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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14A PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
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Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / PreliminaryINFORMATION
Proxy Statement / / Confidential, for usePursuant to Section 14(a) of
the Commission only (as permitted by Rule
14a-6(e)(2)Securities Exchange Act of 1934 (Amendment No. )
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
CORPORATE OFFICE PROPERTIES TRUST
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Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
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/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
CORPORATE OFFICE PROPERTIES TRUST
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how
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[LETTERHEAD]
To: Our Shareholders
From: Clay W. Hamlin, III
Subject: Invitation to the Corporate Office Properties Trust 1999[LOGO]
Corporate Office Properties Trust
401 City Avenue, Suite 615
Bala Cynwyd, PA 19004-1126
TELEPHONE 610-538-1800
FACSIMILE 610-538-1801
WEBSITE www.copt.com
To: Our Shareholders
From: Clay W. Hamlin, III
Subject: Invitation to the Corporate Office Properties Trust 2000
Annual Meeting
Please come
You are cordially invited to attend our Annual Meeting on May 19, 199916, 2000 to
find out more about your company and the significant progress we are making. You
will have the opportunity at this meeting to ask questions and make comments.
Enclosed with this Proxy Statement are your voting card and the 19981999 Annual
Report.
You will notice that we have written our Proxy Statement in "plain
English." The Securities and Exchange Commission adopted the plain English rule
on January 28, 1998. We hope you are pleased with this format and find the Proxy
Statement easier to read.
I look forward to seeing you at the Annual Meeting.
/s/Clay W. Hamlin, III
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Clay W. Hamlin, III
Chief Executive Officer
[LETTERHEAD][LOGO]
Corporate Office Properties Trust
8815 Centre Park Drive, Suite 400
Columbia, Maryland 21045-2272
TELEPHONE 410-730-9092
FACSIMILE 410-740-1174
WEBSITE www.copt.com
March 31, 2000
Notice of Annual Meeting of Shareholders
Date: Wednesday, May 19, 1999
Time: 2:00 p.m.
Place: The Philadelphia Marriott West
Matson Ford Road at Front Street
West Conshohocken, PA
Date: Tuesday, May 16, 2000
Time: 10:00 a.m.
Place: The World Trade Center Baltimore
401 East Pratt Street, 21(st) Floor
Baltimore, MD
We will hold our Annual Meeting of Shareholders on May 19, 199916, 2000 at
2:10:00 p.m.a.m. at The Philadelphia Marriott West.World Trade Center Baltimore. During the Annual Meeting, we
will consider and take action on the following proposals:
1. To elect two trustees, Betsy Z. CohenElect three Trustees, Steven D. Kesler, William H. Walton and Robert L. Denton,Kenneth D.
Wethe, each for a term of three years;
2. To amend our 1998 Long Term Incentive Plan to (i) increase the number of
issuable shares under the plan, (ii) increase the number of shares issuable
to one plan participant and (iii) permit the issuance of restricted shares;
and
3. To transact any other business properly before the Annual Meeting.
IfYou may vote at the meeting if you arewere a shareholder as of March 19, 1999, you may vote at the
meeting.22, 2000.
By order of the Board of Trustees
/s/John H. Gurley
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John H. Gurley
Vice President, General Counsel and Secretary
PROXY STATEMENT
This Proxy Statement and the accompanying proxy card are being mailed,
beginning on or about April 6, 1999,March 31, 2000, to owners of common shares of
beneficial interest of Corporate Office Properties Trust in connection with
the solicitation of proxies by the Board of Trustees for our 19992000 Annual
Meeting of Shareholders. This proxy procedure is necessary to permit all
Corporate Office Properties Trust shareholders, many of whom are unable to
attend the Annual Meeting, to vote. The Board of Trustees encourages you to
read this document thoroughly and to take this opportunity to vote on the
matters to be decided at the Annual Meeting.
CONTENTS
CONTENTS
Questions and Answers.........................................................................................1
Proposal 1--ElectionGeneral Information......................................... 2
Election of Trustees..............................................................................4Trustees........................................ 5
Our Board of Trustees.........................................................................................5Trustees....................................... 6
Our Executive Officers........................................................................................8
Proposal 2--Amendments to our 1998 Long Term Incentive Plan...................................................9
Summary of the 1998 Long Term Incentive Plan.................................................................10Officers...................................... 9
Report of the Compensation Committee.........................................................................14Committee........................ 11
Common Shares Performance Graph..............................................................................17Graph............................. 14
Share Ownership of our Trustees,.............................................................................18
Executive Officers and 5% Beneficial Owners..................................................................18Owners................. 15
Section 16(a) Beneficial Ownership Reporting Compliance......................................................19Compliance..... 16
Summary Compensation Table...................................................................................19Table.................................. 16
Employment Agreements........................................................................................20Agreements....................................... 17
Option Grant Table...........................................................................................21Table.......................................... 18
Option Exercise Table........................................................................................22Table....................................... 19
Certain Transactions.........................................................................................22Transactions........................................ 19
Requirements for Advance Notification of Nominations
and Shareholder Proposals.................................................................................23Nominations........ 20
Independent Auditors.........................................................................................24Auditors........................................ 21
Annual Report on Form 10-K...................................................................................2510-K.................................. 21
1
QUESTIONS AND ANSWERS
Q.GENERAL INFORMATION
The questions and answers set forth below provide general information
regarding this proxy statement and our annual meeting of shareholders.
WHEN ARE THEOUR ANNUAL REPORT TO SHAREHOLDERS AND THIS PROXY STATEMENT FIRST BEING
SENT TO SHAREHOLDERS?
A. TheOur annual report to shareholders and this proxy statement are being sent to
shareholders beginning on or about April 6, 1999.
Q.March 31, 2000.
WHAT AM I VOTING ON?
A. 1. ElectionThe election of two trusteesthree Trustees, each for a three-year terms.term.
2. Amendments to the 1998 Long Term Incentive Plan to:
- Increase the number of issuable shares under the plan;
- Increase the number of shares issuable to one plan
participant during a calendar year; and
- Permit the issuance of restricted shares.
3. Any other business that properly comes before the meeting for a vote.
Q.
WHO IS ENTITLED TO VOTE AT THE ANNUAL MEETING AND HOW MANY VOTES DO THEY HAVE?
A. Common shareholders of record at the close of business on March 19, 199922, 2000 may
vote at the Annual Meeting. Each share has one vote. There were 16,801,87618,536,091
common shares outstanding on March 19, 1999.
Q.22, 2000.
HOW DO I VOTE?
A.
You must be present, or represented by proxy, at the Annual Meeting in order
to vote your shares. Since many of our shareholders are unable to attend the
Annual Meeting in person, we send proxy cards to all of our shareholders to
enable them to vote.
Q. WHAT IS A PROXY?
A.
A proxy is a person you appoint to vote on your behalf. We are soliciting
your appointment of proxies so that your common shares may be voted at the
Annual Meeting without your attendance. You mustIf you complete and return the enclosed
proxy card, to have your shares will be voted by proxy.
Q.
BY COMPLETING AND RETURNING THIS PROXY CARD, WHO AM I DESIGNATING AS MY PROXY?
A.
You will be designating Clay W. Hamlin, III, our Chief Executive Officer,
and Randall M. Griffin, our President and Chief Operating Officer, as your
proxies. They may act on your behalf together or individually and will have the
authority to appoint a substitute to act as proxy.
1
Q. HOW WILL MY PROXY VOTE MY SHARES?
A.
Your proxy will vote according to the instructions on your proxy card. IF
YOU COMPLETE AND RETURN YOUR PROXY CARD BUT DO NOT INDICATE YOUR VOTE ON
BUSINESS MATTERS, YOUR PROXY WILL VOTE "FOR" PROPOSALS 1THE ELECTION OF STEVEN D. KESLER,
WILLIAM H. WALTON AND 2.KENNETH D. WETHE. We do not intend to bring any other
matter for a vote at the Annual Meeting, and we do not know of anyone else who
intends to do so. However, your proxies are authorized to vote on your behalf,
using their best judgment, on any other business that properly comes before the
Annual Meeting.
Q.2
HOW DO I VOTE USING MY PROXY CARD?
A.
Other than attending the Annual Meeting and voting in person, you must vote
by mail. To vote by mail, simply mark, sign and date the enclosed proxy card and
return it in the postage-paid envelope provided. If you hold your shares through
a broker, bank or other nominee, you will receive separate instructions from the
nominee describing how to vote your shares.
Q. HOW DO I REVOKE MY PROXY?
A.
You may revoke your proxy at any time before your shares are voted at the
Annual Meeting by:
- Notifying our Corporate Secretary, John H. Gurley, in writing at 401
City Avenue,8815
Centre Park Drive, Suite 615, Bala Cynwyd, PA 19004,400, Columbia, Maryland 21045, that you are
revoking your proxy;
- Executing a later dated proxy card; or
- Attending and voting by ballot at the Annual Meeting.
Q. IS MY VOTE CONFIDENTIAL?
A.
Yes, only certain of our employees will have access to your card.
All
comments remain confidential, unless you ask that your name be disclosed.
Q. WHO WILL COUNT THE VOTES?
A.
An officer of Corporate Office Properties Trust will act as the inspector of
election and will count the votes.
Q. WHAT CONSTITUTES A QUORUM?
A. As of March 19, 1999, 16,801,87622, 2000, 18,536,091 of our common shares were issued and
outstanding. A majority of the outstanding shares, present or represented by
proxy, constitutes a quorum. If you vote bysign and return your proxy card, you will be
considered part of the quorum, even if you do notwithhold your vote. If a quorum is
not present at the Annual Meeting, the shareholders present in person or by
proxy may adjourn the meeting to a date not more than 120 days after March 19, 199922,
2000 until a quorum is present.
2
Q.
HOW WILL MY VOTE BE COUNTED?
A. With respect to Proposal 1, the election of trustees,Trustees, votes may be cast in favor of or
withheld from one or bothall nominees. Votes that are withheld will not be included
in the vote and will have no effect on the vote.
With respect to Proposal 2, the amendments to the 1998 Long Term Incentive
Plan,
- you may abstain, and your abstention will have the same effect as a
vote against the plan amendments; and
- we believe that if you hold your shares through a broker in
"street" name and you do not give instructions to your broker to vote
your shares with respect to the plan amendments, your broker will not
vote your shares with respect to the plan amendments. Your broker's
failure to vote your shares in this instance will have no effect on
the vote because broker non-votes are not considered present at the
meeting.
Q.
WHAT PERCENTAGE OF OUR COMMON SHARES DO THE TRUSTEES AND EXECUTIVE OFFICERS OWN?
A. Our trusteesTrustees and executive officers owned approximately 4.7%6.4% of our common
shares as of March 19, 1999.14, 2000. (See the discussion under the heading "Share
Ownership of our Trustees, Executive Officers and 5% Beneficial Owners"for more
details.)
Q.
WHO IS SOLICITING MY PROXY, HOW IS IT BEING SOLICITED AND WHO PAYS THE COST?
A. Corporate Office Properties Trust on behalf of the Board of Trustees,
through its trustees, officers and employees, is soliciting proxiesyour proxy. The solicitation
process is being conducted primarily by mail. However, proxies may also be
solicited in person, by telephone or facsimile.
3
Norwest Bank, our transfer agent, will be assisting us for a fee of
approximately $1,000, plus out-of-pocket expenses. Corporate Office Properties
Trust pays the cost of soliciting proxies. We will also reimburse stockbrokers
and other custodians, nominees and fiduciaries for their reasonable
out-of-pocket expenses for forwarding proxy and solicitation material to the
owners of common shares.
Q. WHO IS OUR LARGEST PRINCIPAL SHAREHOLDER?
A: As of March 19, 1999,14, 2000, Constellation Real Estate, Inc., 250 West Pratt
Street,111 Market Place,
Baltimore, MD 21201,Maryland 21202, owned 7,030,793, or 42%approximately 39.8%, of our
common shares and 984,308, or 100%, of our Series A convertible preferred
shares. Constellation Real Estate, Inc. is a wholly-owned indirect subsidiary of
Baltimore Gas and
Electric Company.
Commencing September 28, 1998, we completed a number of transactions with
affiliates of Constellation to acquire certain of their real property, a
mortgage and other assets which they owned. We completed the transaction by
using cash, assuming debt, and issuing common and Series A convertible
preferred shares. Upon consummation of these transactions, Energy Group, Inc. ("Constellation became the holder of 42% of our common shares. Constellation also
designated two trustees to our Board of Trustees under the terms of the
Series A preferred shares.
3
Q.Energy").
WHEN ARE SHAREHOLDER PROPOSALS FOR THE YEAR 20002001 ANNUAL MEETING DUE?
A.
Shareholder proposals to be presented at the year 20002001 Annual Meeting must be
submitted in writing by December 7, 19992, 2000 to John H. Gurley, Vice President,
General Counsel and Secretary, at 401 City Avenue,8815 Centre Park Drive, Suite 615, Bala Cynwyd, Pennsylvania 19004.400, Columbia,
Maryland 21045. You should submit any proposal by a method that permits you to
prove the date of delivery to us. (See the discussion under the heading
"Requirements for Advance Notification of Nominations and Shareholder Proposals"Nominations" for information regarding
certain procedures with respect to shareholder proposals and nominations of
trustees.Trustees.)
PROPOSAL 1 --4
ELECTION OF TRUSTEES
The terms of our twothree Class III Trustees expire asupon the election of their
successors at the Annual Meeting. Corporate Office Properties Trust, through our
Nominating Committee of the Board of Trustees, proposed two new nominees, Betsy Z. Cohenthe renomination of
Steven D. Kesler, William H. Walton and Robert L. Denton,Kenneth D. Wethe for election as
Class III Trustees at the Annual Meeting. Each of these nominees has agreed to
serve a three-year term if elected.
BETSY Z. COHEN is being nominated to become a new memberSTEVEN D. KESLER, age 48, has been one of our Board of
Trustees. Mrs. Cohen, age 57, has been Chairman and Chief Executive Officer of
JeffBanks, Inc., a bank holding company,Trustees since
its inception in 1981 and alsoSeptember 1998. Mr. Kesler is Chairman and Chief Executive Officer of its subsidiaries, Jefferson Bank, which
she founded in 1974, and Jefferson Bank New Jersey, which she founded in 1987.
Since 1997, Mrs. Cohen also has served as Chairman,the Chief Executive Officer and trusteePresident of
Resource Asset Investment Trust,Constellation Investments, Inc., Constellation Real Estate Group, Inc. and
Constellation Real Estate, Inc., wholly-owned indirect subsidiaries of
Constellation Energy. In this role, Mr. Kesler manages a corporate investment
entity, Constellation Energy's pension plan, Constellation Energy's nuclear
decommissioning trust, a portfolio of real estate investment trust. From
1985 until 1993, Mrs. Cohenassets and a portfolio of
assisted living assets. He also began serving as Vice Chairman and President of
Constellation Health Services, Inc., a wholly-owned indirect subsidiary of
Constellation Energy, during 1999. Prior to joining Constellation Energy in
1986, Mr. Kesler was a directorController of First Union Corp. of Virginia, a
bank holding company, and its predecessor, Dominion Bankshares, Inc. In 1969,
Mrs. Cohen co-founded a commercial law firm and served as a Senior Partner until
1984. Mrs. Cohen also is a director of The Maine Merchant Bank, LLC., Aetna,Westinghouse-Hittman Nuclear, Inc. and
Life Technologies, Inc.
ROBERT L. DENTON is being nominated to become a new memberManager of our Board of
Trustees.Budgets, Planning and Analysis with Maryland National Corporation.
Mr. Denton, age 46, joined The Shidler Group, an investment firm, in
1994 and is currently a Managing Partner and the resident principal in the New
York office. From 1991 to 1994, Mr. Denton was employed as an investment banker
with Providence Capital, Inc., an investment banking firm which he co-founded.
Mr. Denton is also a director of CGA Group, Ltd., a holding company whose
subsidiary is a AAA-rated financial guarantor based in Bermuda. Mr. DentonKesler holds an MBA from The Wharton School of Business, a bachelor's from
New York University and is a Certified Public Accountant in Maryland.
WILLIAM H. WALTON, age 47, has been one of our Trustees since October 1997.
Mr. Walton is a Managing Principal of Westbrook Partners, LLC, a
fully-integrated real estate investment management company which controls
approximately $8 billion of real estate assets, which he co-founded in
April 1994. Prior to co-founding Westbrook, Mr. Walton was managing director at
Morgan Stanley Realty. Mr. Walton holds an MBA from Harvard Business School and
an AB from Princeton University.
KENNETH D. WETHE, age 58, has been one of our Trustees since January 1990.
Since 1990, Mr. Wethe has been the owner and principal officer of Wethe &
Associates, a Dallas-based firm providing independent risk management, insurance
and employee benefit services to school districts and governmental agencies.
Mr. Wethe's background includes over 25 years experience in the group insurance
and employee benefits area. He is a Certified Public Accountant and holds an MBA
from Pepperdine University and a bachelor's degree from the University of
Pennsylvania.Minnesota.
If a quorum is present at the Annual Meeting, then a plurality of all votes
cast at the meeting will be sufficient to elect a trustee.Trustee. There is no
cumulative voting in the election of trustees.Trustees.
If any nominee is unable to stand for election, which we do not presently
contemplate, the Board may provide for a lesser number of trusteesTrustees or designate
a substitute. In the latter event, shares represented by proxies may be voted
for a substitute nominee.
THE BOARD OF TRUSTEES RECOMMENDS A VOTE "FOR" EACH OF THE LISTED NOMINEES IN
PROPOSAL 1.
4NOMINEES.
5
OUR BOARD OF TRUSTEES
Q:
HOW WOULD YOU DESCRIBE THE CLASSES OF THE BOARD OF TRUSTEES?
A: Our Declaration of Trust provides for three classes of trusteesTrustees who manage
our business affairs. You will elect the successors to theour Class III Trustees in this
election. Our shareholders will elect the successors to Class II
Trustees in the year 2000 andour Class III Trustees in
the year 2001.2001 and Class I Trustees in the year 2002. All trusteesTrustees will be
elected for three-year terms.
Constellation Real Estate, Inc., a wholly-owned indirect subsidiary of
Baltimore Gas and Electric Company, is entitled to designate two trusteesTrustees
because of its Series A convertible preferred shares ownership. Its designated
trusteesTrustees are Edward A. Crooke (Class III Trustee) and Steven D. Kesler
(Class II Trustee).
Q:BESIDES THE THREE NOMINEES FOR ELECTION, WHO ARE THE CURRENTOTHER MEMBERS OF OUR BOARD
OF TRUSTEES WHOSE TERM OF OFFICE
WILL CONTINUE AFTER THE ANNUAL MEETING?TRUSTEES?
NAME AGE OFFICE CLASS
- ---- -------- --------------------------------------- --------- ---------------------------------------------- -------------------
Jay H. Shidler......................... 5354 Chairman of the Board of Trustees III
Clay W. Hamlin, III.................... 5455 Chief Executive Officer and Trustee III
Betsy Z. Cohen......................... 58 Trustee I
Edward A. Crooke....................... 6061 Trustee III
Steven D. Kesler.......................Robert L. Denton....................... 47 Trustee III
Kenneth S. Sweet, Jr................... 66Jr. ................. 67 Trustee III
William H. Walton...................... 46 Trustee II
Kenneth D. Wethe....................... 57 Trustee II
JAY H. SHIDLER has been Chairman of our Board of Trustees since
October 1997. Mr. Shidler is the founder and Managing Partner of The Shidler
Group. AGroup, a nationally acknowledged expert in the field ofrecognized real estate investment and
finance,company. Mr. Shidler has
over 2526 years of experience in real estate investment and has been directly
involved in the acquisition and management of over 1,000 properties in 40 states
and Canada totaling over $4 billion in aggregate value. Mr. Shidler is a founder
and current Chairman of the Board of Directors of First Industrial Realty
Trust, Inc. (NYSE: FR). Mr. Shidler is also founder and Chairman of the Board of Trustees of CGA
Group, Ltd., a holding company whose subsidiary is a AAA-rated financial
guarantor based in Bermuda.guarantor. Mr. Shidler serves on the boards of directors of several private
companies and is active as a trusteeTrustee of several charitable organizations,
including The Shidler Family Foundation. Mr. Shidler holds a bachelor's degree
in Business Administration from the University of Hawaii.
CLAY W. HAMLIN, III has been a Trustee and our Chief Executive Officer since
October 1997. He was our President from October 1997 until September 1998. From
May 1989 until joining us, Mr. Hamlin was the Managing Partner of The Shidler
Group's Mid-Atlantic region, where he acquired, managed and leased over four
million square feet of commercial property. A resident of Philadelphia for over
30 years, Mr. HamlinHe has been active in the real
estate business for 2527 years. Mr. Hamlin is an attorney, a Certified Public
Accountant and holds an MBA from The Wharton School of Business and an
undergraduate degree from the University of Pennsylvania. Mr. Hamlin is also a
founding shareholder of both TriNet Corporate
Realty Trust, Inc. and First Industrial Realty Trust, Inc.
5BETSY Z. COHEN has been a Trustee since May 1999. Mrs. Cohen is Chairman of
the Jefferson Division of Hudson National Bank. She founded Jefferson Bank in
1974 and served as Chairman and Chief Executive Officer until the sale of
Jeffbanks, Inc., Jefferson Bank's parent company, to Hudson United
Bancorp, Inc. on December 1, 1999. Since 1997, Mrs. Cohen also has served as
Chairman, Chief Executive Officer and trustee of Resource Asset Investment
Trust, a real estate investment trust.
6
From 1985 until 1993, Mrs. Cohen was a director of First Union Corp. of
Virginia, a bank holding company, and its predecessor, Dominion
Bankshares, Inc. Mrs. Cohen also is a director of The Maine Merchant Bank, LLC
and Aetna, Inc.
EDWARD A. CROOKE has been one of our Trustees since September 1998.
Mr. Crooke is the Vice Chairman, retired, of Constellation Energy. Mr. Crooke was
Vice Chairman of Constellation Energy from April 1999 to January 1, 2000. He
also served as President and Chief Operating Officer of Baltimore Gas and
Electric Company, ("BGE"). Priora wholly owned direct subsidiary of Constellation Energy, from
1992 to May
1998, he held the position of President1999 and Chief Operating Officer of BGE since
1992. Mr. Crooke presently servesa director from 1988 to April 1999. He retired as a director,
Chairman of the Board, President and Chief Executive Officer on January 1, 2000
of Constellation Enterprises, Inc., a wholly-ownedthe parent company of most of Constellation
Energy's unregulated subsidiaries. He also had served as director of each of
Constellation Enterprises, Inc.'s direct subsidiarysubsidiaries and most of BGE. Throughout his 30-year career with BGE, Mr. Crooke advanced
throughits indirect
subsidiaries, and was Chairman of the utility from Vice President-Finance & Accounting and Secretary
during the period from 1978 through 1987 to President-Utility Operations from
1988 to 1992. Mr. Crooke is a member of BGE's Board of Directors, a roleeach of the direct subsidiaries
until he has
performed since 1988.retired on January 1, 2000. Mr. Crooke serves as a director of
First Maryland Bancorp,
First NationalConstellation Energy Group, Allfirst Financial, Inc., Allfirst Bank, of Maryland, Goucher CollegeAEGIS
Insurance Services, Inc. and Baltimore Equitable Insurance. Mr. Crooke holds an
MBA in Finance from Loyola College and a bachelor's degree in Economics from the
University of Maryland.
STEVEN D. KESLERROBERT L. DENTON has been one of our Trustees since September 1998.May 1999. Mr. Kesler
is the Chief Executive OfficerDenton
joined The Shidler Group in 1994 and President of Constellation Investments, Inc.,
a wholly-owned indirect subsidiary of Baltimore Gas and Electric Company. In
this role, Mr. Kesler manages a corporate investment entity, BGE's pension plan,
BGE's nuclear decommissioning trust and a portfolio of real estate assets. Prior
to September 1998, he also served as a Vice President of Constellation Real
Estate Group, Inc. During his 13 years with Constellation, Mr. Kesler had also
served as Treasurer and Assistant Secretary of Constellation Holdings, Inc., a
wholly-owned indirect subsidiary of BGE. Prior to employment with Constellation,
Mr. Kesler was Controller of Westinghouse-Hittman Nuclear, Inc. and Manager of
Budgets, Planning and Analysis with Maryland National Corporation. Mr. Kesler is currently a directorManaging Partner and the
resident principal in the New York office. From 1991 to 1994, Mr. Denton was
with Providence Capital, Inc., an investment banking firm which he co-founded.
Mr. Denton is also a trustee of a publicly-traded insurance company, Capital Re
Corporation.CGA Group, Ltd. Mr. KeslerDenton holds an MBA from Thethe
Wharton School of Business and a BSbachelor's degree from New Yorkthe University and is a Certified Public Accountant in Maryland.of
Pennsylvania.
KENNETH S. SWEET, JR. has been one of our Trustees since October 1997.
Mr. Sweet is theChairman of GSA Management, Inc. and Managing Director of GS
Capital, L.P., a private investment companyventure capital and real estate partnership which he founded in
1991. In 1971, Mr. Sweet founded K.S. Sweet Associates which specialized in real
estate and venture capital investments. From 1957 to 1971, he served in increasingly responsible positions atwas with The
Fidelity Mutual Life Insurance Company. Currently the Managing General Partner of 15 venture capital
and real estate partnerships with assets of over $300 million, Mr. Sweet has over 3538 years of
investment experience in the fields of real estate, investments, management, development
and venture capital transactions.and
investment management. Mr. Sweet serves as a director, chairman of the real
estate committee and a member of the finance committee of Main Line Health and
the Philadelphia Chapter of the Nature Conservancy and is on the Advisory
Committee of the Arthur Ashe Youth Tennis Center. Mr. Sweet holds a BAbachelor's
degree from Lafayette College and attended The Wharton School of Business.
WILLIAM H. WALTON has been one of our Trustees since October 1997. Mr. Walton is
a Managing Principal of Westbrook Partners, LLC, which he co-founded in April
1994. With offices in Dallas, New York, San Francisco and Florida, Westbrook is
a fully integrated real estate investment management company. Westbrook is the
sponsor of Westbrook Real Estate Fund and Westbrook Real Estate Fund II, which
together control approximately $4 billion of real estate assets including
investments in real estate companies and securities; offices, retail and
industrial properties; apartments; hotels; and residential developments. Prior
to co-founding Westbrook, Mr. Walton was a Managing Director of Morgan Stanley
Realty. Mr. Walton holds an MBA from Harvard Business School and an AB from
Princeton University.
67
KENNETH D. WETHE has been one of our Trustees since January 1990. Since 1990,
Mr. Wethe has been the owner and principal officer of Wethe & Associates, a
Dallas-based firm providing independent risk management, insurance and employee
benefit services to school districts and governmental agencies. Mr. Wethe's
background includes over 25 years experience in the group insurance and employee
benefits area. He is a Certified Public Accountant and holds an MBA from
Pepperdine University and a BS from the University of Minnesota.
HOW ARE THE TRUSTEES COMPENSATED?
- - Employee trusteesTrustees receive no compensation, other than their normal salary, for
serving on the Board of Trustees or its committees.
- - Non-employee trusteesTrustees receive:
- $15,000 annual fee;
- $500 per meeting;
- Reimbursement for out-of-pocket expenses;
- Eligibility to participate in our 1998 Long Term Incentive Plan
described below;Plan; and
- Upon initial election or appointment to the Board, an optionAnnual grants of options to purchase 5,000 common shares, exercisable at
the then fair market value of the common shares.
HOW ARE OUR TRUSTEES NOMINATED?
The nominating committee of the Board of Trustees is responsible for
presenting nominations to the Board of Trustees and shareholders. (See the
discussion under the heading "Requirements for Advance Notification of
Nominations and
Shareholder Proposals"Nominations" concerning information about procedures for shareholder nominations
for trustees.Trustees.)
WHAT ARE THE CURRENT COMMITTEES OF OUR BOARD OF TRUSTEES?
The Board of Trustees currently has four committees. Those trustees whoThe committees on which
Trustees serve on
committees, and the number of meetings held during 1998,1999 are identified below.
- ------------------------------ ------------------- ------------------- ------------------- --------------------
BOARD MEMBER AUDIT INVESTMENT COMPENSATION NOMINATING
- ------------------------------ ------------------- ------------------- ------------------- -------------------------------- --------- ---------- ------------ ----------
Jay H. ShidlerShidler...................................... X X
- ------------------------------ ------------------- ------------------- ------------------- --------------------
Vernon R. Beck*Betsy Z. Cohen...................................... X
- ------------------------------ ------------------- ------------------- ------------------- --------------------
Edward A. CrookeCrooke.................................... X X
- ------------------------------ ------------------- ------------------- ------------------- --------------------
Allen C. Gehrke*Robert L. Denton.................................... X
- ------------------------------ ------------------- ------------------- ------------------- --------------------
Kenneth S. Sweet, Jr.Jr................................ X X X
- ------------------------------ ------------------- ------------------- ------------------- --------------------
William H. Walton**Walton................................... X X
- ------------------------------ ------------------- ------------------- ------------------- --------------------
Kenneth D. WetheWethe.................................... X X
- ------------------------------ ------------------- ------------------- ------------------- --------------------
Meetings Held in 19981999............................... 6 8 4 5 2 None--formed in1
During 1999,
- ------------------------------ ------------------- ------------------- ------------------- --------------------
* Messrs. Beck and Gehrke are not standing for re-election at the Annual
Meeting.
** Mr. Walton is no longer a member of the Compensation Committee effective as
of March 1999.
7
During 1998, the Board of Trustees had eight7 meetings. Each trusteeTrustee attended a
minimum of 75% of the total of the Board of Trustees' meetings and their
committee meetings.
AUDIT COMMITTEE - ReviewsCOMMITTEE--This committee reviews our accounting, financial reporting
and internal control functions. Recommendsfunctions and recommends the annual appointment of our
independent accountants and reviews their services. All members are independent
non-employee trustees.Trustees.
INVESTMENT COMMITTEE - ApprovesCOMMITTEE--This committee approves all of our real estate
investments and acquisitions. Investments of greater than $25 million must also
be approved by the full Board of Trustees.
8
COMPENSATION COMMITTEE - AdministersCOMMITTEE--This committee administers executive compensation
programs, policies and practices. ActsThe committee also acts in an advisory role on
senior management compensation and administers our 1998 Long Term Incentive Plan.executive incentive plans.
All members are non-employee trustees.Trustees.
NOMINATING COMMITTEE - ConsidersCOMMITTEE--This committee considers and recommends nominees for
election as trusteesTrustees and officers.
OUR EXECUTIVE OFFICERS
Below is information with respect to our executive officers who are not
trustees.Trustees.
RANDALL M. GRIFFIN, age 54,55, has been our President and Chief Operating
Officer since September 1998. Mr. Griffin previously served as President of
Constellation Real Estate Group, Inc. and Constellation Real Estate, Inc. since
June 1993. From 1990 through March 1993, Mr. Griffin worked as Vice President-DevelopmentPresident-
Development for EuroDisney Development in Paris, France. From 1976 to 1990,
Mr. Griffin worked for Linclay Corporation, a St. Louis-based real estate
development, management and investment company, most recently as Executive Vice
President and Chief Operating Officer. Mr. Griffin holds an MBA from Harvard
Business School and a BA degree from Ohio Wesleyan University. Mr. Griffin
serves on the Board of Directors of The National Aquarium as its Vice Chairman
and the Columbia Festival of the Arts. He is Vice Chairman of the Maryland
Economic Development Commission, and serves on its Executive Committee.
ROGER A. WAESCHE, JR., age 45, has been our Senior Vice President since
September 1998 and Chief Financial Officer since September 1998.March 1999. Prior to joining
us, Mr. Waesche was responsible for all financial operations of Constellation
Real Estate, Group, Inc., including treasury, accounting, budgeting and financial
planning. Mr. Waesche also had primary responsibility for Constellation's asset
investment and disposition activities and sourced over $500 million of project debt.activities. Prior to joining Constellation in 1984,
Mr. Waesche was a practicing Certified Public Accountant with Coopers & Lybrand
L.L.P. Mr. Waesche holds an MBA in Finance and an undergraduate degree in
Accounting from Loyola College.
JOHN H. GURLEY, age 60,61, has been our Secretary, Vice President and General
Counsel and
Secretary since September 1998. Prior to joining us, Mr. Gurley served as Vice
President and General Counsel of Constellation Real Estate, Group, Inc. with
responsibility for all legal matters. In this role, Mr. Gurley managed lease
negotiations for more than two million square feet of office and retail space
and handled all land purchases and sales, as well as financing and related
matters. Prior to his employment with Constellation in 1987, Mr. Gurley spent
17 years with The Rouse Company where he worked eight years as Assistant General
Counsel. Before that he worked in private practice for five years with Semmes,
Bowen & Semmes where he provided a broad spectrum of real estate related
services to 8
various clients. He received his undergraduate degree from
Georgetown University and earned his JD from the University of Maryland School
of Law.
THOMASMICHAEL D. CASSEL,KAISER, age 40,48, has been President of Corporate Realty
Management, LLC, our property management company, since April 1996 and President
of Corporate Management Services, LLC, an indirect subsidiary since January
2000. Prior to joining Corporate Realty Management, LLC, Mr. Kaiser served as
Vice President Finance and Treasurer
since October 1997. Mr. Cassel is a Certified Public Accountant with over 18of Asset Management of Constellation Real Estate, Inc. He has
more than 24 years experience in real estate accounting, finance, acquisitions and
management. From 1995 until October 1997, Mr. Cassel was Vice President and
Chief Financial Officer of Delancey Investment Group, Inc., a Philadelphia-based
real estate investment and management company of commercial and residential
properties. Prior to Delancey, he was a real estate consulting manager for
Arthur Andersen LLP for four years and Kenneth Leventhal & Co. for two years. As
a consultant, he performed strategic planning, capital markets, valuation and
acquisition analyses for a variety of real estate companies,experience, including REITs.a background in
development, leasing and management of real estate projects in the
Baltimore-Washington area. Mr. CasselKaiser received his bachelor'sundergraduate degree and MBA
in Finance with a major in Accountingbusiness and finance from The Wharton School of Business.
PROPOSAL 2 -- AMENDMENTS TO OUR 1998 LONG TERM INCENTIVE PLAN
We adopted the 1998 Long Term Incentive Plan ("Plan") last year. (See the
discussion under the heading "Summary of the 1998 Long Term Incentive Plan.") We
have outlined in the table below the proposed changes to the Plan:
EXISTING PLAN PROPOSED CHANGES
------------------------------------------ ---------------------------------------------------
1. Authorizes the issuance of awards under Increases the issuable shares under the Plan by
the Plan of up to 10% of our outstanding including in the calculation of outstanding common
common shares. shares (at the time an award is made) all common
shares then issuable upon conversion of our then
outstanding convertible preferred shares and all
common shares that may be issued upon redemption of
then outstanding units in our operating partnership.
As of March 19, 1999, this increases the issuable
shares under the Plan by approximately 1,207,553
common shares, from 1,680,187 to 2,887,740 common
shares.
2. Allows awards under the Plan to include Allows awards under the Plan to include restricted
include options and dividend equivalents as shares to be granted by the full Board of Trustees, in
described under the heading "Summary of addition to options and dividend equivalents. Restricted
the 1998 Long Term Incentive Plan." shares could be issued subject to forfeiture if the
recipients terminate employment or service with us
for any reason or if certain performance goals are
not met. Persons to whom we award restricted shares
may not sell or transfer them while restricted;
however, they will receive the dividends and other
ownership attributes of these shares including the
right to vote. No more than 30% of the total shares
issuable under the Plan would be restricted shares.
9
3. Allows granting of options for a maximum Allows granting of a total of up to 300,000 options to
of 200,000 common shares to one employee acquire common shares and up to 300,000 restricted
or trustee in one calendar year. shares to one employee or trustee in one calendar year.
4. Allows granting of incentive stock Allows granting of incentive stock options for a
options for a maximum of 200,000 common maximum of 300,000 common shares under the Plan.
shares under the Plan.
The affirmative vote of the holders of a majority of the common shares voting at
the meeting is needed to amend the 1998 Long Term Incentive Plan.
BOARD RECOMMENDATION
The Board of Trustees has determined that it is in the shareholders' best
interests to approve the amendments to the Plan. The Board believes that the
amendments will improve the Plan and its utility in attracting and retaining
senior management. The proposed amendments further align the interests of our
senior management team with the economic interest of our shareholders.
THE BOARD OF TRUSTEES RECOMMENDS A VOTE "FOR" PROPOSAL 2.
SUMMARY OF THE 1998 LONG TERM INCENTIVE PLAN
Last year, our shareholders voted to adopt the 1998 Long Term Incentive Plan.
The material features of the current Plan are:
Types of Plan awards The Plan provides for the grant of:
("Awards") - options to employees to acquire common
shares intended to qualify as incentive
stock options under Section 422 of the
Internal Revenue Code,
- options to acquire common shares not
intended to qualify as incentive stock
options under Section 422 of the Internal
Revenue Code ("nonqualified stock options"),
and
- Dividend equivalents which may be granted
alone or in conjunction with another Award.
Dividend equivalents are rights to receive
cash, common shares or other property equal
in value to dividends paid with respect to a
specified number of common shares.
Available Shares The Plan currently authorizes the issuance of up to
10% of our common shares outstanding at the time an
award is granted, subject to adjustment to prevent
dilution or enlargement of the rights of Plan
participants. No more than 200,000 shares in the
aggregate are currently available for incentive stock
option awards under the Plan. If a participant
forfeits or does not exercise options under the Plan,
those allocated common shares will again become
available for grant.
10
Eligible Participants Our employees and trustees, and employees and
trustees of our subsidiaries and affiliates. As of
March 19, 1999, 123 employees (including one who is
also a trustee) and four non-employee trustees were
eligible to participate in the Plan.
Administration Compensation Committee ofLoyola College. He serves on the Board of Trustees
administersDirectors
of the Plan ("Administrator") including:
- Granting awards,
- Determining affiliated entities eligibleBaltimore Chapter of the Building Owners and Managers Association.
9
DWIGHT S. TAYLOR, age 55, has been President of Corporate Development
Services, LLC, our development company, since September 1999, previously serving
as Senior Vice President since joining the company in September 1998.
Mr. Taylor has more than 24 years of real estate experience, including 14 years
with Constellation Real Estate, Inc. and four years with The Rouse Company. From
1977 to participate,1981, Mr. Taylor was Senior Vice President of the Baltimore Economic
Development Corporation. He currently serves as Secretary/Treasurer of the
Maryland Chapter of the National Association of Industrial Office Properties and
- Determiningserved as Chairman of the terms and conditions of
Awards such as exercise price, grant price,
vesting periods, waivers and method of
exercising. The closing sale price per
common share as reportedAssociated Black Charities from 1989 to 1991. He also
serves on the New York
Stock Exchange on March 19, 1999 was $7.00.
Maximum grants to a Plan The Plan currently allows grants of up to 200,000
participant in one year shares per participant annually, subject to
adjustment to prevent dilution or enlargement of the
rights of Plan participants.
Plan life The Plan allows Award grants until March 12, 2008,
the tenth anniversary of the Plan.
Awards transferability Unless otherwise agreed by the Administrator, Awards
and rights as a are not transferable except by will or the laws of
shareholder descent and distribution. A holder of an option will
have no rights as a shareholder with respect to
common shares subject to his or her option until the
option is exercised.
Payment for option Participants may make payments for options granted
exercise price under the Plan in cash or, if permitted by the
Administrator, by exchanging common shares having a
fair market value equal to the option exercise price.
Vesting upon change All outstanding Awards will become fully exercisable
of control upon a change of control of Corporate Office
Properties Trust (as defined in the Plan) unless
otherwise provided by the Administrator.
Amendments to the Plan The Board of Trustees may amend, alter, suspend,
discontinue or terminate the Plan without shareholder
approval unless such approval is required under
Section 422Directors of the Internal Revenue Code. However,
the consent of an affected participant in the Plan is
required if an amendment would materially and
adversely affect the participant's rights under an
outstanding Award.
Certain Plan benefits Because grants of Awards are to be made from time to
time by the Administrator to eligible persons whom
the Administrator determines in its discretion should
receive grants, the benefits and amounts that may be
awarded in the future to persons eligible to
participate in the Plan are not presently
determinable. Option grants to purchase the following
number of common shares have been made under the Plan
from its inception through March 19, 1999: Thomas D.
Cassel--27,500; Randall M. Griffin--220,000; Clay W.
Hamlin, III--200,000; David P. Hartsfield--13,750;
Roger A. Waesche, Jr.--82,500; current executive
officers as a group--571,250; current non-employee
trustees as a group--20,000; and all other employees
as a group--341,575. As of March 19, 1999, there were
options outstanding under the Plan to purchase
923,475 common shares and 756,712 common shares
available for issuance under the Plan.
11
FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
The following discussion summarizes the principal federal income tax
consequences of the Plan based on the current Internal Revenue Code and its
regulations, and administrative and judicial interpretations. The summary does
not address any foreign, state or local tax consequences of participation in the
Plan.
SHARE OPTIONS. In general, the grant of an option will not be a taxable event to
the recipient and it will not result in a deduction to us. The tax consequences
associated with the exercise of an option and the subsequent disposition of
common shares acquired on the exercise of such option depend on whether the
option is an incentive stock option or a nonqualified stock option.
Upon the exercise of a nonqualified stock option, the recipient will recognize
ordinary taxable income equal to the excess of the fair market value of the
common shares received upon exercise over the exercise price. We will generally
be able to claim a deduction in an equivalent amount.
Any gain or loss upon a subsequent sale or exchange of the common shares will be
subject to capital gain or loss. The capital gain tax rate will depend on the
length of time that a recipient held the shares and other factors.
Upon the exercise of an incentive stock option, a recipient will generally not
recognize ordinary taxable income at the time of exercise and no deduction will
be available to us, provided the recipient exercises the option as an employee
or within three months following termination of employment (longer, in the case
of termination of employment by reason of disability or death) ("Termination
Period").
If an incentive stock option granted under the Plan is exercised after the
Termination Period, the exercise will be treated for federal income tax purposes
as the exercise of a nonqualified stock option. Also, an incentive stock option
granted under the Plan will be treated as a nonqualified stock option to the
extent it (together with any other incentive stock options granted under our
plans and plans of our subsidiaries) first becomes exercisable in any calendar
year for common shares having a fair market value, determined as of the date of
grant, in excess of $100,000.
If common shares acquired upon exercise of an incentive stock option are sold or
exchanged more than one year after the date of exercise and more than two years
after the date of grant of the option, any gain or loss will be long-term
capital gain or loss. If common shares acquired upon exercise of an incentive
stock option are disposed of prior to the expiration of these one-year or
two-year holding periods (a "Disqualifying Disposition"), the recipient will
recognize ordinary income at the time of disposition, and we will generally be
able to claim a deduction, in an amount equal to the excess of the fair market
value of the common shares at the date of exercise over the exercise price. Any
additional gain will be treated as capital gain, and the rate will depend on how
long the common shares have been held. Where common shares are sold or exchanged
in a Disqualifying Disposition (other than certain related party transactions)
for an amount less than their fair market value at the date of exercise, any
ordinary income recognized in connection with the Disqualifying Disposition will
be limited to the amount of gain, if any, recognized in the sale or exchange,
and any loss will be a long-term or short-term capital loss, depending on how
long the common shares have been held.
Although the exercise of an incentive stock option as described above would not
produce ordinary taxable income to the recipient, it would result in an increase
in the recipient's alternative minimum taxable income and may result in an
alternative minimum tax liability.
12
DIVIDEND EQUIVALENT RIGHTS. With respect to dividend equivalent rights under the
Plan, generally, when a recipient receives payment with respect to the dividend
equivalent right, the amount of cash and the fair market value of any other
property received will be ordinary income to such recipient and will be allowed
as a deduction for federal income tax purposes to us.
RESTRICTED SHARES. In general, the grant of restricted shares will not be a
taxable event to a recipient and it will not result in a deduction to us, until
such shares are transferable by the recipient or no longer subject to a
substantial risk of forfeiture for federal tax purposes, whichever occurs
earlier. When the shares are either transferable or are no longer subject to a
substantial risk of forfeiture, the recipient will recognize ordinary taxable
income equal to the fair market value of the common shares (less any amounts
paid for such shares) at that time. We will generally be able to claim a
deduction in an equivalent amount. However, a recipient may elect to recognize
ordinary taxable income in the year the restricted share grant is awarded equal
to the fair market value of the common shares subject to the restricted share
grant (less any amounts paid for such shares) at that time, determined without
regard to the restrictions on transfer. In such circumstances, we will generally
be able to claim a deduction in an equivalent amount in the same year. Any gain
or loss recognized by the recipient upon the subsequent disposition of the
shares will be capital gain or loss. If, after making the election, any shares
subject to a restricted share grant are forfeited, or if the market value
declines during the restriction period, the recipient will not be entitled to
any tax deduction or tax refund.
PAYMENT OF WITHHOLDING TAXES. We may withhold, or require a recipient to remit
to us, an amount sufficient to satisfy any federal, state or local withholding
tax requirements associated with awards under the Plan.
SPECIAL RULES. Special rules may apply to a recipient who is subject to Section
16(b) of the Securities Exchange Act of 1934 as in effect from time to time
(generally directors, officers and 10% shareholders). Certain additional special
rules apply if the exercise price for an option is paid in shares previously
owned by the recipient rather than in cash.
LIMITATION ON DEDUCTIBILITY. Section 162(m) of the Internal Revenue Code
generally limits the deductible amount of annual compensation paid (including,
unless an exception applies, compensation otherwise deductible in connection
with options and other awards granted under the Plan) by a public company to a
"covered employee" (our chief executive officer and four other most highly
compensated executive officers) to no more than $1 million. We currently intend
to structure options and other awards granted under the Plan to comply with an
exception to nondeductibility under Section 162(m) of the Internal Revenue Code.
13Micros Systems, Inc.
10
REPORT OF THE COMPENSATION COMMITTEE
WHAT IS OUR COMPENSATION PHILOSOPHY?
In 1998, we conducted a comprehensive compensation review of our senior
management team to formalize our compensation philosophy and plan.
Our philosophy is to provide competitive compensation levels, but where
appropriate align compensation of senior management with the long-term interests
of our shareholders. We have designed the compensation of the senior management
team to motivate management to focus on our operating results and sustained
shareholder value by:
- - Establishing a plan that attracts, retains and motivates key management
through competitive compensation within the industry.
- - Linking a portion of senior management compensation with the returns
realized by shareholders.
-
- Building a pay-for-performance system which encourages and rewards
successful initiatives within a team environment based on company,
business unit and individual objectives.
WHAT IS THE STRUCTURE OF OUR EXECUTIVE COMPENSATION?
The elements of our executive compensation programs are:
- Base salary
- Annual incentive awards
- Long-term incentives
- Special awards in recognition of superior achievements
Our compensation plan has been structured to provide incentives for senior
management performance that promotespromote continuing improvements in our financial
results and share price over both the short-short and long-term.
HOW DO WE DETERMINE BASE SALARIES?
We determine base salaries by each individual's experience and comparisons
to similar base salaries in other real estate investment trusts and the real
estate industry. Base salaries are generally positioned at or slightly belowto approximate the
median of the salaries shown in our REIT peer group comparison. Special factors
considered in determining the compensation of our CEO are discussed below.
Changes in salaries will depend upon such factors as individual performance,
compensation levels within the industry and the economic conditions affecting
our operations.
HOW DO WE DETERMINE ANNUAL BONUSES?INCENTIVE AWARDS?
We establish annual bonusincentive award targets for the senior management team
at the beginning of each fiscal year. The actualincentive award, which may be a
combination of cash awardbonus and share option grants, is based on the individual's
ability to achievesuccess in achieving those targets.
1411
We base the amount of the award on a combination of the following segments:
- Our overall performance
- Business unit performance
- Individual performance
The relative importance of each segment is determined by the senior
manager's position within our organization. The CEO and President & COO awards
are based most heavily on operating results.results and shareholder return. The awards
to other senior managers are based on the strategic accomplishments and
performance of their business units. All
awards are based on individual goals for each member of senior management. The overall operating objectives are based
on two measurements related to our funds from operations and adjusted funds from
operations. The bonus plan provides that no bonus will be paid unless a
threshold level of performance, as approved by the Compensation Committee, is
achieved. The Compensation Committee has the option to recommend to the Board of
Trustees the increase of awards to members of the senior management team who
have shown exemplary performance and far exceeded all objectives.
The Compensation Committee approved bonuses to our Chief Executive Officer
and our other four most highly paid executives totaling $143,500$337,000 in 1998.1999. The
Compensation Committee considered our operating performance and each
individual's contributions to our success in determining the bonus amounts.
HOW IS COMPENSATION USED TO ENSURE SENIOR MANAGEMENT IS FOCUSED ON LONG-TERM
RESULTS?
Our long-term incentive plan for executivessenior management is approved by the
Compensation Committee annually. This plan focuses on our overall operating
performance and bears a direct relationship to the value realized by our
shareholders. The plan has also been structured to align the interests of senior
management and our shareholders by providing a significant long-term incentive
opportunity in the form of options for common shares and restricted shares.
The long-term incentive plan for senior management uses nonqualified stock
options and rewards senior management over a two yeartwo-year time frame:
-
- An interim grant will bewas made atshortly after the close of 1999 based on our
actual performance.
-
- A second grant will be made shortly after the close of 2000 based on our
cumulative performance during 1999 and 2000.
-
- The nonqualified share options vest over a four-year period with
25 percent vesting on the date of the grant and 25 percent vesting on each
subsequent anniversary (provided the optionee remains continually
employed).
- - Share options will be granted at an exercise price equal to the fair
market value of a common share on December 31 of the plan year.grant date.
HOW DO WE DETERMINE THE COMPENSATION OF OUR CHIEF EXECUTIVE OFFICER?
Mr. Hamlin served as our Chief Executive Officer during 1998.1999. The
compensation awarded to Mr. Hamlin consisted primarily of base salary and an
annual incentive award. Mr. Hamlin's base salary was $90,000, significantly
below comparable REIT Chief Executive Officers. Mr. Hamlin's base salary was
initially set at this level as a result of his substantial equity interest in
Corporate Office Properties Trust as shown in "Share Ownership of our Trustees,
Executive Officers and 5% Beneficial Owners." Under our compensation plan,
Mr. Hamlin was eligible for an annual incentive award.
1512
Based on Mr. Hamlin's role in the successful completion of over $350 million in
acquisitions and his leadership in strengthening our financial position, Mr.
Hamlin received an incentive award of $38,500. Mr. Hamlin will also participate
in our long-term incentive plan described above. (See "Employment Agreements"
for a description of Mr. Hamlin's employment agreement with us.)
TEN-YEAR OPTION REPRICINGS
In September 1998,On July 12, 1999, we cancelled and reissued certainreduced the exercise price on 360,500 of our employees'
options grantedfrom $9.25 to Thomas
D. Cassel in April 1998. We completed the reissuance of these$8.00. No options at the
same grant price as all other employee options issued at the same time.
Number of Length of
Shares Market Price Original Option
Underlying of Shares at Exercise Term Remaining
Options Time of Price at Time at Date of
Repriced or Repricing or of Repricing New Exercise Repricing or
Name Date Amended Amendment or Amendment Price Amendment
- ---------------- --------- ------------ ------------- --------------- ------------- ------------------
Thomas D. Cassel 9/28/98 25,000 $8.00 $12.25 $9.25 9 years, 6 months
held by executive officers or Trustees
were repriced.
COMPENSATION COMMITTEE
Edward A. Crooke
Kenneth S. Sweet, Jr.
1613
COMMON SHARES PERFORMANCE GRAPH
The following graph assumes $100 was invested on December 31, 19931994 in the
common shares of the predecessor corporation to Corporate Office Properties
Trust and continued to be invested in Corporate Office Properties Trust after
its reformation as a Maryland trust in March 1998. This graph compares the
cumulative return (assuming reinvestment of dividends) of this investment with a
similar investment at that time in the S&P 500 Index or the Index of the
National Association of Real Estate Investment Trusts ("NAREIT").
COMPARISON OF FIVE YEAR CUMULATIVE RETURN
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
1993
1994 1995 1996 1997 1998 -----------------------------------------------------1999
-------- -------- -------- -------- -------- --------
Corporate Office Properties Trust 100.00 83.21 61.33 69.94 148.45 111.69(NYSE symbol OFC)... 100 74.30 85.32 181.94 137.46 158.00
S&P 500 100.00 101.31 139.23 171.19 228.32 293.57500............................................... 100 137.43 168.98 225.37 289.78 350.72
NAREIT All-Reit Index 100.00 100.81 119.26 161.90 192.44 156.22Equity......................................... 100 115.27 155.92 187.51 154.69 147.54
1714
SHARE OWNERSHIP OF OUR TRUSTEES,
EXECUTIVE OFFICERS AND 5% BENEFICIAL OWNERS
The following table shows certain information, as of March 15, 1999,14, 2000,
regarding the beneficial ownership (as defined under the regulations of the
Securities and Exchange Commission) of our common shares and units in our
operating partnership by each trustee,Trustee, each nominee for election as trustee,Trustee,
each executive officer, shown in our Summary Compensation
Table, all trusteesTrustees and executive officers as a group and each
person known to us to be the beneficial owner of more than five percent of theour
outstanding common shares. Each person named in the table below has sole voting and
investment power with respect to the securities listed opposite such person's
name, except as otherwise noted.
COMMON PREFERRED PERCENT OF
PERCENT OF PARTNERSHIP PARTNERSHIP ALL
COMMON SHARES PERCENT OFALL UNITS UNITS COMMON
BENEFICIALLY ALL COMMON BENEFICIALLY BENEFICIALLY SHARES AND
OWNED(1) SHARES(1) OWNED (1) SHARES OWNED (2) OWNED (2) UNITS (2)UNITS(2)
------------- ---------- ------------------------- ------------ ----------
Constellation Real Estate, Inc.(3).................... 7,030,793 41.8%38.6% -- -- 26.1%22.7%
United Properties Group, Inc.(4)..... -- -- -- 974,662 7.5
Jay H. Shidler..................................... 302,500 1.8 816,526 736,908 13.9Shidler(5).................... 307,500 1.7 3,448,317 -- 12.1
Clay W. Hamlin, III................................ 312,500 1.9 994,447 854,335 16.2
Vernon R. Beck(4).................................. 155,635III(6)............... 604,167 3.3 4,045,615 -- 15.0
Betsy Z. Cohen....................... 6,000 * -- -- *
Betsy Z. Cohen..................................... -- -- -- -- --
Edward A. Crooke................................... 5,000Crooke..................... 10,000 * -- -- *
Robert L. Denton................................... 17,500Denton..................... 5,000 * 129,549 85,502 1.7
Allen C. Gehrke.................................... 12,750 *434,910 -- -- *1.4
Steven D. Kesler................................... 400Kesler..................... 5,400 * -- -- *
Kenneth S. Sweet, Jr.............................. 31,500Jr................. 33,875 * -- -- *
William H. Walton.................................. 7,500Walton.................... 12,500 * -- -- *
Kenneth D. Wethe................................... 17,759Wethe..................... 22,759 * -- -- *
Randall M. Griffin (5)............................. 1,475Griffin................... 403,533 2.2 -- -- 1.3
Roger A. Waesche, Jr................. 121,125 * -- -- *
Roger A. Waesche, Jr............................... 8,000John H. Gurley....................... 11,667 * -- -- *
ThomasMichael D. Cassel (6)............................... 660Kaiser.................... 64,167 * -- -- *
David P. Hartsfield................................ 952Dwight S. Taylor..................... 58,517 * 9,091 6,000-- -- *
All Trustees and Executive Officers
as a Group (14 persons)....................................... 856,631 5.1% 1,820,064 1,597,243 31.1%............ 1,666,210 9.2% 7,928,842 -- 31.0%
- ------------------------
* Represents less than one percent.
(1) Includes the following common shares issuable under options exercisable
within 60 days of March 15, 1999: 2,500--Shidler; 2,500--Hamlin;
12,500--Beck; 12,500--Gehrke; 7,500--Sweet; 7,500--Walton; 17,500--Wethe;14, 2000: 7,500--Shidler; 294,167--Hamlin;
5,000--Cohen; 5,000--Crooke; 5,000--Denton; 5,000--Kesler; 12,500--Sweet;
12,500--Walton; 22,500--Wethe; 88,333--Griffin; 35,000--Waesche; 11,667--
Gurley; 14,167--Kaiser; 14,167--Taylor; and 62,500--all trustees532,501--all Trustees and
executive officers as a group.
(2) Assumes that all units of our operating partnership are exchanged for common
shares (without regard to the prohibition on exchange of preferred
units for partnership units until October 1, 1999), and assumes we elect to issue common shares rather than pay cash upon
exchange of all partnership units.
(3) Constellation Real Estate, Inc. is located at 250 West Pratt Street,111 Market Place, Baltimore,
MD 21201.Maryland 21202. In addition to the common shares in the table, Constellation
also owns 984,308 Series A convertible preferred shares which are
convertible into 1,845,381 common shares beginning in September 2000.
(4) These sharesUnited Properties Group, Inc. is located at 305 West Grand Street, Suite
100, Montvale, New Jersey 07645. United Properties Group, Inc.'s preferred
units in our operating partnership are held by Enterprise Nautical, Inc., of which Mr. Beckconvertible into 2,320,670 common
units in our operating partnership beginning in December 2000.
(5) Jay Shidler's address is the sole owner.
(5) Includes 275 shares held by Mr. Griffin's spouse and 200 shares held in
trust for Mr. Griffin's daughter, for which he disclaims beneficial
ownership.810 Richards Street, Suite 1000, Honolulu, Hawaii
96813.
(6) Includes 660 shares held by Mr. Cassel's spouse, for which he disclaims
beneficial ownership.
18Clay Hamlin's address is 401 City Avenue, Suite 615, Bala Cynwyd,
Pennsylvania 19004.
15
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The rules of the Securities and Exchange Commission require that we disclose
late filings of reports of share ownership (and changes in share ownership) by
our trustees,Trustees, officers and greater than 10% shareholders. Our trustees,Trustees, officers
and greater than 10% shareholders are required by those rules to furnish us with
copies of the reports of share ownership (and changes in share ownership) they
file with the Securities and Exchange Commission. Based solely on our review of
the copies of such reports received by us, we believe that during the year ended
December 31, 1998,1999, all filing requirements applicable to our trustees,Trustees, officers
and greater than 10% shareholders were satisfied, with the exception of the
following reports which were not timely filed for the years indicated: Form 54
for one transaction in 19981999 by Allen C. Gehrke,Jay H. Shidler, a trustee whose term is expiring
at the Annual Meeting;Trustee; Form 4 for one
transaction in 1999 by Robert Denton, a Trustee; Form 4 for two transactions in
1997, Form 4 for two
transactions in 19981999 by Clay W. Hamlin, a Trustee and Form 5 for one transaction in 1998 by Kenneth S. Sweet,
Jr., a trustee; Form 5 for one transaction in 1997 and Form 5 for one
transaction in 1998 by William H. Walton, a trustee; Form 5 for one transaction
in 1997 and Form 5 for two transactions in 1998 by Kenneth D. Wethe, a trustee;
Form 4 for one transaction in 1997 and Form 5 for one transaction in 1998 by
Thomas D. Cassel, an executive officer; Form 4 for one
transaction in 1998 andby Jacob H. Baugher, III, an officer; Form 54 for one
transaction in 19981999 by James K. Davis, an officer; Form 5 for one
transaction in 1998 by John H. Gurley, an executive officer; and Form 4 for one
transaction in 1998 and Form 5 for one transaction in 19981999 by David P. Hartsfield, an executive officer until September 1998.a former officer. All of the
transactions of curent Trustees and employees described above were reported with
the Securities and Exchange Commission on
Forms 5 prior to the mailing of this Proxy Statement.proxy.
SUMMARY COMPENSATION TABLE
The table below provides information about the annual compensation of our
Chief Executive Officer and our other four most highly compensated executive
officers who were executive officers as of December 31, 1998.1999.
- ---------------------------------------------------------------- ------------ ---------------- ---------------LONG TERM
ANNUAL COMPENSATION($) COMPENSATION AWARDS
--------------------------------------- -----------------------
RESTRICTED
SHARE
OTHER AWARDS SHARE OTHER COMPENSATION
NAME AND POSITION YEAR SALARY(1) BONUS(1) COMPENSATION(2) ($)(3) OPTIONS(4) ($) BONUS(1) ($)(5)
- ---------------------------------------------------------------- ----------------------------- -------- --------- -------- ---------------- ------------------------- ---------- -------------------
Clay W. Hamlin, IIIIII.......... 1999 90,000 -- 6,765 -- 200,000 1,216
Chief Executive Officer 1998 88,503 38,500 Chief Executive Officer571 -- -- --
1997 18,000 -- -- -- -- --
Randall M. Griffin 1998 62,308 38,500Griffin........... 1999 311,585 170,000 16,795 2,212,500 300,000 11,828
President and Chief Operating 1998 62,308 38,500 3,000 -- 200,000 2,059
Officer
Roger A. Waesche, Jr. 1998 40,385 15,000Jr......... 1999 170,993 80,000 11,511 576,172 -- 15,853
Senior Vice President and 1998 40,385 15,000 2,019 -- 82,500 2,154
Chief Financial Officer
ThomasMichael D. Cassel 1998 100,387 28,000
ViceKaiser............ 1999 134,774 37,000 2,418 368,750 -- 13,585
President Finance and Treasurer 1997 22,038 --
David P. Hartsfield (2) 1998 82,846 23,500
Vice President-Development of Corporate Realty 1998 30,462 26,400 445 -- 27,500 1,998
Management, LLC
Dwight S. Taylor............. 1999 139,820 50,000 8,202 322,656 -- 6,800
President of Corporate 1998 29,344 6,500 1,642 -- 27,500 443
Development Services, 1997 16,000 --
LLC
- ---------------------------------------------------------------- ------------ ---------------- ---------------
- ------------------------------
(1) On October 14, 1997, we converted from an externally advised REIT to a
self-administered REIT. Prior to October 14, 1997, no individual
officer of Corporate Office Properties Trust was paid any cash or other
compensation. The salaryMessrs. Griffin, Waesche, Kaiser and bonus information in the table for
19
1997 sets forth the compensation paid from October 14, 1997 to
December 31, 1997. If Messrs. Hamlin, Cassel and Hartsfield had been
employed for a full year, their annualized salaries for 1997 would
have been $90,000, $90,000 and $80,000, respectively. Mr. Griffin and
Mr. WaescheTaylor became officers of Corporate
Office Properties Trust on September 28, 1998.
If employed for the full year, Mr. Griffin's
annualized salary for 1998 would have been $286,000 including(2) Includes auto allowances and Company matching of officers' 401(k)
contributions.
(3) Represents the value of grants of restricted shares that were made under our
1998 Long Term Incentive Plan on the date of grant. These shares are subject
to forfeiture restrictions that lapse annually through 2004 upon the
Company's attainment of defined earnings or shareholder return growth
targets. These shares may not be sold, transferred or encumbered while the
forfeiture restrictions are in place. Holders of these shares have the right
to vote and receive dividends on the shares. As of December 31, 1999, the
total holdings of restricted shares by the named officers and the market
value of such holdings were as follows: Mr. Waesche's annualized salary for 1998 would have
been $157,500 including allowances.
(2)Griffin: 300,000 shares
($2,287,500); Mr. Hartsfield was Vice President, OperationsWaesche: 78,125 shares ($595,703); Mr. Kaiser: 50,000
shares ($381,250); and DevelopmentMr. Taylor: 43,750 shares ($333,594).
16
(4) Does not reflect options granted during 2000 that were attributable to 1999.
A summary of Corporate Office Properties Trust through September 1998. At that
time, he became Vice President-Developmentthese options by the named officers were as follows:
Mr. Hamlin: 225,000 options; Mr. Griffin: 60,000 options; Mr. Waesche:
30,000 options; Mr. Kaiser: 20,000 options; and Mr. Taylor: 20,000 options.
(5) Includes medical expenses, health insurance, life insurance, income tax
payments associated with restricted share grants and personal financial and
tax preparation fees paid by the Company on behalf of Corporate Development
Services, LLC, our indirect subsidiary.the officers.
EMPLOYMENT AGREEMENTS
We have entered into an employment agreement with Clay W. Hamlin, III for a
basic term of July 1, 1999 through December 31, 2000 with continuous and
self-renewing period of two yearsone-year terms unless terminated by either party on one day's
prior notice. Under the agreement, Mr. Hamlin's base salary is $90,000$100,000 per year
and he receives additional allowances for an automobile, personal financial
planning and income tax preparation totaling $20,500 per year. His incentive
compensation is set by the Board of Trustees upon the Compensation Committee's
recommendation. The Compensation Committee may take action in future years to
increase his base salary. The employment agreement provides for certain
severance payments in the event of his disability or termination by us without
cause or by Mr. Hamlin based upon constructive termination. The agreement also
provides for certain payments to be made in the event of a change of control of
Corporate Office Properties Trust. He is required to devote his full business
time to our affairs and is prohibited from competing directly or indirectly with
us during the term of the agreement and for a period thereafter.
We have entered into an employment agreement with Randall M. Griffin for a
five-year basic term commencing July 1, 1999 with a continuous and self-renewing
periodthree-year term after the third year of three yearsthe basic term without further action
unless terminated by either party on one day's prior notice. Under the
agreement, Mr. Griffin's base salary is $270,000$350,000 per year and he receives
additional allowances for an automobile, personal financial planning and income
tax preparation totaling $16,000 per year. His incentive compensation is set by
the Board of Trustees upon the Compensation Committee's recommendation. The
Compensation Committee may take action in future years to increase his base
salary. The employment agreement provides for certain severance payments in the
event of his disability or termination by us without cause or by Mr. Griffin
based upon constructive termination. The agreement also provides for certain
payments to be made in the event of a change of control of Corporate Office
Properties Trust. He is required to devote his full business time to our affairs
and is prohibited from competing directly or indirectly with us during the term
of the agreement and for a period thereafter.
We have entered into an employment agreement with Roger A. Waesche, Jr. for
a three-year term commencing July 1, 1999 with continuous and self-renewing
period of two yearsthree-year terms unless terminated by either party on one day's prior notice.
Under the agreement, Mr. Waesche's base salary is $165,000$175,000 per year and he
receives an additional automobile allowance totaling $7,500 per year. His
incentive compensation is set by the Board of Trustees upon the Compensation
Committee's recommendation. The Compensation Committee may take action in future
years to increase his base salary. The employment agreement provides for certain
severance payments in the event of his disability or termination by us without
cause or by Mr. Waesche based upon constructive termination. The agreement also
provides for certain payments to be made in the event of a change of control of
17
Corporate Office Properties Trust. He is required to devote his full
20
business
time to our affairs and is prohibited from competing directly or indirectly with
us during the term of the agreement and for a period thereafter.
We have entered into a three yearan employment agreement with Thomas D. CasselDwight S. Taylor for a
three-year term commencing September 15, 1999 with continuous and self-renewing
three-year terms unless terminated by either party on one day's prior notice.
TheUnder the agreement, provides for currentMr. Taylor's base compensation in the amount of $90,000salary is $150,000 per year and was
increased by the Compensation Committee to $110,000 in October 1998.he
receives an additional automobile allowance totaling $9,000 per year. His
incentive compensation is set by the Board of Trustees upon the Compensation
Committee's recommendation. The Compensation Committee may take action in future
years to increase his base salary. The employment agreement provides for certain
severance payments in the event of his disability or termination by us without
cause or by Mr. CasselTaylor based upon constructive termination. The agreement also
provides for certain payments to be made in the event of a change of control of
Corporate Office Properties Trust. He is required to devote his full business
time to our affairs and is prohibited from competing directly or indirectly with
us during the term of the agreement and for a period thereafter.
We have entered into an employment agreement with Michael D. Kaiser for a
three-year term commencing September 15, 1999 with continuous and self-renewing
three-year terms unless terminated by either party on one day's prior notice.
Under the agreement, Mr. Kaiser's base salary is $138,000 per year and he
receives an additional automobile allowance totaling $9,000 per year. His
incentive compensation is set by the Board of Trustees upon the Compensation
Committee's recommendation. The Compensation Committee may take action in future
years to increase his base salary. The employment agreement provides for certain
severance payments in the event of his disability or termination by us without
cause or by Mr. Kaiser based upon constructive termination. The agreement also
provides for certain payments to be made in the event of a change of control of
Corporate Office Properties Trust. He is required to devote his full business
time to our affairs and is prohibited from competing directly or indirectly with
us during the term of the agreement and for a period thereafter.
OPTION GRANT TABLE
The table below provides information about grants of share options made
during 19981999 to the executive officers shown in our Summary Compensation Table.
Mr.
Hamlin did not receive any option grants in 1998.
Number of
Common Shares Percent of
Underlying Total Options Exercise
Options Granted Granted to Price per Grant Date
NameNUMBER OF WEIGHTED
COMMON PERCENT OF AVERAGE
SHARES UNDERLYING TOTAL OPTIONS EXERCISE PRICE
OPTIONS GRANTED GRANTED TO PER COMMON GRANT DATE
NAME (1) Employees Common Share Expiration Date Present ValueEMPLOYEES SHARE EXPIRATION DATE PRESENT VALUE (2)
- ---- -------------------------------- ------------- ------------ ----------------------------- ---------------- -----------------
Clay W. Hamlin,
III................ 200,000 30.1 $9.25 3/11/09 $ 80,000
Randall M. Griffin 200,000 29.1% $9.25 9/28/2008 $190,000
Roger A. Waesche, Jr. 82,500 11.7% $9.25 9/28/2008 $78,375
Thomas D. Cassel 27,500 3.9% $9.25 9/28/2008 $26,125
David P. Hartsfield 13,750 2.0% $9.25 9/28/2008 $13,063Griffin... 300,000 45.1 $7.50 1/01/09-12/16/09 $261,200
- ------------------------
(1) All options are granted at the fair market value of the common shares at the
date of grant. Options granted are for a term of ten years from the date of
grant and vest ratably over a three-year3 to 5 year period beginning
on the anniversary ofafter the grant date.
18
(2) We chose to use the Black-Scholes option pricing model to estimate the grant
date present value of the options set forth in this table. Our use of this
model should not be construed as an endorsement of its accuracy at valuing
options. All share option valuation models, including the Black-Scholes
model, require a prediction about the future movement of the share price.
All options referenced in the table
were granted on September 28, 1998. The following assumptions were made for purposes of calculating the grant
date present value: an expected life of 5-3/43.85 years, volatility of 30.0%27%, a
dividend yield of 6.8%8.4% and a risk-free interest rate of 4.65%5.57%. The real
value of the options in this table depends upon the actual performance of
our common shares during the applicable period.
21
OPTION EXERCISE TABLE
The table below provides information about the exercise of share options
during 19981999 and the value of share options unexercised at the end of 19981999 for
the
executive officers shown in our Summary Compensation Table.officers. Value is calculated using the difference between the option
exercise price and the year-end share price multiplied by the number of shares
underlying the options.
No. of Shares Underlying Value of Unexercised
No. of Unexercised Options at in-the-money Options at
Shares DecemberNO. OF SHARES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
NO. OF SHARES DECEMBER 31, 1998 December1999 DECEMBER 31, 1998
Acquired on Value -------------------------- ----------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable1999
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- --------------------- --------- ----------- ------------- ----------- -------------
Clay W. Hamlin, III -- $ -- 2,500 -- $ --69,167 133,333 $88 $ --
Randall M. Griffin -- -- 73,333 426,667 -- 200,000 -- --70,000
Roger A. Waesche, Jr. -- -- -- 82,50027,500 55,000 -- --
ThomasMichael D. CasselKaiser -- -- -- 27,5009,167 18,333 -- --
David P. HartsfieldDwight S. Taylor -- -- -- 13,7509,167 18,333 -- --
CERTAIN TRANSACTIONS
Prior to March 19, 1999, we had a management agreement with Glacier Realty LLC
("Glacier"). Fifty percent of the membership interests in Glacier were owned by
Enterprise Nautical, Inc. Vernon R. Beck, a trustee of Corporate Office
Properties Trust, is the sole shareholder of Enterprise Nautical, Inc. Under the
management agreement, Glacier was responsible for the management of our retail
properties. The management agreement provided that Glacier would receive an
annual fee of $250,000 plus a percentage of Average Invested Assets (as defined
in the management agreement) and would pay third party expenses associated with
owning these retail properties. In addition, Glacier was entitled to a fee of 1%
of the purchase price or the sale price upon our acquisition or sale of any
net-leased retail real estate assets. Under the management agreement, this
percentage was to be increased to 3% in the event that all or substantially all
of the net-leased retail real estate properties were sold. The management
agreement, entered into on October 14, 1997, had a term of five years and was
terminable thereafter on 180 days prior written notice. In the event that the
management agreement was terminated, including for non-renewal, a fee equal to
3% of the Invested Real Estate Assets (defined in the management agreement to
exclude our net-leased retail real estate assets as of October 14, 1997) would
have been due to Glacier. We incurred only management fees under the agreement
of $250,000 in 1998. On March 19,September 15, 1999, we acquired Glacier by purchasing alla 49% interest in a newly organized joint
venture. On the membership interestssame day, the joint venture acquired nine office buildings
located in GlacierGreater Harrisburg, Pennsylvania from the three holders of those interests,
including the fifty percent interest held by Enterprise Nautical,First Industrial Realty
Trust, Inc., in
exchange for a total of 200,000 units in our operating partnership divided among
those three holders.
In April 1998, Mr. Antony P. Bernheim, our Chief Investment Officer, resigned
his position. Immediately after resigning his position, we entered into a
contract with Corporate Office Services, Inc. ("COSI"), a publicly held real estate investment company which is
unrelated to us, to provide us consulting services relating to investment
opportunities. Mr. Bernheim iswhere Jay Shidler,
the PresidentChairman of COSI. His employment contract
with COSI entitles him to substantially allour Board of Trustees, serves as Chairman of the income received by COSI. We
paid COSI $1,175,022Board of
Directors. The joint venture acquired these buildings for $39,925,000. On
December 3, 1999, we acquired the remaining 51% interest in consulting fees and $13,521the joint venture.
The recorded cost of the nine office buildings upon completion of these
transactions totaled $40,082,000.
On August 12, 1999, we acquired an 89% ownership interest in expense reimbursementsthree office
buildings located in connection with various acquisitions during 1998.
22
During 1998, we earned construction management fees of $60,000Harrisburg, Pennsylvania from Gateway
Central Limited Partnership, an entity primarily owned and controlled by Mr.Clay
Hamlin, our Chief Executive Officer and a trustee.
In 1998, we paid Robert L. Denton, oneTrustee. The recorded cost of the
nomineesthree buildings totaled $5,960,000. On November 4, 1999, we acquired a parcel of
land located in Harrisburg, Pennsylvania from an entity controlled by Clay
Hamlin for election$191,000.
During 1999, we acquired two parcels of land from Constellation Real
Estate, Inc., our largest shareholder, for $5,853,000.
During 1999, Baltimore Gas and Electric Company, a wholly-owned direct
subsidiary of Constellation Energy, provided utility services to most of our
Board
of Trustees, a consulting fee of $200,000properties in connection with our public offering
of common shares in April 1998.
During 1998, wethe Baltimore/Washington Corridor.
19
We recognized revenue of $256,000$944,000 in 1999 on office space leased to
Constellation Real Estate, Inc., During 1999, Corporate Development Services,
LLC, our largest shareholder.indirect subsidiary, earned construction management fees of $60,000
from an entity owned by Clay Hamlin. During 1998,1999, Corporate Office
Management, Inc., our indirect subsidiary, earned $750,000a leasing commission of
$117,000 from an entity owned by Clay Hamlin. During 1999, Corporate Office
Management, Inc. earned fees from a project consulting and management agreement
with Constellation.Constellation Real Estate, Inc. of $1,100,000. During 1999, Corporate
Realty Management, LLC, our indirect subsidiary, also earned $206,000 in fees and expense
reimbursements of $500,000 under a property management agreement with Baltimore
Gas and Electric Company, which indirectly owns 100% of Constellation.Company.
REQUIREMENTS FOR ADVANCE NOTIFICATION OF NOMINATIONS
AND SHAREHOLDER PROPOSALSArticle II, Section 13 of our Bylaws provides that a shareholder may not
nominate a person for election as a trusteeTrustee or propose business to be considered
by the shareholders at an annual meeting unless (i) the shareholder is a holder
of record both at the time of giving the notice described in (iii) below and at
the time of the annual meeting, (ii) the shareholder is entitled to vote at the
annual meeting and (iii) the shareholder delivers written notice of such
shareholder's intent to make such nomination or proposal (containing the
relevant information described below) to our Secretary at our principal
executive offices not later than the close of business on the 60th day and not
earlier than the close of business on the 90th day prior to the first
anniversary of the preceding year's annual meeting. However, if the date of the
annual meeting is advanced by more than 30 days or delayed by more than 60 days
from such anniversary date, the shareholder must deliver such written notice not
earlier than the close of business on the 90th day prior to the annual meeting
and not later than the close of business on the later of the 60th day prior to
the annual meeting or the 10th day following the day on which we first make a
public announcement of the date of the meeting. The public announcement of a
postponement or adjournment of an annual meeting to a later date or time will
not commence a new time period for the giving of a shareholder's notice as
described above. If the number of trusteesTrustees to be elected to the Board of
Trustees is increased and we do not make a public announcement naming all of the
nominees for trusteeTrustee or specifying the size of the increased Board of Trustees
at least 70 days prior to the first anniversary of the preceding year's annual
meeting, a shareholder's written notice will also be considered timely, but only
with respect to nominees for any new positions created by such increase, if
delivered to our Secretary at our principal executive offices not later than the
close of business on the 10th day following the day on which we first make such
public announcement.
Article II, Section 13 of our Bylaws also provides that a shareholder may
not nominate a person for election as a trusteeTrustee at a special meeting of
shareholders at which trusteesTrustees are to be elected unless (i) the Board of
Trustees has determined that trusteesTrustees shall be elected at the special meeting,
(ii) the shareholder is a holder of record both at the time of giving the notice
described in (iv) below and at the time of the special meeting, (iii) the
shareholder is entitled to vote at the special meeting and (iv) the shareholder
delivers written notice of such shareholder's intent to make such nomination
(containing the relevant information described below) to our Secretary at our
principal executive offices not earlier than the close of business on the 90th
day prior to the special meeting and not later than the close of business on the
later of the 60th day prior to the special meeting or the 10th day following the
day on which we 23
first make a public announcement of the date of the special
meeting and of the nominees proposed by the Board of Trustees to be elected at
the special meeting. The public announcement of a postponement or adjournment of
a special meeting to a later date or time will not commence a new time period
for the giving of a shareholder's notice as described above.
20
The shareholder's notice must set forth, as relevant, (i) as to each person
whom the shareholder proposes to nominate for election or reelection as a
trusteeTrustee all information relating to such person that is required to be disclosed
in solicitations of proxies for election of trusteesTrustees in an election contest or
is otherwise required pursuant to Regulation 14A under the Securities Exchange
Act of 1934 (including such person's written consent to being named in the proxy
statement as a nominee and to serving as a trusteeTrustee if elected); (ii) as to any
other business that the shareholder proposes to bring before the meeting, a
brief description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest in
such business of such shareholder and of the beneficial owner, if any, on whose
behalf the proposal is made; and (iii) as to the shareholder giving the notice
and the beneficial owner, if any, on whose behalf the nomination or proposal is
made, the name and address of such shareholder, as they appear on our books, and
of the beneficial owner, and the number of each class of our shares which are
owned beneficially and of record by the shareholder and beneficial owner.
For purposes of the procedures described above, our Bylaws define a "public
announcement" as disclosure in a press release reported by the Dow Jones News
Service, Associated Press or comparable news service or in a document publicly
filed by us with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
A shareholder also must comply with all applicable requirements of state law
and of the Exchange Act and its rules and regulations with respect to
nominations of trusteesTrustees and proposals of business to be conducted at our
shareholder meetings. The chairman of a meeting may refuse to acknowledge the
nomination of any person by a shareholder or any shareholder proposal not made
in compliance with the procedures described above. Such procedures will not be
deemed to affect any rights of shareholders to request inclusion of proposals in
our proxy statements pursuant to Rule 14a-8 under the Exchange Act.
INDEPENDENT AUDITORS
PricewaterhouseCoopers LLP performed customary auditing services for us for
the year ended December 31, 1998.1999. We have selected PricewaterhouseCoopers as our
auditor for the next year. We expect one of its representatives to be present at
the Annual Meeting who will have an opportunity to make a statement, if they
desire to do so, and to answer questions.
After our acquisition of properties from The Shidler Group in October 1997, we
changed our certifying public accountant from Lurie, Besikof, Lapidus & Co., LLP
("Lurie") to Coopers & Lybrand L.L.P. ("C&L"). On October 31, 1997, our Board of
Directors appointed C&L as our independent public accountant for the year ended
December 31, 1997. We are not aware of any disagreements with Lurie during our
two most recent fiscal years and through October 31, 1997 on any matters of
accounting principles or practices, financial statement disclosures or auditing
scope and procedures. During 1998, C&L merged with Price Waterhouse LLP to
become PricewaterhouseCoopers LLP. We retained PricewaterhouseCoopers as our
certifying accountant.
24
ANNUAL REPORT ON FORM 10-K
We will provide without charge to each person solicited by this proxy
statement a copy of our Annual Report on Form 10-K for the year ended
December 31, 19981999 as filed with the Securities and Exchange Commission that
includes all financial statements and schedules. You must make this request in
writing to the Vice President-Investor Relations, at ir@copt.comIR@COPT.COM or 401 City Avenue,8815 Centre
Park Drive, Suite 615, Bala
Cynwyd, Pennsylvania 19004.
25400, Columbia, MD 21045.
21
APPENDIX
--------
CORPORATE OFFICE PROPERTIES TRUST
ANNUAL MEETING OF STOCKHOLDERS
WEDNESDAY,SHAREHOLDERS
TUESDAY, MAY 19, 1999
2:16, 2000
10:00 P.M.A.M.
THE PHILADELPHIA MARRIOTT WEST
MATSON FORD AT FRONTWORLD TRADE CENTER BALTIMORE
401 EAST PRATT STREET
WEST CONSHOHOCKEN, PA
- --------------------------------------------------------------------------------
[LOGO]BALTIMORE, MARYLAND
[GRAPHIC OMITTED]
CORPORATE OFFICE PROPERTIES TRUST
401 CITY AVENUE,8815 CENTRE PARK DRIVE, SUITE 615
BALA CYNWYD, PA 19004-1126400
COLUMBIA, MD 21045-2272
PROXY
- --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES FOR USE AT THE ANNUAL MEETING
ON MAY 19, 1999.16, 2000.
The common shares you hold in your account or in a dividend reinvestment account
will be voted as you specify below.
IF NO CHOICE IS SPECIFIED, THE PROXY WILL BE VOTED "FOR" ITEMS 1 AND 2.ITEM 1.
By signing the proxy, you revoke all prior proxies and appoint Clay W. Hamlin,
III and Randall M. Griffin, and each of them, with full power of substitution,
to vote your shares on the matters shown on the reverse side and any other
matters which may come before the Annual Meeting and all adjournments.
SEE REVERSE FOR VOTING INSTRUCTIONS.
TO VOTE YOUR PROXY BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope
we've provided or return it to Corporate Office Properties Trust, c/o Shareowner
Services,Services-, P.O. Box 64873, St. Paul, MN 55164-0873.
~/ PLEASE DETACH HERE ~/[GRAPHIC OMITTED]
- ------- -------
THE BOARD OF DIRECTORSTRUSTEES RECOMMENDS A VOTE FOR ITEMS 1 AND 2
- --------------------------- ---------------------------------------- ------------------- --------------------------
1. Election of directors 01 Betsy Z. Cohen 02 Robert L. Denton / / Vote FOR all / / Vote WITHHELD
nominees from all nominees
(Instructions: To withhold authority to vote for any indicated
nominee, write the number(s) of the nominee(s) in the box provided
to the right.)
2. To amend the 1998 Long Term Incentive Plan. / / For / / Against / / Abstain
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN, WILL BE VOTED FOR
EACH PROPOSAL.
Address change? Mark Box / / Date:
Indicate changes below: -----------------------------------
Signature(s) in Box
Please sign exactly as your name(s) appear
on Proxy. If held in joint tenancy, all
persons must sign. Trustees, administrators,
etc. should include file and authority.
Corporations should provide full name of
corporation and title of authorized officer
signing the proxy.
APPENDIX II
CORPORATE OFFICE PROPERTIES TRUST
1998 LONG TERM INCENTIVE PLANITEM 1.
PURPOSES.
The purposes1. Election of the 1998 Long Term Incentive Plan are to advance the
interests of Corporate Office Properties Trust and its shareholders by providing
a means to attract, retain, and motivate employees and directors of the Company
upon whose judgment, initiative and efforts the continued success, growth and
development of the Company is dependent.
2. DEFINITIONS.
For purposes of the Plan, the following terms shall be definedTrustees: 01 Steven D. Kesler [ ] Vote FOR [ ] Vote WITHHELD
02 William H. Walton all nominees from all
03 Kenneth D. Wethe (except as set forth
below:
(a) "Affiliate" means any entity other than the Company and its
Subsidiaries that is designated by the Committee as a participating employer
under the Plan, provided that the Company directly or indirectly owns at
least 20% of the combined voting power of all classes of stock of such
entity or at least 20% of the ownership interests in such entity.
(b) "Award" means any Option or Dividend Equivalent granted to an
Eligible Person under the Plan.
(c) "Award Agreement" means any written agreement, contract, or other
instrument or document evidencing an Award.
(d) "Beneficiary" means the person, persons, trust or trusts which have
been designated by such Eligible Person in his or her most recent written
beneficiary designation filed with the Company to receive the benefits
specified under this Plan upon the death of the Eligible Person, or, if
there is no designated Beneficiary or surviving designated Beneficiary, then
the person, persons, trust or trusts entitled by will or the laws of descent
and distribution to receive such benefits.
(e) "Board" means the Board of Directors of the Company.
(f) "Code" means the Internal Revenue Code of 1986, as amended from time
to time. References to any provision of the Code shall be deemed to include
successor provisions thereto and regulations thereunder.
(g) "Committee" means the Compensation Committee of the Board, or such
other Board committee (which may include the entire Board), as may be
designated by the Board to administer the Plan.
(h) "Company" means Corporate Office Properties Trust, a Maryland
business trust, or any successor.
(i) "Director" means a member of the Board who is not an employee of the
Company, a Subsidiary or an Affiliate.
(j) "Dividend Equivalent" means a right, granted under Section 5(c), to
receive cash, Shares, or other property equal in value to dividends paid
with respect to a specified number of Shares. Dividend Equivalents may be
awarded on a free-standing basis or in connection with another Award, and
may be paid currently or on a deferred basis.
(k) "Eligible Person" means (i) an employee of the Company, a Subsidiary
or an Affiliate, including any director who is an employee, or (ii) a
Director.
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(l) "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time. References to any provision of the Exchange Act shall be
deemed to include successor provisions thereto and regulations thereunder.
(m) "Fair Market Value" means, with respect to Shares or other property,
the fair market value of such Shares or other property determined by such
methods or procedures as shall be established from time to time by the
Committee. If the Shares are listed on any established stock exchange or a
national market system, unless otherwise determined by the Committee in good
faith, the Fair Market Value of Shares shall mean the mean between the high
and low selling prices per Share on the immediately preceding date (or, if
the Shares were not traded on that day, the next preceding day that the
Shares were traded) on the principal exchange or market system on which the
Shares are traded, as such prices are officially quoted on such exchange or
market system.
(n) "ISO" means any Option intended to be and designated as an incentive
stock option within the meaning of Section 422 of the Code.
(o) "NQSO" means any Option that is not an ISO.
(p) "Option" means a right, granted under Section 5(b), to purchase
Shares.
(q) "Participant" means an Eligible Person who has been granted an Award
under the Plan.
(r) "Plan" means this 1998 Long Term Incentive Plan.
(s) "Rule 16b-3" means Rule 16b-3, as from time to time in effect and
applicable to the Plan and Participants, promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act.
(t) "Shares" means common shares of beneficial interest, $.01 par value
per share, of the Company.
(u) "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations (other than the last corporation in the unbroken chain) owns
shares possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in the chain.
3. ADMINISTRATION.
(a)nominees
marked)
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDICATED NOMINEE, WRITE
THE NUMBER(S) OF THE COMMITTEE. The Plan shall be administered by the
Committee, and the Committee shall have full and final authority to take the
following actions,NOMINEE(S) IN THE BOX PROVIDED TO THE RIGHT.)
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION
IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL.
Address Change? Mark Box [ ] Date
Indicate changes below: ---------------------------
Signature(s) in each case subject to and consistent with the provisions of
the Plan:
(i) to select Eligible Persons to whom Awards may be granted;
(ii) to designate Affiliates;
(iii) to determine the type or types of Awards to be granted to each
Eligible Person;
(iv) to determine the type and number of Awards to be granted, the
number of Shares to which an Award may relate, the terms and conditions of
any Award granted under the Plan (including, but not limited to, any
exercise price, grant price, or purchase price, and any bases for adjusting
such exercise, grant or purchase price, any restriction or condition, any
schedule for lapse of restrictions or conditions relating to transferability
or forfeiture, exercisability, or settlement of an Award, and waiver or
accelerations thereof, and waivers of performance conditions relating to an
Award, basedBox
Please sign exactly as your name(s) appear
on Proxy. If held in each case on such considerations as the Committee shall
determine), and all other matters to be determined in connection with an
Award;
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(v) to determine whether, to what extent, and under what circumstances
an Award may be settled, or the exercise price of an Award may be paid, in
cash, Shares, other Awards, or other property, or an Award may be canceled,
forfeited, exchanged, or surrendered;
(vi) to determine whether, to what extent, and under what circumstances
cash, Shares, other Awards, or other property payable with respect to an
Award will be deferred either automatically, at the election of the
Committee, or at the election of the Eligible Person;
(vii) to prescribe the form of each Award Agreement, which need not be
identical for each Eligible Person;
(viii) to adopt, amend, suspend, waive, and rescind such rules and
regulations and appoint such agents as the Committee may deem necessary or
advisable to administer the Plan;
(ix) to correct any defect or supply any omission or reconcile any
inconsistency in the Plan and to construe and interpret the Plan and any
Award, rules and regulations, Award Agreement, or other instrument
hereunder;
(x) to accelerate the exercisability or vesting of all or any portion of
any Award or to extend the period during which an Award is exercisable; and
(xi) to make all other decisions and determinations as may be required
under the terms of the Plan or as the Committee may deem necessary or
advisable for the administration of the Plan.
(b) MANNER OF EXERCISE OF COMMITTEE AUTHORITY. The Committee shall have sole
discretion in exercising its authority under the Plan. Any action of the
Committee with respect to the Plan shall be final, conclusive, and binding onjoint tenancy, all
persons including the Company, Subsidiaries, Affiliates, Eligible Persons,
any person claiming any rights under the Plan from or through any Eligible
Person,must sign. Trustees, administrators,
etc., should include title and shareholders. The express grantauthority.
Corporations should provide full name of
any specific power to the
Committee,corporation and the taking of any action by the Committee, shall not be construed
as limiting any power or authority of the Committee. The Committee may delegate
to officers or employees of the Company or any Subsidiary or Affiliate the
authority, subject to such terms as the Committee shall determine, to perform
administrative functions and, with respect to Awards granted to persons not
subject to Section 16 of the Exchange Act, to perform such other functions as
the Committee may determine, to the extent permitted under Rule 16b-3 (if
applicable) and applicable law.
(c) LIMITATION OF LIABILITY. Each member of the Committee shall be entitled
to, in good faith, rely or act upon any report or other information furnished to
him or her by any officer or other employee of the Company or any Subsidiary or
Affiliate, the Company's independent certified public accountants, or other
professional retained by the Company to assist in the administration of the
Plan. No member of the Committee, nor any officer or employee of the Company
acting on behalf of the Committee, shall be personally liable for any action,
determination, or interpretation taken or made in good faith with respect to the
Plan, and all members of the Committee and any officer or employee of the
Company acting on their behalf shall, to the extent permitted by law, be fully
indemnified and protected by the Company with respect to any such action,
determination, or interpretation.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to adjustment as provided in Section 4(c) hereof, the total
number of Shares reserved for issuance in connection with Awards under the Plan
shall be 10 percent of the number of issued and outstanding Shares at the time
the Award is granted; provided however, that no more than 200,000 Shares shall
be cumulatively available for Awards of ISOs hereunder. No Award may be granted
if the number of Shares to which such Award relates, when added to the number of
Shares previously issued under the Plan, exceeds the number of Shares reserved
under the preceding sentence. If any Awards are forfeited, canceled, terminated,
exchanged or surrendered or such Award is settled in cash or otherwise
terminates without a distribution of Shares to the Participant, any Shares
counted against the number of Shares reserved and available under the Plan with
respect to such Award shall, to the extent of any such forfeiture,
II-3
settlement, termination, cancellation, exchange or surrender, again be available
for Awards under the Plan. Upon the exercise of any Award granted in tandem with
any other Awards, such related Awards shall be canceled to the extent of the
number of Shares as to which the Award is exercised.
(b) Subject to adjustment as provided in Section 4(c) hereof, the maximum
number of Shares with respect to which Options may be granted during a calendar
year to any Eligible Person under this Plan shall be 200,000 Shares.
(c) In the event that the Committee shall determine that any dividend in
Shares, recapitalization, Share split, reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, or share exchange, or other
similar corporate transaction or event, affects the Shares such that an
adjustment is appropriate in order to prevent dilution or enlargement of the
rights of Eligible Persons under the Plan, then the Committee shall make such
equitable changes or adjustments as it deems appropriate and, in such manner as
it may deem equitable, adjust any or all of (i) the number and kind of shares
which may thereafter be issued under the Plan, (ii) the number and kind of
shares, other securities or other consideration issued or issuable in respect of
outstanding Awards, and (iii) the exercise price, grant price, or purchase price
relating to any Award; provided, however, in each case that, with respect to
ISOs, such adjustment shall be made in accordance with Section 424(a) of the
Code, unless the Committee determines otherwise.
(d) Any Shares distributed pursuant to an Award may consist, in whole or in
part,title of authorized and unissued Shares or treasury Shares including Shares
acquired by purchase inofficer
signing the open market or in private transactions.
5. SPECIFIC TERMS OF AWARDS.
(a) GENERAL. Awards may be granted on the terms and conditions set forth in
this Section 5. In addition, the Committee may impose on any Award or the
exercise thereof, at the date of grant or thereafter (subject to Section 8(d)),
such additional terms and conditions, not inconsistent with the provisions of
the Plan, as the Committee shall determine, including terms regarding forfeiture
of Awards or continued exercisability of Awards in the event of termination of
employment by the Eligible Person.
(b) OPTIONS. The Committee is authorized to grant Options, which may be
NQSOs or ISOs, to Eligible Persons on the following terms and conditions:
(i) EXERCISE PRICE. The exercise price per Share purchasable under an
Option shall be determined by the Committee, and the Committee may, without
limitation, set an exercise price that is based upon achievement of
performance criteria if deemed appropriate by the Committee.
(ii) OPTION TERM. The term of each Option shall be determined by the
Committee.
(iii) TIME AND METHOD OF EXERCISE. The Committee shall determine at the
date of grant or thereafter the time or times at which an Option may be
exercised in whole or in part (including, without limitation, upon
achievement of performance criteria if deemed appropriate by the Committee),
the methods by which such exercise price may be paid or deemed to be paid
(including, without limitation, broker-assisted exercise arrangements), the
form of such payment (including, without limitation, cash, Shares, notes or
other property), and the methods by which Shares will be delivered or deemed
to be delivered to Eligible Persons.
(iv) ISOS. The terms of any ISO granted under the Plan shall comply in
all respects with the provisions of Section 422 of the Code, including but
not limited to the requirement that the ISO shall be granted within ten
years from the earlier of the date of adoption or shareholder approval of
the Plan. ISOs may only be granted to employees of the Company or a
Subsidiary.
(c) DIVIDEND EQUIVALENTS. The Committee is authorized to grant Dividend
Equivalents to Eligible Persons. The Committee may provide, at the date of grant
or thereafter, that Dividend Equivalents shall be
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paid or distributed when accrued or shall be deemed to have been reinvested in
additional Shares, or other investment vehicles as the Committee may specify,
provided that Dividend Equivalents (other than freestanding Dividend
Equivalents) shall be subject to all conditions and restrictions of the
underlying Awards to which they relate.
6. CERTAIN PROVISIONS APPLICABLE TO AWARDS.
(a) STAND-ALONE, ADDITIONAL, TANDEM AND SUBSTITUTE AWARDS. Awards granted
under the Plan may, in the discretion of the Committee, be granted to Eligible
Persons either alone or in addition to, in tandem with, or in exchange or
substitution for, any other Award granted under the Plan or any award granted
under any other plan or agreement of the Company, a predecessor of the Company
or any Subsidiary or Affiliate, or any business entity to be acquired by the
Company or a Subsidiary or Affiliate, or any other right of an Eligible Person
to receive payment from the Company, a predecessor of the Company or any
Subsidiary or Affiliate. Awards may be granted in addition to or in tandem with
such other Awards or awards, and may be granted either as of the same time as or
a different time from the grant of such other Awards or awards. The per Share
exercise price of any Option, or purchase price of any other Award conferring a
right to purchase Shares, which is granted in connection with the substitution
of awards granted under any other plan or agreement of the Company, a
predecessor of the Company or any Subsidiary or Affiliate or any business entity
to be acquired by the Company or any Subsidiary or Affiliate shall be determined
by the Committee, in its discretion.
(b) TERMS OF AWARDS. The term of each Award granted to an Eligible Person
shall be for such period as may be determined by the Committee; provided,
however, that in no event shall the term of any ISO exceed a period of ten years
from the date of its grant (or such shorter period as may be applicable under
Section 422 of the Code).
(c) FORM OF PAYMENT UNDER AWARDS. Subject to the terms of the Plan and any
applicable Award Agreement, payments to be made by the Company or a Subsidiary
or Affiliate upon the grant, maturation, or exercise of an Award may be made in
such forms as the Committee shall determine at the date of grant or thereafter,
including, without limitation, cash, Shares, notes or other property, and may be
made in a single payment or transfer, in installments, or on a deferred basis.
The Committee may make rules relating to installment or deferred payments with
respect to Awards, including the rate of interest to be credited with respect to
such payments.
(d) NONTRANSFERABILITY. Unless otherwise set forth by the Committee in an
Award Agreement, Awards shall not be transferable by an Eligible Person except
by will or the laws of descent and distribution (except pursuant to a
Beneficiary designation) and shall be exercisable during the lifetime of an
Eligible Person only by such Eligible Person or his guardian or legal
representative. An Eligible Person's rights under the Plan may not be pledged,
mortgaged, hypothecated, or otherwise encumbered, and shall not be subject to
claims of the Eligible Person's creditors.
7. CHANGE OF CONTROL PROVISIONS.
(a) ACCELERATION OF EXERCISABILITY AND LAPSE OF RESTRICTIONS; CASH-OUT OF
AWARDS. Unless otherwise provided by the Committee at the time of the Award
grant, all outstanding Awards pursuant to which the Participant may have rights
the exercise of which is restricted or limited shall become fully exercisable at
the time of a Change of Control.
(b) DEFINITIONS OF CERTAIN TERMS. For purposes of this Section 7, the
following definitions, in addition to those set forth in Section 2, shall apply:
(i) "Change of Control" means and shall be deemed to have occurred if:
(a) any Person (within the meaning of the Exchange Act), other than
the Company or a Permitted Person, is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the
II-5
Exchange Act), directly or indirectly, of Voting Securities representing
more than 20 percent or more of the total voting power of all the
then-outstanding Voting Securities; or
(b) during any period of two consecutive years, individuals who at
the beginning of such period constituted the Board (together with any new
directors whose election by such Board or whose nomination for election
by the shareholders of the Company was approved by a vote of 66 2/3% of
the directors of the Company then still in office who were either
directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason to
constitute a majority of the Board then in office;
(c) the stockholders of the Company approve a merger, consolidation,
recapitalization or reorganization of the Company or a Subsidiary,
reverse split of any class of Voting Securities, or an acquisition of
securities or assets by the Company or a Subsidiary, or consummation of
any such transaction if stockholder approval is not obtained, other than
(I) any such transaction in which the holders of outstanding Voting
Securities immediately prior to the transaction receive (or, in the case
of a transaction involving a Subsidiary and not the Company, retain),
with respect to such Voting Securities, voting securities of the
surviving or transferee entity representing more than 60 percent of the
total voting power outstanding immediately after such transaction, with
the voting power of each such continuing holder relative to other such
continuing holders not substantially altered in the transaction, or (II)
any such transaction which would result in Permitted Persons beneficially
owning more than 50 percent of the voting securities of the surviving
entity outstanding immediately after such transaction, or (III) the
merger of Corporate Office Properties Trust, Inc. indirectly with and
into the Company; or
(d) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by
the Company of all or substantially all of the Company's assets other
than any such transaction which would result in Permitted Persons owning
or acquiring more than 50 percent of the assets owned by the Company
immediately prior to the transaction.
(ii) "Permitted Person" means (a) a majority-owned subsidiary of the
Company; (b) an employee or group of employees of the Company or any
majority-owned subsidiary of the Company; (c) a trustee or other fiduciary
holding securities under an employee benefit plan of the Company or any
majority-owned subsidiary of the Company; (d) a corporation owned directly
or indirectly by the stockholders of the Company in substantially the same
proportion as their ownership of Voting Securities; (e) the Operating
Partnership; or (f) Jay H. Shidler, Clay W. Hamlin III, Westbrook Real
Estate Fund I, L.P. or Westbrook Real Estate Co. Investment Partnership I,
L.P. or any corporation, partnership, trust, estate or other legal entity
controlled by any of the foregoing Persons (or jointly controlled by Messrs.
Shidler and Hamlin).
(iii) "Voting Securities or Security" means any securities of the Company
or a Subsidiary or Affiliate which carry the right to vote generally in the
election of directors.
8. GENERAL PROVISIONS.
(a) COMPLIANCE WITH LEGAL AND TRADING REQUIREMENTS. The Plan, the granting
and exercising of Awards thereunder, and the other obligations of the Company or
a Subsidiary or Affiliate under the Plan and any Award Agreement, shall be
subject to all applicable federal and state laws, rules and regulations, and to
such approvals by any regulatory or governmental agency as may be required. The
Company, in its discretion, may postpone the issuance or delivery of Shares
under any Award until completion of such stock exchange or market system listing
or registration or qualification of such Shares or other required action under
any state or federal law, rule or regulation as the Company may consider
appropriate, and may require any Participant to make such representations and
furnish such information as it may consider appropriate in connection with the
issuance or delivery of Shares in compliance with applicable laws,
II-6
rules and regulations. No provisions of the Plan shall be interpreted or
construed to obligate the Company to register any Shares under federal or state
law.
(b) NO RIGHT TO CONTINUED EMPLOYMENT OR SERVICE. Neither the Plan nor any
action taken thereunder shall be construed as giving any employee or director
the right to be retained in the employ or service of the Company or any
Subsidiary or Affiliate, nor shall it interfere in any way with the right of the
Company or any Subsidiary or Affiliate to terminate any employee's or director's
employment or service at any time.
(c) TAXES. The Company or any Subsidiary or Affiliate is authorized to
withhold from any Award granted, any payment relating to an Award under the
Plan, including from a distribution of Shares, or any payroll or other payment
to an Eligible Person, amounts of withholding and other taxes due in connection
with any transaction involving an Award, and to take such other action as the
Committee may deem advisable to enable the Company or any Subsidiary or
Affiliate and any Eligible Person to satisfy obligations for the payment of
withholding taxes and other tax obligations relating to any Award. This
authority shall include authority to withhold or receive Shares or other
property and to make cash payments in respect thereof in satisfaction of an
Eligible Person's tax obligations.
(d) CHANGES TO THE PLAN AND AWARDS. The Board may amend, alter, suspend,
discontinue, or terminate the Plan without the consent of shareholders of the
Company or Participants, except that any such amendment, alteration, suspension,
discontinuation, or termination shall be subject to the approval of the
Company's shareholders to the extent such shareholder approval is required under
Section 422 of the Code; provided, however, that, without the consent of an
affected Participant, no amendment, alteration, suspension, discontinuation, or
termination of the Plan may materially and adversely affect the rights of such
Participant under any Award theretofore granted to him or her. The Committee may
waive any conditions or rights under, amend any terms of, or amend, alter,
suspend, discontinue or terminate, any Award theretofore granted, prospectively
or retrospectively; provided, however, that, without the consent of a
Participant, no amendment, alteration, suspension, discontinuation or
termination of any Award may materially and adversely affect the rights of such
Participant under any Award theretofore granted to him or her.
(e) NO RIGHTS TO AWARDS; NO SHAREHOLDER RIGHTS. No Eligible Person or
employee shall have any claim to be granted any Award under the Plan, and there
is no obligation for uniformity of treatment of Eligible Persons and employees.
No Award shall confer on any Eligible Person any of the rights of a shareholder
of the Company unless and until Shares are duly issued or transferred to the
Eligible Person in accordance with the terms of the Award.
(f) UNFUNDED STATUS OF AWARDS. The Plan is intended to constitute an
"unfunded" plan for incentive compensation. With respect to any payments not yet
made to a Participant pursuant to an Award, nothing contained in the Plan or any
Award shall give any such Participant any rights that are greater than those of
a general creditor of the Company; provided, however, that the Committee may
authorize the creation of trusts or make other arrangements to meet the
Company's obligations under the Plan to deliver cash, Shares, other Awards, or
other property pursuant to any Award, which trusts or other arrangements shall
be consistent with the "unfunded" status of the Plan unless the Committee
otherwise determines with the consent of each affected Participant.
(g) NONEXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan by the
Board nor its submission to the shareholders of the Company for approval shall
be construed as creating any limitations on the power of the Board to adopt such
other incentive arrangements as it may deem desirable, including, without
limitation, the granting of options and other awards otherwise than under the
Plan, and such arrangements may be either applicable generally or only in
specific cases.
(h) NOT COMPENSATION FOR BENEFIT PLANS. No Award payable under this Plan
shall be deemed salary or compensation for the purpose of computing benefits
under any benefit plan or other arrangement of the Company for the benefit of
its employees or directors unless the Company shall determine otherwise.
II-7
(i) NO FRACTIONAL SHARES. No fractional Shares shall be issued or delivered
pursuant to the Plan or any Award. The Committee shall determine whether cash,
other Awards, or other property shall be issued or paid in lieu of such
fractional Shares or whether such fractional Shares or any rights thereto shall
be forfeited or otherwise eliminated.
(j) GOVERNING LAW. The validity, construction, and effect of the Plan, any
rules and regulations relating to the Plan, and any Award Agreement shall be
determined in accordance with the laws of the State of New York without giving
effect to principles of conflict of laws.
(k) EFFECTIVE DATE; PLAN TERMINATION. The Plan shall become effective upon
its approval by shareholders of the Company (the "Effective Date"). The Plan
shall terminate as to future awards on the date which is ten (10) years after
the Effective Date.
(l) TITLES AND HEADINGS. The titles and headings of the sections in the Plan
are for convenience of reference only. In the event of any conflict, the text of
the Plan, rather than such titles or headings, shall control.
II-8
proxy.