AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 17, 2001
REGISTRATION STATEMENT NO. 333-59766
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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PRE-EFFECTIVE AMENDMENT NO. 2 TO
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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CORPORATE OFFICE PROPERTIES TRUST
(Exact name of Registrant as specified in its charter)
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Maryland 8815 Centre Park Drive 23-2947217
(State or other jurisdiction Suite 400 (IRS Employer
of incorporation or Columbia, Maryland 21045 Identification Number)
organization) (410) 730-9092
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
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CLAY W. HAMLIN, III
Chief Executive Officer
Corporate Office Properties Trust
8815 Centre Park Drive
Suite 400
Columbia, MD 21045
(410) 730-9092
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
John F. Bales, Esq. John H. Gurley
Morgan, Lewis & Bockius LLP Senior Vice President & General Counsel
1701 Market Street Corporate Office Properties Trust
Philadelphia, PA 19103 8815 Centre Park Drive, Suite 400
(215) 963-5478 Columbia, MD 21045
(410) 992-7247
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after the effective date of this Registration Statement.
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This Registration Statement, which is a new Registration Statement, also
constitutes Post-Effective Amendment No. 2 to Registration Statement
No. 333-60379 which was declared effective on February 4, 1999, and
Post-Effective Amendment No. 1 to Registration Statement No. 333-36740 which
was declared effective on May 24, 2000. Such Post-Effective Amendments shall
become effective concurrently with the effectiveness of this Registration
Statement and in accordance with Section 8(c) of the Securities Act of 1933,
as amended. Pursuant to Rule 429 under the Securities Act of 1933, as
amended, the Prospectus included in this Registration Statement is a combined
Prospectus and relates to this Registration Statement and Registration
Statement Nos. 333-60379 and 333-36740.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SUCH SECTION 8(A), MAY DETERMINE.
CORPORATE OFFICE PROPERTIES TRUST
22,511,173 COMMON SHARES OF BENEFICIAL INTEREST
(PAR VALUE $.01 PER SHARE)
This is an offering of Common Shares of Corporate Office Properties
Trust. Corporate Office Properties Trust is referred to in this prospectus as
"we," "us" or "COPT." The Common Shares covered by this prospectus may be
sold by certain selling shareholders identified in this prospectus. The
selling shareholders currently own 9,506,171 Common Shares of COPT covered by
this prospectus. The selling shareholders may acquire the remaining
13,005,002 Common Shares covered by this prospectus either by redeeming
limited partnership interests which they own in our operating partnership,
Corporate Office Properties, L.P., in exchange for Common Shares, or by
converting our Series A Convertible Preferred Share and Series D Convertible
Preferred Shares which they own into Common Shares. You may find information
pertaining to these shareholders and their ownership of certain Common Shares
and Convertible Preferred Shares of COPT, and their ownership of certain
limited partnership interests in our operating partnership, under the heading
"The Selling Shareholders" in this prospectus.
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BEFORE INVESTING IN THE COMMON SHARES, YOU SHOULD REVIEW THE SECTION
ENTITLED "RISK FACTORS" IN OUR MOST RECENT ANNUAL REPORT ON FORM 10-K.
Our most recent Annual Report on Form 10-K can be obtained from us or the
Securities and Exchange Commission as provided under the heading "Where You Can
Find More Information" in this prospectus.
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Our Common Shares are listed on the New York Stock Exchange under the
symbol "OFC." To ensure that we maintain our qualification as a real estate
investment trust, ownership by any person is limited to 9.8% of the lesser of
the number or value of outstanding Common Shares, with certain exceptions.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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We are registering most of these shares as required under the terms of
certain agreements between the selling shareholders and us to make the Common
Shares freely tradable. Registration of these Common Shares does not necessarily
mean that any of the shares will be offered or sold by the selling shareholders.
We will receive no proceeds of any sales of these Common Shares, but will incur
expenses in connection with the offering.
The selling shareholders from time to time may offer and sell the shares
held by them directly or through agents or broker-dealers on terms to be
determined at the time of sale. To the extent required, the names of any agent
or broker-dealer and applicable commissions or discounts and any other required
information with respect to any particular offer will be set forth in a
prospectus supplement which will accompany this prospectus. The prospectus
supplement also may add, update or change information contained in this
prospectus.
The date of this prospectus is May 17, 2001
TABLE OF CONTENTS
SUMMARY................................................................3
OUR COMPANY............................................................3
FORWARD-LOOKING STATEMENTS.............................................3
THE SELLING SHAREHOLDERS...............................................4
DESCRIPTION OF SHARES..................................................6
FEDERAL INCOME TAX MATTERS............................................22
PLAN OF DISTRIBUTION..................................................32
EXPERTS...............................................................33
LEGAL MATTERS.........................................................33
WHERE YOU CAN FIND MORE INFORMATION...................................33
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SUMMARY
THIS PROSPECTUS SUMMARY CALLS YOUR ATTENTION TO SELECTED INFORMATION IN
THIS DOCUMENT, BUT IT DOES NOT CONTAIN ALL THE INFORMATION THAT IS IMPORTANT TO
YOU. TO UNDERSTAND US AND THE SECURITIES THAT MAY BE OFFERED THROUGH THIS
PROSPECTUS, YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY AND THE DOCUMENTS TO
WHICH WE REFER YOU IN THE SECTION CALLED "WHERE YOU CAN FIND MORE INFORMATION"
IN THIS PROSPECTUS, ESPECIALLY OUR MOST RECENT ANNUAL REPORT ON FORM 10-K,
INCLUDING THE SECTION OF THAT REPORT ENTITLED "RISK FACTORS".
OUR COMPANY
GENERAL. We are a fully-integrated and self-managed real estate investment
trust ("REIT") that focuses principally on the ownership, management, leasing,
acquisition and development of suburban office buildings located in select
submarkets in the Mid-Atlantic region of the United States.
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. We own a majority of the
outstanding Common Units and a majority of the outstanding Preferred Units. The
remaining Common and Preferred Units in our operating partnership are owned by
third parties, which include certain of our officers and Trustees.
We believe that we are organized and have operated in a manner that
permits us to satisfy the requirements for taxation as a REIT under the Internal
Revenue Code of 1986, as amended, and we intend to continue to operate in such a
manner. If we qualify for taxation as a REIT, we generally will not be subject
to federal income tax on our taxable income that is distributed to our
shareholders. A REIT is subject to a number of organizational and operational
requirements, including a requirement that it currently distribute to its
shareholders at least 90% of its annual taxable income (excluding net capital
gains).
Our executive offices are located at 8815 Centre Park Drive, Suite 400,
Columbia, Maryland 21045 and our telephone number is (410) 730-9092.
FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS AND THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN CONTAIN
"FORWARD-LOOKING" STATEMENTS, WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT 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 OUR BUSINESS. STATEMENTS THAT ARE NOT
HISTORICAL FACTS, INCLUDING STATEMENTS ABOUT OUR BELIEFS AND EXPECTATIONS, ARE
FORWARD-LOOKING STATEMENTS. THESE STATEMENTS ARE NOT GUARANTEES OF FUTURE
PERFORMANCE, EVENTS OR RESULTS AND INVOLVE POTENTIAL RISKS AND UNCERTAINTIES.
ACCORDINGLY, ACTUAL RESULTS MAY DIFFER MATERIALLY. WE UNDERTAKE NO OBLIGATION TO
UPDATE FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION,
FUTURE EVENTS OR OTHERWISE.
IMPORTANT FACTS THAT MAY AFFECT THESE EXPECTATIONS, ESTIMATES OR
PROJECTIONS INCLUDE, BUT ARE NOT LIMITED TO: OUR ABILITY TO BORROW ON FAVORABLE
TERMS; GENERAL ECONOMIC AND BUSINESS CONDITIONS, WHICH WILL, AMONG OTHER THINGS
AFFECT OFFICE PROPERTY DEMAND AND RENTS, TENANT CREDITWORTHINESS, INTEREST RATES
AND FINANCING AVAILABILITY; ADVERSE CHANGES IN THE REAL ESTATE MARKETS
INCLUDING, AMONG OTHER THINGS, COMPETITION WITH OTHER COMPANIES; RISKS OF REAL
ESTATE ACQUISITION AND DEVELOPMENT; GOVERNMENTAL ACTIONS AND INITIATIVES;
ENVIRONMENTAL REQUIREMENTS; AND THE OTHER FACTORS DESCRIBED IN OUR MOST RECENT
ANNUAL REPORT ON FORM 10-K UNDER THE HEADING "RISK FACTORS".
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THE SELLING SHAREHOLDERS
The following table provides the names of the selling shareholders and
information with respect to their share holdings as of March 31, 2001. The
number of Preferred and Common Units set forth under those headings in the
table below represents units of limited partnership interests in our
operating partnership which could be redeemed by the holder and, if we
approve, exchanged for Common Shares. The number of shares set forth under
the heading "Total Common Shares" in the table below represents the maximum
number of Common Shares that may be offered from time to time by the selling
shareholders or their donees or pledgees, and assumes the conversion of all
Preferred Units into Common Units and the exchange of all Common Units by the
holder for Common Shares and further assumes the conversion of all Preferred
Shares into Common Shares by the holder of Preferred Shares as of March 31,
2001.
Because the selling shareholders may sell or otherwise transfer less than
all of their securities pursuant to this prospectus or otherwise or may not
tender their units in exchange for Common Shares, we cannot estimate the number
and percentage of Common Shares that will be held by each selling shareholder
after this offering.
TOTAL
PREFERRED COMMON PREFERRED COMMON COMMON
UNITS(1) UNITS(2) SHARES SHARES SHARES
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Jay H. Shidler(3) ........................ 452,878 300,000 752,878
Shidler Equities L.P.(3) ................. 2,995,439 2,995,439
Clay W. Hamlin, III(3) ................... 587,292 300,000 887,292
Lynn B. Hamlin(3) ........................ 121,411 121,411
LBCW Limited Partnership(3) .............. 3,246,007 3,246,007
Anthony Muscatello ....................... 90,905 90,905
Robert L. Denton(3) ...................... 434,910 434,910
James K. Davis(3) ........................ 51,589 51,589
John E. de B. Blockey, Trustee of the
John E. de Blockey Trust ............. 300,625 300,625
Henry D. Bullock ......................... 116,553 116,553
The Frederick K. Ito Trust ............... 29,140 29,140
The June Y. I. Ito ....................... 29,135 29,135
Reger Investment Fund Ltd. ............... 268,671 268,671
Samuel Tang .............................. 22,889 22,889
Denise J. Liszewski(3) ................... 34,333 34,333
David P. Hartsfield(3) ................... 30,519 30,519
Lawrence J. Taff ......................... 13,733 13,733
Kimberly F. Aquino ....................... 5,874 5,874
Enterprise Nautical, Inc.(3) ............. 50,000 30,000 80,000
Constellation Real Estate, Inc.(4) ....... 1 8,876,171 8,876,173
M.O.R. XXIX Associates L.P. .............. 148,381 148,381
John E. de B. Blockey and Sanda Juanita ..
Blockey ............................... 50,476 50,476
John Parsinen ............................ 90,000 90,000
John D. Parsinen, Jr ..................... 10,000 10,000
New Parkway Domain Group Enterprises, LLC 206,768 206,768
United Properties Group, Incorporated .... 1,016,662 2,420,672
Barony Trust Limited(5) .................. 544,000 1,196,800
---------- ---------- ---------- ---------- ----------
Total ................................ 1,016,662 9,387,528 544,001 9,506,171 22,511,173
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(1) Preferred Units may be converted into Common Units of our operating
partnership on the basis of 2.381 Common Units (subject to adjustment) for each
Preferred Unit being converted plus an amount of cash equal to any accrued
"priority return amount" as defined in the agreement governing our operating
partnership.
(2) Each holder of Common Units in our operating partnership has the right to
require the operating partnership to redeem all or a portion of such units. Our
operating partnership has the right, in its sole discretion, to deliver to such
redeeming holder for each Common Unit either one Common Share (subject to
adjustment) or a cash payment equal to the then fair market value of such share
determined as provided in the operating partnership agreement.
(3) Jay H. Shidler is the Chairman of the Board of COPT and is the controlling
partner of Shidler Equities L.P. Clay W. Hamlin, III is a Trustee and Chief
Executive Officer of COPT and is the controlling partner of LBCW Limited
Partnership. Lynn B. Hamlin is Clay W. Hamlin's wife. Robert L. Denton is a COPT
Trustee. James K. Davis is Vice President, Acquisitions of COPT. David P.
Hartsfield served as Vice President of Development of Corporate Development
Services, LLC, a wholly owned subsidiary of COMI, within the past three years.
Vernon R. Beck, who owns all of the stock of Enterprise Nautical, Inc, served as
Vice Chairman of the Board of COPT within the past three years. Denise J.
Liszewski has been the Vice President, Administration of COPT within the past
three years and is currently an Assistant Secretary of COPT.
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(4) Constellation Real Estate, Inc.'s Preferred Share is designated as a Series
A Preferred Share. Two of our Trustees have been designated by Constellation
Real Estate, Inc. pursuant to the terms of this Series A Preferred Share. The
Series A Preferred Share is presently convertible into 1.8748 Common Shares for
every one Series A Preferred Share. For more information on the conversion of
the Series A Preferred Share, you should refer to the discussion under the
heading "Description of Shares - Series A Preferred Shares" in this prospectus.
(5) Barony Trust Limited's Preferred Shares are designated as Series D Preferred
Shares. The Series D Preferred Shares are convertible into 2.2 Common Shares for
every one Series D Preferred Share at any time by the holder after December 31,
2003. For more information on the conversion of the Series D Preferred Shares,
you should refer to the discussion under the heading "Description of Shares -
Series D Preferred Shares" in this prospectus.
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DESCRIPTION OF SHARES
THE FOLLOWING SUMMARY OF THE TERMS OF OUR SECURITIES DOES NOT PURPORT TO
BE COMPLETE AND IS SUBJECT TO AND QUALIFIED IN ITS ENTIRETY BY REFERENCE TO OUR
DECLARATION OF TRUST AND BYLAWS, COPIES OF WHICH ARE EXHIBITS TO THE
REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A PART.
GENERAL
Our Declaration of Trust provides that we may issue up to 45,000,000
Common Shares and 5,000,000 Preferred Shares of beneficial interest, par value
$0.01 per share (the "Preferred Shares"). Information with respect to the number
of Common and Preferred Shares which are issued and outstanding as of a recent
date can be found in our Annual Reports on Form 10-K and our Quarterly Reports
on Form 10-Q, which may be obtained as provided under the heading "Where You Can
Find More Information" in this prospectus. Our Declaration of Trust contains a
provision permitting our Board of Trustees, without any action by our
shareholders, to amend the Declaration of Trust to increase or decrease the
aggregate number of shares of beneficial interest or the number of shares of any
class of shares of beneficial interest that we have authority to issue. The
additional shares of beneficial interest, which could include Common Shares and
one or more classes of Preferred Shares, are available for issuance without
further action by our shareholders, subject to the requirements of the New York
Stock Exchange ("NYSE").
Both Title 8 of the Corporations and Associations Article of the Annotated
Code of Maryland, as amended (the "Maryland REIT Law") and the Declaration of
Trust provide that no shareholder of COPT will be personally liable for any of
our obligations solely as a result of such shareholder's status as our
shareholder. Our Declaration of Trust provides that the Board of Trustees has
the power, to the maximum extent permitted by Maryland law in effect from time
to time, to obligate us to indemnify and to pay or reimburse reasonable expenses
in advance of a final disposition of a proceeding to, any shareholder or any
former shareholder from and against any claim or liability to which such person
may become subject or which such person may incur by reason of his status as a
present or former shareholder of COPT. Our Bylaws obligate us, to the maximum
extent permitted by Maryland law, to indemnify any shareholder or any former
shareholder (including, without limitation, any individual who, while a
shareholder and at our request, serves or has served another real estate
investment trust, corporation, partnership, joint venture, trust, employee
benefit plan or any other enterprise as a trustee, director, officer, partner,
employee or agent of such real estate investment trust, corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise)
who has been successful, on the merits or otherwise, in the defense of a
proceeding to which he was made a party by reason of being a shareholder,
against reasonable expenses incurred by him in connection with the proceeding.
Inasmuch as we carry public liability insurance which we consider adequate, any
risk of personal liability to shareholders not covered by the Maryland REIT Law
is limited to situations in which our assets plus our insurance coverage would
be insufficient to satisfy the claims against us and our shareholders.
COMMON SHARES
All Common Shares offered hereby are duly authorized, fully paid and
nonassessable. Subject to the preferential rights of our Series A, B and D
Preferred Shares and any other shares or series of beneficial interest which we
may issue in the future and to the provisions of our Declaration of Trust
regarding the restriction on transfer of Common Shares, holders of Common Shares
are entitled to receive dividends on such shares if, as and when authorized and
declared by the Board of Trustees out of assets legally available therefor and
to share ratably in our assets legally available for distribution to our
shareholders in the event of the liquidation, dissolution or winding-up of COPT
after payment of, or adequate provision for, all of our known debts and
liabilities.
Subject to the provisions of our Declaration of Trust regarding
restrictions on transfer of shares of beneficial interest, each outstanding
Common Share entitles the holder thereof to one vote on all matters submitted to
a vote of shareholders, including the election of Trustees, and, except as
provided with respect to any other class or series of shares of beneficial
interest, the holders of such Common Shares possess the exclusive voting power.
There is no cumulative voting in the election of Trustees, which means that the
holders of a majority of the outstanding Common Shares can elect all of the
Trustees then standing for election. The Declaration of Trust provides for the
election of Trustees to staggered three-year terms. See the section below
entitled "Classification of Board, Vacancies and Removal
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of Trustees." As of the date of this prospectus, Constellation Real Estate, Inc.
is entitled to appoint two of our Trustees. See section below entitled
"Description of Shares-Series A Preferred Shares".
Holders of Common Shares have no preference, conversion, sinking fund,
redemption or appraisal rights and have no preemptive rights to subscribe for
any of our securities. Subject to the provisions of the Declaration of Trust
regarding the restriction on transfer of Common Shares, the Common Shares have
equal dividend, distribution, liquidation and other rights.
Our Declaration of Trust provides for approval by a majority of the votes
cast by holders of Common Shares entitled to vote on the matter in all
situations permitting or requiring action by the shareholders, except with
respect to: (i) the election of Trustees (which requires a plurality of all the
votes cast at a meeting of our shareholders at which a quorum is present), (ii)
the removal of Trustees (which requires the affirmative vote of the holders of
two-thirds of the outstanding shares of beneficial interest entitled to vote
generally in the election of Trustees, which action can only be taken for cause
by vote at a shareholder meeting), (iii) the merger of COPT with another entity
or the sale (or other disposition) of all or substantially all of the assets of
COPT (which requires the affirmative vote of the holders of two-thirds of the
outstanding shares of beneficial interest entitled to vote on the matter), (iv)
the amendment of the Declaration of Trust (which requires the affirmative vote
of two-thirds of all the votes entitled to be cast on the matter), (v) the
termination of COPT (which requires the affirmative vote of two-thirds of the
outstanding shares of beneficial interest entitled to be cast on the matter);
and (vi) certain voting rights of Constellation Real Estate, Inc. (See section
below entitled Description of Shares-Series A Preferred Shares"). Our
Declaration of Trust permits the Trustees, without any action by the holders of
Common Shares, (a) by a two-thirds vote, to amend the Declaration of Trust from
time to time to qualify as a real estate investment trust under the Code or the
Maryland REIT Law and (b) by a majority vote to amend the Declaration of Trust
to increase or decrease the aggregate number of shares of beneficial interest or
the number of shares of any class of shares of beneficial interest that we have
authority to issue.
CLASSIFICATION OR RECLASSIFICATION OF COMMON SHARES OR PREFERRED SHARES
Our Declaration of Trust authorizes the Board of Trustees to reclassify
any unissued shares of Common or Preferred Shares into other classes or series
of classes of shares and to establish the number of shares in each class or
series and to set the preferences, conversion and other rights, voting powers,
restrictions, limitations and restrictions on ownership, limitations as to
dividends or other distributions, qualifications and terms or conditions of
redemption for each such class or series. Thus, in addition to the Series A
Preferred Shares, Series B Preferred Shares and Series D Preferred Shares, the
Board of Trustees could authorize the issuance of other Preferred Shares with
terms and conditions which could also have the effect of delaying, deferring or
preventing a change in control of COPT or other transaction that might involve a
premium over the then prevailing market price for Common Shares or other
attributes that the shareholders may consider to be desirable.
PREFERRED SHARES
Of the 5,000,000 Preferred Shares authorized, 1,025,000 preferred shares
have been classified as Series A Preferred Shares, 1,725,000 shares have been
classified as Series B Preferred Shares, 544,000 shares have been classified as
Series D Preferred Shares and 1,265,000 shares have been classified as Series E
Preferred Shares.
SERIES A PREFERRED SHARES
We issued 984,308 Series A Preferred Shares to Constellation Real Estate,
Inc. in 1998. We contributed the proceeds from the issuance of the Series A
Preferred Shares to our operating partnership in exchange for a number of Series
A Preferred Units equal to the number of Series A Preferred Shares that we
issued. The terms of the Series A Preferred Units are substantially equivalent
to the economic terms of the Series A Preferred Shares. The Series A Preferred
Shares are convertible into Common Shares on the basis of 1.8748 Common Shares
for each Series A Preferred Share. During September 2000, Constellation Real
Estate, Inc. converted 984,307 of its 984,308 shares into 1,845,378 Common
Shares, leaving only one Series A Preferred Share outstanding. Simultaneously,
an equivalent number of Series A Preferred Units which we held in our operating
partnership were converted into Common Units of the operating partnership.
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So long as Constellation Real Estate, Inc. holds the Series A Preferred
Share (and it beneficially owns at least 30% of the Common Shares), it will have
the right to designate up to two Trustees to our Board of Trustees. If
Constellation Real Estate, Inc.'s Common Share beneficial holdings fall below
30% but remain above 15%, it may designate one Trustee. The affirmative vote of
Constellation Real Estate, Inc. as the holder of the Series A Preferred Shares
is required for any issuance or sale by COPT of greater than $50 million in
Common Shares at a price less than $9.50 per share. Except as set forth above
and as required by applicable law, the Series A Preferred Share does not entitle
the holder thereof to any vote.
The holder of the Series A Preferred Shares has nominal dividend and
liquidation rights.
SERIES B PREFERRED SHARES
We issued 1,250,000 Series B Preferred Shares in a public offering in
1999. We contributed the proceeds of the Series B Preferred Share offering to
our operating partnership in exchange for a number of Series B Preferred Units
equal to the number of Series B Preferred Shares that we sold in the offering.
The terms of the Series B Preferred Units are substantially equivalent to the
economic terms of the Series B Preferred Shares. The terms of the Series B
Preferred Shares are as follows:
RANKING. The Series B Preferred Shares, with respect to dividend rights and
rights upon our liquidation, dissolution or winding up, rank (i) prior or senior
to the Common Shares and any other class or series of our equity securities
authorized or designated in the future if the holders of Series B Preferred
Shares shall be entitled to the receipt of dividends or of amounts distributable
upon liquidation, dissolution or winding up in preference or priority to the
holders of shares of such class or series ("Junior Shares"); (ii) on a parity
with the Series A Preferred Share, the Series D Preferred Shares and the Series
E Preferred Shares and any other class or series of our equity securities
authorized or designated in the future if the holders of such class or series of
securities and the Series B Preferred Shares shall be entitled to the receipt of
dividends and of amounts distributable upon liquidation, dissolution or winding
up in proportion to their respective amounts of accrued and unpaid dividends per
share or liquidation preferences, without preference or priority of one over the
other ("Parity Shares"); and (iii) junior to any class or series of our equity
securities authorized or designated in the future if the holders of such class
or series shall be entitled to the receipt of dividends and amounts
distributable upon liquidation, dissolution or winding up in preference or
priority to the holders of the Series B Preferred Shares ("Senior Shares").
DIVIDENDS. Holders of Series B Preferred Shares are entitled to receive, when
and as declared by our Board of Trustees, out of our funds legally available for
payment, quarterly cash dividends on the Series B Preferred Shares at the rate
of $2.50 per year per Series B Preferred Share. Such dividends are cumulative
from the date of original issue, whether or not in any dividend period or
periods such dividends shall be declared or there shall be funds legally
available for the payment of such dividends, and are payable quarterly on
January 15, April 15, July 15 and October 15 of each year (or, if not a business
day, the next succeeding business day) (each a "Dividend Payment Date"). Any
dividend payable on the Series B Preferred Shares for any partial dividend
period will be computed ratably on the basis of twelve 30-day months and a
360-day year. Dividends are payable in arrears to holders of record as they
appear on our share records at the close of business on the applicable record
date, which are fixed by our Board of Trustees and which are not more than 60
nor less than 10 days prior to such Dividend Payment Date. Holders of Series B
Preferred Shares are not entitled to receive any dividends in excess of
cumulative dividends on the Series B Preferred Shares. No interest, or sum of
money in lieu of interest, shall be payable in respect to any dividend payment
or payments on the Series B Preferred Shares that may be in arrears.
When dividends are not paid in full upon the Series B Preferred Shares or
any other class or series of Parity Shares, or a sum sufficient for such payment
is not set apart, all dividends declared upon the Series B Preferred Shares and
any Parity Shares shall be declared ratably in proportion to the respective
amounts of dividends accrued and unpaid on the Series B Preferred Shares and
accrued and unpaid on such Parity Shares. Except as set forth in the preceding
sentence, unless dividends on the Series B Preferred Shares equal to the full
amount of accrued and unpaid dividends have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof has
been or contemporaneously is set apart for such payment, for all past dividend
periods, no dividends shall be declared or paid or set apart for payment by us
and no other distribution of cash or other property may be declared or made,
directly or indirectly, by us with respect to any Parity Shares. Unless
dividends equal to the full amount of all accrued and unpaid dividends on the
Series B Preferred Shares have been paid, or declared and set apart for payment,
for all
8
past dividend periods, no dividends (other than dividends or distributions paid
in Junior Shares or options, warrants or rights to subscribe for or purchase
Junior Shares) may be declared or paid or set apart for payment by us and no
other distribution of cash or other property may be declared or made, directly
or indirectly, by us with respect to any Junior Shares, nor shall any Junior
Shares be redeemed, purchased or otherwise acquired (except for a redemption,
purchase or other acquisition of Common Shares made for purposes of our employee
incentive or benefit plan or any such plan of any of our subsidiaries) for any
consideration (or any monies be paid to or made available for a sinking fund for
the redemption of any such Junior Shares), directly or indirectly, by us (except
by conversion into or exchange for Junior Shares, or options, warrants or rights
to subscribe for or purchase Junior Shares), nor shall any other cash or other
property be paid or distributed to or for the benefit of holders of Junior
Shares. Notwithstanding the provisions described above, we shall not be
prohibited from (i) declaring or paying or setting apart for payment any
dividend or distribution on any Parity Shares or (ii) redeeming, purchasing or
otherwise acquiring any Parity Shares, in each case, if such declaration,
payment, redemption, purchase or other acquisition is necessary to maintain our
qualification as a REIT.
LIQUIDATION PREFERENCE. Upon any voluntary or involuntary liquidation,
dissolution or winding up, before any payment or distribution by us shall be
made to or set apart for the holders of any Junior Shares, the holders of Series
B Preferred Shares shall be entitled to receive a liquidation preference of
$25.00 per share (the "Series B Liquidation Preference"), plus an amount equal
to all accrued and unpaid dividends (whether or not earned or declared) to the
date of final distribution to such holders; but such holders shall not be
entitled to any further payment. Until the holders of the Series B Preferred
Shares have been paid the Series B Liquidation Preference in full, plus an
amount equal to all accrued and unpaid dividends (whether or not earned or
declared) to the date of final distribution to such holders, no payment shall be
made to any holder of Junior Shares upon our liquidation, dissolution or winding
up. If upon any liquidation, dissolution or winding up, our assets, or proceeds
thereof, distributable among the holders of Series B Preferred Shares shall be
insufficient to pay in full the above described preferential amount and
liquidating payments on any other shares of any class or series of Parity
Shares, then our assets, or the proceeds thereof, shall be distributed among the
holders of Series B Preferred Shares and any such other Parity Shares ratably in
the same proportion as the respective amounts that would be payable on such
Series B Preferred Shares and any such other Parity Shares if all amounts
payable thereon were paid in full. A voluntary or involuntary liquidation,
dissolution or winding up shall not include a consolidation or merger of us with
or into one or more other entities, a sale or transfer of all or substantially
all of our assets or a statutory share exchange. Upon any liquidation,
dissolution or winding up, after payment shall have been made in full to the
holders of Series B Preferred Shares and any Parity Shares, any other series or
class or classes of Junior Shares shall be entitled to receive any and all of
our assets remaining to be paid or distributed, and the holders of the Series B
Preferred Shares and any Parity Shares shall not be entitled to share therein.
OPTIONAL REDEMPTION. The Series B Preferred Shares will not be redeemable by us
prior to July 15, 2004 (except in certain limited circumstances relating to our
maintenance of our ability to qualify as a REIT as described in the section
entitled "Restrictions on Transfer"). On or after July 15, 2004, we may, at our
option, redeem the Series B Preferred Shares, in whole or from time to time in
part, at a cash redemption price equal to 100% of the Series B Liquidation
Preference, plus all accrued and unpaid dividends, if any, to the redemption
date. The redemption price for the Series B Preferred Shares (other than any
portion thereof consisting of accrued and unpaid dividends) shall be payable
solely with the proceeds from the sale of equity securities by us or our
Operating Partnership (whether or not such sale occurs concurrently with such
redemption). For purposes of the preceding sentence, "equity securities" means
any Common Shares, preferred shares, depositary shares, partnership or other
interests, participations or other ownership interests (however designated) and
any rights (other than debt securities convertible into or exchangeable at the
option of the holder for equity securities unless and to the extent such debt
securities are subsequently converted into equity securities) or options to
purchase any of the foregoing of or in us or our Operating Partnership.
In the event of a redemption of any Series B Preferred Shares, if the
redemption date occurs after a dividend record date and on or prior to the
related Dividend Payment Date, the dividend payable on such Dividend Payment
Date in respect of such Series B Preferred Shares called for redemption shall be
payable on such Dividend Payment Date to the holders of record at the close of
business on such dividend record date, and shall not be payable as part of the
redemption price for such Series B Preferred Shares. The redemption date shall
be selected by us and shall not be less than 30 days nor more than 60 days after
the date notice of redemption is sent by us. If full cumulative dividends on all
outstanding Series B Preferred Shares have not been paid or declared and set
apart for payment, no Series B Preferred Shares may be redeemed unless all
outstanding Series B Preferred Shares are simultaneously redeemed and
9
neither we nor any of our affiliates may purchase or acquire Series B Preferred
Shares otherwise than pursuant to a purchase or exchange offer made on the same
terms to all holders of Series B Preferred Shares.
If fewer than all the outstanding Series B Preferred Shares are to be
redeemed, we will select those Series B Preferred Shares to be redeemed pro rata
in proportion to the numbers of Series B Preferred Shares held by holders (with
adjustment to avoid redemption of fractional shares) or by lot or in such other
manner as the Board of Trustees may determine.
Notice of redemption will be given by publication in a newspaper of
general circulation in the City of New York, such publication to be made once a
week for two consecutive weeks commencing not less than 30 nor more than 60 days
prior to the redemption date. A similar notice shall be mailed by us not less
than 30 days nor more than 60 days prior to the redemption date to each holder
of record of the Series B Preferred Shares to be redeemed by first class mail,
postage prepaid at such holder's address as the same appears on our share
records. Any notice which was mailed as described above shall be conclusively
presumed to have been duly given on the date mailed whether or not the holder
receives the notice. Each notice shall state: (i) the redemption date; (ii) the
number of Series B Preferred Shares to be redeemed; (iii) the place or places
where certificates for such Series B Preferred Shares are to be surrendered for
cash; and (iv) the redemption price payable on such redemption date, including,
without limitation, a statement as to whether or not accrued and unpaid
dividends will be (x) payable as part of the redemption price, or (y) payable on
the next Dividend Payment Date to the record holder at the close of business on
the relevant record date as described above. From and after the redemption date
(unless we shall default in the payment of our redemption obligation), dividends
on the Series B Preferred Shares to be redeemed will cease to accrue, such
shares shall no longer be deemed to be outstanding and all rights of the holders
thereof shall cease (except (a) the right to receive the cash payable upon such
redemption without interest thereon, and (b) if the redemption date occurs after
a dividend record date and on or prior to the related Dividend Payment Date, the
right of record holders at the close of business on such record date to receive
the dividend payable on such Dividend Payment Date).
The Series B Preferred Shares will have no stated maturity and will not be
subject to any sinking fund or mandatory redemption provisions except as
provided under the section entitled "Restrictions on Transfer."
Subject to applicable law and the limitation on purchases when dividends
on the Series B Preferred Shares are in arrears, we may, at any time and from
time to time, purchase any Series B Preferred Shares in the open market, by
tender or by private agreement.
VOTING RIGHTS. Holders of Series B Preferred Shares will not have any voting
rights, except as set forth below and except as otherwise required by applicable
law.
If and whenever dividends on any Series B Preferred Shares or any series
or class of Parity Shares shall be in arrears for six or more quarterly periods
(whether or not consecutive), the number of Trustees then constituting our Board
of Trustees shall be increased by two (if not already increased by reason of
similar types of provisions with respect to Parity Shares of any other class or
series which is entitled to similar voting rights (the "Voting Parity Shares")),
and the holders of Series B Preferred Shares, together with the holders of all
other Voting Parity Shares then entitled to exercise similar voting rights,
voting as a single class regardless of series, will be entitled to vote for the
election of the two additional Trustees at any annual meeting of shareholders or
at a special meeting of the holders of the Series B Preferred Shares and of the
Voting Parity Shares called for that purpose. At any time when such right to
elect Trustees separately shall have so vested, we must call such special
meeting upon the written request of the holders of record of not less than 20%
of the total number of Series B Preferred Shares and shares of any series of
Voting Parity Shares then outstanding. Such special meeting shall be held, in
the case of such written request, within 90 days after the delivery of such
request, provided that we shall not be required to call such a special meeting
if such request is received less than 120 days before the date fixed for the
next ensuing annual meeting of shareholders and the holders of Series B
Preferred Shares and such other Voting Parity Shares are offered the opportunity
to elect such Trustees at such annual meeting of shareholders. If, prior to the
end of the term of any Trustee so elected, a vacancy in the office of such
Trustee shall occur by reason of death, resignation, or disability, such vacancy
shall be filled for the unexpired term of such former Trustee by the appointment
of a new Trustee by the remaining Trustee or Trustees so elected. Whenever
dividends in arrears on outstanding Series B Preferred Shares and Voting Parity
Shares shall have been paid and dividends thereon for the current quarterly
dividend period shall have been paid or declared and set apart for payment, then
the right of the holders of the Series B Preferred Shares and Voting Parity
Shares to elect such additional two
10
Trustees shall cease and the terms of office of such Trustees shall terminate
and the number of Trustees constituting our Board of Trustees shall be reduced
accordingly. Series A Preferred Shares are not Voting Parity Shares. The holder
of the Series A Preferred Shares, as a separate class, is entitled to elect two
additional Trustees if we shall fail at any time or from time to time to pay
when due two consecutive quarterly dividend payments on the Series A Preferred
Shares, and such Trustees are entitled to serve as Trustees thereafter until all
accrued and unpaid dividends on the Series A Preferred Shares have been paid in
full.
The affirmative vote or consent of at least two-thirds of the votes
entitled to be cast by the holders of the outstanding Series B Preferred Shares
and the holders of all other classes or series of Voting Parity Shares entitled
to vote on such matters, voting as a single class, will be required to (i)
authorize, create, increase the authorized amount of, or issue any shares of any
class of Senior Shares or any security convertible into shares of any class of
Senior Shares, or (ii) amend, alter or repeal any provision of, or add any
provision to, our Declaration of Trust or Bylaws, if such action would
materially adversely affect the voting powers, rights or preferences of the
holders of the Series B Preferred Shares; provided, however, that no such vote
of the holders of Series B Preferred Shares shall be required if, at or prior to
the time such amendment, alteration or repeal is to take effect or the issuance
of any such Senior Shares or convertible security is to be made, as the case may
be, provisions are made for the redemption of all outstanding Series B Preferred
Shares. The amendment of or supplement to our Declaration of Trust to authorize,
create, increase or decrease the authorized amount of or to issue Junior Shares,
Series B Preferred Shares or any shares of any class of Parity Shares shall not
be deemed to materially adversely affect the voting powers, rights or
preferences of the holders of Series B Preferred Shares.
With respect to the exercise of the above-described voting rights, each
Series B Preferred Share has one (1) vote per share, except that when any other
class or series of preferred shares shall have the right to vote with the Series
B Preferred Shares as a single class, then the Series B Preferred Shares and
such other class or series shall have one quarter of one (0.25) vote per $25.00
of liquidation preference.
CONVERSION. The Series B Preferred Shares are not convertible into or
exchangeable for any other property or securities.
SERIES D PREFERRED SHARES
The outstanding 544,000 Series D Preferred Shares were issued in a private
placement to a private investor on January 25, 2001. We contributed the proceeds
from the sale of the Series D Preferred Shares to our operating partnership in
exchange for a number of Series D Preferred Units equal to the number of Series
D Preferred Shares that we sold in the private placement. The terms of the
Series D Units are substantially equivalent to the economic terms of the Series
D Preferred Shares. The terms of the Series D Preferred Shares are as follows:
RANKING The Series D Preferred Shares, with respect to dividend rights and
rights upon our liquidation, dissolution or winding up, rank (i) prior or senior
to any Junior Shares; (ii) on a parity with all other Parity Shares; and (iii)
junior to any Senior Shares.
DIVIDENDS Holders of the Series D Preferred Shares are entitled to receive, when
and as declared by our Board of Trustees, out of our funds legally available for
payment, quarterly cash dividends on the Series D Preferred Shares at a rate of
$1.00 per year per Series D Preferred Share. Such dividends are cumulative from
the date of original issue, whether or not in any dividend period or periods
such dividends have been declared or there are funds legally available for the
payment of such dividends, and are payable quarterly on January 15, April 15,
July 15 and October 15 of each year (or if not a business day, the next
succeeding business day) (each a "Dividend Period"). Any dividend payable on the
Series D Preferred Shares for any partial dividend period will be computed
ratably on the basis of twelve 30-day months and a 360-day year. Dividends are
payable in arrears to holders of record as they appear on our share records at
the close of business on the applicable record date, which are fixed by the
Board of Trustees and which are not more than 60 nor more than 10 days prior to
such Dividend Payment Date. Holders of Series D Preferred Shares are not
entitled to receive any dividends in excess of cumulative dividends on the
Series D Preferred Shares. No interest, or sum of money in lieu of interest,
will be payable in respect to any dividend payment or payments on the Series D
Preferred Shares that may be in arrears.
11
When dividends are not paid in full upon the Series D Preferred Shares or
any other class or series of Parity Shares or a sum sufficient for such payment
is not set apart, all dividends declared upon the Series D Preferred Shares and
any Parity Shares will be declared ratably, in proportion to the respective
amounts of dividends accrued and unpaid on the Series D Preferred Shares and
accrued and unpaid on such Parity Shares. Except as set forth in the preceding
sentence, unless dividends on the Series D Preferred Shares equal to the full
amount of accrued and unpaid dividends have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof has
been or contemporaneously is set apart for such payment, for all past dividend
periods, no dividends will be declared or paid or set apart for payment by us
and no other distribution of cash or other property may be declared or made,
directly or indirectly, by us with respect to any Parity Shares. Unless
dividends equal to the full amount of all accrued and unpaid dividends on the
Series D Preferred Shares have been paid, or declared and set apart for payment,
for all past dividend periods, no dividends (other than dividends or
distributions paid in Junior Shares or options, warrants or rights to subscribe
for or purchase Junior Shares) may be declared or paid or set apart for payment
by us and no other distribution of cash or other property may be declared or
made, directly or indirectly, by us with respect to any Junior Shares, nor will
any Junior Shares be redeemed, purchased or otherwise acquired (except for a
redemption, purchase or other acquisition of Common Shares made for purposes of
our employee incentive or benefit plan or any such plan of any of our
subsidiaries) for any consideration (or any monies be paid to or made available
for a sinking fund for the redemption of any such Junior Shares), directly or
indirectly, by us (except by conversion into or exchange for Junior Shares, or
options, warrants or rights to subscribe for or purchase Junior Shares), nor
will any other cash or other property be paid or distributed to or for the
benefit of holders of Junior Shares. Notwithstanding the provisions described
above, we will not be prohibited from (i) declaring or paying or setting apart
for payment any dividend or distribution on any Parity Shares or (ii) redeeming,
purchasing or otherwise acquiring any Parity Shares, in each case, if such
declaration, payment, redemption, purchase or other acquisition is necessary to
maintain our qualification as a REIT.
LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation,
dissolution or winding-up, before any payment or distribution by us may be made
to or set apart for the holders of any Junior Shares, the holders of Series D
Preferred Shares will be entitled to receive a liquidation preference of $25.00
per share (the "Series D Liquidation Preference"), plus an amount equal to all
accrued and unpaid dividends (whether or not earned or declared) to the date of
final distribution to such holders. Such holders will not be entitled to any
further payment. Until the holders of the Series D Preferred Shares have been
paid the Series D Liquidation Preference in full, plus an amount equal to all
accrued and unpaid dividends (whether or not earned or declared) to the date of
final distribution to such holders, no payment will be made to any holder of
Junior Shares upon our liquidation, dissolution or winding-up. If upon any
liquidation, dissolution or winding-up, our assets, or proceeds thereof,
distributable among the holders of Series D Preferred Shares is insufficient to
pay in full the above described preferential amount and liquidating payments on
any other shares of any class or series of Parity Shares, then our assets, or
the proceeds thereof, will be distributed among the holders of Series D
Preferred Shares and any such other Parity Shares ratably in the same proportion
as the respective amounts that would be payable on such Series D Preferred
Shares and any such other Parity Shares if all amounts payable thereon were paid
in full. A voluntary or involuntary liquidation, dissolution or winding-up will
not include a consolidation or merger of us with or into one or more other
entities, a sale or transfer of all or substantially all of our assets, or a
statutory share exchange. Upon any liquidation, dissolution or winding-up, after
payment has been made in full to the holders of Series D Preferred Shares and
any Parity Shares, any other series or class or classes of Junior Shares will be
entitled to receive any and all of our assets remaining to be paid or
distributed, and the holders of the Series D Preferred Shares and any Parity
Shares will not be entitled to share therein.
OPTIONAL REDEMPTION The Series D Preferred Shares will not be redeemable by us
prior to January 25, 2006 (subject to the holder's right to convert such shares
prior to such date in the manner as described in "Conversion" below, and except
in certain limited circumstances relating to our maintenance of our ability to
qualify as a REIT as described in "Description of Shares--Restrictions on
Transfer" below). On or after January 25, 2006, we may, at our option, redeem
the Series D Preferred Shares, in whole or from time to time in part, at a cash
redemption price equal to 100% of the Series D Liquidation Preference, plus all
accrued and unpaid dividends, if any, to the redemption date.
In the event of a redemption of any Series D Preferred Shares, if the
redemption date occurs after a dividend record date and on or prior to the
related dividend payment date, the dividend payable on such dividend payment
date in respect of such Series D Preferred Shares called for redemption will be
payable on such dividend payment date to the holders of record at the close of
business on such dividend record date, and will not be payable as part of the
redemption price for such Series D Preferred Shares. The redemption date will be
selected by us and will not be less than 30 days nor more than 60 days after the
date notice of redemption is sent by us. If full cumulative dividends on all
outstanding
12
Series D Preferred Shares have not been paid or declared and set apart for
payment, no Series D Preferred Shares may be redeemed unless all outstanding
Series D Preferred Shares are simultaneously redeemed and neither we nor any of
our affiliates may purchase or acquire Series D Preferred Shares otherwise than
pursuant to a purchase or exchange offer made on the same terms to all holders
of Series D Preferred Shares.
If fewer than all the outstanding Series D Preferred Shares are to be
redeemed, we will select those Series D Preferred Shares to be redeemed pro rata
in proportion to the numbers of Series D Preferred Shares held by holders (with
adjustment to avoid redemption of fractional shares) or by lot or in such other
manner as the Board of Trustees may determine.
Notice of redemption will be mailed by us not less than 30 days nor more
than 60 days prior to the redemption date to each holder of record of the Series
D Preferred Shares to be redeemed by first class mail, postage prepaid at such
holder's address as the same appears on our share records. Any notice which was
mailed as described above will be conclusively presumed to have been duly given
on the date mailed whether or not the holder receives the notice. Each notice
will state: (i) the redemption date; (ii) the number of Series D Preferred
Shares to be redeemed; (iii) the place or places where certificates for such
Series D Preferred Shares are to be surrendered for cash; and (iv) the
redemption price payable on such redemption date, including, without limitation,
a statement as to whether or not accrued and unpaid dividends will be (x)
payable as part of the redemption price, or (y) payable on the next dividend
payment date to the record holder at the close of business on the relevant
record date as described above. From and after the redemption date (unless we
default in the payment of our redemption obligation), dividends on the Series D
Preferred Shares to be redeemed will cease to accrue, such shares shall no
longer be deemed to be outstanding and all rights of the holders thereof shall
cease except (a) the right to receive the cash payable upon such redemption
without interest thereon, and (b) if the redemption date occurs after a dividend
record date and on or prior to the related dividend payment date, the right of
record holders at the close of business on such record date to receive the
dividend payable on such Dividend Payment Date, the full dividend payable on
such dividend payment date with respect to such Series D Preferred Shares called
for redemption will be payable on such dividend payment date to the holders of
record of such shares at the close of business on the corresponding dividend
record date notwithstanding the prior redemption of such shares.
The Series D Preferred Shares have no stated maturity and are not subject
to any sinking fund or mandatory redemption provisions except as provided under
"Description of Shares--Restrictions on Transfer" below.
Subject to applicable law and the limitations on purchases when dividends
on the Series D Preferred Shares are in arrears, we may, at any time and from
time to time, purchase any Series D Preferred Shares by private agreement with
the holders or otherwise.
CONVERSION The Series D Preferred Shares are convertible into our common shares
at any time by the holder after December 31, 2003, at the rate of 2.2 common
shares for every one Series D Preferred Share ("Conversion Rate"). This
Conversion Rate is subject to adjustment in the event that we effect a stock
split, subdivision of its then outstanding common shares, or distribution of
common shares in the form of a dividend. In addition, in the event that we
effect a distribution of securities other than common shares in the form of a
dividend, then the Series D Preferred Shares shall be entitled to receive upon
conversion, in addition to the number of common shares receivable upon such
conversion, the amount of our other securities that they would have otherwise
received had their Series D Preferred Shares been converted into common shares
on the date of the such distribution.
VOTING RIGHTS Holders of Series D Preferred Shares will not have any voting
rights, except as set forth below and except as otherwise required by applicable
law.
If and whenever dividends on any Series D Preferred Shares or any series
or class of Parity Shares, including the Series E Preferred Shares, are in
arrears for six or more quarterly periods (whether or not consecutive), the
number of Trustees then constituting our Board of Trustees will be increased by
two (if not already increased by reason of similar types of provisions with
respect to Parity Shares or of any other class or series which is entitled to
similar voting rights as Voting Parity Shares), and the holders of Series D
Preferred Shares, together with the holders of all other Voting Parity Shares
then entitled to exercise similar voting rights, voting as a single class
regardless of series, will be entitled to vote for the election of the two
additional Trustees at any annual meeting of shareholders or at a special
meeting of the holders of the Series D Preferred Shares and of the Voting Parity
Shares called for that purpose. At any time when such right to elect Trustees
separately has so vested, we must call such special meeting upon the written
request of the holders
13
of record of not less than 20% of the total number of Series D Preferred Shares
and shares of any series of Voting Parity Shares then outstanding. Such special
meeting will be held, in the case of such written request, within 90 days after
the delivery of such request, provided that we will not be required to call such
a special meeting if such request is received less than 120 days before the date
fixed for the next ensuing annual meeting of shareholders and the holders of
Series D Preferred Shares and such other Voting Parity Shares are offered the
opportunity to elect such Trustees at such annual meeting of shareholders. If,
prior to the end of the term of any Trustee so elected, a vacancy in the office
of such Trustee occurs by reason of death, resignation, or disability, such
vacancy will be filled for the unexpired term of such former Trustee by the
appointment of a new Trustee by the remaining Trustee or Trustees so elected.
Whenever dividends in arrears on outstanding Series D Preferred Shares and
Voting Parity Shares have been paid and dividends thereon for the current
quarterly dividend period have been paid or declared and set apart for payment,
then the right of the holders of the Series D Preferred Shares and Voting Parity
Shares to elect such additional two Trustees will cease and the terms of office
of such Trustees will terminate and the number of Trustees constituting our
Board of Trustees will be reduced accordingly.
The affirmative vote or consent of at least two-thirds of the votes
entitled to be cast by the holders of the outstanding Series D Preferred Shares
and the holders of all other classes or series of Voting Parity Shares entitled
to vote on such matters, voting as a single class, will be required to (i)
authorize, create, increase the authorized amount of, or issue any shares of any
class of Senior Shares or any security convertible into shares of any class of
Senior Shares, or (ii) amend, alter or repeal any provision of, or add any
provision to, our Declaration of Trust or Bylaws, if such action would
materially adversely affect the voting powers, rights or preferences of the
holders of the Series D Preferred Shares; provided, however, that no such vote
of the holders of Series D Preferred Shares will be required if, at or prior to
the time such amendment, alteration or repeal is to take effect or the issuance
of any such Senior Shares or convertible security is to be made, as the case may
be, provisions are made for the redemption of all outstanding Series D Preferred
Shares. The amendment of or supplement to our Declaration of Trust to authorize,
create, increase or decrease the authorized amount of or to issue Junior Shares,
Series D Preferred Shares or any shares of any class of Parity Shares will not
be deemed to materially adversely affect the voting powers, rights or
preferences of the holders of Series D Preferred Shares.
With respect to the exercise of the above-described voting rights, each
Series D Preferred Share will have one (1) vote per share, except that when any
other class or series of preferred shares will have the right to vote with the
Series D Preferred Shares as a single class, then the Series D Preferred Shares
and such other class or series will have one quarter of one (0.25) vote per
$25.00 of liquidation preference.
SERIES E PREFERRED SHARES
We issued 1,150,000 Series E Preferred Shares in a public offering in
2001. We contributed the proceeds of the Series E Preferred Share offering to
our operating partnership in exchange for a number of Series E Preferred Units
equal to the number of Series E Preferred Shares that we sold in the offering.
The terms of the Series E Preferred Units are substantially equivalent to the
economic terms of the Series E Preferred Shares. The terms of the Series E
Preferred Shares are as follows:
RANKING. The Series E Preferred Shares, with respect to dividend rights and
rights upon our liquidation, dissolution or winding up, rank (i) prior or senior
to any Junior Shares; (ii) on a parity with all other Parity Shares; and (iii)
junior to any Senior Shares.
DIVIDENDS. Holders of Series E Preferred Shares are entitled to receive, when
and as declared by our Board of Trustees, out of our funds legally available for
payment, quarterly cash dividends on the Series E Preferred Shares at the rate
of $2.5625 per year per Series E Preferred Share. Such dividends are cumulative
from the date of original issue, whether or not in any dividend period or
periods such dividends shall be declared or there shall be funds legally
available for the payment of such dividends, and are payable quarterly on
January 15, April 15, July 15 and October 15 of each year (or, if not a business
day, the next succeeding business day) (each a "Dividend Payment Date"). Any
dividend payable on the Series E Preferred Shares for any partial dividend
period will be computed ratably on the basis of twelve 30-day months and a
360-day year. Dividends are payable in arrears to holders of record as they
appear on our share records at the close of business on the applicable record
date, which are fixed by our Board of Trustees and which are not more than 60
nor less than 10 days prior to such Dividend Payment Date. Holders of Series E
Preferred Shares are not entitled to receive any dividends in excess of
cumulative dividends on the Series E Preferred Shares. No
14
interest, or sum of money in lieu of interest, shall be payable in respect to
any dividend payment or payments on the Series E Preferred Shares that may be in
arrears.
When dividends are not paid in full upon the Series E Preferred Shares or
any other class or series of Parity Shares, or a sum sufficient for such payment
is not set apart, all dividends declared upon the Series E Preferred Shares and
any Parity Shares shall be declared ratably in proportion to the respective
amounts of dividends accrued and unpaid on the Series E Preferred Shares and
accrued and unpaid on such Parity Shares. Except as set forth in the preceding
sentence, unless dividends on the Series E Preferred Shares equal to the full
amount of accrued and unpaid dividends have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof has
been or contemporaneously is set apart for such payment, for all past dividend
periods, no dividends shall be declared or paid or set apart for payment by us
and no other distribution of cash or other property may be declared or made,
directly or indirectly, by us with respect to any Parity Shares. Unless
dividends equal to the full amount of all accrued and unpaid dividends on the
Series E Preferred Shares have been paid, or declared and set apart for payment,
for all past dividend periods, no dividends (other than dividends or
distributions paid in Junior Shares or options, warrants or rights to subscribe
for or purchase Junior Shares) may be declared or paid or set apart for payment
by us and no other distribution of cash or other property may be declared or
made, directly or indirectly, by us with respect to any Junior Shares, nor shall
any Junior Shares be redeemed, purchased or otherwise acquired (except for a
redemption, purchase or other acquisition of Common Shares made for purposes of
our employee incentive or benefit plan or any such plan of any of our
subsidiaries) for any consideration (or any monies be paid to or made available
for a sinking fund for the redemption of any such Junior Shares), directly or
indirectly, by us (except by conversion into or exchange for Junior Shares, or
options, warrants or rights to subscribe for or purchase Junior Shares), nor
shall any other cash or other property be paid or distributed to or for the
benefit of holders of Junior Shares. Notwithstanding the provisions described
above, we shall not be prohibited from (i) declaring or paying or setting apart
for payment any dividend or distribution on any Parity Shares or (ii) redeeming,
purchasing or otherwise acquiring any Parity Shares, in each case, if such
declaration, payment, redemption, purchase or other acquisition is necessary to
maintain our qualification as a REIT.
LIQUIDATION PREFERENCE. Upon any voluntary or involuntary liquidation,
dissolution or winding up, before any payment or distribution by us shall be
made to or set apart for the holders of any Junior Shares, the holders of Series
E Preferred Shares shall be entitled to receive a liquidation preference of
$25.00 per share (the "Series E Liquidation Preference"), plus an amount equal
to all accrued and unpaid dividends (whether or not earned or declared) to the
date of final distribution to such holders; but such holders shall not be
entitled to any further payment. Until the holders of the Series E Preferred
Shares have been paid the Series E Liquidation Preference in full, plus an
amount equal to all accrued and unpaid dividends (whether or not earned or
declared) to the date of final distribution to such holders, no payment shall be
made to any holder of Junior Shares upon our liquidation, dissolution or winding
up. If upon any liquidation, dissolution or winding up, our assets, or proceeds
thereof, distributable among the holders of Series E Preferred Shares shall be
insufficient to pay in full the above described preferential amount and
liquidating payments on any other shares of any class or series of Parity
Shares, then our assets, or the proceeds thereof, shall be distributed among the
holders of Series E Preferred Shares and any such other Parity Shares ratably in
the same proportion as the respective amounts that would be payable on such
Series E Preferred Shares and any such other Parity Shares if all amounts
payable thereon were paid in full. A voluntary or involuntary liquidation,
dissolution or winding up shall not include a consolidation or merger of us with
or into one or more other entities, a sale or transfer of all or substantially
all of our assets or a statutory share exchange. Upon any liquidation,
dissolution or winding up, after payment shall have been made in full to the
holders of Series E Preferred Shares and any Parity Shares, any other series or
class or classes of Junior Shares shall be entitled to receive any and all of
our assets remaining to be paid or distributed, and the holders of the Series E
Preferred Shares and any Parity Shares shall not be entitled to share therein.
OPTIONAL REDEMPTION. The Series E Preferred Shares will not be redeemable by us
prior to July 15, 2006 (except in certain limited circumstances relating to our
maintenance of our ability to qualify as a REIT as described in the section
entitled "Restrictions on Transfer"). On or after July 15, 2006, we may, at our
option, redeem the Series E Preferred Shares, in whole or from time to time in
part, at a cash redemption price equal to 100% of the Series E Liquidation
Preference, plus all accrued and unpaid dividends, if any, to the redemption
date. The redemption price for the Series E Preferred Shares (other than any
portion thereof consisting of accrued and unpaid dividends) shall be payable
solely with the proceeds from the sale of equity securities by us or our
Operating Partnership (whether or not such sale occurs concurrently with such
redemption). For purposes of the preceding sentence, "equity securities" means
any Common Shares, preferred shares, depositary shares, partnership or other
interests, participations or other ownership interests
15
(however designated) and any rights (other than debt securities convertible into
or exchangeable at the option of the holder for equity securities unless and to
the extent such debt securities are subsequently converted into equity
securities) or options to purchase any of the foregoing of or in us or our
Operating Partnership.
In the event of a redemption of any Series E Preferred Shares, if the
redemption date occurs after a dividend record date and on or prior to the
related Dividend Payment Date, the dividend payable on such Dividend Payment
Date in respect of such Series E Preferred Shares called for redemption shall be
payable on such Dividend Payment Date to the holders of record at the close of
business on such dividend record date, and shall not be payable as part of the
redemption price for such Series E Preferred Shares. The redemption date shall
be selected by us and shall not be less than 30 days nor more than 60 days after
the date notice of redemption is sent by us. If full cumulative dividends on all
outstanding Series E Preferred Shares have not been paid or declared and set
apart for payment, no Series E Preferred Shares may be redeemed unless all
outstanding Series E Preferred Shares are simultaneously redeemed and neither we
nor any of our affiliates may purchase or acquire Series E Preferred Shares
otherwise than pursuant to a purchase or exchange offer made on the same terms
to all holders of Series E Preferred Shares.
If fewer than all the outstanding Series E Preferred Shares are to be
redeemed, we will select those Series E Preferred Shares to be redeemed pro rata
in proportion to the numbers of Series E Preferred Shares held by holders (with
adjustment to avoid redemption of fractional shares) or by lot or in such other
manner as the Board of Trustees may determine.
Notice of redemption will be given by publication in a newspaper of
general circulation in the City of New York, such publication to be made once a
week for two consecutive weeks commencing not less than 30 nor more than 60 days
prior to the redemption date. A similar notice shall be mailed by us not less
than 30 days nor more than 60 days prior to the redemption date to each holder
of record of the Series E Preferred Shares to be redeemed by first class mail,
postage prepaid at such holder's address as the same appears on our share
records. Any notice which was mailed as described above shall be conclusively
presumed to have been duly given on the date mailed whether or not the holder
receives the notice. Each notice shall state: (i) the redemption date; (ii) the
number of Series E Preferred Shares to be redeemed; (iii) the place or places
where certificates for such Series E Preferred Shares are to be surrendered for
cash; and (iv) the redemption price payable on such redemption date, including,
without limitation, a statement as to whether or not accrued and unpaid
dividends will be (x) payable as part of the redemption price, or (y) payable on
the next Dividend Payment Date to the record holder at the close of business on
the relevant record date as described above. From and after the redemption date
(unless we shall default in the payment of our redemption obligation), dividends
on the Series E Preferred Shares to be redeemed will cease to accrue, such
shares shall no longer be deemed to be outstanding and all rights of the holders
thereof shall cease (except (a) the right to receive the cash payable upon such
redemption without interest thereon, and (b) if the redemption date occurs after
a dividend record date and on or prior to the related Dividend Payment Date, the
right of record holders at the close of business on such record date to receive
the dividend payable on such Dividend Payment Date).
The Series E Preferred Shares will have no stated maturity and will not be
subject to any sinking fund or mandatory redemption provisions except as
provided under the section entitled "Restrictions on Transfer."
Subject to applicable law and the limitation on purchases when dividends
on the Series E Preferred Shares are in arrears, we may, at any time and from
time to time, purchase any Series E Preferred Shares in the open market, by
tender or by private agreement.
VOTING RIGHTS. Holders of Series E Preferred Shares will not have any voting
rights, except as set forth below and except as otherwise required by applicable
law.
If and whenever dividends on any Series E Preferred Shares or any series
or class of Parity Shares shall be in arrears for six or more quarterly periods
(whether or not consecutive), the number of Trustees then constituting our Board
of Trustees shall be increased by two (if not already increased by reason of
similar types of provisions with respect to Parity Shares of any other class or
series which is entitled to similar voting rights as Voting Parity Shares), and
the holders of Series E Preferred Shares, together with the holders of all other
Voting Parity Shares then entitled to exercise similar voting rights, voting as
a single class regardless of series, will be entitled to vote for the election
of the two additional Trustees at any annual meeting of shareholders or at a
special meeting of the holders of the Series E Preferred Shares and of the
Voting Parity Shares called for that purpose. At any time when such right to
elect Trustees
16
separately shall have so vested, we must call such special meeting upon the
written request of the holders of record of not less than 20% of the total
number of Series E Preferred Shares and shares of any series of Voting Parity
Shares then outstanding. Such special meeting shall be held, in the case of such
written request, within 90 days after the delivery of such request, provided
that we shall not be required to call such a special meeting if such request is
received less than 120 days before the date fixed for the next ensuing annual
meeting of shareholders and the holders of Series E Preferred Shares and such
other Voting Parity Shares are offered the opportunity to elect such Trustees at
such annual meeting of shareholders. If, prior to the end of the term of any
Trustee so elected, a vacancy in the office of such Trustee shall occur by
reason of death, resignation, or disability, such vacancy shall be filled for
the unexpired term of such former Trustee by the appointment of a new Trustee by
the remaining Trustee or Trustees so elected. Whenever dividends in arrears on
outstanding Series E Preferred Shares and Voting Parity Shares shall have been
paid and dividends thereon for the current quarterly dividend period shall have
been paid or declared and set apart for payment, then the right of the holders
of the Series E Preferred Shares and Voting Parity Shares to elect such
additional two Trustees shall cease and the terms of office of such Trustees
shall terminate and the number of Trustees constituting our Board of Trustees
shall be reduced accordingly. Series A Preferred Shares are not Voting Parity
Shares. The holder of the Series A Preferred Shares, as a separate class, is
entitled to elect two additional Trustees if we shall fail at any time or from
time to time to pay when due two consecutive quarterly dividend payments on the
Series A Preferred Shares, and such Trustees are entitled to serve as Trustees
thereafter until all accrued and unpaid dividends on the Series A Preferred
Shares have been paid in full.
The affirmative vote or consent of at least two-thirds of the votes
entitled to be cast by the holders of the outstanding Series E Preferred Shares
and the holders of all other classes or series of Voting Parity Shares entitled
to vote on such matters, voting as a single class, will be required to (i)
authorize, create, increase the authorized amount of, or issue any shares of any
class of Senior Shares or any security convertible into shares of any class of
Senior Shares, or (ii) amend, alter or repeal any provision of, or add any
provision to, our Declaration of Trust or Bylaws, if such action would
materially adversely affect the voting powers, rights or preferences of the
holders of the Series E Preferred Shares; provided, however, that no such vote
of the holders of Series E Preferred Shares shall be required if, at or prior to
the time such amendment, alteration or repeal is to take effect or the issuance
of any such Senior Shares or convertible security is to be made, as the case may
be, provisions are made for the redemption of all outstanding Series E Preferred
Shares. The amendment of or supplement to our Declaration of Trust to authorize,
create, increase or decrease the authorized amount of or to issue Junior Shares,
Series E Preferred Shares or any shares of any class of Parity Shares shall not
be deemed to materially adversely affect the voting powers, rights or
preferences of the holders of Series E Preferred Shares.
With respect to the exercise of the above-described voting rights, each
Series E Preferred Share has one (1) vote per share, except that when any other
class or series of preferred shares shall have the right to vote with the Series
E Preferred Shares as a single class, then the Series E Preferred Shares and
such other class or series shall have one quarter of one (0.25) vote per $25.00
of liquidation preference.
CONVERSION. The Series E Preferred Shares are not convertible into or
exchangeable for any other property or securities.
ISSUANCE OF ADDITIONAL PREFERRED SHARES
The following description of our Preferred Shares of beneficial interest
sets forth general terms and provisions of the Preferred Shares to which any
prospectus supplement may relate. The statements below describing the Preferred
Shares are in all respects subject to and qualified in their entirety by
reference to our Declaration of Trust, Bylaws and any applicable amendment to
the Declaration of Trust designating terms of a series of Preferred Shares (a
"Designating Amendment"). The Preferred Shares, when issued, will be fully paid
and non-assessable. Because our Board of Trustees has the power to establish the
preferences, powers and rights of each series of Preferred Shares, subject to
the rights of the holders of the Series A Preferred Share, Series B Preferred
Shares, Series D Preferred Shares and Series E Preferred Shares, our Board may
afford the holders of any series of Preferred Shares preferences, powers and
rights, voting or otherwise, senior to the rights of holders of Common Shares.
The issuance of additional series of Preferred Shares could have the effect of
delaying or preventing a change of control that might involve a premium price
for shareholders or otherwise be in their best interest.
17
The rights, preferences, privileges and restrictions of the Preferred
Shares of each series will be fixed by the Designating Amendment relating to the
series. A prospectus supplement, relating to each series, will specify the terms
of the Preferred Shares, as follows:
o the title and stated value of the Preferred Shares;
o the number of Preferred Shares offered, the liquidation preference
per share and the offering price of the Preferred Shares;
o the dividend rate(s), period(s) and/or payment date(s) or method(s)
of calculation applicable to the Preferred Shares;
o the date from which dividends on the Preferred Shares will
accumulate, if applicable;
o the procedures for any auction and remarketing, if any, for the
Preferred Shares;
o the provision for a sinking fund, if any, for the Preferred Shares;
o the provision for redemption, if applicable, of the Preferred
Shares;
o any listing of the Preferred Shares on any securities exchange;
o the terms and conditions, if applicable, upon which the Preferred
Shares will be convertible into our Common Shares, including the
conversion price (or manner of calculation) and conversion period;
o any other specific terms, preferences, rights, limitations or
restrictions of the Preferred Shares;
o a discussion of certain material federal income tax considerations
applicable to the Preferred Shares;
o the relative ranking and preferences of the Preferred Shares as to
dividend rights and rights upon the liquidation, dissolution or
winding up of our affairs;
o any limitation on issuance of any series of Preferred Shares ranking
senior to or on a parity with the series of Preferred Shares as to
dividend rights and rights upon the liquidation, dissolution or
winding up of our affairs; and
o any limitations on direct or beneficial ownership and restrictions
on transfer of the Preferred Shares, in each case as may be
appropriate to preserve our status as a REIT.
OPERATING PARTNERSHIP SERIES C PREFERRED UNITS
We conduct almost all of our operations through our operating partnership,
for which we are the managing general partner. Interests in our operating
partnership are in the form of Common and Preferred Units. As of the date of
this prospectus, we owned a majority of the outstanding Common Units and a
majority of the outstanding Preferred Units. The remaining Preferred Units in
our operating partnership were 1,016,662 Series C Preferred Units, owned by
United Properties Group, Incorporated, with terms as follows:
VOTING RIGHTS. Except in certain limited circumstances, at any time that COPT
holds less than 90% of the outstanding partnership units in our operating
partnership, any amendment to the operating partnership agreement must be
approved by the vote of a majority of the Common and Preferred Units not held by
us, each voting as a separate class. If we were to hold 90% or more of the
outstanding partnership units, we would have the right to amend the operating
partnership agreement without first seeking such unitholder approval.
LIQUIDATION. In the event of the dissolution of our operating partnership, the
holder of the Series C Preferred Units will be entitled to receive a $25
liquidation preference (the "Series C Liquidation Preference"), prior to any
liquidation
18
payment to be made to the holders of the Common Units but PARI PASSU with
liquidation payments made to us as holder of the Series A, B, D and E Preferred
Units.
DISTRIBUTIONS. The holder of the Series C Preferred Units are entitled to
receive quarterly priority percentage return payments, prior to distributions
made to the holders of the Common Units but PARI PASSU with distributions made
to us as holder of the Series A, B, D and E Preferred Units, in an amount equal
to a percentage of the Series C Liquidation Preference, which percentage equals
(a) 2.25% from December 21, 1999 to December 20, 2009, (b) 2.625% from December
21, 2009 to December 20, 2014, and (c) 3.00% thereafter.
CONVERSION. The Series C Preferred Units are convertible into Common Units at a
conversion rate of 2.381 Common Units per Series C Preferred Unit.
RESTRICTIONS ON TRANSFER
For COPT to qualify as a REIT under the Internal Revenue Code, its shares
of beneficial interest generally must be beneficially owned by 100 or more
persons during at least 335 days of a taxable year of 12 months or during a
proportionate part of a shorter taxable year. Also, not more than 50% of the
value of the outstanding shares of beneficial interest may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Internal Revenue
Code to include certain entities) at any time during the last half of a taxable
year. This test is applied by "looking through" certain shareholders which are
not individuals (e.g., corporations or partnerships) to determine indirect
ownership of COPT by individuals.
The Declaration of Trust, subject to certain exceptions, contains certain
restrictions on the number of shares of beneficial interest of COPT that a
person may own. The Declaration of Trust provides that no person may own, or be
deemed to own by virtue of the attribution provisions of the Internal Revenue
Code, more than 9.8% of the number or value of the outstanding shares of
beneficial interest of COPT. In addition, the Declaration of Trust prohibits any
person from acquiring or holding, directly or indirectly, Common Shares in
excess of 9.8% (in value or in number of shares, whichever is more restrictive)
of the aggregate of the outstanding Common Shares.
The Board of Trustees, in its sole discretion, may exempt a proposed
transferee from the 9.8% ownership limitation. However, the Board of Trustees
may not grant such an exemption to any person if such exemption would result in
COPT being "closely held" within the meaning of Section 856(h) of the Internal
Revenue Code or otherwise would result in COPT failing to qualify as a REIT. In
order to be considered by the Board of Trustees for an exemption, a person also
must not own, directly or indirectly, more than a 9.9% interest in a tenant of
COPT (or a tenant of any entity owned or controlled by COPT). The person seeking
an exemption must represent to the satisfaction of the Board of Trustees that it
will not violate the two aforementioned restrictions. The person also must agree
that any violation or attempted violation of any of the foregoing restrictions
will result in the automatic transfer of the shares of stock causing such
violation to the Share Trust (as defined below). The Board of Trustees may
require a ruling from the Internal Revenue Service or an opinion of counsel, in
either case in form and substance satisfactory to the Board of Trustees in its
sole discretion, in order to determine or ensure COPT's status as a REIT.
Constellation Real Estate, Inc., Barony Trust Limited, Mr. Jay H. Shidler and
Mr. Clay W. Hamlin, III are all Excepted Holders. However, as of the date of
this prospectus, Messrs. Shidler and Hamlin together owned less than 9.8% of the
outstanding Common Shares.
The Declaration of Trust further prohibits (a) any person from
beneficially or constructively owning shares of beneficial interest of COPT that
would result in COPT being "closely held" under Section 856(h) of the Internal
Revenue Code or otherwise cause COPT to fail to qualify as a REIT and (b) any
person from transferring shares of beneficial interest of COPT if such transfer
would result in shares of beneficial interest of COPT being owned by fewer than
100 persons. Any person who acquires or attempts or intends to acquire
beneficial or constructive ownership of shares of beneficial interest of COPT
that will or may violate any of the foregoing restrictions on transferability
and ownership, or any person who would have owned shares of the beneficial
interest of COPT that resulted in a transfer of shares to the Share Trust (as
hereinafter defined), is required to give notice immediately to COPT and provide
COPT with such other information as COPT may request in order to determine the
effect of such transfer on COPT's status as a REIT. The foregoing restrictions
on transferability and ownership will not apply if the Board of Trustees
determines that it is no longer in the best interests of COPT to attempt to
qualify, or to continue to qualify, as a REIT.
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If any transfer of shares of beneficial interest of COPT occurs which, if
effective, would result in any person beneficially or constructively owning
shares of beneficial interest of COPT in excess or in violation of the above
transfer or ownership limitations (a "Prohibited Owner"), then that number of
shares of beneficial interest of COPT in excess of the ownership limit will
automatically be transferred to a trust (the "Share Trust") for the exclusive
benefit of one or more charitable beneficiaries (the "Charitable Beneficiary"),
and the Prohibited Owner shall not acquire any rights in such shares. The
Prohibited Owner may not benefit economically from ownership of any shares of
beneficial interest held in the Share Trust, may have no rights to dividends and
may not possess any other rights attributable to the shares of beneficial
interest held in the Share Trust. The trustee of the Share Trust (the "Share
Trustee") will have all voting rights and rights to dividends or other
distributions with respect to shares of beneficial interest held in the Share
Trust, which rights will be exercised for the exclusive benefit of the
Charitable Beneficiary. Any dividend or other distribution paid prior to the
discovery by COPT that shares of beneficial interest have been transferred to
the Share Trust will be paid by the recipient of such dividend or distribution
to the Share Trustee upon demand, and any dividend or other distribution
authorized but unpaid will be paid when due to the Share Trustee. Any dividend
or distribution so paid to the Share Trustee will be held in the Share Trust for
the Charitable Beneficiary. The Prohibited Owner will have no voting rights with
respect to shares of beneficial interest held in the Share Trust and, subject to
Maryland law, effective as of the date that such shares of beneficial interest
have been transferred to the Share Trust, the Share Trustee will have the
authority (at the Share Trustee's sole discretion) (i) to rescind as void any
vote cast by a Prohibited Owner prior to the discovery by COPT that such shares
have been transferred to the Share Trust and (ii) to recast such vote in
accordance with the desires of the Share Trustee acting for the benefit of the
Charitable Beneficiary. However, if COPT has already taken irreversible trust
action, then the Share Trustee will not have the authority to rescind and recast
such vote.
Within 20 days of receiving notice from COPT that shares of beneficial
interest of COPT have been transferred to the Share Trust, the Share Trustee
will sell the shares of beneficial interest held in the Share Trust to a person,
designated by the Share Trustee, whose ownership of the shares will not violate
the ownership limitations set forth in the Declaration of Trust. Upon such sale,
the interest of the Charitable Beneficiary in the shares sold will terminate and
the Share Trustee will distribute the net proceeds of the sale to the Prohibited
Owner and to the Charitable Beneficiary as described below. The Prohibited Owner
will receive the lesser of (i) the price paid by the Prohibited Owner for the
shares or, if the Prohibited Owner did not give value for the shares in
connection with the event causing the shares to be held in the Share Trust
(e.g., a gift, devise or other such transaction), the Market Price (as defined
in the Declaration of Trust) of such shares on the day of the event causing the
shares to be received by the Share Trustee and (ii) the price per share received
by the Share Trustee from the sale or other disposition of the Common Shares
held in the Share Trust. Any net sale proceeds in excess of the amount payable
to the Prohibited Owner will be paid immediately to the Charitable Beneficiary.
If, prior to the discovery by COPT that shares of beneficial interest have been
transferred to the Share Trust, such shares are sold by a Prohibited Owner, then
(i) such shares will be deemed to have been sold on behalf of the Share Trust
and (ii) to the extent that the Prohibited Owner received an amount for shares
that exceeds the amount that such Prohibited Owner was entitled to receive as
described above, such excess will be paid to the Share Trustee upon demand.
In addition, shares of beneficial interest of COPT held in the Share Trust
will be deemed to have been offered for sale to COPT, or its designee, at a
price per share equal to the lesser of (i) the price per share in the
transaction that resulted in such transfer to the Share Trust (or, in the case
of a devise or gift, the Market Price at the time of such devise or gift) and
(ii) the Market Price on the date COPT, or its designee, accepts such offer.
COPT shall have the right to accept such offer until the Share Trustee has sold
the shares of beneficial interest held in the Share Trust. Upon such a sale to
COPT, the interest of the Charitable Beneficiary in the shares sold will
terminate and the Share Trustee will distribute the net proceeds of the sale to
the Prohibited Owner.
All certificates representing Common Shares will bear a legend referring
to the restrictions described above.
Every owner of more than 5% (or such other percentage as required by the
Internal Revenue Code or the regulations promulgated thereunder) of all classes
or series of COPT's shares of beneficial interest, including Common Shares, is
required to give written notice to COPT within 30 days after the end of each
taxable year stating the name and address of such owner, the number of shares of
each class and series of shares of beneficial interest of COPT which the owner
beneficially owns and a description of the manner in which such shares are held.
Each such owner shall provide to COPT such additional information as COPT may
request in order to determine the effect, if any, of such beneficial ownership
on COPT's status as a REIT and to ensure compliance with the 9.8% ownership
limitation. In
20
addition, each shareholder shall upon demand be required to provide to COPT such
information as COPT may request, in good faith, in order to determine COPT's
status as a REIT and to comply with the requirements of any taxing authority or
governmental authority or to determine such compliance.
These ownership limitations could delay, defer or prevent a change in
control of COPT or other transaction that might involve a premium over the then
prevailing Market Price for the Common Shares or other attributes that the
shareholders may consider to be desirable.
CLASSIFICATION OF BOARD, VACANCIES AND REMOVAL OF TRUSTEES
Our Declaration of Trust provides for a staggered Board of Trustees
divided into three classes, with terms of three years each. As of the date of
this prospectus, Constellation Real Estate, Inc. has appointed two Trustees,
pursuant to the terms of its Series A Preferred Share. See "Description of
Shares-Series A Preferred Shares."
At each annual meeting of shareholders of COPT, successors of the class of
Trustees whose term expires at that meeting will be elected for a three-year
term and the Trustees in the other two classes will continue in office. A
classified board may delay, defer or prevent a change in control of COPT or
other transaction that might involve a premium over the then prevailing market
price for the Common Shares or other attributes that the shareholders may
consider to be desirable. In addition, a classified Board could prevent
shareholders who do not agree with the policies of the Board of Trustees from
replacing a majority of the Board of Trustees for two years, except in the event
of removal for cause.
The Bylaws of COPT provide that any vacancy on the Board of Trustees may
be filled by a majority of the remaining Trustees. Any individual so elected
Trustee will hold office for the unexpired term of the Trustee he or she is
replacing. The Declaration of Trust provides that a Trustee may be removed at
any time only for cause upon the affirmative vote of at least two-thirds of the
votes entitled to be cast in the election of Trustees, but only by a vote taken
at a shareholder meeting. These provisions preclude shareholders from removing
incumbent Trustees, except for cause and upon a substantial affirmative vote,
and filling the vacancies created by such removal with their own nominees.
ADVANCE NOTICE OF NOMINATIONS AND NEW BUSINESS
The Bylaws provide that, with respect to an annual meeting of
shareholders, nominations of persons for election to the Board of Trustees and
the proposal of business to be considered by shareholders may be made only (a)
pursuant to COPT's notice of the meeting, (b) by the Board of Trustees or (c) by
a shareholder who is entitled to vote at the meeting and has complied with the
advance notice procedures set forth in the Bylaws. With respect to special
meetings of shareholders, the Bylaws provide that only the business specified in
COPT's notice of meeting may be brought before the meeting of shareholders and
nominations of persons for election to the Board of Trustees may be made only
(a) pursuant to COPT's notice of the meeting, (b) by the Board of Trustees or
(c) provided that the Board of Trustees has determined that Trustees shall be
elected at such meeting, by a shareholder who is entitled to vote at the meeting
and has complied with the advance notice provisions set forth in the Bylaws.
POSSIBLE ANTITAKEOVER EFFECT OF CERTAIN PROVISIONS OF MARYLAND LAW
The Maryland General Corporations Law ("MGCL") contains provisions that
may be deemed to have an antitakeover effect. The provisions applicable to COPT
are set forth below.
CERTAIN BUSINESS COMBINATIONS. Under the MGCL, as applicable to Maryland real
estate investment trusts, certain business combinations (including certain
mergers, consolidations, share exchanges and asset transfers and certain
issuances and reclassifications of equity securities) between a Maryland real
estate investment trust and any person who beneficially owns ten percent or more
of the voting power of the trust's shares or an affiliate of the trust who, at
any time within the two-year period prior to the date in question, was the
beneficial owner of ten percent or more of the voting power of the then
outstanding voting shares of such trust (an "Interested Shareholder"), or an
affiliate of such an Interested Shareholder, are prohibited for five years after
the most recent date on which the Interested Shareholder becomes an Interested
Shareholder. Thereafter, any such business combination must be recommended by
the board of trustees of such trust and approved by the affirmative votes of at
least (i) 80% of the votes entitled to be cast by holders of outstanding voting
shares of the trust and (ii) two-thirds of the votes entitled to be cast by
holders of voting shares of
21
the trust other than shares held by the Interested Shareholder with whom (or
with whose affiliate) the business combination is to be effected, unless, among
other conditions, the trust's common shareholders receive a minimum price (as
defined in the MGCL) for their shares and the consideration is received in cash
or in the same form as previously paid by the Interested Shareholder for its
shares. These provisions of Maryland law do not apply, however, to business
combinations that are approved or exempted by the board of trustees of the trust
prior to the time that the Interested Shareholder becomes an Interested
Shareholder. The Board of Trustees has opted out of this statute by resolution.
The Board of Trustees may, however, rescind its resolution at any time to make
these provisions of Maryland law applicable to COPT.
CONTROL SHARE PROVISIONS. The MGCL generally provides that control shares of a
Maryland real estate investment trust acquired in a control share acquisition
have no voting rights unless those rights are approved by a vote of two-thirds
of the disinterested shares (generally shares held by persons other than the
acquiror, officers or trustees who are employees of the trust). An acquiror is
deemed to own control shares the first time that the acquiror's voting power in
electing trustees equals or exceeds 20% of all such voting power. Control shares
do not include shares the acquiring person is then entitled to vote as a result
of having previously obtained shareholder approval. A control share acquisition
means the acquisition of control shares, subject to certain exceptions.
A person who has made or proposes to make a control share acquisition,
upon satisfaction of certain conditions (including an undertaking to pay
expenses), may compel the Board of Trustees to call a special meeting of
shareholders to be held within 50 days of the demand to consider whether the
control shares will have voting rights. The trust may present the question at
any shareholders' meeting on its own initiative.
If voting rights are not approved at the meeting or if the acquiring
person does not deliver an acquiring person statement as required by the
statute, then, subject to certain conditions and limitations, the trust may
redeem any or all of the control shares (except those for which voting rights
have previously been approved) for fair value, determined without regard to the
absence of voting rights for the control shares. Fair value will be determined
as of the date of the last control share acquisition by the acquiror or of any
meeting of shareholders at which the voting rights of such shares are considered
and not approved. If voting rights for control shares are approved at a
shareholders' meeting and the acquiror becomes entitled to vote a majority of
the shares entitled to vote, all other shareholders may exercise appraisal
rights. The fair value of the shares as determined for purposes of such
appraisal rights may not be less than the highest price per share paid by the
acquiror in the control share acquisition.
The control share provisions do not apply (a) to shares acquired in a
merger, consolidation or share exchange if the trust is a party to the
transaction or (b) to acquisitions approved or exempted by the declaration of
trust or bylaws of the trust. The Bylaws contain a provision exempting from the
control share acquisition statute any and all acquisitions by any person of
COPT's shares of beneficial interest. The Board of Trustees may, however, amend
the Bylaws at any time to eliminate such provision, either prospectively or
retroactively.
DISSOLUTION OF THE COMPANY; TERMINATION OF REIT STATUS
The Declaration of Trust permits the termination of COPT and the
discontinuation of the operations of COPT by the affirmative vote of the holders
of not less than two-thirds of the outstanding Common Shares entitled to be cast
on the matter at a meeting of shareholders or by written consent. In addition,
the Declaration of Trust permits the termination of COPT's qualification as a
REIT if such qualification, in the opinion of the Board of Trustees, is no
longer advantageous to the shareholders.
FEDERAL INCOME TAX MATTERS
We were organized in 1988 and elected to be taxed as a REIT commencing
with its taxable year ended December 31, 1992. COPT believes that it was
organized and has operated in a manner that permits it to satisfy the
requirements for taxation as a REIT under the applicable provisions of the
Internal Revenue Code of 1986, as amended (the "Code") and intends to continue
to operate in such a manner. No assurance can be given, however, that such
requirements have been or will continue to be met. The following is a summary of
the material Federal income tax considerations that may be relevant to COPT and
its shareholders, including the continued treatment of COPT as a REIT for
Federal income tax purposes. For purposes of this discussion of "FEDERAL INCOME
TAX MATTERS" the term "COPT" refers only to Corporate Office Properties Trust
and not to any other affiliated entities.
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The following discussion is based on the law existing and in effect on the
date hereof and COPT's qualification and taxation as a REIT will depend on
compliance with such law and with any future amendments or modifications to such
law. The qualification and taxation as a REIT will further depend upon the
ability to meet, on a continuing basis through actual operating results, the
various qualification tests imposed under the Code discussed below. No assurance
can be given that COPT will satisfy such tests on a continuing basis.
In brief, an entity that invests primarily in real estate can, if it meets
the REIT provisions of the Code described below, claim a tax deduction for the
dividends it pays to its shareholders. Such an entity generally is not taxed on
its "REIT taxable income" to the extent such income is currently distributed to
shareholders, thereby substantially eliminating the "double taxation" (i.e., at
both the entity and shareholder levels) that generally results from an
investment in an entity which is taxed as a corporation. However, as discussed
in greater detail below, such an entity remains subject to tax in certain
circumstances even if it qualifies as a REIT. Further, if the entity were to
fail to qualify as a REIT in any year, it would not be able to deduct any
portion of the dividends it paid to its shareholders and would be subject to
full Federal corporate income taxation on its earnings, thereby significantly
reducing or eliminating the cash available for distribution to its shareholders.
Morgan, Lewis & Bockius LLP has opined that, for Federal income tax
purposes, COPT has properly elected and otherwise qualified to be taxed as a
REIT under the Code for taxable years commencing on or after June 1, 1992 and
that its proposed method of operations as described in this prospectus and as
represented to Morgan, Lewis & Bockius LLP by COPT will enable COPT to continue
to satisfy the requirements for such qualification and taxation as a REIT under
the Code for future taxable years. This opinion, however, is based upon certain
factual assumptions and representations made by COPT. Moreover, such
qualification and taxation as a REIT depends upon the ability of COPT to meet,
for each taxable year, various tests imposed under the Code as discussed below,
and Morgan, Lewis & Bockius LLP has not reviewed in the past, and may not review
in the future, COPT's compliance with these tests. Accordingly, no assurance can
be given that the actual results of the operations of COPT for any particular
taxable year will satisfy such requirements.
TAXATION OF COPT
GENERAL. In any year in which COPT qualifies as a REIT, it will not
generally be subject to Federal income tax on that portion of its REIT taxable
income or capital gain which is distributed to shareholders. COPT will, however,
be subject to tax at normal corporate rates upon any taxable income or capital
gains not distributed. Shareholders are required to include their proportionate
share of the REIT's undistributed long-term capital gain in income, but would
receive a credit for their share of any taxes paid on such gain by the REIT.
Notwithstanding its qualification as a REIT, COPT also may be subject to
taxation in certain other circumstances. If COPT should fail to satisfy either
the 75% or the 95% gross income test and nonetheless maintains its qualification
as a REIT because certain other requirements are met, it will be subject to a
100% tax on the greater of the amount by which COPT fails either the 75% or the
95% gross income test (substituting for purposes of calculating the amount by
which the 95% gross income test is failed, 90% for 95%) multiplied by a fraction
intended to reflect COPT's profitability. COPT will also be subject to a tax of
100% on net income from any "prohibited transaction" (as described below), and
if COPT has (i) net income from the sale or other disposition of "foreclosure
property" which is held primarily for sale to customers in the ordinary course
of business or (ii) other non-qualifying income from foreclosure property, it
will be subject to tax on such income from foreclosure property at the highest
corporate rate. In addition, if COPT should fail to distribute during each
calendar year at least the sum of (i) 85% of its REIT ordinary income for such
year, (ii) 95% of its REIT capital gain net income for such year and (iii) any
undistributed taxable income from prior years, COPT would be subject to a 4%
excise tax on the excess of such required distribution over the amounts actually
distributed. COPT also may be subject to the corporate alternative minimum tax,
as well as to tax in certain situations not presently contemplated. COPT will
use the calendar year both for Federal income tax purposes, as is required of a
REIT under the Code, and for financial reporting purposes. Finally, in the event
that items of rent, interest or other deductible expenses are paid to a REIT by
a "taxable REIT subsidiary" (as defined below) of such REIT, and such amounts
are determined to be other than at arm's length, a REIT may be subject to a 100%
tax on the portion of such amounts treated as excessive. Safe harbors exist for
certain rental payments.
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FAILURE TO QUALIFY. If COPT fails to qualify for taxation as a REIT in any
taxable year and the relief provisions do not apply, COPT will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to shareholders in any year in which COPT
fails to qualify as a REIT will not be deductible by COPT, nor generally will
they be required to be made under the Code. In such event, to the extent of
current and accumulated earnings and profits, all distributions to shareholders
will be taxable as ordinary income, and subject to certain limitations in the
Code, corporate distributees may be eligible for the dividends received
deduction. Unless entitled to relief under specific statutory provisions, COPT
also will be disqualified from reelecting taxation as a REIT for the four
taxable years following the year during which qualification was lost.
REIT QUALIFICATION REQUIREMENTS
In order to qualify as a REIT, COPT must meet the following requirements,
among others:
SHARE OWNERSHIP TESTS. COPT's shares of beneficial interest must be held by a
minimum of 100 persons for at least 335 days in each taxable year (or a
proportionate number of days in any short taxable year). In addition, at all
times during the second half of each taxable year, no more than 50% in value of
the outstanding shares of beneficial interest of COPT may be owned, directly or
indirectly and taking into account the effects of certain constructive ownership
rules, by five or fewer individuals, which for this purpose includes certain
tax-exempt entities (the "50% Limitation"). However, for purposes of this test,
any shares of beneficial interest held by a qualified domestic pension or other
retirement trust will be treated as held directly by its beneficiaries in
proportion to their actuarial interest in such trust rather than by such trust.
In addition, for purposes of the 50% Limitation, shares of beneficial interest
owned, directly or indirectly, by a corporation will be considered as being
owned proportionately by its shareholders.
In order to attempt to ensure compliance with the foregoing share
ownership tests, COPT's Declaration of Trust places certain restrictions on the
transfer of its shares of beneficial interest to prevent additional
concentration of share ownership. Moreover, to evidence compliance with these
requirements, Treasury Regulations require COPT to maintain records which
disclose the actual ownership of its outstanding shares of beneficial interest.
In fulfilling its obligations to maintain records, COPT must and will demand
written statements each year from the record holders of designated percentages
of its shares of beneficial interest disclosing the actual owners of such shares
of beneficial interest (as prescribed by Treasury Regulations). A list of those
persons failing or refusing to comply with such demand must be maintained as
part of COPT's records. A shareholder failing or refusing to comply with COPT's
written demand must submit with his tax return a similar statement disclosing
the actual ownership of COPT shares of beneficial interest and certain other
information.
Under COPT's Declaration of Trust a person is generally prohibited from
owning more than 9.8% of the aggregate outstanding Common Shares or more than
9.8% in value of the aggregate outstanding shares of beneficial interest unless
such person makes certain representations to the Board of Trustees and the Board
of Trustees ascertains that ownership of a greater percentage of shares will not
cause COPT to violate either the 50% Limitation or the gross income tests
described below. As of the date of this prospectus, Constellation Real Estate,
Inc. owned more than 9.8% of the Common Shares outstanding and one Series A
Preferred Share convertible into 1.8748 Common Shares. The Board of Trustees has
exempted Constellation Real Estate, Inc. from the 9.8% limitation set forth in
the Declaration of Trust and has determined that Constellation Real Estate, Inc.
may hold up to 45% of the outstanding Common Shares. The Board of Trustees has
also exempted Barony Trust Limited from the 9.8% limitation set forth in the
Declaration of Trust and provided that Barony Trust Limited may own up to 10.5%
of the outstanding Common Shares. The Board of Trustees has determined, based
upon representations made by Constellation Real Estate, Inc. and Barony Trust
Limited, that these exemptions will not result in a violation of the 50%
Limitation or otherwise adversely affect COPT's ability to qualify as a REIT for
Federal income tax purposes.
ASSET TESTS. At the close of each quarter of COPT's taxable year, COPT must
satisfy two tests relating to the nature of its assets (determined in accordance
with generally accepted accounting principles). First, at least 75% of the value
of COPT's total assets must be represented by interests in real property,
interests in mortgages on real property, shares in other REITs, cash, cash
items, government securities and qualified temporary investments. Second,
although the remaining 25% of COPT's assets generally may be invested without
restriction, securities in this class may not exceed (i) in the case of
securities of any one non-government issuer, 5% of the value of COPT's total
assets (the "REIT Value Test") or (ii) 10% of the outstanding voting securities
of any one such issuer (the "Issuer Voting Stock Test") and 10% of the total
value of any such issuer (the "Issuer Value Test")). The REIT Value Test, the
Issuer Voting Stock Test or
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the Issuer Value Test does not apply to securities held by a REIT in a "taxable
REIT subsidiary." A taxable REIT subsidiary is any corporation in which the REIT
owns stock and with which the REIT makes a joint election to be so treated. COPT
has filed an election to have Corporate Office Management, Inc. ("COMI")
(discussed below) treated as a taxable REIT subsidiary effective January 1,
2001. Any corporation in which a REIT owns, directly or indirectly, shares
possessing more than 35% of the voting power or value of such corporation will
automatically be treated as a taxable REIT subsidiary (other than certain
corporations which are wholly-owned by the REIT and are treated as "qualified
REIT subsidiaries"). In addition, certain debt securities held by a REIT will
not be taken into account for purposes of the Issuer Value Test. Finally,
certain "grandfathering" rules also exempt from the Issuer Value Test securities
owned by the REIT on July 12, 1999. Where COPT invests in a partnership (such as
the Operating Partnership), it will be deemed to own a proportionate share of
the partnership's assets, and the partnership interest will not constitute a
security for purposes of these tests. Accordingly, COPT's investment in real
properties through its interests in the Operating Partnership (which itself
holds real properties through other partnerships) will constitute an investment
in qualified assets for purposes of the 75% asset test.
GROSS INCOME TESTS. There are two separate percentage tests relating to the
sources of COPT's gross income which must be satisfied for each taxable year.
For purposes of these tests, where COPT invests in a partnership, COPT will be
treated as receiving its share of the income and loss of the partnership, and
the gross income of the partnership will retain the same character in the hands
of COPT as it has in the hands of the partnership. The two tests are described
below.
THE 75% TEST. At least 75% of COPT's gross income for the taxable year must be
"qualifying income." Qualifying income generally includes: (i) rents from real
property (except as modified below); (ii) interest on obligations secured by
mortgages on, or interests in, real property; (iii) gains from the sale or other
disposition of interests in real property and real estate mortgages, other than
gain from property held primarily for sale to customers in the ordinary course
of COPT's trade or business ("dealer property"); (iv) dividends or other
distributions on shares in other REITS, as well as gain from the sale of such
shares; (v) abatements and refunds of real property taxes; (vi) income from the
operation, and gain from the sale, of property acquired at or in lieu of a
foreclosure of the mortgage secured by such property ("foreclosure property");
and (vii) commitment fees received for agreeing to make loans secured by
mortgages on real property or to purchase or lease real property.
Rents received from a tenant will not, however, qualify as rents from real
property in satisfying the 75% gross income test (or the 95% gross income test
described below) if COPT, or an owner of 10% or more of COPT, directly or
constructively owns 10% or more of such tenant unless such rents are received
from a taxable REIT subsidiary, provided that either (i) at least 90% of the
leased property in respect of which COPT is receiving such rents is occupied by
persons other than such taxable REIT subsidiary or (ii) such rents are received
in respect of a "qualified lodging facility." In addition, if rent attributable
to personal property leased in connection with a lease of real property is
greater than 15% of the total rent received under the lease, then the portion of
rent attributable to such personal property will not qualify as rents from real
property. Moreover, an amount received or accrued will not qualify as rents from
real property (or as interest income) for purposes of the 75% and 95% gross
income tests if it is based in whole or in part on the income or profits of any
person, although an amount received or accrued generally will not be excluded
from "rents from real property" solely by reason of being based on a fixed
percentage or percentages of receipts or sales. Finally, for rents received to
qualify as rents from real property for purposes of the 75% and 95% gross income
tests, COPT generally must not operate or manage the property or furnish or
render services to customers, other than through an "independent contractor"
from whom COPT derives no income, or through a taxable REIT subsidiary, except
that the "independent contractor" or taxable REIT subsidiary requirement does
not apply to the extent that the services provided by COPT are "usually or
customarily rendered" in connection with the rental of space for occupancy only,
and are not otherwise considered "rendered to the occupant for his convenience."
In addition, COPT may directly perform a DE MINIMIS amount of non-customary
services. COPT believes that the services provided with regard to COPT's
properties by the operating partnership (or its agents) are now (and, it is
believed, will in the future be) usual or customary services. Any services that
cannot be provided directly by the Operating Partnership will be performed by
independent contractors.
THE 95% TEST. In addition to deriving 75% of its gross income from the sources
listed above, at least 95% of COPT's gross income for the taxable year must be
derived from the above-described qualifying income or from dividends, interest,
or gains from the sale or other disposition of stock or other securities that
are not dealer property. Dividends and interest on obligations not
collateralized by an interest in real property are included for purposes of the
95% test,
25
but not for purposes of the 75% test. COPT intends to monitor closely its
non-qualifying income and anticipates that non-qualifying income from its
activities will not result in COPT failing to satisfy either the 75% or 95%
gross income test.
For purposes of determining whether COPT complies with the 75% and the 95%
gross income tests, gross income does not include income from prohibited
transactions. A "prohibited transaction" is a sale of dealer property (excluding
foreclosure property); however, a sale of property will not be a prohibited
transaction if such property is held for at least four years and certain other
requirements (relating to the number of properties sold in a year, their tax
bases and the cost of improvements made thereto) are satisfied.
Even if COPT fails to satisfy one or both of the 75% and 95% gross income
tests for any taxable year, it may still qualify as a REIT for such year if it
is entitled to relief under certain provisions of the Code. These relief
provisions will generally be available if: (i) COPT's failure to comply is due
to reasonable cause and not to willful neglect; (ii) COPT reports the nature and
amount of each item of its income included in the tests on a schedule attached
to its tax return; and (iii) any incorrect information on this schedule is not
due to fraud with intent to evade tax. If these relief provisions apply,
however, COPT will nonetheless be subject to a 100% tax on the greater of the
amount by which it fails either the 75% or 95% gross income test (substituting
for purposes of calculating the amount by which the 95% gross income test is
failed, 90% for 95%) multiplied by a fraction intended to reflect COPT's
profitability.
COMPLIANCE WITH INCOME TESTS. During our last fiscal year, Constellation Real
Estate, Inc. and certain affiliated companies were obligated as tenants to pay
annualized office rents with respect to properties owned by the Operating
Partnership. Some of this rental income may not constitute qualifying rental
income for purposes of the 75% and 95% gross income tests. COPT expects, based
on current rent levels, that receipt of such rental income will not cause it to
violate the 95% gross income test for our last taxable year. Aside from this
rental income, COPT does not expect that it will earn material amounts of
non-qualifying income from either Constellation Real Estate, Inc. or its
existing properties. Based on the foregoing, COPT expects that it will continue
to satisfy the 75% and 95% gross income tests. The fact that affiliates of
Constellation Real Estate, Inc. will be paying non-qualifying income may,
however, restrict the ability of COPT and the Operating Partnership to acquire
additional properties that generate non-qualifying income.
To avoid a violation of the 95% gross income test, the Operating
Partnership established COMI to own an interest in Corporate Realty Management,
LLC, the Operating Partnership's property management company ("CRM"), and
certain other entities whose activities produced income not qualifying under the
95% gross income test. The management fee and other service income earned by
COMI as a result of its ownership interest in CRM and such other entities, or as
a result of management and other services performed by COMI or its subsidiaries,
although non-qualifying income, was not treated as non-qualifying income earned
by COPT for purposes of the 95% or 75% gross income tests. However, any interest
or dividends paid or distributed by COMI to the Operating Partnership was
considered non-qualifying income for purposes of the 95% test, but was not
considered qualifying income for purposes of the 75% test.
On January 1, 2001, COPT acquired all of the stock in COMI which it did
not previously own. COPT then elected to have COMI treated as a taxable REIT
subsidiary effective January 1, 2001. COMI, as a taxable REIT subsidiary, will
be treated as a separate taxable corporation. COMI is currently the only taxable
REIT subsidiary owned by COPT and COPT's ownership of COMI currently represents
20% or less of the value of COPT's total assets. To insure that COPT continues
to focus on real estate as its core business, the Code provides that no more
than 20% of the total value of COPT's total assets may consists of stock of one
or more taxable REIT subsidiaries. In addition, any dividends paid to COPT by
COMI will not be treated as qualifying income for purposes of the 75% income
test. Rents paid by COMI to COPT will, however, qualify as qualifying income
under the 75% gross income test if (a) at least 90% of the leased space of the
property is rented to persons other than COMI and other than entities in which
COPT owns a 10% or greater interest and (b) the rents are substantially
comparable to rents made by other tenants of COPT. Further, to the extent that
income from transactions between COPT or its tenants and COMI is not determined
on an arm's length basis (a "redetermined" item) a 100% tax will apply. The tax
applies to the portion of any redetermined rents and deductions, and any
interest that is determined under applicable tax rules to be excessive. Safe
harbors are provided for certain rental payments where the amounts are de
minimis, the charges to third-parties are substantially comparable, the charges
are separately stated or the gross income received by COMI is not less than 150%
of its direct costs in furnishing the services. In addition, interest paid by
COMI to COPT will be subject to certain tax rules which may limit COMI's ability
to currently deduct such interest.
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COPT intends to continue to monitor its operations and investments in the
context of these standards so as to continue to satisfy the 75% and 95% gross
income tests. While the Operating Partnership or its affiliates provide certain
services with respect to the properties in which COPT owns interests and
possibly with respect to any newly acquired properties, COPT believes that for
purposes of the 75% and 95% gross income tests the services provided at such
properties and any other services and amenities provided by the Operating
Partnership or its agents with respect to such properties will be of the type
usually or customarily rendered in connection with the rental of space for
occupancy only and not rendered to the occupants of such properties. COPT
intends that services that cannot be provided directly by the Operating
Partnership or other agents will be performed by independent contractors.
ANNUAL DISTRIBUTION REQUIREMENTS. In order to qualify as a REIT, COPT was
required to distribute dividends to its shareholders each year in an amount at
least equal to (A) the sum of (i) 90% of COPT's REIT taxable income (computed
without regard to the dividends received deduction and COPT's net capital gain)
and (ii) 90% of the net income (after tax), if any, for foreclosure property,
minus (B) the sum of certain items of non-cash income. Such distributions must
be paid in the taxable year to which they relate, or in the following taxable
year if declared before COPT timely files its tax return for such year and if
paid on or before the first regular dividend payment after the declaration. To
the extent that COPT does not distribute all of its net capital gain or
distributes at least 90% but less than 100%, of its REIT taxable income, as
adjusted, it will be subject to tax on the undistributed amount at regular
capital gain or ordinary corporate tax rates, as the case may be.
COPT intends to make timely distributions sufficient to satisfy the annual
distribution requirements described in the first sentence of the preceding
paragraph. In this regard, the Operating Partnership agreement authorizes COPT
in its capacity as General Partner to take such steps as may be necessary to
cause the Operating Partnership to distribute to its partners an amount
sufficient to permit COPT to meet the distribution requirements. It is possible
that COPT may not have sufficient cash or other liquid assets to meet the
above-described distribution requirement, either due to timing differences
between the actual receipt of income and actual payment of expenses on the one
hand, and the inclusion of such income and deduction of such expenses in
computing COPT's REIT taxable income on the other hand, or for other reasons.
COPT will monitor closely the relationship between its REIT taxable income and
cash flow and, if necessary, intends to borrow funds (or cause the Operating
Partnership or other affiliates to borrow funds) in order to satisfy the
distribution requirement. However, there can be no assurance that such borrowing
would be available at such time.
If COPT fails to meet the above-described distribution requirement as a
result of an adjustment to COPT's tax return by the Service, COPT may
retroactively cure the failure by paying a "deficiency dividend" (plus
applicable penalties and interest) within a specified period.
TAXATION OF SHAREHOLDERS
TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS. As long as COPT qualifies as a REIT,
distributions made to its taxable domestic shareholders out of current or
accumulated earnings and profits (and not designated as capital gain dividends)
will constitute dividends taxable as ordinary income, and corporate shareholders
will not be eligible for the dividends received deduction as to such amounts.
Distributions that are designated as capital gain dividends will be taxed as
gain from the sale or exchange of a capital asset (to the extent they do not
exceed COPT's actual net capital gain for the taxable year) without regard to
the period for which the shareholder has held its shares. In the event COPT
designates any portion of a dividend as a capital gain dividend, a shareholder's
share of such capital gain dividend would be an amount which bears the same
ratio to the total amount of dividends paid to such shareholder for the taxable
year as the total amount of capital gain dividends bears to the total amount of
all dividends paid on all classes of share for the taxable year. However,
corporate shareholders may be required to treat up to 20% of certain capital
gain dividends as ordinary income. COPT may elect to retain and pay income tax
on any net long-term capital gain, in which case its domestic shareholders would
include in their income as long-term capital gain their proportionate share of
such undistributed net long-term capital gain. A domestic shareholder would also
receive a refundable tax credit for such shareholder's proportionate share of
the tax paid by COPT on such retained capital gains and an increase in its basis
in its shares in an amount equal to the difference between the undistributed
long-term capital gains and the amount of tax paid by COPT. See the section
below entitled "Capital Gains and Losses".
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Distributions in excess of current and accumulated earnings and profits
will not be taxable to a shareholder to the extent that they do not exceed the
adjusted basis of the shareholder's shares of beneficial interest, but rather
will reduce the adjusted basis of such shares. To the extent that such
distributions exceed the adjusted basis of a shareholder's shares of beneficial
interest, they will be included in income as short-term or long-term capital
gain (depending on the length of time the shares have been held), assuming the
shares are capital assets in the hands of the shareholder. In addition, any
dividend declared by COPT in October, November or December of any year and
payable to a shareholder of record on a specific date in any such month shall be
treated as both paid by COPT and received by the shareholder on December 31 of
such year, provided that the dividend is actually paid by COPT during January of
the following calendar year.
Domestic shareholders may not include in their individual income tax
returns any of COPT's net operating losses or capital losses. Instead, such
losses would be carried over by COPT for potential offset against future income
(subject to certain limitations). Distributions made by COPT and gain arising
from the sale or exchange of shares will not be treated as passive activity
income, and, as a result, shareholders generally will not be able to apply any
"passive losses" against such income and gain. In addition, taxable
distributions from COPT generally will be treated as investment income. Capital
gain dividends (including distributions treated as such) and capital gain from
the disposition of shares, however, will be treated as investment income only if
a shareholder so elects, in which case such capital gain will be taxed at
ordinary income rates. COPT will notify shareholders after the close of its
taxable year as to the portions of distributions attributable to that year that
constitute ordinary income, return of capital and capital gain.
In general, a domestic shareholder will realize capital gain or loss on
the disposition of COPT's shares of beneficial interest equal to the difference
between (i) the amount of cash and the fair market value of any property
received on such disposition, and (ii) the shareholder's adjusted basis of such
shares of beneficial interest. Such gain or loss generally will constitute
short-term capital gain or loss if the shareholder has not held such shares for
more than one year and long-term capital gain or loss if the shareholder has
held such shares for more than one year. See the section below entitled "Capital
Gains and Losses". Loss upon a sale or exchange of COPT's shares of beneficial
interest by a shareholder who has held such shares for six months or less (after
applying certain holding period rules) will be treated as a long-term capital
loss to the extent of distributions from COPT required to be treated by such
shareholder as long-term capital gain.
CAPITAL GAINS AND LOSSES. The maximum marginal individual income tax rate is
39.6%. The maximum tax rate on net capital gains applicable to individuals,
trusts and estates from the sale or exchange of capital assets held for more
than one year is 20%, and the maximum rate is reduced to 18% for assets acquired
after December 31, 2000 and held for more than five years. For individuals,
trusts and estates who would be subject to a maximum tax rate of 15%, the rate
on net capital gains is reduced to 10%, and, effective for taxable years
commencing after December 31, 2000, the rate is reduced to 8% for assets held
for more than five years. The maximum rate for net capital gains attributable to
the sale of depreciable real property held for more than 18 months is 25% to the
extent of the deductions for depreciation (other than certain depreciation
recapture taxable as ordinary income) with respect to such property.
Accordingly, the tax rate differential between capital gain and ordinary income
for noncorporate taxpayers may be significant. In addition, the characterization
of income as capital or ordinary may affect the deductibility of capital losses.
Capital losses not offset by capital gains may be deducted against a
noncorporate taxpayer's ordinary income only up to a maximum annual amount of
$3,000. Unused capital losses may be carried forward. All net capital gain of a
corporate taxpayer is subject to tax at ordinary corporate rates. A corporate
taxpayer can deduct capital losses only to the extent of capital gains, with
unused losses being carried back three years and forward five years.
BACKUP WITHHOLDING. COPT will report to its domestic shareholders and the IRS
the amount of dividends paid during each calendar year and the amount of tax
withheld, if any, with respect thereto. Under the backup withholding rules, a
shareholder may be subject to backup withholding at the rate of 31% with respect
to dividends paid unless such holder (i) is a corporation or comes within
certain other exempt categories and, when required, demonstrates this fact or
(ii) provides a taxpayer identification number, certifies as to no loss of
exemption and otherwise complies with the applicable requirements of the backup
withholdings rules. Any amount paid as backup withholding will be creditable
against the shareholder's income tax liability. The United States Treasury has
recently issued final regulations (the "Final Regulations") regarding the
withholding and information reporting rules discussed above. In general, the
Final Regulations do not alter the substantive withholding and information
reporting requirements but unify current certification procedures and forms and
clarify and modify reliance standards. The Final Regulations are generally
28
effective for payments made on or after January 1, 2001, subject to certain
transition rules. Prospective investors should consult their own tax advisors
concerning the adoption of the Final Regulations and the potential effect on
their ownership of COPT's shares of beneficial interest.
In addition, COPT may be required to withhold a portion of capital gain
distributions made to shareholders that fail to certify their non-foreign status
to COPT. See section below entitled "-Taxation of Foreign Shareholders".
TAXATION OF TAX-EXEMPT SHAREHOLDERS. The IRS has ruled that amounts distributed
as dividends by a REIT generally do not constitute unrelated business taxable
income ("UBTI") when received by a tax-exempt entity. Based on that ruling,
dividend income from COPT's shares of beneficial interest will not be UBTI to a
tax-exempt shareholder, provided that the tax-exempt shareholder has not held
its shares as "debt financed property" within the meaning of the Code and such
shares are not otherwise used in a trade or business. Similarly, income from the
sale of COPT's shares of beneficial interest will not constitute UBTI unless
such tax-exempt shareholder has held such shares as "debt financed property"
within the meaning of the Code or has used the shares in a trade or business.
Notwithstanding the above, however, a portion of the dividends paid by a
"pension held REIT" will be treated as UBTI as to any trust which is described
in Section 401(a) of the Code, is tax-exempt under Section 501(a) of the Code (a
"qualified trust") and which holds more than 10% (by value) of the interests in
the REIT. A REIT is a "pension held REIT" if (i) it would not have qualified as
a REIT but for the application of a "look-through" exception to the 50%
Limitation applicable to qualified trusts, and (ii) either (1) at least one such
qualified trust holds more than 25% (by value) of the interests in the REIT, or
(2) one or more such qualified trusts, each of which owns more than 10% (by
value) of the interests in the REIT, hold in the aggregate more than 50% (by
value) of the interests in the REIT. The percentage of any REIT dividend treated
as UBTI is equal to the ratio of (i) the gross income (less direct expenses
related thereto) of the REIT from unrelated trades or businesses (determined as
if the REIT were a qualified trust) to (ii) the total gross income (less direct
expenses related thereto) of the REIT. A DE MINIMIS exception applies where this
percentage is less than 5% for any year. The provisions requiring qualified
trusts to treat a portion of REIT distributions as UBTI will not apply if the
REIT is able to satisfy the 50% Limitation without relying upon the
"look-through" exception with respect to qualified trusts. As a result of
certain limitations on transfer and ownership of COPT's shares of beneficial
interest contained in the Charter, COPT does not expect to be classified as a
"pension held REIT."
TAXATION OF FOREIGN SHAREHOLDERS. The rules governing the United States Federal
income taxation of the ownership and disposition of COPT's shares of beneficial
interest by persons that are, for purposes of such taxation, nonresident alien
individuals, foreign corporations, foreign partnerships and other foreign
shareholders (collectively, "Non-U.S. Shareholders") are complex and no attempt
will be made herein to provide more than a summary of such rules.
PROSPECTIVE NON-U.S. SHAREHOLDERS SHOULD CONSULT WITH THEIR OWN TAX
ADVISORS TO DETERMINE THE IMPACT OF FEDERAL, STATE, AND LOCAL INCOME TAX LAWS
WITH REGARD TO AN INVESTMENT IN COPT'S SHARES OF BENEFICIAL INTEREST, INCLUDING
ANY REPORTING REQUIREMENTS, AS WELL AS THE TAX TREATMENT OF SUCH AN INVESTMENT
UNDER THEIR HOME COUNTRY LAWS.
In general, Non-U.S. Shareholders will be subject to regular United States
Federal income taxation with respect to their investment in COPT's shares of
beneficial interest in the same manner as a U.S. shareholder (i.e., at graduated
rates on a net basis, after allowance of deductions) if such investment is
"effectively connected" with the conduct by such Non-U.S. Shareholder of a trade
or business in the United States. A Non-U.S. Shareholder that is a corporation
and that receives income with respect to its investment in COPT's shares of
beneficial interest that is (or is treated as) "effectively connected" with the
conduct of a trade or business in the United States may also be subject to the
30% branch profits tax imposed under Section 884 of the Code, which is payable
in addition to the regular United States corporate income tax. The following
discussion addresses only the Federal income taxation of Non-U.S. Shareholders
whose investment in COPT's shares of beneficial interest is not "effectively
connected" with the conduct of a trade or business in the United States.
Prospective investors whose investment in COPT's shares of beneficial interest
may be "effectively connected" with the conduct of a United States trade or
business should consult their own tax advisors as to the tax consequences
thereof.
Distributions that are not attributable to gain from sales or exchanges of
United States real property interests and that are not designated by COPT as
capital gains dividends will be treated as dividends of ordinary income to the
29
extent that they are made out of COPT's current or accumulated earnings and
profits. Such distributions ordinarily will be subject to a withholding tax
equal to 30% of the gross amount of the distribution unless an applicable tax
treaty reduces or eliminates that tax. Pursuant to the Final Regulations,
dividends paid to an address in a country outside the United States will no
longer be presumed to be paid to a resident of such country for purposes of
determining the applicability of withholding discussed above and the
availability of a reduced tax treaty rate. A Non-U.S. Shareholder who wishes to
claim the benefit of an applicable treaty rate will now be required to satisfy
certain certification and other requirements. Distributions that COPT makes in
excess of its current and accumulated earnings and profits will not be taxable
to a Non-U.S. Shareholder to the extent they do not exceed the adjusted basis of
such Non-U.S. Shareholder's shares, but rather will reduce the adjusted basis of
such shares (but not below zero). To the extent that such distributions exceed
the adjusted basis of a Non-U.S. Shareholder's shares, they will give rise to
tax liability if such Non-U.S. Shareholder would otherwise be subject to tax on
any gain from the sale or disposition of shares, as described below.
For withholding tax purposes, COPT was required to treat all distributions
as if made out of its current or accumulated earnings and profits and thus
intends to withhold at the rate of 30% (or a reduced treaty rate if applicable)
on the amount of any distribution (other than distributions designated as
capital gain dividends) made to a Non-U.S. Shareholder. Under the Final
Regulations, generally effective for distributions on or after January 1, 2001,
COPT will be required to withhold at the 30% rate on distributions COPT
reasonably estimates to be in excess of its current and accumulated earnings and
profits. If it cannot be determined at the time a distribution is made whether
such distribution will be in excess of current and accumulated earnings and
profits, the distribution will be subject to withholding at the rate applicable
to ordinary dividends. However, a Non-U.S. Shareholder may seek a refund of such
amounts from the IRS if it is subsequently determined that such distribution
was, in fact, in excess of its current or accumulated earnings and profits, and
the amount withheld exceeded the Non-U.S. Shareholder's United States tax
liability, if any, with respect to the distribution.
For any year in which COPT qualifies as a REIT, distributions that are
attributable to gain from sales or exchanges of United States real property
interests will be taxed to a Non-U.S. Shareholder under the provisions of the
Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). Under FIRPTA,
these distributions are taxed to a Non-U.S. Shareholder as if such gain were
effectively connected with the conduct of a United States trade or business.
Non-U.S. Shareholders would thus be taxed at the normal capital gain rates
applicable to domestic shareholders (subject to applicable alternative minimum
tax and special alternative minimum tax in the case of nonresident alien
individuals), without regard as to whether such distributions are designated by
COPT as capital gain dividends. Also, distributions subject to FIRPTA may be
subject to a 30% branch profits tax in the hands of a foreign corporate
shareholder not entitled to treaty exemption. COPT is required by Treasury
Regulations to withhold 35% of any distribution to a Non-U.S. Shareholder that
could be designated as a capital gain dividend. This amount is creditable
against the Non-U.S. Shareholder's FIRPTA tax liability.
Gain recognized by a Non-U.S. Shareholder upon a sale of COPT's shares of
beneficial interest generally will not be subject to United States taxation
unless such shares constitute a "United States real property interest" within
the meaning of FIRPTA. COPT's shares of beneficial interest will not constitute
a "United States real property interest" so long as COPT is a "domestically
controlled REIT." A "domestically controlled REIT" is generally a REIT in which
at all times during a specified testing period less than 50% in value of its
share was held directly or indirectly by Non-U.S. Shareholders. COPT believes
that it will be a "domestically controlled REIT" and therefore, the sale of
COPT's shares of beneficial interest will not be subject to taxation under
FIRPTA. However, because COPT's shares of beneficial interest will be publicly
traded, no assurance can be given that COPT will continue to be a "domestically
controlled REIT." Notwithstanding the foregoing, gain from the sale or exchange
of its shares not otherwise subject to FIRPTA generally will be taxable to a
Non-U.S. Shareholder if the Non-U.S. Shareholder is a nonresident alien
individual who is present in the United States for 183 days or more during the
taxable year and has a "tax home" in the United States. In such case, the
nonresident alien individual will be subject to a 30% United States withholding
tax on the amount of such individual's gain.
If COPT does not qualify as or ceases to be a "domestically controlled
REIT," whether gain arising from the sale or exchange by a Non-U.S. Shareholder
of COPT's shares of beneficial interest would be subject to U.S. taxation under
FIRPTA will depend on whether the shares are "regularly traded" (as defined in
applicable Treasury Regulations) on an established securities market (such as
the NYSE on which COPT's shares of beneficial interest are traded) and on the
size of the selling Non-U.S. Shareholder's interest in COPT. If the gain on the
sale of COPT's shares of beneficial
30
interest were to be subject to tax under FIRPTA, the Non-U.S. Shareholder would
be subject to the same treatment as a domestic shareholder with respect to such
gain (subject to applicable alternative minimum tax and a special alternative
minimum tax in the case of nonresident alien individuals and the possible
application of the 30% branch profits tax in the case of foreign corporations),
and the purchaser would be required to withhold and remit to the IRS 10% of the
purchase price. In addition, if COPT is not a "domestically controlled REIT,"
distributions in excess of its current and accumulated earnings and profits
would be subject to withholding at a rate of 10%.
Dividends paid in the United States with respect to COPT's shares of
beneficial interest, and proceeds from the sale of COPT's shares of beneficial
interest, through a United States broker (or certain brokers having significant
connections with the United States) may be subject to the information reporting
requirements of the Code. Under the backup withholding rules, a shareholder may
be subject to backup withholding at the rate of 31% unless such shareholder (i)
is a corporation or comes within certain other exempt categories and, when
required, demonstrates this fact, or (ii) provides a taxpayer identification
number and certifies as to no loss of exemption, and otherwise complies with the
applicable requirements of the backup withholding rules. Non-U.S. Shareholders
are generally exempt from information reporting and backup withholding, but may
be required to provide a properly completed Form W-8 or otherwise comply with
applicable certification and identification procedures in order to prove their
exemption. Any amount paid as backup withholding will be creditable against the
Non-U.S. Shareholder's United States income tax liability.
The Final Regulations, originally issued by the United States Treasury on
October 6, 1997, affect the rules applicable to payments to foreign persons. In
general, the Final Regulations do not alter the substantive withholding and
information reporting requirements but unify current certification procedures
and modify reliance standards. In addition, the Final Regulations also address
certain issues relating to intermediary certification procedures designed to
simplify compliance by withholding agents. The Final Regulations are generally
effective for payments made on or after January 1, 2001, subject to certain
transition rules. Prospective investors should consult their own tax advisors
concerning the adoption of the Final Regulations and the potential effect on
their ownership of COPT's shares of beneficial interest.
OTHER TAX CONSIDERATIONS
EFFECT OF TAX STATUS OF THE OPERATING PARTNERSHIP ON REIT QUALIFICATION. All of
COPT's investments are through the operating partnership. COPT believes that the
operating partnership is properly treated as a partnership for tax purposes (and
not as an association taxable as a corporation). If, however, the operating
partnership were to be treated as an association taxable as a corporation, COPT
would cease to qualify as a REIT. Furthermore, in such a situation, the
operating partnership would be subject to corporate income taxes and COPT would
not be able to deduct its share of any losses generated by the operating
partnership in computing its taxable income.
TAX ALLOCATIONS WITH RESPECT TO THE PROPERTIES. The operating partnership was
formed, in part, by way of contributions of appreciated property. When property
is contributed to a partnership in exchange for an interest in the partnership,
the partnership generally takes a carryover basis in that property for tax
purposes equal to the adjusted basis of the contributing partner in the
property, rather than a basis equal to the fair market value of the property at
the time of contribution (this difference is referred to as a "Book-Tax
Difference"). The partnership agreement of the operating partnership requires
allocations of income, gain, loss and deduction with respect to contributed
Property to be made in a manner consistent with the special rules in Section
704(c) of the Code, and the regulations thereunder, which tend to eliminate the
Book-Tax Differences with respect to the contributed Properties over the
depreciable lives of the contributed Properties. However, because of certain
technical limitations, the special allocation rules of Section 704(c) may not
always entirely eliminate the Book-Tax Difference on an annual basis or with
respect to a specific taxable transaction such as a sale. Thus, the carryover
basis of the contributed properties in the hands of the operating partnership
could cause COPT to be allocated lower amounts of depreciation and other
deductions for tax purposes than would be allocated to COPT if all properties
were to have a tax basis equal to their fair market value at the time of
acquisition. The foregoing principles also apply in determining its earnings and
profits for purposes of determining the portion of distributions taxable as
dividend income. The application of these rules over time may result in a higher
portion of distributions being taxed as dividends than would have occurred had
COPT purchased its interests in all properties at their agreed value.
31
Treasury Regulations under Section 704(c) of the Code allow partnerships
to use any reasonable method of accounting for Book-Tax Differences so that the
contributing partner receives the tax benefits and burdens of any built-in gain
or loss associated with the property. The operating partnership has determined
to use the "traditional method" (which is specifically approved in the Treasury
Regulations) for accounting for Book-Tax Differences with respect to the
Contributed Properties.
STATE AND LOCAL TAXES. COPT and its shareholders may be subject to state or
local taxation in various state or local jurisdictions, including those in which
COPT or they transact business or reside. The state and local tax treatment of
us and its shareholders may not conform to the Federal income tax consequences
discussed above. Consequently, prospective shareholders should consult with
their own tax advisors regarding the effect of state, local and other tax laws
of any investment in COPT's shares of beneficial interest.
PLAN OF DISTRIBUTION
We are registering the Common Shares pursuant to our obligations under
several registration rights agreements, but the registration of the Common
Shares does not necessarily mean that any of the Common Shares will be offered
or sold by the selling shareholders or their respective donees or pledgees
hereunder.
The distribution of the Common Shares may be effected from time to time in
one or more underwritten transactions at a fixed price or prices which may be
changed, or at market prices prevailing at the time of sale, at prices related
to such prevailing market prices or at negotiated prices. Any such underwritten
offering may be on a "best efforts" or a "firm commitment" basis. In connection
with any underwritten offering, underwriters or agents may receive compensation
in the form of discounts, concessions or commissions from the selling
shareholders or from purchasers of the Common Shares. Underwriters may sell the
Common Shares to or through dealers, and such dealers may receive compensation
in the form of discounts, concessions or commissions from the underwriters
and/or commissions from the purchasers for whom they may act as agents.
The selling shareholders and any underwriters, dealers or agents that
participate in the distribution of the Common Shares may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, as amended,
(the "Securities Act"), and any profit on the sale of the Common Shares by them
and any discounts, commissions or concessions received by any such underwriters,
dealers or agents may be deemed to be underwriting discounts and commissions
under the Securities Act.
At a time a particular offer of Common Shares is made by the selling
shareholders, a prospectus supplement, if required, will be distributed that
will set forth the name and names of any underwriters, dealers or agents and any
discounts, commissions and other terms constituting compensation from the
selling shareholders and any other required information.
The sale of Common Shares by the selling shareholders may also be effected
from time to time by selling Common Shares directly to purchasers or to or
through broker-dealers. In connection with any such sale, any such broker-dealer
may act as agent for the selling shareholders or may purchase from the selling
shareholders all or a portion of the Common Shares as principal, and may be made
pursuant to any of the methods described below. Such sales may be made on the
NYSE or other exchanges on which the Common Shares are then traded, in the
over-the-counter market, in negotiated transactions or otherwise at prices and
at terms then prevailing or at prices related to the then-current market prices
or at prices otherwise negotiated.
The Common Shares may also be sold in one or more of the following
transactions: (a) block transactions (which may involve crosses) in which a
broker-dealer may sell all or a portion of such shares as agent but may position
and resell all or a portion of the block as principal to facilitate the
transaction; (b) purchases by any such broker-dealer as principal and resale by
such broker-dealer for its own account pursuant to a prospectus supplement; (c)
a special offering, an exchange distribution or a secondary distribution in
accordance with applicable NYSE or other stock exchange rules; (d) ordinary
brokerage transactions and transactions in which any such broker-dealer solicits
purchasers; (e) sales "at the market" to or through a market maker or into an
existing trading market, on an exchange or otherwise, for such shares; and (f)
sales in other ways not involving market markers or established trading markets,
including direct sales to purchasers. In effecting sales, broker-dealers engaged
by the selling shareholders may arrange for other broker-dealers to participate.
Broker-dealers will receive commissions or other
32
compensation from the selling shareholders in amounts to be negotiated
immediately prior to the sale that will not exceed those customary in the types
of transactions involved. Broker-dealers may also receive compensation from
purchasers of the Common Shares which is not expected to exceed that customary
in the types of transactions involved.
In order to comply with the securities laws of certain states, if
applicable, the Common Shares may be sold only through registered or licensed
brokers or dealers.
We have agreed to pay all expenses incident to the offering and sale of
the Common Shares, other than commissions, discounts and fees of underwriters,
broker-dealers or agents. We have agreed to indemnify the selling shareholders
against certain losses, claims, damages, actions, liabilities, costs and
expenses, including liabilities under the Securities Act.
Each of the selling shareholders has agreed to indemnify us, our officers
and Trustees and each person who controls (within the meaning of the Securities
Act) us, and each of the other selling shareholders, against any losses, claims,
damages, liabilities and expenses arising under the securities laws in
connection with this offering with respect to written information furnished to
us by such selling shareholder; provided, however, that the indemnification
obligation is several, not joint, as to each selling shareholder.
EXPERTS
The financial statements incorporated in this prospectus by reference to
the Annual Report on Form 10-K of Corporate Office Properties Trust for the year
ended December 31, 2000 have been so incorporated in reliance on the report
of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
LEGAL MATTERS
The validity of the Common Shares offered hereby are being passed upon for
us by Morgan, Lewis & Bockius LLP. The opinion of counsel as described under the
heading "Federal Income Tax Matters" is being rendered by Morgan, Lewis &
Bockius LLP, which opinion is subject to various assumptions and is based on
current tax law.
WHERE YOU CAN FIND MORE INFORMATION
COPT has filed a registration statement on Form S-3 with the Securities
and Exchange Commission in connection with this offering. In addition, COPT
files annual, quarterly, and current reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
the registration statement and any other documents filed by COPT at the
Securities and Exchange Commission's Public Reference Room at 450 Fifth Street,
N.W., Washington, D.C. 20549. Please call the Securities and Exchange Commission
at 1-800-SEC-0330 for further information on the Public Reference Room. COPT's
Securities and Exchange Commission filings are also available to the public at
the Securities and Exchange Commission's Internet site at http://www.sec.gov.
This prospectus is part of the registration statement and does not contain
all of the information included in the registration statement. If a reference is
made in this prospectus or any prospectus supplement to any contract or other
document of COPT, the reference may not be complete and you should refer to the
exhibits that are a part of the registration statement for a copy of the
contract or document.
The Securities and Exchange Commission allows us to "incorporate by
reference" into this prospectus the information we file with the Commission,
which means that we can disclose important information to you by referring you
to those documents. Information incorporated by reference is part of this
prospectus. Later information filed with the Securities and Exchange Commission
will update and supersede this information.
We incorporate by reference the documents listed below and any future
filings we make with the Securities and Exchange Commission under Sections
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until this
offering is completed:
33
o Annual Report of Form 10-K for the year ended December 31, 2000; and
o Current Report on Form 8-K, filed with the Securities and Exchange
Commission on April 4, 2001, relating to the classification of the Series
E Preferred Shares.
You may request a copy of these filings, at no cost, by contacting Sara
Grootwassink, Vice President-Finance and Investor Relations, 8815 Centre Park
Drive, Suite 400, Columbia, Maryland 21045, by telephone at 410-992-7324, by
facsimile at 410-740-1174, or by e-mail at sara.grootwassink@copt.com. The
information contained on our website is not part of this prospectus.
34
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses in connection with the issuance and distribution of the
securities being registered are set forth in the following table (all amounts
except the registration fee are estimated):
Registration fee-- Securities and Exchange Commission $ 3,137
Accountant's fees and expenses 10,000
Legal fees and expenses 30,000
Miscellaneous 10,000
---------
TOTAL $ 53,137
=========
All expenses in connection with the issuance and distribution of the
securities being offered shall be borne by COPT.
ITEM 15. INDEMNIFICATION OF TRUSTEES AND OFFICERS.
The Maryland REIT Law permits a Maryland real estate investment trust to
include in its declaration of trust a provision limiting the liability of its
trustees and officers to the trust and its shareholders for money damages except
for liability resulting from (i) actual receipt of an improper benefit or profit
in money, property or services or (ii) active and deliberate dishonesty
established by a final judgment as being material to the cause of action. The
Declaration of Trust contains such a provision limiting such liability to the
maximum extent permitted by Maryland law.
The Declaration of Trust authorizes COPT, to the maximum extent permitted
by Maryland law, to obligate itself to indemnify and to pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to (a) any
present or former Trustee or officer or (b) any individual who, while a Trustee
of COPT and at the request of COPT, serves or has served another real estate
investment trust, corporation, partnership, joint venture, trust, employee
benefit plan or any other enterprise as a trustee, director, officer, partner,
employee or agent of such entity from and against any claim or liability to
which such person may become subject or which such person may incur by reason of
service in such capacity. The Bylaws obligate COPT, to the maximum extent
permitted by Maryland law, to indemnify and to pay or reimburse reasonable
expenses in advance of final disposition of a proceeding to (i) any present or
former Trustee or officer who is made a party to the proceeding by reason of his
or her service in that capacity or (ii) any such Trustee or officer who, at the
request of COPT, serves or has served another real estate investment trust,
corporation, partnership, joint venture, trust, employee benefit plan or any
other enterprise as a trustee, director, officer, partner, employee or agent of
such entity and who is made a party to the proceeding by reason of his service
in that capacity against any claim or liability to which he may become subject
by reason of his or her status as a present or former Trustee or officer of
COPT. The Declaration of Trust and the Bylaws also permit COPT to provide
indemnification to any person who served a predecessor of COPT in any of the
capacities described above and to any employee or agent of COPT or a predecessor
of COPT. The Bylaws require COPT to indemnify a Trustee or officer who has been
successful, on the merits or otherwise, in the defense of any proceeding to
which he or she is made a party by reason of his or her service in that
capacity.
The Maryland REIT Law permits a Maryland real estate investment trust to
indemnify, and to advance expenses to, its trustees and officers, to the same
extent as permitted by the MGCL for Trustees and officers of Maryland
corporations. The MGCL permits a corporation to indemnify its present and former
Trustees and officers, among others, against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by them in connection with
any proceeding to which they may be made a party by reason of their service in
those or other capacities unless it is established that (i) the act or omission
of the director or officer was material to the matter giving rise to the
proceeding and (a) was committed in bad faith or (b) was the result of active
and deliberate dishonesty, (ii) the director or officer actually received an
improper personal benefit in money, property or services or (iii) in the case of
any criminal proceeding, the director or officer had reasonable cause to believe
that the act or omission was unlawful. However, under the MGCL, a Maryland
corporation may not indemnify for an adverse judgment in a suit by or in the
right of the corporation or for a judgment of liability on the basis that
personal benefit
II-1
was improperly received, unless in either case a court orders indemnification
and then only for expenses. In addition, the MGCL permits a corporation to
advance reasonable expenses to a director or officer upon the corporation's
receipt of (a) a written affirmation by the director or officer of his or her
good-faith belief that he or she has met the standard of conduct necessary for
indemnification by the corporation and (b) a written undertaking by him or her
or on his or her behalf to repay the amount paid or reimbursed by the
corporation if it shall ultimately be determined that the standard of conduct
was not met. Under the MGCL, rights to indemnification and expenses are
nonexclusive, in that they need not be limited to those expressly provided by
statute.
The Maryland REIT Law and the Bylaws may permit indemnification for
liabilities arising under the Securities Act or the Exchange Act. The Board of
Trustees has been advised that, in the opinion of the Commission,
indemnification for liabilities arising under the Securities Act or the Exchange
Act is contrary to public policy and is therefore unenforceable, absent a
decision to the contrary by a court of appropriate jurisdiction.
ITEM 16. EXHIBITS.
EXHIBIT DESCRIPTION
NO.
4.1 Form of certificate for the Registrant's Common Shares of Beneficial
Interest, $0.01 par value per share (filed with the Registrant's
Registration Statement on Form S-4 (Commission File No. 333-45649)
and incorporated herein by reference.
4.2 Amended and Restated Declaration of Trust of Registrant (filed with
the Registrant's Registration Statement on Form S-4 (Commission File
No. 333-45649) and incorporated herein by reference).
4.3 Bylaws of Registrant (filed with the Registrant's Registration
Statement on Form S-4 (Commission File No. 333-45649) and
incorporated herein by reference).
4.4 Form of certificate for the Registrant's Common Shares of Beneficial
Interest, $0.01 par value per share (filed with the Registrant's
Registration Statement on Form S-4 (Commission File No. 333-45649)
and incorporated herein by reference).
4.5 Articles Supplementary of Corporate Office Properties Trust Series A
Convertible Preferred Shares, dated September 28, 1998 (filed with
the Registrant's Current Report on Form 8-K on October 13, 1998 and
incorporated herein by reference).
4.6.1 Articles Supplementary of Corporate Office Properties Trust Series B
Cumulative Redeemable Preferred Shares, dated July 2, 1999 (filed
with the Registrant's Current Report on Form 8-K on July 7, 1999 and
incorporated herein by reference).
4.6.2 Articles Supplementary of Corporate Office Properties Trust Series D
Cumulative Convertible Redeemable Preferred Shares, dated January 25,
2001 (filed with the Registrant's 2000 Annual Report on Form 10-K and
incorporated herein by reference).
4.6.3 Articles Supplementary of Corporate Office Properties Trust Series E
Cumulative Redeemable Preferred Shares, dated April 3, 2001 (filed
with the Registrant's Current Report on Form 8-K on April 4, 2001 and
incorporated herein by reference).
4.6.4 Second Amended and Restated Limited Partnership Agreement of the
Operating Partnership dated December 7, 1999 (filed with the
Registrant's 1999 Annual Report on Form 10-K on March 16, 2000 and
incorporated herein by reference).
4.6.5 First Amendment to Second Amended and Restated Limited Partnership
Agreement of the Operating Partnership, dated December 21, 1999
(filed with the Registrant's 1999 Annual Report on Form 10-K on March
16, 2000 and incorporated herein by reference).
4.6.6 Second Amendment to Second Amended and Restated Limited Partnership
Agreement of the Operating Partnership, dated December 21, 1999
(filed with the Registrant's 1999 Annual Report on Form 10-K on March
16, 2000 and incorporated herein by reference).
4.7 Third Amendment to Second Amended and Restated Limited Partnership
Agreement of the Operating Partnership, dated September 29, 2000
(filed with the Registrant's Post-Effective Amendment No. 2 to Form
S-3 dated November 1, 2000 (Registration Statement No. 333-71807)
and incorporated herein by reference).
4.8 Sixth Amendment to Second Amended and Restated Limited Partnership
Agreement of the Operating Partnership, dated April 6, 2001 (filed
with the Registrant's Current Report on Form 8-K on April 4, 2001 and
incorporated herein by reference).
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4.9 Amended and Restated Registration Rights Agreement, dated March 16,
1998, for the benefit of unit holders of our operating partnership
(filed with the Registrant's Quarterly Report on Form 10-Q
(Commission File No. 001-14023) on August 12, 1998 and incorporated
by reference).
4.10 Registration Rights Agreement, dated September 28, 1998, for the
benefit of Constellation Real Estate Inc. (filed with the
Registrant's 1998 Annual Report on Form 10-K on March 30, 1999 and
incorporated herein by reference).
4.11 Registration Rights Agreement, dated January 25, 2001, for the
benefit of Barony Trust Limited (filed with the Registrant's 2000
Annual Report on Form 10-K on March 22, 2001 and incorporated herein
by reference).
5.1+ Opinion of Morgan, Lewis & Bockius LLP regarding the legality of the
securities being registered hereby.
8.1+ Opinion of Morgan, Lewis & Bockius LLP as to certain tax matters.
21.1 Subsidiaries of Registrant (filed with the Registrant's 2000 Annual
Report on Form 10-K and incorporated herein by reference).
23.1 Consent of Morgan, Lewis & Bockius LLP (included in Exhibit 5.1 and
Exhibit 8.1).
23.2+ Consent of PricewaterhouseCoopers LLP.
24.1+ Powers of attorney.
---------
+ Previously filed.
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration
Statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement
(or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a
fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would
not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum
offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration
statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
Registration Statement or any material change to such
information in the Registration Statement;
PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) do
not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in
periodic reports filed with or furnished to the Securities and
Exchange Commission by the Registrant pursuant to Section 13
or Section 15(d) of the Securities Exchange Act of 1934 that
are incorporated by reference in the Registration Statement.
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(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered that remain
unsold at the termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for the purpose
of determining any liability under the Securities Act of 1933, each
filing of the Registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Securities Exchange Act of 1934
(and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration
statement relating to the securities offered herein and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to Trustees, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a Trustee, officer or
controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such Trustee, officer
or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the city of Columbia, State of Maryland on May 17, 2001.
CORPORATE OFFICE PROPERTIES TRUST
By: /s/ Randall M. Griffin
------------------------------------
Name: Randall M. Griffin
Title: President and Chief Operating Officer
By: /s/ Roger A. Waesche, Jr.
------------------------------
Name: Roger A. Waesche, Jr.
Title: Senior Vice President and
Chief Financial Officer
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Pursuant to the requirements of the Securities Act of 1933, as amended, this
registration statement has been signed below by the following persons in the
capacities with the above Registrant and on the dates indicated.
SIGNATURE CAPACITY DATE
* Chairman of the Board of Trustees May 17, 2001
--------------------------
Jay H. Shidler
* Chief Executive Officer and Trustee May 17, 2001
--------------------------
Clay W. Hamlin, III
/s/ Randall M. Griffin President and Chief Operating May 17, 2001
-------------------------- Officer (Principal Executive
Randall M. Griffin Officer)
/s/ Roger A. Waesche, Jr. Senior Vice President and Chief May 17, 2001
-------------------------- Financial Officer (Principal
Roger A. Waesche, Jr. Accounting and Financial Officer)
* Trustee May 17, 2001
--------------------------
Betsy Z. Cohen
* Trustee May 17, 2001
--------------------------
Kenneth D. Wethe
* Trustee May 17, 2001
--------------------------
Robert L. Denton
* Trustee May 17, 2001
--------------------------
Kenneth S. Sweet, Jr.
* Trustee May 17, 2001
--------------------------
Steven D. Kesler
* Trustee May 17, 2001
--------------------------
Edward A. Crooke
---------
* Signed by Randall M. Griffin (or Roger A. Waesche, Jr.) pursuant to power
of attorney set forth in the initial filing of this registration statement.
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