As filed with the Securities and Exchange Commission on August 19,25, 1998
Registration Statement No. 333-REGISTRATION STATEMENT NO. 333-60219
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SECURITIES AND EXCHANGE COMMISSION
Washington,WASHINGTON, D.C. 20549
-------------------------_________________________
PRE-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------_________________________
BOSTON PROPERTIES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 04-2473675
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization) Identification No.)
8 Arlington Street
Boston, Massachusetts 02116
(617) 859-2600
(Address, including zip code, and telephone number, including area code of
Registrant's principal executive offices)
-------------------------------_______________________________
Mortimer B. Zuckerman, Chairman
Edward H. Linde, President
and Chief Executive Officer
BOSTON PROPERTIES, INC.
8 Arlington Street
Boston, Massachusetts 02116
(617) 859-2600
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copy to:
GILBERT G. MENNA, P.C.
EDWARD M. SCHULMAN, ESQ.
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
(617) 570-1000
-----------------------------_____________________________
Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this form is used to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
====================================================================================================================================
Title of Shares Being Amount to be Proposed Maximum Proposed Maximum Amount of Registration
Registered Registered Offering Price Per Share(2) Aggregate Offering Price(2) Fee
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value 4,669,260 $31.50 $147,081,690 $43,389.10
$.01 per share(1)
====================================================================================================================================
(1) This Registration Statement also relates to the Rights to purchase shares
of Series E Junior Participating Cumulative Preferred Stock of the
Registrant, which are attached to all shares of Common Stock issued,
pursuant to the terms of the Registrant's Shareholder Rights Agreement
dated June 16, 1997. Until the occurrence of certain prescribed events, the
Rights are not exercisable, are evidenced by the certificates for the
Common Stock and will be transferred with and only with such stock. Because
no separate consideration is paid for the Rights, the registration fee
therefor is included in the fee for the Common Stock. This Registration
Statement also relates to such additional shares as may be issuable as a
result of certain adjustments including, without limitation, stock
dividends, stock splits and distributions of options, warrants, convertible
securities, evidences of indebtedness or assets.
(2) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457(c) based on the average of the high and low sales prices on the
New York Stock Exchange on August 12, 1998.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Information contained herein is subject to completion or amendment.INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL NOR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED AUGUST 19,25, 1998
4,669,260 SharesPROSPECTUS
- ----------
2,678,774 SHARES
BOSTON PROPERTIES, INC.
Common Stock
(par valueCOMMON STOCK
(PAR VALUE $.01 per share)
__________________PER SHARE)
____________
This Prospectusprospectus relates to the possible offer and sale from time to timeissuance by Boston Properties, Inc.
(the "Company") of (i) up to 1,675,8462,678,774 shares of common stock (the "Redemption
Shares"), par value $.01 per share ("Common Stock"), of Boston Properties Inc. (the "Company") by a holder thereof (the
"Current Holder"), and (ii) up to 2,993,414 shares of Common Stock by a holder
thereof (the "Unitholder" and, collectively with the Current Holder, the
"Selling Stockholders"),Company, if and to
the extent that the Company electsholders of up to issue
such shares to the Unitholder to acquire2,678,774 common units ("Original Units") of
limited partnership interestsinterest ("Units") in Boston Properties Limited Partnership
a Delaware limited
partnership,(the "Operating Partnership"), of which the Company is the sole general partner
(the "Operating
Partnership"). Underand in which the termsCompany owns a controlling limited partnership interest,
exchange such Units for Redemption Shares. The Original Units were issued on
June 23, 1997 upon the contribution to the Operating Partnership of certain
properties or interests therein. The offering of the Redemption Shares is being
made by the Company in accordance with the Second Amended and Restated Agreement
of Limited Partnership of the Operating Partnership, dated as of June 29, 1998,
as amended (the "Partnership Agreement"), which permits the holders of Original
Units, have the righton and after August 23, 1998, to require the
Operating Partnership to redeempresent their Units for cash, subject to certain
restrictions. However, in lieu of a cash redemption of Units, Boston Properties,
Inc. may electfor
cash. The Partnership Agreement permits the Company to acquire any UnitsUnit
presented for redemption for an equivalent
number of sharesone share of Common Stock.Stock (subject to antidilution
adjustments). The Company is registering the Redemption Shares pursuant to the
Company's obligations under a registration rights agreement dated June 23, 1997
(the "Registration Rights Agreement"), but the registration of the shares of Common Stock
offered hereby (the "Shares")Redemption
Shares does not necessarily mean that (i)all or any portion of the Current
HolderOriginal Units
will sellbe presented for redemption or that any or all of its Shares nor (ii) the Redemption Shares will be
issued by the Company in satisfaction of the Unitholder's redemption rights or that, if
issued by the Company, any of the Shares will be offered or sold by the
Unitholder. See "Plan of Distribution" and "Selling Stockholders." Each of the
Selling Stockholders, directly or through agents, dealers or underwriters
designated from time to time, may sell all or a portion of the shares of Common
Stock offered hereby from time to time on terms to be determined at the time of
sale. To the extent required, the specific shares of Common Stock to be sold,
the names of the Selling Stockholders, the respective purchase prices and public
offering prices, the names of any such agent, dealer or underwriter, and any
applicable commissions or discounts with respect to a particular offer will be
set forth in an accompanying prospectus supplement. See "Plan of Distribution."
Each Selling Stockholder reserves the sole right to accept and, together with
such Selling Stockholder's agents, dealers or underwriters from time to time, to
reject, in whole or in part, any proposed purchase of shares of Common Stock to
be made directly or through agents, dealers or underwriters.
The aggregate proceeds to the Selling Stockholders from the sale of the
shares of Common Stock offered hereby (the "Offering") will be the purchase
price of the shares of Common Stock sold less the aggregate agents' commissions
and underwriters' discounts, if any, and other expenses of issuance and
distribution to be borne by the Company. The Company will pay all of the
expenses of the Offering other than agents' commissions and underwriters'
discounts with respect to the shares of Common Stock offered hereby, and
transfer taxes, if any. The Company will not receive any proceeds from the sale
of the shares of Common Stock offered hereby by the Selling Stockholders.
The Selling Stockholders and any agents, dealers or underwriters that
participate with the Selling Stockholders in the distribution of the shares of
Common Stock may be deemed to be "underwriters" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"), in which case any
commissions received by such agents, dealers or underwriters and any profit on
the resale of the shares of Common Stock purchased by them may be deemed
underwriting commissions or discounts under the Securities Act. See "Plan of
Distribution" for indemnification arrangements between the Company and the
Selling Stockholders.hereunder.
The Common Stock is listed on the New York Stock Exchange (the "NYSE")
under the symbol "BXP." SEE "RISK FACTORS" BEGINNING ON PAGETo ensure that the Company maintains its qualification
as a Real Estate Investment Trust (a "REIT"), ownership by any person other than
certain specified parties is limited to 6.6% of the outstanding capital stock,
with certain exceptions. See "Description of Redemption Shares -- Restrictions
on Transfers."
See "Risk Factors" beginning on page 4 FOR CERTAIN FACTORS THAT SHOULD
BE CONSIDERED BY PROSPECTIVE INVESTORS.
_________________for certain factors relevant to an
investment in the Common Stock.
____________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
_____________________________________
The dateCompany will not receive any proceeds from the issuance of Redemption
Shares but has agreed to bear certain expenses of registration of such shares
under federal and state securities laws. The Company will acquire additional
Units in the Operating Partnership in exchange for any Redemption Shares that
the Company may issue to a holder of Original Units pursuant to this Prospectus is _________,Prospectus.
THE DATE OF THIS PROSPECTUS IS _______ __, 1998
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"SEC" or "Commission") a Registration Statement on Form S-3 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Securities.Redemption Shares. This Prospectus, which constitutes part
of the Registration Statement, omits certain of the information contained in the
Registration Statement and the exhibits thereto on file with the Commission
pursuant to the Securities Act and the rules and regulations of the Commission
thereunder. The Registration Statement, including exhibits thereto, may be
inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and at the Commission's Regional Offices at 7 World Trade Center,
13th Floor, New York, New York 10048, and Citicorp Center, 500 W. Madison
Street, Suite 1400, Chicago, Illinois 60661-2511, and copies may be obtained at
the prescribed rates from the Public Reference Section of the Commission at its
principal office in Washington, D.C. Statements contained in this Prospectus as
to the contents of any contract or other document referred to are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference.
The Company files information electronically with the Commission, and the
Commission maintains a Web siteSite that contains reports, proxy and information
statements and other information regarding registrants (including the Company)
that file electronically with the Commission. The address of the Commission's
Web siteSite is (http://www.sec.gov).
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and proxy statements and other information with the
Commission. Such reports, proxy statements and other information can be
inspected and copied at the locations described above. Copies of such materials
can be obtained by mail from the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, at
prescribed rates. In addition, reports, proxy and information statements and
other information concerning the Company can be inspected at the offices of the
NYSE,New York Stock Exchange, 20 Broad Street, New York, New York 10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents are incorporated herein by reference: (i) the
Company's Annual Report on Form 10-K for the year ended December 31, 1997, and
the Company's Quarterly Reports on Form 10-Q for the quarters ended March 31,
1998 and June 30, 1998, filed with the Commission pursuant to the Exchange Act;
(ii) the description of the Company's Common Stock contained in its Registration
Statement on Form 8-A filed with the Commission pursuant to the Exchange Act on
June 12, 1997, and all amendments and reports updating such description; (iii)
the description of the Company's rights to purchase shares of the Company's
Series E Junior Participating Cumulative Preferred Stock contained in the
Registration Statement on Form 8-A filed with the Securities and Exchange
Commission on June 12, 1997, and the description contained in the Company's
Registration Statement on Form 8-A/A filed with the Securities and Exchange
Commission on June 16, 1997 amending such description, and all amendments and
reports updating such description; and (iv) the Company's Current Reports on
Form 8-K filed with the Commission on September 26, 1997, November 6, 1997,
November 26, 1997, December 16, 1997, January 12, 1998, January 26, 1998,
February 6, 1998, June 9, 1998, July 15, 1998, July 17, 1998, and July 27, 1998;
the Company's Current Reports on Form 8-K/A filed with the Commission on
November 14, 1997 and November 25, 1997, amending the Company's Current Report
on Form 8-K filed on September 26, 1997; and the Company's Current Reports on
Form 8-K/A filed with the Commission on November 14, 1997 and December 4, 1997,
amending the Company's Current Report on Form 8-K filed with the Commission on
November 6, 1997.1997; and the Company's Current Report on Form 8-K/A filed with the
Commission on August 25, 1998, amending the Company's Current Reports on Form
8-K filed with the Commission on July 15, 1998, July 17, 1998, and
July 27, 1998.
All other documents filed with the Commission by the Company pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of
this Prospectus and prior to the termination of the offering 2
of the Common Stock registered herebyRedemption
Shares are to be incorporated herein by reference and such documents shall be
deemed to be a part hereof from the date of filing of such documents. Any
statement contained in this Prospectus or in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document that also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus.
ANY PERSON RECEIVING A COPY OF THISAny person receiving a copy of this Prospectus may obtain, without charge,
upon written or oral request, a copy of any of the documents incorporated by
reference herein, except for the exhibits to such documents. Written requests
should be mailed to Boston Properties Inc., 8 Arlington Street, Boston,
Massachusetts 02116, Attention: Chief Financial Officer. Telephone requests may
be directed to (617) 859-2600.
PROSPECTUS MAY OBTAIN, WITHOUT
CHARGE, UPON WRITTEN OR ORAL REQUEST, A COPY OF ANYSUMMARY
This summary is qualified in its entirety by the more detailed information
included elsewhere in this Prospectus. Boston Properties Limited Partnership, a
Delaware limited partnership of which Boston Properties, Inc., is the sole
general partner is referred to as the "Operating Partnership." All references
in this Prospectus to the "Company" refer to Boston Properties, Inc. and its
subsidiaries, including the Operating Partnership, collectively, unless the
context otherwise requires. The Company's initial public offering of Common
Stock (the "Initial Offering") closed on June 23, 1997.
THE COMPANY
Boston Properties, Inc., a Delaware corporation, is one of the largest
owners and developers of office properties in the United States, with a
significant presence in Greater Boston, Greater Washington, D.C., Midtown
Manhattan, Baltimore, Maryland, Richmond, Virginia and Princeton/East Brunswick,
New Jersey. The Company is a self-administered and self-managed real estate
investment trust (a "REIT") and has elected to be treated as a REIT under the
Internal Revenue Code of 1986, as amended (the "Code"), beginning with its
taxable year ended December 31, 1997.
The Company's Common Stock has been traded on the New York Stock Exchange
since the completion of the Initial Offering and is listed under the symbol
"BXP." The Company's headquarters are located at 8 Arlington Street, Boston,
Massachusetts 02116 and its telephone number is (617) 859-2600. In addition,
the Company has regional offices at the U.S. International Trade Commission
Building at 500 E Street, SW, Washington, D.C. 20024 and at 599 Lexington
Avenue, New York, New York 10002.
RISK FACTORS
An investment in Common Stock involves various risks, and prospective
investors should carefully consider the matters discussed under "Risk Factors"
prior to any investment in the Company.
TAX STATUS OF THE DOCUMENTS
INCORPORATED BY REFERENCE HEREIN, EXCEPT FOR THE EXHIBITSCOMPANY
The Company elected to be taxed as a REIT under Sections 856 through 860 of
the Code, commencing with its taxable year ended December 31, 1997. The Company
believes that, commencing with its taxable year ended December 31, 1997, the
Company has been organized in conformity with the requirements for qualification
as a REIT under the Code, and that the Company's proposed manner of operation
will enable it to meet the requirements for taxation as a REIT for federal
income tax purposes. To maintain REIT status, the Company must meet a number of
organizational and operational requirements, including a requirement that it
currently distribute at least 95% of its taxable income to its stockholders. As
a REIT, the Company generally will not be subject to federal income tax on net
income it distributes currently to its stockholders. If the Company fails to
qualify as a REIT in any taxable year, it will be subject to federal income tax
at regular corporate rates. See "Federal Income Tax Considerations" and "Risk
Factors--Failure to Qualify as a REIT." Even if the Company qualifies for
taxation as a REIT, the Company may be subject to certain federal, state and
local taxes on its income and property.
SECURITIES TO SUCH DOCUMENTS.
WRITTEN REQUESTS SHOULD BE MAILED TO BOSTON PROPERTIES INC,OFFERED
This Prospectus relates to the possible issuance by the Company of up to
2,678,774 Redemption Shares if, and to the extent that, holders of up to
2,678,774 Units tender such Units to the Operating Partnership for redemption
and the Company exercises its contractual right to acquire such tendered Units
for Redemption Shares. The Original Units were issued on June 23, 1997 to
certain persons ("Continuing Investors") upon their contribution to the
Operating Partnership of properties or interests therein. The Company is
registering the Redemption Shares pursuant to its obligations under the
Registration Rights Agreement.
2
Pursuant to the Partnership Agreement of the Operating Partnership, on and
after August 23, 1998, each Original Unit may be tendered by its holder to the
Operating Partnership for redemption for the cash equivalent of an equivalent
number of shares of Common Stock (subject to certain adjustments to prevent
dilution), provided that, at the option of the Company, the Company may acquire
any Units so tendered for an equivalent number of shares of Common Stock
(subject to certain adjustments to prevent dilution).
8 ARLINGTON STREET,
BOSTON, MASSACHUSETTS 02116, ATTENTION: CHIEF FINANCIAL OFFICER. TELEPHONE
REQUESTS MAY BE DIRECTED TO (617) 859-2600.As a result, the Company may from time to time issue up to 2,678,774
Redemption Shares upon the acquisition of Original Units tendered to the
Operating Partnership for redemption. With each such acquisition, the Company's
interest in the Operating Partnership will increase.
The Company will not receive any proceeds from the issuance of any
Redemption Shares, but will acquire Original Units tendered to the Operating
Partnership for redemption for which it elects to issue Redemption Shares.
3
RISK FACTORS
An investment in Common Stock involves various risks. Prospective investors
and holders of Original Units should carefully consider the following
information in conjunction with the other information contained in this
Prospectus and any related Prospectus Supplement before making an investment
decision regarding the Redemption Shares offered hereby.
"Safe Harbor" statement under the Private Securities Litigation Reform Act
of 1995: Certain materials filed or to be filed by the Company with the
Commission and incorporated by reference herein contain statements that are or
will be forward-looking, such as statements relating to acquisitions (including
related pro forma financial information) and other business development
activities, future capital expenditures, financing sources and availability and
the effects of regulations (including environmental regulation) and competition.
Such forward-looking information involves important risks and uncertainties that
could significantly affect anticipated results in the future and, accordingly,
such results may differ from those expressed in any forward-looking statements
incorporated by reference herein. These risks and uncertainties include, but
are not limited to, uncertainties affecting real estate businesses generally
(such as entry into new leases, renewals of leases and dependence on tenants'
business operations), risks relating to acquisition, construction and
development activities, possible environmental liabilities, risks relating to
leverage and debt service (including availability of financing terms acceptable
to the Company and sensitivity of the Company's operations to fluctuations in
interest rates), the potential for the use of borrowings to make distributions
necessary to qualify as a REIT, dependence on the primary markets in which the
properties are located, the existence of complex regulations relating to status
as a REIT and the adverse consequences of the failure to qualify as a REIT and
the potential adverse impact of market interest rates on the market prices for
the Company's Common Stock.
All references in this Prospectussecurities. Unless the context otherwise requires, the term
"Company" also refers to the "Company" refer to Boston
Properties, Inc.Operating Partnership and its subsidiaries, includingsubsidiaries.
TAX CONSEQUENCES OF EXCHANGE TO HOLDERS OF ORIGINAL UNITS
Tax Consequences of Exchange of Units. In the event that the Company
exercises its right to acquire Units tendered for redemption in exchange for
cash or Redemption Shares, the Company's acquisition of such Units from the
holder of Units (a "Unitholder" or "limited partner") will be treated for tax
purposes as a sale of the Units by the Unitholder. Such a sale will be fully
taxable to the Unitholder and such Unitholder will be treated as realizing for
tax purposes an amount equal to the sum of the cash received or the value of the
Redemption Shares received in the exchange plus the amount of any Operating
Partnership liabilities allocable to the exchanged Units at the time of the
redemption or exchange. It is possible that the amount of gain recognized or
even the tax liability resulting from such gain could exceed the amount of cash
and the value of other property (e.g., Redemption Shares) received upon such
disposition. See "Description of Units and Redemption of Units -- Tax
Consequences of Redemption." In addition, the ability of a Unitholder to sell a
substantial number of Redemption Shares in order to raise cash to pay tax
liabilities associated with the redemption of Units may be limited as a result
of fluctuations in the market price of Common Stock, and the price the
Unitholder receives for such shares may not equal the value of his or her Units
at the time of redemption or exchange.
In the event that the Company does not exercise its right to acquire Units
tendered for redemption in exchange for Redemption Shares, and such Units are
redeemed by the Operating Partnership for cash, the tax consequences may differ.
See "Description of Units and Redemption of Units."
Potential Change in Investment Upon Redemption of Units. If a Unitholder
exercises his or her right to require the redemption of all or a portion of his
or her Units, such Unitholder may receive cash or, at the option of the Company,
Redemption Shares in exchange for his or her Units. If the Unitholder receives
cash, the Unitholder will no longer have any interest in the Company (except to
the extent that it retains Units) and will not benefit from any subsequent
increases in share price and will not receive any future distributions from the
Company (unless the Unitholder retains or acquires in the future additional
shares of Common Stock or Units). If the Unitholder receives Common Stock, the
Unitholder will become a stockholder of the Company rather than
4
a holder of Units in the Operating Partnership. See "Description of Units and
Redemption of Units -- Comparison of Ownership of Units and Common Stock."
THE COMPANY MAY NOT ACHIEVE EXPECTED RETURNS ON PROPERTY ACQUISITIONS
The Company intends to continue to investigate and pursue acquisitions of
properties and portfolios of properties, including large portfolios that could
significantly increase the size of the Company and alter its capital structure.
There can be no assurance that the Company will be able to assimilate
acquisitions of properties, and in particular acquisitions of portfolios of
properties, or achieve the Company's intended return on investment.
THE COMPANY'S INVESTMENTS IN PROPERTY DEVELOPMENT MAY NOT YIELD EXPECTED RETURNS
The Company intends to continue to pursue the development of properties to
supplement the properties currently owned by the Operating Partnership or in
which it holds an interest (each a "Property" and collectively, the
"Properties"). To the extent that the Company engages in such development
activities, it will be subject to the risks normally associated with such
activities. Such risks include, without limitation, risks relating to the
availability and timely receipt of zoning, land use, building, occupancy, and
other regulatory approvals, the cost and timely completion of construction
(including risks from causes beyond the Company's control, such as weather,
labor conditions or material shortages) and the availability of construction
financing on favorable terms. These risks could result in substantial
unanticipated delays or expense and, under certain circumstances, could prevent
completion of development activities once undertaken, any of which could have an
adverse effect on the financial condition and results of operations of the
Company and on the amount of cash available for distribution to stockholders.
THE COMPANY RELIES ON KEY PERSONNEL WHOSE CONTINUED SERVICE IS NOT GUARANTEED
The Company is dependent on the efforts of Mortimer B.Messrs. Zuckerman and
Edward H. Linde and
other senior management personnel. Messrs. Zuckerman and Linde in particular
have national reputations which aid the Company in negotiations with lenders and
in having investment opportunities brought to the Company. The other executive
officers of the Company who serve as managers of the Company's offices have
strong regional reputations which aid the Company in identifying opportunities,
or having opportunities brought to the Company, and in negotiating with tenants
or build-to-suit prospects. While the Company believes that it could find
replacements for these key executives, the loss of their services could have a
material adverse effect on the
4
operations of the Company in that the extent and
nature of the Company's relationships with lenders and prospective tenants and
with persons in the industry who may have access to investment opportunities
would be diminished. While Mr. Linde and the other executive officers have
employment agreements with the Company pursuant to which they have agreed to
devote substantially all of their business time to the business and affairs of
the Company and to not have substantial outside business interests, this can
serve as no guarantee that they will remain with the Company for any specified
term. Mr. Zuckerman, who has significant outside business interests, including
serving as Chairman of the Board of Directors of U.S. News & World Report, The
Atlantic Monthly magazine, the New York Daily News and Applied Graphics
Technologies and as a member of the Board of Directors of Snyder Communications,
does not have an employment agreement with the Company and serves as a non-executivenon-
executive officer of the Company with the title "Chairman of the Board of
Directors." Mr. Zuckerman has historically devoted a significant portion of his
business time to the affairs of the Company, although over the last twenty years
less than a majority of his business time, in the aggregate, has been spent on
the Company's affairs. Although Mr. Zuckerman cannot assure the Company that he
will continue to devote any specific portion of his time to the Company and has
therefore declined to enter into an employment agreement with the Company, Mr.
Zuckerman has no present commitments inconsistent with his current level of
involvement with the Company.
THE COMPANY'S PERFORMANCE AND VALUE ARE SUBJECT TO RISKS ASSOCIATED WITH THE
REAL ESTATE INDUSTRY
Lease expirations could adversely affect the Company's cash flow. The
Company will be subject to the risks that, upon expiration, leases for space may
not be renewed, the space may not be re-leased, or the terms
5
of renewal or re-lease (including the cost of required renovations or
concessions to tenants) may be less favorable than current lease terms. If the
Company were unable to re-lease substantial amounts of vacant space promptly, if
the rental rates upon such re-lease were significantly lower than expected, or
if reserves for costs of re-leasing proved inadequate, the cash flow to the
Company would be decreased and the Company's ability to make distributions to
stockholders would be adversely affected.
Hotel operating risks could adversely affect the Company's cash flow. The
Company's hotel Properties are subject to all operating risks common to the
hotel industry. These risks include, among other things: (i) competition for
guests from other hotels, a number of which may have greater marketing and
financial resources than the Company; (ii) increases in operating costs due to
inflation and other factors, which increases may not have been offset in recent
years, and may not be offset in the future by increased room rates; (iii)
dependence on business and commercial travelers and tourism, which business may
fluctuate and be seasonal; (iv) increases in energy costs and other expenses of
travel, which may deter travelers; and (v) adverse effects of general and local
economic conditions. These factors could adversely affect the Company's ability
to make distributions to stockholders.
Acquisitions risks could adversely affect the Company. There can be no
assurance that the Company will be able to implement its investment strategies
successfully or that its property portfolio will expand at all, or at any
specified rate or to any specified size. In addition, investment in additional
real estate assets is subject to a number of risks. In particular, investments
are expected to be financed from time to time with funds drawn under its line of
credit, which would subject the Company to the risks described under "The
Company's Use of Debt to Finance Acquisitions and Developments Could Adversely
Affect the Company." To the extent that the Company elects to invest in
additional markets, it also will be subject to the risks associated with
investment in new markets, with which management may have relatively little
experience and familiarity. Investment in additional real estate assets also
entails the other risks associated with real estate investment generally.
Uncontrollable factors affecting Properties performance and value could
produce lower returns. The economic performance and value of the Company's real
estate assets is subject to all of the risks incident to the ownership and
operation of real estate. These include the risks normally associated with
changes in national, regional and local economic and market conditions.
Currently, the Properties are located primarily in six markets: Greater Boston;
Greater Washington, D.C.; midtown Manhattan; Baltimore, Maryland; Richmond,
Virginia; and Princeton/NewEast Brunswick, New Jersey. The economic condition of
each of such markets may be dependent on one or more industries. An economic
downturn in one of these industry sectors may have an
5
adverse effect on the
Company's performance in such market. Local real estate market conditions may
include a large supply of competing space and competition for tenants, including
competition based on rental rates, attractiveness and location of the property
and quality of maintenance, insurance and management services. Economic and
market conditions may impact the ability of tenants to make lease payments. In
addition, other factors may adversely affect the performance and value of a
property, including changes in laws and governmental regulations (including
those governing usage, zoning and taxes), changes in interest rates and the
availability of financing. If the Properties do not generate sufficient income
to meet operating expenses, including future debt service, the Company's income
and ability to make distributions to its stockholders will be adversely
affected.
Illiquidity of real estate investments could adversely affect the Company's
financial condition. Because real estate investments are relatively illiquid,
the Company's ability to vary its portfolio promptly in response to economic or
other conditions will be limited. In addition, certain significant
expenditures, such as debt service (if any), real estate taxes, and operating
and maintenance costs, generally are not reduced in circumstances resulting in a
reduction in income from the investment. The foregoing and any other factor or
event that would impede the ability of the Company to respond to adverse changes
in the performance of its investments could have an adverse effect on the
Company's financial condition and results of operations.
Liability for environmental matters could adversely affect the Company's
financial condition. Under various federal, state and local laws, ordinances
and regulations, an owner or operator of real property may become liable for the
costs of removal or remediation of certain hazardous or toxic substances. Such
liability may be imposed without regard to whether the owner or operator knew
of, or was responsible for, the release
6
of such substances. The presence of, or the failure to remediate properly, such
substances, when released, may adversely affect the owner's ability to sell the
affected real estate or to borrow using such real estate as collateral. Such
costs or liabilities could exceed the value of the affected real estate.
The cost of complying with the Americans with Disabilities Act could
adversely affect the Company's cash flow. The Americans with Disabilities Act
(the "ADA"), generally requires that public accommodations, including office
buildings, be made accessible to disabled persons. The Company believes that
the Properties are in substantial compliance with the ADA and that it will not
be required to make substantial capital expenditures to address the requirements
of the ADA. However, compliance with the ADA could require removal of access
barriers and noncompliance could result in imposition of fines by the federal
government or the award of damages to private litigants. If, pursuant to the
ADA, the Company were required to make substantial alterations in one or more of
the Properties, the Company's financial condition and results of operations, as
well as the amount of funds available for distribution to stockholders, could be
adversely affected.
Uninsured losses could adversely affect the Company's cash flow. The
Company carries comprehensive liability, fire, flood, extended coverage and
rental loss insurance, as applicable, with respect to the Properties, with
policy specification and insured limits customarily carried for similar
properties. In the opinion of management, all of the Properties are adequately
insured. There are, however, certain types of losses (such as from wars or
catastrophic acts of nature) that may be either uninsurable or not economically
insurable. Any uninsured loss could result in both loss of cash flow from, and
asset value of, the affected Property.
New owner's title insurance policies were not obtained in connection with
certain Properties acquired by the Operating Partnership at the time of the
Initial Public Offering. Prior to their acquisition by the Operating Partnership, each
of the Properties acquired at the completion of the Company's initial public offering of Common Stock on June 23, 1997 (the "Initial
Offering")Initial Offering
was insured by title insurance policies insuring the interests of the Property-owningProperty-
owning entities. Certain of these title insurance policies may continue to
benefit those Property-owning entities which remained after the completion of
the acquisition by the Operating Property.Partnership. Nevertheless, each such title
insurance policy may be in an amount less than the current value of the
applicable Property. In the event of a loss with respect to a Property relating
to a title defect, the Company could lose both its capital invested in and
anticipated profits from such Property. With respect to Properties acquired
subsequent to the Company's Initial Offering, theThe Operating Partnership has obtained
title insurance policies for each such Property acquired.
6
substantially all of the Properties that it
acquired subsequent to the Initial Offering.
Changes in tax and environmental laws could adversely affect the Company's
financial condition. Costs resulting from changes in real estate taxes
generally may be passed through to tenants and will not affect the Company.
Increases in income, service or transfer taxes, however, generally are not
passed through to tenants and may adversely affect the Company's results of
operations and the amount of funds available to make distributions to
stockholders. Similarly, changes in laws increasing the potential liability for
environmental conditions existing on properties or increasing the restrictions
on discharges or other conditions may result in significant unanticipated
expenditures, which would adversely affect the Company's financial condition and
results of operations and the amount of funds available for distribution to
stockholders.
THE COMPANY'S USE OF DEBT TO FINANCE ACQUISITIONS AND DEVELOPMENTS COULD
ADVERSELY AFFECT THE COMPANY
The required repayment of debt or of interest thereon can adversely affect
the Company. The Company may incur variable rate indebtedness in the future.
Increases in interest rates on such indebtedness would increase the Company's
interest expense, which could adversely affect the Company's cash flow and its
ability to pay expected distributions to stockholders. The Company is subject
to risks normally associated with debt financing, including the risk that the
Company's cash flow will be insufficient to meet required payments of principal
and interest, the risk that any indebtedness will not be able to be refinanced
or that the terms of any such refinancing will not be as favorable as the terms
of such indebtedness.
The Company's policy of no limitation on debt could adversely affect the
Company's cash flow. The Company does not have a policy limiting the amount of
debt that the Company may incur. Accordingly, the Company could become more
highly leveraged, resulting in an increase in debt service that could adversely
7
affect the Company's cash flow and, consequently, the amount available for
distribution to stockholders, and could increase the risk of default on the
Company's indebtedness.
FAILURE TO QUALIFY AS A REIT WOULD CAUSE THE COMPANY TO BE TAXED AS A
CORPORATION
The Company will be taxed as a corporation if it fails to qualify as a
REIT. The Company intends at all times to operate so as to qualify as a REIT
under the Internal Revenue Code of 1986, as amended (the "Code"). Although
management of the Company believes that it is organized and will continue to
operate in such a manner, no assurance can be given that it qualifies or that it
will continue to qualify in the future. Qualification as a REIT, however,
involves the application of highly technical and complex Code provisions as to
which there are only limited judicial and administrative interpretations.
Certain facts and circumstances which may be wholly or partially beyond the
Company's control may affect its ability to qualify as a REIT. In addition, no
assurance can be given that future legislation, new regulations, administrative
interpretations or court decisions will not significantly change the tax laws
(or the application thereof) with respect to qualification as a REIT for Federalfederal
income tax purposes or the Federalfederal income tax consequences of such
qualification.
If, in any taxable year, the Company were to fail to qualify as a REIT for
Federalfederal income tax purposes, it would not be allowed a deduction for
distributions to stockholders in computing taxable income and would be subject
to Federalfederal income tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates. In addition, unless entitled to
relief under certain statutory provisions, the Company would be disqualified
from treatment as a REIT for Federalfederal income tax purposes for the four taxable
years following the year during which qualification is lost. The additional tax
liability resulting from the failure to qualify as a REIT would significantly
reduce the amount of funds available for distribution to stockholders. In
addition, the Company would no longer be required to make distributions to
stockholders. Although the Company intends to continue to operate in a manner
designed to permit it to qualify as a REIT for Federalfederal income tax purposes, it
is possible that future economic, market, legal, tax or other events or
circumstances could cause it to fail to so qualify. See "Federal Income Tax
Considerations."
To qualify as a REIT the Company will need to maintain a certain level of
distributions. To maintain its status as a REIT for Federalfederal income tax
purposes, the Company generally will be required each year to distribute to its
stockholders at least 95% of its taxable income. In addition, the Company will
be subject to
7
a 4% nondeductible excise tax on the amount, if any, by which
certain distributions paid by it with respect to any calendar year are less than
the sum of 85% of its ordinary income for such calendar year, 95% of its capital
gain net income other than such capital gain net income which the REIT elects to
retain and pay tax on for the calendar year and any amount of such income that
was not distributed in prior years. The Company may be required, under certain
circumstances, to accrue as income for tax purposes interest, rent and other
items treated as earned for tax purposes but not yet received. In addition, the
Company may be required not to accrue as expenses for tax purposes certain items
which actually have been paid. It is also possible that the Company could
realize income, such as income from cancellation of indebtedness, which is not
accompanied by cash proceeds. See "Federal Income Tax Considerations."
The Company intends to make distributions to stockholders sufficient to
comply with the 95% distribution requirement and to avoid the 4% nondeductible
excise tax described above. No assurances can be given, however, that the
Company will satisfy these requirements.
Other Tax Liabilities. Even if it qualifies as a REIT for federal income
tax purposes, the Company may, and certain of its subsidiaries will, be subject
to certain Federal,federal, state and local taxes on their income and property. See
"Federal Income Tax Consequences--State and Local Tax.Considerations."
THE ABILITY OF STOCKHOLDERS TO CONTROL THE POLICIES OF THE COMPANY AND EFFECT A
CHANGE OF CONTROL OF THE COMPANY IS LIMITED
Stockholder approval is not required to change policies of the Company. The
Company's operating and financial policies, including its policies with respect
to acquisitions, growth, operations, indebtedness, capitalization and
distributions, are determined by the Company's board of directors (the "Board of
Directors").
8
Accordingly, stockholders have little direct control over the Company's
policies.
Stockholder approval is not required to engage in investment activity. The
Company expects to continue to acquire additional real estate assets pursuant to
its investment strategies and consistent with its investment policies. The
stockholders of the Company will generally not be entitled to receive historical
financial statements regarding, or to vote on, any such acquisition and,
instead, will be required to rely entirely on the decisions of management
(although in the case of acquisitions that are material, the Company will, as
required by Federalfederal securities law, provide financial information regarding the
acquisition in public filings.)
Stock ownership limit in the Amended and Restated Certificate of
Incorporation (the "Certificate") could inhibit changes in control. In order to
maintain its qualification as a REIT for Federalfederal income tax purposes, not more
than 50% in value of the outstanding stock of the Company may be owned, directly
or indirectly, by five or fewer individuals (as defined in the Code to include
certain entities). See "Federal Income Tax Considerations." In order to
facilitate maintenance of its qualification as a REIT for Federalfederal income tax
purposes, and to otherwise address concerns relating to concentration of capital
stock ownership, the Company generally has prohibited ownership, directly or by
virtue of the attribution provisions of the Code, by any single stockholder
(which does not include certain pension plans or mutual funds) of more than 6.6%
of the issued and outstanding shares of the Company's Common Stock (the
"Ownership Limit"). The Board of Directors may waive or modify the Ownership
Limit with respect to one or more persons if it is satisfied, based upon the
advice of tax counsel, that ownership in excess of this limit will not
jeopardize the Company's status as a REIT for Federalfederal income tax purposes. The
Ownership Limit may have the effect of inhibiting or impeding a change in
control and, therefore, could adversely affect the stockholders' ability to
realize a premium over the then-prevailing market price for the Common Stock in
connection with such a transaction.
Provisions in the Certificate and the Amended and Restated Bylaws (the
"Bylaws") and in the Operating Partnership Agreement could prevent acquisitions and
changes in control. Certain provisions of the Company's Certificate and the Amended and Restated Bylaws (the
"Bylaws")
and of the Second Amended and RestatedPartnership Agreement of Limited
Partnership of the Operating Partnership dated as of June 29, 1998, as amended
(the "Operating Partnership Agreement") may have the
effect of inhibiting a third party from making an acquisition proposal for the
Company or of impeding a change in control of the Company under circumstances
that could otherwise provide the holders of 8
shares of Common Stock with the
opportunity to realize a premium on the then-
prevailingthen-prevailing market price of such
shares. The Ownership Limit described in the preceding paragraph also may have
the effect of precluding acquisition of control of the Company even if such a
change in control were in the best interests of some, or a majority, of the
Company's stockholders. In addition, the Board of Directors has been divided
into three classes, with directors of a given class chosen for three-year terms
upon expiration of the terms of the members of that class. The staggered terms
of the members of the Board of Directors may adversely affect the stockholder's
ability to effect a change in control of the Company, even if such a change in
control were in the best interests of some, or a majority, of the Company's
stockholders. The Certificate authorizes the Board of Directors to issue shares
of preferred stock ("Preferred Stock") in series and to establish the rights and
preferences of any series of Preferred Stock so issued. See "Description of
Capital Stock--Preferred Stock.Redemption Shares--General." The issuance of Preferred Stock also could have
the effect of delaying or preventing a change in control of the Company, even if
such a change in control were in the best interests of some, or a majority, of
the Company's stockholders. The Company authorized the issuance of a series of
preferred stock in connection with the adoption of a shareholder rights plan.
See "Description of Capital Stock--ShareholderRedemption Shares--Shareholder Rights Agreement."
The Operating Partnership Agreement provides that the Company may not generally engage
in any merger, consolidation or other combination with or into another person or
sale of all or substantially all of its assets, or any reclassification, or any
recapitalization or change of outstanding shares of Common Stock (a "Business
Combination"), unless the holders of Units will receive, or have the opportunity
to receive, the same consideration per Unit as holders of Common Stock receive
per share of Common Stock in the transaction; if holders of Units will not be
treated in such manner in connection with a proposed Business Combination, the
Company may not engage in such transaction unless limited partners (other than
the Company) holding at least 75% of the Units held by limited partners vote to
approve the Business Combination. In addition, the Company, as general partner
of the Operating Partnership, has agreed in the Operating Partnership Agreement with the
limited partners that the Company will not consummate a Business Combination in
which the Company conducted a vote of the stockholders unless the matter would
have been approved had holders of Units been able
9
to vote together with the stockholders on the transaction. The foregoing
provisions of the Operating Partnership Agreement would under no circumstances enable or
require the Company to engage in a Business Combination which required the
approval of the Company's stockholders if the Company's stockholders did not in
fact give the requisite approval. Rather, if the Company's stockholders did
approve a Business Combination, the Company would not consummate the transaction
unless (i) the Company as general partner first conducts a vote of holders of
Units (including the Company) on the matter, (ii) the Company votes the Units
held by it in the same proportion as the stockholders of the Company voted on
the matter at the stockholder vote, and (iii) the result of such vote of the
Unit holders (including the proportionate vote of the Company's Units) is that
had such vote been a vote of stockholders, the Business Combination would have
been approved by the stockholders. As a result of these provisions of the
Operating Partnership, a third party may be inhibited from making an acquisition
proposal that it would otherwise make, or the Company, despite having the
requisite authority under its Certificate, may be prohibited from engaging in a
proposed Business Combination.
Shareholder Rights Agreement could inhibit changes in control. The Company
adopted a Shareholder Rights Agreement (the "Shareholder"Shareholders Rights Agreement").
Under the terms of the Shareholder Rights Agreement, in general, if a person or
group acquires more than 15% of the outstanding shares of Common Stock (an
"Acquiring Person"), all other stockholders will have the right to purchase
securities from the Company at a discount to such securities' fair market value,
thus causing substantial dilution to the Acquiring Person. The Shareholder
Rights Agreement may have the effect of inhibiting or impeding a change in
control and, therefore, could adversely affect the stockholders' ability to
realize a premium over the then-prevailing market price for the Common Stock in
connection with such a transaction. In addition, since the Board of Directors
of the Company can prevent the Shareholder Rights Agreement from operating in
the event the Board of Directors approves of an Acquiring Person, the
Shareholder Rights Agreement gives the Board of Directors significant discretion
over whether a potential acquiror's efforts to acquire a large interest in the
Company will be successful. See "Description of Capital
Stock--ShareholderRedemption Shares--Shareholder
Rights Agreement."
9
Certain provisions of Delaware law could inhibit acquisitions and changes in
control. Certain provisions of the Delaware General Corporation Law (the
"DGCL") also may have the effect of inhibiting a third party from making an
acquisition proposal for the Company or of impeding a change in control of the
Company under circumstances that otherwise could provide the holders of shares
of Common Stock with the opportunity to realize a premium over the then-prevailingthen-
prevailing market price of such shares.
CONFLICTS OF INTEREST EXIST BETWEEN THE COMPANY AND CERTAIN HOLDERS OF UNITS OF
THE OPERATING PARTNERSHIP IN CONNECTION WITH THE OPERATION OF THE COMPANY
For a period of time, sales of Properties and repayment of indebtedness will
have different effects on holders of Units than on stockholders. Certain
holders of Units, including Messrs. Zuckerman and Linde, the Chairman of the
Board and the Chief Executive Officer, respectively, will incur adverse tax
consequences upon the sale of certain of the Properties and on the repayment of
indebtedness which are different from the tax consequences to the Company and
persons who purchase shares of Common Stock in an offering.receive Redemption Shares. Consequently, such holders may have
different objectives regarding the appropriate pricing and timing of any such
sale or repayment of indebtedness. While the Company has the exclusive
authority under the Operating Partnership Agreement to determine whether, when, and on
what terms to sell a Property (subject, in the case of certain Properties, to
contractual commitments described below) or when to refinance or repay
indebtedness, any such decision would require the approval of the Company's
Board of Directors. As directors and executive officers of the Company, Messrs.
Zuckerman and Linde have substantial influence with respect to any such
decision, and such influence could be exercised in a manner inconsistent with
the interests of some, or a majority, of the Company's stockholders, including
in a manner which could prevent completion of a sale of a Property or the
repayment of indebtedness.
The Operating Partnership Agreement provides that the Operating Partnership may not
sell or otherwise transfer certain Properties in a taxable transaction prior to
specified dates without the prior consent of Messrs. Zuckerman and Linde. The
Operating Partnership is not, however, required to obtain the aforementioned
consent from Messrs. Zuckerman or Linde if, at any time during such applicable
period, each of Messrs. Zuckerman and Linde do not continue to hold at least 30%
of Units issued to him in connection with the
Initial Offering.his Original Units. The Operating Partnership
10
has also entered into agreements providing Messrs. Zuckerman and Linde and
others with the right to guarantee additional and/or substitute indebtedness of
the Company in the event that certain other indebtedness is repaid or reduced.
The Company has entered into a similar agreements with respect to other
Propertiesproperties it has acquired in exchange for Units.
Messrs. Zuckerman and Linde will continue to engage in other activities.
Messrs. Zuckerman and Linde have a broad and varied range of investment
interests. It is possible that companies in which one or both of Messrs.
Zuckerman and Linde has or may acquire an interest, and which are not directly
involved in real estate investment activities, will be owners of real property
and will acquire real property in the future. However, pursuant to Mr. Linde's
employment agreement and Mr. Zuckerman's non-compete agreement with the Company,
Messrs. Zuckerman and Linde will not, in general, have management control over
such companies and, therefore, they may not be able to prevent one or more such
companies from engaging in activities that are in competition with activities of
the Company.
POSSIBLE ADVERSE IMPACT OF MARKET CONDITIONS ON MARKET PRICE
The market value of the Common StockRedemption Shares could be substantially affected by
general market conditions, including changes in interest rates. An increase in
market interest rates may lead purchasers of the Common Stock to demand a higher
annual yield, which could adversely affect the market price of the outstanding
Common Stock. Moreover, numerous other factors such as government regulatory
action and changes in tax laws could have a significant impact on the future
market price of the Common Stock.
10
THE COMPANY
GENERAL
The Company is one of the largest owners and developers of office properties
in the United States, with a significant presence in Greater Boston, Greater
Washington, D.C., midtown Manhattan, Baltimore, Maryland, Richmond,
Virginia and Princeton/East Brunswick, New Jersey.Jersey, Baltimore,
Maryland and Richmond, Virginia. The Company owns or holds an interest in 113
properties (the "Properties"). The Properties aggregate approximately 21.2
million square feet. The Company is a self-administered and self-managed real
estate investment trust (a "REIT") and has elected to be treated as a REIT under
the Internal Revenue Code of 1986, as amended (the "Code"), beginning with its
taxable year ended December 31, 1997. The Company's Common Stock is listed on the NYSE under the symbol
"BXP."
The Company was formed to succeed to the real estate development,
redevelopment, acquisition, management, operating and leasing businesses
associated with the predecessor company founded by Messrs.Mortimer B. Zuckerman and
Edward H. Linde in 1970. Substantially all of the Company's business is
conducted through, and all of the Company's interests in its properties are held
by, the Operating Partnership. The Company is the sole general partner and a
limited partner of the Operating Partnership and through its ownership of a general and limited partnership
interest in the Operating Partnership, the Company is currently a 71.8% economic
owner of the Operating Partnership (this structure is commonly referred to as an
umbrella partnership REIT or "UPREIT").
The Company is a full-service real estate company, with substantial in-house
expertise and resources in acquisitions, development, financing, construction
management, property management, marketing, leasing, accounting, tax and legal
services. The Company's Common Stock has been traded on the NYSENew York Stock
Exchange since the completion of the Initial Offering in June 1997.and is listed under the
symbol "BXP." The Company's headquarters are located at 8 Arlington Street,
Boston, Massachusetts 02116 and its telephone number is (617) 859-2600. In
addition, the Company has regional offices at the U.S. International Trade
Commission Building at 500 E Street, SW, Washington, D.C. 20024 and at 599
Lexington Avenue, New York, New York 10002.
THE OPERATING PARTNERSHIP
The Operating Partnership is the entity through which the Company conducts
substantially all of its business and owns all of its assets (either directly or
through subsidiaries). The Company holds, as the sole
11
general partner of the Operating Partnership and as a limited partner, a 71.8%
economic interest in the Operating Partnership. This structure is commonly
referred to as an umbrella partnership REIT or UPREIT. The Board of Directors of
the Company manages the affairs of the Operating Partnership. The Company's
limited partner and general partner interests in the Operating Partnership
entitle it to share in cash distributions from, and in the profits and losses
of, the Operating Partnership in proportion to its interest therein and
generally entitle the Company to vote on all matters requiring a vote of the
limited partners.
Generally, pursuant to the terms of the Partnership Agreement, the Company,
as the sole general partner, has the exclusive power to manage and conduct the
business of the Operating Partnership. Under the Partnership Agreement, the
Company has the maximum rights and powers permitted to the general partner of a
Delaware limited partnership. Unitholders other than the Company have only such
rights and powers as are reserved to limited partners expressly by Delaware law,
and have no authority to transact business for, or participate in the management
activities or discussions of, the Operating Partnership. The limited partners
do not have the right to remove the Company as general partner. The Operating
Partnership will continue until December 31, 2095, unless sooner dissolved or
terminated. See "Description of Units and Redemption of Units -- Comparison of
Ownership of Units and Common Stock."
The other limited partners of the Operating Partnership are the Continuing
Investors who contributed their direct or indirect interests in certain
properties to the Operating Partnership at the completion of the Initial
Offering in exchange for the Original Units and other persons who received Units
upon subsequent acquisitions of other Properties or interests therein by the
Operating Partnership. The Operating Partnership is obligated to redeem each
Unit at the request of the holder thereof for cash equal to the fair market
value of a share of Common Stock at the time of such redemption, provided that
the Company at its option may elect to acquire any such Unit presented for
redemption for one share of Common Stock. With each such redemption or
acquisition, the Company's percentage ownership interest in the Operating
Partnership will increase. In addition, whenever the Company issues shares of
Common Stock, the Company will be obligated to contribute any net proceeds
therefrom to the Operating Partnership and the Operating Partnership will be
obligated to issue an equivalent number of Units to the Company.
FORMATION TRANSACTIONS
Prior to the completion of the Initial Offering, each Property that was
owned by the Company at the completion of the Initial Offering was owned by a
partnership (a "Property Partnership") of which Messrs. Zuckerman and Linde and
others affiliated with Boston Properties, Inc. controlled the managing general
partner and, in most cases, a majority economic interest. The other direct or
indirect investors in the Property Partnerships included persons formerly
affiliated with Boston Properties, Inc., as well as private investors (including
former owners of the land on which the Properties were developed) who were not
affiliated with Boston Properties, Inc.
Prior to or simultaneously with the completion of the Initial Offering, the
Company engaged in transactions (the "Formation Transactions") designed to
consolidate the ownership of the Properties and the commercial real estate
business of the Company in the Operating Partnership, to facilitate the Initial
Offering and to enable the Company to qualify as a REIT for federal income tax
purposes commencing with the taxable year ended December 31, 1997.
At the completion of the Formation Transactions, the Company owned
38,693,541 Units and Messrs. Zuckerman and Linde and other persons with a direct
or indirect interest in the Property Partnerships owned 16,066,459 Units. At
that time, Messrs. Zuckerman and Linde owned an aggregate of 15,972,611 shares
of Common Stock and Units.
12
DESCRIPTION OF CAPITAL STOCKREDEMPTION SHARES
The description set forth below does not purport to be complete and is
qualified in its entirety by reference to the Company's Certificate and Bylaws,
copies of which are exhibits to the Registration Statement of which this
Prospectus is a part.
GENERAL
Under the Certificate, the Company has authority to issue 450 million shares
of stock, consisting of 250 million shares of Common Stock, par value $0.01 per
share, 150 million shares of Excess Stock, par value $0.01 per share (the
"Excess Stock"), and 50 million shares of preferred stock,Preferred Stock, par value $0.01 per
share (the "Preferred
Stock").share. At August 17,July 23, 1998, the Company had outstanding 63,516,785 shares of
Common Stock. All shares of Common Stock will, when issued, be duly authorized,
fully paid and nonassessable.
COMMON STOCK
Subject to the preferential rights of any other shares or series of capital
stock and to the provisions of the Company's Certificate regarding Excess Stock,
holders of Common Stock will be entitled to receive dividends on Common Stock
if, as and when authorized and declared by the Board of Directors of the Company
out of assets legally available therefor and to share ratably in the assets of
the Company legally available for distribution to its stockholders in the event
of its liquidation, dissolution or winding-up after payment of, or adequate
provision for, all known debts and liabilities of the Company.
Subject to the provisions of the Company's Certificate regarding Excess
Stock, each outstanding share of Common Stock entitles the holder to one vote on
all matters submitted to a vote of stockholders, including the election of
Directors, and, except as otherwise required by law or except as provided with
respect to any other class or series of capital stock,Capital Stock, the holders of Common
Stock will possess exclusive voting power. There is no cumulative voting in the
election of Directors, which means that the holders of a majority of the
outstanding
11
shares of Common Stock can elect all of the Directors then standing
for election, and the holders of the remaining Common Stock will not be able to
elect any Director.
Holders of Common Stock have no conversion, sinking fund or redemption
rights, or preemptive rights to subscribe for any securities of the Company.
The Company intends to furnish its stockholders with annual reports
containing audited consolidated financial statements and an opinion thereon
expressed by an independent public accounting firm and quarterly reports for the
first three quarters of each fiscal year containing unaudited financial
information.
Subject to the provisions of the Company's Certificate regarding Excess
Stock, all Common Stock has equal dividend, distribution, liquidation and other
rights, and has no preference, appraisal (except as provided by the DGCL) or
exchange rights.
Pursuant to the DGCL, a merger or consolidation involving the Company
generally requires the approval of a majority of the outstanding shares entitled
to vote on such a matter. However, subsection 251(f) of the DGCL provides that
no vote of a corporation's stockholders is required to authorize a merger in which suchthe
corporation is the surviving corporation following the merger and: (i) the
certificate of incorporation is not amended in any respect by the merger, (ii)
each share of stock outstanding prior to the merger is to be an identical share
of stock after the effective date of the merger and (iii) any shares of common
stock (together with any other securities convertible into shares of common
stock) to be issued or delivered under the plan of merger in
the aggregate amount to no more
than 20% of the number of shares of common stock outstanding immediately prior
to the effective date of the merger.
For the Company to qualify as a REIT under the Code, not more than 50% in
value of its outstanding capital stock may be owned, directly or indirectly, by
five or fewer individuals (as defined in the Code to include certain entities)
during the last half of a taxable year. To assist the Company in meeting this
13
requirement, the Company may take certain actions to limit the beneficial
ownership, directly or indirectly, by a single person of the Company's
outstanding equity securities. See "Restrictions on Transfer."
PREFERRED STOCK
With respect to the Preferred Stock, the Certificate authorizes the
directors to set or change the preferences, conversion or other rights, voting
powers, restrictions, limitations as to distributions, qualifications or terms
or conditions of redemption of such stock. The Preferred Stock will, when
issued, be fully paid and nonassessable and will have no preemptive rights.
Because the Board of Directors of the Company has the power to establish the
preferences and rights of each class or series of Preferred Stock, the Board of
Directors of the Company may afford the holders of any series or class of
Preferred Stock preferences, powers and rights, voting or otherwise, senior to
the rights of holders of shares of Common Stock. The issuance or prospect of
issuance of Preferred Stock could have the effect of delaying or preventing a
change in control of the Company.
SHAREHOLDER RIGHTS AGREEMENT
On June 16, 1997, the Board of Directors adopted the Shareholder Rights
Agreement. Under such plan, one right is attached to each outstanding share of
Common Stock, and one right will be attached to each share of Common Stock
hereafter issued. Each right entitles the holder to purchase, under certain
conditions, one one-thousandth of a share of Series E Junior Participating
Cumulative Preferred Stock of the Company for $100.00. The rights may also,
under certain conditions, entitle the holders to receive Common Stock, or common
stock of an entity acquiring the Company, or other consideration, each having a
value equal to twice the exercise price of each right ($200.00). The Company has
designated 200,000 shares as Series E Junior Participating Cumulative Preferred
Stock and has reserved such shares for issuance under the Shareholder Rights
Agreement. The rights are redeemable by the Company at a price of $.001 per
right. If not exercised or redeemed, all rights expire on June 16, 2007. The
description and terms of the rights are set forth in a Shareholder Rights
Agreement between the Company and BankBoston, N.A.
12
TRANSFER AGENT
The transfer agent and registrar for the Common Stock is BankBoston, N.A.
RESTRICTIONS ON TRANSFERTRANSFERS
In order for the Company to qualify as a REIT under the Code, among other
things, not more than 50% in value of its outstanding capital stock may be
owned, directly or indirectly, by five or fewer individuals (defined in the Code
to include certain entities) during the last half of a taxable year (other than
the first year) (the "Five or Fewer Requirement"), and such shares of capital
stock must be beneficially owned by 100 or more persons during at least 335 days
of a taxable year of 12 months (other than the first year) or during a
proportionate part of a shorter taxable year. In order to protect the Company
against the risk of losing its status as a REIT and to otherwise protect the
Company from the consequences of a concentration of ownership among its
stockholders, the Certificate, subject to certain exceptions, provides that no
single person (which includes any "group" of persons) (other than the "Related
Parties," as defined below and certain "Look-Through Entities," as defined
below), may "beneficially own" more than 6.6% (the "Ownership Limit") of the
aggregate number of outstanding shares of any class or series of capital stock.
Under the Certificate, a person generally "beneficially owns" shares if (i) such
person has direct ownership of such shares, (ii) such person has indirect
ownership of such shares taking into account the constructive ownership rules of
Section 544 of the Code, as modified by Section 856(h)(1)(B) of the Code, or
(iii) such person would be deemed to "beneficially own" such shares pursuant to
Rule 13d-3 under the Exchange Act. A Related Party, however, will not be deemed
to beneficially own shares by virtue of clause (iii) of the preceding sentence
and a "group" of which a Related Party is a member will generally not have
attributed to the group's beneficial ownership any shares beneficially owned by
such Related Party. Each of Mr. Zuckerman and his respective heirs, legatees
and devises,devisees, and any other person whose beneficial ownership of shares of
Common Stock would be attributed under the Code to Mr. Zuckerman, is a "Related
Party,"Party", and such persons are subject to a "Related Party Ownership Limit" of
15%, such that none of such persons shall be deemed to beneficially own shares
in excess of the Ownership Limit unless, in the aggregate, such persons own
shares of any class or series of capital stock in excess of 15% of the number of
shares of such class or series outstanding. A similar Related Party Ownership
Limit is applied to Mr. Linde and persons with a similar relationship to Mr.
Linde, all of whom are also Related Parties under the Certificate. The
Company's Certificate provides that pension plans described in Section 401(a) of
the Code and mutual funds registered under the Investment Company Act of 1940
("Look-Through Entities") are subject to a 15% "Look-Through Ownership Limit."
Pension plans and mutual funds are among the entities that are not treated as
holders of stock under the Five or Fewer Requirement and the beneficial owners
of such entities will be counted as holders for this purpose. Any transfer of
shares of capital stock or of any security convertible into shares of capital
stock that would create a direct or indirect ownership of shares of capital
stock in excess of the Ownership Limit, the Look-Through Ownership Limit or the
Related Party Ownership Limit, as applicable, or that would result in the
disqualification of the Company as a REIT, including any transfer that results
in the shares of capital stock being owned by fewer than 100 persons or results
in the Company being "closely held" within the meaning of Section 856(h) of the
Code or results in the Company constructively owning 10% or more of the
ownership interests in a tenant of the Company within the meaning of Section 318
of the Code as modified by Section 856(d)(5) of the Code, shall be null and
void, and the intended transferee will acquire no rights to the shares of
capital stock. The foregoing restrictions on transferability and ownership will
not apply if the Board of Directors determines that it is no longer in the best
interests of the Company to attempt to qualify, or to continue to qualify, as a
REIT. The Board of Directors may, in its sole discretion, waive the Ownership
Limit, the Look-Through Ownership Limit and the Related Party Ownership Limit if
evidence satisfactory to the Board of Directors is presented that the changes in
ownership will not jeopardize the Company's REIT status and the Board of
Directors otherwise decides that such action is in the best interest of the
Company.
If any purported transfer of capital stock of the Company or any other event
would otherwise result in any person violating the Ownership Limit, the Look-ThroughLook-
Through Ownership Limit or the Related Party Limit, as applicable, or the
Certificate, then any such purported transfer will be void and of no force or
effect with 13
respect to the purported transferee (the "Prohibited Transferee") as
to that number of shares in excess of the
14
applicable Limit and the Prohibited Transferee shall acquire no right or
interest (or, in the case of any event other than a purported transfer, the
person or entity holding record titletide to any such shares in excess of the
applicable Limit (the "Prohibited Owner") shall cease to own any right or
interest) in such excess shares. Any such excess shares described above will be
converted automatically into an equal number of shares of Excess Stock (the
"Excess Shares") and transferred automatically, by operation of law, to a trust,
the beneficiary of which will be a qualified charitable organization selected by
the Company (the "Beneficiary"). Such automatic transfer shall be deemed to be
effective as of the close of business on the Trading Day (as defined in the
Certificate) prior to the date of such violative transfer. As soon as practical
after the transfer of shares to the trust, the trustee of the trust (who shall
be designated by the Company and be unaffiliated with the Company and any
Prohibited Transferee or Prohibited Owner) will be required to sell such Excess
Shares to a person or entity who could own such shares without violating the
applicable Limit, and distribute to the Prohibited Transferee an amount equal to
the lesser of the price paid by the Prohibited Transferee for such Excess Shares
or the sales proceeds received by the trust for such Excess Shares. In the case
of any Excess Shares resulting from any event other than a transfer, or from a
transfer for no consideration (such as a gift), the trustee will be required to
sell such Excess Shares to a qualified person or entity and distribute to the
Prohibited Owner an amount equal to the lesser of the fair market value of such
Excess Shares as of the date of such event or the sales proceeds received by the
trust for such Excess Shares. In either case, any proceeds in excess of the
amount distributable to the Prohibited Transferee or Prohibited Owner, as
applicable, will be distributed to the Beneficiary. Prior to a sale of any such
Excess Shares by the trust, the trustee will be entitled to receive in trust for
the Beneficiary, all dividends and other distributions paid by the Company with
respect to such Excess Shares.
In addition, shares of stock of the Company held in the trust shall be
deemed to have been offered for sale to the Company, or its designee, at a price
per share equal to the lesser of (i) the price per share in the transaction that
resulted in such transfer to the trust (or, in the case of a devise or gift, the
market price at the time of such devise or gift) and (ii) the market price on
the date the Company, or its designee, accepts such offer. The Company shall
have the right to accept such offer for a period of 90 days. Upon such a sale to
the Company,company, the interest of the Beneficiary in the shares sold shall terminate
and the trustee shall distribute the net proceeds of the sale to the Prohibited
Transferee (or, in the case of a devise or gift, the Prohibited Owner).
These restrictions do not preclude settlement of transactions through the
NYSE.
Each stockholder shall upon demand be required to disclose to the Company in
writing any information with respect to the direct, indirect and constructive
ownership of capital stock as the Board of Directors deems necessary to comply
with the provisions of the Code applicable to REITs,REITS, to comply with the
requirements of any taxing authority or governmental agency or to determine any
such compliance.
The Ownership Limit may have the effect of precluding acquisition of control
of the Company.
FEDERAL INCOMESHAREHOLDER RIGHTS AGREEMENT
On June 16, 1997, the Board of Directors adopted the Shareholder Rights
Agreement. Under such plan, one right is attached to each outstanding share of
Common Stock, and one right will be attached to each share of Common Stock
hereafter issued. Each right entitles the holder to purchase, under certain
conditions, one one-thousandth of a share of Series E Junior Participating
Cumulative Preferred Stock of the Company for $100.00. The rights may also,
under certain conditions, entitle the holders to receive Common Stock, or common
stock of an entity acquiring the Company, or other consideration, each having a
value equal to twice the exercise price of each right ($200.00). The Company
has designated 200,000 shares as Series E Junior Participating Cumulative
Preferred Stock and has reserved such shares for issuance under the Shareholder
Rights Agreement. The rights are redeemable by the Company at a price of $.001
per right. If not exercised or redeemed, all rights expire on June 16, 2007.
The description and terms of the rights are set forth in a Shareholder Rights
Agreement between the Company and BankBoston, N.A..
15
DESCRIPTION OF UNITS AND REDEMPTION OF UNITS
GENERAL
The Operating Partnership may issue common units of limited partnership
("Common Units") and preferred units of limited partnership. As of July 23,
1998, in addition to the Common Units owned by the Company, the Operating
Partnership has issued 22,830,523 Common Units, including the 2,678,774 Original
Units. The Operating Partnership has also issued Series One Preferred Units, as
described below. The term "Units," as used herein, refers to common units of
limited partnership.
Each holder of Units (a "Unitholder" or a "limited partner") may, subject to
certain limitations, require that the Operating Partnership redeem all or a
portion of such holder's Units (the "Redemption Right"). This Redemption Right
shall be exercised pursuant to a Notice of Redemption delivered to the Operating
Partnership, with a copy delivered to the Company, by the limited partner
exercising the Redemption Right. Upon redemption, a Unitholder will receive for
each Unit redeemed cash in an amount equal to the market value of a share of
Common Stock (subject to certain adjustments to prevent dilution), provided,
that the Company may, in its sole discretion, by notice to the redeeming limited
partner within five business days after receipt of the notice of redemption,
elect to acquire any Unit presented to the Operating Partnership for redemption
for one share of Common Stock (subject to the same adjustments). The market
value of Common Stock for this purpose will be equal to the average of the
closing trading price of Common Stock (or substitute information, if no such
closing price is available) for the ten trading days before the day on which the
redemption notice was received by the Operating Partnership.
The Company may elect to acquire any Units presented to the Operating
Partnership for redemption by the issuance of the "Redemption Shares" pursuant
to this Prospectus. Such an acquisition by the Company will be treated as a
sale of the Units to the Company for federal income tax purposes. See "-- Tax
Consequences of Redemption" below. Upon a redemption for cash, such
Unitholder's right to receive distributions with respect to the Units redeemed
will cease; upon a sale for Redemption Shares, a Unitholder will have rights as
a shareholder of the Company, including the right to receive dividends, from the
time of its acquisition of the Redemption Shares.
A Unitholder must notify the Company of such partner's desire to require the
Operating Partnership to redeem Units. A limited partner must request the
redemption of a least 1,000 Units (or all of the Units held by such holder, if
less). No redemption can occur if the delivery of Redemption Shares would be
prohibited under the provisions of the Company's Certificate to protect the
Company's qualification as a REIT.
SERIES ONE PREFERRED UNITS
On June 30, 1998, the Operating Partnership issued 2,442,222 Series One
Preferred Units of Limited Partnership (the "Preferred Units") in the Operating
Partnership. Each Preferred Unit has a liquidation preference of $34 and bears
a preferred distribution of 7.25% per annum. Preferred Units are convertible
into Common Units at a rate of $38.25 per Common Unit. The Preferred Units are
convertible into Common Units (i) at the holder's election at any time or (ii)
at the election of the Company on or after June 30, 2003, provided that at the
time of such election by the Company the Company's Common Stock has a 20-day
trading average of $42.08 per share.
TAX CONSIDERATIONSCONSEQUENCES OF REDEMPTION
The following is a general summary of the material Federaldiscussion summarizes certain federal income tax
considerations associated with an investment in the Common Stock. The following
discussion is not exhaustive of all possible tax considerations and is not tax
advice. Moreover, this summary does not deal with all tax aspects that mightmay be relevant to a particular prospective stockholder in lightlimited partner who exercises his right
to require the redemption of his Units.
Tax Treatment of Exchange or her personal
circumstances; norRedemption of Units. If the Company elects to
purchase Units tendered for redemption, the Partnership Agreement provides that
each of the redeeming limited partner and the Operating Partnership and the
Company shall treat the transaction between the redeeming limited partner and
the Company as a sale of Units by the Unitholder at the time of such redemption.
Such sale will be fully taxable
16
to the redeeming limited partner and such redeeming limited partner will be
treated as realizing for tax purposes an amount equal to the sum of the cash
value or the value of the Common Stock received in the exchange plus the amount
of any Operating Partnership liabilities allocable to the redeemed Units at the
time of the redemption. The determination of the amount of gain or loss is
discussed more fully below. If the Company does it dealnot elect to purchase a limited
partner's Units tendered for redemption and the Operating Partnership redeems
such Units for cash that the Company contributes to the Operating Partnership to
effect such redemption, the redemption likely would be treated for tax purposes
as a sale of such Units to the Company in a fully taxable transaction, although
the matter is not free from doubt. In that event, the redeeming partner would be
treated as realizing an amount equal to the sum of the cash received in the
exchange plus the amount of any Operating Partnership liabilities allocable to
the redeemed Units at the time of the redemption. The determination of the
amount and character of gain or loss in the event of such a sale is discussed
more fully below. See "--Tax Treatment of Disposition of Units by a Limited
Partner Generally" below.
If the Company does not elect to purchase Units tendered for redemption and
the Operating Partnership redeems a limited partner's Unit for cash that is not
contributed by the Company to effect the redemption, the tax consequences would
be the same as described in the previous paragraph, except that if the Operating
Partnership redeems less than all of a limited partner's Units, the limited
partner would not be permitted to recognize any loss occurring on the
transaction and would recognize taxable gain only to the extent that the cash,
plus the amount of any Operating Partnership liabilities allocable to the
redeemed Units, exceeded the limited partner's adjusted basis in all of such
limited partner's Units immediately before the redemption.
If the Company contributes cash to the Operating Partnership to effect a
redemption, and in the unlikely event that the redemption transaction is treated
as the redemption of the limited partner's Units by the Operating Partnership
rather than a sale of Units to the Company, the income tax consequences to a
Unitholder would be as described in the preceding paragraph.
Tax Treatment of Disposition of Units by a Limited Partner Generally. If a
Unit is disposed of in a manner that is treated as a sale of the Unit, or a
limited partner otherwise disposes of a Unit, the determination of gain or loss
from the sale or other disposition will be based on the difference between the
amount considered realized for tax purposes and the tax basis in such Unit. See
"-- Basis of Units" below. Upon the sale of a Unit, the "amount realized" will
be measured by the sum of the cash and fair market value of other property
(e.g., Redemption Shares) received plus the amount of any Operating Partnership
liabilities allocable to the Units sold. To the extent that the amount of cash
or property received plus the allocable share of any Operating Partnership
liabilities exceeds the limited partner's basis for the Units disposed of, such
limited partner will recognize gain. It is possible that the amount of gain
recognized or even the tax liability resulting from such gain could exceed the
amount of cash and/or the value of any other property (e.g., Redemption Shares)
received upon such disposition.
Except as described below, any gain recognized upon a sale or other
disposition of Units will be treated as gain attributable to the sale or
disposition of a capital asset. To the extent, however, that the amount
realized upon the sale of a Unit attributable to a limited partner's share of
"unrealized receivables" of the Operating Partnership (as defined in Section 751
of the Code) exceeds the basis attributed to those assets, such excess will be
treated as ordinary income. Unrealized receivables include, to the extent not
previously included in Operating Partnership income, any rights to payment for
services rendered or to be rendered. Unrealized receivables also include
amounts that would be subject to recapture as ordinary income if the Operating
Partnership had sold its assets at their fair market value at the time of the
transfer of a Unit.
Basis of Units. In general, a limited partner who at the time of the
Formation Transactions contributed a partnership interest in exchange for his
Units had an initial tax basis in his Units ("Initial Basis") equal to his basis
in the contributed partnership interest. A limited partner's Initial Basis in
his Units generally is increased by (i) such limited partner's share of
Operating Partnership taxable and tax-exempt income and (ii) increases in such
limited partner's allocable share of liabilities of the Operating Partnership
(including any increase in his share of liabilities occurring in connection with
particular typesthe Formation Transactions). Generally, such partner's basis in his Units is
decreased (but not below zero) by (A) such partner's share of stockholdersOperating
Partnership distributions, (B) decreases in such partner's allocable share of
liabilities of the Operating Partnership (including any decrease
17
in his share of liabilities of the Operating Partnership occurring in connection
with the Formation Transactions), (C) such partner's share of losses of the
Operating Partnership and (D) such partner's share of nondeductible expenditures
of the Operating Partnership that are not chargeable to his capital account.
Potential Application of the Disguised Sale Regulations to a Redemption of
Units. There is a risk that a redemption by the Operating Partnership of Units
issued in the Formation Transactions may cause the original transfer of property
to the Operating Partnership in exchange for Units in connection with the
Formation Transactions to be treated as a "disguised sale" of property. Section
707 of the Code and the Treasury Regulations thereunder (the "Disguised Sale
Regulations") generally provide that, unless one of the prescribed exceptions is
applicable, a partner's contribution of property to a partnership and a
simultaneous or subsequent transfer of money or other consideration (including
the assumption of or taking subject to special treatmenta liability) from the partnership to the
partner will be presumed to be a sale, in whole or in part, of such property by
the partner to the partnership. Further, the Disguised Sale Regulations provide
generally that, in the absence of an applicable exception, if money or other
consideration is transferred by a partnership to a partner within two years of
the partner's contribution of property, the transactions are presumed to be a
sale of the contributed property unless the facts and circumstances clearly
establish that the transfers do not constitute a sale. The Disguised Sale
Regulations also provide that if two years have passed between the transfer of
money or other consideration and the contribution of property, the transactions
will be presumed not to be a sale unless the facts and circumstances clearly
establish that the transfers constitute a sale.
Accordingly, if a Unit is redeemed by the Operating Partnership, the
Internal Revenue Service ("IRS") could contend that the Disguised Sale
Regulations apply because the limited partner will thus receive cash subsequent
to his previous contribution of property to the Operating Partnership. In that
event, the IRS could contend that the Formation Transactions themselves were
taxable as a disguised sale under the Disguised Sale Regulations. Any gain
recognized thereby may be eligible for installment reporting under Section 453
of the Code, subject to certain limitations. In addition, in such event, the
Disguised Sale Regulations might apply to cause a portion of the proceeds
received by a redeeming limited partner to be characterized as insurance companies,
financial institutionsoriginal issue
discount on a deferred obligation which would be taxable as interest income in
accordance with the provisions of Section 1272 of the Code.
COMPARISON OF OWNERSHIP OF UNITS AND COMMON STOCK
Generally, the nature of any investment in Common Stock of the Company is
substantially equivalent economically to an investment in Units in the Operating
Partnership. A holder of a share of Common Stock receives the same distribution
that a holder of a Unit receives and broker-dealers.stockholders and Unitholders generally
share in the risks and rewards of ownership in the enterprise being conducted by
the Company (through the Operating Partnership). However, there are some
differences between ownership of Units and ownership of Common Stock, some of
which may be material to investors.
The Code provisions governinginformation below highlights a number of significant differences between
the Operating Partnership and the Company relating to, among other things, form
of organization, permitted investments, policies and restrictions, management
structure, compensation and fees, investor rights and Federal income tax treatmenttaxation
and compares certain legal rights associated with the ownership of REITsUnits and
Common Stock, respectively. These comparisons are highly technical and complex, and this
summary is qualifiedintended to assist
Unitholders in its entirety by the applicable Code provisions, rules
and regulations promulgated thereunder, and administrative and judicial
interpretations thereof. The followingunderstanding how their investment will be changed if their Units
are acquired for Common Stock. This discussion is based on current law.
Unlesssummary in nature and does
not constitute a complete discussion of these matters, and holders of Units
should carefully review the context requires otherwise, references tobalance of this Prospectus and the "Company" inregistration
statement of which this "Federal Income Tax Considerations" section refer only to Boston Properties,
Inc.
14
EACH STOCKHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISER REGARDING
THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE PURCHASE, OWNERSHIP AND SALE
OF COMMON STOCK AND OF THE COMPANY'S ELECTION TO BE TAXED AS A REIT, INCLUDING
THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE,
OWNERSHIP AND SALE.
OPINION OF TAX COUNSEL
InProspectus is a part for additional important
information about the opinionCompany.
Form of Goodwin, Procter & Hoar LLP, commencing withOrganization and Assets Owned. The Operating Partnership is
organized as a Delaware limited partnership. All of the Company's taxable year ended December 31, 1997,operations
are conducted through the Operating Partnership.
The Company qualifiedis a Delaware corporation. The Company elected to be taxed as a
REIT under the Code provided that the Company and the Operating
Partnership operate in accordancecommencing with various assumptions and factual
representations made by the Company and the Operating Partnership concerning
their business, properties and operations. It must be emphasized that Goodwin,
Procter & Hoar LLP's opinion is based on various assumptions and is conditioned
upon such assumptions and representations made by the Company and the Operating
Partnership concerning their business and properties. In addition, Goodwin,
Procter & Hoar LLP's opinion is based upon the factual representations of the
Company and the Operating Partnership concerning its business and properties.
Moreover, such qualification and taxation as a REIT depends upon the Company's
ability to meet, through actual annual operating results, distribution levels
and diversity of stock ownership, the various qualification tests imposed under
the Code discussed below, the results of which will not be reviewed by Goodwin,
Procter & Hoar LLP. Accordingly, no assurance can be given that the actual
results of the Company's operations for any one taxable year will satisfy such
requirements. See "Risk Factors--Failure to Qualify as a REIT."
The opinion of Goodwin, Procter & Hoar LLP is also based upon existing
law as currently applicable, Internal Revenue Service ("IRS") regulations,
currently published administrative positions of the IRS and judicial decisions,
which are subject to change either prospectively or retroactively. No assurance
can be given that any such changes would not modify the conclusions expressed in
the opinion. Moreover, unlike a private letter ruling (which will not be
sought), an opinion of counsel is not binding on the IRS, and no assurance can
be given that the IRS will not successfully challenge the status of the Company
as a REIT.
If the Company qualifies for taxation as a REIT, it generally will not
be subject to Federal corporate income taxes on that portion of its ordinary
income or capital gain that is currently distributed to stockholders. The REIT
provisions of the Code generally allow a REIT to deduct dividends paid to its
stockholders. This deduction for dividends paid to stockholders substantially
eliminates the federal "double taxation" on earnings (once at the corporate
level and once again at the stockholder level) that usually results from
investments in a corporation.
Even if the Company qualifies for taxation as a REIT, however, the
Company will be subject to Federal income tax, as follows: First, the Company
will be taxed at regular corporate rates on its undistributed REIT taxable
income, including undistributed net capital gains. Second, under certain
circumstances, the Company may be subject to the "alternative minimum tax."
Third, if the Company has net income from the sale or other disposition of
"foreclosure property" that is held primarily for sale to customers in the
ordinary course of business or other non-qualifying income from foreclosure
property, it will be subject to tax at the highest corporate rate on such
income. Fourth, if the Company has net income from prohibited transactions
(which are, in general, certain sales or other dispositions of property other
than foreclosure property held primarily for sale to customers in the ordinary
course of business), such income will be subject to a 100% tax. Fifth, if the
Company should fail to satisfy either the 75% or 95% gross income test
(discussed below) but has nonetheless maintained its qualification as a REIT
because certain other requirements have been met, it will be subject to a 100%
tax on the net income attributable to the greater of the amount by which the
Company fails the 75% or 95% test, multiplied by a fraction intended to reflect
the Company's profitability. Sixth, if the Company fails to distribute during
each year at least the sum of (i) 85% of its REIT ordinary income for such year,
(ii) 95% of its REIT capital gain net income for such year and (iii) any
undistributed taxable income from prior periods, the Company will be subject to
a 4% excise tax on the excess of such required distribution over the amounts
actually distributed. Seventh, if the Company should acquire any asset from a C
corporation (i.e., a corporation generally subject to full corporate-level tax)
in a carryover-basis transaction and the Company subsequently
15
recognizes gain on the disposition of such asset during the ten-year period (the
"Recognition Period") beginning on the date on which the asset was acquired by
the Company, then, to the extent of the excess of (a) the fair market value of
the asset as of the beginning of the applicable Recognition Period over (b) the
Company's adjusted basis in such asset as of the beginning of such Recognition
Period (the "Built-In Gain"), such gain will be subject to tax at the highest
regular corporate rate, pursuant to guidelines issued by the IRS (the "Built-In
Gain Rules").
REQUIREMENTS FOR QUALIFICATION
The Company elected to be taxable as a REIT for its taxable year ended December 31, 1997,
and intends to maintain its qualifications as a REIT. The Company maintains
both a limited partner interest and a general partner interest in orderthe Operating
Partnership, which gives the Company an indirect investment in the properties
and other assets owned by the
18
Operating Partnership. The Company currently has a 71.8% economic interest in
the Operating Partnership (assuming conversion of all outstanding Preferred
Units into Common Units), and such interest will increase as Units are redeemed
for cash or acquired by the Company.
Length of Investment. The Operating Partnership has a stated termination
date of December 31, 2095, although it may be terminated earlier under certain
circumstances. The Company has a perpetual term and intends to continue its
operations for an indefinite time period.
Purchase and Permitted Investments. The purpose of the Operating
Partnership includes the conduct of any business that may be lawfully conducted
by a limited partnership formed under Delaware law, except that the Partnership
Agreement requires the business of the Operating Partnership to be conducted in
such a manner that will permit the Company to be classified as a REIT for
federal income tax purposes. The Operating Partnership may, subject to the
foregoing limitation, invest or enter into partnerships, joint ventures or
similar arrangements and may own interests in any other entity.
Under its Certificate, the Company may engage in any lawful activity
permitted under Delaware law. However, under the Partnership Agreement the
Company, as the general partner, may not conduct any business other than the
business of the Operating Partnership and cannot own any assets other than its
interest in the Operating Partnership.
Additional Equity. The Operating Partnership is authorized to issue Units
and other partnership interests to its partners or to other persons for such
consideration and on such terms and conditions as the Company as general
partner, in its sole discretion, may deem appropriate. In addition, the Company
may cause the Operating Partnership to issue to the Company additional Units, or
other partnership interests in different series or classes which may be senior
to the Units, in conjunction with an offering of securities of the Company
having substantially similar rights and in which the proceeds thereof are
contributed to the Operating Partnership. No limited partner has any preemptive
or similar rights with respect to additional capital contributions to the
Operating Partnership or the issuance or sale of any interests therein.
The Board of Directors may issue, in its discretion, additional equity
securities consisting of common stock or preferred stock; provided, that the
total number of shares issued does not exceed the authorized number of shares of
capital stock set forth in the Certificate. As long as the Operating
Partnership is in existence, the proceeds of all equity capital raised by the
Company will be contributed to the Operating Partnership in exchange for Units
or other interests in the Operating Partnership.
Borrowing Policies. The Operating Partnership has no restrictions on
borrowings, and the Company as general partner, has full power and authority to
borrow money on behalf of the Operating Partnership. The Company does not have a
policy limiting the amount of debt that the Company may incur. Accordingly, the
Company could become more highly leveraged, resulting in an increase in debt
service that could adversely affect the Company's cash flow and, consequently,
the amount available for distribution to stockholders, and could increase the
risk of default in the Company's indebtedness. See "Risk Factors -- The
Company's Use of Debt to Finance Acquisitions and Developments Could Adversely
Affect the Company."
The Company is not restricted under its governing instruments from incurring
borrowings.
Other Investment Restrictions. Other than restrictions precluding
investments by the Operating Partnership that would adversely affect the
qualification of the Company as a REIT, there are no restrictions upon the
Operating Partnership's authority to enter into certain transactions, including,
among others, making investments, lending Operating Partnership funds, or
reinvesting the Operating Partnership's cash flow and net sale or refinancing
proceeds.
Neither the Company's Certificate nor its Bylaws impose any restrictions
upon the types of investments made by the Company except that under the
Certificate, the Board of Directors is prohibited from taking any action that
would terminate the Company's REIT status, unless 75% of the directors of the
Company vote to terminate such REIT status.
19
Management Control. All management powers over the business and affairs of
the Operating Partnership are vested in the Company as general partner and no
limited partner of the Operating Partnership has any right to participate in or
exercise control or management power over the business and affairs of the
Operating Partnership. The Company as general partner may not be removed by the
limited partners with or without cause.
The Board of Directors has exclusive control over the Company's business and
affairs subject only to the restrictions in the Certificate and the Bylaws. The
Board of Directors is classified into three classes. At each annual meeting of
the shareholders, the successors of the class of directors whose terms expire at
that meeting will be elected. The policies adopted by the Board of Directors
may be altered or eliminated without advice of the stockholders. Accordingly,
except for their vote in the elections of directors, stockholders have no
control over the ordinary business policies of the Company.
Management Liability and Indemnification. The Partnership Agreement
generally provides that the Company as general partner will incur no liability
to the Operating Partnership or any limited partner for losses sustained or
liabilities incurred as a result of errors in judgment or of any act or omission
if the Company acted in good faith. In addition, the Company as general partner
is not responsible for any misconduct or negligence on the part of its agents
provided the Company appointed such agents in good faith. The Company as general
partner may consult with legal counsel, accountants, appraisers, management
consultants, investment bankers and other consultants and advisors, and any
action it takes or omits to take in reliance upon the opinion of such persons,
as to matters which the Company as general partner reasonably believes to be
within their professional or expert competence, shall be conclusively presumed
to have so qualified, it mustbeen done or omitted in good faith and in accordance with such opinion.
The Partnership Agreement also provides for indemnification of the Company as
general partner, the directors and officers of the Company, and such other
persons as the Company as general partner may from time to time designate,
against any and all losses, claims, damages, liabilities, expenses, judgments,
fines, settlements and other amounts arising from any and all claims, demands,
actions, suits or proceedings that relate to the operations of the Operating
Partnership in which such person may be involved.
The Certificate eliminates, subject to certain exceptions (including the
receiving of an improper benefit), the personal liability of a Director to the
Company or its stockholders for monetary damages for breaches of such Director's
duty of care or other duties as a Director. The effect of this provision in the
Certificate is to eliminate the rights of the Company and its stockholders
(through stockholders' derivative suits on behalf of the Company) to recover
monetary damages against a Director for breach of the fiduciary duty of care as
a Director (including breaches resulting from negligent or grossly negligent
behavior) except in certain limited situations. This provision does not limit
or eliminate the rights of the Company or any stockholder to seek non-monetary
relief such as an injunction or recession in the event of a breach of a
Director's duty of care. These provisions will not alter the liability of
Directors under federal securities laws.
Anti-takeover Provisions. Except in limited circumstances, the Company as
general partner has exclusive management power over the business and affairs of
the Operating Partnership. The Company as general partner may not be removed by
the limited partners with or without cause.
The Certificate and Bylaws and Delaware law contain a number of provisions
that may have met and
continuedthe effect of delaying or discouraging an unsolicited proposal for
the acquisition of the Company or the removal of incumbent management. See
"Risk Factors -- The Ability of Stockholders to meetControl the requirements, discussed belowPolicies of the
Company."
Voting Rights. Under the Partnership Agreement, the limited partners do not
have voting rights relating to the Company's
organization, sourceoperation and management of income, naturethe Operating
Partnership except in connection with matters, as described more fully below,
involving certain amendments to the Partnership Agreement, dissolution of the
Operating Partnership and the sale or exchange of all or substantially all of
the Operating Partnership's assets, including mergers or other combinations.
Stockholders of the Company have the right to vote, among other things, on a
merger or sale of substantially all of the assets of the Company, certain
amendments to the Certificate and distributionsdissolution of income to
stockholders.
ORGANIZATIONAL REQUIREMENTSthe Company. The Code defines a REIT as a corporation, trust or association: (i) thatCompany is
managed and controlled by a Board of Directors consisting of three classes
having
20
staggered terms of office. Each class is to be elected by the stockholders at
annual meetings of the Company. Each share of Common Stock has one vote, and the
Certificate permits the Board of Directors to classify and issue Preferred Stock
in one or more directorsseries having voting power which may differ from that of the
Common Stock.
Amendment of the Partnership Agreement or trustees, (ii) the beneficial ownership
of which is evidencedCertificate. Amendments to the
Partnership Agreement may be proposed by transferable sharesthe Company as general partner or by
transferable certificateslimited partners holding 20% or more of beneficialthe partnership interests and generally
require approval of limited partners (including the Company) holding a majority
of the outstanding limited partner interests. Certain amendments that would,
among other things, convert a limited partner's interest (iii)into a general
partner's interest, modify the limited liability of any limited partner, alter
the interest of any limited partner in profits, losses or distributions, alter
or modify the redemption right described herein, or cause the termination of the
Operating Partnership at a time inconsistent with the terms of the Partnership
Agreement must be approved by the Company as general partner and each limited
partner that would be taxable asadversely affected by any such amendment.
Amendments to the Certificate must be approved by the Board of Directors and
generally by the vote of a domestic corporation but
formajority of the REIT requirements, (iv) that is neithervotes entitled to be cast at a
financial institution nor an
insurance company subject tomeeting of stockholders. However, certain provisions of the Code, (v)Certificate may not
be amended, altered, changed or repealed without the beneficial
ownership of which is held by 100 or more persons, and (vi) during the last half
of each taxable year not more than 50% in valueaffirmative vote of the
outstanding stockholders of
which is owned, directly or indirectly through the application of certain
attribution rules, by five or fewer individuals (as defined in the Code to
include certain entities). In addition, certain other tests, described below,
regarding the nature of its income and assets also must be satisfied. The Code
provides that conditions (i) through (iv), inclusive, must be met during the
entire taxable year and that condition (v) must be met during at least 335 days66 2/3 % or 75% of the voting power of all of the shares of
capital stock then certified to vote, voting as a single class.
Vote Required to Dissolve the Operating Partnership or the Company. Under
Delaware law, the Operating Partnership may be dissolved, other than in
accordance with the terms of the Partnership Agreement, only upon the unanimous
vote of the limited partners. Under Delaware law, the Board of Directors must
obtain approval of holders of a taxable yearmajority of 12 months, or during a proportionate part of a taxable year
of less than 12 months. Conditions (v) and (vi) (the "100 Stockholder
Requirement" and "Five or Fewer Requirement") will not apply until after the
first taxable year for which an election is made to be taxed as a REIT. For
purposes of conditions (v) and (vi), pension funds and certain other tax-exempt
entities are treated as individuals, subject to a "look-through" exception in
the case of condition (vi).
In order to protect the Company from a concentration of ownership of its
stock that would cause the Company to fail the Five or Fewer Requirement, the
Company's Certificate provides that stock owned, or deemed to be owned or
transferred to a stockholder in excess of the Ownership Limit or the
Look-Through Ownership Limit will automatically be converted into Excess Stock
and transferred to a charity for resale, with the original stockholder entitled
to receive certain proceeds from such a resale. See "Description of Capital
Stock--Restrictions on Transfers." Excess stock is a separate classall outstanding shares of capital
stock of the Company in order to dissolve the Company.
Vote Required to Sell Assets or Merge. Under the Partnership Agreement,
except in certain circumstances, the Operating Partnership may not sell,
exchange, transfer or otherwise dispose of all or substantially all of its
assets, including by way of merger or consolidation or other combination of the
Operating Partnership, without the consent of the limited partners (including
the Company) holding 75% or more of the Common Units.
Under the Certificate, the sale of all or substantially all of the assets of
the Company or any merger or consolidation of the Company requires the approval
of 75% of the Directors and holders of a majority of the outstanding Common
Stock. No approval of the stockholders is required for the sale of less than
substantially all of the Company's assets. Under the Partnership Agreement, the
Company may not merge, consolidate or engage in any combination with another
person or sell all or substantially all of its assets unless such transaction
includes the merger of the Operating Partnership, which requires the approval of
the holders of 75% of the Common Units. If the Company holds less than 75% of
the Common Units, this voting requirement may limit the possibility for an
acquisition or change in the control of the Company.
Compensation, Fees and Distributions. The Company does not receive any
compensation for its services as general partner of the Operating Partnership.
As a partner in the Operating Partnership, however, the Company as general
partner has the same right to allocations and distributions as other partners of
the Operating Partnership. In addition, the Operating Partnership will reimburse
the Company as general partner for all expenses incurred relating to the ongoing
operation of the Company and any offering of partnership interests in the
Operating Partnership or capital stock of the Company.
The directors and officers of the Company receive compensation for their
services.
Liability of Investors. Under the Partnership Agreement and applicable
Delaware law, the liability of the limited partners for the Operating
Partnership's debts and obligations is generally limited to the amount of their
investment in the Operating Partnership.
21
Under Delaware law, stockholders generally are not personally liable for the
debts or obligations of the Company. See "Description of Redemption Shares--
Common Stock."
Nature of Investment. The Common Units constitute equity interests
entitling each limited partner to his pro rata share of cash distributions made
to the limited partners of the Operating Partnership that hold Common Units.
The Operating Partnership generally intends to retain and reinvest proceeds of
the sale of property or excess refinancing proceeds in its business.
The Common Stock constitutes equity interests in the Company. The Company
is entitled to no voting rights butreceive its pro rata shares ratablyof distributions made by the
Operating Partnership with the Common Stock in dividends and rights upon dissolution. Because of the
absence of authority on this issue, however, there is no assurance that the
operation of the Excess Stock or other provisions containedrespect to its interest in the CertificateOperating Partnership,
and each stockholder will be entitled to his or her pro rata share of any
dividends or distributions paid with respect to Common Stock. The dividends
payable to the stockholders are not fixed in amount and are only paid if, when
and as a matterdeclared by the Board of law, prevent a concentration of ownership of stock in
excess of the Ownership Limit from causing the Company to violate the Five or
Fewer Requirement. If there were a concentration of ownership that would cause
the Company to violate the Five or Fewer Requirement, and the operation of the
Excess Stock or other provisions contained in the Certificate were not held to
cure such violation, the Company would be disqualified as a REIT.Directors. In rendering
its opinion that the Company is organized in a manner that permits the Companyorder to qualify as a REIT, Goodwin, Procter & Hoar LLP is relying on the
representation of the
Company that the ownership of its stock (without regard to
the Excess Stock provisions) satisfies the Five or Fewer Requirement, and
Goodwin, Procter & Hoar LLP expresses no opinion as to whether, as a matter of
law, the Excess Stock or other provisions contained in the Certificate preclude
the Company from failing the Five or Fewer Requirement.
In addition, a corporation may not elect to become a REIT unless its
taxable year is the calendar year. The Company's taxable year is the calendar
year.
16
In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
(based on its interest in partnership capital) of the assets of the partnership
and will be deemed to be entitled to the income of the partnership attributable
to such share. In addition, the character of the assets and gross income of the
partnership shall retain the same character in the hands of the REIT for
purposes of Section 856 of the Code, including satisfying the gross income tests
and asset tests. Thus, the Company's proportionate share of the assets,
liabilities and items of income of the Operating Partnership (including the
Operating Partnership's share of the assets and liabilities and items of income
with respect to any partnership in which it holds an interest) are treated as
assets, liabilities and items of income of the Company for purposes of applying
the requirements described herein.
INCOME TESTS
To maintain qualification as a REIT, two gross income requirements must
be satisfied annually.
. First, at least 75% of the Company's gross income, excluding gross
income from certain disposition, of property held primarily for sale
to customers in the ordinary course of a trade or business
("prohibited transactions"), for each taxable year must be derived
directly or indirectly from investments relating to real property or
mortgages on real Property (including "rents from real property" and,
in certain circumstances, interest) or from certain types of temporary
investments.
. Second, at least 95% of the Company's gross income (excluding gross
income from prohibited transactions) for each taxable year must be
derived from such real property investments described above and from
dividends, interest and gain from the sale or disposition of stock or
securities or from any combination of the foregoing.
Rents received or deemed to be received by the Company qualify as "rents
from real property" in satisfying the gross income requirements for a REIT
described above only if several conditions are met.
. First, the amount of rent generally must not be based in whole or in
part on the income or profits of any person. An amount received or
accrued generally will not be excluded from the term "rents from real
property," however, solely by reason of being based on a fixed
percentage or percentages of receipts or sales.
. Second, the Code provides that rents received from a tenant will not
qualify as "rents from real property" in satisfying the gross income
tests if the REIT, or an owner of 10% or more of the REIT, directly or
constructively owns 10% or more of such tenant (a "Related Party
Tenant") or a subtenant of such tenant (in which case only rent
attributable to the subtenant is disqualified).
. Third, if rent attributable to personal property, leased in connection
with a lease of real property, is greater than 15% of the total rent
received under the lease, then the portion of rent attributable to the
personal property will not qualify as "rents from real property."
. Finally, for rents to qualify as "rents from real property" the REIT
must not operate or manage the property or furnish or render services
to tenants, other than through an "independent contractor" who is
adequately compensated and from whom the REIT does not derive any
income; provided, however, that a REIT may provide services with
respect to its properties and the income will qualify as "rents from
real property" if the services are "usually or customarily rendered"
in connection with the rental of room or other space for occupancy
only and are not otherwise considered "rendered to the occupant," or
if the services with respect to a property are impermissible tenant
services the income from such services does not exceed one percent of
all amounts received or accrued with respect to that property. In
establishing the amount of impermissible tenant services income, such
amount must be at least 150 percent of the direct cost of providing
the tenant services, or managing or operating the property.
17
The Company does not charge rent that is based in whole or in part on the
income or profits of any person (except by reason of being based on a fixed
percentage or percentages of receipts or sales consistent with. the rule
described above). The Company does not derive, and does not anticipate deriving,
rent attributable to personal property leased in connection with real property
that exceeds 15% of the total rents.
Pursuant to leases with respect to two hotel properties, ZL Hotel LLC
leases from the Operating Partnership the two hotel properties for a ten year
period. The hotel leases provide that ZL Hotel LLC is obligated to pay to the
Operating Partnership (i) the greater of Base Rent or Participating Rent
(collectively, the "Rents") and (ii) Additional Charges. Participating Rent is
calculated by multiplying fixed percentages by various revenue categories for
each of the Hotel Properties. Both Base Rent and the thresholds in the
Participating Rent formulas will be adjusted for inflation. Base Rent accrues
and is required to be paid monthly. Participating Rent is payable monthly, with
monthly adjustments based on actual results.
In order for Base Rent, Participating Rent and Additional Charges to
constitute "rents from real property," the leases must be respected as true
leases for federal income tax purposes and not treated as service contracts,
joint ventures or some other type of arrangement. The determination of whether
the leases are true leases depends on an analysis of all the surrounding facts
and circumstances. In making such a determination, courts have considered a
variety of factors, including the following: (i) the intent of the parties, (ii)
the form of the agreement, (iii) the degree of control over the property that is
retained by the property owner (e.g., whether the lessee has substantial control
over the operation of the property or whether the lessee was required simply to
use its best efforts to perform its obligations under the agreement), and (iv)
the extent to which the property owner retains the risk of loss with respect to
the property (e.g., whether the lessee bears the risk of increases in operating
expenses or the risk of damage to the property) or the potential for economic
gain (e.g., appreciation ) with respect to the property.
In addition, Code section 7701(e) provides that a contract that purports
to be a service contract (or a partnership agreement) is treated instead as a
lease of property if the contract is properly treated as such, taking into
account all relevant factors, including whether or not: (i) the service
recipient is in physical possession of the property, (ii) the service recipient
controls the property, (iii) the service recipient has a significant economic or
possessory interest in the property (e.g., the property's use is likely to be
dedicated to the service recipient for a substantial portion of the useful life
of the property, the recipient shares the risk that the property will decline in
value, the recipient shares in any appreciation in the value of the property,
the recipient shares in savings in the property's operating costs, or the
recipient bears the risk of damage to or loss of the property), (iv) the service
provider does not bear any risk of substantially diminished receipts or
substantially increased expenditures if there is nonperformance under the
contract, (v) the service provider does not use the property concurrently to
provide significant services to entities unrelated to the service recipient, and
(vi) the total contract price does not substantially exceed the rental value of
the property for the contract period. Since the determination whether a service
contract should be treated as a lease is inherently factual, the presence or
absence of any single factor may not be dispositive in every case. The hotel
leases were structured to qualify as true leases for Federal income tax
purposes.
Investors should be aware that there are no controlling Treasury
Regulations, published rulings, or judicial decisions involving leases with
terms substantially the same as the hotel leases that discuss whether such
leases constitute true leases for federal income tax purposes. Therefore, there
can be no complete assurance that the IRS will not assert a contrary position.
If the leases are recharacterized as service contracts or partnership
agreements, rather than true leases, part or all of the payments that the
Operating Partnership receives from the lessee would not be considered rent or
would not otherwise satisfy the various requirements for qualification as rents
from real property." In that case, the Company likely would not be able to
satisfy either the 75% or 95% gross income tests and, as a result, would lose
its REIT status.
As indicated above, "rents from real property" must not be based in whole
or in part on the income or profits of any person. The Participating Rent should
qualify as "rents from real property" since it is based on percentages of
receipts or sales which percentages are fixed at the time the leases are entered
into, provided (i) the leases are not renegotiated during the term of the leases
in a manner that has the effect of basing
18
Participating Rent on income or profits and (ii) the leases conform with normal
business practice. More generally, the Participating Rent will not qualify as
"rents from real property" if, considering the hotel leases and all the
surrounding circumstances, the arrangement does not conform with normal business
practice, but is in reality used as a means of basing the Participating Rent on
income or profits. Since the Participating Rent is based on fixed percentages of
the gross revenues from the hotels that are established in the hotel leases, and
the Company has represented that the percentages (i) will not be renegotiated
during the terms of the leases in a manner that has the effect of basing the
Participating Rent on income or profits and (ii) conform with normal business
practice, the Participating Rent should not be considered based in whole or in
part on the income or profits of any person. Furthermore, the Company has
represented that, with respect to other hotel properties that it acquires in the
future, it will not charge rent for any property that is based in whole or in
part on the income or profits of any person (except by reason of being based on
a fixed percentage of gross revenues, as described above.)
Pursuant to leases with independent third parties, the Operating
Partnership or certain subsidiary partnerships leases garage property and the
garage portions of certain office properties to independent third parties for
periods between one to three years. The parking leases provide that the
operating Partnership will receive rent based on the gross receipts of the
parking garage. The same "true lease" and "rent from real property" analysis
applies with respect to the parking leases as is described above for the hotel
leases. The garage leases also have been structured to qualify as true leases
for federal income tax purposes. As is the case with respect to the hotel
leases, there can be no complete assurance that the IRS will not assert a
contrary position, which if successful could result in the loss of the Company's
status as a REIT.
Through the Operating Partnership, which is not an "independent
contractor," the Company provides certain services with respect to the
Properties, but the Company believes (and has represented to Goodwin, Procter &
Hoar LLP) that all such services are considered "usually or customarily
rendered" in connection with the rental of space for occupancy only, so that the
provision of such services does not jeopardize the qualification of rent from
the Properties as "rents from real property." In rendering its opinion on the
Company's ability to qualify as a REIT, Goodwin, Procter & Hoar LLP is relying
on such representations. In the case of any services that are not" usual and
customary" under the foregoing rules, the Company intends to employ "independent
contractors" to provide such services.
The Operating Partnership may receive certain types of income with respect
to the properties it owns that will not qualify under the 75% or 95% gross
income test. The Company believes, however, that the aggregate amount of such
non-qualifying income in any taxable year will not cause the Company to exceed
the limits on non-qualifying income under the 75% and 95% gross income tests.
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for that year
if it is eligible for relief under certain provisions of the Code. These relief
provisions generally will be available if (i) the Company's failure to meet
these tests was due to reasonable cause and not due to willful neglect, (ii) the
Company attaches a schedule of the sources of its income to its Federal income
tax return and (iii) any incorrect information on the schedule is not due to
fraud with intent to evade tax. It is not possible, however, to state whether,
in all circumstances, the Company would be entitled to the benefit of these
relief provisions. For example, if the Company fails to satisfy the gross income
tests because nonqualifying income that the Company intentionally incurs exceeds
the limits on such income, the IRS could conclude that the Company's failure to
satisfy the tests was not due to reasonable cause. As discussed above in
"Opinion of Tax Counsel," even if these relief provisions apply, a tax would be
imposed with respect to the excess net income. For taxable years prior to
January 1, 1998, a REIT had to satisfy an additional gross income test annually-
less than 30% of the Company's gross income could consist of short-term gain
from the sale or other disposition of stock or securities, gain from prohibited
transactions and gain from the sale or other disposition of real property held
for less than four years. No mitigation provision was applicable if the company
were to fail to satisfy the 30% income test for its taxable year ended December
31, 1997. See "Risk Factors-- Failure to Qualify as a REIT."
19
ASSET TESTS
At the close of each quarter of its taxable year, the Company also must
satisfy three tests relating to the nature and diversification of its assets.
. First, at least 75% of the value of the Company's total assets must be
represented by real estate assets, cash, cash items and government
securities.
. Second, no more than 25% of the Company's total assets may be
represented by securities other than those in the 75% asset class.
. Third, of the investments included in the 25% asset class, the value
of any one issuer's securities owned by the Company may not exceed 5%
of the value of the Company's total assets, and the Company may not
own more than 10% of any one issuer's outstanding voting securities.
The 5% test must generally be met for any quarter in which the Company
acquires securities of an issuer. After initially meeting the asset tests at the
close of any quarter, the Company will not lose its status as a REIT for failure
to satisfy the asset tests at the end of a later quarter solely by reason of
changes in asset values. If the failure to satisfy the asset tests results from
an acquisition of securities or other property during a quarter, the failure can
be cured by disposition of sufficient nonqualifying assets within 30 days after
the close of that quarter. The Company maintains, and will continue to maintain,
adequate records of the value of its assets to ensure compliance with the asset
tests and will take such other actions within 30 days after the close of any
quarter as may be required to cure any noncompliance.
ANNUAL DISTRIBUTION REQUIREMENTS
In order to be taxed as a REIT, the Company is required to distribute
dividends (other than capital gain dividends) to its stockholders in an amount
at least equal to (a) the sum of (i) 95% of the Company's "REIT taxable income"
(computed without regard to the dividends-paid deduction and the Company's
capital gain) and (ii) 95% of the net income, if any, from foreclosure property
in excess of the special tax on income from foreclosure property, minus (b) the
sum of certain items of cash income. Such distributions must be paid in the
taxable year to which they relate, or in the following taxable year if declared
before the Company timely files its Federal income tax return for such year and
if paid on or before the first regular dividend payment after such declaration.
Even if the Company satisfies the foregoing distribution requirements, to the
extent that the Company does not distribute all of its net capital gain or "REIT
taxable income" as adjusted, it will be subject to tax thereon at regular
capital gains or ordinary corporate tax rates. Furthermore, if the Company
should fail to distribute during each calendar year at least the sum of (a) 85%
of its ordinary income for that year, (b) 95% of its capital gain net income
other than such capital gain net income which the REIT elects to retain and pay
tax on for that year and (c) any undistributed taxable income from prior
periods, the Company would be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed. Pursuant to
recently enacted legislation, the Company may elect to retain, rather than
distribute its net long-term capital gains for tax years beginning after August
5, 1997. The effect of such an election is that (i) the Company is required to
pay the tax on such gains, (ii) U.S. Stockholders, while required to include
their proportionate share of the undistributed long-term capital gains in
income, will receive a credit or refund for their share of the tax paid by the
REIT and (iii) the basis of U.S. Stockholder's Common Stock would be increased
by the amount of the undistributed long-term capital gains (minus the amount of
capital gains tax paid by the Company) included in the U.S. Stockholder's long-
term capital gains. In addition, if the Company disposes of any asset subject to
the Built-in Gain Rules during the applicable Recognition Period, the Company
will be required, pursuant to guidance issued by the IRS, to distribute at least 95% of the Built-In Gain (after tax)its taxable income (excluding capital
gains), ifand any recognized on the dispositiontaxable income (including capital gains) not distributed will be
subject to corporate income tax.
Potential Dilution of the asset.Rights. The Company believes it has made and intends to continue to make timely
distributions sufficient to satisfy the annual distribution requirements. In
this regard, the Operating Partnership Agreement authorizes
20
the Company as general partner to take such steps as may be necessaryis authorized,
in its sole discretion and without limited partner approval, to cause the
Operating Partnership to distributeissue additional Units and other equity securities for
any partnership purpose at any time to itsthe limited partners an amount sufficientor to permitother persons
on terms established by the Company as general partner.
The Board of Directors may issue, in its discretion, additional Common Stock
and has the authority to meet these distribution requirements.
It is expected thatissue from the Company's REIT taxable incomeauthorized capital stock other equity
securities of the Company with such powers, preferences and rights as the Board
of Directors may designate at the time. The issuance of additional Common Stock
or other equity securities may result in the dilution of interests of the
stockholders.
Liquidity. Subject to certain exceptions, or as otherwise set forth in an
agreement between the Company and the Operating Partnership, a limited partner
may transfer all or any portion of his or her Units with or without the consent
of the Company as general partner. However, the Company as general partner, in
its sole and absolute discretion, may or may not consent to the admission as a
limited partner of any transferee of such Units. If the Company as general
partner does not consent to the admission of a permitted transferee, the
transferee shall be considered an assignee of an economic interest in the
Operating Partnership but will not be a holder of Units for any other purpose;
as such the assignee will not be permitted to vote on any affairs or issues on
which a limited partner may vote.
The Redemption Shares will be less than its
cash flow due tofreely transferable as registered securities
under the allowance of depreciationSecurities Act. The Common Stock is listed on the NYSE.
FEDERAL INCOME TAX CONSIDERATIONS
The Company believes it has operated, and other non-cash charges in
computing REIT taxable income. Accordingly, the Company anticipatesintends to continue to
operate, in such manner as to qualify as a REIT under the Code, but no assurance
can be given that it will generally have sufficient cash or liquid assetsat all times so qualify.
The provisions of the Code pertaining to enable it to satisfyREITs are highly technical and
complex. The following is a brief and general summary of certain provisions
that currently govern the 95%
distribution requirement. It is possible, however, that the Company, from time
to time, may not have sufficient cash or other liquid assets to meet the 95%
distribution requirement or to distribute such greater amount as may be
necessary to avoidFederal income and excise taxation, as a result of timing differences
between (i) the actual receipt of income and actual payment of deductible
expenses and (ii) the inclusion of such income and deduction of such expenses in
arriving at taxable incometax treatment of the Company or as a resultand its
stockholders. For the particular provisions that govern the Federal income tax
treatment of nondeductible
expenses such as principal amortization or capital expenditures in excess of
noncash deductions. In the event that such timing differences occur, the Company may find it necessaryand its stockholders, reference is made to arrange for borrowings or,Sections 856
through 860 of the Code and the regulations thereunder. The following summary
is qualified in its entirety by such reference.
Under the Code, if possible, pay taxable
stock dividends in order to meet the dividend requirement.
Under certain circumstances, the Company may be able to rectify a failure
to meet the distribution requirement for a year by paying "deficiency dividends"
to stockholdersrequirements are met in a latertaxable year, which maya REIT
generally will not be included in the Company's
deduction for dividends paid for the earlier year. Thus, the Company may be ablesubject to avoid being taxed on amounts distributed as deficiency dividends. The Company
will, however, be requiredFederal income tax with respect to pay interest based upon the amount of any
deduction taken for deficiency dividends.
FAILURE TO QUALIFYincome that
it distributes to its stockholders. If the Company fails to qualify for taxationduring any
taxable year as a REIT, in any taxable year
and theunless certain relief provisions do not apply, the Companyare available, it will
be subject to tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates. Distributions to stockholders inrates, which could have a material adverse
effect upon its stockholders.
22
In any year in which the Company fails to qualify will not be deductible by the Company nor will they be
requiredqualifies to be made. In such event,taxed as a REIT,
distributions made to the extentits stockholders out of current or accumulated earnings
and profits all distributionswill be taxed to stockholders will be dividends,
taxable as ordinary income and subject to certain limitationsexcept that
distributions of the Code,
corporate distributes may be eligible for the dividends-received deduction.
Unless the Company is entitled to relief under specific statutory provisions,
the Company also will be disqualified from taxation as a REIT for the four
taxable years following the year during which qualification was lost. It is not
possible to state whether in all circumstances the Company would be entitled to
such statutory relief. For example, if the Company fails to satisfy the gross
income tests because nonqualifying income that the Company intentionally incurs
exceeds the limit on such income, the IRS could conclude that the Company's
failure to satisfy the tests was not due to reasonable cause. See "Risk Factors-
Failure to Qualify as a REIT would cause the Company to be Taxed as a
Corporation--Other Tax Liabilities."
TAXATION OF U.S. STOCKHOLDERS
As used herein, the term "U.S. Stockholder" means a holder of Common Stock
and Preferred Stock that for United States Federal income tax purposes (a) is a
citizen or resident of the United States, (b) is a corporation, partnership or
other entity created or organized in or under the laws of the United States or
of any political subdivision thereof, (c) is an estate or trust, the income of
which is subject to United States Federal income taxation regardless of its
source or (d) a trust if a U.S. court is able to exercise primary supervision
over the administration of such trust and one or more U.S. persons have the
authority to control all substantial decisions of such trust. For any taxable
year for which the Company qualifies for taxation as a REIT, amounts distributed
to taxable U.S. Stockholders will be taxed as follows.
DISTRIBUTIONS GENERALLY
Distributions to U.S. Stockholders, other thannet capital gain dividends
discussed below, will constitute dividends up to the amount of the Company's
current or accumulated earnings and profits and will be taxable to the
stockholders as ordinary income. These distributions are not eligible for the
dividends-received deduction
21
for corporations. To the extent that the Company makes a distribution in excess
of its current or accumulated earnings and profits, the distribution will be
treated first as a tax-free return of capital, reducing the tax basis in the
U.S. Stockholder's Common Stock, and the amount of such distribution in excess
of a U.S. Stockholder's tax basis in its Common Stock will be taxable as gain
realized from the sale of its Common Stock. Dividends declared by the Company in
October, November or December of any year payable to a stockholder of record on
a specified date in any such month shall be treated as both paid by the Company
and received by the stockholder on December 31 of the year, provided that the
dividend is actually paid by the Company during January of the following
calendar year. Stockholders may not include on their own Federal income tax
returns any losses of the Company.
The Company will be treated as having sufficient earnings and profits to
treat as a dividend any distribution by the Company up to the amount required to
be distributed in order to avoid imposition of the 4% excise tax discussed in
"Opinion of Tax Counsel" above. Moreover, any "deficiency dividend" will be
treated as an ordinary or capital gain dividend, as the case may be, regardless
of the Company's earnings and profits. As a result, stockholders may be required
to treat certain distributions that would otherwise result in a tax-free return
of capital as taxable dividends.
CAPITAL GAIN DIVIDENDS
Dividends to U.S. Stockholders that are properlygains designated by the Company as capital gain
dividends will be treatedtaxed as long-term capital gains (togain income to the stockholders.
To the extent that distributions exceed current or accumulated earnings and
profits, they do not exceed the Company's actual net capital gain) for the taxable
year without regard to the period for which the stockholder has held his stock.
PASSIVE ACTIVITY LOSS AND INVESTMENT INTEREST LIMITATIONS
Distributions from the Company and gain from the disposition of shares of
Common Stock will not be treated as passive activity income, and therefore
stockholders may not be able to apply any "passive losses" against such income.
Dividends from the Company (to the extent they do not constitute a return of capital)capital, rather than dividend or
capital gain income, and will generallyreduce the basis for the stockholder's Common
Stock with respect to which the distribution is paid or, to the extent that they
exceed such basis, will be treatedtaxed in the same manner as investment income for purposes of the
investment income limitation. Net capital gain from the dispositionsale of
those shares of Common Stock and capital gain dividends generally will be included in investment
income for purposes of the investment interest deduction limitations only if andStock.
Investors are urged to the extent the stockholder so elects, in which case such capital gains will
be taxed as ordinary income.
CERTAIN DISPOSITIONS OF COMMON STOCK
Losses incurred on the sale or exchange of shares of Common Stock held for
less than six months (after applying certain holding period rules) will be
deemed capital loss to the extent of any capital gain dividends received by the
selling stockholder from those shares.
TREATMENT OF TAX-EXEMPT STOCKHOLDERS
Distributions from the Company to a tax-exempt employee pension trust or
other domestic tax-exempt stockholder generally, will not constitute "unrelated
business taxable income" ("UBTI") unless the stockholder has borrowed to acquire
or carry its Common Stock. Qualified trusts that hold more than 10% (by value)
of the shares of certain REITs, however, may be required to treat a certain
percentage of such a REIT's distributions as UBTI. This requirement will apply
only if (i) the REIT would not qualify as such for Federal income tax purposes
but for the application of the "look-through" exception to the Five or Fewer
Requirement applicable to shares held by qualified trusts and (ii) the REIT is
"predominantly held" by qualified trusts. A REIT is predominantly held by
qualified trusts if either (i) a single qualified trust holds more than 25% by
value of the interests in the REIT or (ii) one or more qualified trusts, each
owning, more than 10% by value of the interests in the REIT, hold in the
aggregate more than 50% of the interests in the REIT. The percentage of any REIT
dividend treated as UBTI is equal to the ratio of (a) the UBTI earned by the
REIT (treating the REIT as if it were a qualified trust and therefore subject to
tax on UBTI) to (b) the total gross income (less certain associated expenses) of
the REIT. A de minimis exception applies where the ratio set forth in the
preceding
22
sentence is less than 5% for any year. For these purposes, a qualified
trust is any trust described in section 401(a) of the Code and exempt from tax
under section 501 (a) of the Code. The provisions requiring qualified trusts to
treat a portion of REIT distributions as UBTI will not apply if the REIT is able
to satisfy the Five or Fewer Requirement without relying upon the "look-through"
exception.
SPECIAL TAX CONSIDERATIONS FOR FOREIGN STOCKHOLDERS
The rules governing United States income taxation of non-resident alien
individuals, foreign corporations, foreign partnerships and foreign trusts and
estates (collectively, "Non-U.S. Stockholders") are complex, and the following
discussion is intended only as a summary of these rules. Prospective Non-U.S.
Stockholders should consult with their own tax advisors with respect to determine the
impactappropriateness of federal,an investment in the Common Stock offered hereby and with
respect to the tax consequences arising under Federal law and the laws of any
state, and local incomemunicipality or other taxing jurisdiction, including tax laws onconsequences
resulting from such investor's own tax characteristics. In particular, foreign
investors should consult their own tax advisors concerning the tax consequences
of an investment in the Company, including any reporting requirements.
In general, Non-U.S. Stockholders will be subject to regularthe possibility of United States
Federal income tax with respect to their investment in the Company if the
investment is "effectively connected" with the Non-U.S. Stockholder's conduct of
a trade or business in the United States. A corporate Non-U.S. Stockholder that
receives income that is (or is treated as) effectively connected with a U.S.
trade or business also may be subject to the branch profits tax under section
884 of the Code, which is payable in addition to regular United States Federal
corporate income tax. The following discussion will apply to Non-U.S.
Stockholders whose investment in the Company is not so effectively connected.
A distribution by the Company that is not attributable to gain from the
sale or exchange by the Company of a United States real property interest and
that is not designated by the Company as a capital gain dividend will be treated
as an ordinary income dividend to the extent that it is made out of current or
accumulated earnings and profits. Generally, any ordinary income dividend will
be subject to a United States federal income tax equal to 30% of the gross
amount of the dividend unless this tax is reduced by an applicable tax treaty.
Such a distribution in excess of the Company's earnings and profits will be
treated first as a return of capital that will reduce a Non-U.S. Stockholder's
basis in its Common Stock (but not below zero) and then as gain from the
disposition of such shares, the tax treatment of which is described under the
rules discussed below with respect to dispositions of Common Stock.
Distributions by the Company that are attributable to gain from the sale
or exchange of a United States real property interest will be taxed to a
Non-U.S. Stockholder under the Foreign Investment in Real Property Tax Act of
1980 ("FIRPTA"). Under FIRPTA, such distributions are taxed to a Non-U.S.
Stockholder as if the distributions were gains "effectively connected" with a
United States trade or business. Accordingly, a Non-U.S. Stockholder will be
taxed at the normal capital gain rates applicable to a U.S. Stockholder (subject
to any applicable alternative minimum tax and a special alternative minimum tax
in the case of non-resident alien individuals). Distributions subject to FIRPTA
also may be subject to a 30% branch profits tax when made to a foreign corporate
stockholder that is not entitled to treaty exemptions.
Although tax treaties may reduce the Company's withholding obligations,
the Company generally will be required to withhold from distributions to
Non-U.S. Stockholders, and remit to the IRS, (i) 35% of designated capital gain
dividends (or, if greater, 35% of the amount of any distributions that could be
designated as capital gain dividends) and (ii) 30% of ordinary dividends paid
out of earnings and profits. In addition, if the Company designates prior
distributions as capital gain dividends, subsequent distributions, up to the
amount of such prior distributions, will be treated as capital gain dividends
for purposes of withholding. A distribution in excess of the Company's earnings
and profits will be subject to 30% dividend withholding if at the time of the
distribution it cannot be determined whether the distribution will be in an
amount in excess of the Company's current or accumulated earnings and profits.
If the amount of tax withheld by the Company with respect to a distribution to a
Non-U.S. Stockholder exceeds the stockholder's United States tax liability with
respect to such distribution, the Non-U.S. Stockholder may file for a refund of
such excess from the IRS.
23
Unless the Common Stock constitutes a "United States real property
interest" within the meaning of FIRPTA, a sale of Common Stock by a Non-U.S.
Stockholder generally will not be subject to United States federal income
taxation. The Common Stock will not constitute a United States real property
interest if the Company is a "domestically controlled REIT." A domestically
controlled REIT is a REIT in which at all times during a specified testing
period less than 50% in value of its shares is held directly or indirectly by
Non-U.S. Stockholders. It is currently anticipated that the Company will be a
domestically controlled REIT and therefore that sales of Common Stock will not
be subject to taxation under FIRPTA. However, because the Common Stock will be
publicly traded, no assurance can be given that the Company will continue to be
a domestically controlled REIT. If the Company were not a domestically
controlled REIT, whether a Non-U.S. Stockholder's sale of Common Stock would be
subject to tax under FIRPTA as a sale of a United States real property interest
would depend on whether the Common Stock were "regularly traded" on an
established securities market (such as the NYSE on which the Common Stock will
be listed) and on the size of the selling stockholder's interest in the Company.
If the gain on the sale of Common Stock were subject to taxation under FIRPTA,
the Non-U.S. Stockholder would be subject to the same treatment as a U.S.
Stockholder with respect to the gain (subject to any applicable alternative
minimum tax and a special alternative minimum tax in the case of non-resident
alien individuals). In addition, distributions that are treated as gain from the
disposition of Common Stock and are subject to tax under FIRPTA also may be
subject to a 30% branch profit tax when made to a foreign corporate stockholder
that is not entitled to treaty exemptions. In any event, a purchaser of Common
Stock from a Non-U.S. Stockholder will not be required to withhold under FIRPTA
on the purchase price if the purchased Common Stock is "regularly traded" on an
established securities market (such as the NYSE) or if the Company is a
domestically controlled REIT. Otherwise, under FIRPTA the purchaser of Common
Stock may be required to withhold 10% of the purchase price and remit this
amount to the IRS. Capital gains not subject to FIRPTA will be taxable to a
Non-U.S. Stockholder if the Non-U.S. Stockholder is a non-resident alien
individual who is present in the United States for 183 days or more during the
taxable year and certain other conditions apply, in which case the non-resident
alien individual will be subject to a 30% tax on his or her U.S. source capital
gains.
On October 6, 1997, the U.S. Treasury Department issued final Treasury
regulations governing information reporting and the certification procedures
regarding withholding and backup withholding on certain amounts paid to Non-U.S.
Stockholders after December 31, 1998. The new Treasury regulations may alter the
procedures for claiming the benefits of an income tax treaty. Non-U.S.
Stockholders should consult their tax advisors concerning the effect, if any, of
such new Treasury regulations on an investment in Common Stock.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX
Under certain circumstances, U.S. Stockholders may be subject to backup
withholding at a rate of 31% on payments made with respect to, or cash proceeds
of a sale or exchange of, Common Stock. Backup withholding will apply only if
the holder (i) fails to furnish his or her taxpayer identification number
("TIN") (which, for an individual, would be his or her Social Security Number),
(ii) furnishes an incorrect TIN, (iii) is notified by the IRS that he or she has
failed properly to report payments of interest and dividends or is otherwise
subject to backup withholding or (iv) under certain circumstances, fails to
certify, under penalties of perjury, that he or she has furnished a correct TIN
and (a) that he or she has not been notified by the IRS that he or she is
subject to backup withholding for failure to report interest and dividend
payments or (b) that he or she has been notified by the IRS that he or she is no
longer subject to backup withholding. Backup withholding will not apply with
respect to payments made to certain exempt recipients, such as corporations and
tax-exempt organizations.
U.S. Stockholders should consult their own tax advisors regarding their
qualifications for exemption from backup withholding and the procedure for
obtaining such an exemption. Backup withholding is not an additional tax.
Rather, the amount of any backup withholding with respect to a payment to a U.S.
Stockholder will be allowed as a credit against the U.S. Stockholder's United
States federal income tax liability and may entitle the U.S. Stockholder to a
refund, provided that the required information is furnished to the IRS.
24
Additional issues may arise pertaining to information reporting and
backup withholding for Non-U.S. Stockholders. Non-U.S. Stockholders should
consult their tax advisors with regard to U.S. information reporting and backup
withholding.
OTHER TAX CONSIDERATIONS
EFFECT OF TAX STATUS OF OPERATING PARTNERSHIP ON REIT QUALIFICATION
Substantially all of the Company's investments are through the Operating
Partnership. In addition, the Operating Partnership holds interests in certain
Properties through subsidiary partnerships. The Company's interest in these
partnerships may involve special tax considerations. Such considerations include
(i) the allocations of items of income and expense, which could affect the
computation of taxable income of the Company (ii) the status of the Operating
Partnership, and other subsidiary partnerships as partnerships (as opposed to
associations taxable as corporations) for federal income tax purposes, and (iii)
the taking of actions by the Operating Partnership and subsidiary partnerships
that could adversely affect the Company's qualifications as a REIT. In the
opinion of Goodwin, Procter & Hoar LLP, based on certain representations of the
Company and its subsidiaries, each of the Operating Partnership, and the other
subsidiary partnerships in which the Operating Partnership has an interest will
be treated for federal income tax purposes as a partnership (and not as an
association taxable as a corporation). If any of the Operating Partnership, or
other subsidiary partnerships in which the Operating Partnership has an interest
were treated as an association taxable as a corporation, the Company would fail
to qualify as a REIT for a number of reasons.
TAX ALLOCATIONS WITH RESPECTdistributions.
NO PROCEEDS TO THE PROPERTIES
When property is contributed to a partnership in exchange for an
interest in the partnership, the partnership generally takes a carryover basis
in that property for tax purposes equal to the adjusted basis of the
contributing, partner in the property, rather than a basis equal to the fair
market value of the property at the time of contribution. Pursuant to section
704(c) of the Code, income, gain, loss and deduction attributable to such
contributed property must be allocated in a manner such that the contributing
partner is charged with, or benefits from, respectively, the unrealized gain or
unrealized loss associated with the property at the time of the contribution.
The amount of such unrealized gain or unrealized loss is generally equal to the
difference between the fair market value of the contributed property at the time
of contribution and the adjusted tax basis of such property at the time of
contribution (a "Book-Tax Difference"). Such allocations are solely for Federal
income tax purposes and do not affect the book capital accounts or other
economic or legal arrangements among the partners. The Operating Partnership was
formed by way of contributions of appreciated property (including certain of the
Properties). Consequently, the Operating Partnership Agreement requires such
allocations to be made in a manner consistent with section 704(c) of the Code.
Final and temporary Regulations under Section 704(c) of the Code provide
partnerships with a choice of several methods of accounting for Book-Tax
Differences for property contributed to a partnership on or after December 21,
1993, including the retention of the "traditional method" that was available
under prior law or the election of certain alternative methods. Currently, the
Company intends to elect the "traditional method with curative allocations" of
Section 704(c) allocations. Under the traditional method, which is the least
favorable method from the Company's perspective, the carryover basis of
contributed interests in the Properties in the hands of the Operating
Partnership could cause the Company (i) to be allocated lower amounts of
depreciation deductions for tax purposes than would be allocated to the Company
if all Properties were to have a tax basis equal to their fair market value at
the time of the contribution (the "ceiling rule") and (ii) to be allocated
taxable gain in the event of a sale of such contributed interests in the
Properties in excess of the economic or book income allocated to the Company as
a result of such sale, with a corresponding benefit to the other partners in the
Operating Partnership. If the "traditional method with curative allocations" is
elected by the Company the Operating Partnership Agreement may specially
allocate taxable gain on sale of the Properties to the contributing partners up
to the aggregate amount of depreciation deductions with respect to each such
Property that the "ceiling rule" prevented the Company from being allocated.
25
Interests in the Properties purchased for cash by the Operating
Partnership simultaneously with or subsequent to the admission of the Company to
the Operating Partnership initially had a tax basis equal to their fair market
value. Thus, Section 704(c) of the Code does not apply to such interests.
STATE AND LOCAL TAX
The Company and its operating subsidiaries may be subject to state and
local tax in states and localities in which they do business or own property.
The tax treatment of the Company and its operating subsidiaries and the holders
of Common Stock in such jurisdictions may differ from the Federal income tax
treatment described above.
In addition, the Taxpayer Relief Act of 1997 includes several
provisions, some of which have been indicated in the discussion above, that will
liberalize certain of the requirements for qualification as a REIT. However,
these provisions will have neither a material beneficial effect nor a material
adverse effect on the Company's ability to operate as a REIT.
SELLING STOCKHOLDERS
As used herein, the term "Selling Stockholders" means (i) the
stockholder listed below who currently holds the Shares set forth opposite its
name and (ii) the unitholder listed below who may, at the Company's option,
receive Shares if such person exercises its right to require the redemption of
the Units set forth opposite its name and the Company elects to acquire such
Units for an equivalent number of Shares.
The following table provides the names of and the number of shares of
Common Stock and Units owned by each Selling Stockholder, to the best knowledge
of the Company as of August 17, 1998. The Shares offered by this Prospectus may
be offered from time to time by the Selling Stockholders. Since the Company is
not required to issue Shares upon the presentation for redemption of Units and
the Selling Stockholders may sell all, some or none of the Shares, no estimate
can be made of the aggregate number of Shares that will be offered hereby or the
number or percentage of shares of Common Stock that each Selling Stockholder
will own upon completion of the offering to which this Prospectus relates. If
any are sold, each Selling Stockholder will receive all of the net proceeds from
the sale of such stockholder's respective shares of Common Stock offered hereby.
Shares of Units Owned as of
Common Stock August 17, 1998 that may Shares Percent of Percent of
Owned as of be Redeemed for Shares at Offered by All Common All Shares/
Selling Stockholder August 17, 1998 (1) the Company's Option (2) This Prospectus Stock Units (4)
- ------------------- -------------------- ------------------------- ----------------- ----- ---------
Strategic Value 1,675,846 0 1,675,846 2.64% 1.89%
Investors II, LLC
The Prudential 0 2,993,414 2,993,414 4.50%(3) 3.38%
Insurance Company
of America
- ----------------
(1) The Prudential Investment Company ("PIC"), a wholly-owned subsidiary of
The Prudential Insurance Company of America ("Prudential"), is the
investment advisor of Strategic Value Investors II, LLC ("SVI II")
pursuant to an Investment Advisory Agreement dated as of June 3, 1998,
between PIC and SVI II (the "SVI II Advisory Agreement"). By virtue of the
SVI II Advisory Agreement, Prudential, through its wholly-owned subsidiary
PIC, has the sole ability to vote and dispose of the 1,675,846 shares of
Common Stock owned of record by SVI II.
(2) All Units listed in this column can be redeemed for cash at the election
of the holder, provided that the Company may elect to acquire any Units
presented for redemption for an equivalent number of shares of Common
Stock.
(3) Assumes that all Units held by the Selling Stockholder are acquired by the
Company for shares of Common Stock. The total number of shares of Common
Stock outstanding used in calculating this percentage assumes that none of
the Units held by other persons are acquired by the Company for shares of
Common Stock.
(4) Assumes that all Units held by the Selling Stockholder are acquired by the
Company for shares of Common Stock. The total number of shares of Common
Stock and units of limited partnership interest outstanding used in
calculating this percentage includes the total number of shares of Common
Stock outstanding and the total number of Units outstanding held by
persons other than the Company plus all Series One Preferred Units of
Limited Partnership in the Operating Partnership on an as converted basis.
26
Strategic Value Investors II, LLC ("SVI-II") purchased the shares of
Common Stock set forth opposite its name for cash pursuant to a Stock Purchase
Agreement dated July 2, 1998. The Prudential Insurance Company of America
("Prudential") acquired the Units set forth opposite its name in connection with
the contribution to the Operating Partnership of certain real estate assets
pursuant to a Contribution Agreement dated May 7, 1998.
PLAN OF DISTRIBUTIONCOMPANY
The Company will not receive any of the proceeds from this Offering.
The shares of Common Stockthe sale of the
Redemption Shares offered hereby, may be sold from timealthough the Company will acquire Original
Units in exchange for any Redemption Shares it issues. The Company is paying
the fees and expenses associated with registering the Redemption Shares.
PLAN OF DISTRIBUTION
This Prospectus relates to time on the NYSE on terms to be determined at the time of such sales. The Selling
Stockholders may also make private sales directly or through a broker or
brokers. In addition, the Selling Stockholders may offer or sell the Shares in
other ways not including market makers or established trading markets, including
sales or distributions to constituent members, owners or interest holders in the
Selling Stockholders. Alternatively, the Selling Stockholders may from time to
time offer shares of Common Stock to or through underwriters, dealers or agents,
who may receive consideration in the form of discounts and commissions; such
compensation, which may be in excess of ordinary brokerage commissions, may be
paidpossible issuance by the Selling Stockholders and/orCompany of the
purchasersRedemption Shares if, and to the extent that, holders of 2,678,774 Original
Units tender such Units for redemption and the Company elects to acquire such
tendered Units for Common Stock. See "Description of Units and Redemption of
Units." Executive officers of the Company other than Mortimer B. Zuckerman and
Edward H. Linde, together with any limited liability companies of which an
executive officer is a managing member, own 832,134 Original Units. (Messrs.
Zuckerman and Linde, the Chairman of the Board and the Chief Executive Officer,
respectively, together with related trusts, own 13,387,685 Units but have waived
their rights under the Registration Rights Agreement to have the issuance of the
shares of Common
Stock offered herebythat may be issued in exchange for whom such underwriters, dealers or agents may act.their Units registered under this
Registration Statement.)
The Selling StockholdersCompany has registered the offer and any dealers or agents that participate in the
distributionissuance of the shares of Common Stock offered hereby may be deemedRedemption Shares
pursuant to be
"underwriters" as defined inits obligations under the Securities Act, and any profit on the saleRegistration Rights Agreement, but
registration of such shares of Common Stock offered hereby by them anddoes not necessarily mean that all or any discounts,
commissions or concessions received by any such dealers or agents might be
deemed to be underwriting discounts and commissions under the Securities Act.
The aggregate proceeds to the Selling Stockholders from salesportion of
the shares of
Common StockUnits will be presented for redemption or that Redemption Shares will be
issued by the Selling Stockholders herebyCompany. The Company will benot receive any proceeds from the
purchase priceissuance of Redemption Shares to Unitholders, although the Company will acquire
from such Common Stock less any broker's commissions.
ToUnitholders Original Units in exchange for Redemption Shares.
The Company is paying the extent required,fees and expenses associated with registering the
specific shares of Common Stock to be sold,redemption shares.
EXPERTS
The audited financial statements and schedules for the names of the Selling Stockholders, the respective purchase prices and public
offering prices, the names of any such agent, dealer or underwriter, and any
applicable commissions or discountsyear ended December
31, 1997 incorporated by reference in this Prospectus have been audited by
PricewaterhouseCoopers LLP, independent accountants, as indicated in their
reports with respect to a particular offer will be
set forththereto, and are incorporated by reference herein in
an accompanying prospectus supplement.reliance upon the authority of said firm as experts in accounting and auditing
in giving said reports.
23
LEGAL MATTERS
The sharesvalidity of Common Stock offered hereby may be sold from time to time
in one or more transactions at a fixed offering price, which may be changed, or
at varying prices determined at the time of sale or at negotiated prices.
In order to comply with the securities laws of certain states, if
applicable, the shares of Common Stock offered hereby will be sold in such
jurisdictions only through registered or licensed brokers or dealers.
The Company will pay substantially all the expenses incurred by the
Selling Stockholders andpassed upon for the
Company incident to the Offering, but excluding any
underwriting discounts, commissions,by Goodwin, Procter & Hoar LLP, Boston, Massachusetts. Certain tax
matters discussed under "Description of Units and transfer taxes.
LEGAL MATTERS
Certain legal matters, including the legalityRedemption of the Common Stock,Units -- Tax
Consequences of Redemption" will also be passed upon for the Company by Goodwin,
Procter & Hoar LLP. Gilbert G. Menna, the sole shareholder of Gilbert G. Menna,
P.C., a partner of Goodwin, Procter & Hoar LLP, serves as an Assistant Secretary
of the Company. Certain partners of Goodwin, Procter & Hoar LLP or their
affiliates, together with Mr. Menna, own approximately 20,000 shares of Common
Stock. Goodwin, Procter & Hoar LLP occupies approximately 26,000 square feet at
599 Lexington Avenue New York
under a lease with the Company that expires in 2002.
27
EXPERTS
The financial statements and schedules for the year ended December 31,
1997 referred to and incorporated by reference in this Prospectus or elsewhere
in the Registration Statement of which this Prospectus is a part have been
audited by PricewaterhouseCoopers LLP (and its predecessor Coopers & Lybrand,
L.L.P.), independent accountants, and are incorporated herein in reliance upon
the authority of said firm as experts in accounting and auditing.
2824
================================================================================
No persondealer, salesperson or other individual has been authorized in connection with the offering made hereby to give any
information or to make any representationrepresentations not contained in this Prospectus and, ifProspectus. If
given or made, such information or representation must not be relied upon as
having been authorized by the Company or any other person.Company. This Prospectus does not constitute an
offer to sell, or a solicitation of an offer to buy, any of the Common Stock offered herebyin any
jurisdiction where, or to any person or by anyone in any
jurisdiction in whichto whom, it is unlawful to make such offer
or solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create anyan implication that there has
not been any change in the information contained herein
is correct asfacts set forth in this Prospectus or in the affairs
of any date subsequent tothe Company since the date hereof.
___________________-----------------
TABLE OF CONTENTS
PAGE
----
Available Information............................ 2
Incorporation of Certain
Documents by Reference......................... 2
Risk Factors..................................... 4
The Company...................................... 11
Description of Capital Stock..................... 11
Restrictions on Transfer......................... 13
Federal Income Tax Considerations................ 14
Selling Stockholders............................. 26
Plan of Distribution............................. 27
Legal Matters.................................... 27
Experts.......................................... 28
4,669,260
SHARESPAGE
----
Available Information.................. 1
Incorporation of Certain Documents by
Reference............................. 1
Prospectus Summary..................... 2
Risk Factors........................... 4
The Company............................ 11
Description of Redemption Shares....... 13
Description of Units and
Redemption of Units................... 16
Federal Income Tax Considerations...... 22
No Proceeds to the Company............. 23
Plan of Distribution................... 23
Experts................................ 23
Legal Matters.......................... 24
-------------------
2,678,774
Shares
BOSTON PROPERTIES, INC.
COMMON STOCK
--------------------Common Stock
PROSPECTUS
--------------------
________________,___________ __, 1998
================================================================================
PART IIII. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
-------------------------------------------
The following table sets forth the estimated fees and expenses payable by
the Company in connection with the issuance and distribution of the
Common Stocksecurities being registered herebyare set forth in the following table (all amounts
except the registration fee are estimated):
Registration fee...................................................................... $43,389.10
Printing and duplicating expenses..................................................... -0-
Legal fees and expenses............................................................... 20,000.00
Accounting fees and expenses.......................................................... 20,000.00
Blue sky fees and expenses............................................................ -0-
Miscellaneous......................................................................... 10,000.00
---------
Total................................................................................. $93,389.10
Registration fee -- Securities and Exchange Commission $ 26,205
Accountants' fees and expenses...................... 25,000
Blue Sky fees and expenses.......................... --
Legal fees and expenses (other than Blue Sky)....... 35,000
Printing and duplicating expenses................... 6,000
Miscellaneous....................................... --
TOTAL............................................... $ 92,205
========
All expenses in connection with the issuance and distribution of the
securities being offered shall be borne by the Company.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
-----------------------------------------
The Company's Amended and Restated Certificate of Incorporation (the
"Certificate") and the Company's Amended and Restated Bylaws (the "Bylaws")
provide certain limitations on the liability of the Company's directors and
officers for monetary damages to the Company. The Certificate and Bylaws
obligate the Company to indemnify its directors and officers, and permit the
Company to indemnify its employees and other agents, against certain liabilities
incurred in connection with their service in such capacities. These provisions
could reduce the legal remedies available to the Company and the stockholders
against these individuals.
The Company's Certificate limits the liability of the Company's directors
and officers to the Company to the fullest extent permitted from time to time by
the
DGCL.Delaware General Corporation Law (the "DGCL"). The DGCL permits, but does not
require, a corporation to indemnify its directors, officers, employees or agents
and expressly provides that the indemnification provided for under the DGCL
shall not be deemed exclusive of any indemnification right under any bylaw, vote
of stockholders or disinterested directors, or otherwise. The DGCL permits
indemnification against expenses and certain other liabilities arising out of
legal actions brought or threatened against such persons for their conduct on
behalf of the corporation, provided that each such person acted in good faith
and in a manner that he reasonably believed was in or not opposed to the
corporation's best interests and in the case of a criminal proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The DGCL does not
allow indemnification of directors in the case of an action by or in the right
of the corporation (including stockholder derivative suits) unless the directors
successfully defend the action or indemnification is ordered by the court.
The Certificate contains a provision permitted by Delaware law that
generally eliminates the personal liability of directors for monetary damages
for breaches of their fiduciary duty, including breaches involving negligence or
gross negligence in business combinations, unless the director has breached his
or her duty of loyalty, failed to act in good faith, engaged in intentional
misconduct or a knowing violation of law, paid a dividend or approved a stock
repurchase in violation of the DGCL or obtained an improper personal benefit.
The provision does not alter a director's liability under the federal securities
laws. In addition, this provision does not affect the availability of equitable
remedies, such as an injunction or rescission, for breach of fiduciary duty.
II-1
The Bylaws provide that directors and officers of the Company shall be,
and, in the discretion of the Company's Board of Directors, non-officer
employees may be, indemnified by the Company to the fullest extent authorized by
Delaware law, as it now exists or may in the future be amended, against all
expenses and liabilities actually and reasonably incurred in connection with
service for or on behalf of the Company. The Bylaws also provide that the right
of directors and officers to indemnification shall be a contract right and shall
not be exclusive of any other right now possessed or hereafter acquired under
any bylaw, agreement, vote of stockholders, or otherwise.
The Company has entered into indemnification agreements with each of its
directors and executive officers. The indemnification agreements require, among
other matters, that the Company indemnify its directors and officers to the
fullest extent permitted by law and advance to the directors and officers all
related expenses, subject to reimbursement if it is subsequently determined that
indemnification is not permitted. Under these agreements, the Company must also
indemnify and advance all expenses incurred by directors and officers seeking to
enforce their II-1
rights under the indemnification agreements and may cover
directors and officers under the Company's directors' and officers' liability
insurance. Although the form of indemnification agreement offers substantially
the same scope of coverage afforded by law, it provides additional assurance to
directors and officers that indemnification will be available because, as a
contract, it cannot be modified unilaterally in the future by the Company's
Board of Directors or the Company's stockholders to eliminate the rights it
provides. It is the position of the Commission that indemnification of
directors and officers for liabilities under the Securities Act is against
public policy and unenforceable pursuant to Section 14 of the Securities Act.
ITEM 16. EXHIBITS.
--------
4.1 Amended and Restated Certificate of Incorporation of the Company
(incorporated herein by reference to the Company's Registration
Statement on Form S-11 (File No. 333-25279)).
4.2 Amended and Restated Bylaws of the Company (incorporated herein by
reference to the Company's Registration Statement on Form S-11 (File
No. 333-25279)).
4.3 Second Amended and Restated Agreement of Limited Partnership of the
Operating Partnership (incorporated herein by reference to the
Company's Current Report on Form 8-K dated June 30, 1998, filed with
Commission on July 15, 1998).
4.4 Shareholder Rights Agreement dated as of June 16, 1997 between the
Company and BankBoston, N.A., as Rights Agent (incorporated herein by
reference to the Company's Registration Statement on Form s-11S-11 (File
No. 333-25279).
5.1*5.1 Opinion of Goodwin, Procter & Hoar LLP as to the legality of the
Common Stocksecurities being registered.
*8.18.1 Opinion of Goodwin, Procter & Hoar LLP as to certain tax matters.
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants.independent accountants.
23.2 Consent of Goodwin, Procter & Hoar LLP (included as part of Exhibits
5.1 and 8.1 hereto).
24.1*24.1 Powers of Attorney (included on the signature page of this
Registration Statement as filed)Statement).
99.1 Registration Rights Agreement dated as of July 2, 1998June 23, 1997 by and amongbetween
the Company SVI-II and Prudentialthe holders named therein (incorporated herein by
reference to the Company's Current ReportRegistration Statement on Form 8-K dated
July 2, 1998, filed with Commission on July 17, 1998)S-11 (File
No. 333-25279)).
_____________________
* To be filed by amendment.______________________
/*/ Previously filed.
II-2
ITEM 17. UNDERTAKINGS.
------------
(a) The undersigned registrantCompany hereby undertakes:
(1) To file, during any period in which offers or sales are being made
pursuant to this Registration Statement, a post-effective amendment to this
registration
statement:Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any actsfacts or events arising
after the effective date of the registration statementRegistration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;this Registration Statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statementthis Registration
Statement or any material change to such information in the
registration statement;
II-2
this
Registration Statement.
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) herein do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the undersigned
registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated
by reference in the registration statement;this Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statementRegistration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof; andthereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(b) The undersigned registrantCompany hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the registrant'sCompany's annual
report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act
of 1934 that is incorporated by reference in the
registration statementthis Registration Statement shall
be deemed to be a new registration statementRegistration Statement relating to the securities offered
therein and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrantCompany pursuant to the foregoing provisions, described under Item 15 above, or otherwise, the registrantCompany has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the respective registrantCompany of expenses incurred or
paid by a director, officer or controlling person of the registrantCompany in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, such registrantthe Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of
such issue.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Boston
Properties, Inc.the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration Statementamendment to the
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Boston, the Commonwealth of Massachusetts on
this 18th25th day of August, 1998.
BOSTON PROPERTIES, INC.
By:/s/ Edward H. Linde
---------------------------------------------
Name: Edward H. Linde
Title: President and Chief Executive Officer
KNOW ALL BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints each of Mortimer B. Zuckerman, Edward H.
Linde and /s/ David G. Gaw
as such person's true and lawful attorney-in-fact and
agent with full power of substitution and resubstitution, for such person in
such person's name, place and stead, in any and all capacities, to sign any and
all amendments (including post-effective amendments) to this Registration
Statement (or any Registration Statement for the same offering that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933),
and to file the same, with all exhibits thereto, and all documents in connection
therewith, with the Securities and Exchange Commission, granting unto each said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as such person might or could do
in person, hereby ratifying and confirming all that any said attorney-in-fact
and agent, or any substitute or substitutes of any of them, may lawfully do or
cause to be done by virtue hereof.---------------------------------
Name: David G. Gaw
Title: Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration Statementamendment
to the registration statement has been signed below by the following persons in
the capacities and on the datesdate indicated.
Signature Title DateSIGNATURE TITLE DATE
--------- ----- ----
/s/ Mortimer B. Zuckerman* Chairman of the Board of Directors August 18,25, 1998
- ---------------------------------------------------------------------------
Mortimer B. Zuckerman
/s/ Edward H. Linde* President and Chief Executive Officer, August 18,25, 1998
- ----------------------------------------
Edward H. Linde-------------------------------------- Director (Principal Executive Officer)
Edward H. Linde
/s/ David G. Gaw Chief Financial Officer (Principal Financial August 18,25, 1998
- ------------------------------------------
David G. Gaw-------------------------------------- Officer and Principal Accounting Officer)
/s/David G. Gaw
* Director August 25, 1998
- --------------------------------------
Alan J. Patricof
* Director August 18,25, 1998
- --------------------------------------------
Alan J. Patricof
/s/--------------------------------------
Ivan G. Seidenberg
* Director August 18,25, 1998
- -------------------------------------------
Ivan G. Seidenberg
/s/--------------------------------------
Martin Turchin
Director August 18 1998
- --------------------------------------------
Martin TurchinBy: /s/ Alan B. Landis Director August 18, 1998
- --------------------------------------------
Alan B. LandisDavid G. Gaw
-----------------------------------
Name: David G. Gaw
Title: Chief Financial Officer
II-4
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
4.1 Amended and Restated Certificate of Incorporation of the Company
(incorporated herein by reference to the Company's Registration
Statement on Form S-11 (File No. 333-25279)).
4.2 Amended and Restated Bylaws of the Company (incorporated herein by
reference to the Company's Registration Statement on Form S-11
(File No. 333-25279)).
4.3 Second Amended and Restated Agreement of Limited Partnership of
the Operating Partnership (incorporated herein by reference to the
Company's Current Report on Form 8-K dated June 30, 1998, filed
with Commission on July 15, 1998).
4.4 Shareholder Rights Agreement dated as of June 16, 1997 between the
Company and BankBoston, N.A., as Rights Agent (incorporated herein
by reference to the Company's Registration Statement on Form S-11
(File No. 333-25279).
*5.1 Opinion of Goodwin, Procter & Hoar LLP as to the legality of the
securities being registered.
8.1 Opinion of Goodwin, Procter & Hoar LLP as to certain tax matters.
23.1 Consent of PricewaterhouseCoopers LLP, independent accountants.
23.2 Consent of Goodwin, Procter & Hoar LLP (included as part of
Exhibits 5.1 and 8.1 hereto).
*24.1 Powers of Attorney (included on the signature page of this
Registration Statement).
99.1 Registration Rights Agreement dated as of June 23, 1997 by and
between the Company and the holders named therein (incorporated
herein by reference to the Company's Registration Statement on
Form S-11 (File No. 333-25279)).
4.2 Amended and Restated Bylaws of the Company (incorporated herein
by reference to the Company's Registration Statement on Form S-11
(File No. 333-25279)).
4.3 Second Amended and Restated Agreement of Limited Partnership of
the Operating Partnership (incorporated herein by reference to
the Company's Current Report on Form 8-K dated June 30, 1998,
filed with Commission on July 15, 1998).
4.4 Shareholder Rights Agreement dated as of June 16, 1997 between
the Company and BankBoston, N.A., as Rights Agent (incorporated
herein by reference to the Company's Registration Statement on
Form s-11 (File No. 333-25279).
5.1 Opinion of Goodwin, Procter & Hoar LLP as to the legality of the
Common Stock being registered.
*8.1 Opinion of Goodwin, Procter & Hoar LLP as to certain tax matters.
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
23.2 Consent of Goodwin, Procter & Hoar LLP (included as part of
Exhibits 5.1 and 8.1 hereto).
24.1 Powers of Attorney (included on signature page of Registration
Statement as filed).
99.1 Registration Rights Agreement dated as of July 2, 1998 by and
among the Company, SVI-II and Prudential (incorporated herein by
reference to the Company's Current Report on Form 8-K dated July
2, 1998, filed with Commission on July 17, 1998).
_______________________
*To be filed by amendment.
______________________
/*/ Previously filed.
II-5