this Agreement, each of the Related Documents,
and any other documents, instruments or agreements which may be delivered in
connection with this Agreement (including, without limitation, the reasonable
fees and out-of-pocket expenses of counsel for the Lender, and local counsel who
may be retained by said counsel) with respect thereto and with respect to
advising the Lender as to its rights and responsibilities under this Agreement,
(ii) all costs and expenses in connection with all third party reports, the
audit, appraisal, valuation, investigation, and the creation, perfection,
priority or protection of the Lender's Liens against the Collateral, including,
without limitation, all costs and expenses (A) to pay or discharge taxes, Liens,
security interests or other encumbrances levied, placed or threatened against
the Collateral and (B) for title and lien searches, title insurance premiums,
filing and recording fees and taxes, duplication costs and corporate search
fees, including, without limitation, all title and lien searches, title
insurance premiums, filing and recording fees and taxes incurred in connection
with the filing and recording of the Mortgages and the Deeds of Trust, (iii) all
out-of-pocket costs and expenses in connection with the audits, inspections and
investigations conducted pursuant to Section 2.12 and Section 5.09 hereof, and
(iv) all costs and expenses (including, without limitation, the reasonable fees
and expenses of the Lender's counsel) of the Lender in connection with the
monitoring, refinancing and/or enforcement of this Agreement and each of the
Related Documents and such other documents, instruments or agreements which may
be delivered in connection with this Agreement.
(b) Any and all payments by any Loan Party under this Agreement or the
Note shall be made free and clear of and without deduction for any and all
present or future taxes, levies, imposts, deductions, charges or withholdings,
and all liabilities with respect thereto, excluding, in the case of the Lender,
taxes imposed on or in respect of its income (all such non-excluded taxes,
levies, imposts, deductions, charges, withholdings, and liabilities being
hereinafter referred
59
<PAGE>
to as "TAXES"). If any Loan Party shall be required by law to deduct any Taxes
from or in respect of any sum payable hereunder to the Lender, (i) the sum
payable shall be increased as may be necessary so that, after making all
required deductions (including deductions applicable to additional sums payable
under this Section 9.04), the Lender receives an amount equal to the sum it
would have received had no such deductions been made, (ii) the Loan Party shall
make such deductions, and (iii) the Loan Party shall pay the full amount
deducted to the relevant taxation authority or other authority in accordance
with applicable law.
(c) The Loan Parties further agree to pay any present or future stamp
or documentary taxes or any other excise or property taxes, charges, or similar
levies which arise in connection with the execution and delivery of this
Agreement, any of the Related Documents or any of the other instruments,
documents or agreements executed and/or delivered in connection herewith or
therewith, or any payment made hereunder or in connection herewith (hereinafter
collectively referred to as "OTHER TAXES").
(d) The Loan Parties shall indemnify the Lender for the full amount of
Taxes and Other Taxes (including, without limitation, any Taxes or Other Taxes
imposed by any jurisdiction on amounts payable by the Borrower under this
Section 9.04) paid by the Lender and any liability (including penalties,
interest, and expenses) arising therefrom or with respect thereto, whether or
not such Taxes or Other Taxes were correctly or legally asserted. This
indemnification shall be made within 30 days from the date the Lender makes
written demand therefor. A certificate as to any additional amount payable to
the Lender under this Section 9.04 submitted to the Borrower by the Lender shall
show in reasonable detail the amount payable and the calculations used to
determine such amount and shall, absent manifest error, be final, conclusive and
binding upon each of the parties hereto.
(e) Without prejudice to the survival of any other agreement of the
Loan Parties hereunder, the agreements and obligations of the Borrower contained
in this Section 9.04 shall survive the payment in full of all amounts due and
payable under this Agreement or any of the Related Documents and the full
satisfaction of all other Obligations of the Borrower.
Section 9.05. FURTHER ASSURANCES. (a) At any time and from time to
time, upon the request of the Lender, the Borrower or such other Loan Party
requested by Lender shall execute, deliver and acknowledge, or cause to be
executed, delivered and acknowledged, such further documents and instruments and
do such other acts and things as the Lender may reasonably request in order to
effect fully the intent and purposes of this Agreement and the Related
Documents, and any other agreements, instruments and documents delivered
pursuant hereto or in connection with the making of the Loans, in proper form
for recording and otherwise in form and substance reasonably satisfactory to the
Lender and its counsel.
(b) Each of the Loan Parties agrees that from time to time, at its
expense, it shall promptly execute and deliver all further instruments and
documents, and take all further action, that may be necessary or appropriate, or
that the Lender may reasonably request, in order to create, evidence, perfect or
preserve any security interest or Lien granted or purported to be
60
<PAGE>
granted hereby or by any Loan Document or to enable the Lender to exercise and
enforce its rights and remedies hereunder or under any Loan Document with
respect to any Collateral.
Section 9.06. AMENDMENT AND WAIVER. No amendment or waiver of any
provision of this Agreement or any of the Related Documents to which the Lender
is a party, nor any consent to any departure by any Loan Party therefrom, shall
in any event be effective unless the same shall be in writing and signed by the
Lender, and then such waiver or consent shall be effective only in the specific
instance and for the purpose for which given; PROVIDED, HOWEVER, that no
amendment, waiver or consent, shall, unless in writing and signed by the holder
of the Note do any of the following: (i) increase the Commitment, (ii) reduce
the principal of, or premiums or interest on, the Note, (iii) postpone any date
fixed for any payment of principal of, or interest on, the Note or any other
amount due hereunder or under any Loan Document to the holder of the Note, or
waive any default in the payment of principal, interest or any other amount due
hereunder or under any Loan Document to which such holder of the Note is a
party, (iv) release any material portion of the Collateral, or (v) amend this
Section 9.06 or any other provision requiring the consent of the holder of the
Note. No failure on the part of the Lender or the holder of the Note to
exercise, and no delay in exercising, any right, power or privilege hereunder or
under any of the Related Documents shall operate as a waiver thereof, nor shall
a single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. No notice to or
demand on any Loan Party in any case shall entitle such Loan Party to any other
or further notice or demand in the same, similar or other circumstances.
Section 9.07. REMEDIES CUMULATIVE. This Agreement, the Related
Documents and the Obligations of the Loan Parties hereunder and thereunder are
in addition to and not in substitution for any other Obligations of any of the
Loan Parties or security interests granted by any of the Loan Parties now or
hereafter held by the Lender and shall not operate as a merger of any contract
or debt or suspend the fulfillment of or affect the rights, remedies or powers
of the Lender in respect of any such Obligation or security interest held by the
Lender for the fulfillment thereof. The rights and remedies provided in this
Agreement and in any Related Document are cumulative and not exclusive of any
other rights or remedies provided by law.
Section 9.08. MARSHALING, RECOURSE TO SECURITY: PAYMENTS SET ASIDE. The
Lender shall not be under any obligation to marshal any assets in favor of any
of the Loan Parties or any other party or against or in payment of any or all of
the Obligations of the Loan Parties to the Lender hereunder or under the Related
Documents or otherwise. Recourse to security shall not be required at any time.
To the extent that any Loan Party makes a payment or payments to the Lender, or
the Lender enforces its security interests or exercises its rights of setoff,
and such payment or payments or the proceeds of such enforcement or setoff or
any part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside and/or required to be repaid to a trustee, receiver or
any other party under any bankruptcy law, state or federal law, common law or
equitable cause, then to the extent of such recovery, the obligation or part
thereof originally intended to be satisfied, and all Liens, rights and remedies
therefor, shall be revived and reinstated and continued in full force and effect
as if such payment had not been made or such enforcement or setoff had not
occurred.
61
<PAGE>
Section 9.09. SETOFF. In addition to any rights and remedies of the
Lender now or hereafter provided by law, the Lender shall have the right,
without prior notice to the Borrower, any such notice being expressly waived by
the Borrower to the extent permitted by applicable law, on the occurrence and
during the continuation of any Event of Default to setoff and apply against any
Obligation, whether matured or unmatured, of the Borrower, any amount owing from
the Lender to the Borrower, at or at any time after the happening of any such
Event of Default, and such right of setoff may be exercised by the Lender
against the Borrower or against any trustee in bankruptcy, debtor-in-possession,
assignee for the benefit of creditors, receiver or execution, judgment or
attachment creditor, notwithstanding the fact that such right of setoff shall
not have been exercised by the Lender before the making, filing or issuance, or
service on the Lender of, or of notice of, any such event or proceeding.
Section 9.10. BINDING EFFECT. This Agreement shall become effective
when it shall have been executed by the Borrower and the Lender, and thereafter
shall be binding upon and inure to the benefit of the Borrower and the Lender
and their respective successors and assigns; PROVIDED, HOWEVER, that the
Borrower shall not have the right to assign its rights hereunder or any interest
herein without the prior written consent of the Lender. For the purposes of this
Section 9.10, an assignment shall be deemed to include (i) if the Borrower is a
corporation, the voluntary or involuntary sale, conveyance or transfer of the
Borrower's Securities (or the Securities of any corporation directly or
indirectly controlling the Borrower by operation of law or otherwise) or the
creation or issuance of a new stock by which an aggregate of more than ten
percent (10%) of the Borrower's Securities shall be vested in a party or parties
who are not now shareholders, (ii) if the Borrower is a partnership, the change,
removal or resignation of a general partner or managing partner, or (iii) if the
Borrower is a limited liability company, the change, removal or resignation of a
managing member.
Section 9.11. APPLICABLE LAW. This Agreement and the rights and
obligations of the parties hereunder shall be governed by, and construed and
interpreted in accordance with, the substantive law of the State of New York,
without regard to its choice of law provisions.
Section 9.12. CONSENT TO JURISDICTION AND SERVICE OF PROCESS; WAIVER OF
JURY TRIAL. All judicial proceedings brought against the Borrower or the Lender
with respect to this Agreement or any Related Document may be brought in any
state or federal court of competent jurisdiction in the State of New York and,
by its execution and delivery of this Agreement, the Borrower accepts, for
itself and in connection with its properties, generally and unconditionally, the
exclusive jurisdiction of the aforesaid courts, and irrevocably agrees to be
bound by any final judgment rendered thereby in connection with this Agreement
or any of the Related Documents from which no appeal has been taken or is
available. The Borrower irrevocably consents to the service of process of any of
the aforementioned courts in any such action or proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to its notice
address specified in Section 9.01 hereof, such service to become effective five
(5) days after such mailing. EACH OF THE BORROWER AND THE LENDER HEREBY
KNOWINGLY, INTENTIONALLY AND IRREVOCABLY WAIVE (A) TRIAL BY JURY IN ANY ACTION
OR PROCEEDING WITH RESPECT TO THIS AGREEMENT
62
<PAGE>
OR ANY RELATED DOCUMENT, AND (B) ANY OBJECTION (INCLUDING, WITHOUT LIMITATION,
ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS) WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH
ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY RELATED DOCUMENT IN
ANY JURISDICTION SET FORTH ABOVE. Nothing herein shall affect the right of the
Lender to serve process in any other manner permitted by law.
Section 9.13. INCONSISTENCIES. This Agreement and each of the Loan
Documents shall be construed to the extent reasonable to be consistent, one with
the other, but to the extent that the terms and conditions of this Agreement or
any other Loan Document are actually inconsistent with the terms and conditions
of any Loan Document, the terms and conditions of this Agreement shall govern.
Section 9.14. PERFORMANCE OF OBLIGATIONS. The Borrower acknowledges and
agrees that the Lender may, but shall have no obligation to, make any payment or
perform any act required of the Borrower under this Agreement or any Related
Document or take any other action which the Lender in its sole discretion deems
necessary or desirable to protect or preserve the Collateral, including, without
limitation, any action to pay or discharge taxes, Liens, security interests or
other encumbrances levied or placed on or threaten to be placed on any
Collateral.
Section 9.15. ASSIGNMENT; PARTICIPATION. The Lender may assign (by
novation or otherwise) or participate all or a proportionate part of its rights,
obligations and interests in the Loans and its rights hereunder and under the
Related Documents without restriction. The Lender may, prior to or after the
execution of this Agreement syndicate the Loans with one or more financial
institutions, who will become parties to this Agreement, in which case the
Lender will be the sole and exclusive agent for such other financial
institutions upon such terms and conditions as the Lender deems appropriate.
Each Loan Party hereby agrees to reasonably cooperate with the Lender, to effect
assignments and/or participations made with respect hereto.
Section 9.16. CONFIDENTIALITY. The Lender shall maintain the
confidential nature of, and shall not use or disclose, the Loan Party's
confidential financial information, without first obtaining such party's written
consent, which consent shall not be unreasonably withheld or delayed. Nothing in
this Section 9.16 shall require the Lender to obtain the consent of the
Borrower, before exercising any of its rights under the Related Documents upon
the occurrence of a Default or Event of Default. The obligations of the Lender
shall in no event apply to: (i) providing information about the Loans or any
party to any Related Document to any actual or potential assignee or participant
contemplated in Section 9.15 hereof; (ii) any situation in which the Lender, in
the sole discretion of the Lender, is required by law or required or requested
by any governmental, regulatory or supervisory authority or official to disclose
information; (iii) providing information to counsel to the Lender in connection
with the transactions contemplated by the Related Documents; (iv) providing
information to independent auditors retained by the Lender; (v) any information
that is in or becomes part of the public domain otherwise than through a
wrongful act of the Lender or any employees or agents thereof; (vi) any
information that is in the possession of the Lender prior to receipt thereof
from the Borrower or any other Person known to the Lender to be acting on behalf
of the Borrower; (vii) any information that is
63
<PAGE>
independently developed by the Lender; and (viii) any information that is
disclosed to the Lender by a third party that has no obligation of
confidentiality with respect to the information disclosed.
Section 9.17. CONSTRUCTION. The parties hereto acknowledge that each
party and its counsel have reviewed this Agreement and each of the Loan
Documents and that the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of this Agreement or any of the Loan Documents.
Section 9.18. ENTIRE AGREEMENT; BINDING EFFECT. This Agreement, taken
together with all of the Related Documents and all certificates and other
documents delivered by the Borrower to the Lender, embodies the entire agreement
and, except as otherwise contemplated herein, supersedes all prior agreements,
written and oral, relating to the subject matter hereof.
Section 9.19. SEVERABILITY. Any provision of this Agreement which is
prohibited, unenforceable or not authorized in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition,
unenforceability or non-authorization without invalidating the remaining
provisions hereof or affecting the validity, enforceability or legality of such
provision in any other jurisdiction.
Section 9.20. HEADINGS. Section headings in this Agreement are included
herein for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
Section 9.21. EXECUTION OF COUNTERPARTS. This Agreement may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute one and the same
agreement.
Section 9.22. LIMITATION OF LIABILITY. No claim may be made by any Loan
Party or any other Person against the Lender or its Affiliates, directors,
officers, employees, attorneys or agents for any special, indirect,
consequential, punitive or treble damages in respect of any claim for breach of
contract or any other theory of liability arising out of or related to the
transactions contemplated by this Agreement or any other Related Documents, or
any act, omission or event occurring in connection herewith or therewith; and
the Borrower hereby waives, releases and agrees not to sue upon any claim for
any and all special, indirect, consequential, punitive or treble damages,
whether or not accrued and whether or not known or suspected to exist in its
favor.
64
<PAGE>
Section 9.23 ADDITION OF COLLATERAL PROPERTY SUBSIDIARIES. From time to
time subsequent to the date hereof, pursuant to Section 4.02 of this Agreement,
Collateral Property Subsidiaries may become parties hereto, as additional Loan
Parties, by executing a counterpart of this Agreement in form and substance
reasonably acceptable to Lender. Upon delivery of any such counterpart to
Lender, each Collateral Property Subsidiary shall be a Loan Party as fully a
party hereto as if such Collateral Property Subsidiary were an original
signatory hereof. Each Loan Party expressly agrees that its obligations arising
hereunder shall not be affected or diminished by the addition or release of any
other Loan Party hereunder, nor by any election of Lender not to cause any
Collateral Property Subsidiary to become an additional Loan Party hereunder.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
LOAN PARTIES:
CORPORATE OFFICE PROPERTIES, L.P.
a Delaware limited partnership
By: Corporate Office Properties Trust, a
Maryland real estate investment trust,
its sole general partner
by: /s/ Roger A. Waesche, Jr.
--------------------------
Name: Roger A. Waesche, Jr.
Title: Senior Vice President
CORPORATE OFFICE PROPERTIES TRUST
a Maryland real estate investment trust
By: /s/ Roger A. Waesche, Jr.
--------------------------
Name: Roger A. Waesche, Jr.
Title: Senior Vice President
LENDER:
PRUDENTIAL SECURITIES CREDIT CORP., a Delaware
corporation
By:
--------------------------
Name:
Title:
65
\<PAGE>
Exhibit 10.31
OPTION AGREEMENT
BETWEEN
CORPORATE OFFICE PROPERTIES, L.P.
AND
BLUE BELL LAND, L.P.
THIS OPTION AGREEMENT is made March __, 1998 between BLUE BELL LAND,
L.P., a Delaware limited partnership ("OPTIONOR") with a business address at
One Logan Square, 11th Fl., Philadelphia, PA 19103 and CORPORATE OFFICE
PROPERTIES, L.P., a Delaware limited partnership ("COPLP") with a business
address at One Logan Square, 11th Fl., Philadelphia, PA 19103.
BACKGROUND
Optionor desires to grant to COPLP an option (the "OPTION") to purchase
all that certain ground, together with any improvements thereon and appurtenant
easements, situated at and commonly known as 795 Jolly Road, Whitpain Township,
Montgomery County, Pennsylvania, as more particularly described on Exhibit "A"
attached hereto (the "PROPERTY"). The Property also includes any applicable
service contracts, construction contracts and/or leases.
NOW, THEREFORE, for $10.00 and other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the parties hereto,
intending to be legally bound hereby, agree as follows:
AGREEMENT
1. BASIC TERMS. Optionor hereby grants COPLP the option
("OPTION") to purchase the Property on the terms set forth in this Agreement.
(a) METHOD TO EXERCISE OPTION.Subject to Optionor's
Transfer Rights (defined below), COPLP shall have a one-time right to exercise
its Option (if at all). To exercise its option, COPLP shall notify Optionor (the
"EXERCISE NOTICE") at any time within 5 years after the date of this Agreement
(the "OPTION PERIOD"), which Option Period may be extended by Optionor as set
forth below. If COPLP does not timely exercise its Option, then (i) this
Agreement shall be of no further force or effect and (ii) the Option shall lapse
and be deemed waived and extinguished.
(b) PURCHASE PRICE. The "PURCHASE PRICE" for the
Property shall be the greater of: (i) 95% of the then-Fair Market Value (defined
below); or (ii) Optionor's Basis (defined below).
-1-
<PAGE>
"FAIR MARKET VALUE" shall be established as
follows. Within 15 days after Optionor receives the Exercise Notice, Optionor
shall notify COPLP of Optionor's determination of the Property' fair market
value (the "FMV NOTICE"). Such determination shall be conclusive and binding,
unless COPLP notifies Optionor of COPLP's objection within 10 days after
Optionor gives the FMV Notice. If COPLP so objects, then Optionor and COPLP
shall mutually select an appraiser to determine the Property's fair market
value, whose determination shall be conclusive and binding; and COPLP shall pay
all costs and expenses for the appraisal.
"OPTIONOR'S BASIS" means the Optionor's
adjusted basis in the Property and improvements (including all 'hard' and 'soft'
costs) for income tax purposes on an accrual basis, plus all taxable losses
incurred during the period from the date of this Agreement through the
Settlement date.
(c) PAYMENTS. Within 10 days after Optionor gives the FMV
Notice, COPLP shall deliver to Optionor its "DEPOSIT" equal to 10% of the fair
market value set forth in the FMV notice. Interest on the Deposit shall accrue
at 5%. At Settlement, COPLP shall pay the balance of the Purchase Price. At
Optionor's election, COPLP shall tender all payments in cash, by bank check, by
wire-transfer of immediately-available funds and/or with 'Common Units' of
COPLP. The number of Common Units shall be based on the weighted-average share
price of Corporate Office Properties Trust's (a Maryland REIT) common stock for
the 20-day period prior to the Settlement date.
(d) TIME OF ESSENCE. The time to make all payments and
for Settlement is strictly of the essence.
(e) SUSPENDING AND EXTENDING OPTION PERIOD. At any time
and from time to time, Optionor in its sole discretion may, but shall not be
obligated to, suspend COPLP's right to exercise the Option. To suspend such
right, Optionor shall notify COPLP (the "SUSPENSION NOTICE"), specifying the
number of days for which the Option right is suspended (the "SUSPENSION
PERIOD"); and in that case, the Option Period shall be extended by the number of
days comprising the Suspension Period. Any Exercise Notice given during the
Suspension Period shall be of no force or effect.
By way of example (and not of limitation), Optionor
may suspend COPLP's right in case of casualty, condemnation, development,
construction or construction financing affecting the Property.
(f) OPTIONOR'S TRANSFER RIGHT. Despite anything in this
Agreement to the contrary, if during the Option Period Optionor receives a BONA
FIDE offer to sell all or a portion of the Property to another purchaser,
Optionor may accept such offer (the "TRANSFER RIGHTS") provided Optionor
notifies COPLP (the "OFFER NOTICE") of the terms thereof (the "OFFER TERMS").
COPLP shall have the right to purchase the Property (or portion thereof, as the
case may be) strictly in accordance with the Offer Terms, by notifying Optionor
of its acceptance
-2-
<PAGE>
within 10 days after Optionor gives the Offer Notice. If COPLP fails to timely
notify Optionor that it accepts the Offer Terms, then: (i) Optionor may freely
sell the Property (or portion thereof, as the case may be) substantially in
accordance with the Offer Terms; (ii) this Agreement shall be of no further
force or effect, if the Offer Terms comprise all of the Property; and (iii) the
Option shall lapse and be deemed nullified and extinguished as to the Property
(or portion thereof, as the case may be) comprising the Offer Terms.
(g) INSPECTION PERIOD. COPLP shall have 15 days after
giving the Exercise Notice (the "INSPECTION PERIOD") to make (at COPLP's sole
expenses) all audits, inspections or investigations of the Property desired by
COPLP, subject to Optionor's requirements as set forth below.
COPLP and its accountants, attorneys or other
representative(s) shall have the right, during regular business hours and with
reasonable notice, to:
(i) interview any manager regarding the
management, condition or operation of the Property, and to inspect any leases,
books, files and records relating to the Property's condition, operation or
management; and
(ii) subject to the rights of tenants
occupying space at the Property, inspect the Property and improvements and make
such tests, surveys and inspections as COPLP deems necessary, including, without
limitation, soil tests, topographical surveys, structural and foundation
surveys, concrete tests, roof inspections, equipment inspections and
environmental inspections. COPLP shall exercise (and cause its agents and
employees to exercise) due care and ordinary prudence in performing such
surveys, inspections and tests and shall not exercise such right in a manner
that interferes with the operation of the Property. If the sale is not
consummated, or COPLP gives its Rescission Notice (defined below), then COPLP
(at its own expense) shall promptly repair any damage to the Property and
improvements resulting from such surveys, tests or inspections. COPLP shall
indemnify, defend, save and hold harmless Optionor from and against any and all
claims, liens (including, without limitation, mechanic's and materialman's
liens), actions, suits, proceedings, costs, expenses, damages or other
liabilities, including, without limitation, attorneys' fees and court costs, all
as incurred, arising out of the rights granted to COPLP pursuant to the terms of
this Inspection Period.
COPLP, its contractors and representatives shall keep
confidential any and all information, documents and reports obtained or prepared
by them relating to the Property. At Optionor's request, COPLP shall furnish to
Optionor copies of all studies, tests and surveys undertaken and completed in
connection with such inspections and at Optionor's request therefor, certify
same to Optionor.
If during the Inspection Period COPLP disapproves of
the condition of the Property, in its sole and absolute discretion, COPLP may
rescind its Exercise Notice by delivering written notice to Optionor (the
"RESCISSION NOTICE") before the Inspection Period expires. In such event:
(i) COPLP shall be entitled to a return of the Deposit; (ii) Optionor shall
-3-
<PAGE>
have no further obligations, and (iii) COPLP shall have no further rights
(including the Option) under this Agreement. If COPLP does not give the
Rescission Notice before the Inspection Period expires, COPLP shall be deemed to
have accepted the condition of the Property and COPLP may not thereafter
terminate this Agreement or rescind its Exercise Notice.
2. SETTLEMENT. "SETTLEMENT" shall be 60 days after COPLP gives
the Exercise Notice.
3. DEFAULT BY COPLP. If COPLP breaches this Agreement, then in
addition to all other rights and remedies, Optionor shall retain the Deposit.
4. DELIVERIES AT SETTLEMENT.
(a) At Settlement, Optionor will deliver: (i) a special
warranty deed; (ii) an assignment (without recourse) of any service contracts,
tenant leases, security deposits, warranties, guaranties, bonds, outstanding
construction contracts, tenant improvement contracts and/or capital contracts
applicable to the Property; (iii) originals or copies of the foregoing
documents; (iv) a form letter to any tenants, notifying them of the sale;
(v) quitclaim bill of sale, if any personalty; (vi) a FIRPTA affidavit; and
(viii) such customary affidavits, certifications, evidence and other documents
which COPLP's title company reasonably requests.
(b) At Settlement, COPLP will deliver: (i) the balance of the
Purchase Price; and (ii) such customary affidavits, certifications, evidence and
other documents as may be required by Optionor or COPLP's title company. COPLP
shall join in any affidavits, certification or other documents Optionor
reasonably requests.
5. TITLE; LIENS AND ENCUMBRANCES. Optionor will deliver good and
marketable title, insurable at regular rates by any reputable title insurance
company. The Property shall be conveyed clear of all monetary liens and
encumbrances, except easements, restrictions, rights, rights of way (recorded
and unrecorded), matters which an accurate survey would disclose, instruments of
record, governmental laws, rules, orders and regulations, governmental notices
and pending municipal improvements (collectively, the "TITLE EXCEPTIONS").
6. ZONING. The zoning classification of the Property is currently
"R-E" (Research and Engineering).
7. RISK OF LOSS. Risk of loss shall remain upon Optionor until
Settlement.
8. APPORTIONMENTS. Real estate taxes, and municipal water and
sewer rentals, shall be apportioned as of the Settlement date. The parties shall
also apportion all other customary items (for example, other utilities; rents,
additional rents, charges and security deposits under any tenant leases; service
contracts). In case of casualty or condemnation, any proceeds shall likewise be
apportioned and/or credited at Settlement. All real estate transfer taxes,
documentary stamp taxes and all other closing-related costs shall be paid by
COPLP.
-4-
<PAGE>
9. RECORDING. Subject to the next sentence, neither party shall
record or file this Agreement (or an extract or memorandum thereof) in any
public office, without both parties' written consent. Despite the foregoing,
Optionor and/or COPLP may (without the other's consent) file and/or record this
Agreement (or an extract or memorandum thereof) with any authority which
regulates publicly-traded securities (for example, the Securities and Exchange
Commission, NASDAQ and/or NYSE).
10. NO FORMAL TENDER REQUIRED. The tender of an executed deed by
Optionor and the tender by COPLP of the balance of the Purchase Price payable at
Settlement are mutually waived, but nothing in this Agreement shall be construed
as a waiver of Optionor's obligation to deliver the deed and/or of the
concurrent obligation of COPLP to pay the balance of the Purchase Price payable
at Settlement.
11. REPRESENTATIONS AND WARRANTIES. Optionor makes only the
following representations and warranties. As of the date hereof: (i) Optionor is
not in bankruptcy, nor has there been any petition or insolvency proceedings
filed for the reorganization of Optionor; and (ii) there are no rights, options,
or other agreements of any kind to sell or transfer any interest in the
Property.
12. CONDITION OF PROPERTY. It is expressly understood and agreed
that COPLP shall accept the Property in its then- "AS-IS, WHERE-IS" condition,
subject to all patent and latent defects, if any, with no representation or
warranty by Optionor as to the Property's fitness, suitability, habitability, or
usability.
13. ENTIRE AGREEMENT OF PARTIES. This Agreement contains the whole
agreement between the parties and there are no other terms, obligations,
covenants, representations, statements or conditions, oral or otherwise, of any
kind whatsoever. This Agreement may only be modified in writing, signed by the
party against whom enforcement is sought.
14. NOTICES. All notices shall be in writing, given by certified
mail, return receipt requested, to the respective party's address set forth
above (which may be changed from time to time in accordance with this
paragraph).
15. SUCCESSORS AND ASSIGNS. This Agreement shall be binding and
inure to the benefit of each party's respective heirs, successors and assigns.
However, COPLP may not assign or otherwise transfer this Agreement (or any
rights hereunder) except to a party (i) which COPLP
-5-
<PAGE>
directly or indirectly owns or controls, (ii) into which COPLP is merged or
consolidated, or (iii) to which COPLP transfers all or substantially all of its
assets.
The parties have executed this Agreement as of the date first written
above.
COPLP
CORPORATE OFFICE PROPERTIES, L.P.
By: CORPORATE OFFICE PROPERTIES TRUST,
a Maryland REIT, general partner
By: /s/ Clay W. Hamlin, III
-------------------------------------
Name: Clay W. Hamlin, III
Title: President & CEO
Attest: /s/ Denise J. Liszewski
---------------------------------
Name: Denise J. Liszewski
Title: V.P. Administration
OPTIONOR
BLUE BELL LAND, L.P.
By: STRFI, Inc., general partner
By: /s/ Clay W. Hamlin, III
-------------------------------------
Name: Clay W. Hamlin, III
Title: President
Attest: /s/ Denise J. Liszewski
---------------------------------
Name: Denise J. Liszewski
Title: Asst. Secretary
-6-
<PAGE>
EXHIBIT "A"
[metes and bounds description of Property attached]
-7-
<PAGE>
LEGAL DESCRIPTION
ALL THAT CERTAIN tract or parcel of ground situate in the Township of
Whitpain, County of Montgomery, Commonwealth of Pennsylvania, bounded and
described according to a Title Survey Plan prepared by Ezra Golub &
Associates, Registered Engineers and Registered Land Surveyors of Levittown,
PA, dated October 2, 1997, as follows to wit:
BEGINNING at a point located on the westerly right-of-way line of
Penllyn-Blue Bell Pike (80 feet wide), said point also being located on a
property corner of lands of now or formerly North Wales Water Authority.
Thence leaving said right-of-way line the following five (5) courses and
distances along a common property line with various owners;
1) North fifty three degrees three minutes twenty six seconds West
(N 53-degrees--03'-26" W), one thousand two hundred eighty nine and fifty
hundredths feet (1,289.50') to a point; thence,
2) South thirty seven degrees fifty one minutes thirty two seconds West
(S 37-degrees--51'-32" W); six hundred forty two and thirty six hundredths
feet (642,35') to a point; thence,
3) South thirty seven degrees thirty eight minutes five seconds West
(S 37-degrees--38'-05" W), two hundred eighty three and nine hundredths feet
(283.09') to a point; thence,
4) South fifty three degrees five minutes eleven seconds East
(S 53-degrees--05'-11" E), two hundred and three hundredths feet (200.03') to
a point; thence,
5) South thirty seven degrees forty seven minutes twenty one seconds West
(S 37-degrees--47'-21" W), one hundred ninety eight and zero hundredths feet
(198.00') to a point, said point also being a common property corner with
lands of now or formerly Blue Bell Investment Company;
Thence along said common property line, the following three (3) courses and
distances;
1) North fifty two degrees twelve minutes thirty nine seconds West
(N 52-degrees--12'-39" W), one hundred ninety two and zero hundredths feet
(192.00') to a point; thence,
2) South thirty seven degrees forty seven minutes twenty one seconds West
(S 37-degrees--47'-21" W) thirty and zero hundredths feet (30.00') to a
point; thence,
<PAGE>
3) North fifty two degrees twelve minutes thirty nine seconds West
(N 52-degrees--12'-39" W), seven hundred forty three and sixty one hundredths
feet (743.61') to a point; said point being a common property corner with
other lands of now or formerly Blue Bell Investment Company;
Thence the following (5) courses and distances along said lands;
1) North thirty seven degrees forty seven minutes twenty one seconds East
(N 37-degrees--47'-21" E), three hundred forty and eighty two hundredths feet
(340.82') to a point;
2) South fifty two degrees twelve minutes thirty nine seconds East
(S 52-degrees--12'-39" E), one hundred forty seven and zero
hundredths feet (147.00) to a point; thence,
3) North thirty seven degrees forty seven minutes twenty one seconds East
(N 37-degrees--47'-21" E), two hundred seventy three and thirty one
hundredths feet (273.31') to a point; thence,
4) North seven degrees twelve minutes thirty nine second West
(N 7-degrees--12'-39" W), eighty four and forty five hundredths feet (84.45')
to a point; thence,
5) North thirty seven degrees forty seven minutes twenty one seconds East
(N 37-degrees--47'-21" E), six hundred ninety two and eighteen hundredths
feet (692.18') to a point; said point being on a common property line with
lands of now or formerly Robert and Edna Harris; thence,
Along said common property line between Robert and Edna Harris, South forty
eight degrees fifty six minutes five seconds East (S 48-degrees--56'-05" E),
six hundred twelve and ninety three hundredths feet (612.93') to a point;
Along a common property line with various adjoining owners, South fifty three
degrees twenty eight minutes fifty five seconds East (S 53-degrees--28'-55" E),
seven hundred nine and seventy nine hundredths feet (709.79') to a point,
said point also being a common property corner with lands of now or formerly
Sattlebrook Estates; thence,
Along said line, South fifty two degrees thirty minutes zero seconds East
(S 52-degrees--30'-00" E), six hundred fifteen and seventy seven hundredths
feet (615.77') to a point on the ultimate right-of-way line of Penllyn-Blue
Bell Pike; thence,
Along said northerly right-of-way line of Penllyn-Blue Pike, South thirty
seven degrees thirty nine minutes fifty four seconds, West
(S 37-degrees--39'-54" W), one hundred eighty and forty one hundredths feet
(180.41') to the first mentioned point and place of [illegible].
SITE BEING P/O MONTGOMERY COUNTY TAX PARCEL NO. 58-00[illegible]
CONTAINING 25.659 ACRES OF LAND MORE OR LESS,
SUBJECT TO ALL EASEMENTS AND RESTRICTIONS OF RECORD.
[SEAL]
<PAGE>
Exhibit 10.32
OPTION AGREEMENT
BETWEEN
CORPORATE OFFICE PROPERTIES, L.P.
AND
COMCOURT LAND, L.P.
THIS OPTION AGREEMENT is made March ________, 1998 between COMCOURT
LAND, L.P., a Delaware limited partnership ("OPTIONOR") with a business address
at One Logan Square, 11th Fl., Philadelphia, PA 19103 and CORPORATE OFFICE
PROPERTIES, L.P., a Delaware limited partnership ("COPLP") with a business
address at One Logan Square, 11th Fl., Philadelphia, PA 19103.
BACKGROUND
Optionor desires to grant to COPLP an option (the "OPTION") to purchase
all that certain ground, together with any improvements thereon and appurtenant
easements, situated at and commonly known as Lots 32, 33 and 34 at Market Place
(Commerce Park Subdivision), Susquehanna Township, Dauphin County, Pennsylvania,
as more particularly described on Exhibit "A" attached hereto (the "PROPERTY").
The Property also includes any applicable service contracts, construction
contracts and/or leases.
NOW, THEREFORE, for $10.00 and other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the parties hereto,
intending to be legally bound hereby, agree as follows:
AGREEMENT
1. BASIC TERMS. Optionor hereby grants COPLP the option
("OPTION") to purchase the Property on the terms set forth in this Agreement.
(a) METHOD TO EXERCISE OPTION.Subject to Optionor's
Transfer Rights (defined below), COPLP shall have a one-time right to exercise
its Option (if at all). To exercise its option, COPLP shall notify Optionor (the
"EXERCISE NOTICE") at any time within 5 years after the date of this Agreement
(the "OPTION PERIOD"), which Option Period may be extended by Optionor as set
forth below. If COPLP does not timely exercise its Option, then (i) this
Agreement shall be of no further force or effect and (ii) the Option shall lapse
and be deemed waived and extinguished.
(b) PURCHASE PRICE. The "PURCHASE PRICE" for the Property
shall be the greater of: (i) 95% of the then-Fair Market Value (defined below);
or (ii) Optionor's Basis (defined
-1-
<PAGE>
below).
"FAIR MARKET VALUE" shall be established as
follows. Within 15 days after Optionor receives the Exercise Notice, Optionor
shall notify COPLP of Optionor's determination of the Property' fair market
value (the "FMV NOTICE"). Such determination shall be conclusive and binding,
unless COPLP notifies Optionor of COPLP's objection within 10 days after
Optionor gives the FMV Notice. If COPLP so objects, then Optionor and COPLP
shall mutually select an appraiser to determine the Property's fair market
value, whose determination shall be conclusive and binding; and COPLP shall pay
all costs and expenses for the appraisal.
"OPTIONOR'S BASIS" means the Optionor's
adjusted basis in the Property and improvements (including all 'hard' and 'soft'
costs) for income tax purposes on an accrual basis, plus all taxable losses
incurred during the period from the date of this Agreement through the
Settlement date.
(c) PAYMENTS. Within 10 days after Optionor gives the FMV
Notice, COPLP shall deliver to Optionor its "DEPOSIT" equal to 10% of the fair
market value set forth in the FMV notice. Interest on the Deposit shall accrue
at 5%. At Settlement, COPLP shall pay the balance of the Purchase Price. At
Optionor's election, COPLP shall tender all payments in cash, by bank check, by
wire-transfer of immediately-available funds and/or with 'Common Units' of
COPLP. The number of Common Units shall be based on the weighted-average share
price of Corporate Office Properties Trust's (a Maryland REIT) common stock for
the 20-day period prior to the Settlement date.
(d) TIME OF ESSENCE. The time to make all payments and
for Settlement is strictly of the essence.
(e) SUSPENDING AND EXTENDING OPTION PERIOD. At any time
and from time to time, Optionor in its sole discretion may, but shall not be
obligated to, suspend COPLP's right to exercise the Option. To suspend such
right, Optionor shall notify COPLP (the "SUSPENSION NOTICE"), specifying the
number of days for which the Option right is suspended (the "SUSPENSION
PERIOD"); and in that case, the Option Period shall be extended by the number of
days comprising the Suspension Period. Any Exercise Notice given during the
Suspension Period shall be of no force or effect.
By way of example (and not of limitation), Optionor
may suspend COPLP's right in case of casualty, condemnation, development,
construction or construction financing affecting the Property.
(f) OPTIONOR'S TRANSFER RIGHT. Despite anything in this
Agreement to the contrary, if during the Option Period Optionor receives a BONA
FIDE offer to sell all or a portion of the Property to another purchaser,
Optionor may accept such offer (the "TRANSFER RIGHTS") provided Optionor
notifies COPLP (the "OFFER NOTICE") of the terms thereof (the "OFFER
-2-
<PAGE>
TERMS"). COPLP shall have the right to purchase the Property (or portion
thereof, as the case may be) strictly in accordance with the Offer Terms, by
notifying Optionor of its acceptance within 10 days after Optionor gives the
Offer Notice. If COPLP fails to timely notify Optionor that it accepts the Offer
Terms, then: (i) Optionor may freely sell the Property (or portion thereof, as
the case may be) substantially in accordance with the Offer Terms; (ii) this
Agreement shall be of no further force or effect, if the Offer Terms comprise
all of the Property; and (iii) the Option shall lapse and be deemed nullified
and extinguished as to the Property (or portion thereof, as the case may be)
comprising the Offer Terms.
(g) INSPECTION PERIOD. COPLP shall have 15 days after
giving the Exercise Notice (the "INSPECTION PERIOD") to make (at COPLP's sole
expenses) all audits, inspections or investigations of the Property desired by
COPLP, subject to Optionor's requirements as set forth below.
COPLP and its accountants, attorneys or other
representative(s) shall have the right, during regular business hours and with
reasonable notice, to:
(i) interview any manager regarding the
management, condition or operation of the Property, and to inspect any leases,
books, files and records relating to the Property's condition, operation or
management; and
(ii) subject to the rights of tenants
occupying space at the Property, inspect the Property and improvements and make
such tests, surveys and inspections as COPLP deems necessary, including, without
limitation, soil tests, topographical surveys, structural and foundation
surveys, concrete tests, roof inspections, equipment inspections and
environmental inspections. COPLP shall exercise (and cause its agents and
employees to exercise) due care and ordinary prudence in performing such
surveys, inspections and tests and shall not exercise such right in a manner
that interferes with the operation of the Property. If the sale is not
consummated, or COPLP gives its Rescission Notice (defined below), then COPLP
(at its own expense) shall promptly repair any damage to the Property and
improvements resulting from such surveys, tests or inspections. COPLP shall
indemnify, defend, save and hold harmless Optionor from and against any and all
claims, liens (including, without limitation, mechanic's and materialman's
liens), actions, suits, proceedings, costs, expenses, damages or other
liabilities, including, without limitation, attorneys' fees and court costs, all
as incurred, arising out of the rights granted to COPLP pursuant to the terms of
this Inspection Period.
COPLP, its contractors and representatives shall keep
confidential any and all information, documents and reports obtained or prepared
by them relating to the Property. At Optionor's request, COPLP shall furnish to
Optionor copies of all studies, tests and surveys undertaken and completed in
connection with such inspections and at Optionor's request therefor, certify
same to Optionor.
If during the Inspection Period COPLP disapproves of
the condition of the Property, in its sole and absolute discretion, COPLP may
rescind its Exercise Notice by
-3-
<PAGE>
delivering written notice to Optionor (the "RESCISSION NOTICE") before the
Inspection Period expires. In such event: (i) COPLP shall be entitled to a
return of the Deposit; (ii) Optionor shall have no further obligations, and
(iii) COPLP shall have no further rights (including the Option) under this
Agreement. If COPLP does not give the Rescission Notice before the Inspection
Period expires, COPLP shall be deemed to have accepted the condition of the
Property and COPLP may not thereafter terminate this Agreement or rescind its
Exercise Notice.
2. SETTLEMENT. "SETTLEMENT" shall be 60 days after COPLP gives
the Exercise Notice.
3. DEFAULT BY COPLP. If COPLP breaches this Agreement, then in
addition to all other rights and remedies, Optionor shall retain the Deposit.
4. DELIVERIES AT SETTLEMENT.
(a) At Settlement, Optionor will deliver: (i) a special
warranty deed; (ii) an assignment (without recourse) of any service contracts,
tenant leases, security deposits, warranties, guaranties, bonds, outstanding
construction contracts, tenant improvement contracts and/or capital contracts
applicable to the Property; (iii) originals or copies of the foregoing
documents; (iv) a form letter to any tenants, notifying them of the sale; (v)
quitclaim bill of sale, if any personalty; (vi) a FIRPTA affidavit; and (viii)
such customary affidavits, certifications, evidence and other documents which
COPLP's title company reasonably requests.
(b) At Settlement, COPLP will deliver: (i) the balance of
the Purchase Price; and (ii) such customary affidavits, certifications, evidence
and other documents as may be required by Optionor or COPLP's title company.
COPLP shall join in any affidavits, certification or other documents Optionor
reasonably requests.
5. TITLE; LIENS AND ENCUMBRANCES. Optionor will deliver good and
marketable title, insurable at regular rates by any reputable title insurance
company. The Property shall be conveyed clear of all monetary liens and
encumbrances, except easements, restrictions, rights, rights of way (recorded
and unrecorded), matters which an accurate survey would disclose, instruments of
record, governmental laws, rules, orders and regulations, governmental notices
and pending municipal improvements (collectively, the "TITLE EXCEPTIONS").
6. ZONING. The zoning classification of the Property is currently
"IL" (Industrial Limited).
7. RISK OF LOSS. Risk of loss shall remain upon Optionor until
Settlement.
8. APPORTIONMENTS. Real estate taxes, and municipal water and
sewer rentals, shall be apportioned as of the Settlement date. The parties shall
also apportion all other customary items (for example, other utilities; rents,
additional rents, charges and security deposits under any tenant leases; service
contracts). In case of casualty or condemnation, any proceeds shall likewise be
apportioned and/or credited at Settlement. All real estate transfer taxes ,
-4-
<PAGE>
documentary stamp taxes and all other closing-related costs shall be paid by
COPLP.
9. RECORDING. Subject to the next sentence, neither party shall
record or file this Agreement (or an extract or memorandum thereof) in any
public office, without both parties' written consent. Despite the foregoing,
Optionor and/or COPLP may (without the other's consent) file and/or record this
Agreement (or an extract or memorandum thereof) with any authority which
regulates publicly-traded securities (for example, the Securities and Exchange
Commission, NASDAQ and/or NYSE).
10. NO FORMAL TENDER REQUIRED. The tender of an executed deed by
Optionor and the tender by COPLP of the balance of the Purchase Price payable at
Settlement are mutually waived, but nothing in this Agreement shall be construed
as a waiver of Optionor's obligation to deliver the deed and/or of the
concurrent obligation of COPLP to pay the balance of the Purchase Price payable
at Settlement.
11. REPRESENTATIONS AND WARRANTIES. Optionor makes only the
following representations and warranties. As of the date hereof: (i) Optionor is
not in bankruptcy, nor has there been any petition or insolvency proceedings
filed for the reorganization of Optionor; and (ii) there are no rights, options,
or other agreements of any kind to sell or transfer any interest in the
Property.
12. CONDITION OF PROPERTY. It is expressly understood and agreed
that COPLP shall accept the Property in its then- "AS-IS, WHERE-IS" condition,
subject to all patent and latent defects, if any, with no representation or
warranty by Optionor as to the Property's fitness, suitability, habitability, or
usability.
13. ENTIRE AGREEMENT OF PARTIES. This Agreement contains the whole
agreement between the parties and there are no other terms, obligations,
covenants, representations, statements or conditions, oral or otherwise, of any
kind whatsoever. This Agreement may only be modified in writing, signed by the
party against whom enforcement is sought.
14. NOTICES. All notices shall be in writing, given by certified
mail, return receipt requested, to the respective party's address set forth
above (which may be changed from time to time in accordance with this
paragraph).
15. SUCCESSORS AND ASSIGNS. This Agreement shall be binding and
inure to the benefit of each party's respective heirs, successors and assigns.
However, COPLP may not assign or otherwise transfer this Agreement (or any
rights hereunder) except to a party (i) which COPLP
-5-
<PAGE>
directly or indirectly owns or controls, (ii) into which COPLP is merged or
consolidated, or (iii) to which COPLP transfers all or substantially all of its
assets.
The parties have executed this Agreement as of the date first written
above.
COPLP
CORPORATE OFFICE PROPERTIES, L.P.
By: CORPORATE OFFICE PROPERTIES TRUST,
a Maryland REIT, general partner
By: /s/ CLAY W. HAMLIN, III
--------------------------------
Name: Clay W. Hamlin, III
Title: President & CEO
Attest: /s/ Denise J. Liszewski
---------------------------------
Name: DENISE J. LISZEWSKI
Title: V.P. Administration/
Asst. Secretary
OPTIONOR
COMCOURT LAND, L.P.
By: ComCourt Investment Corp., general partner
By: /s/ CLAY W. HAMLIN, III
--------------------------------
Name: Clay W. Hamlin, III
Title: President
Attest: /s/ DENISE J. LISZEWSKI
---------------------------------
Name: Denise J. Liszewski
Title: Asst. Secretary
-6-
<PAGE>
EXHIBIT "A"
[metes and bounds description of Property attached]
-7-
<PAGE>
LEGAL DESCRIPTION
LOTS 32, 33, AND 34
OF COMMERCE PARK
All that certain parcel of land situate on the southerly side of Market Place
in the subdivision of Commerce Park, Susquehanna Township, Dauphin County,
Pennsylvania, and more particularly described as follows:
Beginning at an iron pin (found) on the southerly right-of-way line of Market
Place (a 50 feet wide right-of-way) at the northeasterly corner of Lot No. 35A
now or formerly owned by Courtcom M Limited Partnership;
Thence along the southerly right-of-way line of Market Place North 54 Degrees
30 minutes 00 Seconds East 315.00 Feet to an iron pin (found) at the beginning
of a curve;
Thence along the same on a curve to the right having a radius of 360.00 feet,
an arc length of 177.50 Feet to the point of tangent;
Thence along the same North 82 Degrees 45 Minutes 00 Seconds East 117.50 Feet to
an iron pin (found), a corner of land owned by Russel J. Klick, Enterprises;
Thence along said Klick Enterprises South 07 Degrees 15 Minutes 00 Seconds East
580.30 Feet to an iron pin (set), on the northerly right-of-way line of S.R.
0081;
Thence along the northerly right-of-way line of S.R. 0081 on a curve to the
right having a radius of 11,359.16 feet, an arc length of 114.81 feet to an
iron pin (set);
Thence along the same South 84 Degrees 16 Minutes 04 Seconds West 118.80 Feet
to an iron pin (found);
Thence along the same South 03 Degrees 38 Minutes 28 Seconds East 61.61 Feet to
an iron pin (found);
Thence along the same on a curve to the right having a radius of 11,359.16 Feet
on arc length of 79.30 feet to an iron pin (found);
Thence along the same North 49 Degrees 06 Minutes 47 Seconds West 69.20 Feet to
an iron pin (found) at the southeasterly corner of Lot 35A now or formerly
owned by Courtcom M Limited Partnership;
Thence along said Lot No. 35A North 03 Degrees 38 Minutes 28 Seconds West 59.84
Feet to an iron pin (found);
Thence along the same North 35 Degrees 30 Minutes 00 Seconds West 475.99 Feet
to the POINT-OF-BEGINNING
Containing: 275,781.67 Sq. Ft. or 6.331 acres of land
[LOGO]
<PAGE>
Being the same as Tracts 1 through 3 as recorded in Deed book 2284, page 124
and also being the same as Lots 32, 33 and 34 as shown on the Final
Subdivision Plan of Four Lots, Commerce Park Plan No. 10 recorded in Plan
Book N, Vol. 4, Page 70.
<PAGE>
EXHIBIT 13.1
SELECTED FINANCIAL DATA
The following table contains selected financial data for each of the years
ended December 31, 1995 through 1999. Our selected financial data for the years
reported is not comparable due to our growth resulting from property
acquisitions and other changes in our organization. Since this information is
only a summary, you should refer to our consolidated financial statements and
the section of this report entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for additional information.
CORPORATE OFFICE PROPERTIES TRUST
(DOLLAR AND SHARE INFORMATION IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues
Rental revenue ............................ $ 70,101 $ 35,676 $ 6,122 $ 2,477 $ 2,436
Tenant recoveries and other revenue ....... 11,011 4,538 496 32 48
-------- -------- -------- -------- --------
Total revenues ........................ 81,112 40,214 6,618 2,509 2,484
-------- -------- -------- -------- --------
Expenses
Property operating ........................ 22,325 9,632 728 31 42
General and administrative ................ 3,204 1,890 533 372 336
Interest .................................. 21,808 12,207 2,855 1,246 1,267
Amortization of deferred financing costs .. 975 423 64 13 13
Depreciation and other amortization ....... 12,075 6,285 1,267 554 554
Reformation costs (1) ..................... -- 637 -- -- --
Termination of advisory agreement (2) ..... -- -- 1,353 -- --
-------- -------- -------- -------- --------
Total expenses ........................ 60,387 31,074 6,800 2,216 2,212
-------- -------- -------- -------- --------
Income (loss) before equity in income of
Service Companies, gain on sales of
rental properties, minority interests
and extraordinary item .................... 20,725 9,140 (182) 293 272
Equity in income of Service Companies ........ 198 139 -- -- --
-------- -------- -------- -------- --------
Income (loss) before gain on sales of
rental properties, minority interests
and extraordinary item ..................... 20,923 9,279 (182) 293 272
Gain on sales of rental properties ........... 1,140 -- -- -- --
-------- -------- -------- -------- --------
Income (loss) before minority interests
and extraordinary item ..................... 22,063 9,279 (182) 293 272
Minority interests ........................... (6,077) (4,583) (785) -- --
-------- -------- -------- -------- --------
Income (loss) before extraordinary item ...... 15,986 4,696 (967) 293 272
Extraordinary item - loss on early
retirement of debt ..................... (903) -- -- -- --
-------- -------- -------- -------- --------
Net income (loss) ............................ 15,083 4,696 (967) 293 272
Preferred Share dividends .................... (2,854) (327) -- -- --
-------- -------- -------- -------- --------
Net income (loss) available to Common
Shareholders .............................. $ 12,229 $ 4,369 $ (967) $ 293 $ 272
======== ======== ======== ======== ========
Basic earnings (loss) per Common Share
Income (loss) before extraordinary item .... $ 0.77 $ 0.48 $ (0.60) $ 0.21 $ 0.19
======== ======== ======== ======== ========
Net income (loss) .......................... $ 0.72 $ 0.48 $ (0.60) $ 0.21 $ 0.19
======== ======== ======== ======== ========
Diluted earnings (loss) per Common Share
Income (loss) before extraordinary item .... $ 0.70 $ 0.47 $ (0.60) $ 0.21 $ 0.19
======== ======== ======== ======== ========
Net income (loss)............, ............. $ 0.66 $ 0.47 $ (0.60) $ 0.21 $ 0.19
======== ======== ======== ======== ========
Weighted average shares outstanding - basic .. 16,955 9,099 1,601 1,420 1,420
Weighted average shares outstanding - diluted 22,574 19,237 1,601 1,420 1,420
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AS OF PERIOD END):
Commercial real estate properties, net ........ $ 696,489 $ 546,887 $ 188,625 $ 23,070 $ 23,624
Total assets .................................. $ 721,034 $ 563,677 $ 193,534 $ 24,197 $ 24,779
Mortgage and other loans payable .............. $ 399,627 $ 306,824 $ 114,375 $ 14,658 $ 14,916
Total liabilities ............................. $ 416,298 $ 317,700 $ 117,008 $ 15,026 $ 15,191
Minority interests ............................ $ 112,635 $ 77,196 $ 64,862 $ -- $ --
Shareholders' equity .......................... $ 192,101 $ 168,781 $ 11,664 $ 9,171 $ 9,588
Debt to market capitalization ................. 57.6% 58.7% 53.1% 66.3% 68.9%
Debt to undepreciated real estate assets ...... 55.9% 55.1% 59.6% 58.6% 59.6%
OTHER FINANCIAL DATA (FOR THE YEAR ENDED):
Cash flows provided by (used in):
Operating activities ....................... $ 32,296 $ 12,863 $ 3,216 $ 840 $ 678
Investing activities ....................... $(125,836) $(183,650) $ 973 $ 127 $ (551)
Financing activities ....................... $ 93,567 $ 169,741 $ (1,052) $ (967) $ (1,001)
Funds from operations - basic (3) ............. $ 27,428 $ 12,415 $ 1,718 $ 847 $ 827
Funds from operations - diluted (3) ........... $ 31,401 $ 16,154 $ 2,438 $ 847 $ 827
Adjusted funds from operations - diluted (4) .. $ 26,056 $ 13,831 $ 2,143 $ 780 $ 760
Cash dividends declared per Common Share ...... $ 0.74 $ 0.66 $ 0.50 $ 0.50 $ 0.50
Payout ratio (5) .............................. 64.31% 74.63% 74.20% 83.83% 85.85%
Interest coverage (6) ......................... 2.56 2.36 1.88 1.69 1.66
Ratio of earnings to combined fixed charges and
Preferred Share dividends .................. 1.48 1.33 0.75 1.23 1.21
PROPERTY DATA (AS OF PERIOD END):
Number of properties owned .................... 79 57 17 7 7
Total rentable square feet owned (in thousands) 6,076 4,977 1,852 370 370
</TABLE>
(1) Reflects a non-recurring expense of $637 associated with our reformation as
a Maryland REIT during the first quarter of 1998. We have eliminated this
transaction in determining funds from operations since it is not expected
to have a continuing impact.
(2) Reflects a non-recurring expense of $1,353 associated with the termination
of an advisory agreement during the fourth quarter of 1997. We have
eliminated this transaction in determining funds from operations since it
is not expected to have a continuing impact.
(3) We consider Funds from Operations ("FFO") to be meaningful to investors as
a measure of the financial performance of an equity REIT when considered
with the financial data presented under generally accepted accounting
principles ("GAAP"). Under the National Association of Real Estate
Investment Trusts' ("NAREIT") definition, FFO means net income (loss)
computed using generally accepted accounting principles, excluding gains
(or losses) from debt restructuring and sales of property, plus real
estate-related depreciation and amortization and after adjustments for
unconsolidated partnerships and joint ventures. Further, if the conversion
of securities into Common Shares is dilutive, we exclude any GAAP income
allocated to these securities in computing FFO. The FFO we present may not
be comparable to the FFO of other REITs since they may interpret the
current NAREIT definition of FFO differently or they may not use the
current NAREIT definition of FFO. FFO is not the same as cash generated
from operating activities or net income determined in accordance with GAAP.
FFO is not necessarily an indication of our cash flow available to fund
cash needs. Additionally, it should not be used as an alternative to net
income when evaluating our financial performance or to cash flow from
operating, investing and financing when evaluating our liquidity or ability
to make cash distributions or pay debt service.
(4) We compute adjusted funds from operations-diluted by subtracting
straight-line rent adjustments and recurring capital improvements from
funds from operations-diluted.
(5) We compute payout ratio by dividing total Common and convertible Preferred
Share dividends and total distributions reported for the year by funds from
operations-diluted.
(6) We compute interest coverage by dividing earnings before interest,
depreciation and amortization by interest expense. We compute earnings
before interest, depreciation and amortization by subtracting property
operating and general and administrative expenses from the sum of total
revenues and equity in income of Service Companies
2
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
Over the last three years, we completed a significant number of
acquisitions. Our portfolio consisted of seven retail properties as of December
31, 1996. At that time, we relied on an external advisory agreement for all of
our management and administrative needs. In October 1997, we acquired ten office
properties and certain management and staffing functions in connection with a
transaction which led to the termination of our external advisory agreement.
During 1998, we acquired 38 office and two retail properties. Also during 1998,
we added management and other staffing functions to support the growth of our
portfolio and enhance our organizational infrastructure to more efficiently meet
tenant needs and further grow the Company. During 1999, we acquired 29 office
properties, completed construction of two new office properties and sold seven
retail properties and two office properties. We financed these acquisitions and
construction activities by using debt, proceeds from sales of properties and
issuing Common Shares, Preferred Shares and ownership interests in Corporate
Office Properties, L.P., our Operating Partnership. As of December 31, 1999, our
portfolio included 77 office and two retail properties. Due to these significant
changes in our real estate portfolio and operating structure, our results of
operations changed dramatically.
We conduct almost all of our operations through our Operating Partnership,
for which we are the managing general partner. The Operating Partnership owns
real estate both directly and through subsidiary partnerships and limited
liability companies. The Operating Partnership also owns the principal economic
interest and, collectively with our Chief Executive Officer and Chief Operating
Officer, 49.5% of the voting stock of Corporate Office Management, Inc.
("COMI"). We refer to COMI and its subsidiaries as the "Service Companies".
Interests in our Operating Partnership are in the form of Common and Preferred
Units. As of December 31, 1999, we owned approximately 60% of the outstanding
Common Units and approximately 70% 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.
In this section, we discuss our financial condition and results of
operations for 1999 and 1998. This section includes discussions on:
- - why various components of our Consolidated Statements of Operations changed
from 1998 to 1999 and from 1997 to 1998,
- - what our primary sources and uses of cash were in 1999,
- - how we raised cash for acquisitions and other capital expenditures during
1999,
- - how we intend to generate cash for future capital expenditures, and
- - the computation of our funds from operations for 1999, 1998 and 1997.
You should refer to our consolidated financial statements and selected
financial data table as you read this section.
This section contains "forward-looking" statements, as defined in the
Private Securities Litigation Reform Act of 1995 that are based on our current
expectations, estimates and projections 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
publicly update 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 and
environmental requirements.
3
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST
OPERATING DATA VARIANCE ANALYSIS
(DOLLARS FOR THIS TABLE ARE IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
For the Years Ended December 31, For the Years Ended December 31,
--------------------------------------- --------------------------------------
1999 1998 Variance %Change 1998 1997 Variance %Change
-------- -------- -------- ------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Rental revenue $ 70,101 $ 35,676 $ 34,425 96% $ 35,676 $ 6,122 $ 29,554 483%
Tenant recoveries and other revenue 11,011 4,538 6,473 143% 4,538 496 4,042 815%
-------- -------- -------- -------- -------- --------
Total revenues 81,112 40,214 40,898 102% 40,214 6,618 33,596 508%
-------- -------- -------- -------- -------- --------
Expenses
Property operating 22,325 9,632 12,693 132% 9,632 728 8,904 1,223%
General and administrative 3,204 1,890 1,314 70% 1,890 533 1,357 255%
Interest and amortization of deferred
financing costs 22,783 12,630 10,153 80% 12,630 2,919 9,711 333%
Depreciation and other amortization 12,075 6,285 5,790 92% 6,285 1,267 5,018 396%
Reformation costs -- 637 (637) (100%) 637 -- 637 N/A
Termination of advisory agreement -- -- -- -- -- 1,353 (1,353) (100%)
-------- -------- -------- -------- -------- --------
Total expenses 60,387 31,074 29,313 94% 31,074 6,800 24,274 357%
-------- -------- -------- -------- -------- --------
Income (loss) before equity in income of
Service Companies, gain on sales of
rental properties, minority interests
and extraordinary item 20,725 9,140 11,585 127% 9,140 (182) 9,322 N/A
Equity in income of Service Companies 198 139 59 42% 139 -- 139 N/A
Gain on sales of rental properties 1,140 -- 1,140 N/A -- -- -- N/A
-------- -------- -------- -------- -------- --------
Income (loss) before minority interests and
extraordinary item 22,063 9,279 12,784 138% 9,279 (182) 9,461 N/A
Minority interests (6,077) (4,583) (1,494) 33% (4,583) (785) (3,798) 484%
Extraordinary item - loss on early
retirement of debt (903) -- (903) N/A -- -- -- N/A
-------- -------- -------- -------- -------- --------
Net income (loss) 15,083 4,696 10,387 221% 4,696 (967) 5,663 N/A
Preferred Share dividends (2,854) (327) (2,527) 773% (327) -- (327) N/A
-------- -------- -------- -------- -------- --------
Net income (loss) available to
Common Shareholders $ 12,229 $ 4,369 $ 7,860 180% $ 4,369 $ (967) $ 5,336 N/A
======== ======== ======== ======== ======== ========
Basic earnings (loss) per Common Share
Income (loss) before extraordinary item $ 0.77 $ 0.48 $ 0.29 60% $ 0.48 $ (0.60) $ 1.08 N/A
Net income (loss) $ 0.72 $ 0.48 $ 0.24 50% $ 0.48 $ (0.60) $ 1.08 N/A
Diluted earnings (loss) per Common Share
Income (loss) before extraordinary item $ 0.70 $ 0.47 $ 0.23 49% $ 0.47 $ (0.60) $ 1.07 N/A
Net income (loss) $ 0.66 $ 0.47 $ 0.19 40% $ 0.47 $ (0.60) $ 1.07 N/A
</TABLE>
4
<PAGE>
RESULTS OF OPERATIONS
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1999 AND 1998
Our total revenues increased $40.9 million or 102%, of which $34.4 million
was generated by rental revenue and $6.5 million by tenant recoveries and other
revenue. Tenant recovery revenue includes payments from tenants as reimbursement
for property taxes, insurance and other property operating expenses. Our growth
in revenues was due primarily to our property acquisitions in 1998 and 1999,
although revenues increased $700,000 or 4% on the operations of office
properties owned since the beginning of 1998 and $2.0 million due to additional
interest and real estate service revenue earned in 1999, offset by a $1.6
million decrease due to the absence of revenues from Midwest region retail
properties sold during 1999.
Our total expenses increased $29.3 million or 94% due mostly to the effects
of the increases in property operating, interest expense and amortization of
deferred financing costs, depreciation and other amortization and general and
administrative expenses described below. However, our 1998 expenses also
included $637,000 in nonrecurring costs associated with our reformation into a
Maryland REIT in March 1998.
Our property operating expenses increased $12.7 million or 132% due mostly
to our property acquisitions, although property operating expenses increased
$268,000 or 7% on the operations of office properties owned since the beginning
of 1998. Our property operating expenses increased as a percentage of total
revenue from 24% to 28% due to more of our leases being written on a gross basis
(meaning we incur operating expenses) versus a net basis (meaning the tenant
incurs operating expenses directly). Our interest expense and amortization of
deferred financing costs increased $10.2 million or 80% due mostly to our
borrowings and assumptions of debt needed to finance property acquisitions which
amount includes a decrease of $724,000 attributable to our Midwest region retail
property sales. Our depreciation and other amortization expense increased $5.8
million or 92% due mostly to our property acquisitions which amount includes a
decrease of $359,000 attributable to our Midwest region retail property sales.
Our general and administrative expenses increased $1.3 million or 70%. Much
of this increase is due to the management and other staffing functions added
during 1998 that were in place for all of 1999. Approximately $255,000 of this
increase is due to additional professional fees for audit, legal and tax
preparation required to support the increased complexity of our organization
resulting from our growth and the creation of our Operating Partnership and the
Service Companies. This increase was partially offset by a $235,000 decrease in
costs expensed in exploring possible acquisitions that did not occur. Our
general and administrative expenses decreased as a percentage of total revenue
from 4.7% to 4.0%.
Our income before minority interests and extraordinary item also includes
the gain we realized on the sale of six of our retail properties in 1999 and a
$59,000 increase in our equity in the income of the Service Companies. These
Service Companies are not included as consolidated subsidiaries in our financial
statements.
As a result of the above factors, our income before minority interests and
extraordinary item increased by $12.8 million or 138%. The amounts reported for
minority interests on our Consolidated Statements of Operations represent
primarily the portion of the Operating Partnership's net income not allocated to
us. Our income allocation to minority interests increased $1.5 million or 33%
due to the increase in the Operating Partnership's net income. However, the
percentage of income allocated to minority interests decreased due to a higher
weighted average ownership of the Operating Partnership by us during the year.
Our net income available to Common Shareholders increased $7.9 million or
180% due to the factors discussed above, partially offset by a $903,000 loss on
the early retirement of debt and a $2.5 million increase in Preferred Share
dividends due to the Series A Cumulative Convertible Preferred Shares of
beneficial interest ("Series A Preferred Shares") issued in 1998 that were in
place for the entire year and the Series B Cumulative Redeemable Preferred
Shares of beneficial interest ("Series B Preferred Shares") issued in 1999. Our
diluted
5
<PAGE>
earnings per Common Share on net income increased $0.19 per share or 40% due to
the effect of the increase in net income being proportionately greater than the
dilutive effects of issuing additional Common Shares and securities that are
convertible into our Common Shares.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1998 AND 1997:
Our total revenues increased $33.6 million or 508%, of which $29.6 million
was generated by rental revenue and $4.0 million by tenant recoveries and other
revenue. Our growth in revenues was due primarily to our property acquisitions
in 1998 and the impact of a full year of operations for the properties we
acquired in October 1997.
Our total expenses increased $24.3 million or 357% due mostly to the
effects of the increases in property operating expenses and depreciation and
amortization, interest expense and amortization of deferred financing costs and
general and administrative expenses described below. In addition to these items,
our 1998 expenses included $637,000 in costs associated with our reformation
into a Maryland REIT in March 1998. Our 1997 expenses included $1.4 million in
costs to terminate the external advisory agreement.
Our property operating expenses increased $8.9 million or 1,223% and our
depreciation and other amortization increased $5.0 million or 396% due primarily
to our property acquisitions. Our interest expense and amortization of deferred
financing costs increased $9.7 million or 333% because of our borrowings and
assumptions of debt needed to finance property acquisitions.
Our general and administrative expenses increased $1.4 million or 255%. Of
this increase, $282,000 are costs we expensed in exploring possible property
acquisitions that did not occur. The remaining increase is due mostly to the
management and staffing functions added during 1997 being in place for the
entire year and the addition of new management and staffing functions during
1998.
Our 1998 income before minority interests also includes our equity in
income from the Service Companies, which were established in 1998.
As a result of the above factors, our income before minority interests
increased by $9.5 million. Our income allocation to minority interests increased
$3.8 million or 484%. Minority interests resulted from our creation of the
Operating Partnership in October 1997. The percentage of income allocated to
minority interests decreased during 1998 as our percentage ownership of the
Operating Partnership increased. The increase in income allocated to minority
interests is due to the effects of the minority interests that were outstanding
for all of 1998, offset by the decreased percentage of income allocated to
minority interests later in the year.
Our net income available to Common Shareholders increased $5.3 million due
to the factors discussed above partially offset by $327,000 in dividends
declared on our Series A Preferred Shares issued in 1998. Our diluted earnings
per Common Share increased $1.07 per share due to the effect of the increase in
net income being proportionately greater than the dilutive effects of the
issuance of our Common Shares and securities that are convertible into our
Common Shares.
LIQUIDITY AND CAPITAL RESOURCES
CAPITALIZATION
Cash provided from operations represented our primary source of liquidity
to fund distributions, pay debt service and fund working capital requirements.
We expect to continue to meet our short-term capital needs from property cash
flow, including all property expenses, general and administrative expenses,
interest expense, dividend and distribution requirements and recurring capital
improvements and leasing commissions. We do not anticipate borrowing to meet
these requirements.
6
<PAGE>
We have financed our property acquisitions using a combination of borrowings
secured by our properties, proceeds from sales of properties and the equity
issuances of Common and Preferred Units in our Operating Partnership and Common
and Preferred Shares. We use our secured revolving credit facility with Deutsche
Banc Alex. Brown (the "Revolving Credit Facility") to finance much of our
investing and financing activities. We pay down our Revolving Credit Facility
using proceeds from long-term borrowings collateralized by our properties as
attractive financing conditions arise and equity issuances as attractive equity
market conditions arise. On December 28, 1999, we obtained a $50.0 million line
of credit with Prudential Securities Credit Corporation (the "Prudential Line of
Credit"). Amounts available under the Revolving Credit Facility and the
Prudential Line of Credit are computed based on 65% of the appraised value of
properties pledged as collateral. As of February 10, 2000, the maximum amount
available under our Revolving Credit Facility was $99.4 million, of which $37.9
million was unused. As of February 10, 2000, none of our properties were pledged
as collateral for the Prudential Line of Credit and therefore no borrowings were
available.
Our debt strategy favors long-term, fixed rate, secured debt over
variable-rate debt to minimize the risk of short-term increases in interest
rates. As of December 31, 1999, 70% of our mortgage and other loans payable
balance carried fixed interest rates.
As of December 31, 1999, we had $180.2 million in mortgage and other loans
payable maturing in 2000. On February 8, 2000 we extended the maturity of $57.5
million of these 2000 loan maturities to May 2001. Also included in the 2000
loan maturities is a $100.0 million loan that may be extended for two one-year
periods, subject to certain conditions; we expect to extend this loan for a
one-year period during 2000 and as of December 31, 1999 are in compliance with
the necessary conditions. We expect to repay the remaining balance of the 2000
loan maturities through a combination of borrowings from existing credit
facilities and new loans and cash from operations.
We are under contract to purchase two parcels of land contiguous to certain
of our existing operating properties. The purchase price will be determined
based upon the square footage of the area contained in the buildings to be
constructed on the land parcels. We have no other contractual obligations as of
December 31, 1999 for property acquisitions or material capital costs other than
the completion of the five construction projects and one redevelopment project
discussed below and tenant improvements and leasing costs in the ordinary course
of business.
We expect to meet our long-term capital needs through a combination of cash
from operations, additional borrowings from existing credit facilities and new
loans and additional equity issuances of Common Shares, Preferred Shares, Common
Units and/or Preferred Units. We have an effective Form S-3 shelf registration
statement on file with the Securities and Exchange Commission under which we may
sell up to $218.8 million in debt or equity securities depending upon our needs
and market conditions.
INVESTING AND FINANCING ACTIVITIES FOR THE YEAR ENDED DECEMBER 31, 1999
During 1999, we acquired 29 operating properties, seven parcels of land and
a warehouse facility to undergo redevelopment for an aggregate acquisition cost
of $171.3 million. Of the 29 operating properties acquired, 16 are located in
the Baltimore/Washington Corridor, 12 in Pennsylvania and one in New Jersey. Of
the seven land parcels acquired, six are located in the Baltimore/Washington
Corridor and one in Pennsylvania. The warehouse facility is located in New
Jersey. The operating property acquisitions increased our rentable square
footage by 1.5 million. These acquisitions were financed by:
- - using $103.7 million in borrowings under our Revolving Credit Facility,
- - assuming $26.6 million in mortgage and other loans,
- - using $6.8 million in borrowings from other loans,
- - issuing 377,251 Common Units in our Operating Partnership,
- - issuing 974,662 Series C Preferred Units in our Operating Partnership,
- - applying a $1.6 million outstanding receivable balance towards a purchase,
and
7
<PAGE>
- - using cash reserves for the balance.
During 1999, we completed construction on two office buildings totaling
202,000 square feet. These office buildings are located in Annapolis Junction,
Maryland and Columbia, Maryland. Costs incurred on these buildings through
December 31, 1999 totaled $23.2 million. We entered into $20.7 million in
construction loan facilities for these projects of which $16.8 million was
borrowed through December 31, 1999. We also completed an expansion project that
increased the rentable square footage of one of our properties by 6,350 square
feet.
As of December 31, 1999, we had construction underway on five new buildings
totaling approximately 407,000 square feet that were 49% pre-leased and
redevelopment underway on a 57,000 square foot existing building that was 100%
pre-leased. We entered into $19.8 million in construction loan facilities during
1999 to finance the construction of two of these projects. Borrowings under
these facilities totaled $7.9 million at December 31, 1999.
During 1999, we sold nine properties for $53.5 million, of which $20.9
million was used to pay off mortgage loans payable on the properties. We
realized a gain of $1.1 million on the sales of these properties, including the
value of the transaction involving Glacier (discussed below). Net proceeds from
these sales after property level debt repayments, transaction costs and
operating revenue and cost pro-rations totaled $31.2 million, $24.3 million of
which was used to repay a portion of our Revolving Credit Facility and the
remainder applied to working capital.
During 1999, we received $165.2 million in proceeds from new borrowing
arrangements. We pledged certain of our real estate assets as collateral to the
financial institutions for all of these borrowings. Proceeds from these loans
were used as follows:
- - $98.4 million to pay down our Revolving Credit Facility,
- - $33.5 million tofinance acquisitions,
- - $24.7 million to finance construction activities,
- - $3.6 million to repay other loans, and
- - the balance applied to cash reserves.
On December 28, 1999, we obtained a $50.0 million line of credit with
Prudential Securities Credit Corporation. No borrowings were made under this
loan during 1999.
On January 5, 1999, we entered into an interest rate swap agreement with
Deutsche Banc Alex. Brown. This swap agreement fixed our one-month LIBOR base to
5.085% per annum on a notional amount of $30.0 million. On October 20, 1999, we
received $492,000 from Deutsche Banc Alex. Brown in exchange for the termination
of this agreement that was recognized as a gain.
On December 21, 1999, our Operating Partnership issued 974,662 Series C
Preferred Units in connection with a property acquisition. Owners of these units
are entitled to a priority annual return equal to 9% of their liquidation
preference for the first ten years following issuance, 10.5% for the five
following years and 12% thereafter. These units are convertible, subject to
certain restrictions, commencing December 21, 2000 into Common Units in the
Operating Partnership on the basis of 2.381 Common Units for each Series C
Preferred Unit, plus any accrued return. The Common Units would then be
exchangeable for Common Shares, subject to certain conditions. The Series C
Preferred Units also carry a liquidation preference of $25.00 per unit, plus any
accrued return, and may be redeemed for cash by the Operating Partnership at any
time after the tenth anniversary of their issuance.
In connection with an October 1997 acquisition, our Operating Partnership
issued 2.1 million preferred units (the "Initial Preferred Units"). These units
were converted into Common Units on the basis of 3.5714 Common Units for each
Initial Preferred Unit in October 1999. Prior to conversion, these units were
entitled to a priority annual return equal to 6.5% of their liquidation
preference.
8
<PAGE>
We had a management agreement with Glacier Realty LLC ("Glacier"), a
company that was partially owned by one of our former Trustees. Under the
management agreement, Glacier was responsible for the management of our retail
properties for a base annual fee of $250,000 plus a percent of Average Invested
Assets (as defined in the management agreement). Glacier was also entitled to
fees upon our acquisition or sale of any net-leased retail real estate property,
a fee that increased in the event that all or substantially all of the
net-leased retail real estate properties were sold. The management agreement,
entered into on October 14, 1997, had a term of five years. A fee was also due
in the event that the management agreement was terminated or not renewed. On
March 19, 1999, our Operating Partnership issued 200,000 Common Units in
exchange for all of the ownership interests in Glacier. For accounting purposes,
we recorded the value of this transaction against the gain on the sale of our
retail properties in the Midwest region of the United States.
In July 1999, we completed the sale of 1,250,000 Series B Preferred Shares
to the public at a price of $25.00 per share. These shares are nonvoting (except
in limited circumstances) and are redeemable for cash at $25.00 per share plus
accrued and unpaid dividends at our option on or after July 15, 2004. Holders of
these shares are entitled to cumulative dividends, payable quarterly (as and if
declared by the Board of Trustees). Dividends accrue from the date of issue at
the annual rate of $2.50 per share, which is equal to 10% of the $25.00 per
share redemption price. We contributed the net proceeds to our Operating
Partnership in exchange for 1,250,000 Series B Preferred Units. Our Operating
Partnership used most of the proceeds to pay down our Revolving Credit Facility.
The Series B Preferred Units carry terms that are substantially the same as the
Series B Preferred Shares.
On August 4, 1999, 372,295 Common Units in our Operating Partnership were
converted into Common Shares.
On December 16, 1999, we issued 471,875 Common Shares subject to forfeiture
restrictions to certain officers. The forfeiture restrictions of specified
percentages of these shares lapse annually through 2004 upon the Company's
attainment of defined earnings or shareholder return growth targets. These
shares may not be sold, transferred or encumbered while the forfeiture
restrictions are in place. Forfeiture restrictions on 8,593 of these shares
lapsed during 1999.
INVESTING AND FINANCING ACTIVITIES SUBSEQUENT TO THE YEAR ENDED DECEMBER 31,
1999
On February 10, 2000, we entered into a $6.9 million construction loan
facility with Summit Bank to finance the redevelopment of a 57,000 square foot
warehouse facility into office space. This loan bears interest at LIBOR plus
1.75%. The loan matures on February 28, 2001 and may be extended for a two-year
period, subject to certain conditions.
STATEMENT OF CASH FLOWS
We generated net cash flow from operating activities of $32.3 million for
the year ended December 31, 1999, an increase of $19.4 million from the year
ended December 31, 1998. Our increase in cash flows from operating activities is
due mostly to income generated from our newly acquired properties. Our net cash
used in investing activities for the year ended December 31, 1999 decreased
$57.8 million from the year ended December 31, 1998 due mostly to $31.2 million
in proceeds generated from sales of rental properties and a $27.9 million
decrease in cash outlays associated with purchases of and improvements to real
estate properties. Our net cash provided by financing activities for the year
ended December 31, 1999 decreased $76.2 million from the year ended December 31,
1998 due primarily to $151.2 million in additional repayments of mortgage and
other loans payable, $72.2 million from the issuance of Common Shares in the
prior year and $11.4 million in additional dividend and distribution payments,
offset by $130.7 million in additional proceeds from mortgage and other loans
payable and $29.4 million from the issuance of our Series B Preferred Shares.
9
<PAGE>
FUNDS FROM OPERATIONS
We consider Funds from Operations ("FFO") to be meaningful to investors as
a measure of the financial performance of an equity REIT when considered with
the financial data presented under generally accepted accounting principles
("GAAP"). Under the National Association of Real Estate Investment Trusts'
("NAREIT") definition, FFO means net income (loss) computed using generally
accepted accounting principles, excluding gains (or losses) from debt
restructuring and sales of property, plus real estate-related depreciation and
amortization and after adjustments for unconsolidated partnerships and joint
ventures. Further, if the conversion of securities into common shares is
dilutive, we exclude any GAAP income allocated to these securities in computing
FFO. The FFO we present may not be comparable to the FFO of other REITs since
they may interpret the current NAREIT definition of FFO differently or they may
not use the current NAREIT definition of FFO. FFO is not the same as cash
generated from operating activities or net income determined in accordance with
GAAP. FFO is not necessarily an indication of our cash flow available to fund
cash needs. Additionally, it should not be used as an alternative to net income
when evaluating our financial performance or to cash flow from operating,
investing and financing when evaluating our liquidity or ability to make cash
distributions or pay debt service. Our FFO for 1999, 1998 and 1997 are
summarized in the following table.
10
<PAGE>
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------
(Dollars and shares in thousands)
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Income (loss) before minority interests and
extraordinary item ................................ $ 22,063 $ 9,279 $ (182)
Add: Real estate related depreciation and
amortization ...................................... 11,987 6,238 1,267
Add: Nonrecurring charges
Reformation costs ................................. -- 637 --
Advisory Agreement termination cost ............... -- -- 1,353
Less: Preferred Unit distributions .................. (2,620) (3,412) (720)
Less: Preferred Share dividends ..................... (2,854) (327) --
Less: Minority interest in other consolidated
partnership ....................................... (8) -- --
Less: Gain on sales of rental properties ........... (1,140) -- --
-------- -------- --------
Funds from operations ............................... 27,428 12,415 1,718
Add: Preferred Unit distributions .................. 2,620 3,412 720
Add: Convertible Preferred Share dividends ......... 1,353 327 --
-------- -------- --------
Funds from operations assuming conversion of share
options, Preferred Units and Preferred Shares ..... 31,401 16,154 2,438
Less: Straight line rent adjustments ............... (2,766) (1,785) (295)
Less: Recurring capital improvements ............... (2,579) (538) --
-------- -------- --------
Adjusted funds from operations assuming conversion of
share options, Preferred Units and Preferred Shares $ 26,056 $ 13,831 $ 2,143
======== ======== ========
Weighted average Common Shares ...................... 16,955 9,099 1,601
Conversion of weighted average Common Units ......... 4,883 2,614 552
-------- -------- --------
Weighted average Common Shares/Units ................ 21,838 11,713 2,153
Assumed conversion of share options ................. 9 24 --
Conversion of weighted average Preferred Shares ..... 1,845 449 --
Conversion of weighted average Preferred Units ...... 5,680 7,500 1,602
-------- -------- --------
Weighted average Common Shares/Units assuming
conversion of share options, Preferred Units and
Preferred Shares .................................. 29,372 19,686 3,755
-------- -------- --------
</TABLE>
INFLATION
We have not been significantly impacted by inflation during the periods
presented in this report. This is mostly because of the relatively low inflation
rates in our markets. Most of our tenants are contractually obligated to pay
their share of operating expenses, thereby reducing exposure to increases in
such costs resulting from inflation.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to certain market risks, the most predominant of which is
changes in interest rates. Increases in interest rates can result in increased
interest expense under our Revolving Credit Facility and our other mortgage
loans payable carrying variable interest rate terms. Increases in interest rates
can also result in increased interest expense when our mortgage loans payable
carrying fixed interest rate terms mature and need to be refinanced.
11
<PAGE>
The following table sets forth our long-term debt obligations, principal
cash flows by scheduled maturity, weighted average interest rates and estimated
fair market value ("FMV") at December 31, 1999 (dollars in thousands):
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------------------------------------------------
2000(1) 2001(2) 2002 2003 2004 Thereafter Total
------- ------- ---- ---- ---- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Long term debt:
Fixed rate $ 102,905 $ 3,127 $ 3,365 $ 3,621 $ 29,449 $ 138,785 $ 281,252
Average interest rate 7.37% 7.37% 7.37% 7.37% 8.06% 7.73% 7.32%
Variable rate $ 77,340 $ 25,053 $ 11,769 $ 44 $ 47 $ 4,122 $ 118,375
Average interest rate 8.01% 8.21% 8.05% 7.97% 7.97% 7.97% 8.09%
</TABLE>
(1) Includes $100.0 million maturity in October that may be extended for two
one-year terms, subject to certain conditions. Also includes $57.5 million
maturity in May that was extended for a one-year period on February 8,
2000.
(2) Includes $24.7 million for four construction loans maturing that may be
extended for a one-year period, subject to certain conditions.
The fair market value of our mortgage and other loans payable was $387,539
at December 31, 1999 and $309,451 at December 31, 1998.
Based on our variable rate debt balances, our interest expense would have
increased $727,000 in 1999 and $246,000 in 1998 if interest rates were 1%
higher. Interest expense in 1999 would have been more sensitive to a change in
interest rates than 1998 due to our Revolving Credit Facility, which originated
in May 1998, being in place for all of 1999 and other variable rate debt
obtained in the later portion of 1998 and 1999.
IMPACT OF THE YEAR 2000 ISSUE
Many older computer software programs refer to years in terms of their
final two digits only. Such programs may interpret the year 2000 to mean the
year 1900 instead. If not corrected, this could result in a system failure or
miscalculations causing disruption of operations, including a temporary
inability to process transactions, prepare financial statements, send invoices
or engage in similar normal business activity.
We implemented a plan to identify and address possible implications of the
Year 2000 Issue on our accounting and other network software, property operating
systems, third party suppliers and revenue and cash flow. We also developed
contingency plans to be implemented in the event that undetected problems from
the Year 2000 Issue were to occur. Our plan was completed during the fourth
quarter of 1999.
Based on information currently available from our internal assessment, we
experienced no system failures or computer errors from the Year 2000 Issue and
do not expect such system failures or computer errors to occur in the future.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities". SFAS 133 establishes accounting and
reporting standards for derivative financial instruments and for hedging
activities. It requires that an entity recognize all derivatives as assets or
liabilities in the balance sheet and measure those instruments at fair value
unless certain conditions are met that allow the entity to designate certain
derivatives as a hedge. We have not yet determined the impact of the adoption of
this standard on our financial position or results of operations. The
statement's effective date has been delayed and will become effective in 2001.
Accordingly, we plan to adopt this standard beginning January 1, 2001.
12
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE DATA)
<TABLE>
<CAPTION>
December 31,
--------------------------------
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Commercial real estate properties:
Operating properties, net $ 662,664 $ 536,228
Projects under construction 33,825 10,659
- ----------------------------------------------------------------------- --------------------- ---------------------
Total commercial real estate properties, net 696,489 546,887
Cash and cash equivalents 2,376 2,349
Restricted cash 2,041 293
Accounts receivable, net 1,928 2,986
Investment in and advances to Service Companies 3,661 2,351
Deferred rent receivable 4,634 2,263
Deferred charges, net 7,525 3,542
Prepaid and other assets 2,380 3,006
- ----------------------------------------------------------------------- --------------------- ---------------------
TOTAL ASSETS $ 721,034 $ 563,677
- ----------------------------------------------------------------------- --------------------- ---------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage and other loans payable $ 399,627 $ 306,824
Accounts payable and accrued expenses 6,597 3,395
Rents received in advance and security deposits 3,776 2,789
Dividends/distributions payable 6,298 4,692
- ----------------------------------------------------------------------- --------------------- ---------------------
Total liabilities 416,298 317,700
- ----------------------------------------------------------------------- --------------------- ---------------------
Minority interests:
Preferred Units in the Operating Partnership 24,367 52,500
Common Units in the Operating Partnership 88,170 24,696
Other consolidated partnership 98 --
- ----------------------------------------------------------------------- --------------------- ---------------------
Total minority interests 112,635 77,196
- ----------------------------------------------------------------------- --------------------- ---------------------
Commitments and contingencies (Note 14)
Shareholders' equity:
Preferred Shares ($0.01 par value; 5,000,000 authorized);
1,025,000 designated as Series A Convertible Preferred Shares
of beneficial interest (984,308 shares issued and outstanding
with an aggregate liquidation preference of $24,608) 10 10
1,725,000 designated as Series B Cumulative Redeemable
Preferred Shares of beneficial interest (1,250,000 issued and
outstanding at December 31, 1999 with an aggregate
liquidation preference of $31,250) 12 --
Common Shares of beneficial interest ($0.01 par value;
45,000,000 authorized, shares issued and outstanding of
17,646,046 at December 31, 1999 and 16,801,876 at December
31, 1998) 176 168
Additional paid-in capital 202,867 175,802
Accumulated deficit (7,547) (7,199)
Value of unearned restricted Common Share grants (3,417) --
- ----------------------------------------------------------------------- --------------------- ---------------------
Total shareholders' equity 192,101 168,781
- ----------------------------------------------------------------------- --------------------- ---------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 721,034 $ 563,677
- ----------------------------------------------------------------------- --------------------- ---------------------
</TABLE>
See accompanying notes to financial statements.
13
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
For the years ended December 31,
----------------------------------------------
1999 1998 1997
--------------- -------------- ---------------
<S> <C> <C> <C>
REVENUES
Rental revenue $ 70,101 $ 35,676 $ 6,122
Tenant recoveries and other revenue 11,011 4,538 496
- -------------------------------------------------------------------- --------------- -------------- ---------------
Total revenues 81,112 40,214 6,618
- -------------------------------------------------------------------- --------------- -------------- ---------------
EXPENSES
Property operating 22,325 9,632 728
General and administrative 3,204 1,890 533
Interest 21,808 12,207 2,855
Amortization of deferred financing costs 975 423 64
Depreciation and other amortization 12,075 6,285 1,267
Reformation costs -- 637 --
Termination of advisory agreement -- -- 1,353
- -------------------------------------------------------------------- --------------- -------------- ---------------
Total expenses 60,387 31,074 6,800
- -------------------------------------------------------------------- --------------- -------------- ---------------
Income (loss) before equity in income of Service Companies,
gain on sales of rental properties, minority interests and
extraordinary item 20,725 9,140 (182)
Equity in income of Service Companies 198 139 --
- -------------------------------------------------------------------- --------------- -------------- ---------------
Income (loss) before gain on sales of rental properties, minority
interests and extraordinary item 20,923 9,279 (182)
Gain on sales of rental properties 1,140 -- --
- -------------------------------------------------------------------- --------------- -------------- ---------------
Income (loss) before minority interests and extraordinary item 22,063 9,279 (182)
Minority interests
Common Units in the Operating Partnership (3,449) (1,171) (65)
Preferred Units in the Operating Partnership (2,620) (3,412) (720)
Other consolidated partnership (8) -- --
- -------------------------------------------------------------------- --------------- -------------- ---------------
Income (loss) before extraordinary item 15,986 4,696 (967)
Extraordinary item - loss on early retirement of debt (903) -- --
- -------------------------------------------------------------------- --------------- -------------- ---------------
NET INCOME (LOSS) 15,083 4,696 (967)
Preferred Share dividends (2,854) (327) --
- -------------------------------------------------------------------- --------------- -------------- ---------------
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS $12,229 $ 4,369 $ (967)
- -------------------------------------------------------------------- --------------- -------------- ---------------
BASIC EARNINGS (LOSS) PER COMMON SHARE
Income (loss) before extraordinary item $ 0.77 $ 0.48 $ (0.60)
Extraordinary item (0.05) -- --
- -------------------------------------------------------------------- --------------- -------------- ---------------
Net income (loss) $ 0.72 $ 0.48 $ (0.60)
- -------------------------------------------------------------------- --------------- -------------- ---------------
DILUTED EARNINGS (LOSS) PER COMMON SHARE
Income (loss) before extraordinary item $ 0.70 $ 0.47 $ (0.60)
Extraordinary item (0.04) -- --
- -------------------------------------------------------------------- --------------- -------------- ---------------
Net income (loss) $ 0.66 $ 0.47 $ (0.60)
- -------------------------------------------------------------------- --------------- -------------- ---------------
</TABLE>
See accompanying notes to financial statements.
14
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Value of
Unearned
Additional Restricted
Preferred Common Paid-in Accumulated Common
Shares Shares Capital Deficit Share Grants Total
---------- --------- ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ -- $ 14 $ 12,353 $ (3,196) $ -- $ 9,171
Common Shares issued in connection with
property acquisitions and advisory
agreement termination
(846,083 Shares) -- 9 4,267 -- -- 4,276
Net loss -- -- -- (967) -- (967)
Dividends -- -- -- (816) -- (816)
- ---------------------------------------------- --------- --------- --------- --------- --------- ---------
Balance at December 31, 1997 -- 23 16,620 (4,979) -- 11,664
Common Shares issued to the public
(7,500,000 Shares) -- 75 72,640 -- -- 72,715
Common Shares issued in connection with
acquisitions (7,030,793 Shares) -- 70 73,248 -- -- 73,318
Series A Convertible Preferred Shares
issued in connection with acquisitions
(984,308 Shares) 10 -- 24,598 -- -- 24,608
Adjustments to minority interests
resulting from changes in ownership of
Operating Partnership by COPT -- -- (11,331) -- -- (11,331)
Exercise of share options (5,000
Common Shares) -- -- 27 -- -- 27
Net income -- -- -- 4,696 -- 4,696
Dividends -- -- -- (6,916) -- (6,916)
- ---------------------------------------------- --------- --------- --------- --------- --------- ---------
Balance at December 31, 1998 10 168 175,802 (7,199) -- 168,781
Conversion of Common Units to Common
Shares (372,295 Shares) -- 4 3,137 -- -- 3,141
Series B Cumulative Redeemable Preferred
Shares issued to the public (1,250,000
Shares) 12 -- 29,422 -- -- 29,434
Restricted Common Share grants issued
(471,875 Shares) -- 4 3,476 -- (3,480) --
Value of earned restricted share grants -- -- -- -- 63 63
Adjustments to minority interests
resulting from changes in ownership of
Operating Partnership by COPT -- -- (8,970) -- -- (8,970)
Net income -- -- -- 15,083 -- 15,083
Dividends -- -- -- (15,431) -- (15,431)
- ---------------------------------------------- --------- --------- --------- --------- --------- ---------
Balance at December 31, 1999 $ 22 $ 176 $ 202,867 $ (7,547) $ (3,417) $ 192,101
- ---------------------------------------------- --------- --------- --------- --------- --------- ---------
</TABLE>
See accompanying notes to financial statements.
15
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
For the years ended December 31,
------------------------------------------
1999 1998 1997
----------- ------------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 15,083 $ 4,696 $ (967)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Minority interests 6,077 4,583 785
Depreciation and other amortization 12,075 6,285 1,267
Amortization of deferred financing costs 975 423 64
Equity in income of Service Companies (198) (139) --
Gain on sales of rental properties (1,140) -- --
Extraordinary item - loss on early retirement of debt 903 -- --
Termination of advisory agreement -- -- 1,353
Increase in deferred rent receivable (2,766) (1,784) (295)
Increase in accounts receivable, restricted cash and prepaid
and other assets (1,690) (4,286) (158)
Increase in accounts payable, accrued expenses, rents received
in advance and security deposits 2,977 3,085 1,167
- ---------------------------------------------------------------------- -------------- -------------- ------------
Net cash provided by operating activities 32,296 12,863 3,216
- ---------------------------------------------------------------------- -------------- -------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of and additions to commercial real estate properties (152,749) (180,649) (506)
Proceeds from sales of rental properties 31,163 -- --
Cash proceeds received from acquisition of properties -- -- 1,000
Purchase of marketable securities -- -- (1,375)
Proceeds from maturity of marketable securities -- -- 1,854
Investments in and advances (to) from Service Companies (1,112) 288 --
Leasing commissions paid (3,275) (1,468) --
Change in prepaid and other assets 137 (1,821) --
- ---------------------------------------------------------------------- -------------- -------------- --------------
Net cash (used in) provided by investing activities (125,836) (183,650) 973
- ---------------------------------------------------------------------- -------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from mortgage and other loans payable 248,639 117,962 --
Repayments of mortgage and other loans payable (161,417) (10,192) (283)
Deferred financing costs paid (3,064) (1,627) --
Net proceeds from issuance of Preferred Shares 29,434 -- --
Net proceeds (costs) from issuance of Common Shares 63 72,237 (59)
Dividends paid (14,528) (3,848) (710)
Distributions paid (5,560) (4,791) --
- ---------------------------------------------------------------------- -------------- -------------- --------------
Net cash provided by (used in) financing activities 93,567 169,741 (1,052)
- ---------------------------------------------------------------------- -------------- -------------- --------------
Net increase (decrease) in cash and cash equivalents 27 (1,046) 3,137
CASH AND CASH EQUIVALENTS
Beginning of year 2,349 3,395 258
- ---------------------------------------------------------------------- -------------- -------------- --------------
End of year $ 2,376 $ 2,349 $ 3,395
- ---------------------------------------------------------------------- -------------- -------------- --------------
</TABLE>
See accompanying notes to financial statements.
16
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. ORGANIZATION
Corporate Office Properties Trust ("COPT") and subsidiaries (the "Company")
is a fully integrated and self managed real estate investment trust ("REIT"). We
focus 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. COPT is qualified as a REIT as defined
in the Internal Revenue Code and is the successor to a corporation organized in
1988. As of December 31, 1999, our portfolio included 77 office and two retail
properties.
We conduct almost all of our operations through our operating partnership,
Corporate Office Properties, L.P. (the "Operating Partnership"), for which we
are the managing general partner. The Operating Partnership owns real estate
both directly and through subsidiary partnerships and limited liability
companies ("LLCs"). The Operating Partnership also owns the principal economic
interest and, collectively with our Chief Executive Officer and Chief Operating
Officer, 49.5% of the voting stock of Corporate Office Management, Inc. ("COMI")
(together with its subsidiaries defined as the "Service Companies"). See Note 5
for a description of the activities of the Service Companies. A summary of our
Operating Partnership's forms of ownership and the percentage of those ownership
forms owned by COPT follows:
<TABLE>
<CAPTION>
December 31,
-------------------
1999 1998
-------- ------
<S> <C> <C>
Common Units (see Note 3) 60% 85%
Series A Preferred Units (see Note 8) 100% 100%
Series B Preferred Units (see Note 8) 100% N/A
Series C Preferred Units (see Note 3) 0% N/A
Initial Preferred Units (see Note 3) N/A 0%
</TABLE>
2. BASIS OF PRESENTATION
We use two different accounting methods to report our investments in
entities: the consolidation method and the equity method.
CONSOLIDATION METHOD
We use the consolidation method when we own most of the outstanding voting
interests in an entity and can control its operations. This means the accounts
of the entity are combined with our accounts. We eliminate balances and
transactions between companies when we consolidate these accounts. Our
consolidated financial statements include the accounts of:
- - COPT,
- - the Operating Partnership and its subsidiary partnerships and LLCs, and
- - Corporate Office Properties Holdings, Inc. (we own 100%).
EQUITY METHOD
We use the equity method of accounting to report our investment in the
Service Companies. Under the equity method, we report:
17
<PAGE>
- - our ownership interest in the Service Companies' capital as an
investment on our Consolidated Balance Sheets and
- - our percentage share of the earnings or losses from the Service
Companies in our Consolidated Statements of Operations.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
We make estimates and assumptions when preparing financial statements under
generally accepted accounting principles. These estimates and assumptions affect
various matters, including:
- - our reported amounts of assets and liabilities in our Consolidated
Balance Sheets at the dates of the financial statements,
- - our disclosure of contingent assets and liabilities at the dates of the
financial statements, and
- - our reported amounts of revenues and expenses in our Consolidated
Statements of Operations during the reporting periods.
These estimates involve judgements with respect to, among other things,
future economic factors that are difficult to predict and are often beyond
management's control. As a result, actual amounts could differ from these
estimates.
COMMERCIAL REAL ESTATE PROPERTIES
We report commercial real estate properties at our depreciated cost. The
amounts reported for our commercial real estate properties include our costs of:
- - acquisitions,
- - development and construction,
- - building and land improvements, and
- - tenant improvements paid by us.
We capitalize interest expense, real estate taxes and other costs
associated with real estate under construction to the cost of the real estate.
We start depreciating newly constructed properties when we place them in
service.
We depreciate our assets evenly over their estimated useful lives as
follows:
- - Building and building improvements..........40 years
- - Land improvements...........................20 years
- - Tenant improvements.........................Related lease terms
- - Equipment and personal property.............3-10 years
We also apply the valuation requirements of Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of," to our real
estate assets. Under these requirements, we recognize an impairment loss on a
real estate asset if its undiscounted expected future cash flows are less than
its depreciated cost. We have not recognized impairment losses on our real
estate assets to date.
We expense property maintenance and repair costs when incurred.
18
<PAGE>
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all cash and liquid investments that
mature three months or less from when they are purchased. Cash equivalents are
reported at cost, which almost equals their fair value. We maintain our cash in
bank accounts which may exceed federally insured limits at times. We have not
experienced any losses in these accounts in the past and believe we are not
exposed to significant credit risk.
ACCOUNTS RECEIVABLE
Our accounts receivable are reported net of an allowance for bad debts of
$10 at December 31, 1999 and $50 at December 31, 1998.
REVENUE RECOGNITION
We recognize rental revenue evenly over the term of tenant leases. Many of
our leases include contractual rent increases. For these leases, we average the
rents over the lease term to evenly recognize revenues. We report revenues
recognized in advance of payments received as deferred rent receivable on our
Consolidated Balance Sheets. We report prepaid tenant rents as rents received in
advance on our Consolidated Balance Sheets.
Some of our retail tenants' leases provide for additional rental payments
if the tenants meet certain sales targets. We do not recognize additional rental
revenue under these leases in interim periods until the tenants meet the sales
targets.
We recognize tenant recovery income as revenue in the same period we incur
the related expenses. Tenant recovery income includes payments from tenants as
reimbursement for property taxes, insurance and other property operating
expenses.
MAJOR TENANTS
During 1999, 39% of our total rental revenue was earned from four major
tenants, including 30% from our two largest tenants, the United States
Government and Unisys Corporation. During 1998, 50% of our total rental revenue
was earned from four major tenants, including 28% from our single largest
tenant, Unisys Corporation. During 1997, 64% of our total rental revenue was
earned from four major tenants, each contributing 10% or more.
GEOGRAPHICAL CONCENTRATION
Our operations are geographically concentrated in the Mid-Atlantic region
of the United States. Our rental revenue derived from the Mid-Atlantic region of
the United States increased as a percentage of total rental revenue from 59% in
1997 to 99% in 1999.
DEFERRED CHARGES
We capitalize costs that we incur to obtain new tenant leases or extend
existing tenant leases. We amortize these costs evenly over the lease terms.
When tenant leases are terminated early, we expense any unamortized deferred
leasing costs associated with those leases.
We also capitalize costs for long-term financing arrangements and amortize
these costs over the related loan terms. We expense any unamortized loan costs
as an extraordinary item when loans are retired early.
MINORITY INTERESTS
As discussed previously, we consolidate the accounts of our Operating
Partnership into our financial statements. However, we do not own 100% of the
Operating Partnership. Our Operating Partnership also does not own 11% of one of
its subsidiary partnerships. The amounts reported for minority interests on our
Consolidated Balance Sheets represent the portion of these consolidated
entities' equity that we do not own.
19
<PAGE>
The amounts reported for minority interests on our Consolidated Statements of
Operations represent the portion of these consolidated entities' net income not
allocated to us.
Common Units of the Operating Partnership ("Common Units") are
substantially similar economically to our Common Shares of beneficial interest
("Common Shares"). Common Units are also exchangeable into our Common Shares,
subject to certain conditions. The Operating Partnership issued its Common Units
to minority interests during each of the last three years as consideration for
acquisitions. We have accrued distributions related to Common Units owned by
minority interests of $1,983 at December 31, 1999 and $488 at December 31, 1998.
Our Operating Partnership issued 974,662 Series C Preferred Units in
connection with a December 1999 property acquisition. Owners of these units are
entitled to a priority annual return equal to 9% of their liquidation preference
for the first ten years following issuance, 10.5% for the five following years
and 12% thereafter. These units are convertible, subject to certain
restrictions, commencing December 21, 2000 into Common Units in the Operating
Partnership on the basis of 2.381 Common Units for each Series C Preferred Unit,
plus any accrued return. The Common Units would then be exchangeable for Common
Shares, subject to certain conditions. The Series C Preferred Units also carry a
liquidation preference of $25.00 per unit, plus any accrued return, and may be
redeemed for cash by the Operating Partnership at any time after the tenth
anniversary of their issuance. We have accrued distributions related to Series C
Preferred Units owned by minority interests of $61 at December 31, 1999.
Our Operating Partnership issued 2,100,000 preferred units in connection
with an October 1997 property acquisition (the "Initial Preferred Units"). These
units were converted into Common Units on the basis of 3.5714 Common Units for
each Initial Preferred Unit in October 1999. Prior to converting these units,
owners were entitled to a priority annual return equal to 6.5% of their
liquidation preference. We accrued distributions related to Initial Preferred
Units owned by minority interests of $853 at December 31, 1998.
INTEREST RATE SWAP AGREEMENTS
We recognize the interest rate differential to be paid or received on
interest rate swap agreements as an adjustment to interest expense. We amortize
gains and losses on terminated interest rate swaps accounted for as hedges over
the remaining lives of the related swaps; we recognize any unamortized gain or
loss when the underlying debt is terminated.
INCOME TAXES
We have elected to be treated as a REIT under Sections 856 through 860 of
the Internal Revenue Code. As a REIT, we generally will not be subject to
Federal income tax if we distribute at least 95% of our REIT taxable income to
our shareholders and satisfy certain other requirements. As a result, we do not
report income tax expense on our Consolidated Statements of Operations. If we
fail to qualify as a REIT in any tax year, we will be subject to Federal income
tax on our taxable income at regular corporate rates.
20
<PAGE>
For Federal income tax purposes, dividends to shareholders may be
characterized as ordinary income, capital gains or return of capital (which is
generally non-taxable). The characterization of dividends declared during each
of the last three years was as follows (unaudited):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ ------
<S> <C> <C> <C>
Ordinary income 79.3% 77.4% 45.0%
Long term capital gain 20.7% -- --
Return of capital -- 22.6% 55.0%
</TABLE>
We are subject to certain state and local income and franchise taxes. The
expense associated with these state and local taxes is included in general and
administrative expense on our Consolidated Statements of Operations. We did not
separately state these amounts on our Consolidated Statements of Operations
because they are insignificant.
EARNINGS PER SHARE ("EPS")
We present both basic and diluted EPS. We compute basic EPS by dividing
income available to common shareholders by the weighted average number of Common
Shares outstanding during the year. Our computation of diluted EPS is similar
except that:
- - the denominator is increased to include the weighted average number of
potential additional Common Shares that would have been outstanding if
securities that are convertible into our Common Shares were converted
and
- - the numerator is adjusted to add back any convertible preferred
dividends and any other changes in income or loss that would result
from the assumed conversion into Common Shares.
Our computation of diluted EPS does not assume conversion of securities
into our Common Shares if conversion of those securities would increase our
diluted EPS in a given year. A summary of the numerator and denominator for
purposes of basic and diluted EPS calculations is as follows (dollars and shares
in thousands):
<TABLE>
<CAPTION>
Numerator: 1999 1998 1997
-------- --------- ---------
<S> <C> <C> <C>
Net income (loss) available to Common Shareholders $12,229 $4,369 $ (967)
Add: Extraordinary loss 903 -- --
-------- --------- ---------
Numerator for basic earnings (loss) per share before
Extraordinary item 13,132 4,369 (967)
Add: Minority interests - Initial Preferred Units 2,559 3,412 --
Add: Minority interests - Common Units -- 1,171 --
-------- --------- ---------
Numerator for diluted earnings (loss) per share before
extraordinary item $15,691 $ 8,952 $ (967)
Less: Extraordinary loss (903) -- --
-------- --------- ---------
Numerator for diluted earnings (loss) per share $14,788 $ 8,952 $ (967)
======== ========= =========
Denominator:
Weighted average Common Shares - basic 16,955 9,099 1,601
Assumed conversion of share options 9 24 --
Conversion of weighted average Initial Preferred Units 5,610 7,500 --
Conversion of weighted average Common Units -- 2,614 --
-------- --------- ---------
Weighted average Common Shares - diluted 22,574 19,237 1,601
======== ========= =========
</TABLE>
Our diluted EPS computation for 1999 only assumes conversion of Initial
Preferred Units because conversions of the Series A Preferred Shares, Series C
Preferred Units and Common Units would increase
21
<PAGE>
diluted EPS for that year. Our diluted EPS computation for 1998 does not assume
conversion of the Series A Preferred Shares since such conversions would
increase diluted EPS for that year. Our diluted EPS computation for 1997 does
not assume conversion of Initial Preferred Units or Common Units since these
conversions would increase diluted EPS for that year.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Our financial instruments include primarily notes receivable and mortgage
and other loans payable. The fair values of notes receivable were not materially
different from their carrying or contract values at December 31, 1999 and 1998.
See Note 7 for fair value of mortgage and other loans payable information.
RECLASSIFICATION
We reclassified certain amounts from prior periods to conform to the
current year presentation of our consolidated financial statements. These
reclassifications did not affect consolidated net income or shareholders'
equity.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS 133
establishes accounting and reporting standards for derivative financial
instruments and for hedging activities. It requires that an entity recognize all
derivatives as assets or liabilities in the balance sheet and measure those
instruments at fair value unless certain conditions are met that allow the
entity to designate certain derivatives as a hedge. We have not yet determined
the impact of the adoption of this standard on our financial position or results
of operations. The statement's effective date has been delayed and will now
become effective in 2001. Accordingly, we plan to adopt this standard beginning
January 1, 2001.
4. COMMERCIAL REAL ESTATE PROPERTIES
Operating properties consisted of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------
1999 1998
---------- ----------
<S> <C> <C>
Land $135,641 $108,433
Buildings and improvements 544,967 436,932
Furniture, fixtures and equipment 335 332
---------- ----------
680,943 545,697
Less: accumulated depreciation (18,279) (9,469)
---------- ----------
$662,664 $536,228
---------- ----------
</TABLE>
Projects we had under construction at December 31, 1999 consisted of the
following:
<TABLE>
<CAPTION>
December 31,
-------------------------
1999 1998
---------- ----------
<S> <C> <C>
Land $ 13,158 $ 8,941
Construction in progress 20,667 1,718
--------- ---------
$ 33,825 $ 10,659
========= =========
</TABLE>
22
<PAGE>
1999 ACQUISITIONS
We acquired the following office properties during the year ended December
31, 1999:
<TABLE>
<CAPTION>
Number
Date of of Total Rentable Initial
Project Name Location Acquisition Buildings Square Feet Cost
- ----------------------------- ---------------------- ----------- ---------- -------------- --------
<S> <C> <C> <C> <C> <C>
Airport Square XXI Linthicum, MD 2/23/99 1 67,913 $ 6,751
Parkway Crossing Properties Hanover, MD 4/16/99 2 99,026 9,524
Commons Corporate Center (1) Hanover, MD 4/28/99 8 250,413 25,442
Princeton Executive Center Monmouth Junction, NJ 6/24/99 1 61,300 6,020
Gateway Central (2) Harrisburg, PA 8/12/99 3 55,726 5,960
Gateway International (3) Linthicum, MD 11/18/99 2 198,438 24,316
Corporate Gateway Center (4) Harrisburg, PA 12/3/99 9 417,138 40,082
Timonium Business Park (5) Timonium, MD 12/21/99 2 233,623 30,001
Brown's Wharf (5) Baltimore, MD 12/21/99 1 103,670 10,607
</TABLE>
(1) Does not include $400 allocated to projects under construction and $50
relating to land under a ground lease.
(2) Acquired 89% ownership interest from an officer and Trustee of ours.
(3) Does not include $1,973 allocated to projects under construction.
(4) Acquired 49% interest on September 15, 1999. Acquired remaining 51%
interest on December 3, 1999 (discussed below).
(5) See discussion below.
In June 1999, we sold Brown's Wharf and assigned our rights to purchase
the Timonium Business Park to an unrelated third party. Simultaneously with
these transactions, we entered into a contract with the third party under which
the third party had the right to transfer these three office buildings to us on
or before March 31, 2000. In December 1999, we acquired Brown's Wharf and the
Timonium Business Park from the third party for $40,608 which is reflected in
the table above. Due to the nature of this agreement, we did not recognize a
gain or loss on the sale of Brown's Wharf. We also continued to depreciate
Brown's Wharf throughout 1999.
On September 15, 1999, we acquired a 49% interest in Corporate Gateway
General Partnership ("Corporate Gateway"), a newly organized joint venture, for
$2,952. On the same day, the joint venture acquired nine office buildings
located in Greater Harrisburg, Pennsylvania from First Industrial Realty Trust,
Inc., a publicly held real estate investment company where Jay Shidler, the
Chairman of our Board of Trustees, serves as Chairman of the Board of Directors.
Corporate Gateway acquired these buildings for $39,925 using cash and proceeds
from a $34,247 loan payable to our Operating Partnership. The loan carried an
interest rate of 10%. We accounted for our investment in Corporate Gateway at
that time using the equity method of accounting. On December 3, 1999, we
acquired the remaining 51% interest in Corporate Gateway. The recorded cost of
the nine office buildings upon completion of these transactions totaled $40,082
which is reflected in the table above.
We issued 974,662 Series C Preferred Units and 377,251 Common Units in our
Operating Partnership in connection with 1999 office property acquisitions.
We also acquired the following properties during the year ended December
31, 1999:
- - a parcel of land located in Annapolis Junction, Maryland that is
contiguous to certain of our existing operating properties for $2,908
on May 28, 1999 from Constellation (defined later in this note), owner
of 40% of our Common Shares and 100% of our Series A Convertible
Preferred Shares of beneficial interest ("Series A Preferred Shares")
at December 31, 1999. Constellation also controlled two of our nine
positions on our Board of Trustees at December 31, 1999.
23
<PAGE>
- - a 57,000 square foot warehouse facility for redevelopment into office
space located on 8.5 acres of land that is contiguous to properties we
own in South Brunswick, New Jersey for $2,172 on July 9, 1999,
- - a parcel of land located in Linthicum, Maryland that is contiguous to
certain of our existing operating properties for $1,970 on August 1,
1999 from CDS (see Note 5),
- - a parcel of land located in Annapolis Junction, Maryland that is
contiguous to certain of our existing operating properties for $2,945
on October 21, 1999 from Constellation, and
- - a parcel of land located in Harrisburg, Pennsylvania that is contiguous
to certain of our existing operating properties for $191 on November 4,
1999 from an officer and Trustee of ours.
1999 DISPOSITIONS
We sold the following properties during the year ended December 31, 1999:
<TABLE>
<CAPTION>
Property Date of Total Rentable Sales
Project Name Location Type (1) Sale Square Feet Price
- --------------------- ------------------ --------- --------- -------------- ---------
<S> <C> <C> <C> <C> <C>
Cranberry Square Westminster, MD R 1/22/99 139,988 $ 18,900
Delafield Retail Delafield, WI R 2/26/99 52,800 3,303
Indianapolis Retail Indianapolis, IN R 3/09/99 67,541 5,735
Plymouth Retail Plymouth, MN R 3/09/99 67,510 5,465
Glendale Retail Glendale, WI R 5/04/99 36,248 1,900
Peru Retail Peru, IL R 6/16/99 60,232 3,750
Browns Wharf (2) Baltimore, MD O 6/24/99 103,670 10,575
Oconomowoc Retail Oconomowoc, WI R 6/25/99 39,272 2,575
Brandon One Riviera Beach, MD O 12/30/99 38,513 1,260
</TABLE>
(1) "R" indicates retail property; "O" indicates office property.
(2) See discussion in portion of this note entitled "1999 Acquisitions".
1999 CONSTRUCTION IN PROGRESS
During 1999, we completed the construction of two office properties
totaling 202,219 square feet. The office buildings are located in Annapolis
Junction, Maryland and Columbia, Maryland. Costs incurred on these properties
through December 31, 1999 totaled $23,227. We also completed an expansion
project that increased the rentable square footage of one of our properties by
6,350 square feet. As of December 31, 1999 we had development underway on five
new buildings and redevelopment underway on an existing building.
24
<PAGE>
1998 ACQUISITIONS
We acquired the following properties during the year ended December 31, 1998:
<TABLE>
<CAPTION>
Date of Number of Total Rentable Initial
Project Name Location Acquisition Buildings Square Feet Cost
- ------------------------------ -------------------- --------------- ----------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Airport Square Linthicum, MD 4/30/98 12 812,616 $ 72,618
Fairfield Properties Fairfield, NJ 5/28/98 2 262,417 29,405
Constellation Properties(1)(2) Various Maryland 9/28/98 - 14 1,466,722 177,039
Locations 12/30/98
Riverwood Columbia, MD 10/13/98 1 160,000 20,333
Centerpoint Middlesex County, NJ 10/30/98 8 269,222 31,656
Gateway Properties(3) Columbia, MD 12/31/98 3 148,804 17,837
</TABLE>
(1) Does not include $7,186 allocated to projects under construction.
(2) Acquisition included 12 office and 2 retail buildings.
(3) Does not include $1,263 allocated to projects under construction.
The acquisition of the Constellation Properties was part of a series of
transactions (the "Constellation Transaction") with affiliates of Constellation
Real Estate Group, Inc. (collectively, "Constellation"). As part of this
transaction, Constellation also granted us certain options and rights of first
refusal to purchase undeveloped land in three locations adjacent to certain of
the Constellation Properties. In addition, a significant number of persons
previously employed by Constellation Real Estate, Inc. ("CRE") who were engaged
in the operation of the Constellation Properties became employees of COMI and
CDS (defined in Note 5).
We issued 7,030,793 Common Shares, 984,308 Series A Preferred Shares and
148,381 Common Units in our Operating Partnership in connection with the
Constellation Transaction and other 1998 property acquisitions.
5. INVESTMENT IN AND ADVANCES TO SERVICE COMPANIES
On September 28, 1998, we acquired a 75% interest in Corporate Realty
Management, LLC ("CRM"), a real estate management services entity, and certain
equipment, furniture and other assets related to CRE for $2,500. Upon completion
of this transaction, we contributed these assets into COMI, an entity that
provides us with asset management, managerial, financial and legal support. In
exchange for this contribution of assets, we received 95% of the capital stock
in COMI, including 1% of the voting common stock, and a $2,005 note receivable
carrying an interest rate of 10% for one year and Prime plus 2% thereafter
through its maturity on September 28, 2003. Also on September 28, 1998, our
Chief Executive Officer and Chief Operating Officer collectively acquired 48.5%
of the voting common stock in COMI.
On September 28, 1998, COMI contributed certain equipment, furniture and
other assets into Corporate Development Services, LLC ("CDS"), a limited
liability company that provides construction and development services
predominantly to us. In exchange for this contribution of assets, COMI received
100% of the membership interests in CDS. In November 1998, CDS acquired a parcel
of land located near the Airport Square Properties. CDS acquired this property
for $1,162, using cash and proceeds from a $1,200 loan payable to our Operating
Partnership. After incurring costs to improve the land parcel, CDS sold the land
to us on August 1, 1999 for $1,970 and the loan was repaid.
On August 31, 1999, COMI acquired an 80% interest in Martin G. Knott and
Associates, LLC ("MGK"), a limited liability company that provides heating and
air conditioning maintenance and repair services. COMI acquired its interest in
MGK for $160.
25
<PAGE>
We account for our investment in COMI and its subsidiaries, CRM, CDS and
MGK, using the equity method of accounting. Our investment in and advances to
(from) the Service Companies included the following:
<TABLE>
<CAPTION>
December 31,
---------------------
1999 1998
---------- ---------
<S> <C> <C>
Notes receivable $ 2,005 $3,205
Equity investment in Service Companies 807 609
Advances receivable (payable) 849 (1,463)
---------- ---------
Total $ 3,661 $2,351
========== =========
</TABLE>
6. DEFERRED CHARGES
Deferred charges consisted of the following:
<TABLE>
<CAPTION>
December 31,
---------------------
1999 1998
---------- ---------
<S> <C> <C>
Deferred financing costs $ 4,592 $ 2,611
Deferred leasing costs 4,658 1,468
Deferred other 24 24
---------- ---------
9,274 4,103
Accumulated amortization (1,749) (561)
---------- ---------
Deferred charges, net $ 7,525 $ 3,542
========== =========
</TABLE>
26
<PAGE>
7. MORTGAGE AND OTHER LOANS PAYABLE
Mortgage and other loans payable consisted of the following:
<TABLE>
<CAPTION>
December 31,
---------------------
1999 1998
-------- --------
<S> <C> <C>
Deutsche Banc Alex. Brown, Term Credit Facility, 7.50%, maturing October 2000 (1) $100,000 $100,000
Teachers Insurance and Annuity Association of America, 6.89%, maturing November 2008 83,470 84,808
Teachers Insurance and Annuity Association of America, 7.72%, maturing October 2006 59,801 --
Deutsche Banc Alex. Brown, Revolving Credit Facility, LIBOR + 1.75%, maturing May 2000 (2) 57,500 76,800
Mutual of New York Life Insurance Company, 7.79%, maturing August 2004 27,750 --
Bank of America, LIBOR + 1.75%, maturing June 2000 16,720 --
Allfirst Bank, LIBOR + 1.75%, maturing May 2002 12,290 --
Provident Bank of Maryland, LIBOR + 1.75%, maturing February 2001 (3) 8,642 --
Allfirst Bank, LIBOR + 1.6%, maturing February 2001 (4) 8,167 --
Aegon USA Realty Advisors, Inc., 8.29%, maturing May 2007 6,214 6,369
Allfirst Bank, LIBOR + 1.75%, maturing October 2001(5) 4,490 --
Mellon Bank, yield on 5-year Treasury Securities + 2%, maturing August 2005 (6) 4,304 --
Bank of Maryland, LIBOR + 1.75%, maturing October 2001 (7) 3,437 --
Provident Bank of Maryland, LIBOR + 1.75%, maturing September 2000 2,825 2,907
Seller mortgage, 8%, maturing May 2007 1,542 --
Bank of America, LIBOR + 2%, repaid February 1999 -- 9,877
Security Life of Denver, 7.5%, repaid January 1999 -- 9,513
Howard Research and Development Corporation, 8%, repaid January 1999 -- 1,996
Mercantile-Safe Deposit and Trust Co., Prime + 0.5%, repaid February 1999 -- 500
Other Mortgages - Retail Properties, remaining loan carries 8% fixed rate, maturing February 2014 2,475 14,054
-------- --------
$399,627 $306,824
======== ========
</TABLE>
(1) May be extended for two one-year periods, subject to certain conditions.
(2) On February 8, 2000, the maturity date of this loan was extended to May
2001.
(3) Construction loan with a total commitment of $10,875. Loan may be extended
for a one-year period, subject to certain conditions.
(4) Construction loan with a total commitment of $9,825. Loan may be extended
for a one-year period, subject to certain conditions.
(5) Construction loan with a total commitment of $12,375. Loan may be extended
for a one-year period, subject to certain conditions.
(6) Construction loan with a total commitment of $4,549.
(7) Construction loan with a total commitment of $7,400. Loan may be extended
for a one-year period, subject to certain conditions.
In the case of each of our mortgage loans, we have pledged
certain of our real estate assets as collateral. We use the term
collateralized to describe this arrangement. As of December 31, 1999,
substantially all of our real estate properties were collateralized on
loan obligations. Certain of our mortgage loans require that we comply
with a number of restrictive financial covenants, including adjusted
consolidated net worth, minimum property interest coverage, minimum
property hedged interest coverage, minimum consolidated interest
coverage, maximum consolidated unhedged floating rate debt and maximum
consolidated total indebtedness.
27
<PAGE>
Our mortgage loans mature on the following schedule (excluding extension
options):
<TABLE>
<S> <C> <C>
2000.............................................. $180,245
2001.............................................. 28,180
2002.............................................. 15,134
2003.............................................. 3,665
2004.............................................. 29,496
Thereafter........................................ 142,907
--------
Total............................................. $399,627
========
</TABLE>
The fair value of our mortgage and other loans payable was $387,539 at
December 31, 1999 and $309,451 at December 31, 1998.
Weighted average borrowings under our secured revolving credit facility
with Deutsche Banc Alex. Brown totaled $70,165 in 1999 and $30,972 in 1998. The
weighted average interest rate on this credit facility totaled 7.2% in 1999 and
8.0% in 1998.
We also have a $50.0 million line of credit with Prudential Securities
Credit Corporation. This loan bears an interest rate of LIBOR plus 1.5%, matures
December 28, 2000 and may be extended for a three month period, subject to
certain conditions. No borrowings were made under this loan during 1999.
Amounts available under our lines of credit with Deutsche Banc Alex. Brown
and Prudential Securities Credit Corporation are computed based on 65% of the
appraised value of properties pledged as collateral for these loans. As of
December 31, 1999, the maximum amount available under our lines of credit
totaled $99,353, of which $41,853 was unused.
We capitalized interest costs of $1,510 during 1999 and $77 during 1998.
We had mortgage loans payable that were retired early during 1999 using
proceeds from sales of properties and refinancings. We recognized a loss on
these early debt retirements of $903 during 1999.
8. SHAREHOLDERS' EQUITY
On January 1, 1998, COPT changed its name from Royale Investments, Inc. to
Corporate Office Properties Trust, Inc. On March 16, 1998, COPT was reformed as
a Maryland REIT and changed its name to Corporate Office Properties Trust (the
"Reformation"). In connection with the Reformation, we authorized 45,000,000
Common Shares and 5,000,000 Preferred Shares. Each share of common stock in
Corporate Office Properties Trust, Inc. was exchanged for one Common Share in
COPT.
PREFERRED SHARES
In connection with the Constellation Transaction in 1998, we issued 984,308
Series A Preferred Shares. These shares are nonvoting and are convertible after
two years of issuance, subject to certain conditions, into Common Shares on the
basis of 1.8748 Common Shares for each Series A Preferred Share. Holders of
these shares are entitled to cumulative dividends, payable quarterly (as and if
declared by the Board of Trustees). Dividends accrue from the date of issue at
the annual rate of $1.375 per share, which is equal to 5.5% of the $25.00 per
share liquidation preference of the shares. We contributed the assets we
received in the transaction to our Operating Partnership in exchange for 984,308
Series A Preferred Units. The Series A Preferred Units carry terms that are
substantially the same as the Series A Preferred Shares.
In July 1999, we completed the sale of 1,250,000 Series B Cumulative
Redeemable Preferred Shares of beneficial interest ("Series B Preferred Shares")
to the public at a price of $25.00 per share. These shares are nonvoting and are
redeemable for cash at $25.00 per share at our option on or after July 15, 2004.
Holders of
28
<PAGE>
these shares are entitled to cumulative dividends, payable quarterly (as and if
declared by the Board of Trustees). Dividends accrue from the date of issue at
the annual rate of $2.50 per share, which is equal to 10% of the $25.00 per
share redemption price. We contributed the net proceeds to our Operating
Partnership in exchange for 1,250,000 Series B Preferred Units. The Series B
Preferred Units carry terms that are substantially the same as the Series B
Preferred Shares.
COMMON SHARES
In April 1998, we completed the sale of 7,500,000 Common Shares to the
public at a price of $10.50 per share and contributed the net proceeds to our
Operating Partnership in exchange for 7,500,000 Common Units. Our Operating
Partnership used the proceeds to fund acquisitions.
In connection with the Constellation Transaction in 1998, we issued
7,030,793 Common Shares and contributed the assets we received to our Operating
Partnership in exchange for 7,030,793 Common Units.
On August 4, 1999, 372,295 Common Units in our Operating Partnership were
converted to Common Shares.
On December 16, 1999, we issued 471,875 Common Shares subject to forfeiture
restrictions to certain officers. The forfeiture restrictions of specified
percentages of these shares lapse annually through 2004 upon the Company's
attainment of defined earnings or shareholder return growth targets. These
shares may not be sold, transferred or encumbered while the forfeiture
restrictions are in place. Forfeiture restrictions on 8,593 of these shares
lapsed during 1999.
9. SHARE OPTIONS
In 1993, we adopted a share option plan for directors under which we have
75,000 Common Shares reserved for issuance. These options become exercisable
beginning on the first anniversary of their grant and expire ten years after the
date of grant.
In March 1998, we adopted a share option plan for Trustees and employees of
the Service Companies under which we have 3,129,877 Common Shares reserved for
issuance. Trustee options under this plan become exercisable beginning on the
first anniversary of their grant. Service Company employees' options under this
plan become exercisable over a 3 to 5 year period. These options expire ten
years after the date of grant.
29
<PAGE>
The following table summarizes share option transactions under the plans
described above:
<TABLE>
<CAPTION>
Weighted
Range of Average
Exercise Exercise
Shares Price per Share Price per Share
----------- ----------------- -----------------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1996 57,500 $5.38 - $10.38 $7.53
Granted - 1997 25,000 $5.25 - $7.59 $6.19
Forfeited - 1997 (7,500) $5.25 $5.25
----------
Outstanding at December 31, 1997 75,000 $5.25 - $10.38 $7.31
Granted - 1998 722,875 $9.25 - $12.25 $9.37
Forfeited - 1998 (6,050) $9.25 $9.25
Exercised - 1998 (5,000) $5.38 - $5.63 $5.51
----------
Outstanding at December 31, 1998 786,825 $5.25 - $12.25 $9.20
Granted - 1999 700,200 $7.38 - $9.25 $8.21
Forfeited - 1999 (59,050) $8.00 - $9.25 $8.48
1998 Options Repriced from (360,500) $9.25 $9.25
$9.25 to $8.00 during 1999 360,500 $8.00 $8.00
----------
Outstanding at December 31, 1999 1,427,975 $5.25 - $12.25 $8.46
==========
Available for future grant at December 31, 1999 1,771,902
----------
Exercisable at December 31, 1997 57,500 $5.38 - $10.38 $7.53
----------
Exercisable at December 31, 1998 70,000 $5.25 - $10.38 $7.77
----------
Exercisable at December 31, 1999 312,467 $5.25 - $12.25 (1) $8.73
==========
</TABLE>
(1)32,500 of these options had an exercise price ranging from $5.25 to $5.63,
249,967 had an exercise price ranging from $7.59 to $10.38 and 30,000 had an
exercise price of $12.25.
The weighted average remaining contractual life of the options at December
31, 1999 was approximately nine years.
A summary of the weighted average grant-date fair value per option granted is as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Weighted average grant-date fair value $ 0.75 $ 0.98 $ 1.25
Weighted average grant-date fair value - exercise price equals
Market price on grant-date $ 0.90 $ 2.03 $ 1.25
Weighted average grant-date fair value - exercise price exceeds
Market price on grant-date $ 0.46 $ 0.95 $ --
Weighted average grant-date fair value - exercise price less than
Market price on grant-date $ 0.98 $ -- $ --
</TABLE>
We estimated the fair values using the Black-Scholes option-pricing model
using the following assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Risk free interest rate 5.57% 4.65% 6.32%
Expected life - years 3.85 5.75 8.00
Expected volatility 27.00% 30.00% 34.00%
Expected dividend yield 8.40% 6.80% 6.70%
</TABLE>
30
<PAGE>
Our Service Companies do not record compensation expense for share option
grants unless the exercise price of such grants is less than the market price on
the option grant date. The following table summarizes results as if we elected
to account for share options based on Statement of Financial Accounting
Standards No. 123:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- --------
<S> <C> <C> <C>
Net income (loss) available to Common Shareholders, as reported $ 12,229 $ 4,369 $ (967)
Net income (loss) available to Common Shareholders, pro forma 11,947 3,660 (998)
Earnings (loss) per Common Share, as reported 0.72 0.48 (0.60)
Earnings (loss) per Common Share, pro forma 0.69 0.40 (0.61)
Diluted earnings (loss) per Common Share, as reported 0.66 0.47 (0.60)
Diluted earnings (loss) per Common Share, pro forma 0.63 0.40 (0.61)
</TABLE>
10. RELATED PARTY TRANSACTIONS
MANAGEMENT
In September 1998, we entered into a contract with COMI under which COMI
provides asset management, managerial, financial and legal support. Under the
terms of this contract, we reimburse COMI for personnel and other
overhead-related expenses. We incurred management fees and related costs under
this contract of $3,072 in 1999 and $545 in 1998. We capitalized $430 of these
fees in 1999 and $73 in 1998.
In 1998, we entered into a management agreement with CRM under which CRM
provides property management services to most of our properties. Under the terms
of this arrangement, CRM is entitled to a fee equal to a percentage of revenue
from tenant billings (3% in 1999 and 3.5% in 1998). CRM is also entitled to
reimbursement for direct labor and out-of-pocket costs. We incurred property
management fees and related costs with CRM of $3,743 in 1999 and $557 in 1998.
We had a management agreement with Glacier Realty LLC ("Glacier"), a
company that was partially owned by one of our former Trustees. Under the
management agreement, Glacier was responsible for the management of our retail
properties for a base annual fee of $250 plus a percent of Average Invested
Assets (as defined in the management agreement). Glacier was also entitled to
fees upon our acquisition or sale of any net-leased retail real estate property,
a fee that increased in the event that all or substantially all of the
net-leased retail real estate properties were sold. The management agreement,
entered into on October 14, 1997, had a term of five years. A fee was also due
in the event that the management agreement was terminated or not renewed. We
incurred fees under this agreement of $63 in 1999, $250 in 1998 and $52 in 1997.
On March 19, 1999, our Operating Partnership issued 200,000 Common Units in
exchange for all of the ownership interests in Glacier. For accounting purposes,
we recorded $1,487, the value of this transaction, against the gain on the sale
of our retail properties in the Midwest region of the United States.
We also had a management agreement with a company for which one of our
Trustees serves on the Board of Directors. We incurred management fees and
related costs under this contract of $62 in 1999, $87 in 1998 and $22 in 1997.
Prior to 1998, we had an advisory agreement with Crown Advisors, Inc.
("Crown"), a company owned by one of our former Trustees. Under this agreement,
Crown acted as investment advisor to the Company and assisted in the management
of the day-to-day operations for a base annual fee of $250 plus incentives based
upon performance. We incurred advisory fees under this agreement of $198 in
1997. No performance fees were incurred under this agreement. In 1997, we issued
246,083 Common Shares (net of 27,646 Common Shares owned by Crown that were
retired) valued at $1,353 ($5.50 per share) in exchange for the assets of Crown,
which resulted in the termination of the advisory agreement with Crown. We
reported these costs of terminating the advisory agreement as an expense in our
Consolidated Statements of Operations.
31
<PAGE>
CONSTRUCTION COSTS
In September 1998, we entered into a contract with CDS under which CDS
provides construction and development services. Under the terms of this
contract, we reimburse CDS for these services based on actual time incurred at
market rates. We incurred $1,274 in 1999 and $214 in 1998 under this contract, a
substantial portion of which was capitalized into the cost of the related
activities.
RESTRICTED SHARE GRANTS
During 1999, the Service Companies paid us $63 for the value of earned
restricted Common Shares granted to its employees.
RENTAL INCOME
We recognized revenue on office space leased to COMI and CRM of $420 in
1999 and $92 in 1998. We recognized revenue of $944 in 1999 and $256 in 1998 on
office space leased to Constellation.
INTEREST INCOME
We earned interest income on notes receivable from the Service Companies of
$253 in 1999 and $66 in 1998. We also earned interest income of $723 on notes
receivable from Corporate Gateway in 1999.
CONSTRUCTION FEES
During 1999, the Service Companies earned construction management fees of
$60 from an entity owned by an officer and Trustee of ours. During 1998, we
earned construction management fees of $60 from an entity owned by an officer
and Trustee of ours.
LEASING COMMISSION
During 1999, the Service Companies earned a leasing commission of $117
from an entity owned by an officer and Trustee of ours.
FEES EARNED FROM CONSTELLATION AND BGE
The Service Companies earned fees from a project consulting and management
agreement with Constellation of $1,100 in 1999 and $750 in 1998. The Service
Companies also earned fees and expense reimbursements of $500 in 1999 and $206
in 1998 under a property management agreement with Baltimore Gas and Electric
Company ("BGE"), an affiliate of Constellation.
FEES EARNED FROM REAL ESTATE JOINT VENTURE
During 1999, we earned an acquisition services fee of $213 from Corporate
Gateway.
UTILITIES EXPENSE
BGE provided utility services to most of our properties in the
Baltimore/Washington Corridor during 1999 and 1998.
ACQUISITIONS
See Note 4.
32
<PAGE>
11. OPERATING LEASES
We lease our properties to tenants under operating leases with various
expiration dates extending to the year 2017. Gross minimum future rentals on
noncancelable leases at December 31, 1999 are as follows:
<TABLE>
<S> <C> <C>
2000............................................... $ 80,401
2001............................................... 59,849
2002............................................... 51,618
2003............................................... 41,714
2004............................................... 32,728
Thereafter......................................... 94,782
---------
Total............................................ $ 361,092
=========
</TABLE>
The amounts above do not include the cancelable portion of future rentals
on long term leases with the United States Government that are structured with
consecutive automatic one-year renewable terms.
12. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended
December 31,
-------------------------------
1999 1998 1997
--------- --------- --------
<S> <C> <C> <C>
Interest paid, net of capitalized interest $21,258 $ 12,876 $ 2,220
========= ========= ========
Supplemental schedule of non-cash investing and financing activities:
Debt repaid in connection with sales of rental properties $ 20,928 $ -- $ --
--------- --------- --------
Debt assumed in connection with acquisitions $ 26,620 $ 84,679 $100,000
--------- --------- --------
Increase in minority interests resulting from issuance of Preferred and
Common Units in connection with property acquisitions $ 28,309 $ 1,559 $ 65,070
--------- --------- --------
Increase in minority interests resulting from issuance of Common Units in
connection with Glacier transaction $ 1,487 $ -- $ --
--------- --------- --------
Increase in shareholders' equity resulting from issuance of Common Shares and
Preferred Shares in connection with acquisitions $ -- $ 98,431 $ 2,981
--------- --------- --------
Note receivable balance applied to cost of property acquisition $ 1,575 $ -- $ --
--------- --------- --------
Increase in accrued capital improvements $ 1,212 $ 1,742 $ --
========= ========= ========
Adjustments to minority interests resulting from changes in ownership of
Operating Partnership by COPT $ 8,970 $ 11,331 $ --
========= ========= ========
Dividends/distribution payable $ 6,298 $ 4,692 $ 1,276
========= ========= ========
Decrease in minority interests and increase in shareholders' equity in
connection with conversion of Common Units into Common Shares $ 3,141 $ -- $ --
========= ========= ========
Changes in minority interests in connection with conversion of Preferred
Units into Common Units $ 52,500 $ -- $ --
========= ========= ========
Changes in shareholders' equity in connection with issuance of restricted
Common Shares $ 3,480 $ -- $ --
========= ========= ========
</TABLE>
33
<PAGE>
13. INFORMATION BY BUSINESS SEGMENT
We have five segments: Baltimore/Washington Corridor office, Greater
Philadelphia office, Northern/Central New Jersey office, Greater Harrisburg
office and retail. Our office properties represent our core-business. We manage
our retail properties as a single segment since they are considered outside of
our core business.
The table below reports segment financial information. Our retail segment
is not separately reported since it does not meet the reporting thresholds. We
measure the performance of our segments based on total revenues less property
operating expenses. Accordingly, we do not report other expenses by segment in
the table below.
<TABLE>
<CAPTION>
Baltimore/ Northern/
Washington Greater Central New Greater
Corridor Philadelphia Jersey Harrisburg
Office Office Office Office Other Total
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1999:
Revenues $ 45,716 $ 10,024 $ 17,764 $ 3,716 $ 3,892 $ 81,112
Property operating expenses 14,025 82 6,761 1,083 374 22,325
--------- --------- --------- --------- --------- ---------
Income from operations $ 31,691 $ 9,942 $ 11,003 $ 2,633 $ 3,518 $ 58,787
========= ========= ========= ========= ========= =========
Commercial real estate property
expenditures $ 148,577 $ 17 $ 14,364 $ 47,176 $ 331 $ 210,465
========= ========= ========= ========= ========= =========
Segment assets at December 31, 1999 $ 410,029 $ 107,516 $ 111,872 $ 70,648 $ 20,969 $ 721,034
========= ========= ========= ========= ========= =========
Year Ended December 31, 1998:
Revenues $ 13,548 $ 10,024 $ 9,997 $ 2,835 $ 3,810 $ 40,214
Property operating expenses 4,293 15 3,914 946 464 9,632
--------- --------- --------- --------- --------- ---------
Income from operations $ 9,255 $ 10,009 $ 6,083 $ 1,889 $ 3,346 $ 30,582
========= ========= ========= ========= ========= =========
Commercial real estate property
expenditures $ 275,502 $ -- $ 64,571 $ 18,019 $ 6,415 $ 364,507
========= ========= ========= ========= ========= =========
Segment assets at December 31, 1998 $ 277,751 $ 108,894 $ 97,035 $ 23,888 $ 56,109 $ 563,677
========= ========= ========= ========= ========= =========
Year Ended December 31, 1997:
Revenues $ -- $ 2,100 $ 1,359 $ 589 $ 2,570 $ 6,618
Property operating expenses -- 3 455 227 43 728
--------- --------- --------- --------- --------- ---------
Income from operations $ -- $ 2,097 $ 904 $ 362 $ 2,527 $ 5,890
========= ========= ========= ========= ========= =========
Commercial real estate property
expenditures $ -- $ 110,401 $ 32,144 $ 24,137 $ 140 $ 166,822
========= ========= ========= ========= ========= =========
Segment assets at December 31, 1997 $ -- $ 110,111 $ 32,123 $ 24,286 $ 27,014 $ 193,534
========= ========= ========= ========= ========= =========
</TABLE>
34
<PAGE>
The following table reconciles our income from operations for reportable
segments to income (loss) before extraordinary item as reported in our
Consolidated Statements of Operations.
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------
1999 1998 1997
---------- ---------- --------
<S> <C> <C> <C>
Income from operations for reportable segments $ 58,787 $ 30,582 $ 5,890
Add:
Equity in income of Service Companies 198 139 --
Gain on sales of rental properties 1,140 -- --
Less:
General and administrative (3,204) (1,890) (533)
Interest (21,808) (12,207) (2,855)
Amortization of deferred financing costs (975) (423) (64)
Depreciation and other amortization (12,075) (6,285) (1,267)
Reformation costs -- (637) --
Termination of advisory agreement -- -- (1,353)
Minority interests (6,077) (4,583) (785)
------- ------- -------
Income (loss) before extraordinary item $15,986 $ 4,696 $ (967)
======= ======= =======
</TABLE>
We did not allocate gain on sales of rental properties, interest expense,
amortization of deferred financing costs and depreciation and other amortization
to segments since they are not included in the measure of segment profit
reviewed by management. We also did not allocate equity in income of Service
Companies, general and administrative, reformation costs, termination of
advisory agreement costs and minority interests since these items represent
general corporate expenses not attributable to segments.
14. COMMITMENTS AND CONTINGENCIES
In the normal course of business, we are involved in legal actions arising
from our ownership and administration of properties. In management's opinion,
any liabilities that may result are not expected to have a materially adverse
effect on our financial position, operations or liquidity. We are subject to
various federal, state and local environmental regulations related to our
property ownership and operation. We have performed environmental assessments of
our properties, the results of which have not revealed any environmental
liability that we believe would have a materially adverse effect on our
financial position, operations or liquidity.
OFFICE LEASE
We have an office lease for our corporate headquarters in Bala Cynwyd,
Pennsylvania. The monthly rent under this lease is subject to an annual increase
based on the Consumer Price Index. Future minimum rental payments due under the
term of this lease are as follows:
<TABLE>
<S> <C> <C>
2000.......................................... $ 171
2001.......................................... 171
2002.......................................... 171
2003.......................................... 128
--------
Total......................................... $ 641
========
</TABLE>
CONTRACT TO ACQUIRE PROPERTIES
We are under contract to purchase from Constellation two parcels of land
contiguous to certain of our existing operating properties. The purchase price
will be determined based upon the square footage of the area contained in the
buildings to be constructed on the land parcels.
35
<PAGE>
WARRANTS
In connection with a property acquisition in December 1999, we issued
ten-year detachable warrants exercisable for an additional number of Common
Units (up to 476,200 units) to be determined based upon the share price of our
Common Shares over the first five years following the acquisition. However, if
the price of the Common Shares used to determine the additional number of Common
Units equals or exceeds $14.21, no warrants will be issuable.
15. QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
Year Ended December 31, 1999
--------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 18,523 $ 19,542 $ 20,460 $ 22,587
======== ======== ======== ========
Income before minority interests and
extraordinary item $ 5,588 $ 5,225 $ 5,490 $ 5,760
Minority interests (1,349) (1,523) (1,444) (1,761)
-------- -------- -------- --------
Income before extraordinary item 4,239 3,702 4,046 3,999
Extraordinary item (694) (144) -- (65)
-------- -------- -------- --------
Net income 3,545 3,558 4,046 3,934
Preferred Share dividends (338) (338) (1,060) (1,118)
-------- -------- -------- --------
Net income available to Common
Shareholders $ 3,207 $ 3,220 $ 2,986 $ 2,816
======== ======== ======== ========
Basic earnings per share:
Income before extraordinary item $ 0.23 $ 0.20 $ 0.18 $ 0.17
======== ======== ======== ========
Net income $ 0.19 $ 0.19 $ 0.18 $ 0.16
======== ======== ======== ========
Diluted earnings per share:
Income before extraordinary item $ 0.19 $ 0.17 $ 0.16 $ 0.17
======== ======== ======== ========
Net income $ 0.17 $ 0.17 $ 0.16 $ 0.16
======== ======== ======== ========
Weighted average Common Shares-basic
(in thousands) 16,802 16,802 17,037 17,176
======== ======== ======== ========
Weighted average Common
Shares-diluted (in thousands) 28,914 24,311 24,555 27,621
======== ======== ======== ========
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31, 1998
-----------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Revenues $ 5,525 $ 7,842 $ 9,812 $17,035
======== ======== ======= =======
Income before minority interests $ 490 $ 2,058 $ 2,493 $ 4,238
Minority interests (989) (1,129) (1,154) (1,311)
-------- -------- ------- -------
Net (loss) income (499) 929 1,339 2,927
Preferred Share dividends -- -- (10) (317)
-------- -------- ------- -------
Net (loss) income available to
Common Shareholders $ (499) $ 929 $ 1,329 $ 2,610
======== ======== ======= =======
Basic (loss) earnings per share $ (0.22) $ 0.12 $ 0.13 $ 0.16
======== ======== ======= =======
Diluted (loss) earnings per share $ (0.22) $ 0.12 $ 0.12 $ 0.15
======== ======== ======= =======
Weighted average Common Shares-basic
(in thousands) 2,268 7,628 9,973 16,361
======== ======== ======= =======
Weighted average Common
Shares-diluted (in thousands) 2,294 17,731 20,065 23,868
======== ======== ======= =======
</TABLE>
16. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
We accounted for our 1999 and 1998 acquisitions using the purchase method
of accounting. We included the results of operations for the acquisitions in our
Consolidated Statements of Operations from their respective purchase dates
through December 31, 1999.
We prepared our pro forma condensed consolidated financial information
presented below as if all of our 1999 and 1998 acquisitions had occurred on
January 1, 1998. Accordingly, we were required to make pro forma adjustments
where deemed necessary. The pro forma financial information is unaudited and is
not necessarily indicative of the results which actually would have occurred if
these acquisitions had occurred on January 1, 1998, nor does it intend to
represent our results of operations for future periods.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1999 1998
------------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Pro forma total revenues $ 95,658 $ 82,227
=========== ===========
Pro forma net income available to Common Shareholders $ 12,103 $ 8,242
=========== ===========
Pro forma earnings per Common Share
Basic $ 0.71 $ 0.49
=========== ===========
Diluted $ 0.65 $ 0.48
=========== ===========
</TABLE>
37
<PAGE>
17. SUBSEQUENT EVENT
CONSTRUCTION LOAN
On February 10, 2000, we entered into a $6,900 construction loan
facility with Summit Bank to finance the redevelopment of a 57,000 square foot
warehouse facility into office space. This loan bears interest at LIBOR plus
1.75%. The loan matures on February 28, 2001 and may be extended for a two-year
period, subject to certain conditions.
38
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of
Corporate Office Properties Trust
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of Corporate
Office Properties Trust (the "Company") at December 31, 1999 and 1998, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Baltimore, Maryland
January 26, 2000
39
<PAGE>
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Our Common Shares began trading on the NYSE on April 27, 1998, under the
symbol "OFC". During the first quarter of 1998 and through April 26, 1998, our
Common Shares traded on the Nasdaq -Registered Trademark- under the symbols
"COPT" and "COPTD". The table below shows the range of the high and low sale
prices for our Common Shares as reported on the NYSE and the Nasdaq, as well as
the quarterly Common Share dividends per share declared. The quotations shown
for shares traded on Nasdaq represent interdealer prices without adjustment for
retail markups, markdowns or commissions, and may not reflect actual
transactions.
<TABLE>
<CAPTION>
PRICE RANGE
-------------------------
DIVIDENDS
1999 LOW HIGH PER SHARE
<S> <C> <C> <C>
First Quarter.................................... $6.3750 $8.3125 $0.18
Second Quarter................................... 5.8750 8.6875 0.18
Third Quarter.................................... 7.0000 9.0000 0.19
Fourth Quarter................................... 7.0625 8.2500 0.19
1998
First Quarter.................................... 9.7500 14.1250 0.15
Second Quarter................................... 8.6250 14.0000 0.15
Third Quarter.................................... 6.4375 9.9375 0.18
Fourth Quarter................................... 6.3750 8.0625 0.18
</TABLE>
The approximate number of holders of record of our shares was approximately
230 as of December 31, 1999. This number does not include shareholders whose
shares are held of record by a brokerage house or clearing agency, but does
include any such brokerage house or clearing agency as one record holder.
We will pay future dividends at the discretion of our Board of Trustees.
Our ability to pay cash dividends in the future will be dependent upon (i) the
income and cash flow generated from our operations, (ii) cash generated or used
by our financing and investing activities and (iii) the annual distribution
requirements under the REIT provisions of the Code described above and such
other factors as the Board of Trustees deems relevant. Our ability to make cash
dividends will also be limited by the terms of our Operating Partnership
Agreement and our financing arrangements as well as limitations imposed by state
law and the agreements governing any future indebtedness.
40
<PAGE>
CORPORATE OFFICE PROPERTIES TRUST
SCHEDULE III - REAL ESTATE DEPRECIATION AND AMORTIZATION
DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Initial Cost
---------------------------
Building and Land
Property Location Building Type Encumbrances Land Improvements
- --------------------------------- ---------------------- ------------- ------------ -------- -----------------
<S> <C> <C> <C> <C> <C>
751, 753 760, 785 Jolly Road Blue Bell, PA Office $ 66,232 $ 22,080 $ 88,320
2730 Hercules Road Annapolis Junction, MD Office 26,447 7,897 31,588
431 Ridge Road Dayton, NJ Office 8,351 2,782 11,128
7200 Riverwood Drive Columbia, MD Office 7,524 4,075 16,300
695 Route 46 Fairfield, NJ Office 6,809 3,730 14,919
6950 Columbia Gateway Drive Columbia, MD Office 12,007 3,586 14,343
6009 - 6011 Oxon Hill Road Oxon Hill, MD Office 6,658 3,432 13,728
9690 Deereco Road Timonium, MD Office 7,060 3,411 13,645
429 Ridge Road Dayton, NJ Office 8,794 2,930 11,719
1306 Concourse Drive Linthicum, MD Office 5,643 2,790 11,159
375 W. Padonia Road Timonium, MD Office 5,358 2,589 10,356
133 National Business Parkway Annapolis Junction, MD Office 8,422 2,515 10,060
135 National Business Parkway Annapolis Junction, MD Office 8,294 2,477 9,907
6940 Columbia Gateway Drive Columbia, MD Office 8,638 3,536 8,572
141 National Business Parkway Annapolis Junction, MD Office 8,022 2,396 9,583
134 National Business Parkway(1) Annapolis Junction, MD Office 8,167 3,672 7,446
710 Route 46 Fairfield, NJ Office 6,214 2,151 8,605
1615 and 1629 Thames Street Baltimore, MD Office 4,302 2,079 8,315
2605 Interstate Drive Harrisburg, PA Office 6,242 2,089 8,355
1302 Concourse Drive Linthicum, MD Office 3,988 2,074 8,294
900 Elkridge Landing Road Linthicum, MD Office 7,499 1,991 7,963
132 National Business Parkway(1) Annapolis Junction, MD Office 4,490 2,907 7,155
131 National Business Parkway Annapolis Junction, MD Office 6,377 1,904 7,617
2601 Market Place Harrisburg, PA Office 5,802 1,928 7,713
7467 Ridge Road Hanover, MD Office 3,085 1,623 6,492
1199 Winterson Road Linthicum, MD Office 6,017 1,597 6,389
14502 Greenview Drive Laurel, MD Office 4,782 1,428 5,712
6740 Alexander Bell Drive Columbia, MD Office 4,921 1,419 5,678
14504 Greenview Drive Laurel, MD Office 4,934 1,480 5,894
1190 Winterson Road Linthicum, MD Office 5,024 1,334 5,334
1099 Winterson Road Linthicum, MD Office 4,979 1,322 5,287
849 International Drive Linthicum, MD Office 5,087 1,350 5,401
911 Elkridge Landing Road Linthicum, MD Office 4,573 1,214 4,856
6345 Flank Drive Harrisburg, PA Office 4,559 1,320 5,254
104 Interchange Plaza Cranbury, NJ Office 2,257 1,323 5,293
8815 Centre Park Drive Columbia, MD Office 4,188 1,251 5,003
1201 Winterson Road Linthicum, MD Office 4,849 1,287 5,149
19 Commerce Cranbury, NJ Office 2,633 1,283 5,130
6340 Flank Drive Harrisburg, PA Office 4,389 1,271 5,058
4301 Route 1 Monmouth Junction, NJ Office 2,671 1,204 4,816
6716 Alexander Bell Drive Columbia, MD Office 4,293 1,238 4,953
101 Interchange Plaza Cranbury, NJ Office 1,730 1,155 4,647
322 Marlboro Street Easton, MD Office 2,825 1,157 4,628
999 Corporate Boulevard(1) Linthicum, MD Office 3,437 1,186 4,464
5035 Ritter Road Harrisburg, PA Office 3,845 1,113 4,432
6400 Flank Drive Harrisburg, PA Office 3,765 1,090 4,339
881 Elkridge Landing Road Linthicum, MD Office 3,892 1,033 4,133
921 Elkridge Landing Road Linthicum, MD Office 3,929 1,043 4,172
930 International Drive Linthicum, MD Office 3,813 980 3,918
<CAPTION>
Costs Capitalized Gross Amounts
Subsequent to Carried at Close of Accumulated Year Built or Date Depreciation
Property Acquisition Period Depreciation Renovated Acquired Life
- ----------------------------- ----------------- ------------------- ------------ ------------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
751, 753 760, 785 Jolly Road $ 19 $110,419 $ 4,889 1966/1996 10/14/97 40 Years
2730 Hercules Road -- 39,485 987 1990 9/28/98 40 Years
431 Ridge Road 6,638 20,548 734 1958/1998 10/14/97 40 Years
7200 Riverwood Drive -- 20,375 492 1986 10/13/98 40 Years
695 Route 46 1,230 19,879 625 1990 5/28/98 40 Years
6950 Columbia Gateway Drive -- 17,929 418 1998 10/21/98 40 Years
6009 - 6011 Oxon Hill Road 482 17,642 517 1990 9/28/98 40 Years
9690 Deereco Road -- 17,056 -- 1988 12/21/99 40 Years
429 Ridge Road 268 14,917 671 1966/1996 10/14/97 40 Years
1306 Concourse Drive -- 13,949 35 1990 11/18/99 40 Years
375 W. Padonia Road -- 12,945 -- 1986 12/21/99 40 Years
133 National Business Parkway 229 12,804 361 1997 9/28/98 40 Years
135 National Business Parkway 31 12,415 249 1998 12/30/98 40 Years
6940 Columbia Gateway Drive -- 12,108 35 1999 11/13/98 40 Years
141 National Business Parkway 86 12,065 325 1990 9/28/98 40 Years
134 National Business Parkway(1) -- 11,118 51 (1) 11/13/98 40 Years
710 Route 46 52 10,808 343 1985 5/28/98 40 Years
1615 and 1629 Thames Street 402 10,796 284 1989 9/28/98 40 Years
2605 Interstate Drive 46 10,490 471 1990 10/14/97 40 Years
1302 Concourse Drive -- 10,368 26 1996 11/18/99 40 Years
900 Elkridge Landing Road 177 10,131 383 1982 4/30/98 40 Years
132 National Business Parkway(1) -- 10,062 -- (1) 5/28/99 40 Years
131 National Business Parkway 281 9,802 281 1990 9/28/98 40 Years
2601 Market Place 143 9,784 430 1989 10/14/97 40 Years
7467 Ridge Road 8 8,123 108 1990 4/28/99 40 Years
1199 Winterson Road 41 8,027 269 1988 4/30/98 40 Years
14502 Greenview Drive 111 7,251 194 1988 9/28/98 40 Years
6740 Alexander Bell Drive 234 7,331 159 1992 12/31/98 40 Years
14504 Greenview Drive 317 7,691 209 1985 9/28/98 40 Years
1190 Winterson Road 448 7,116 237 1987 4/30/98 40 Years
1099 Winterson Road 401 7,010 238 1988 4/30/98 40 Years
849 International Drive 196 6,947 119 1988 2/23/99 40 Years
911 Elkridge Landing Road 648 6,718 232 1985 4/30/98 40 Years
6345 Flank Drive 69 6,643 13 1989 12/3/99 40 Years
104 Interchange Plaza 11 6,627 154 1990 10/30/98 40 Years
8815 Centre Park Drive 298 6,552 169 1987 9/28/98 40 Years
1201 Winterson Road 13 6,449 216 1985 4/30/98 40 Years
19 Commerce 34 6,447 149 1989 10/30/98 40 Years
6340 Flank Drive -- 6,329 11 1988 12/3/99 40 Years
4301 Route 1 302 6,322 82 1986 6/24/99 40 Years
6716 Alexander Bell Drive 48 6,239 121 1990 12/31/98 40 Years
101 Interchange Plaza 272 6,074 144 1985 10/30/98 40 Years
322 Marlboro Street 57 5,842 147 1977/1997 9/28/98 40 Years
999 Corporate Boulevard(1) -- 5,650 -- (1) 8/1/99 40 Years
5035 Ritter Road -- 5,545 9 1988 12/3/99 40 Years
6400 Flank Drive -- 5,429 9 1992 12/3/99 40 Years
881 Elkridge Landing Road 73 5,239 176 1986 4/30/98 40 Years
921 Elkridge Landing Road 20 5,235 174 1983 4/30/98 40 Years
930 International Drive 35 4,933 163 1986 4/30/98 40 Years
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Initial Cost
---------------------------
Building and Land
Property Location Building Type Encumbrances Land Improvements
- --------------------------------- ---------------------- ------------- ------------ -------- -----------------
<S> <C> <C> <C> <C> <C>
7321 Parkway Drive Hanover, MD Office 1,617 936 3,746
900 International Drive Linthicum, MD Office 3,690 1,012 4,049
221 National Business Parkway(1) Annapolis Junction, MD Office -- 2,945 1,975
7318 Parkway Drive Hanover, MD Office 1,580 968 3,874
939 Elkridge Landing Road Linthicum, MD Office 3,533 938 3,752
6360 Flank Drive Harrisburg, PA Office 3,137 909 3,615
1340 Ashton Road Hanover, MD Office 1,392 902 3,609
6760 Alexander Bell Drive Columbia, MD Office 3,076 887 3,549
6385 Flank Drive Harrisburg, PA Office 2,429 811 3,242
800 International Drive Linthicum, MD Office 2,916 774 3,096
47 Commerce Cranbury, NJ Office 1,279 753 3,013
1334 Ashton Road Hanover, MD Office 1,392 734 2,937
437 Ridge Road Dayton, NJ Office 2,151 717 2,866
2100 S. Broadway Minot, ND Retail 2,475 842 2,503
6405 Flank Drive Harrisburg, PA Office 2,259 654 2,604
5070 Ritter Road- Bldg A Harrisburg, PA Office 2,009 581 2,314
6380 Flank Drive Harrisburg, PA Office 2,030 588 2,339
1331 Ashton Road Hanover, MD Office 1,091 585 2,340
68 Culver Road(1) Dayton, NJ Office -- 857 1,972
5070 Ritter Road- Bldg B Harrisburg, PA Office 1,757 509 2,025
3 Centre Drive Cranbury, NJ Office 1,016 509 2,036
2 Centre Drive Cranbury, NJ Office 940 478 1,914
7 Centre Drive Cranbury, NJ Office 752 468 1,873
95 Shannon Road Harrisburg, PA Office 1,696 470 1,879
75 Shannon Road Harrisburg, PA Office 1,614 447 1,788
1304 Concourse Drive(2) Linthicum, MD Office -- 1,973 36
1350 Dorsey Road Hanover, MD Office 828 392 1,568
6750 Alexander Bell Drive(1) Columbia, MD Office -- 1,263 680
8 Centre Drive Cranbury, NJ Office 828 387 1,547
1344 Ashton Road Hanover, MD Office 715 354 1,417
1341 Ashton Road Hanover, MD Office 470 305 1,220
85 Shannon Road Harrisburg, PA Office 994 275 1,102
1343 Ashton Road Hanover, MD Office 470 193 772
6375 Flank Drive(1) Harrisburg, PA Office -- 191 731
1337 Ashton Road(2) Hanover, MD Office -- 400 12
1338 Ashton Road Hanover, MD Ground Lease 132 50 --
Furniture, Fixtures and Equipment Various N/A -- -- --
-------- -------- --------
$398,085 $148,779 $551,217
-------- -------- --------
-------- -------- --------
<CAPTION>
Costs Capitalized Gross Amounts
Subsequent to Carried at Close of Accumulated Year Built or Date Depreciation
Property Acquisition Period Depreciation Renovated Acquired Life
- ----------------------------- ----------------- ------------------- ------------ ------------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
7321 Parkway Drive 313 4,995 78 1984 4/16/99 40 Years
900 International Drive 55 5,116 169 1986 4/30/98 40 Years
221 National Business Parkway(1) -- 4,920 - (1) 10/21/99 40 Years
7318 Parkway Drive 76 4,918 72 1984 4/16/99 40 Years
939 Elkridge Landing Road 80 4,770 158 1983 4/30/98 40 Years
6360 Flank Drive -- 4,524 8 1988 12/3/99 40 Years
1340 Ashton Road -- 4,511 60 1989 4/28/99 40 Years
6760 Alexander Bell Drive 5 4,441 86 1991 12/31/98 40 Years
6385 Flank Drive -- 4,053 179 1995 10/14/97 40 Years
800 International Drive 80 3,950 129 1988 4/30/98 40 Years
47 Commerce -- 3,766 87 1992/1998 10/30/98 40 Years
1334 Ashton Road -- 3,671 49 1989 4/28/99 40 Years
437 Ridge Road 25 3,608 159 1962/1996 10/14/97 40 Years
2100 S. Broadway -- 3,345 401 1993 2/1/94 40 Years
6405 Flank Drive -- 3,258 5 1991 12/3/99 40 Years
5070 Ritter Road- Bldg A 33 2,928 5 1989 12/3/99 40 Years
6380 Flank Drive -- 2,927 5 1991 12/3/99 40 Years
1331 Ashton Road -- 2,925 39 1989 4/28/99 40 Years
68 Culver Road(1) -- 2,829 -- (1) 7/9/99 40 Years
5070 Ritter Road- Bldg B -- 2,534 4 1989 12/3/99 40 Years
3 Centre Drive -- 2,545 59 1987 10/30/98 40 Years
2 Centre Drive -- 2,392 56 1989 10/30/98 40 Years
7 Centre Drive 42 2,383 60 1989 10/30/98 40 Years
95 Shannon Road -- 2,349 20 1995 8/12/99 40 Years
75 Shannon Road -- 2,235 19 1995 8/12/99 40 Years
1304 Concourse Drive(2) -- 2,009 -- (2) 11/18/99 40 Years
1350 Dorsey Road -- 1,960 26 1989 4/28/99 40 Years
6750 Alexander Bell Drive(1) -- 1,943 -- (1) 12/31/98 40 Years
8 Centre Drive -- 1,934 45 1986 10/30/98 40 Years
1344 Ashton Road 1 1,772 24 1989 4/28/99 40 Years
1341 Ashton Road 7 1,532 20 1989 4/28/99 40 Years
85 Shannon Road -- 1,377 11 1995 8/12/99 40 Years
1343 Ashton Road -- 965 13 1989 4/28/99 40 Years
6375 Flank Drive(1) -- 922 -- (1) 11/4/99 40 Years
1337 Ashton Road(2) -- 412 -- (2) 4/28/99 40 Years
1338 Ashton Road -- 50 -- N/A 4/28/99 40 Years
Furniture, Fixtures and Equipment 335 335 124 N/A Various 3-5 Years
------- -------- -------
$14,772 $714,768 $18,279
------- -------- -------
------- -------- -------
</TABLE>
(1) Under construction at December 31, 1999.
(2) Held for future development at December 31, 1999.
<PAGE>
The following table summarizes our changes in cost of properties (in thousands):
<TABLE>
<S> <C>
Balance at December 31, 1998 $ 556,356
Property acquisitions 171,312
Building and land improvements 28,781
Other 3
Sales (41,684)
---------
Balance at December 31, 1999 $ 714,768
---------
---------
</TABLE>
The following table summarizes our changes in accumulated depreciation (in
thousands):
<TABLE>
<S> <C>
Balance at December 31, 1998 $ 9,469
Depreciation expense 11,811
Sales (3,001)
--------
Balance at December 31, 1999 $ 18,279
--------
--------
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
To the Board of Trustees and Shareholders of
Corporate Office Properties Trust:
Our audits of the consolidated financial statements referred to in our report
dated January 26, 2000 appearing in the 1999 Annual Report to Shareholders of
Corporate Office Properties Trust (which report and consolidated financial
statements are incorporated by reference in the Corporate Office Properties
Trust 1999 Annual Report on Form 10-K) also included an audit of the financial
statement schedules listed in Item 14(a)(2) of the Corporate Office Properties
Trust 1999 Annual Report on Form 10-K. In our opinion, these financial
statement schedules present fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Baltimore, Maryland
January 26, 2000
<PAGE>
EXHIBIT 21.1
CORPORATE OFFICE PROPERTIES TRUST
SUBSIDIARIES OF REGISTRANT
DELAWARE
Blue Bell Investment Company, LP
Comcourt Investors, LP
COPT Concourse, LLC
Corporate Office Properties, LP
Corporate Office Properties Holdings, Inc.
South Brunswick Investors, LP
MARYLAND
Airport Square II, LLC
Airport Square IV, LLC
Airport Square V, LLC
Airport Square X, LLC
Airport Square XI, LLC
Airport Square XIII, LLC
Airport Square XIV, LLC
Airport Square XV, LLC
Airport Square XIX, LLC
Airport Square XX, LLC
Airport Square XXI, LLC
Atrium Building, LLC
Brown's Wharf, LLC
Commons Office Research, LLC
COPT Acquisitions, Inc.
COPT Columbia, LLC
COR, LLC
Corporate Gatespring, LLC
Corporate Gatespring II, LLC
Corporate Property, LLC
Gateway 44, LLC
Lakeview at the Greens, LLC
NBP One, LLC
NBP 131-133-141, LLC
NBP 132, LLC
NBP 134, LLC
NBP 135, LLC
NBP 221, LLC
St. Barnabas, LLC
Tech Park I, LLC
Tech Park II, LLC
Tech Park IV, LLC
Three Centre Park, LLC
Tred Lightly Limited Liability Company
9690 Deereco Road, LLC
7200 Riverwood, LLC
7318 Parkway Drive Enterprises, LLC
7321 Parkway Drive Enterprises, LLC
NEW JERSEY
Princeton Executive, LLC
<PAGE>
68 Culver Road, LLC
PENNSYLVANIA
Bolivar Associates, LLC
Corporate Gateway General Partnership
COPT Gateway, LP
Gateway Central Limited Partnership
6385 Flank Drive, LP
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 (No. 333-71807), Form S-3 (No. 333-60379) and Form
S-8(No. 333-88711) of Corporate Office Properties Trust of our report dated
January 26, 2000 relating to the financial statements, which appears in the
Annual Report to Shareholders, which is incorporated in this Annual Report on
Form 10-K. We also consent to the incorporation by reference of our report dated
January 26, 2000 relating to the financial statement schedules, which appears in
this Form 10-K.
/s/ PricewaterhouseCoopers LLP
Baltimore, Maryland
March 15, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,376
<SECURITIES> 0
<RECEIVABLES> 1,928
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 714,768
<DEPRECIATION> 18,279
<TOTAL-ASSETS> 721,034
<CURRENT-LIABILITIES> 0
<BONDS> 399,627
0
22
<COMMON> 176
<OTHER-SE> 191,903
<TOTAL-LIABILITY-AND-EQUITY> 721,034
<SALES> 0
<TOTAL-REVENUES> 81,112
<CGS> 0
<TOTAL-COSTS> 34,400
<OTHER-EXPENSES> 3,204
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,783
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 20,725
<DISCONTINUED> 0
<EXTRAORDINARY> (903)
<CHANGES> 0
<NET-INCOME> 15,083
<EPS-BASIC> 0.72
<EPS-DILUTED> 0.66
</TABLE>
