AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 16, 1998
REGISTRATION STATEMENT NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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BEACON CAPITAL PARTNERS, INC.
(Exact name of registrant as specified in its charter)
MARYLAND 04-3403281
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE FEDERAL STREET, 26TH FLOOR
BOSTON, MASSACHUSETTS 02110
(617) 457-0400
(Address and Telephone Number of Principal Executive Offices)
ALAN M. LEVENTHAL
CHIEF EXECUTIVE OFFICER
AND
WILLIAM A. BONN, ESQ.
GENERAL COUNSEL
BEACON CAPITAL PARTNERS, INC.
ONE FEDERAL STREET, 26TH FLOOR
BOSTON, MASSACHUSETTS 02110
(617) 457-0400
(Name, Address and Telephone Number, Including Area Code, of Agent for Service)
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COPY TO:
GILBERT G. MENNA, P.C.
KATHRYN I. MURTAGH, ESQ.
GOODWIN, PROCTER & HOAR LLP
EXCHANGE PLACE
BOSTON, MA 02109
(617) 570-1000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: From time to
time after this registration statement becomes effective, as determined by the
Registering Stockholder.
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 filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM
AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
TITLE OF SECURITIES BEING REGISTERED REGISTERED(1) SHARE(2) PRICE REGISTRATION FEE
Common Stock................................ 20,394,843 $20.00 $407,896,860 $120,330
(1) Plus such additional number of shares as may be required in the event of a
stock dividend, reverse stock split, split-up, recapitalization, or other
similar event.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933, as amended (the
"Securities Act").
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. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFER 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.
PROSPECTUS
20,394,843 SHARES*
BEACON CAPITAL PARTNERS, INC.
COMMON STOCK
* THIS PROSPECTUS EXCLUDES 579,089 SHARES OF COMMON STOCK AND SHARES
UNDERLYING 225,201 OPERATING PARTNERSHIP UNITS SOLD BY BCP TO THE COMPANY'S
FOUNDERS, ALAN M. LEVENTHAL AND LIONEL P. FORTIN, IN CONNECTION WITH THE
FORMATION OF THE COMPANY AND THE CLOSING OF THE ORIGINAL OFFERING.
This Prospectus relates to the Common Stock, par value $.01 per share (the
"Common Stock"), of Beacon Capital Partners, Inc., a Maryland corporation
("BCP"). The Common Stock was issued and sold (the "Original Offering") on March
20, 1998 (the "Closing Date"), April 3, 1998 (the "Second Closing Date"), and
April 13, 1998 (the "Final Original Offering Closing Date") to the Initial
Purchaser (as defined herein) and was simultaneously resold by the Initial
Purchaser in transactions exempt from the registration requirements of the
Securities Act of 1933, as amended (the "Securities Act"), to persons reasonably
believed by the initial purchaser to be Qualified Institutional Buyers as
defined in Rule 144A under the Securities Act, to a limited number of
institutional "Accredited Investors" (as defined in Rule 501(a)(1),(2),(3) or
(7) under the Securities Act) and to certain individual "Accredited Investors"
(as defined in Rule 501 (a)(4),(5) or (6) under the Securities Act).
The Common Stock offered hereby (the "Offered Securities") may be offered
and sold from time to time by the holders named herein or by their transferees,
pledgees, donees or their successors (collectively, the "Selling Stockholders")
pursuant to this Prospectus. The Offered Securities may be sold by the Selling
Stockholders from time to time directly to purchasers or through agents,
underwriters or dealers. See "Selling Stockholders" and "Plan of Distribution."
If required, the names of any such agents or underwriters involved in the sale
of the Offered Securities and the applicable agent's commission, dealer's
purchase price or underwriter's discount, if any, will be set forth in an
accompanying supplement to this Prospectus (the "Prospectus Supplement"). The
Selling Stockholders will receive all of the net proceeds from the sale of the
Offered Securities and will pay all underwriting discounts, selling commissions
and transfer taxes, if any, applicable to any such sale. The Company is
responsible for payment of all other expenses incident to the registration of
the Offered Securities. The Selling Stockholders and any broker-dealers, agents
or underwriters that participate in the distribution of the Offered Securities
may be deemed to be "Underwriters" within the meaning of the Securities Act, and
any commission received by them and any profit on the resale of the Offered
Securities purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act.
BCP is a recently-organized Maryland corporation established to continue the
real estate investment and development activities of certain senior management
from Beacon Properties Corporation ("Beacon Properties"), formerly a New York
Stock Exchange-listed real estate investment trust ("REIT") until its
acquisition by Equity Office Properties Trust in December 1997. The day-to-day
operations of BCP and its operating partnership, Beacon Capital Partners, L.P.
(the "Operating Partnership," and collectively with BCP, the "Company") are
managed internally by the senior management of BCP. BCP is the sole general
partner of the Operating Partnership, through which the investments of the
Company are made.
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR CERTAIN FACTORS RELEVANT TO AN
INVESTMENT IN THE COMMON STOCK (AS DEFINED BELOW) INCLUDING, AMONG OTHERS:
- The Company relies upon, and its success is dependent upon, key personnel
of BCP, including Alan M. Leventhal and Lionel P. Fortin.
- Management's track record while employed at Beacon Properties, and the
performance of Beacon Properties under such management's leadership, does
not guarantee or predict the performance of the Company or its management.
- The Company has a limited operating history.
- Certain of the Company's investments in Assets (as defined below) will
require significant management resources, will be illiquid, and may
decrease in value because of changes in economic conditions.
- Management of the Company may earn substantial compensation from the
Long-Term Incentive Plan (as defined below) which, if paid, could
substantially reduce cash available for distribution to stockholders.
- Conflicts of interest may arise between the Company and the BCP Affiliate
(as defined below), including in connection with the Company's Long-Term
Incentive Plan.
- The Company is subject to competition from numerous competitors, including
other REITs and private real estate opportunity funds.
- The Company intends to leverage the Company's Assets, which can compound
losses.
- Certain assets may be acquired through a sister company (as described
herein), which will not qualify as a REIT and which may be subject to
income tax at regular corporate rates, which may have the effect of
reducing cash available for distribution to the stockholders.
- BCP may be subject to income tax at regular corporate rates if it fails to
qualify as a REIT, which would substantially reduce the amount of cash
available for distribution to stockholders.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1998.
NOTE REGARDING MANAGEMENT'S EXPERIENCE
The Company's senior management consists of certain members of former senior
management of Beacon Properties Corporation ("Beacon Properties"), formerly a
New York Stock Exchange-listed real estate investment trust ("REIT"), until its
merger with and into Equity Office Properties Trust in December 1997.
Information regarding the performance of Beacon Properties presented herein has
been obtained from documents previously made public by Beacon Properties. Such
information is presented herein solely to describe certain of the prior
experience of certain of the Company's senior management and to provide certain
statistics respecting Beacon Properties while managed by such senior management.
No assurance can be made that the Company will achieve results comparable to
those achieved by Beacon Properties. See "Risk Factors--Economic and Business
Risks--Past Performance Not a Predictor of Future Results."
BCP intends to qualify as a REIT under the Internal Revenue Code of 1986, as
amended (the "Code"), commencing with its taxable year ending December 31, 1998.
The charter of BCP, as may be amended or restated from time to time (the
"Charter"), contains various restrictions on the ownership and transfer of the
Common Stock in order to preserve BCP's status as a REIT and for other purposes.
See "Description of Securities--Transfer Restrictions" and "Certain Provisions
of Maryland Law and of BCP's Charter and Bylaws."
CAUTIONARY STATEMENTS FOR PURPOSES OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements in this Prospectus under the captions "Offering Summary,"
"Risk Factors," "Investment Strategies and Experience," "Management's Discussion
and Analysis of Liquidity and Capital Resources" and elsewhere constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"), and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). When used in
this Prospectus, the words "anticipate," "believe," "estimate," "expect" and
similar expressions are generally intended to identify forward-looking
statements. Such forward-looking statements involve known and unknown risks,
uncertainties and other important factors that could cause the actual results,
performance or achievements of the Company, or industry results, to differ
materially from any future results, performance or achievements expressed or
implied by such forward-looking statements. Such risks, uncertainties and other
important factors include, among others: general economic and business
conditions; industry trends; competition; changes in business strategy or
development plans; availability, terms and deployment of capital; availability
of qualified personnel; changes in, or the failure or inability to comply with,
government regulation; and other factors referenced in this Prospectus. See
"Risk Factors." These forward-looking statements speak only as of the date of
this Prospectus. The Company expressly disclaims any obligation or undertaking
to disseminate any updates or revisions to any forward-looking statement
contained herein to reflect any change in the Company's expectations with regard
thereto or any change in events, conditions or circumstances on which any such
statement is based.
i
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-11 (as amended, the
"Registration Statement") under the Securities Act with respect to the Common
Stock offered hereby. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all the information set forth in the
Registration Statement and the exhibits and schedules thereto, to which
reference is hereby made. Statements made in this Prospectus as to the contents
of any contract, agreement or other document are summaries of the material terms
of such contract, agreement or other document. With respect to each such
contract, agreement or other document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved. The Registration Statement (including the exhibits thereto)
filed by the Company with the Commission may be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and will also be available
for inspection and copying at the regional offices of the Commission located at
Seven World Trade Center, 13th Floor, New York, New York 10048 and at Citicorp
Center, 500 West Madison Street, (Suite 1400), Chicago, Illinois 60661. Copies
of such material may also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Commission also maintains a website that contains reports, proxy and
information statements and other information. The website address is
http://www.sec.gov.
Upon the effectiveness of the Registration Statement, the Company will be
subject to the informational requirements of the Exchange Act and, in accordance
therewith, will file reports, proxy and information statements and other
information with the Commission. Such reports, proxy and information statements
and other information can be inspected and copied at the addresses set forth
above. The Company reports its financial statements on a year ended December 31.
The Company intends to furnish its stockholders with annual reports containing
consolidated financial statements audited by its independent certified public
accountants and make available quarterly reports containing unaudited condensed
consolidated financial statements for each of the first three quarters of each
fiscal year.
ii
TABLE OF CONTENTS
NOTE REGARDING MANAGEMENT'S EXPERIENCE................................................ i
CAUTIONARY STATEMENTS FOR PURPOSES OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995................................................................................ i
AVAILABLE INFORMATION................................................................. ii
OFFERING SUMMARY...................................................................... 1
The Company......................................................................... 1
Investment Strategy................................................................. 1
Advantages of the Company Structure................................................. 3
The BCP Sister Corp. ............................................................... 3
Risk Factors........................................................................ 3
Recent and Pending Acquisitions..................................................... 5
Management and Long-Term Incentive Plan............................................. 6
Restrictions on Ownership of Stock.................................................. 7
Use of Proceeds..................................................................... 7
Distribution Policy................................................................. 7
Tax Status of the Company........................................................... 8
Organization and Relationships...................................................... 9
RISK FACTORS.......................................................................... 10
Economic and Business Risks......................................................... 10
Investment Activity Risks........................................................... 15
Legal and Tax Risks................................................................. 17
Other Risks......................................................................... 21
INVESTMENT STRATEGIES AND EXPERIENCE.................................................. 22
Investment Strategies and Experience................................................ 22
Investment Management............................................................... 24
The BCP Sister Corp. ............................................................... 25
THE COMPANY........................................................................... 27
Recent and Pending Acquisitions..................................................... 27
Directors and Executive Officers.................................................... 33
Other Professionals................................................................. 36
Board of Directors and Indemnification of Officers and Directors.................... 37
Management Compensation............................................................. 39
Long-Term Incentive Plan............................................................ 39
Stock Incentive Plan................................................................ 41
Employment Agreements; Covenants Not to Compete..................................... 42
Credit Facility..................................................................... 42
Certain Relationships; Conflicts of Interest........................................ 42
USE OF PROCEEDS....................................................................... 44
DISTRIBUTION POLICY................................................................... 44
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........................ 45
PRICE RANGE OF COMMON STOCK........................................................... 47
CAPITALIZATION........................................................................ 47
iii
SELECTED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA............................ 48
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.......................................................................... 49
DESCRIPTION OF SECURITIES............................................................. 50
General............................................................................. 50
Common Stock........................................................................ 50
Preferred Stock..................................................................... 50
Power to Issue Additional Shares of Common Stock and Preferred Stock................ 51
Dividend Reinvestment Plan.......................................................... 51
Transfer Agent and Registrar........................................................ 51
Transfer Restrictions............................................................... 51
Registration Rights................................................................. 53
CERTAIN PROVISIONS OF MARYLAND LAW AND OF
BCP'S CHARTER AND BYLAWS............................................................ 55
Amendment of Charter and Bylaws..................................................... 55
Dissolution of the Company.......................................................... 55
Meetings of Stockholders............................................................ 55
The Board of Directors.............................................................. 55
Limitation of Liability and Indemnification......................................... 56
Indemnification Agreements.......................................................... 57
Business Combinations............................................................... 57
Control Share Acquisitions.......................................................... 58
COMMON STOCK AVAILABLE FOR FUTURE SALE................................................ 59
OPERATING PARTNERSHIP AGREEMENT....................................................... 60
Classes of Units.................................................................... 60
Management.......................................................................... 60
Removal of the General Partner; Transfer of the General Partner's Interest.......... 60
Amendments of the Operating Partnership Agreement................................... 61
Transfer of Units; Substitute Limited Partners...................................... 61
Redemption of OP Units.............................................................. 61
Operations.......................................................................... 62
Issuance of Additional Limited Partnership Interests................................ 62
Extraordinary Transactions.......................................................... 62
Exculpation and Indemnification of the General Partner.............................. 62
Tax Matters......................................................................... 63
FEDERAL INCOME TAX CONSIDERATIONS..................................................... 64
Taxation of the Company............................................................. 64
Requirements for Qualification...................................................... 65
Impact of Proposed Legislation...................................................... 71
Failure to Qualify.................................................................. 71
Taxation of Taxable U.S. Stockholders............................................... 71
Taxation of Stockholders on the Disposition of the Common Stock..................... 73
Information Reporting Requirements and Backup Withholding........................... 73
Taxation of Tax-Exempt Stockholders................................................. 73
Taxation of Non-U.S. Stockholders................................................... 74
Other Tax Consequences.............................................................. 76
BCP Sister Corp..................................................................... 76
iv
ERISA CONSIDERATIONS.................................................................. 77
The Treatment of the Company's Underlying Assets Under ERISA........................ 77
SELLING STOCKHOLDERS.................................................................. 78
PLAN OF DISTRIBUTION.................................................................. 79
LEGAL MATTERS......................................................................... 80
EXPERTS............................................................................... 80
INDEX TO FINANCIAL STATEMENT AND SCHEDULES............................................ F-1
v
OFFERING SUMMARY
THE FOLLOWING SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS SUBJECT TO, AND
QUALIFIED IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION INCLUDED ELSEWHERE
IN THIS PROSPECTUS. UNLESS THE CONTEXT REQUIRES OTHERWISE, ALL REFERENCES IN
THIS PROSPECTUS TO THE "COMPANY" SHALL MEAN BCP AND THE OPERATING PARTNERSHIP.
THE COMPANY
BCP is a recently-organized Maryland corporation which intends to qualify as
a REIT. BCP was established to continue the real estate investment and
development activities of senior management from Beacon Properties, a former New
York Stock Exchange-listed REIT until its merger with and into Equity Office
Properties Trust in December 1997 in a transaction valued at approximately $4.0
billion. The day-to-day operations of BCP and the Operating Partnership are
managed internally by the senior management of BCP. BCP is the sole general
partner of the Operating Partnership. The Company believes that it has developed
an organization of investment and investment management professionals that is
well-positioned to take advantage of today's real estate and capital markets
environment.
The Company's management combines real estate, capital markets and corporate
expertise, which the Company believes will uniquely position it to capitalize on
market and industry trends in complex real estate-related transactions across
product, geographic and industry lines. BCP is led by Alan M. Leventhal, former
President, Chief Executive Officer and Director of Beacon Properties and Lionel
P. Fortin, former Executive Vice President, Chief Operating Officer and Director
of Beacon Properties. Beacon Properties' predecessor entity was originally
founded over 50 years ago and has been engaged in a wide range of real estate
activities throughout its tenure. Although most recently Beacon Properties was
known as one of the nation's leading office REITs, Beacon Properties'
predecessor entity also has been active in the development, acquisition and
management of hotels, apartments and retail, industrial and mixed-use
properties. During Beacon Properties' three and a half year existence as a
public company, Messrs. Leventhal and Fortin successfully led Beacon Properties
to become one of the top performing office REITs in the nation. Performance
highlights of Beacon Properties include:
- total return on equity to stockholders (between May 1994 and December
1997) of 245% (an annual compounded return of 42%)
- increase in market capitalization (between May 1994 and December 1997)
from approximately $400 million to $4.0 billion
- average annual growth in Funds from Operations (as defined below) of
approximately 14%
- growth in the portfolio of properties from 15 properties to 126 properties
- expansion into key national markets including Chicago, Washington, D.C.,
Atlanta, Los Angeles and San Francisco
See "Note Regarding Management's Experience" and "Risk Factors--Economic and
Business Risks--Past Performance Not a Predictor of Future Results."
The founders of the Company, Messrs. Leventhal and Fortin, are joined by
seven senior executives, six formerly affiliated with Beacon Properties and one
formerly affiliated with Harvard Private Capital Group. The eight senior
managers (including Messrs. Leventhal and Fortin) formerly affiliated with
Beacon Properties have an average of over 20 years experience in the real estate
business. See "The Company-- Directors and Executive Officers" and "Investment
Strategies and Experience."
INVESTMENT STRATEGY
BCP's investment strategy (the "Investment Strategy") is driven by the
unique perspective of the senior management of the Company, including
management's experience with public and private real
1
estate companies. As the capitalization of the real estate industry continues to
evolve toward a publicly-held format, BCP believes that numerous investment
opportunities will continue to emerge that reflect several primary shifts in the
real estate industry. These shifts include:
- rapid recovery of the real estate markets
- extraordinary growth of the public capital markets for real estate
companies
- continued consolidation of the ownership of real estate
- alignment of interests between investors and management
- recognition of real estate companies as operating businesses
These factors have resulted in significant investment opportunities in real
estate, including arbitrage between public and private market pricing. It is
BCP's belief that as the real estate industry continues its transformation (and
recognizing that real estate is still fundamentally a cyclical business),
disparities in pricing and capital availability, as well as ineffective
management of real estate assets by others, will provide opportunities for
skilled and experienced management teams such as the Company's management team.
Initially, the Company expects to focus primarily on opportunities in the office
sector. As the real estate market cycle advances, the Company expects additional
opportunities to emerge in non-office market sectors, including opportunities in
the hotel, residential and industrial sectors. See "Risk Factors-- Investment
Activity Risks--Multi-Sector Investment Strategy." Increasingly, management
expertise and creative real estate solutions will be required for successful
real estate companies. BCP's management team has a proven track record in this
regard in office as well as other property types. Based on these observations,
BCP intends to identify, create and realize value for the Company in its
investment in Real Estate-Related Assets (as defined below). Several themes
underlie this strategy:
- RELATIONSHIPS--BCP's management will draw upon its extensive network of
domestic and foreign institutional relationships established over the past
twenty years in the public and private company sectors. These
relationships have provided, and are expected to continue to provide,
early and sometimes exclusive access to negotiated transactions and
avoidance of competitive auctions.
- OPERATING COMPANY EXPERTISE--BCP will identify opportunities where its
expertise in actively managing both public and private real estate
companies can be applied to under-performing Real Estate-Related Assets or
real estate companies.
- INDUSTRY TRENDS--BCP will identify and capitalize on industry trends that
emerge as the real estate industry continues its transformation and
maturation process.
The Company's investments are expected to target the following principal
real estate areas listed below (the "Real Estate-Related Assets"). For specific
examples of management's prior experience in these areas, see "Investment
Strategies and Experience."
- VALUE-ADDED REPOSITIONINGS AND DISCOUNTED PURCHASES--repositioning and
recapitalization of under-utilized or poorly capitalized real property
through purchases of debt or equity at a discount to replacement cost;
- DEVELOPMENT AND RE-DEVELOPMENT--strategic ground-up development or
re-development of existing properties that can benefit from repositioning;
- MULTIPLE PROPERTY PORTFOLIOS--acquisition of portfolios of real property
owned by financial institutions, corporations and other non-strategic
owners of real estate, as well as liquidating closed-end commingled funds
and other large holders of real estate portfolios;
- JOINT VENTURES AND STRATEGIC PARTNERSHIPS--formation of, or acquisition of
interests in, joint ventures or strategic partnerships as a way to
leverage both capital and management expertise; and
2
- REAL ESTATE COMPANIES AND REAL ESTATE-RELATED BUSINESSES--investment in
companies primarily engaged in the business of real estate ownership, real
estate services or other real estate intensive operating businesses as
well as related companies that serve the changing needs of the real estate
industry.
In addition to investments in Real Estate-Related Assets, the Company may
also invest in other areas related to the real estate industry which it deems
attractive (the "Other Assets", and together with Real Estate-Related Assets,
"Assets"). The Company believes that it will have distinct advantages over other
real estate investment companies because the Company's senior management team
has extensive experience in the acquisition, development, financing, management
and disposition of Assets. Furthermore, as the capitalization of the real estate
industry continues to evolve toward a publicly-held format, BCP's management
believes that its prior success in managing a publicly-held REIT will provide
the Company with an additional competitive advantage. See "Risk
Factors--Economic and Business Risks--Past Performance Not a Predictor of Future
Results."
ADVANTAGES OF THE COMPANY STRUCTURE
The Company believes that by managing its day-to-day operations internally,
the Company will offer competitive advantages to its stockholders in comparison
to externally managed REITs as a result of the alignment of interests between
management and stockholders. The Company also believes that it has a competitive
advantage over certain other real estate investment entities due to its ability
to use Units of the Operating Partnership as acquisition currency for potential
acquisitions that may provide sellers of property with certain tax advantages.
See "Federal Income Tax Considerations."
THE BCP SISTER CORP.
The Company anticipates that it may, from time to time, identify Assets
which it believes may be advantageous investments but which may be inappropriate
(whether for REIT qualification, tax or other reasons) for investment, in whole
or in part, by the Company. In order to permit stockholders to participate in
the economic benefits that may be associated with such non-qualifying REIT
Assets, the Company intends, from time to time, to utilize a structure (employed
by certain other REITs, such as Crescent Real Estate Equities Company) often
referred to as a "paper clip." This "paper clip" structure would involve
distributing to BCP's stockholders the equity interests of a newly-organized
sister company (each, a "BCP Sister Corp."), that would not elect to qualify as
a REIT, to make investments in certain non-qualifying REIT Assets. The Company
anticipates that the first such BCP Sister Corp. will be comprised of Beacon
Venture Partners, Inc. and its operating partnership, Beacon Venture Partners,
L.P. The BCP Sister Corp. is intended to function primarily as an operating
company, in contrast to the Company's principal focus on investment as a REIT in
the Real Estate-Related Assets. The BCP Sister Corp. structure is designed to
provide the Company's existing stockholders with the long-term benefits of
ownership in an entity devoted to the conduct of operating business activities
which would prevent the Company from qualifying as a REIT. The Company's ability
to fully utilize the BCP Sister Corp. structure could be adversely affected as a
result of proposed and future legislation. See "Risk Factors--Legal and Tax
Risks--Tax Risks."
RISK FACTORS
An investment in the Common Stock involves various risks, and prospective
investors should consider carefully the matters discussed under "Risk Factors"
prior to an investment in the Company. Such risks include, among others, the
following:
- The Company will rely upon, and its success is dependent upon, key
personnel of BCP, including Alan M. Leventhal and Lionel P. Fortin.
3
- Management's track record while employed at Beacon Properties, and the
performance of Beacon Properties under such management's leadership, does
not guarantee or predict the performance of management or the Company.
- The Company has a limited operating history.
- Certain of the Company's investments in Assets will require significant
management resources, will be illiquid, and may decrease in value because
of changes in economic conditions.
- Management of the Company may earn substantial compensation from the
Long-Term Incentive Plan which, if paid, could substantially reduce cash
available for distribution to stockholders.
- Conflicts of interest may arise between the Company and the BCP Affiliate,
including in connection with the Company's Long-Term Incentive Plan.
- The Company is subject to competition from numerous competitors, including
other REITs and private real estate opportunity funds.
- The Company intends to leverage the Company's Assets, which can compound
losses.
- Certain Assets may be acquired through the BCP Sister Corp., which will
not qualify as a REIT and which may be subject to income tax at regular
corporate rates, which may have the effect of reducing cash available for
distribution to the stockholders.
- BCP may be subject to income tax at regular corporate rates if it fails to
qualify as a REIT, which would substantially reduce the amount of cash
available for distribution to stockholders.
4
RECENT AND PENDING ACQUISITIONS
THE ATHENAEUM PORTFOLIO. On May 1, 1998 the Company purchased a portfolio
of eleven buildings in Cambridge, MA known as The Athenaeum Portfolio. The
mixed-use portfolio consists of approximately 970,000 square feet and contains
office, laboratory and retail uses as well as a 1,530 space parking garage. The
purchase price for the portfolio was $195 million, including the assumption of
approximately $69 million of first mortgage debt. The Company estimates that the
aggregate purchase price is approximately 80% of replacement cost. Subsequent to
the closing of the transaction, the Company completed the formation of a joint
venture with an affiliate of PaineWebber, in which both parties hold a 50%
equity interest in the properties.
The portfolio is comprised of two components: One Kendall Square and The
Athenaeum House (215 First Street), which are located within close proximity of
the Massachusetts Institute of Technology ("M.I.T."). Several of the buildings
were originally built as manufacturing buildings at the turn of the century and
were fully renovated in the mid-1980's for office and laboratory uses. A
nine-screen cinema was added to the complex in 1994. The buildings are currently
100% occupied. Major tenants which occupy more than 10% of the portfolio
include: Genzyme, CLAM Associates, Cambridge Neuroscience, and Mitotix.
The Athenaeum Portfolio is located in the East Cambridge office market. The
overall Cambridge office market includes approximately 10 million square feet.
According to Spaulding & Slye, the Cambridge office market had an overall
vacancy rate of 1.2% as of March 31, 1998.
TECHNOLOGY SQUARE & THE DRAPER BUILDING. On April 22, 1998 the Company
entered into a purchase and sale agreement with The Prudential Insurance Company
of America ("Prudential") to acquire a four-building complex known as Technology
Square and an adjacent building known as The Draper Building. The properties are
located in Cambridge, MA, adjacent to One Kendall Square (described above) and
M.I.T. and consist of 1,026,000 square feet. The purchase price for the
properties under the purchase and sale agreement is $123 million. The Company
and Prudential are currently negotiating the form of the consideration for the
properties.
Technology Square is currently 100% leased to two tenants: M.I.T. and
Polaroid Corporation. The leases with these tenants expire in mid-1999. Average
net lease rates in place are $6.53 per square foot, which the Company believes
to be substantially below current market. The Company intends to re-develop and
re-lease the property over the next 18-24 months and projects substantial
increases in net operating income as the property is stabilized at current
market net rents, which the Company believes to be approximately $24 per square
foot. The scope of the re-development is currently under review by the Company.
The Draper Building is 100% leased to Draper Labs on a long-term lease, with
extension options through October 2051, pursuant to which the tenant has an
option, under certain circumstances, to acquire The Draper Building.
Technology Square and The Draper Building are located in the East Cambridge
office market. The overall Cambridge office market includes approximately 10
million square feet. Upon completion of this acquisition, the Company will own
approximately 2 million square feet of office and commercial in the Cambridge
market, including both The Athenaeum Portfolio and Technology Square and The
Draper Building. According to Spaulding & Slye, the Cambridge office market had
an overall vacancy rate of 1.2% as of March 31, 1998.
5
MANAGEMENT AND LONG-TERM INCENTIVE PLAN
The business and investment affairs of the Company are internally managed.
Messrs. Leventhal and Fortin are the founders of the Company and serve as
executive officers and Directors of BCP. The Company believes that it has
developed an organization of real estate investment and investment management
professionals that is well-positioned to take advantage of today's real estate
and capital markets environment. The Company's professionals combine real
estate, capital markets, and corporate expertise that the Company believes will
uniquely position it to assist the Company in capitalizing on market and
industry trends in complex investments in Real Estate-Related Assets across
product, geographic and industry lines. There can be no assurance, however, that
the experience of such individuals will result in attractive investments for the
Company. See "The Company--Directors and Executive Officers" and "Risk
Factors--Economic and Business Risks--Past Performance Not a Predictor of Future
Results."
Messrs. Leventhal and Fortin have formed the BCP Affiliate and have offered
equity interests in the BCP Affiliate to certain members of the Company's senior
management. In addition, Messrs. Leventhal and Fortin, individually and through
the BCP Affiliate, have purchased, directly from the Company and the Operating
Partnership, a combination of shares of Common Stock and Units for an aggregate
purchase price of $15 million, representing approximately 4% of the equity
interests in the Company on a fully diluted basis. In addition, the Company has
established a long-term incentive plan (the "Long-Term Incentive Plan") to align
the interests of management with the interests of the Company's stockholders,
pursuant to which the BCP Affiliate has been issued, for no additional
consideration, a Convertible Unit of the Operating Partnership. Provided that
the Incentive Return has, in fact, been earned, at the end of the three year
period following the completion of the first calendar year following the Closing
Date of the Original Offering, the Convertible Unit will convert into a certain
number of incentive units of limited partnership interests in the Operating
Partnership ("Incentive Units") with a fair market value equal to the Incentive
Return. See "The Company--Long-Term Incentive Plan" and "Risk Factors--Economic
and Business Risks--Conflicts of Interest." The BCP Affiliate has been granted
certain registration rights with respect to any Common Stock issuable upon an
exchange of Units and Incentive Units held by the BCP Affiliate. See
"Description of Securities--Registration Rights." BCP's senior management, by
holding equity interests in the BCP Affiliate, will be able to participate in
the Incentive Return subject to certain vesting restrictions. See "The
Company--Long-Term Incentive Plan" and "Risk Factors--Economic and Business
Risks--Conflicts of Interest."
As further incentive to the Company's management, the Company has (i)
adopted a stock option and incentive plan (the "Stock Incentive Plan") whereby a
number of the Company's employees will be eligible to receive options to acquire
shares of Common Stock and (ii) granted, pursuant to the Stock Incentive Plan,
to certain members of the Company's management on or about the Closing Date,
options to purchase at fair market value on the date of grant an aggregate of 6%
of the equity interests in the Company on a fully diluted basis. The Stock
Incentive Plan is administered by a compensation committee (the "Compensation
Committee") consisting solely of Directors who are not employees of the Company
(the "Independent Directors"). Persons eligible to participate in the Stock
Incentive Plan are generally those employees of the Company who are responsible
for, or contribute to, the management, growth or profitability of the Company as
selected from time to time by the Compensation Committee in its sole discretion.
See "The Company--Management Compensation" and "--Stock Incentive Plan." There
can be no assurance that the Incentive Return or the Stock Incentive Plan will
provide an incentive to the management of the Company to enhance the value of
the Common Stock or whether the value of the Common Stock will increase at all.
See "The Company--Certain Relationships; Conflicts of Interest" and "Risk
Factors--Economic and Business Risks--Conflicts of Interest."
6
RESTRICTIONS ON OWNERSHIP OF STOCK
Due to limitations on the concentration of ownership of a REIT imposed by
the Code, and to otherwise address concerns relating to the concentration of
stock ownership, the Charter prohibits any single stockholder from owning,
directly or by virtue of the attribution provisions of the Code or the Exchange
Act, more than 9.8% of the aggregate value of the issued and outstanding shares
of Common Stock of BCP (the "Aggregate Stock Ownership Limit"). Additionally,
the Charter provides that certain mutual funds and certain other widely-held
entities (other than pension plans as described in Section 401(a) of the Code)
may actually and beneficially own up to 15% of the outstanding shares of Common
Stock (the "Look-Through Ownership Limit"). The Board of Directors may waive or
modify the Aggregate Stock Ownership Limit and the Look-Through Ownership Limit
with respect to one or more persons if it is satisfied, based upon the receipt
of a ruling from the Internal Revenue Service (the "Service") or the advice of
tax counsel, that ownership in excess of this limit will not jeopardize the
Company's status as a REIT for federal income tax purposes and will not cause
the Company to be a "pension-held" REIT for federal income tax purposes. See
"Description of Securities."
USE OF PROCEEDS
The Selling Stockholders will receive all of the proceeds from the sale of
the Offered Securities offered hereby. The Company will not receive any of the
proceeds from the sale by the Selling Stockholders of the Offered Securities.
DISTRIBUTION POLICY
The Operating Partnership intends to make distributions to its partners,
including BCP. BCP intends to make distributions to its stockholders of all or
substantially all of its net taxable income each year (subject to certain
adjustments) so as to qualify for the tax benefits accorded to REITs under the
Code. See "Federal Income Tax Considerations--Requirements for Qualification."
The declaration and payment of dividends by the BCP Sister Corp. will be a
business decision to be made by the BCP Sister Corp.'s board of directors from
time to time based on such considerations as the BCP Sister Corp.'s board of
directors deems relevant, will be payable only out of funds legally available
therefor under the law of the state of the BCP Sister Corp.'s formation and will
be subject to any limitations which may be contained in any applicable debt
instruments of the BCP Sister Corp. See "Risk Factors--Economic and Business
Risks--Conflicts of Interest."
7
TAX STATUS OF THE COMPANY
BCP intends to qualify and will elect to be taxed as a REIT under Sections
856 through 860 of the Code, commencing with its taxable year ending December
31, 1998. If BCP qualifies for taxation as a REIT, BCP generally will not be
subject to federal corporate income tax on its taxable income that is
distributed to its stockholders. A REIT is subject to a number of organizational
and operational requirements, including a requirement that it currently
distribute at least 95% of its annual taxable income. Although BCP does not
intend to request a ruling from the Internal Revenue Service (the "Service") as
to its REIT status, BCP has received, in connection with the Closing of the
Original Offering, an opinion of Goodwin, Procter & Hoar LLP that BCP will be
organized in conformity with the requirements for qualification as a REIT, and
that the proposed manner of operations of BCP will enable it to qualify as a
REIT, which opinion is based on certain assumptions and representations with
respect to BCP's past and expected ongoing businesses and investment activities
and other customary matters. No assurance can be given as to the accuracy of
such assumptions and representation or that BCP will be able to comply with them
in the future. Furthermore, such opinion is not binding on the Service or on any
court, and no assurance can be given that BCP will operate in a manner so as to
qualify or remain qualified as a REIT. Failure to qualify as a REIT would render
BCP subject to federal income tax (including any applicable alternative minimum
tax) on its taxable income at regular corporate rates and distributions to BCP's
stockholders would not be deductible by BCP. Even if BCP qualifies for taxation
as a REIT, the Company may be subject to certain federal, state and local taxes
on its income and property. In accordance with the REIT provisions of the Code,
BCP will adopt the calendar year as its taxable year. In connection with BCP's
election to be taxed as a REIT, BCP's Charter imposes restrictions on the
transfer of the Common Stock. See "Risk Factors--Legal and Tax Risks--Tax Risks"
and "Federal Income Tax Considerations-- Taxation of the Company."
8
ORGANIZATION AND RELATIONSHIPS
The relationship among BCP, the Operating Partnership, the BCP Affiliate and
the BCP Sister Corp. (if formed), and the equity ownership thereof subsequent to
this Offering and the Formation Transactions is depicted in the picture shown
below. Notes refer to the above descriptions.
[LOGO]
- ------------------------
(1) The Company anticipates that at the time of formation of the BCP Sister
Corp., the stockholders of BCP and the BCP Sister Corp. would be the same.
However, the equity interests of BCP and the BCP Sister Corp. may be owned
and transferred separately and independently of each other and,
consequently, the stockholder constituency of each entity may change over
time.
9
RISK FACTORS
An investment in the Common Stock involves various risks. Before purchasing
any of the shares of Common Stock offered hereby, prospective investors should
give special consideration to the information set forth below, in addition to
the information set forth elsewhere in this Prospectus.
ECONOMIC AND BUSINESS RISKS
DEPENDENCE ON KEY PERSONNEL. The Company believes that its success will
depend to a significant extent upon the experience of its founders, Alan M.
Leventhal and Lionel P. Fortin, and on other members of senior management of the
Company whose continued service is not guaranteed. The Company believes that
Messrs. Leventhal and Fortin, in particular, have national reputations in the
real estate investment industry which are expected to assist the Company in
identifying Assets for acquisition. While Messrs. Leventhal and Fortin have
entered employment and non-competition agreements with the Company and while the
Company further believes that it could replace these key executives, the loss of
the services of either of them could have a material adverse effect on the
operations of the Company because the Company would have a diminished capacity
to obtain real estate investment opportunities, to capitalize upon their
relationships in the real estate industry and to structure and execute its
potential investments. The Company may not be able to successfully recruit
additional personnel and any additional personnel that are recruited may not
have the requisite skills, knowledge or experience necessary or desirable to
enhance the incumbent management. The Company does not currently intend to
maintain key-man life insurance with respect to any of its executive officers.
See "The Company--Directors and Executive Officers" and "The Company--Management
Compensation."
PAST PERFORMANCE NOT A PREDICTOR OF FUTURE RESULTS. Neither the track
record of senior management of the Company while they were employed at Beacon
Properties, nor the performance of Beacon Properties during that period, shall
imply or predict (directly or indirectly) any level of future performance of
management or the Company. Management's performance and the performance of the
Company is dependent on future events and is, therefore, inherently uncertain.
Past performance cannot be relied upon to predict future events for a variety of
reasons, including, without limitation, varying business strategies, different
local and national economic circumstances, different supply and demand
characteristics relevant to buyers and sellers of Assets, varying degrees of
competition and varying circumstances pertaining to the capital markets.
RISKS RELATED TO GROWTH STRATEGY.
AVAILABILITY OF CAPITAL. The ability of the Company to implement its growth
strategy depends on access to capital necessary to invest in Assets through the
use of borrowings, subsequent issuances of Common Stock or other securities or
operating cash flow. The failure to obtain necessary capital could have a
material adverse effect on the Company's ability to acquire Assets. The Company
anticipates that it will, in part, be dependent upon a bank or other
institutional lender with respect to a credit facility. No such credit facility
has yet been obtained by the Company.
FAILURE TO EFFECTIVELY MANAGE RAPID GROWTH. To successfully implement its
acquisition strategy, the Company must integrate acquired Assets into its
existing operations. As a result, the consolidation of functions and integration
of departments, systems and procedures of acquired Assets with the Company's
then-existing operations presents a significant management challenge, and the
failure to effectively integrate such Assets into the Company's management and
operating structures could have a material adverse effect on the results of
operations and financial condition of the Company.
PORTFOLIO ACQUISITION RISKS. The Company's business and acquisition
strategy includes acquisitions of multiple Assets in single transactions in
order to reduce acquisition expenses per property and to enable the Company to
gain a critical mass of Assets that provides operating leverage. However,
portfolio
10
acquisitions are more complex than single-property acquisitions, and the risk
that a multiple-property acquisition will not close may be greater than in a
single-property acquisition. In addition, the Company's costs for a portfolio
acquisition that does not close are generally greater than for a single-property
acquisition that does not close. If the Company fails to close portfolio
acquisitions, its ability to increase its Funds from Operations will be limited
and a charge to earnings for costs related to the failed acquisition may occur.
Portfolio acquisitions may also result in the Company owning Assets in
geographically dispersed markets that are geographically removed from the
Company's principal markets. This geographic diversity will place additional
demands on the Company's ability to manage such operations. Another risk
associated with portfolio acquisitions is that a seller may require that a group
of properties be purchased as a package, even though one or more of the
properties in the portfolio does not meet the Company's investment criteria. In
such cases, the Company may attempt to make a joint bid with another buyer, or
the Company may purchase a portfolio of Assets with the intent to subsequently
dispose of those Assets which do not meet its criteria. In the case of joint
bids, however, it is possible that the other buyer may default in its
obligations, which increases the risk that the acquisition may not close, with
the adverse consequences described above. In cases where the Company intends to
dispose of Assets it does not wish to own, there can be no assurance as to how
quickly the Company could sell or exchange such Assets or the terms on which
they could be sold or exchanged.
RISKS ASSOCIATED WITH THE DEVELOPMENT OR REDEVELOPMENT OF ASSETS. The
Company also intends to pursue the development and construction of Real-Estate
Related Assets, in accordance with the Company's development and underwriting
policies in effect from time to time as opportunities arise in the future. Risks
associated with such development and construction activities include the risk
that: (i) the Company may abandon development opportunities after expending
resources to determine feasibility; (ii) construction costs of a project may
exceed original estimates; (iii) occupancy rates and rents at a newly completed
property may not be sufficient to make the property profitable; (iv) financing
may not be available on favorable terms for development of a property; and (v)
construction and lease-up may not be completed on schedule, resulting in
increased debt service expense and construction costs. Development activities
are also subject to risks relating to the inability to obtain, or delays in
obtaining, all necessary zoning, land-use, building, occupancy, and other
required governmental permits and authorizations. In addition, new development
activities, regardless of whether or not they are ultimately successful,
typically require a substantial portion of management's time and attention.
The Company anticipates that development may be financed, in whole or in
part, through equity or debt offerings or under lines of credit or other forms
of secured or unsecured construction financing that will result in the risk
that, upon completion of construction, permanent financing for newly developed
properties may not be available or may be available only on disadvantageous
terms. If a project is unsuccessful, the Company's losses may exceed its
investment in the project.
CONFLICTS OF INTEREST.
CONFLICTS RELATING TO THE OPERATING PARTNERSHIP. BCP, as the General
Partner of the Operating Partnership, will have fiduciary obligations to the
limited partners (including the BCP Affiliate) of the Operating Partnership,
which may conflict with the interests of BCP's stockholders. In addition, those
persons holding Units, as limited partners, will have the right to vote as a
class on certain amendments to the Operating Partnership Agreement and
individually to approve certain amendments that would adversely affect their
rights, which voting rights may be exercised in a manner that conflicts with the
interests of those investors who acquire shares of Common Stock in this
Offering. In addition, under the terms of the Operating Partnership Agreement,
the holders of Units will have certain approval rights with respect to certain
transactions that affect all stockholders of BCP, but which may be exercised in
a manner which does not reflect the interests of all stockholders of BCP. See
"The Company--Certain Relationships; Conflicts of Interest."
11
CONFLICTS RELATING TO THE BCP SISTER CORP. Certain of the officers and
directors of BCP may also serve as officers or directors of the BCP Sister Corp,
when formed. If ownership of the BCP Sister Corp. and the Company differ over
time, conflicts of interest may develop. Provisions in the BCP Sister Corp.'s
formation documents are expected to (i) provide that the BCP Sister Corp. may
enter into transactions with the Company to the extent deemed beneficial by
their respective boards of directors (and the Company may enter into an
inter-company agreement with the BCP Sister Corp. with respect thereto) and (ii)
generally prohibit the BCP Sister Corp. from engaging in activities or making
investments appropriate for a REIT unless the Company was first given the
opportunity to do so, but elected not to do so, in each instance. The Company
and the Board of Directors may be subject to various potential conflicts of
interest as a result of the relationships between the BCP Sister Corp. and the
Company. See "The Company--Certain Relationships; Conflicts of Interest."
CONFLICTS RELATING TO THE INCENTIVE RETURN. As part of the Company's
long-term incentive plans, the BCP Affiliate has been issued the Convertible
Unit which shall convert (provided that the Incentive Return has in fact been
earned), at the end of the three-year period following the completion of the
first calendar year following the Closing of the Original Offering, into a
certain number of Incentive Units (if any) with a fair market value equal to the
Incentive Return. Messrs. Leventhal and Fortin control and own equity interests
in the BCP Affiliate and certain members of the Company's senior management may
also hold equity interests in the BCP Affiliate. While the Incentive Return was
designed to align the interests of the Company's senior management with the
interests of the Company's stockholders, no assurance can be given that
conflicts will not arise between such management's interests in the Incentive
Return and the stockholders' interests in the Company. See "The
Company--Long-Term Incentive Plan."
POLICIES WITH RESPECT TO CONFLICTS OF INTEREST. The Company intends to
adopt certain policies designed to eliminate or minimize conflicts of interest,
which will include a requirement that all transactions in which officers or
Directors have a conflicting interest must be approved by a majority of the
Company's Independent Directors. However, there can be no assurance that these
policies will be successful in minimizing or eliminating such conflicts and, if
they are not successful, decisions could be made that might fail to fully
reflect the interests of all stockholders of the Company.
LEVERAGE CAN REDUCE INCOME AVAILABLE FOR DISTRIBUTION. The Company intends
to leverage its Assets through borrowings, generally through the use of bank
credit facilities, mortgage loans on real estate and other borrowings. To the
extent that changes in market conditions cause the cost of such financing to
increase relative to the income that can be derived from the Assets acquired,
the Company's return on its investment and cash available for distribution to
its stockholders may be adversely affected.
Additionally, leverage creates an opportunity for increased returns on
equity, but at the same time creates risks. For example, debt service payments
can reduce the net income available for distributions to stockholders. There can
be no assurance that the Company will be able to meet its debt service
obligations and, to the extent that it cannot, the Company may lose some or all
of its Assets to foreclosure or sale to satisfy its debt obligations. Changes in
interest rates can affect the Company's income by affecting the spread between
the Company's income on its Assets and interest-bearing liabilities, as well as,
among other things, the value of the Company's interest-earning Assets and its
ability to realize gains from the sale of Assets. There is no specified
limitation on the Company's indebtedness. However, the Company currently intends
to adopt guidelines to maintain a debt to market capitalization ratio not in
excess of 60%. For purposes of this policy, the Company's debt to market
capitalization ratio is calculated as the Company's proportionate share of total
consolidated and unconsolidated debt as a percentage of the sum of the market
value of outstanding shares of capital stock of the Company and Units plus the
Company's proportionate share of total consolidated and unconsolidated debt. The
Charter and Bylaws do not limit the amount of indebtedness the Company can
incur. Accordingly, the Board of Directors of the Company could alter or
eliminate this policy and would do so, for example, if it were necessary in
order for the Company to continue to qualify as a REIT. See "Certain Provisions
of Maryland Law and of BCP's
12
Charter and Bylaws" and "Risk Factors--Legal and Tax Risks--Board of Directors
May Change Certain Policies Without Stockholder Consent."
RISKS ASSOCIATED WITH HEDGING INVESTMENTS. Changes in interest rates may
adversely affect the Company's investments. Interest rates are highly sensitive
to many factors, including governmental, monetary and tax policies, domestic and
international economic and political considerations, and other factors beyond
the control of the Company. The Company may employ a hedging strategy to limit
the effects of changes in interest rates on its operations, including engaging
in interest rate swaps, caps, floors and other interest rate exchange contracts.
The use of these types of derivatives to hedge the Company's assets and
liabilities carries certain risks, including the risk that losses on a hedge
position will reduce the funds available for distribution to stockholders and,
indeed, that such losses may exceed the amount invested in such instruments.
There is no perfect hedge for any investment, and a hedge may not perform its
intended use of offsetting losses on an investment. Moreover, with respect to
certain of the instruments used as hedges for the Company's assets and
liabilities, the Company is exposed to the risk that the counterparties with
which the Company trades may cease making markets and quoting prices in such
instruments, which may render the Company unable to enter into an offsetting
transaction with respect to an open position. Consequently, the profitability of
the Company may be adversely affected during any period as a result of changing
interest rates.
THE COMPANY'S INSURANCE WILL NOT COVER ALL LOSSES. The Company intends to
maintain comprehensive insurance on each of the Assets, including liability and
fire and extended coverage, in amounts sufficient to permit the replacement of
the Assets in the event of a total loss, subject to applicable deductibles. The
Company will endeavor to obtain coverage of the type and in the amount
customarily obtained by owners of similar properties. There are certain types of
losses, however, generally of a catastrophic nature, including, without
limitation, earthquakes, floods and hurricanes, that may be uninsurable or not
economically insurable. Inflation, changes in building codes and ordinances,
environmental considerations, and other factors may also make it infeasible to
use insurance proceeds to replace an Asset if it is damaged or destroyed. Under
such circumstances, the insurance proceeds received by the Company might not be
adequate to restore its economic position with respect to the affected Asset.
PROPERTY TAXES DECREASE RETURNS ON REAL ESTATE. Each Asset will be subject
to real and, in some instances, personal property taxes. The real and personal
property taxes on Assets in which the Company invests may increase or decrease
as property tax rates change and as the Assets are assessed or reassessed by
taxing authorities. If property taxes on the Company's investments increase, the
Company's cash available for distribution to its stockholders will be adversely
affected.
COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT AND OTHER CHANGES IN
GOVERNMENTAL RULES AND REGULATIONS MAY BE COSTLY. Under the Americans with
Disabilities Act of 1990 (the "ADA"), all public properties are required to meet
certain federal requirements related to access and use by disabled persons.
Properties acquired by the Company may not be in compliance with the ADA. If a
property is not in compliance with the ADA, the Company will be required to make
modifications to such property to bring it into compliance, or face the
possibility of an imposition of fines or an award of damages to private
litigants. In addition, changes in governmental rules and regulations or
enforcement policies affecting the use and operation of the properties,
including changes to building codes and fire and life-safety codes, may occur.
If the Company were required to make substantial modifications to the properties
to comply with the ADA or other changes in governmental rules and regulations,
the Company's ability to make expected distributions to its stockholders could
be adversely affected.
RISK OF ADVERSE EFFECT ON RESULTS OF OPERATIONS DUE TO POSSIBLE
ENVIRONMENTAL LIABILITIES. The Company's operating costs may be affected by the
obligation to pay for the cost of complying with existing environmental laws,
ordinances and regulations, as well as the cost of complying with future
legislation with respect to the Assets, or loans secured by Assets, with
environmental problems that materially impair the value of the Assets. Under
various federal, state and local environmental laws, ordinances and
13
regulations, a current or previous owner or operator of real property may be
liable for the costs of removal or remediation of hazardous or toxic substances
on, under, or in such property. Such laws often impose liability whether or not
the owner or operator knew of, or was responsible for, the presence of such
hazardous or toxic substances. In addition, the presence of hazardous or toxic
substances, or the failure to remediate properly such property, may adversely
affect the owner's ability to borrow by using such real property as collateral.
Persons who arrange for the transportation, disposal or treatment of hazardous
or toxic substances may also be liable for the costs of removal or remediation
of such substances at the disposal or treatment facility, whether or not such
facility is or ever was owned or operated by such person. Certain environmental
laws and common law principles could be used to impose liability for releases of
hazardous materials, including asbestos-containing materials ("ACMs"), into the
environment, and third parties may seek recovery from owners or operators of
real properties for personal injury associated with exposure to released ACMs or
other hazardous materials. Environmental laws may also impose restrictions on
the manner in which a property may be used or transferred or in which businesses
may be operated, and these restrictions may require expenditures. In connection
with the ownership and operation of properties, the Company may be potentially
liable for any such costs. The cost of defending against claims of liability or
remediating contaminated property and the cost of complying with such
environmental laws could materially adversely affect the Company's results of
operations and financial condition.
In connection with the acquisition of Real Estate-Related Assets, the
Company intends to obtain Phase I environmental site assessments ("ESAs")
prepared by qualified independent environmental engineers. The purpose of ESAs
is to identify potential sources of contamination for which the Real
Estate-Related Assets may be responsible and to assess the status of
environmental regulatory compliance. It is possible, however, that these ESAs
will not reveal all environmental liabilities or that such Real Estate-Related
Assets may be subject to material environmental liabilities of which the Company
is unaware.
BCP SISTER CORP. WILL HAVE SEPARATE FINANCING. The Company anticipates that
the BCP Sister Corp. will obtain its own financing, separate from that of the
Company. There can be no assurance that such financing will be readily available
or, if available, that it will be on terms acceptable to the BCP Sister Corp. In
addition, to the extent that the BCP Sister Corp. should default under such
financing, there can be no assurance that the BCP Sister Corp. would be able to
obtain sufficient financing to cure such default or to ascertain the full impact
of such default on the Company.
INVESTMENTS MADE BY BCP SISTER CORP. Certain investments which may
otherwise have been made by the Company may be made by the BCP Sister Corp. The
BCP Sister Corp. will be subject to income tax at regular corporate rates, which
may have the effect of reducing cash available for distribution to stockholders.
NEWLY-ORGANIZED CORPORATION. The Company has a limited operating history.
The Company will be dependent upon the experience and expertise of its senior
management in administering its day-to-day operations. There can be no assurance
that the Company's management will be able to implement successfully the
strategies that the Company intends to pursue. In addition, as a newly-organized
company, the Company's policies and procedures are subject to change over time.
See "The Company--Directors and Executive Officers" and "--Risks Related to
Growth Strategy."
14
INVESTMENT ACTIVITY RISKS
APPROPRIATE INVESTMENTS MAY NOT BE AVAILABLE. Although the Company may
invest in Other Assets as opportunities arise, the Company intends to focus
primarily on acquiring Real Estate-Related Assets consistent with its Investment
Strategy (as defined below). There can be no assurance, however, that the
Company will identify Assets that meet its investment criteria, that the Company
will be successful in acquiring any Assets that may be identified or that any
such Assets will produce a return on the Company's investment. The Company will
have broad authority to invest the net proceeds of this Offering in Assets
consistent with its Investment Strategy. The Company may invest in
highly-leveraged Assets, which may increase the likelihood of a loss of the
Company's Assets through foreclosure. No assurance can be made that the
Company's decisions in this regard will result in a profit for the Company.
Investment in real estate is a highly-competitive business and the acquisition
of Assets is often based on competitive bidding. Consequently, the Company's
inability to identify appropriate Assets may have an adverse effect on the
Company's results of operations and hinder the Company's growth rate.
REAL ESTATE IS ILLIQUID AND VALUE IS DEPENDENT ON CONDITIONS BEYOND THE
COMPANY'S CONTROL. The Company expects to invest in Assets which may be subject
to varying degrees of risk generally incident to the ownership of real property.
Real estate investments are relatively illiquid. The ability of the Company to
vary its investments in response to changes in economic and other conditions
will be limited. No assurances can be given that the fair market value of any
Assets acquired by the Company will not decrease in the future. The underlying
value of Assets and the Company's income and ability to make distributions to
its stockholders are dependent upon the ability of the Company to operate the
Assets in a manner sufficient to maintain or increase revenues in excess of
operating expenses and debt service or, in the case of real property leased to
one or more lessees, the ability of the lessees to make rent payments. Revenues
may be adversely affected by adverse changes in national or local economic
conditions, competition from other properties offering the same or similar
services, changes in interest rates and in the availability, cost and terms of
mortgage funds, the impact of present or future environmental legislation and
compliance with environmental laws, the ongoing need for capital improvements
(particularly in older structures), changes in real estate tax rates and other
operating expenses, adverse changes in governmental rules and fiscal policies,
civil unrest, acts of God, including, without limitation, earthquakes,
hurricanes and other natural disasters (which may result in uninsured losses),
acts of war, adverse changes in zoning laws, and other factors which are beyond
the control of the Company in whole or in part.
COMPETITION FOR ACQUISITIONS. Competition exists for investment
opportunities in most sectors of the real estate industry, including all sectors
in which the Company intends to invest. The Company may be competing for Assets
with entities that have substantially greater economic and personnel resources
than the Company or better relationships with sellers of Assets, lenders and
others. These entities may also generally be able to accept more risk than the
Company prudently can manage. Competition may generally reduce the number of
suitable prospective Assets offered to the Company and increase the bargaining
power of property owners seeking to sell, thereby increasing prices.
REAL ESTATE FINANCING RISKS. The Company is subject to the risks normally
associated with debt financing, including the risk that the Company's cash flow
will be insufficient to meet required debt service. In addition, there is a risk
that, if necessary, existing indebtedness will not be able to be refinanced or
that the terms of such refinancing will not be as favorable as the terms of the
existing indebtedness.
REAL ESTATE INVESTMENT RISKS. Real property investments are subject to
varying degrees of risks. If the Company's Assets do not generate revenues
sufficient to meet operating expenses, including debt service and capital
expenditures, the Company's cash flow and ability to make distributions to its
stockholders will be adversely affected. An Asset's revenues and value may be
adversely affected by the general economic climate, the local economic climate,
local real estate conditions, the ability of the owner to provide adequate
management, maintenance and insurance, and increased operating costs. Certain
significant
15
expenditures associated with each equity investment (such as mortgage payments,
if any, real estate taxes, insurance and maintenance costs) are generally not
reduced when circumstances cause a reduction in income from the investment.
There are numerous competitors for development and acquisitions of properties,
including other REITs, which may have greater resources than the Company.
RISKS RELATED TO INVESTMENTS IN MORTGAGE LOANS. Investments in mortgage
loans may carry certain risks which are not present in other types of
investments, including, without limitation, the following:
COMMERCIAL MORTGAGE LOANS MAY INVOLVE A RISK OF LOSS. Commercial mortgage
loans involve a high degree of risk because of a variety of factors, including
(i) dependency for repayment on successful operation of the mortgaged property
and tenant businesses operating therein, (ii) the fact that such loans are
usually non-recourse to the borrower and (iii) loan terms that include
amortization schedules longer than the stated maturity and provide for balloon
payments at stated maturity rather than periodic principal payments. In
addition, the value of commercial real estate can be affected significantly by
the supply and demand in the market for that type of property.
VOLATILITY OF VALUES OF MORTGAGED PROPERTIES MAY AFFECT ADVERSELY THE
COMPANY'S MORTGAGE LOANS. Commercial real estate values and net operating income
derived therefrom are subject to volatility and may be affected adversely by a
number of factors, including, but not limited to, national, regional and local
economic conditions, local real estate conditions, changed or continued weakness
in specific industry segments, general public perceptions of the safety,
convenience, services and attractiveness of the property, the willingness and
ability of the property's owner to provide capable management and adequate
maintenance, to make capital expenditures and improvements and to provide
leasing concessions, construction quality, age and design, and increases in
operating expenses (such as energy costs).
GENERAL DEFAULT RISKS. With respect to its investments in mortgage loans,
the Company will be subject to risks of borrower defaults, bankruptcies, fraud
and special hazard losses that are not covered by standard hazard insurance. In
the event of any default under mortgage loans held by the Company, the Company
will bear a risk of loss of principal to the extent of any deficiency between
the value of the collateral and the principal amount of the mortgage loan, and
may not receive interest payments on such mortgage loan which could have a
material adverse effect on the Company's cash flow from operations. In the event
of the bankruptcy of a mortgage loan borrower, the mortgage loan to such
borrower will be deemed to be secured only to the extent of the value of the
underlying collateral at the time of bankruptcy (as determined by the bankruptcy
court), and the lien securing the mortgage loan will be subject to the avoidance
powers of the bankruptcy trustee or debtor-in-possession to the extent the lien
may be unenforceable under state law. Foreclosure of a mortgage loan can be an
expensive and lengthy process which could have a substantial negative effect on
the Company's anticipated return on the foreclosed mortgage loan.
MULTI-SECTOR INVESTMENT STRATEGY. The Company's current strategy is to
acquire Assets across a variety of real estate product-types in a variety of
geographic locations, initially with a particular emphasis on office Assets.
Accordingly, the Company will be required to maintain expertise, relationships
and market knowledge across a broad range of product-types and geographic
regions, and will be subject to the market conditions affecting each such
product-type in various markets, including such factors as the local economic
climate, business layoffs, industry slowdowns, changing demographics, and local
supply and demand issues affecting each such market. This multi-sector approach
could require more management time, staff support and expense than a company
whose focus is dedicated to a greater extent on a single product-type in fewer
jurisdictions than is contemplated by the Company.
NEW MARKETS. Although the Company's management has historical experience
with Real Estate-Related Assets and Other Assets and investments in a variety of
geographic areas of the country, it is possible that the Company's expertise in
those markets may not assist the Company in its new markets. In such event, the
Company may be exposed to, among others, risks associated with (i) a lack of
market
16
knowledge and understanding of the local economy, (ii) an inability to access
land and property acquisition opportunities, (iii) an inability to obtain
construction tradespeople, (iv) sudden adverse shifts in supply and demand
factors and (v) an unfamiliarity with local governmental procedures.
RISKS INVOLVED IN ACQUISITIONS THROUGH PARTNERSHIPS AND JOINT
VENTURES. Instead of purchasing properties directly, the Company may invest as
a partner or a co-venturer. Partnership or joint venture investments may, under
certain circumstances, involve risks not otherwise present, including the
possibility that the Company's partner or co-venturer might become bankrupt,
that such partner or co-venturer might at any time have economic or other
business interests or goals which are inconsistent with the business interests
or goals of the Company, and that such partner or co-venturer may be in a
position to take action contrary to the instructions or the requests of the
Company or contrary to the Company's policies or objectives, including the
Company's policy with respect to maintaining its qualification as a REIT. Such
investments may also have the potential risk of impasse on decisions because
neither the partner nor the co-venturer would have full control over the
partnership or joint venture. The Company will, however, seek to maintain
sufficient control of such partnerships or joint ventures to permit the
Company's objectives to be achieved. There is no limitation under the Company's
organizational documents as to the amount of available funds that may be
invested in partnerships or joint ventures.
FOREIGN REAL PROPERTIES ARE SUBJECT TO CURRENCY CONVERSION RISKS AND
UNCERTAINTY OF FOREIGN LAWS. In addition to making investments in domestic
Assets, the Company may invest in Assets located outside the United States.
Investing in real estate located in foreign countries creates risks associated
with the uncertainty of foreign laws and markets. Moreover, investments in
foreign Assets are subject to currency conversion risks.
LEGAL AND TAX RISKS
TAX RISKS. BCP intends to operate in a manner so as to qualify as a REIT
for federal income tax purposes. Although BCP does not intend to request a
ruling from the Service as to its REIT status, BCP received, in connection with
the Closing of the Original Offering, an opinion from its counsel, Goodwin,
Procter & Hoar LLP, that, based on certain assumptions and representations as of
the Closing of the Original Offering, it will be organized in conformity with
the requirements for qualification as a REIT, and its proposed manner of
operation will enable it to qualify as a REIT, which opinion is based on certain
assumptions and representations with respect to BCP's past and expected ongoing
businesses and investment activities and other customary matters. Investors
should be aware, however, that opinions of counsel are not binding on the
Service or any court. The opinion of Goodwin, Procter & Hoar LLP represents only
the view of counsel to BCP based on counsel's review and analysis of existing
law, which includes no controlling precedent and which is subject to change,
possibly on a retroactive basis. See "Federal Income Tax
Considerations--Requirements for Qualification." Furthermore, both the validity
of the opinion and the continued qualification of BCP as a REIT will depend on
BCP's satisfaction of certain asset, income, organizational, distribution and
stockholder ownership requirements on a continuing basis. BCP's operations will
not be monitored by Goodwin, Procter & Hoar LLP to ensure continued compliance
with the REIT requirements. If BCP were to fail to qualify as a REIT in any
taxable year, BCP would be subject to federal income tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
rates, and distributions to stockholders would not be deductible by BCP in
computing its taxable income. Any such corporate tax liability could be
substantial and would reduce the amount of cash available for distribution to
stockholders, which in turn could have an adverse impact on the value of, and
trading prices for, the Common Stock. Unless entitled to relief under certain
REIT provisions of the Code, BCP also would be disqualified from taxation as a
REIT for the four taxable years subsequent to the year during which BCP ceased
to qualify as a REIT. See "Federal Income Tax Considerations--Requirements for
Qualification."
17
BCP must distribute annually at least 95% of its net taxable income
(excluding any net capital gain) in order to avoid corporate income taxation of
the earnings that it distributes. In addition, BCP will be subject to a 4%
nondeductible excise tax on the amount, if any, by which certain distributions
paid or deemed paid by it with respect to any calendar year are less than the
sum of (i) 85% of its ordinary income for that year, (ii) 95% of its capital
gain net income for that year, and (iii) 100% of its undistributed taxable
income from prior years. The amount of any net long-term capital gains that BCP
elects to retain and pay income tax on will be treated as distributed for
purposes of the 4% excise tax.
BCP intends to make distributions to its stockholders to comply with the 95%
distribution requirement and to avoid the nondeductible excise tax. However,
differences in timing between the recognition of taxable income and the actual
receipt of cash could require BCP to borrow funds or sell assets on a short-term
basis to meet the 95% distribution requirement and to avoid the nondeductible
excise tax. The requirement to distribute a substantial portion of BCP's net
taxable income could cause BCP (i) to sell assets in adverse market conditions,
(ii) to distribute amounts that represent a return of capital, or (iii) to
distribute amounts that would otherwise be spent on future acquisitions, capital
expenditures, or repayment of debt. Gains from the disposition of any asset held
primarily for sale to customers in the ordinary course of business generally
will be subject to a 100% tax. See "Federal Income Tax Considerations--
Requirements for Qualification."
It is anticipated that BCP may purchase mortgage loans. If BCP purchases
such Assets and is deemed to have issued debt obligations having two or more
maturities, the payments on which correspond to payments on such mortgage loans,
such arrangement will be treated as a "taxable mortgage pool" for federal income
tax purposes. If all or a portion of BCP is considered a "taxable mortgage
pool," BCP's status as a REIT generally should not be impaired, but a portion of
BCP's taxable income may be characterized as "excess inclusion income" and
allocated to the stockholders of BCP. Any excess inclusion income (i) could not
be offset by net operating losses of a stockholder, (ii) would be subject to tax
as "unrelated business taxable income" to a tax-exempt stockholder, (iii) would
be subject to the application of federal income tax withholding (without
reduction pursuant to any otherwise applicable income tax treaty), with respect
to amounts allocable to foreign stockholders, and (iv) would be taxable (at the
highest corporate tax rate) to BCP, rather than its stockholders, to the extent
allocable to shares of stock of BCP held by disqualified organizations
(generally, tax-exempt entities not subject to tax on unrelated business taxable
income, including governmental organizations).
BCP's qualification as a REIT or its ability to fully utilize the BCP Sister
Corp. structure could be affected as a result of proposed and future
legislation. In that regard, on February 2, 1998, the Clinton Administration
released a description of revenue proposals that included, among other things, a
freeze on the grandfathered status of REITs that are "paired" or "stapled" with
a related operating company. Although such proposed legislation in its current
form does not affect "paper clip" structures, there can be no assurance that the
Clinton Administration proposals or similar proposed legislation affecting the
BCP Sister Corp. structure will not place legislative or judicial scrutiny on
the "paper clip" structure or that legislation adversely affecting such
structure will not be proposed and enacted. See "Federal Income Tax
Considerations--Impact of Proposed Legislation."
AGGREGATE STOCK OWNERSHIP LIMIT MAY RESTRICT BUSINESS COMBINATION
OPPORTUNITIES. In order for BCP to maintain its qualification as a REIT under
the Code, not more than 50% in value of its outstanding shares of stock may be
owned, directly or indirectly, by five or fewer individuals (as defined in the
Code to include certain entities) at any time during the last half of BCP's
taxable year (other than the first taxable year for which the election to be
treated as a REIT has been made). In order to facilitate maintenance of its
qualification as a REIT for federal income tax purposes, and to otherwise
address concerns relating to concentration of stock ownership, the Charter
contains the Aggregate Stock Ownership Limit which generally prohibits any
single stockholder from "beneficially owning" (as such term is defined in the
Charter) more than 9.8% of the issued and outstanding shares of the Company's
Common Stock. Additionally, the Charter contains the Look-Through Ownership
Limit, which generally permits certain
18
mutual funds and certain other widely-held entities (other than pension plans as
described in Section 401(a) of the Code) to beneficially own up to 15% of the
outstanding shares of Common Stock. The Board of Directors may waive or modify
the Aggregate Stock Ownership Limit and the Look-Through 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 federal income tax purposes and will not cause
the Company to be a "pension-held" REIT for federal income tax purposes. These
ownership limits 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. See "Description of Securities--Transfer
Restrictions" and "Federal Income Tax Considerations--Requirements for
Qualification."
FOREIGN INVESTORS SHOULD CONSIDER TAX RISKS UNDER FIRPTA. Gain recognized
by a Non-U.S. Stockholder (as defined herein) upon a sale of his Common Stock
generally will be taxed under the provisions of the Foreign Investment in Real
Property Tax Act of 1980 ("FIRPTA") if BCP is not a "domestically controlled
REIT." A "domestically controlled REIT" is defined generally as a REIT in which
at all times during a specified testing period less than 50% in value of the
stock was held directly or indirectly by non-U.S. persons. Although it is
currently anticipated that BCP will be a "domestically controlled REIT" and,
therefore, the re-sale of the Common Stock will not be subject to taxation under
FIRPTA, there can be no assurance that BCP will be a "domestically-controlled
REIT." Even if such gain is not subject to FIRPTA, such gain will be taxable to
a Non-U.S. Stockholder under certain other circumstances. If the gain on the
re-sale of the Common Stock were to be subject to taxation under FIRPTA, the
Non-U.S. Stockholder would be subject to the same treatment as U.S. stockholders
with respect to such gain (subject to applicable alternative minimum tax and a
special alternative minimum tax in the case of nonresident alien individuals).
See "Federal Income Tax Considerations--Taxation of Non-U.S. Stockholders."
PLANS SHOULD CONSIDER ERISA RISKS OF INVESTING IN COMMON STOCK. ERISA is a
broad statutory framework that governs non-governmental employee benefit plans
in the United States. Fiduciaries of pension, profit-sharing or other employee
benefit plans subject to Title I of ERISA ("ERISA Plans"), in consultation with
their advisers, should carefully consider the impact of ERISA and the
regulations of the Department of Labor (the "DOL") thereunder on the ERISA
Plan's decision to invest in the Common Stock. In particular, a fiduciary of an
ERISA Plan should consider whether its decisions with respect to these matters
would satisfy the requirements set forth in Part 4 of subtitle B of Title I of
ERISA, including (a) the diversification and prudence requirements of ERISA, (b)
the requirement that the decisions be in the best interests of the participants
and beneficiaries of the ERISA Plan, and (c) the requirement that the decision
be authorized under the appropriate governing instruments and investment
policies of the ERISA Plan.
ERISA also prohibits certain transactions involving an ERISA Plan and
persons who are "parties in interests" with respect to the ERISA Plan. In
addition, the Code provides for similar prohibited transaction rules applicable
to "plans" (as defined in Section 4975 of the Code) and "disqualified persons"
with respect to such plans. The fiduciary of an ERISA Plan or a plan described
in Section 4975 of the Code (referred to together herein as "Plans")
contemplating an investment in the Common Stock should consider whether the
acquisition of such Common Stock would result in a prohibited transaction under
ERISA and/or the Code and if so, whether an exemption from these prohibited
transaction rules is available. In addition, the Plan Assets Regulation provides
that, subject to certain exceptions, the assets of an entity in which a Plan
holds an equity interest may be treated as assets of the investing Plan, in
which event, the underlying assets of such entity (and transactions involving
such assets) would be subject to ERISA and applicable provisions of the Code
(including prohibited transaction provisions of ERISA and the Code). The Company
intends to take such steps as may be necessary to qualify BCP and the Operating
Partnership (and any BCP Sister Corp.) for one or more of the exceptions
available under such regulation and, thereby, prevent the assets of the Company
from being treated as assets of any investing Plan. Specifically, the Company
will use its reasonable best efforts to qualify as a "real estate operating
19
company" (within the meaning of the Plan Assets Regulation) at least until such
time as the Common Stock qualifies as a class of "publicly offered securities"
(as such term is defined in such regulation). In addition, with respect to any
BCP Sister Corp., the Company will take such steps as may be necessary to
qualify such BCP Sister Corp. as an operating company or a venture capital
operating company or for one of the other available exceptions under the Plan
Assets Regulation prior to distributions of its equity interests, although no
assurances can be made in this regard. See "ERISA Considerations--The Treatment
of the Company's Underlying Assets Under ERISA."
MARYLAND TAKEOVER STATUTES MAY RESTRICT CERTAIN OPPORTUNITIES. As a
Maryland corporation, BCP is subject to various provisions of the Maryland
General Corporation Law (the "MGCL"), which (a) impose certain restrictions and
require certain procedures with respect to certain business combinations,
including, but not limited to, transactions with holders of more than 10% of the
voting power of BCP's equity securities and (b) limit voting rights for holders
of 20% or more of the voting power of BCP's stock. These provisions could have
the effect of discouraging a takeover or other transaction in which holders of
some, or a majority, of the shares of the Common Stock might receive a premium
for their shares of the Common Stock over the then-prevailing market price or
which such holders might believe to be otherwise in their best interests. The
Charter of the Company exempts from the Maryland statute any business
combination with Alan M. Leventhal, Lionel P. Fortin or current or future
affiliates, associates or other persons acting in concert as a group with either
of Messrs. Leventhal or Fortin. See "Certain Provisions of Maryland Law and of
BCP's Charter and Bylaws--Business Combinations" and "--Control Share
Acquisitions."
BOARD OF DIRECTORS MAY CHANGE CERTAIN POLICIES WITHOUT STOCKHOLDER
CONSENT. The major policies of the Company, including its investment policy and
other policies with respect to acquisitions, financing, growth, operations, debt
and distributions, will be determined by its Board of Directors from time to
time. The Board of Directors may amend or revise these and other policies, or
approve transactions that deviate from these policies, from time to time without
a vote of the stockholders. The effect of any such changes may be positive or
negative. See "Certain Provisions of Maryland Law and of BCP's Charter and
Bylaws."
LOSS OF INVESTMENT COMPANY ACT EXEMPTION WOULD ADVERSELY AFFECT THE
COMPANY. The Company believes that it will not be, and intends to conduct its
operations so as not to become, regulated as an investment company under the
Investment Company Act of 1940. The Investment Company Act exempts entities
that, directly or through majority-owned subsidiaries, are "primarily engaged in
the business of purchasing or otherwise acquiring mortgages and other liens on
and interests in real estate" ("Qualifying Interests"). Under current
interpretations by the Staff of the Commission, in order to qualify for this
exemption, the Company, among other things, must maintain at least 55% of its
assets in Qualifying Interests and also may be required to maintain an
additional 25% in Qualifying Interests or other real estate-related assets. The
assets that the Company may acquire therefore may be limited by the exemption
provisions of the Investment Company Act. In addition, the Company could, among
other things, be required either (a) to change the manner in which it conducts
its operations to avoid being required to register as an investment company or
(b) to register as an investment company, either of which could have an adverse
effect on the Company and the market price for the Common Stock.
LIMITATION ON LIABILITY OF OFFICERS AND DIRECTORS OF THE COMPANY. The
Charter contains a provision which limits the liability of a director or officer
to BCP and its stockholders for money damages, except for liability resulting
from (a) actual receipt of an improper benefit or profit in money, property or
services or (b) active and deliberate dishonesty established by a final judgment
as being material to the cause of action. See "Certain Provisions of Maryland
Law and of BCP's Charter and Bylaws."
20
OTHER RISKS
RESTRICTIONS ON TRANSFERABILITY; LACK OF PUBLIC MARKET. Each subsequent
purchaser will be required to represent and warrant that it (i) is acquiring
Common Stock for investment and not with a view to distribution or resale, (ii)
understands it must bear the economic risk of an investment in the Common Stock
for an indefinite period of time because the Common Stock has not been
registered with the Commission or any other state or governmental agency, and
(iii) understands that the Common Stock may not be transferred or sold, unless
the Common Stock is registered or an exemption from such registration is
available. There is currently no public market for the Common Stock and there is
no assurance that one will develop. In addition, transfers of the Common Stock
are prohibited if such transfer would (x) violate the Securities Act or any
other applicable federal or state securities laws, rules or regulations, or (y)
cause the Company to fail to comply with any of the requirements for
qualification as a REIT under the Code or (z) cause the Company to violate any
of the restrictions of the Charter. In addition, holders of the Common Stock may
be prevented from relying upon the Registration Statement of which this
Prospectus forms a part for the resale of shares of the Common Stock as a result
of the right of the Company under the Registration Rights Agreement to suspend
its effectiveness during blackout periods (as defined below). See "Description
of Securities--Registration Rights." Consequently, the purchase of the Common
Stock should be considered a long-term and illiquid investment. See "Description
of Securities--Transfer Restrictions."
RISK THAT MARKET FOR COMMON STOCK WILL NOT DEVELOP. The Common Stock
presently has no established trading market. While application has been made to
have the Common Stock accepted for trading in the PORTAL Market, there can be no
assurance that an active trading market for the Common Stock will develop in the
PORTAL Market or elsewhere. Accordingly, no assurance can be given as to (i) the
likelihood that an active market for the Common Stock will develop, (ii) the
liquidity of any such market, (iii) the ability of the stockholders to sell
their Common Stock, or (iv) the prices that stockholders may obtain for their
Common Stock.
21
INVESTMENT STRATEGIES AND EXPERIENCE
INVESTMENT STRATEGIES AND EXPERIENCE
BCP's investment strategy will be driven by the unique perspective of the
senior management of the Company, including management's experience with public
and private real estate companies. See "Note Regarding Management's Experience"
and "Risk Factors--Economic and Business Risks--Prior Performance Not a
Predictor of Future Results." As the capitalization of the real estate industry
continues to evolve toward a publicly-held format, BCP believes that numerous
investment opportunities will continue to emerge that reflect several primary
shifts in the real estate industry. These shifts include:
- rapid recovery of the real estate markets
- extraordinary growth of the public capital markets for real estate
companies
- continued consolidation of the ownership of real estate
- alignment of interests between investors and management
- recognition of real estate companies as operating businesses
These factors have resulted in significant investment opportunities in real
estate, including arbitrage between public and private market pricing. It is
BCP's belief that as the real estate industry continues its transformation (and
recognizing that real estate is still fundamentally a cyclical business),
disparities in pricing and capital availability, as well as ineffective
management of real estate assets by others, will provide opportunities for
skilled and experienced management teams, such as the Company's management team.
Initially, the Company expects to focus primarily on opportunities in the office
sector. As the real estate market cycle advances, the Company expects additional
opportunities to emerge in non-office market sectors, including opportunities in
the lodging, residential and industrial sectors. See "Risk Factors--Investment
Activity Risks--Multi-Sector Investment Strategy." The Company believes that,
increasingly, management expertise and creative real estate solutions will be
required for successful real estate companies. BCP's management team has a
proven track record in this regard in office as well as with other property
types. Based on these observations, BCP intends to identify, create and realize
value for the Company in its investment in Real Estate-Related Assets. Several
themes underlie this strategy:
- RELATIONSHIPS--BCP's management will draw upon its extensive network of
domestic and foreign institutional relationships established over the past
twenty years in the public and private company sectors. These
relationships have provided, and are expected to continue to provide,
early and sometimes exclusive access to negotiated transactions and
avoidance of competitive auctions.
- OPERATING COMPANY EXPERTISE--BCP will identify opportunities where its
expertise in actively managing both public and private real estate
companies can be applied to under-performing real estate assets or real
estate companies.
- INDUSTRY TRENDS--BCP will identify and capitalize on industry trends that
emerge as the market continues its transformation and maturation process.
The Company initially intends to focus its investment activity in the
following types of Real Estate-Related Assets: (i) value-added repositionings
and discounted purchases; (ii) development and re-development; (iii)
multiple-property portfolios; (iv) joint ventures and strategic partnerships;
and (v) real estate companies and real estate-related businesses.
(i) VALUE-ADDED REPOSITIONINGS AND DISCOUNTED PURCHASES. The Company expects
to target investments in under-utilized or poorly capitalized single assets and
portfolios that may be recapitalized on advantageous terms and repositioned with
the expectation of returns greater than those that could be achieved by
acquiring a stabilized property. These investments may include the purchase of
the property at a discount to replacement cost or the purchase of the underlying
debt thereon often at a discount to face
22
value. In today's dynamic real estate industry with an ever-changing and
cyclical economy and changing demographic characteristics, there generally will
be opportunities to take better advantage of well-located and structurally sound
properties. Opportunities in this area include acquisitions of properties and
portfolios from controlling parties who are not focused on maximizing value in
these assets, whether because they have lost economic incentive or because they
are non-strategic or inefficient owners of real estate. In addition,
opportunities may involve substantial rehabilitation or redevelopment and
ground-up development where market conditions warrant new construction.
Investments in this area may benefit from the Company's value-added
problem-solving and structuring capabilities, as well as from the skills of
operating partners in joint venture investments. The Company believes that there
may be an availability of these opportunities due to short-term issues with the
properties (such as vacancies) that may not appeal to larger publicly-traded
REITs.
(ii) DEVELOPMENT AND RE-DEVELOPMENT. The Company expects that it will
target, on a selected basis, investments requiring strategic ground-up
development or re-development of existing properties that can benefit from
repositioning. Based on the current stage of the real estate business cycle, the
Company believes that attractive development opportunities are presenting
themselves in a number of markets. The Company expects to seek out opportunities
where market vacancy rates and market rents justify new construction and where
job growth will support new demand for office space. Development and
redevelopment of real estate was a primary element of Beacon Properties'
business strategy under the supervision of the Company's senior management. From
the founding of Beacon Properties' predecessor over 50 years ago until Beacon
Properties' merger with Equity Office Properties Trust in December 1997, Beacon
Properties was involved in numerous urban and suburban development projects in
Boston and throughout the United States. As a public company, Beacon Properties
was regarded by many for its office and mixed-use developments, particularly in
Boston. In addition, BCP's principals also have development expertise in other
property types, including lodging, industrial, retail, apartments and mixed-use
projects.
(iii) MULTIPLE PROPERTY PORTFOLIOS. The Company expects to target real
estate acquisitions resulting from corporate divestitures from users, financial
institutions, and other non-strategic and inefficient owners of real estate.
Many domestic and foreign corporations and institutions (i.e., insurance
companies, pension funds and endowments) have made direct investments in real
estate assets or, on occasion, have established full-service real estate
subsidiaries. In the current era of corporate restructuring and downsizing, many
companies have chosen to liquidate non-core businesses and real estate assets.
In addition, the Company believes that the trend from private to public
ownership is motivating many institutions to liquidate their privately-held real
estate portfolios. As a result, the Company believes that many opportunities
will exist to acquire real estate assets, real estate operating businesses or
interests in real estate joint ventures directly from corporations and
institutions. In some instances, the selling companies may have particular
objectives, such as the need to sell assets prior to the end of a fiscal quarter
or a desire to allow an operating partner to continue to participate in an
investment, which the Company expects to be able to accommodate. The Company
also believes that foreign institutions may become particularly active sellers
of domestic and foreign assets in the near future. The Company believes that it
will be able to capitalize on management's historically successful relationships
with a wide range of institutions and, therefore, have a competitive advantage
in accessing many of these portfolios. The Company believes that its experienced
management team and its expertise in managing large, complex portfolios may
allow the Company to (i) pursue property portfolios that other real estate
investment entities may view as too complex, and (ii) take advantage of the
opportunities presented by these portfolios that may have been inefficiently
managed.
(iv) JOINT VENTURES AND STRATEGIC PARTNERSHIPS. The Company expects to enter
into, or acquire interests in, joint ventures or strategic partnerships as a way
to leverage both capital and expertise.
(v) REAL ESTATE COMPANIES AND REAL ESTATE-RELATED BUSINESSES. As public
market ownership and consolidation continues in the real estate industry, the
Company expects to target investments in real estate companies and businesses
with a real estate component. Opportunities in this target area include
23
public and private companies, and generally fall into three types of companies:
(a) real estate ownership companies, including REITs and non-REIT ownership
companies, homebuilders and other development companies; (b) real estate service
companies, such as management or brokerage companies; and (c) businesses with a
strategic dependence on real estate. In particular, there may be opportunities
to acquire controlling interests in certain small to mid-sized REITs that do not
trade at multiples as high as many other larger and better capitalized REITs.
The Company intends to invest in private placements of common stock or other
securities convertible into common stock. When the Company identifies strong
management teams and growth prospects, it may provide growth capital to such
companies and may recapitalize over-leveraged or other poorly-capitalized
companies. The Company believes that its experienced management will enhance
such companies' abilities to evaluate investment opportunities. The Company
expects to take advantage of the arbitrage between private and public market
pricing of real estate with its investments in this area. Conversely, when an
entity can be acquired for less than the value of its assets, the Company may
acquire control of such entity, whether directly (through the acquisition of a
controlling equity interest) or indirectly (through the acquisition of debt). To
supplement its efforts in this strategic area, the Company has added an
individual to its management team, who was not formerly employed by Beacon
Properties, who has extensive experience in corporate private equity
investments.
Although the Company expects that its primary emphasis will be on the
acquisition of the above-described categories of Real Estate-Related Assets,
future acquisitions also may include Other Assets. In making its investments,
the Company intends to conduct all of its investment activities in a manner
consistent with maintaining the status of BCP as a REIT for United States
federal income tax purposes. See "Federal Income Tax
Considerations--Requirements for Qualification." To the extent any of the
above-described investments are attractive, but inconsistent with maintaining
the status of BCP as a REIT, such investments could be made by the BCP Sister
Corp. However, the Company's ability to fully utilize the BCP Sister Corp.
structure could be affected as a result of proposed or future legislation. See
"Risk Factors--Legal and Tax Risks--Tax Risks."
The Company cannot anticipate with any certainty the percentage of the net
proceeds of the Original Offering, or its other assets or funds, that will be
invested in each category of Real Estate-Related Assets or Other Assets. The
Company has broad discretion in the manner in which it makes investments,
subject to its Investment Strategy. There can be no assurance that the Company
will be successful in its Investment Strategy. See "Risk Factors--Investment
Activity Risks--Appropriate Investments May Not Be Available and Investments of
Net Proceeds May Be Delayed." Management's performance while employed at Beacon
Properties, and the performance of Beacon Properties under such management's
leadership, does not guarantee or predict the performance of the Company or its
management. See "Risk Factors-- Economic and Business Risks--Past Performance
Not a Predictor of Future Results."
INVESTMENT MANAGEMENT
The Company intends to create value in, and realize value from, its
investments by identifying advantageous investment management strategies. The
senior management of the Company has extensive experience in a broad range of
aspects of real estate investment management, including financing, asset and
property management, development and dispositions.
The Company currently has offices in Boston, Chicago and Los Angeles (headed
by senior officers who headed these regions for Beacon Properties) and intends
to pursue investments throughout the country. In addition, the Company intends
to enhance and extend its internal management resources through a network of
third-party property management and brokerage firms with specialized geographic
and property-type expertise and information. Through its existing offices and
these relationships, the Company can gain a local presence in strategic markets
and hands-on operational knowledge of the assets underlying its investments, as
well as better access to proprietary transactions. The senior management of the
Company has developed a network of such parties and will expand such
relationships as they pursue the Company's Investment Strategy. Generally, the
Company intends to structure relationships with parties
24
who will make meaningful equity investments and provide incentives to its
partners to ensure that the parties' interests are aligned with the Company's,
while the Company retains control over each investment. See "Risk
Factors--Economic and Business Risks--Risks Related to Growth Strategy."
The Company intends to finance investments with the use of leverage in an
effort to maximize equity returns while allowing maximum flexibility and
maintaining an acceptable level of risk. As the real estate markets have
improved, the debt financing markets also have improved from the borrower's
perspective. Lenders are providing greater leverage at relatively lower cost
with greater structuring flexibility. The senior management of the Company has
established relationships in the lending community, being regular users of debt
financing and the Company expects to benefit from such individual lending
relationships. See "Management's Discussion and Analysis of Liquidity and
Capital Resources" and "Risk Factors-- Investment Activity Risks--Real Estate
Financing Risks."
Generally, the Company intends to pursue a strategy of portfolio
diversification in terms of geographic location, property type, and investment
type. The Company believes that diversification is important to reducing
potential down-side risks. However, the Company will have no predetermined
limitations or targets for concentration of geographic location, property type,
or investment type. Instead, the Company plans to make investment decisions on a
case-by-case basis. See "Risk Factors--Investment Activity Risks--Appropriate
Investments May Not Be Available and Investment of Net Proceeds May Be Delayed"
and "Risk Factors--Investment Activity Risks--Multi-Sector Investment Strategy."
THE BCP SISTER CORP.
The Company anticipates that it may, from time to time, identify Assets that
it believes may be advantageous investments, but that may be inappropriate
(whether for REIT qualification, tax or other reasons) for investment, in whole
or in part, by a REIT, or which may otherwise be determined by the Company,
based on general prudent considerations, to be inappropriate, in whole or in
part, for investment by the Company. In order to permit stockholders to
participate in the economic benefits that may be associated with such
non-qualifying REIT Assets, the Company intends, from time to time, to cause the
Operating Partnership to form one or more subsidiary corporations, partnerships
or other entities (each, a BCP Sister Corp.), which would not elect to be taxed
as a REIT. This structure has been employed by certain other REITs (such as
Crescent Real Estate Equities Company). The Operating Partnership would
initially contribute to the BCP Sister Corp. a portion of the net proceeds of
this Offering together with, on behalf of the Initial Limited Partner, a pro
rata portion of the capital of the Operating Partnership allocable to the
Initial Limited Partner's contributed capital, which will be sufficient to
permit the BCP Sister Corp. to make such initially identified investments, in
exchange for all of the issued and outstanding equity interests in the BCP
Sister Corp. The Operating Partnership would then distribute the equity
interests pro rata to BCP and the Initial Limited Partner. BCP in turn would
distribute the BCP Sister Corp.'s equity interests to its stockholders in a
taxable transaction. The Company anticipates that the first such BCP Sister
Corp. will be comprised of Beacon Venture Partners, Inc. and its operating
partnership, Beacon Venture Partners, L.P. Concurrently therewith or immediately
subsequent thereto, the BCP Sister Corp. will form an operating partnership (the
"Sister OP") upon substantially the same terms and conditions as the Operating
Partnership Agreement (including, without limitation, the terms respecting the
distribution of the Incentive Return to the BCP Affiliate). Furthermore, to the
extent that certain synergies and efficiencies are possible between the Company,
the BCP Sister Corp. and the Sister OP, the Company intends to maximize the
opportunities presented by such synergies and efficiencies. For example, the
Company, the BCP Sister Corp. and the Sister OP may jointly acquire investments
in assets and businesses, such as hotels or health care facilities, where the
Company will acquire title to the underlying real property and lease such
property to the Sister OP, at market rents (including rents based upon a
percentage of gross revenues), while the Sister OP acquires and operates the
operating business. The Company anticipates that such synergies and efficiencies
will provide the Company with advantages in making investments over other
companies; however, no assurance can be made that the Company will be
25
successful in creating and implementing such synergies and efficiencies. See
"Risk Factors--Economic and Business Risks--Conflicts of Interest" and "Risk
Factors--Legal and Tax Risks--Tax Risks."
The formation of the BCP Sister Corp. will permit stockholders of the
Company who retain common stock of the BCP Sister Corp. to participate in the
real estate operations of the Company (including ownership of real property) and
the BCP Sister Corp.'s operation of operating businesses and other assets which
may not otherwise be appropriate for a REIT. The Company's principal focus will
be to make real estate investments while any BCP Sister Corp.'s principal
function will be to serve as an operating company. The operating activities and
operating assets made available to the BCP Sister Corp. by the Company are
designed to provide BCP's stockholders with the long-term benefits of ownership
in an entity devoted to the conduct of operating business activities in addition
to their ownership interest in the Company. A small number of REITs, operating
under tax provisions that no longer are available to newly-formed REITs, have
their shares "paired" or "stapled" with shares of a related operating company,
and, therefore, cannot be owned or transferred independently. It is the
Company's intention that the Common Stock of the Company and the equity
interests of the BCP Sister Corp. will not be paired or stapled, but rather will
be structured as a "paper clip," a structure designed to permit BCP to continue
to qualify as a REIT. With respect to the Common Stock of the Company and the
equity interests of the BCP Sister Corp. that may be owned and transferred,
subject to applicable securities laws restrictions, separately and independently
of each other, the Company and the BCP Sister Corp. will not necessarily provide
a paired investment with the Company on an ongoing basis. After the initial
formation of the BCP Sister Corp. and the distribution of its equity interests,
the BCP Sister Corp. and the Company will pursue independent sources of
financing and, to the extent that the stock trades separately, may ultimately
have differing ownership. See "The Company--Certain Relationships; Conflicts of
Interest," "Federal Income Tax Considerations--BCP Sister Corp." and "Risk
Factors--Legal and Tax Risks--Tax Risks."
To the extent that payments of rent may be made by the BCP Sister Corp. to
the Company, the Company will be required to monitor and comply with the
"related party tenant" provisions of the Code, which provide that payments made
under a lease will not constitute qualifying income for purposes of the REIT
requirements if the Company owns, directly or indirectly or pursuant to
attribution rules, 10% or more of the ownership interests in the relevant
lessee. The Aggregate Stock Ownership Limit is designed to prevent a stockholder
of the Company from owning an amount of shares that would cause the Company to
be treated as owning a BCP Sister Corp. However, any stockholder owning 10% or
more of the Company by reason of a waiver of the Aggregate Stock Ownership Limit
or the application of the Aggregate Stock Ownership Limit or the application of
the Look-Through Ownership Limit may be required to reduce its ownership
percentage in the Company to below 10% in order to receive its pro rata share of
the distribution of the stock of the BCP Sister Corp., to ensure that rents
received by the REIT are not disqualified under the related party tenant
provisions.
The Company's ability to fully utilize the BCP Sister Corp. structure could
be affected as a result of proposed and future legislation. In that regard, on
February 2, 1998, the Clinton Administration released a description of revenue
proposals that included, among other things, a freeze on the grandfathered
status of REITs that are "paired" or "stapled" with a related operating company.
Although such proposed legislation in its current form does not affect the
"paper clip" structure, there can be no assurance that the Clinton
Administration proposals or similar legislation affecting the BCP Sister Corp.
structure will not place legislative or judicial scrutiny on the "paper clip"
structure or that legislation adversely affecting such structure will not be
proposed and enacted, possibly on a retroactive basis. Any such legislation
could have an adverse impact on the qualification of BCP as a REIT. See "Risk
Factors--Legal and Tax Risks--Tax Risks" and "Federal Income Tax
Considerations--Impact of Proposed Legislation."
26
THE COMPANY
BCP is a recently-organized Maryland corporation, and will elect to be taxed
as a REIT under the Code. The Operating Partnership is a Delaware limited
partnership. The principal executive offices of the Company are located at One
Federal Street, 26th Floor, Boston, Massachusetts 02110. The Company's telephone
number is (617) 457-0400.
The Company believes that its senior management has long-standing
relationships with institutional owners, lenders, bankers and other real estate
operators and developers which the Company anticipates may provide the Company
with regular access to transaction activity and investment opportunities. In
addition, the operating experience of its senior management gained through the
management of public and private companies provides a unique perspective that is
expected to be particularly valuable as the real estate cycle changes and as the
real estate industry continues its transformation from private to public
capitalization. In addition to the experience gained by the senior management as
senior management of Beacon Properties, they have also been active in the
development, acquisition and management of a broad spectrum of property types,
including lodging, apartment, industrial, retail and mixed-use projects.
RECENT AND PENDING ACQUISITIONS
THE ATHENAEUM PORTFOLIO. On May 1, 1998 the Company purchased a portfolio
of eleven buildings in Cambridge, MA known as The Athenaeum Portfolio. The
mixed-use portfolio consists of approximately 970,000 square feet and contains
office, laboratory and retail uses as well as a 1,530 space parking garage. The
purchase price for the portfolio was $195 million, including the assumption of
approximately $69 million of first mortgage debt. The Company estimates that the
aggregate purchase price is approximately 80% of replacement cost. Subsequent to
the closing of the transaction, the Company completed the formation of a joint
venture with an affiliate of PaineWebber, in which both parties hold a 50%
equity interest in the properties.
The portfolio is comprised of two components: One Kendall Square and The
Athenaeum House (215 First Street), which are located within close proximity of
M.I.T. Several of the buildings were originally built as manufacturing buildings
at the turn of the century and were fully renovated in the mid-1980's for office
and laboratory uses. A nine-screen cinema was added to the complex in 1994. The
buildings are currently 100% occupied. Major tenants which occupy more than 10%
of the portfolio include: Genzyme, CLAM Associates, Cambridge Neuroscience, and
Mitotix.
The Athenaeum Portfolio is located in the East Cambridge office market. The
overall Cambridge office market includes approximately 10 million square feet.
According to Spaulding & Slye, the Cambridge office market had an overall
vacancy rate of 1.2% as of March 31, 1998.
TECHNOLOGY SQUARE & THE DRAPER BUILDING. On April 22, 1998 the Company
entered into a purchase and sale agreement with Prudential to acquire a four-
building complex known as Technology Square and an adjacent building known as
The Draper Building. The properties are located in Cambridge, MA, adjacent to
One Kendall Square (described above) and M.I.T. and consist of 1,026,000 square
feet. The purchase price for the properties under the purchase and sale
agreement is $123 million. The Company and Prudential are currently negotiating
the form of the consideration for the properties.
Technology Square is currently 100% leased to two tenants: M.I.T. and
Polaroid Corporation. The leases with these tenants expire in mid-1999. Average
net lease rates in place are $6.53 per square foot, which the Company believes
to be substantially below current market. The Company intends to re-develop and
re-lease the property over the next 18-24 months and projects substantial
increases in net operating income as the property is stabilized at current
market net rents, which the Company believes to be approximately $24 per square
foot. The scope of the re-development is currently under review by the Company.
The Draper Building is 100% leased to Draper Labs on a long-term lease, with
extension
27
options through October 2051, pursuant to which the tenant has an option, under
certain circumstances, to acquire The Draper Building.
Technology Square and The Draper Building are located in the East Cambridge
office market. The overall Cambridge office market includes approximately 10
million square feet. Upon completion of this acquisition, the Company will own
approximately 2 million square feet of office and commercial in the Cambridge
market, including both The Athenaeum Portfolio and Technology Square and The
Draper Building.
THE PROPERTIES & PENDING ACQUISITIONS
Set forth below are summary descriptions of the Properties & Pending
Acquisitions.
RENTABLE PERCENT
YEAR BUILT/ OWNERSHIP NO. OF PROPERTY AREA IN LEASED
PROPERTY/PENDING ACQUISITION (1) RENOVATED INTEREST (2) BLDGS. LOCATION SQUARE FEET AT 6/1/98
- ----------------------------------- ----------- ------------ ------ ------------- ----------- ---------
CAMBRIDGE OFFICE MARKET:
215 First Street................... 1885/1981 50% 1 Cambridge, MA 306,084 100%
One Kendall Square Cinema.......... 1994 50% 1 Cambridge, MA 31,641 100%
Buildings 100-500.................. 1887/1984 50% 4 Cambridge, MA 222,372 99%
Buildings 600/650/700.............. 1916/1985 50% 2 Cambridge, MA 236,661 100%
Buildings 1500 & 1700.............. 1914/1986 50% 2 Cambridge, MA 39,707 100%
Building 1400...................... 1989 50% 1 Cambridge, MA 133,211 100%
------ ----------- ---------
Subtotal The Athenaeum Portfolio 11 969,676 100%
------ ----------- ---------
545 TECH SQUARE (3)................ 1965 100% 1 CAMBRIDGE, MA 144,123 100%
549 TECH SQUARE.................... 1962 100% 1 CAMBRIDGE, MA 40,377 100%
565 TECH SQUARE.................... 1965 100% 1 CAMBRIDGE, MA 201,816 100%
575 TECH SQUARE.................... 1965 100% 1 CAMBRIDGE, MA 165,208 100%
THE DRAPER BUILDING (4)............ 1976 100% 1 CAMBRIDGE, MA 474,481 100%
------ ----------- ---------
SUBTOTAL TECH SQUARE & THE DRAPER
BUILDING 5 1,026,005 100%
------ ----------- ---------
Total/Weighted Average
Properties/Pending Acquisitions 16 1,995,681 100%
------ ----------- ---------
------ ----------- ---------
- ------------------------
(1) Pending Acquisitions appear in italics.
(2) The Company holds a 50% interest in The Athenaeum Portfolio which includes
eleven buildings, a nine screen-1,200 seat cinema and 1,530 structured
parking spaces.
(3) Tech Square includes 955 structured parking spaces.
(4) The Draper Building includes 965 structured parking spaces.
28
OCCUPANCY RATES, BASE RENTS AND NET EFFECTIVE RENTS
The following chart sets forth the occupancy rate, expressed as a
percentage, the average annual Base Rent (as defined below) and the average Net
Effective Rent (as defined below) per square foot for each of the Company's
Properties and Pending Acquisitions. Base Rent is gross rent excluding payments
by tenants on account of real estate tax and operating expense escalation. Net
Effective Rent is Base Rent adjusted on a straight-line basis for contractual
rent step-ups and free rent periods, plus tenant payments on account of real
estate tax and operating expense escalation, less total operating expenses and
real estate taxes.
AVERAGE AVERAGE
TOTAL % BASE NET EFF
PROPERTY/PENDING ACQUISITIONS AREA LEASED RENT RENT
- ----------------------------------------------------- ---------- ----------- --------- ---------
215 First Street..................................... 306,084 100% $ 19.22 $ 14.98
One Kendall Square Cinema............................ 31,641 100% 18.29 13.48
Buildings 100-500.................................... 222,372 99% 24.68 15.69
Buildings 600/650/700................................ 236,661 100% 31.82 24.14
Buildings 1500 & 1700................................ 39,707 100% 14.92 10.45
Building 1400........................................ 133,211 100% 26.82 19.54
---------- --- --------- ---------
The Athenaeum Portfolio 969,676 100% 24.38 17.78
---------- --- --------- ---------
Pending Acquisitions
545 Tech Square (NNN)................................ 144,123 100% 13.35 13.35
549 Tech Square...................................... 40,377 100% 6.51 4.06
565 Tech Square...................................... 201,816 100% 6.63 4.08
575 Tech Square...................................... 165,208 100% 7.32 4.16
The Draper Building (NNN)............................ 474,481 100% 6.16 6.16
---------- --- --------- ---------
Tech Square & The Draper Building.................... 1,026,005 100% 7.46 6.36
---------- --- --------- ---------
Total/Weighted Average............................... 1,995,681 100% $ 15.68 $ 11.91
---------- --- --------- ---------
---------- --- --------- ---------
29
LEASE EXPIRATIONS--ALL PROPERTIES & PENDING ACQUISITIONS
The following table sets forth lease expirations (in square feet) for each
of the Company's Properties & Pending Acquisitions.
PROPERTY/PENDING
ACQUISITIONS 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
- --------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
CAMBRIDGE
- ---------------------
215 FIRST STREET
- ---------------------
square feet (a)...... 46,752 34,383 11,345 44,277 117,016 52,311 0 0 0 0
% sq. ft. (b)........ 15.3% 11.2% 3.7% 14.5% 38.2% 17.1% 0.0% 0.0% 0.0% 0.0%
annual rent (c)...... 776,849 870,416 163,420 841,040 2,555,762 839,493 0 0 0 0
% annual rent (d).... 12.8% 14.4% 2.7% 13.9% 42.3% 13.9% 0.0% 0.0% 0.0% 0.0%
tenants (e).......... 7 8 4 4 5 5 0 0 0 0
ONE KENDALL SQUARE
CINEMA
- ---------------------
square feet (a)...... 0 0 0 0 0 0 0 0 0 0
% sq. ft. (b)........ 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
annual rent (c)...... 0 0 0 0 0 0 0 0 0 0
% annual rent (d).... 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
tenants (e).......... 0 0 0 0 0 0 0 0 0 0
BUILDINGS 100-500
- ---------------------
square feet (a)...... 54,248 25,857 34,172 19,798 29,869 34,256 0 21,116 0 0
% sq. ft. (b)........ 24.4% 11.6% 15.4% 8.9% 13.4% 15.4% 0.0% 9.5% 0.0% 0.0%
annual rent (c)...... 1,014,041 554,269 926,647 417,581 717,629 814,951 0 520,896 0 0
% annual rent (d).... 20.4% 11.2% 18.7% 8.4% 14.5% 16.4% 0.0% 10.5% 0.0% 0.0%
tenants (e).......... 12 9 8 8 10 2 0 4 0 0
BUILDINGS 600/650/700
- ---------------------
square feet (a)...... 3,965 26,150 71,738 4,629 31,333 0 0 98,846 0 0
% sq. ft. (b)........ 1.7% 11.0% 30.3% 2.0% 13.2% 0.0% 0.0% 41.8% 0.0% 0.0%
annual rent (c)...... 213,281 400,560 2,442,338 117,395 1,252,066 0 0 3,241,160 0 0
% annual rent (d).... 2.8% 5.2% 31.9% 1.5% 16.3% 0.0% 0.0% 42.3% 0.0% 0.0%
tenants (e).......... 2 6 3 1 1 0 0 1 0 0
BUILDINGS 1500 & 1700
- ---------------------
square feet (a)...... 3,830 275 0 15,707 4,709 0 0 0 0 0
% sq. ft. (b)........ 9.6% 0.7% 0.0% 39.6% 11.9% 0.0% 0.0% 0.0% 0.0% 0.0%
annual rent (c)...... 20,529 2,196 0 393,462 103,598 0 0 0 0 0
% annual rent (d).... 3.3% 0.3% 0.0% 62.5% 16.5% 0.0% 0.0% 0.0% 0.0% 0.0%
tenants (e).......... 1 1 0 1 1 0 0 0 0 0
BUILDING 1400
- ---------------------
square feet (a)...... 0 0 7,868 24,541 0 0 0 100,802 0 0
% sq. ft. (b)........ 0.0% 0.0% 5.9% 18.4% 0.0% 0.0% 0.0% 75.7% 0.0% 0.0%
annual rent (c)...... 0 0 197,959 784,336 0 0 0 3,072,432 0 0
% annual rent (d).... 0.0% 0.0% 4.9% 19.3% 0.0% 0.0% 0.0% 75.8% 0.0% 0.0%
tenants (e).......... 0 0 1 1 0 0 0 2 0 0
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
TOTAL THE ATHENAEUM
PORTFOLIO
- ---------------------
square feet (a)...... 108,795 86,665 125,123 108,952 182,927 86,567 0 220,764 0 0
% sq. ft. (b)........ 11.2% 8.9% 12.9% 11.2% 18.9% 8.9% 0.0% 22.8% 0.0% 0.0%
annual rent (c)...... 2,024,700 1,827,441 3,730,364 2,553,814 4,629,055 1,654,443 0 6,834,489 0 0
% annual rent (d).... 8.5% 7.6% 15.6% 10.7% 19.3% 6.9% 0.0% 28.5% 0.0% 0.0%
tenants (e).......... 22 24 16 15 17 7 0 7 0 0
PROPERTY/PENDING 2008 &
ACQUISITIONS BEYOND
- --------------------- ---------
CAMBRIDGE
- ---------------------
215 FIRST STREET
- ---------------------
square feet (a)...... 0
% sq. ft. (b)........ 0.0%
annual rent (c)...... 0
% annual rent (d).... 0.0%
tenants (e).......... 0
ONE KENDALL SQUARE
CINEMA
- ---------------------
square feet (a)...... 31,641
% sq. ft. (b)........ 100.0%
annual rent (c)...... 578,802
% annual rent (d).... 100.0%
tenants (e).......... 1
BUILDINGS 100-500
- ---------------------
square feet (a)...... 156
% sq. ft. (b)........ 0.1%
annual rent (c)...... 0
% annual rent (d).... 0.0%
tenants (e).......... 1
BUILDINGS 600/650/700
- ---------------------
square feet (a)...... 0
% sq. ft. (b)........ 0.0%
annual rent (c)...... 0
% annual rent (d).... 0.0%
tenants (e).......... 0
BUILDINGS 1500 & 1700
- ---------------------
square feet (a)...... 15,186
% sq. ft. (b)........ 38.2%
annual rent (c)...... 109,494
% annual rent (d).... 17.4%
tenants (e).......... 3
BUILDING 1400
- ---------------------
square feet (a)...... 0
% sq. ft. (b)........ 0.0%
annual rent (c)...... 0
% annual rent (d).... 0.0%
tenants (e).......... 0
---------
TOTAL THE ATHENAEUM
PORTFOLIO
- ---------------------
square feet (a)...... 46,983
% sq. ft. (b)........ 4.8%
annual rent (c)...... 688,296
% annual rent (d).... 2.9%
tenants (e).......... 5
- ------------------------
(a) Total area in square feet covered by such leases.
(b) Percentage of total square feet of the property.
(c) Annualized expiring base rental income represented by such leases in the
year of expiration plus the current tenant payments on account of real
estate tax and operating escalations (amounts in dollars).
(d) Calculated as annual rent divided by the total annual rent.
(e) The number of tenants whose leases will expire.
30
PROPERTY/PENDING
ACQUISITIONS 1998 1999 2000 2001 2002 2003 2004 2005 2006
- ---------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
PENDING ACQUISITIONS
545 TECH SQUARE
- ----------------------------
square feet(a).............. 0 144,123 0 0 0 0 0 0 0
% sq. ft.(b)................ 0.0% 100.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
annual rent(c).............. 0 3,149,241 0 0 0 0 0 0 0
% annual rent(d)............ 0.0% 100.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
tenants(e).................. 0 2 0 0 0 0 0 0 0
549 TECH SQUARE
- ----------------------------
square feet(a).............. 0 40,377 0 0 0 0 0 0 0
% sq. ft.(b)................ 0.0% 100.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
annual rent(c).............. 0 205,823 0 0 0 0 0 0 0
% annual rent(d)............ 0.0% 100.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
tenants(e).................. 0 1 0 0 0 0 0 0 0
565 TECH SQUARE
- ----------------------------
square feet(a).............. 0 201,816 0 0 0 0 0 0 0
% sq. ft.(b)................ 0.0% 100.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
annual rent(c).............. 0 1,403,561 0 0 0 0 0 0 0
% annual rent(d)............ 0.0% 100.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
tenants(e).................. 0 1 0 0 0 0 0 0 0
575 TECH SQUARE
- ----------------------------
square feet(a).............. 0 165,208 0 0 0 0 0 0 0
% sq. ft.(b)................ 0.0% 100.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
annual rent(c).............. 0 1,208,911 0 0 0 0 0 0 0
% annual rent(d)............ 0.0% 100.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
tenants(e).................. 0 1 0 0 0 0 0 0 0
THE DRAPER BUILDING(F)
- ----------------------------
square feet(a).............. 0 0 0 0 0 0 0 0 0
% sq. ft.(b)................ 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
annual rent(c).............. 0 0 0 0 0 0 0 0 0
% annual rent(d)............ 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
tenants(e).................. 0 0 0 0 0 0 0 0 0
--------- --------- --------- --------- --------- --------- --------- --------- ---------
TOTAL TECH
SQUARE & THE DRAPER
BUILDING
- ----------------------------
square feet(a).............. 0 551,524 0 0 0 0 0 0 0
% sq. ft.(b)................ 0.0% 53.8% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
annual rent(c).............. 0 5,967,535 0 0 0 0 0 0 0
% annual rent(d)............ 0.0% 53.3% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
tenants(e).................. 0 5 0 0 0 0 0 0 0
--------- --------- --------- --------- --------- --------- --------- --------- ---------
TOTAL PROPERTIES & PENDING
ACQUISITIONS
- ----------------------------
square feet(a).............. 108,795 638,189 125,123 108,952 182,927 86,567 0 220,764 0
% sq. ft.(b)................ 5.5% 32.0% 6.3% 5.5% 9.2% 4.3% 0.0% 11.1% 0.0%
annual rent(c).............. 2,024,700 7,794,976 3,730,364 2,553,814 4,629,055 1,654,443 0 6,834,489 0
% annual rent(d)............ 5.8% 22.2% 10.6% 7.3% 13.2% 4.7% 0.0% 19.4% 0.0%
tenants(e).................. 22 29 16 15 17 7 0 7 0
PROPERTY/PENDING 2008 &
ACQUISITIONS 2007 BEYOND
- ---------------------------- --------- ---------
PENDING ACQUISITIONS
545 TECH SQUARE
- ----------------------------
square feet(a).............. 0 0
% sq. ft.(b)................ 0.0% 0.0%
annual rent(c).............. 0 0
% annual rent(d)............ 0.0% 0.0%
tenants(e).................. 0 0
549 TECH SQUARE
- ----------------------------
square feet(a).............. 0 0
% sq. ft.(b)................ 0.0% 0.0%
annual rent(c).............. 0 0
% annual rent(d)............ 0.0% 0.0%
tenants(e).................. 0 0
565 TECH SQUARE
- ----------------------------
square feet(a).............. 0 0
% sq. ft.(b)................ 0.0% 0.0%
annual rent(c).............. 0 0
% annual rent(d)............ 0.0% 0.0%
tenants(e).................. 0 0
575 TECH SQUARE
- ----------------------------
square feet(a).............. 0 0
% sq. ft.(b)................ 0.0% 0.0%
annual rent(c).............. 0 0
% annual rent(d)............ 0.0% 0.0%
tenants(e).................. 0 0
THE DRAPER BUILDING(F)
- ----------------------------
square feet(a).............. 0 474,481
% sq. ft.(b)................ 0.0% 100.0%
annual rent(c).............. 0 5,228,781
% annual rent(d)............ 0.0% 100.0%
tenants(e).................. 0 1
--------- ---------
TOTAL TECH
SQUARE & THE DRAPER
BUILDING
- ----------------------------
square feet(a).............. 0 474,481
% sq. ft.(b)................ 0.0% 46.2%
annual rent(c).............. 0 5,228,781
% annual rent(d)............ 0.0% 46.7%
tenants(e).................. 0 1
--------- ---------
TOTAL PROPERTIES & PENDING
ACQUISITIONS
- ----------------------------
square feet(a).............. 0 521,464
% sq. ft.(b)................ 0.0% 26.1%
annual rent(c).............. 0 5,917,077
% annual rent(d)............ 0.0% 16.8%
tenants(e).................. 0 6
- ----------------------------------
(a) Total area in square feet covered by such leases.
(b) Percentage of total square feet of the property.
(c) Annualized expiring base rental income represented by such leases in the
year of expiration plus the current tenant payments on account of real
estate tax and operating escalations (amounts in dollars).
(d) Calculated as annual rent divided the total annual rent.
(e) The number of tenants whose leases will expire.
(f) The Draper Building is reflected as a 2008 & beyond expiration; although the
current lease term expires in 2001, the tenant has options to extend through
October 2051 at rental rates that are significantly below market.
31
The following charts set forth the Historic Occupancy, Historic Base Rent
and Historic Net Rent (as defined below) per square foot for each of the
Properties & Pending Acquisitions. Historic Net Rent is Base Rent plus tenant
payments on account of real estate tax and operating expense escalation, less
total operating expenses and real estate taxes.
HISTORIC OCCUPANCY
TOTAL -----------------------------------------------------
PROPERTY/PENDING ACQUISITIONS AREA 1993 1994 1995 1996 1997
- ----------------------------------------------------- --------- --------- --------- --------- --------- ---------
215 First Street..................................... 306,084 63% 86% 97% 96% 100%
One Kendall Square Cinema............................ 31,641 0% 0% 100% 100% 100%
Buildings 100-500.................................... 222,372 69% 91% 75% 84% 84%
Buildings 600/650/700................................ 236,661 95% 95% 95% 97% 99%
Buildings 1500 & 1700................................ 39,707 0% 87% 82% 87% 87%
Building 1400........................................ 133,211 98% 96% 90% 100% 100%
--------- --------- --------- --------- --------- ---------
The Athenaeum Portfolio.............................. 969,676 78% 91% 90% 94% 95%
--------- --------- --------- --------- --------- ---------
PENDING ACQUISITIONS
- -----------------------------------------------------
545 Tech Square...................................... 144,123 100% 100% 100% 100% 100%
549 Tech Square...................................... 40,377 100% 100% 100% 100% 100%
565 Tech Square...................................... 201,816 100% 100% 100% 100% 100%
575 Tech Square...................................... 165,208 100% 100% 100% 100% 100%
The Draper Building.................................. 474,481 100% 100% 100% 100% 100%
--------- --------- --------- --------- --------- ---------
Tech Square & The Draper Building.................... 1,026,005 100% 100% 100% 100% 100%
--------- --------- --------- --------- --------- ---------
Total/Weighted Average............................... 1,995,681 90% 96% 95% 97% 98%
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
HISTORIC BASE RENT
TOTAL -----------------------------------------------------
PROPERTY/PENDING ACQUISITIONS AREA 1993 1994 1995 1996 1997
- ----------------------------------------------------- --------- --------- --------- --------- --------- ---------
215 First Street..................................... 306,084 $ 17.32 $ 14.36 $ 13.52 $ 15.19 $ 16.62
One Kendall Square Cinema............................ 31,641 0.00 0.00 16.07 17.71 17.93
Buildings 100-500.................................... 222,372 17.93 19.43 20.92 17.82 21.74
Buildings 600/650/700................................ 236,661 26.96 28.49 28.47 28.99 31.91
Buildings 1500 & 1700................................ 39,707 0.00 9.43 10.51 11.58 11.46
Building 1400........................................ 133,211 23.16 25.67 27.96 26.95 27.30
--------- --------- --------- --------- --------- ---------
The Athenaeum Portfolio.............................. 969,676 20.88 20.52 20.81 20.71 22.82
--------- --------- --------- --------- --------- ---------
PENDING ACQUISITIONS
- -----------------------------------------------------
545 Tech Square...................................... 144,123 27.14 22.89 22.28 21.86 20.84
549 Tech Square...................................... 40,377 11.88 11.61 11.12 10.42 9.88
565 Tech Square...................................... 201,816 9.09 9.32 9.28 8.63 8.01
575 Tech Square...................................... 165,208 10.61 10.50 9.90 9.38 8.59
The Draper Building.................................. 474,481 6.16 6.16 6.16 6.16 6.16
--------- --------- --------- --------- --------- ---------
Tech Square & The Draper Building.................... 1,026,005 10.63 10.05 9.84 9.54 9.12
--------- --------- --------- --------- --------- ---------
Total/Weighted Average............................... 1,995,681 $ 15.41 $ 15.05 $ 15.17 $ 14.97 $ 15.78
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
HISTORIC NET RENT
TOTAL -----------------------------------------------------
PROPERTY/PENDING ACQUISITIONS AREA 1993 1994 1995 1996 1997
- ----------------------------------------------------- --------- --------- --------- --------- --------- ---------
215 First Street..................................... 306,084 $ 7.23 $ 8.08 $ 8.63 $ 9.64 $ 11.18
One Kendall Square Cinema............................ 31,641 0.00 0.00 13.33 14.56 13.38
Buildings 100-500.................................... 222,372 8.19 14.34 16.42 13.90 13.98
Buildings 600/650/700................................ 236,661 16.95 18.79 18.56 18.27 20.75
Buildings 1500 & 1700................................ 39,707 0.00 6.75 6.47 8.70 7.93
Building 1400........................................ 133,211 14.01 14.46 17.48 16.93 16.52
--------- --------- --------- --------- --------- ---------
The Athenaeum Portfolio.............................. 969,676 11.03 13.11 14.12 13.85 14.83
--------- --------- --------- --------- --------- ---------
PENDING ACQUISITIONS
545 Tech Square...................................... 144,123 16.38 12.14 12.01 12.38 11.85
549 Tech Square...................................... 40,377 3.36 3.27 3.84 3.82 3.31
565 Tech Square...................................... 201,816 2.96 3.16 3.14 3.19 2.71
575 Tech Square...................................... 165,208 3.39 3.65 3.30 3.81 3.54
The Draper Building.................................. 474,481 5.87 5.86 5.85 5.84 5.83
--------- --------- --------- --------- --------- ---------
Tech Square & The Draper Building.................... 1,026,005 6.27 5.75 5.69 5.83 5.60
--------- --------- --------- --------- --------- ---------
Total/Weighted Average............................... 1,995,681 $ 8.50 $ 9.27 $ 9.79 $ 9.73 $ 10.08
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
32
DIRECTORS AND EXECUTIVE OFFICERS
The Company believes that it has developed an organization of real estate
investment and management professionals that is well-positioned to take
advantage of today's real estate and capital environment. The following table
sets forth certain information about the Directors and executive officers of
BCP.
NAME AGE POSITION(S) HELD
- ----------------------------- --- ---------------------------------------------------------
Alan M. Leventhal............ 45 Chairman of the Board of Directors and Chief Executive
Officer
Lionel P. Fortin............. 54 President, Chief Operating Officer and Director
William A. Bonn.............. 46 Senior Vice President and General Counsel
Jeremy B. Fletcher........... 49 Senior Vice President of BCP and Chief Executive Beacon
Capital Partners West, a division of BCP
John Halsted................. 33 Senior Vice President of BCP and Chief Investment Officer
of Beacon Venture Partners, Inc.
Douglas S. Mitchell.......... 55 Senior Vice President
Erin R. O'Boyle.............. 38 Senior Vice President and Chief Investment Officer
Randy J. Parker.............. 39 Senior Vice President and Chief Financial Officer
E. Valjean Wheeler........... 53 Senior Vice President of BCP and Chief Executive Beacon
Capital Partners Central, a division of BCP
Stephen T. Clark............. 42 Director
Steven Shulman............... 57 Director
Scott M. Sperling............ 40 Director
The principal occupation for the last five years of each Director and senior
manager of BCP, as well as other related information, is set forth below.
ALAN M. LEVENTHAL. Mr. Leventhal is co-founder of BCP and serves as
Chairman and Chief Executive Officer. Prior to founding BCP, Mr. Leventhal
served as President and Chief Executive Officer of Beacon Properties, one of the
largest REITs in the United States. Beacon Properties' portfolio included 124
office properties nationwide, comprising approximately 18.8 million square feet.
Beacon Properties was merged with Equity Office Properties Trust in December
1997. Mr. Leventhal received his Bachelor's degree in Economics from
Northwestern University in 1974 and a Master of Business Administration from the
Amos Tuck School of Business Administration at Dartmouth College in 1976. Mr.
Leventhal is a Trustee of Boston University and the New England Aquarium
Corporation and recently served as First Vice Chair of the National Association
of Real Estate Investment Trusts ("NAREIT"). He is also a member of the Visiting
Committee of Northwestern University and the Board of Overseers of WGBH, Beth
Israel Deaconess Medical Center, and the Museum of Science in Boston. Mr.
Leventhal has lectured at the Amos Tuck School of Business Administration at
Dartmouth College and the Massachusetts Institute of Technology Center for Real
Estate. Mr. Leventhal has been awarded the Realty Stock Review's "Outstanding
CEO Award" for 1996 and 1997, and the Commercial Property News' "Office Property
Executive of the Year" for 1996.
LIONEL P. FORTIN. Mr. Fortin is co-founder of BCP and serves as President,
Chief Operating Officer and a Director. He served as Executive Vice President,
Chief Operating Officer and a Director of Beacon Properties. From May 1994
through February 1995, Mr. Fortin served as Chief Financial Officer of Beacon
Properties. Mr. Fortin serves as a Director of Energy Capital Partners, an
energy finance company, and has lectured at the Massachusetts Institute of
Technology Center for Real Estate. Mr. Fortin graduated from Bentley College in
1968 and is a member of the American Institute of Certified Public Accountants
and the Massachusetts Society of Certified Public Accountants.
33
WILLIAM A. BONN. Mr. Bonn serves as Senior Vice President of, and General
Counsel to, the Company. Mr. Bonn served as General Counsel to Beacon Properties
prior to joining the Company. From 1987 to 1997, Mr. Bonn served as General
Counsel and Senior Vice President for Property Capital Trust, a Boston-based
REIT. From 1978 to 1987, Mr. Bonn held various positions as an attorney with The
Prudential Insurance Company of America. From 1976 to 1978, Mr. Bonn was
involved in the private practice of law in Los Angeles. Mr. Bonn currently
serves as Co-Chairman of the Government Relations Committee of NAREIT. Mr. Bonn
holds a Bachelor of Science degree from the University of California at San
Diego and a Juris Doctor degree from the University of San Diego. He is admitted
to practice law in Massachusetts, New York and California, and is a member of
the American, California and Boston Bar Associations.
JEREMY B. FLETCHER. Mr. Fletcher serves as Senior Vice President and Chief
Executive of Beacon Capital Partners West, a division of BCP. Mr. Fletcher
served as Senior Vice President and Chief Executive of Beacon Properties West
prior to joining the Company. Before joining the Company, Mr. Fletcher was the
Director of Insignia Commercial Group, Inc., Los Angeles. From 1993 to July
1996, Mr. Fletcher was with the Paragon Group, where he served as Senior Vice
President/General Partner of the Southern California/Arizona Region. Mr.
Fletcher received his Bachelor's degree in Geology from Albion College. He is a
member of the Urban Land Institute (ULI), Real Estate Investment Advisory
Council ("REIAC"), and National Association of Industrial and Office Properties
(NAIOP) and is a licensed real estate broker in the State of California.
JOHN HALSTED. Mr. Halsted serves as Senior Vice President and, upon
formation of the BCP Sister Corp., will serve as Chief Investment Officer of
Beacon Venture Partners, Inc. Prior to joining the Company, Mr. Halsted was Vice
President at Harvard Private Capital Group ("Harvard"). He joined Harvard in
1993 and was responsible for the origination and management of investments in
specialty, finance, retail and energy companies. From 1991 to 1993, Mr. Halsted
was an Associate with Simmons & Company, an investment banking firm based in
Houston, Texas. Mr. Halsted earned his Masters in Business Administration from
The Harvard Business School and a degree in economics from The University of
California at Berkeley.
DOUGLAS S. MITCHELL. Mr. Mitchell serves as Senior Vice President. Mr.
Mitchell served as the Senior Vice President--Leasing/Management and Development
of Beacon Properties and as President of the Beacon Properties Management
Company from 1994 until 1997. He joined the Beacon Properties organization in
1964 and has extensive experience in leasing, management and development. He
graduated from the Wentworth Institute in 1962 and is a member of the Greater
Boston Real Estate Board. Mr. Mitchell is also a licensed real estate broker in
Massachusetts and New York.
ERIN R. O'BOYLE. Ms. O'Boyle serves as Senior Vice President and Chief
Investment Officer. Prior to joining the Company, Ms. O'Boyle served as Vice
President, Acquisitions for Beacon Properties, where she was responsible for
negotiating over $1.8 billion of investment opportunities. Ms. O'Boyle joined
Beacon Properties in 1986 and has held positions in asset management and
development. Ms. O'Boyle received her Bachelor of Science in structural
engineering from the University of Delaware and her Master of Science in real
estate development from the Massachusetts Institute of Technology. Ms. O'Boyle
is the past chair of the Alumni Association for the Massachusetts Institute of
Technology Center for Real Estate, is past president of the New England Women in
Real Estate ("NEWIRE"), and currently is on the board of the Northeast chapter
of REIAC.
RANDY J. PARKER. Mr. Parker serves as Senior Vice President and Chief
Financial Officer. Before joining the Company, Mr. Parker was Vice President,
Investor Relations for Beacon Properties, where he was responsible for managing
the relationships with institutional stockholders and analysts. Prior to joining
Beacon Properties, Mr. Parker was Senior Vice President and Portfolio Manager at
Aldrich Eastman & Waltch ("AEW"), where he was responsible for the management of
over $400 million of investment portfolios on behalf of institutional clients.
During his eight year tenure at AEW, Mr. Parker also held positions in asset
management and investment origination. Mr. Parker was also previously associated
with
34
JMB/Federated Realty, where he served as Project Manager for various retail
development projects. Mr. Parker holds a Master of Business Administration
degree from the Wharton School, University of Pennsylvania and a Bachelor of
Architecture degree from the University of Kentucky.
E. VALJEAN WHEELER. Mr. Wheeler serves as Senior Vice President and Chief
Executive of Beacon Capital Partners Central, a division of BCP. Mr. Wheeler
served as Senior Vice President and Chief Executive of Beacon Properties Midwest
prior to joining the Company. Before joining Beacon Properties, Mr. Wheeler held
various senior management positions with Equity Office Holdings, L.L.C.
beginning in 1989, and served as President and Chief Operating Officer from 1995
to 1997. He also held various senior management positions with the Broe
Companies and Williams Realty Corporation. Mr. Wheeler graduated from Oklahoma
State University with a Bachelor of Science in Education. He is a member of the
Urban Land Institute (ULI) and has served on the National Advisory Council of
the Building Owners and Managers Association (BOMA).
STEPHEN T. CLARK. Mr. Clark serves as a Director. Since 1995, Mr. Clark has
been President of Cypress Realty, Inc., a real estate investor and developer
based in Houston, Texas. Previously, Mr. Clark served as Managing Director of
Harvard Private Capital Group where he directed the group responsible for real
estate investment and management activities. Prior to joining Harvard, Mr. Clark
was a partner in Clark-Pilgrim Limited Partnership and in Trammell Crow Company
where he was in charge of office and industrial activities in Philadelphia and
Delaware. Mr. Clark has extensive investment experience in developmental and
distressed real estate assets. He received a Masters in Business Administration
degree from Harvard Business School and received his undergraduate degree from
Duke University. Mr. Clark serves as Chairman of the Board of Abacoa Development
Company.
STEVEN SHULMAN. Mr. Shulman serves as a Director. He served as a Director
of Beacon Properties from 1995 to 1997. Since 1984, Mr. Shulman has been active
in investment banking through his wholly owned company, The Hampton Group, and
Latona Associates, Inc. where he serves as a Managing Director. Currently, Mr.
Shulman is a shareholder and director in a diversified group of companies,
including Ermanco Incorporated, Corinthian Directory, Terrace Holdings, Inc. and
WPI Group, Inc. In addition, he serves as Non-executive Chairman of Terrace
Holdings, Inc. Mr. Shulman is a graduate of Stevens Institute of Technology
where he received a Bachelor's degree in Mechanical Engineering and a Master's
degree in Industrial Management. Mr. Shulman serves as Vice Chairman of the
Board of Stevens Institute of Technology.
SCOTT M. SPERLING. Mr. Sperling serves as a Director. He served as a
Director of Beacon Properties from 1994 to 1997. Mr. Sperling joined Thomas H.
Lee Co., a Boston-based investment firm, as a general partner in September 1994.
Previously, Mr. Sperling served as Managing Partner and Vice Chairman of the
Aeneas Group, Inc./Harvard Management Company from 1984 through 1994. Mr.
Sperling has been the founder and/or lead investor of numerous companies and has
led the acquisition or turnaround of companies in a wide variety of industries.
He is currently a director of Livent, PriCellular Corporation, Softkey, The
Learning Company, General Chemical Group, Object Design, Inc. and several
private firms. He received a Master's of Business Administration degree from the
Harvard Business School and received his undergraduate degree from Purdue
University. Mr. Sperling is a member of the Corporation of the Brigham and
Women's Hospital and a director of the American Technion Society.
OTHER PROFESSIONALS
MICHAEL J. BOWLER. Mr. Bowler serves as Director of Financial Analysis for
Beacon Capital Partners. Before joining the company, Mr. Bowler served as the
Director of Financial Analysis for Beacon Properties Corporation where he was
responsible for all acquisition, asset management and development financial
analysis. Prior to joining Beacon, Mr. Bowler was an Assistant Vice President at
Northland Investment Corporation where he held a variety of financial and
accounting positions from 1982 to 1994.
35
Mr. Bowler is a graduate of Bentley College where he received a Bachelor of
Science degree in Accounting.
NANCY J. BRODERICK. Ms. Broderick serves as Vice President and Treasurer.
Before joining the Company, Ms. Broderick served as Vice President and Treasurer
for Beacon Properties where she was responsible for a variety of corporate
finance and treasury functions, including key banking and institutional lender
relationships as well as administration of Beacon Properties' credit facility.
Ms. Broderick holds a Bachelor of Science degree in Accounting from Stonehill
College and a Master of Science degree in Taxation from Bentley College. She is
a certified public accountant and a member of the American Institute of
Certified Public Accountants and the Massachusetts Society of Public
Accountants.
JEFFREY D. BROWN. Mr. Brown serves as Acquisition Manager. Before joining
the Company, Mr. Brown was a Financial Analyst at Beacon Properties, where he
was responsible for the analysis and underwriting of investment opportunities.
Mr. Brown was a Consultant with E&Y Kenneth Leventhal Real Estate Group from
1994 to 1996, where he was responsible for valuation analysis and due diligence
assignments for various clients. Mr. Brown holds a Bachelor of Science degree
from Cornell University.
DAVID L. COHAN. Mr. Cohan serves as Vice President. Prior to joining the
Company, Mr. Cohan served as a Senior Acquisition Manager at Beacon Properties.
Before joining Beacon Properties, Mr. Cohan held operations, planning and asset
management positions at Copley Real Estate Advisors in Boston. He has also had
project management roles for firms developing retail, resort, waterfront,
residential, and industrial projects throughout the continental United States
and Hawaii. Mr. Cohan holds a Master of Science degree in Real Estate
Development from the Massachusetts Institute of Technology Center for Real
Estate where he also served as a teaching and research assistant in recent
years. He has a Bachelor's degree in English writing from the University of
Pennsylvania.
LISA A. MEOMARTINO. Ms. Meomartino serves as Corporate Controller for
Beacon Capital Partners. Prior to joining the Company, Ms. Meomartino served as
Director of Property Accounting for Beacon Properties Corporation where she
managed the financial reporting, accounting systems administration and lease
administration functions for 21.3 million square feet of commercial office
buildings. She joined Beacon in 1985 and has held various corporate and property
accounting positions. Ms. Meomartino holds a BS in Business Administration from
Bryant College and a MS in Finance from Boston College.
JENNIFER L. PLUMPTON. Ms. Plumpton serves as a Financial Analyst. Before
joining the Company, Ms. Plumpton was a Financial Analyst at Morgan Stanley
Realty Incorporated, where she was responsible for the analysis and execution of
securities offerings, mergers, acquisitions and asset sales for real estate
investment trusts and real estate operating companies. Ms. Plumpton holds a
Bachelor's degree in Mathematics from Providence College.
THOMAS RAGNO. Mr. Ragno serves as Vice President, Management and Leasing.
Prior to joining the Company, Mr. Ragno served as Vice President, Property
Management of Beacon Properties where he directly supervised property management
operations in the metro-Boston region consisting of approximately 8.0 million
square feet and 170 employees. Mr. Ragno joined Beacon Properties in 1987 and
has held various positions in leasing and project management. Mr. Ragno holds an
S.M. in Civil Engineering from the Massachusetts Institute of Technology and a
Bachelor of Science degree in Civil Engineering and Engineering & Public Policy
from Carnegie-Mellon University.
STEPHEN A. STANLEY. Mr. Stanley serves as Director of Information
Technology for Beacon Capital Partners. Prior to joining the Company, Mr.
Stanley was the Director of Technical Services for Beacon Properties Corporation
from 1994 to 1997. Prior to joining Beacon, Mr. Stanley was Manager of
Information Systems at First Winthrop Corporation. Mr. Stanley is a graduate of
the University of Maine where he received a Bachelor of Science degree with a
concentration in Finance.
36
M. WISTAR WOOD. Mr. Wood serves as Vice President, Acquisitions. Prior to
joining the Company he served as Vice President, Acquisitions for Beacon
Properties Corporation, where he managed the search and negotiations for
ownership opportunities. Prior to joining Beacon in February 1997, Mr. Wood
served as Vice President of Acquisitions for Metric Realty from 1995 to 1997 and
oversaw all acquisition activity in a 26-state territory. Prior to joining
Metric in 1995, he was with Copley Real Estate Advisors, responsible for
acquisitions and sales. Mr. Wood is a graduate of Princeton University and holds
a MBA from the Wharton School, University of Pennsylvania. He is the founder of
REIAC's Northeast Chapter, and a member of ICSC.
BOARD OF DIRECTORS AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Board of Directors is divided into three classes of directors. The
initial terms of the first, second and third classes will expire in 1999, 2000
and 2001, respectively. Beginning in 1999, directors of each class will be
chosen for three-year terms upon the expiration of their current terms and each
year one class of directors will be elected by the stockholders. All officers
serve at the discretion of the Board of Directors. Each of the Independent
Directors of the Company receive an annual director's fee of $20,000. Each
Independent Director also receives $1,000 for each regular quarterly or special
meeting of the Board of Directors attended, $1,000 for each committee meeting
attended and $250 for each special telephonic committee meeting or meeting of
the Board of Directors in which such Independent Director has participated.
Independent Directors are also reimbursed for reasonable expenses incurred to
attend director and committee meetings. Independent Directors may make an
election, subject to approval of the Board's Compensation Committee, to receive
options to purchase Common Stock at a discount to fair market value in lieu of
cash fees or to receive deferred stock units. Officers of the Company who are
Directors will not be paid any directors' fees. Independent Directors receive,
upon initial election to the Board of Directors, an option to purchase 5,000
shares of Common Stock, and annually thereafter will receive an option to
purchase 5,000 shares of Common Stock. All options granted to Independent
Directors vest on the date of grant.
The Charter of BCP provides that, except in the case of a vacancy, a
majority of the members of the Board of Directors will be Independent Directors.
Vacancies occurring on the Board of Directors among the Independent Directors
will be filled by the vote of a majority of the Directors, including a majority
of the Independent Directors. The Compensation Committee will consist solely of
Independent Directors, except that Mr. Leventhal or his designee may serve as an
EX OFFICIO, non-voting member of the Compensation Committee.
The Maryland General Corporation Law (the "MGCL") permits a corporation to
include in its charter a provision limiting the liability of directors and
officers to the corporation or its stockholders for money damages, except (i) to
the extent that it is proved that the director or officer actually received an
improper benefit or profit in money, property or services or (ii) if a judgment
or other final adjudication is entered in a proceeding based on a finding that
the director's or officer's action or failure to act was the result of active
and deliberate dishonesty and was material to the cause of action adjudicated in
the proceeding. The Charter limits the liability of the Board of Directors and
officers to the Company to the fullest extent permitted from time to time by
Maryland law. See "Certain Provisions of Maryland Law and BCP's Charter and of
Bylaws--Limitation of Liability and Indemnification."
The Charter of the Company authorizes it, to the maximum extent permitted by
Maryland law, to obligate itself to indemnify and to pay or reimburse reasonable
expenses in advance of final disposition of a proceeding to (a) any present or
former director or officer or (b) any individual who, while a director of the
Company and at the request of the Company, serves or has served another
corporation, REIT, partnership, joint venture, trust, employee benefit plan or
any other enterprise as a director, officer, partner or trustee of such
corporation, REIT, partnership, joint venture, trust, employee benefit plan or
other enterprise from and against any claim or liability to which such person
may become subject or which such person may incur by reason of his or her status
as a present or former director or officer of the
37
Company. The Bylaws of the Company obligate it, to the maximum extent permitted
by Maryland law, to indemnify and to pay or reimburse reasonable expenses in
advance of final disposition of a proceeding to (a) any present or former
director or officer who is made a party to the proceeding by reason of his
service in that capacity or (b) any individual who, while a director of the
Company and at the request of the Company, serves or has served another
corporation, REIT, partnership, joint venture, trust, employee benefit plan or
any other enterprise as a director, officer, partner or trustee of such
corporation, REIT, partnership, joint venture, trust, employee benefit plan or
other enterprise and who is made a party to the proceeding by reason of his
service in that capacity. The Charter and Bylaws also permit the Company to
indemnify and advance expenses to any person who served a predecessor of the
Company in any of the capacities described above and to any employee or agent of
the Company or a predecessor of the Company.
The MGCL requires a corporation (unless its charter provides otherwise,
which the Company's Charter does not) to indemnify a director or officer who has
been successful, on the merits or otherwise, in the defense of any proceeding to
which he is made a party by reason of his service in that capacity. The MGCL
permits a corporation to indemnify its directors, officers and certain other
parties against judgments, penalties, fines, settlements and reasonable expenses
actually incurred by them in connection with any proceeding to which they may be
made a party by reason of their service to, or at the request of, the
corporation, unless it is established that (a) the act or omission of the
indemnified party was material to the matter giving rise to the proceeding and
(i) the act or omission was committed in bad faith or (ii) the act or omission
was the result of active and deliberate dishonesty, (b) the indemnified party
actually received an improper personal benefit in money, property or services or
(c) in the case of any criminal proceeding, the indemnified party had reasonable
cause to believe that the act or omission was unlawful. However, under the MGCL,
a Maryland corporation may not indemnify for an adverse judgment in a suit by or
in the right of the corporation or for a judgment of liability on the basis that
personal benefit was improperly received, unless in either case a court orders
indemnification and then only for expenses. In addition, the MGCL permits a
corporation to advance reasonable expenses to a director or officer upon the
corporation's receipt of (a) a written affirmation by the director or officer of
his good faith belief that he has met the standard of conduct necessary for
indemnification by the corporation and (b) a written undertaking by him or on
his behalf to repay the amount paid or reimbursed by the corporation if it shall
ultimately be determined that the standard of conduct was not met. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or persons controlling BCP pursuant to the
foregoing provisions, BCP has been informed that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
38
MANAGEMENT COMPENSATION
The Company intends to initially provide each executive officer at the
Senior Vice President level with the same annual salary. In addition, the
Company has awarded certain stock options and anticipates that it may (i) award
bonus compensation for certain members of senior management and (ii) at the
discretion of Messrs. Leventhal and Fortin and, with the advice of the
Compensation Committee, certain members of senior management may be eligible to
participate in the Incentive Return. See "--Long-Term Incentive Plan." The
following table sets forth certain information about the expected compensation
of the executive officers of the Company.
NAME ANNUAL SALARY STOCK OPTIONS GRANTED
- ---------------------------------------------------- ------------- ---------------------
Alan M. Leventhal................................... $ 200,000 500,000(1)
Lionel P. Fortin.................................... $ 200,000 500,000(2)
Erin R. O'Boyle..................................... $ 125,000 175,000
William A. Bonn..................................... $ 125,000 150,000
Randy J. Parker..................................... $ 125,000 150,000
Jeremy B. Fletcher.................................. $ 125,000 125,000
John Halsted........................................ $ 125,000 125,000
Douglas S. Mitchell................................. $ 125,000 125,000
E. Valjean Wheeler.................................. $ 125,000 125,000
- ------------------------
(1) Includes stock options granted to Mr. Leventhal and subsequently transferred
to a trust, of which Mr. Leventhal is a beneficiary.
(2) Includes stock options granted to Mr. Fortin and subsequently transferred to
a trust, of which Mr. Fortin's wife is a trustee.
LONG-TERM INCENTIVE PLAN
The Company's compensation and incentive plans will be designed to align the
interests of the Company's executive management with the interests of the
Company's stockholders. The Company's Long-Term Incentive Plan is designed to
reward certain members of management for growth of the Company's Funds from
Operations in excess of a specified benchmark as described below. If the
Company's Funds from Operations exceeds this benchmark, management will be
entitled to receive an incentive return determined in the manner described below
(the "Incentive Return"), which shall be calculated at the end of the three year
period following the completion of the first calendar year following the Closing
(the "Determination Date").
The Incentive Return shall equal the product of (A) 12% of the dollar amount
by which (i) the Actual Return exceeds (ii) the Base Return; multiplied by (B)
the weighted average of shares of Common Stock and Units outstanding for the 12
months immediately preceding the Determination Date; multiplied by (C) the
Company's Multiple (as defined below).
For the purposes of calculating the Incentive Return:
"Actual Return" means the Funds from Operations (before the Incentive
Return) of the Company per share of Common Stock and per Unit for the 12
months immediately preceding the Determination Date;
"Base Return" means an amount equal to what the Company's Funds from
Operations would have been for the twelve month period immediately preceding
the Determination Date assuming a benchmark cumulative rate of return on the
Offering Price equal to 10% per annum, compounding quarterly, calculated
since the beginning of the calendar quarter following the date of Closing.
39
"Funds from Operations", as defined by NAREIT, means net income
(computed in accordance with GAAP), excluding gains (or losses) from debt
restructuring and sales of property, plus depreciation and amortization (in
each case, only real estate-related assets), and after adjustments for
unconsolidated partnerships and joint ventures; and
"Multiple" means the price of the Company's Common Stock (as defined
below) divided by the Company's Funds from Operations per share for the
fiscal quarter ending on the Determination Date on an annualized basis.
For the purposes of calculating the Multiple, the price of the Company's
Common Stock will be calculated as follows:
(1) where there exists a public market for the Company's Common Stock,
the price of the Company's Common Stock will be the average of the closing
bid and asked prices of the Common Stock quoted in the Over-The-Counter
Market Summary or the last reported sale price of the Common Stock or the
closing price quoted on the NASDAQ System or on any exchange on which the
Common Stock is listed, whichever is applicable, as published in THE WALL
STREET JOURNAL for the 90 calendar days prior to the calculation of the
Multiple.
(2) if no public market for the Common Stock exists at the time of such
exercise, the price of the Company's Common Stock will be determined by a
single, independent appraiser to be selected by a committee composed of
Independent Directors, which appraiser shall appraise the fair market value
of one share of the Company's Common Stock within 30 days of its selection
within such guidelines as shall be determined by the committee of
Independent Directors.
The right to receive the Incentive Return, in the event of a change in
control of the Company (as such term is defined in the Operating Partnership
Agreement), shall automatically accelerate and the determination of the
Incentive Return shall be appropriately adjusted to reflect such acceleration as
determined by the Company's Compensation Committee. The Company anticipates that
the mechanism by which the Incentive Return will be adjusted as a result of a
change of control shall be established by the Compensation Committee in advance
of any such event.
The Long-Term Incentive Plan will take the form of a Convertible Unit which
will be issued to the BCP Affiliate in connection with the Closing of this
Offering for no additional consideration. The Convertible Unit shall be
convertible at the Determination Date (assuming the Incentive Return has in fact
been earned) into a certain number of Incentive Units with a fair market value
equal to the amount of the Incentive Return. Upon issuance of the Incentive
Units to the BCP Affiliate, the Incentive Units will share equally on a
unit-by-unit basis with the outstanding Units in all distributions by the
Operating Partnership and will be redeemable for cash or, at the election of the
Independent Directors of BCP, exchangeable for shares of Common Stock. See
"Operating Partnership Agreement."
Certain members of the Company's senior management have been, and from time
to time may be, offered the opportunity to acquire equity interests in the BCP
Affiliate. Messrs. Leventhal and Fortin, with the assistance and advice of the
Company's Compensation Committee, shall decide who shall be offered equity
interests in the BCP Affiliate. Members of BCP's senior executive management who
become equity holders of the BCP Affiliate shall be allocated an interest in (i)
the Incentive Return, subject to certain vesting restrictions, and (ii) the
Units held by the BCP Affiliate. On the Determination Date, 50% of each such
equity holders' interests in the Incentive Return shall vest and on the first
anniversary of the Determination Date each equity holders' interests in the
Incentive Return shall be fully vested. An equity holder of the BCP Affiliate
whose employment with the Company terminates prior to full vesting of his or her
interest in the Incentive Return, shall automatically forfeit any such unvested
interest and the general partner of the BCP Affiliate, an entity controlled by
Messrs. Leventhal and Fortin, shall have the authority to reallocate such
interest as they deem appropriate. See "Risk Factors--Economic and Business
Risks-- Conflicts of Interest."
40
There can be no assurance that the Incentive Return, or the stock options or
other rewards pursuant to the Stock Incentive Plan described below, will provide
an incentive to the Company's management to enhance the value of the Common
Stock or, if properly incentivized, that management's efforts will, in fact,
result in the enhancement in value of the Common Stock. In addition, the
Incentive Return, if paid, could substantially reduce cash available for
distribution to stockholders. See "Risk Factors--Economic and Business
Risks--Conflicts of Interest."
Funds from Operations does not represent cash generated from operating
activities in accordance with GAAP and should not be considered as an
alternative to net income as an indication of the Company's performance or to
cash flows as a measure of liquidity or ability to make distributions.
The ability of the Company to generate Funds from Operations in excess of
the Base Return described above and, consequently, the ability of the BCP
Affiliate to earn the Incentive Return described in the preceding paragraph, is
dependent upon the Company's ability to execute successfully the investment
strategies described in this Prospectus, and other factors, many of which are
not within the Company's control.
STOCK INCENTIVE PLAN
The Company has adopted a Stock Incentive Plan, which provides for options
to purchase shares of Common Stock. The Stock Incentive Plan authorizes the
grant of options and other stock-based awards to the Company's executive
officers, Directors and employees and other key persons. The purpose of the
Stock Incentive Plan is to provide a means of performance-based compensation in
order to provide incentive for the members of the Company's management to
enhance the value of BCP's Common Stock.
PLAN ADMINISTRATION; ELIGIBILITY. The Stock Incentive Plan is administered
by the Compensation Committee of the Board of Directors (the "Administrator").
The Administrator will have full power to select, from among the persons
eligible for awards, the individuals to whom awards will be granted, to make any
combination of awards to participants, and to determine the specific terms of
each award, subject to the provisions of the Stock Incentive Plan. Persons
eligible to participate in the Stock Incentive Plan are generally those
executive officers, Independent Directors and employees of the Company and other
key persons who are responsible for or contribute to the management, growth or
profitability of the Company, as selected from time to time by the Administrator
in its sole discretion.
RESERVED SHARES. The maximum number of shares of Common Stock reserved and
available for issuance under the Stock Incentive Plan will be such aggregate
number of shares as does not exceed the sum of (i) 12% of the outstanding equity
interests in the Company (including Common Stock and Units subject to redemption
rights) (as determined as of the Final Original Offering Closing Date) plus (ii)
as of the last business day of each calendar quarter ending after the Final
Original Offering Closing Date, an additional positive number equal to 10% of
any net increase of outstanding equity interests in the Company.
STOCK OPTIONS. The Stock Incentive Plan permits the granting of (i) options
to purchase Common Stock intended to qualify as incentive stock options
("Incentive Options") under Section 422 of the Code and (ii) options that do not
so qualify ("Non-Qualified Options"). The option exercise price of each option
will be determined by the Administrator but may not be less than 100% of the
fair market value of the Common Stock on the date of grant in the case of
Incentive Options, and may not be less than 25% of the fair market value of the
Common Stock on the date of grant in the case of Non-Qualified Options. Plan
participants may elect with the consent of the Administrator, to receive
discounted Non-Qualified Options in lieu of cash compensation. To qualify as
Incentive Options, options must meet additional federal tax requirements,
including limits on the value of shares subject to Incentive Options which first
become
41
exercisable in any one calendar year, and a shorter term and higher minimum
exercise price in the case of certain large stockholders.
The term of each option will be fixed by the Administrator and may not
exceed ten years from date of grant in the case of an Incentive Option. The
Administrator will determine at what time or times each option may be exercised
and, subject to the provisions of the Stock Incentive Plan, the period of time,
if any, after retirement, death, disability or termination of employment during
which options may be exercised. Options may be made exercisable in installments,
and the exercisability of options may be accelerated by the Administrator.
OTHER STOCK BASED GRANTS. The Administrator may also award, subject to such
conditions and restrictions imposed by the Administrator, shares of Common Stock
or Units (or other interests in the Operating Partnership) which may or may not
be subject to a risk of forfeiture; deferred stock units which are ultimately
payable in the form of shares of Common Stock; performance share awards to
participants entitling the participant to receive shares of Common Stock upon
the achievement of individual or Company performance goals; dividend equivalent
rights (which entitle the recipient to receive credits for dividends that would
be paid if the recipient had held specified shares of Common Stock); awards of
capital stock other than Common Stock and other awards that are valued in whole
or in part by reference to or are otherwise based on, Common Stock.
CHANGE OF CONTROL PROVISIONS. The Stock Incentive Plan provides that unless
otherwise provided in the award agreement, all awards becomes fully vested and
non-forfeitable upon a change of control of the Company (as defined in the Stock
Incentive Plan).
AMENDMENTS AND TERMINATION. The Board of Directors may amend or terminate
the Stock Incentive Plan at any time, except that approval by BCP's stockholders
is required for such amendments or termination to the extent the Board of
Directors determines that such approval is necessary or desirable in order to
meet certain exceptions under securities, tax and other applicable laws.
EMPLOYMENT AGREEMENTS; COVENANTS NOT TO COMPETE
Messrs. Leventhal and Fortin have entered into employment agreements (the
"Employment Agreements") with the Company. The Employment Agreements, which are
for a term of three years from the Closing Date of the Original Offering ,
contain non-competition, change in control and other provisions customary for
senior executives of publicly-traded REITs. See "--Management Compensation."
CREDIT FACILITY
The Company intends to obtain a commitment from a lender to enter into a
credit facility (the "Credit Facility") to provide the Company with an available
source of debt financing. See "Risk Factors-- Investment Activity Risks--Real
Estate Financing Risks" and "Plan of Distribution."
CERTAIN RELATIONSHIPS; CONFLICTS OF INTEREST
Messrs. Leventhal and Fortin have formed the BCP Affiliate and have offered
equity interests in the BCP Affiliate to certain members of the Company's senior
management. In addition, Messrs. Leventhal and Fortin, individually and through
the BCP Affiliate, have purchased, directly from the Company and the Operating
Partnership, a combination of shares of Common Stock and Units for an aggregate
purchase price of approximately $15 million, representing approximately 4% of
the equity interests in the Company on a fully diluted basis. In addition, the
Company has established the Long-Term Incentive Plan to align the interests of
management with the interests of the Company's stockholders, pursuant to which
the BCP Affiliate has been issued, for no additional consideration, a
Convertible Unit of the Operating Partnership. Provided that the Incentive
Return has, in fact, been earned, at the end of the three year period following
42
the completion of the first calendar year following the Closing Date of the
Original Offering, the Convertible Unit will convert into a certain number of
Incentive Units with a fair market value equal to the Incentive Return. See "The
Company--Long-Term Incentive Plan" and "Risk Factors--Economic and Business
Risks--Conflicts of Interest." The BCP Affiliate has been granted certain
registration rights with respect to any Common Stock issuable upon an exchange
of Units and Incentive Units held by the BCP Affiliate. See "Description of
Securities--Registration Rights." BCP's senior management, by holding equity
interests in the BCP Affiliate, will be able to participate in the Incentive
Return subject to certain vesting restrictions. See "The Company--Long-Term
Incentive Plan" and "Risk Factors--Economic and Business Risks--Conflicts of
Interest."
After the formation of the BCP Sister Corp. and the distribution of the BCP
Sister Corp.'s equity interests to the partners and stockholders of the Company,
the BCP Sister Corp. will rely on the Company to provide it investments. The
Company expects that the provisions in the BCP Sister Corp.'s formation
documents will (i) provide that the BCP Sister Corp. will enter into
transactions with the Company to the extent deemed beneficial by their
respective boards of directors (and the Company may enter into an intercompany
agreement with the BCP Sister Corp. with respect thereto) and (ii) generally
prohibit the BCP Sister Corp. from engaging in activities or making investments
appropriate for a REIT (for a specified time period) unless the Company was
first given the opportunity to do so but elected not to do so. While it is the
Company's intention that the Company and the BCP Sister Corp. have separate
boards of directors, to the extent that there is overlap, the Board of Directors
may be subject to various potential conflicts of interest as a result of the
relationships with the BCP Sister Corp. and the Company. See "Risk
Factors--Investment Activity Risks--Conflicts of Interest." In addition, to the
extent that the BCP Sister Corp. requires separate financing arrangements,
conflicts may arise between the BCP Sister Corp. and the Company to the extent
that the BCP Sister Corp. has difficulty obtaining or maintaining such
financing. See "Risk Factors--Economic and Business Risks--BCP Sister Corp. Will
Have Separate Financing."
Certain properties held by Beacon Properties that were not contributed to
Beacon Properties Corporation upon its formation as a public company were
retained by The Beacon Companies, a privately-held company. Edwin Sidman,
brother-in-law of Alan M. Leventhal and former Chairman of the Board of Beacon
Properties, is the President of The Beacon Companies. Although the Company does
not believe that the assets of the Beacon Companies are of a kind that would be
considered for investment by the Company, there may exist conflicts of interest
between The Beacon Companies and the Company as a result of the relationship
between the managements of these entities.
The market in which the Company expects to purchase assets is characterized
by rapid evolution of products and services and, thus, there may in the future
be relationships between the Company and the BCP Sister Corp. and its
affiliates, in addition to those described herein.
43
USE OF PROCEEDS
The Selling Stockholders will receive all of the proceeds from the sale of
the Offered Securities offered hereby. The Company will not receive any of the
proceeds from the sale by the Selling Stockholders of the Offered Securities.
DISTRIBUTION POLICY
In order to avoid corporate income taxation on the earnings that it
distributes, BCP must distribute to its stockholders an amount at least equal to
(i) 95% of its REIT taxable income (determined before the deduction for
dividends paid and excluding any net capital gain) plus (ii) 95% of the excess
of its net income from foreclosure property over the tax imposed on such income
by the Code less (iii) any excess noncash income (as determined under the Code).
See "Federal Income Tax Considerations." The actual amount and timing of
distributions, however, will be at the discretion of the Board of Directors and
will depend upon the financial condition of BCP in addition to the requirements
of the Code.
Subject to the distribution requirements referred to in the immediately
preceding paragraph, BCP intends, to the extent practicable, to invest
substantially all of the principal from repayments, sales and refinancings of
the Company's assets in Assets. BCP may, however, under certain circumstances,
make a distribution of principal or of assets. Such distributions, if any, will
be made at the discretion of BCP's Board of Directors.
It is anticipated that distributions generally will be taxable as ordinary
income to non-tax exempt stockholders of BCP, although a portion of such
distributions may be designated by BCP as long-term capital gain or may
constitute a return of capital. BCP will furnish annually to each of its
stockholders a statement setting forth distributions paid during the preceding
year and their federal income tax status. For a discussion of the federal income
tax treatment of distributions by BCP, see "Federal Income Tax
Considerations--Taxation of the Company" and "--Taxation of Taxable U.S.
Stockholders."
The declaration and payment of dividends by the BCP Sister Corp. will be
made by the BCP Sister Corp.'s board of directors from time to time based on
such considerations as the BCP Sister Corp.'s board of directors deems relevant,
will be payable only out of funds legally available therefor under the laws of
the state of formation of the BCP Sister Corp. and will be subject to any
limitations which may be contained in the debt instruments of the BCP Sister
Corp. See "Risk Factors--Economic and Business Risks--Conflicts of Interest."
44
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of June 1, 1998, the total number of
shares of Common Stock beneficially owned, and the percent so owned, by (i) each
person known by BCP to own more than 5% of the Common Stock, (ii) each of BCP's
directors and executive officers and (iii) all directors and executive officers
as a group.
AMOUNT AND NATURE
OF BENEFICIAL
OWNERSHIP(2)
---------------------
NAME AND ADDRESS OF BENEFICIAL OWNER(1) NUMBER PERCENT
- -------------------------------------------------------------- ---------- ---------
Wellington Management Company................................. 2,300,000 10.9%(3)
Southeastern Asset Management................................. 2,075,000 9.8%
RREEF Venture Capital Fund LP................................. 1,650,000 7.8%
875 N. Michigan Avenue
Chicago, IL 60611
ABKA/Lasalle.................................................. 1,337,500 6.3%
Alan M. Leventhal............................................. 591,312 2.8%(4)
c/o Beacon Capital Partners
One Federal Street, 26th Floor
Boston, MA 02110
Lionel P. Fortin.............................................. 271,040 1.2%(5)
c/o Beacon Capital Partners
One Federal Street, 26th Floor
Boston, MA 02110
Jeremy Fletcher............................................... 10,723 *(6)
c/o Beacon Capital Partners
One Federal Street, 26th Floor
Boston, MA 02110
Douglas Mitchell.............................................. 5,361 *
c/o Beacon Capital Partners
One Federal Street, 26th Floor
Boston, MA 02110
Erin O'Boyle.................................................. 2,000 *
c/o Beacon Capital Partners
One Federal Street, 26th Floor
Boston, MA 02110
45
AMOUNT AND NATURE
OF BENEFICIAL
OWNERSHIP(2)
---------------------
NAME AND ADDRESS OF BENEFICIAL OWNER(1) NUMBER PERCENT
- -------------------------------------------------------------- ---------- ---------
Nancy J. Broderick............................................ 1,350 *
c/o Beacon Capital Partners
One Federal Street, 26th Floor
Boston, MA 02110
Randy Parker.................................................. 1,340 *
c/o Beacon Capital Partners
One Federal Street, 26th Floor
Boston, MA 02110
E. Valjean Wheeler............................................ 1,340 *
c/o Beacon Capital Partners
One Federal Street, 26th Floor
Boston, MA 02110
William A. Bonn............................................... 1,000 *
c/o Beacon Capital Partners
One Federal Street, 26th Floor
Boston, MA 02110
All Directors and Executive Offices as a Group
(12 persons)................................................ 885,466 4.1%(4)(5)(6)
- ------------------------
* Less than one percent
(1) All information has been determined as of June 1, 1998. For the purposes of
this table, a person is deemed to have "beneficial ownership" of the number
of shares of Common Stock that person has the right to acquire pursuant to
the exercise of stock options or redemption of Operating Partnership Units
(assuming the Company elects to issue Common Stock rather than pay cash upon
such redemption) held by such person or an affiliate of such person.
(2) For the purpose of computing the percentage of outstanding shares of Common
Stock held by each person, any shares of Common Stock which such person has
the right to acquire pursuant to the exercise of a stock option or upon the
redemption of Operating Partnership Units is deemed to be outstanding, but
is not deemed to be outstanding for the purpose of computing the percent
ownership of any other person.
(3) Includes shares held by 2 separate stockholders which the Company believes
to be controlled by Wellington Management Company.
(4) Includes Operating Partnership Units held indirectly by a trust, of which
Mr. Leventhal is a beneficiary.
(5) Includes Operating Partnership Units held indirectly by a trust, of which
Mr. Fortin's wife is a trustee.
(6) Includes shares of Common Stock held by a trust, of which Mr. Fletcher is a
trustee.
46
PRICE RANGE OF COMMON STOCK
There is no established market for the Common Stock, which is not listed on
any securities exchange, and trading in the Common Stock has not been quoted on
any interdealer or over-the-counter bulletin board since the Original Offering.
As of June 1, 1998, the Company believes there to be approximately 354 holders
of record of BCP's Common Stock.
CAPITALIZATION
The following table sets forth the capitalization of BCP as of March 31,
l998, and on a pro forma basis to reflect the Pro Forma Transactions (as defined
under "Selected Historical and Unaudited Pro Forma Financial Data"):
ACTUAL PRO FORMA
---------- -----------
(IN THOUSANDS)
Loans payable--affiliate.............................................. $ 3,560 $ 3,560
Minority interest..................................................... 4,200 4,200
Common stock; $.01 par value, 500,000,000 shares authorized,
17,360,769 and 20,973,932 shares issued and outstanding and adjusted
pro forma........................................................... 174 210
Additional paid-in capital............................................ 322,936 390,085
Accumulated deficit................................................... (387) (387)
---------- -----------
Total........................................................... $ 330,483 $ 397,668
---------- -----------
---------- -----------
47
SELECTED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA
The selected historical financial data set forth below presents the
historical financial data of BCP as of March 31, l998 and for the period from
January 21, l998 (BCP's inception) through March 31, l998. The selected pro
forma financial data of BCP set forth below assumes that BCP will qualify as a
REIT and gives effect to (i) the issuance of 3,613,163 shares of Common Stock
subsequent to March 31, l998, (ii) the acquisition of The Athenaeum Portfolio,
and the subsequent formation of a 50% joint venture, and (iii) the pending
acquisition of Technology Square and The Draper Building (collectively, the "Pro
Forma Transactions"). The selected pro forma income statement data assumes the
Pro Forma Transactions occurred on January 1, l998, and the selected pro forma
balance sheet data assumes the Pro Forma Transactions occurred on March 31,
l998. The selected pro forma financial data are not necessarily indicative of
what the actual financial position or results of operations of BCP would have
been as of or for the period ended March 31, l998, nor do they purport to be
indicative of the financial position or results of operations for future
periods. The selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," BCP's historical financial statements and notes thereto and BCP's
unaudited pro forma financial statements and notes thereto, each included
elsewhere herein.
AS OF AND FOR THE
PERIOD
ENDED MARCH 31, L998
-----------------------
HISTORICAL PRO FORMA
---------- -----------
(IN THOUSANDS, EXCEPT
FOR PER SHARE DATA)
Income Statement Data:
Revenues............................................................ $ 584 $ 3,468
Net Income (loss)................................................... (387) 973
Net Income (loss) per common share.................................. (.02) 0.05
Balance Sheet Data:
Real estate......................................................... -- 123,000
Investment in and advance to joint venture.......................... -- 63,000
Total assets........................................................ 331,870 399,055
48
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following should be read in conjunction with the Consolidated Financial
Statements and notes thereto of BCP and the unaudited Pro Forma Condensed
Consolidated Financial Statements of BCP, each contained elsewhere herein. The
Consolidated Financial Statements of the Company include BCP and the Operating
Partnership, its majority-owned subsidiary. Due to its recent formation and the
relatively short period of operations presented in the Consolidated Financial
Statements, Management does not believe that the information presented therein
is indicative of expected financial performance.
LIQUIDITY AND CAPITAL RESOURCES
BCP was incorporated on January 21, 1998 as a Massachusetts corporation and
was initially capitalized through loans payable from the Company's founders,
Messrs. Leventhal and Fortin, in the amount of $3.6 million. Subsequent to March
31, 1998, Messrs. Leventhal and Fortin were repaid.
On March 20, 1998, the Company completed an initial private offering
("Original Offering") and issued 17,360,769 shares of Common Stock. The proceeds
of the Original Offering, net of offering costs were $323.1 million. The
Company's primary source of liquidity at March 31, 1998 was cash and cash
equivalents in the amount of $323.9 million. Subsequent to March 31, 1998,
through the exercise of the underwriter's over-allotment, 3,613,163 additional
shares were issued with proceeds, net of offering costs of $67.2 million.
In connection with the re-incorporation of BCP as a Maryland corporation,
BCP established Beacon Capital Partners L.P., (the "Operating Partnership"). As
contemplated in the Original Offering, a contribution of $4.2 million was due
from an entity controlled by Messrs. Leventhal and Fortin to the Operating
Partnership for a 1% limited partnership interest. For technical reasons, such
contribution could only be made subsequent to the closing of the first real
estate transaction of the Company. The $4.2 million contribution was made on May
4, 1998.
On May 1, 1998, the Company acquired The Athenaeum Portfolio, an 11
building, 970,000 square foot mixed use portfolio located in Cambridge, MA. The
purchase price was $195 million, including the assumption of approximately $69
million of first mortgage debt. Subsequent to the closing of the transaction,
the Company completed the formation of a joint venture with an affiliate of
PaineWebber, in which both parties hold a 50% equity interest in the properties.
On April 22, 1998, the Company entered into a purchase and sale agreement
with The Prudential Insurance Company of America ("Prudential") to acquire a
four building complex known as Technology Square and an adjacent building known
as The Draper Building. The properties are located in Cambridge, MA and consist
of approximately 1,026,000 square feet. The purchase price for the properties
under the purchase and sale agreement is $123 million. The Company and
Prudential are currently negotiating the form of consideration for the
acquisition.
The Company expects that capital needs for additional real estate and real
estate related investments would be met through a combination of proceeds from
the offering, net cash provided by operations, secured and unsecured borrowings
and the issuance of additional Operating Partnership Units.
RESULTS OF OPERATIONS
The Company's principal source of income for the period ended March 31, 1998
was interest earned on its invested cash and cash equivalents in the amount of
$.6 million.
49
DESCRIPTION OF SECURITIES
The following description of the terms of the stock of BCP does not purport
to be complete and is subject to and qualified in its entirety by reference to
the Charter and the Bylaws, copies of which are available upon request to the
Company. See "Certain Provisions of Maryland Law and of BCP's Charter and
Bylaws."
GENERAL
The Charter provides that BCP has the authority to issue up to 950,000,000
shares of stock, consisting of 500,000,000 shares of Common Stock, $.01 par
value per share, 250,000,000 shares of excess stock, $.01 par value per share
("Excess Stock") and 200,000,000 shares of preferred stock, $.01 par value per
share ("Preferred Stock"). As of June 1, 1998, 20,973,932 shares of Common Stock
are issued and outstanding and no shares of Excess Stock or Preferred Stock are
issued and outstanding. Under Maryland law, stockholders generally are not
liable for the corporation's debts or obligations.
COMMON STOCK
Subject to the preferential rights of any other class or series of stock and
to the provisions of the Charter regarding Excess Stock, holders of shares of
Common Stock are entitled to receive dividends on such Common Stock if, as and
when authorized and declared by the Board of Directors of BCP out of assets
legally available therefor and to share ratably in the assets of BCP 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 BCP.
Subject to the provisions of the Charter 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, except
as otherwise required by law and except as provided with respect to any other
class or series of stock, the holders of such shares 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 shares
of Common Stock can elect all of the directors then standing for election and
the holders of the remaining shares of Common Stock will not be able to elect
any Directors.
Holders of shares of Common Stock have no preference, conversion, exchange,
sinking fund, redemption or appraisal rights (except as provided by Maryland
law) and have no preemptive rights to subscribe for any securities of the
Company. Subject to the provisions of the Charter regarding Excess Stock, shares
of Common Stock will have equal dividend, liquidation and other rights.
Under the MGCL, a Maryland corporation generally cannot dissolve, amend its
charter, merge, sell all or substantially all of its assets, engage in a share
exchange or engage in similar transactions outside the ordinary course of
business unless approved by the affirmative vote of stockholders holding at
least two thirds of the shares entitled to vote on the matter unless a different
percentage (but not less than a majority of all of the votes entitled to be cast
on the matter) is set forth in the corporation's charter. The Charter of BCP
does not provide for a different percentage in such situations, except for
certain amendments to the Charter. See "Certain Provisions of Maryland Law and
BCP's Charter and Bylaws-- Amendment of Charter and Bylaws.
PREFERRED STOCK
The Charter authorizes the Board of Directors to classify any unissued
shares of Preferred Stock and to reclassify any previously classified but
unissued shares of Preferred Stock of any series, as authorized by the Board of
Directors. Prior to issuance of shares of each class or series, the Board is
required by the MGCL and the Charter to fix, subject to the provisions of the
Charter regarding Excess Stock, the preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends or other
50
distributions, qualifications and terms or conditions of redemption for each
such class or series. Such rights, powers, restrictions and limitations could
include the right to receive specified dividend payments and payments on
liquidation prior to any such payments being made to the holders of some, or a
majority, of the Common Stock. The Board of Directors could authorize the
issuance of Preferred Stock with terms and conditions that could have the effect
of discouraging a takeover or any other transaction that holders of Common Stock
might believe to be in their best interests or in which holders of some, or a
majority, of the Common Stock might receive a premium for their shares over the
then current market price of such shares. As of the date hereof, no shares of
Preferred Stock are outstanding and BCP has no present plans to issue any
Preferred Stock.
POWER TO ISSUE ADDITIONAL SHARES OF COMMON STOCK AND PREFERRED STOCK
BCP believes that the power of the Board of Directors to issue additional
authorized but unissued shares of Common Stock or Preferred Stock and to
classify or reclassify unissued shares of Common or Preferred Stock and
thereafter to cause BCP to issue such classified or reclassified shares of stock
will provide BCP with increased flexibility in structuring possible future
financings and acquisitions and in meeting other needs which might arise. The
additional classes or series, as well as the Common Stock, will be available for
issuance without further action by BCP's stockholders, unless such action is
required by applicable law or the rules of any stock exchange or automated
quotation system on which BCP's securities may be listed or traded. Although the
Board of Directors has no intention at the present time of doing so, it could
authorize BCP to issue a class or series that could, depending upon the terms of
such class or series, delay, defer or prevent a transaction or a change in
control of BCP that might involve a premium price for holders of Common Stock or
otherwise be in their best interest.
DIVIDEND REINVESTMENT PLAN
BCP may implement a dividend reinvestment plan whereby stockholders may
automatically reinvest their dividends in the Common Stock. Details about any
such plan would be sent to BCP's stockholders following adoption thereof by the
Board of Directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is EquiServe (the
"Transfer Agent") in Boston, Massachusetts.
TRANSFER RESTRICTIONS
RESTRICTIONS UNDER CHARTER. 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 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 for which an election to be a
REIT has been made) (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 for which an
election to be a REIT has been made) or during a proportionate part of a shorter
taxable year. See "Federal Income Tax Considerations." 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 Charter, subject to certain exceptions, provides that no
single person (which may include certain "groups" of persons) may "beneficially
own" more than 9.8% (the "Aggregate Stock Ownership Limit") of the aggregate
number of outstanding shares of any class or series of stock; provided, however,
that certain mutual funds registered under the Investment Company Act of 1940
and certain other widely-held entities (other than pension plans as described in
Section 401(a) of the Code) ("Look-Through Entities") may "beneficially own" no
more than 15% (the "Look-Through Ownership Limit"). Under the Charter, a person
generally "beneficially owns" shares if (i) such person has direct ownership of
such
51
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.
Any transfer of shares of stock or of any security convertible into shares of
stock that would create a direct or indirect ownership of shares of stock in
excess of the Aggregate Stock Ownership Limit or the Look-Through 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 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 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, upon
receipt of a ruling from the Service or an opinion of counsel or other evidence
or undertakings acceptable to it, may, in its sole discretion, waive the
Aggregate Stock Ownership Limit and the Look-Through 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 or cause the Company to
be a "pension-held REIT" for federal income tax purposes and the Board of
Directors otherwise decides that such action is in the best interest of the
Company.
If any purported transfer of stock of the Company or any other event would
otherwise result in any person violating the Aggregate Stock Ownership Limit or
the Look-Through Ownership Limit, as applicable, or the Charter, then any such
purported transfer will be void and of no force or effect with respect to the
purported transferee (the "Prohibited Transferee") as to that number of shares
in excess of the 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 title 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
Charter) prior to the date of such violative transfer. As soon as practical
after the transfer of shares to the trust but in an orderly fashion so as not to
materially adversely affect the trading price of the Common Stock, 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 or devise), 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.
The Prohibited Owner with respect to such Excess Shares shall repay to the
trust the amount of any dividends or distributions received by it that (i) are
attributable to any shares of stock that have been converted into Excess Shares
and (ii) were distributed by the Company to stockholders of record on a record
date which was on or after the date that such shares were converted into Excess
Shares. Each Excess Share shall entitle the holder to no voting rights other
than those voting rights which accompany a
52
class of stock under Maryland law. The trustee, as record holder of the Excess
Shares, shall be entitled to vote all Excess Shares. Any vote by a Prohibited
Owner as a purported holder of shares of stock prior to the discovery by the
Company that such shares of stock have been converted into Excess Shares shall,
subject to applicable law, (i) be rescinded and shall be void AB INITIO with
respect to such Excess Shares and (ii) be recast in accordance with the desires
of the trustee acting for the benefit of the Beneficiary; provided, however,
that if the Company has already taken irreversible corporate action, then the
trustee shall not have the authority to rescind and recast such vote.
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 following the later
of (a) the date of the event which resulted in such shares of Excess Stock or
(b) the date the Board of Directors first determined that the event resulting in
the shares of Excess Stock occurred, if the Company does not receive notice of
such event. Upon such a sale to the 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 Owner.
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, to comply with the
requirements of any taxing authority or governmental agency or to determine any
such compliance.
The above-described ownership limits may have the effect of precluding
acquisition of control of the Company.
REGISTRATION RIGHTS
The Selling Stockholders of the Common Stock are entitled to the benefits of
a Registration Rights Agreement between the Company and the Initial Purchaser in
the Original offering (the "Registration Rights Agreement"). Pursuant to the
Registration Rights Agreement, the Company has agreed for the benefit of the
holders of the Common Stock that it will from time to time, at its expense, (i)
promptly, but in any event within 90 days after the date of issuance of the
Common Stock, file a shelf registration statement (the "Shelf Registration
Statement") with the Commission with respect to resales of the Common Stock,
(ii) use its best efforts to cause such Shelf Registration Statement to be
declared effective by the Commission as promptly as practicable and (iii) use
its best efforts to maintain such Shelf Registration Statement continuously
effective under the Securities Act, until the date (the "Expiration Date") which
is the earliest of the dates described in the following clauses (a), (b) and
(c): (a) the second annual anniversary of the latest date of original issuance
of the Common Stock, (b) such time as all Common Stock covered by the Shelf
Registration Statement has been sold pursuant to the Shelf Registration
Statement, transferred pursuant to Rule 144 under the Securities Act or
otherwise transferred in a manner that results in a new security not subject to
transfer restrictions under the Securities Act being delivered, and (c) such
time as, in the opinion of counsel, all of the Common Stock held by
nonaffiliates of the Company and covered by the Shelf Registration Statement are
eligible for resale pursuant to Rule 144(k) (or any successor or analogous rule)
under the Securities Act and the legend described under "Notice to Investors"
has been removed from such Common Stock. The Registration Statement of which
this Prospectus forms a part has been filed pursuant to the foregoing provisions
of the Registration Rights Agreement.
Notwithstanding the foregoing, the Company will be permitted to suspend the
use, from time to time, of this prospectus that is part of the Shelf
Registration Statement for periods (any such period hereinafter referred to as a
"blackout period"), if the Board of Directors of the Company shall have
determined in
53
good faith that it is in the best interests of the Company to suspend such use
and the Company provides the Selling Stockholders with written notice of such
suspension.
A Selling Stockholder that sells Common Stock pursuant to the Shelf
Registration Statement, including through the use of this Prospectus, generally
will be required to be named as a selling security holder in the related
prospectus and to deliver a prospectus to purchasers, will be subject to certain
of the civil liability provisions under the Securities Act in connection with
such sales and will be bound by the provisions of the Registration Rights
Agreement that are applicable to such a holder (including certain
indemnification rights and obligations). In addition, each holder of Common
Stock may be required to deliver information to be used in connection with the
Shelf Registration Statement in order to have such holder's Common Stock
included in the Shelf Registration Statement and to benefit from the provisions
of the succeeding paragraph.
Each Common Stock certificate contains a legend to the effect that the
holder thereof, by its acceptance thereof, will be deemed to have agreed to be
bound by the provisions of the Registration Rights Agreement. In that regard,
each holder is deemed to have agreed that, upon receipt of notice from the
Company of the occurrence of any event which makes a statement in this
prospectus untrue in any material respect or which requires the making of any
changes in such prospectus in order to make the statements therein not
misleading, or of certain other events specified in the Registration Rights
Agreement, such holder will suspend the sale of Common Stock pursuant to this
prospectus until the Company has amended or supplemented such prospectus to
correct such misstatement or omission and has furnished copies of the amended or
supplemented prospectus to such holder or the Company has given notice that the
sale of the Common Stock may be resumed.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which is available upon request of the Initial Purchaser.
54
CERTAIN PROVISIONS OF MARYLAND LAW AND
OF BCP'S CHARTER AND BYLAWS
THE FOLLOWING SUMMARY OF CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE
CHARTER AND BYLAWS OF BCP DOES NOT PURPORT TO BE COMPLETE AND IS SUBJECT TO AND
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO MARYLAND LAW AND TO THE CHARTER AND
BYLAWS OF BCP.
The Charter and the Bylaws of BCP contain certain provisions that could make
more difficult the acquisition of the Company by means of a tender offer, a
proxy contest or otherwise. These provisions may have the effect of delaying,
deterring or preventing certain types of coercive takeover practices and
inadequate takeover bids and to encourage persons seeking to acquire control of
the Company to negotiate first with the Board of Directors. The Company believes
that the benefits of these provisions outweigh the potential disadvantages of
discouraging such proposals because, among other things, negotiation of such
proposals might result in an improvement of their terms.
AMENDMENT OF CHARTER AND BYLAWS
BCP's Charter may be amended only by the affirmative vote of the holders of
a majority of all of the votes entitled to be cast on the matter, (or, if less
than 75% of the Directors then in office approve the amendment, by the
affirmative vote of holders of two-thirds of all votes entitled to be cast on
the matter) except that amendments dealing with certain articles of the Charter
(for example, articles relating to stockholder action; the powers, election of,
removal of and classification of directors; limitation of liability; and
amendment of the Charter) shall require the affirmative vote of not less than
seventy-five percent of the outstanding votes entitled to be cast on the matter.
Unless otherwise required by law, the Board of Directors may amend BCP's Bylaws
by the affirmative vote of a majority of the Directors then in office.
DISSOLUTION OF THE COMPANY
The MGCL permits the dissolution of the Company by (i) the affirmative vote
of a majority of the entire Board of Directors declaring such dissolution to be
advisable and directing that the proposed dissolution be submitted for
consideration at an annual or special meeting of stockholders, and (ii) upon
proper notice, stockholder approval by the affirmative vote of two-thirds of the
votes entitled to be cast on the matter.
MEETINGS OF STOCKHOLDERS
Under BCP's Bylaws, annual meetings of stockholders shall be held at such
date and time as determined by the Board of Directors, the Chairman of the Board
or the President. The Bylaws establish an advance notice procedure for
stockholders to make nominations of candidates for directors or bring other
business before an annual meeting of stockholders. Special meetings of
stockholders may be called by a majority of the Directors then in office or by
stockholders holding not less than a majority of the outstanding stock of BCP
entitled to vote at the meeting and only matters set forth in the notice of the
meeting may be considered and acted upon at such a meeting.
THE BOARD OF DIRECTORS
BCP's Charter provides that the Board of Directors shall initially consist
of five Directors and thereafter the number of Directors of the Company may be
established by the Board of Directors but may not be fewer than the minimum
number required by the MGCL nor more than nine. Subject to the rights of the
holders of any series of Preferred Stock to elect Directors and to fill
vacancies in the Board of Directors relating thereto, any vacancy will be
filled, including any vacancy created by an increase in the number of Directors,
at any regular meeting or at any special meeting called for the purpose, by a
majority of the remaining Directors. Pursuant to the terms of the Charter, the
Directors are divided into three classes. One class will hold office initially
for a term expiring at the annual meeting of stockholders to be
55
held in 1999, another class will hold office initially for a term expiring at
the annual meeting of stockholders to be held in 2000 and the third class will
hold office initially for a term expiring in 2001. As the term of each class
expires, Directors in that class will be elected for a term of three years and
until their successors are duly elected and qualified. The use of a classified
board may render more difficult a change in control of the Company or removal of
incumbent management. The Charter provides that a Director may be removed from
office (a) only with cause and (b) only by the affirmative vote of the holders
of at least 75% of the shares entitled to vote at a meeting of stockholders
called for that purpose. The Company believes, however, that classification of
the Board of Directors will help to assure the continuity and stability of its
business strategies and policies.
The Charter provides that the affirmative vote of more than 75% of the
Directors then in office is required to approve certain transactions or actions
of the Board, including a change of control (as defined in the Charter) of the
Company or of the Operating Partnership, any amendment to the Operating
Partnership Agreement, any waiver of the limitations on ownership contained in
the Charter, any merger, consolidation or sale of all or substantially all of
the assets of the Company or the Operating Partnership, certain issuances of
equity securities by the Company or the termination of the Company's status as a
REIT. See "Operating Partnership Agreement."
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Charter limits the liability of the Board of Directors and officers to
the Company to the fullest extent permitted from time to time by Maryland law.
The MGCL permits a corporation to include in its charter a provision limiting
the liability of directors and officers to the corporation or its stockholders
for money damages, except (i) to the extent that it is proved that the director
or officer actually received an improper benefit or profit in money, property or
services or (ii) if a judgment or other final adjudication is entered in a
proceeding based on a finding that the director's or officer's action or failure
to act was the result of active and deliberate dishonesty and was material to
the cause of action adjudicated in the proceeding. This provision does not limit
the ability of BCP or its stockholders to obtain other relief, such as an
injunction or a rescission.
The Charter of the Company authorizes it, to the maximum extent permitted by
Maryland law, to obligate itself to indemnify and to pay or reimburse reasonable
expenses in advance of final disposition of a proceeding to (a) any present or
former director or officer or (b) any individual who, while a director of the
Company and at the request of the Company, serves or has served another
corporation, REIT, partnership, joint venture, trust, employee benefit plan or
any other enterprise as a director, officer, partner or trustee of such
corporation, REIT, partnership, joint venture, trust, employee benefit plan or
other enterprise from and against any claim or liability to which such person
may become subject or which such person may incur by reason of his or her status
as a present or former director or officer of the Company. The Bylaws of the
Company obligate it, to the maximum extent permitted by Maryland law, to
indemnify and to pay or reimburse reasonable expenses in advance of final
disposition of a proceeding to (a) any present or former director or officer who
is made a party to the proceeding by reason of his service in that capacity or
(b) any individual who, while a director of the Company and at the request of
the Company, serves or has served another corporation, REIT, partnership, joint
venture, trust, employee benefit plan or any other enterprise as a director,
officer, partner or trustee of such corporation, REIT, partnership, joint
venture, trust, employee benefit plan or other enterprise and who is made a
party to the proceeding by reason of his service in that capacity. The Charter
and Bylaws also permit the Company to indemnify and advance expenses to any
person who served a predecessor of the Company in any of the capacities
described above and to any employee or agent of the Company or a predecessor of
the Company.
The MGCL requires a corporation (unless its charter provides otherwise,
which the Company's Charter does not) to indemnify a director or officer who has
been successful, on the merits or otherwise, in the defense of any proceeding to
which he is made a party by reason of his service in that capacity. The
56
MGCL permits a corporation to indemnify its directors, officers and certain
other parties against judgments, penalties, fines, settlements and reasonable
expenses actually incurred by them in connection with any proceeding to which
they may be made a party by reason of their service to or at the request of the
corporation, unless it is established that (a) the act or omission of the
indemnified party was material to the matter giving rise to the proceeding and
(i) the act or omission was committed in bad faith or (ii) the act or omission
was the result of active and deliberate dishonesty, (b) the indemnified party
actually received an improper personal benefit in money, property or services or
(c) in the case of any criminal proceeding, the indemnified party had reasonable
cause to believe that the act or omission was unlawful. However, under the MGCL,
a Maryland corporation may not indemnify for an adverse judgment in a suit by or
in the right of the corporation or for a judgment of liability on the basis that
personal benefit was improperly received, unless in either case a court orders
indemnification and then only for expenses. In addition, the MGCL permits a
corporation to advance reasonable expenses to a director or officer upon the
corporation's receipt of (a) a written affirmation by the director or officer of
his good faith belief that he has met the standard of conduct necessary for
indemnification by the corporation and (b) a written undertaking by him or on
his behalf to repay the amount paid or reimbursed by the corporation if it shall
ultimately be determined that the standard of conduct was not met.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the SEC such indemnification is against public policy as expressed in
the Securities Act and is therefore unenforceable.
INDEMNIFICATION AGREEMENTS
The Company has entered into indemnification agreements with each of its
Directors and executive officers which require, among other things, that the
Company indemnify its Directors and executive officers to the fullest extent
permitted by law and advance to the Directors and executive 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 executive officers
seeking to enforce their rights under the indemnification agreements and may
cover Directors and executive 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
greater assurance to Directors and executive officers that indemnification will
be available, because, as a contract, it cannot be modified unilaterally in the
future by the Board of Directors or the stockholders to eliminate the rights it
provides.
BUSINESS COMBINATIONS
Under the MGCL, certain "business combinations" (including a merger,
consolidation, share exchange or, in certain circumstances, an asset transfer or
issuance or reclassification of equity securities) between a Maryland
corporation and any person who beneficially owns 10% or more of the voting power
of the corporation's shares or an affiliate of the corporation who, at any time
within the two-year period prior to the date in question, was the beneficial
owner of 10% or more of the voting power of the then-outstanding voting stock of
the corporation (an "Interested Stockholder") or an affiliate of such an
Interested Stockholder are prohibited for five years after the most recent date
on which the Interested Stockholder becomes an Interested Stockholder.
Thereafter, any such business combination must be recommended by the board of
directors of such corporation and approved by the affirmative vote of at least
(a) 80% of the votes entitled to be cast by holders of outstanding shares of
voting stock of the corporation and (b) two-thirds of the votes entitled to be
cast by holders of outstanding voting stock of the corporation other than shares
held by the Interested Stockholder with whom (or with whose affiliate) the
business combination is to be effected, unless, among other conditions, the
corporation's common stockholders receive a minimum price (as defined in the
MGCL) for their shares and the consideration is
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received in cash or in the same form as previously paid by the Interested
Stockholder for its shares. These provisions of the MGCL do not apply, however,
to business combinations that are approved or exempted by the board of directors
of the corporation prior to the time that the Interested Stockholder becomes an
Interested Stockholder. The Charter exempts from the Maryland statute any
business combination with Alan M. Leventhal or Lionel P. Fortin, or current or
future affiliates, associates or other persons acting in concert as a group with
either of Messrs. Leventhal or Fortin.
CONTROL SHARE ACQUISITIONS
The MGCL provides that "control shares" of a Maryland corporation acquired
in a "control share acquisition" have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast on the matter,
excluding shares of stock owned by the acquiror, by officers or by directors who
are employees of the corporation. "Control shares" are voting shares of stock
which, if aggregated with all other shares of stock previously acquired by the
acquiror or in respect of which the acquiror is able to exercise or direct the
exercise of voting power (except solely by virtue of a revocable proxy), would
entitle the acquiror to exercise voting power in electing directors within one
of the following ranges of voting power: (i) one-fifth or more but less than
one-third, (ii) one-third or more but less than a majority, or (iii) a majority
or more of all voting power. Control shares do not include shares the acquiring
person is then entitled to vote as a result of having previously obtained
stockholder approval. A "control share acquisition" means the acquisition of
control shares, subject to certain exceptions.
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the board of directors of the corporation to call a special meeting
of stockholders to be held within 50 days of demand to consider the voting
rights of the shares. If no request for a meeting is made, the corporation may
itself present the question at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute, then,
subject to certain conditions and limitations, the corporation may redeem any or
all of the control shares (except those for which voting rights have previously
been approved) for fair value determined, without regard to the absence of
voting rights for the control shares, as of the date of the last control share
acquisition by the acquiror or of any meeting of stockholders at which the
voting rights of such shares are considered and not approved. If voting rights
for control shares are approved at a stockholders meeting and the acquiror
becomes entitled to vote a majority of the shares entitled to vote, all other
stockholders may exercise appraisal rights. The fair value of the shares as
determined for purposes of such appraisal rights may not be less than the
highest price per share paid by the acquiror in the control share acquisition.
The control share acquisition statute does not apply (a) to shares acquired
in a merger, consolidation or share exchange if the corporation is a party to
the transaction or (b) to acquisitions approved or exempted by the charter or
bylaws of the corporation. The Charter exempts from the control share
acquisition statute the purchases of Common Stock on the Closing Date and any
future transactions which would otherwise be subject to the statute by Alan M.
Leventhal or Lionel P. Fortin or current or future affiliates, associates or
other persons acting in concert or as a group with either of Messrs. Leventhal
or Fortin. Consequently, the prohibition on voting control shares will not apply
to such persons.
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COMMON STOCK AVAILABLE FOR FUTURE SALE
As of June 1, 1998, BCP has outstanding 20,973,932 shares of Common Stock
and has reserved for issuance upon exercise of Stock Options or redemption of
Units 2,769,097 additional shares of Common Stock.
Shares of Common Stock issued to holders of Units upon exercise of the
Redemption Rights, will be "restricted" securities under the meaning of Rule 144
promulgated under the Securities Act ("Rule 144") and may not be sold in the
absence of registration under the Securities Act unless an exemption from
registration is available, including exemptions contained in Rule 144. See
"Description of Securities-- Transfer Restrictions" and "Operating Partnership
Agreement--Redemption of OP Units."
In general, under Rule 144 as currently in effect, if one year has elapsed
since the later of the date of acquisition of restricted shares from the Company
or any "affiliate" of the Company, as defined in Rule 144 (an "Affiliate"), the
acquiror or subsequent holder thereof is entitled to sell within any three-month
period a number of shares that does not exceed the greater of 1% of the then
outstanding Common Stock or the average weekly trading volume of the Common
Stock during the four calendar weeks preceding the date on which notice of the
sale is filed with the Commission. Sales under Rule 144 also are subject to
certain manner of sale provisions, notice requirements and the availability of
current public information about the Company which will require BCP to file
periodic reports under the Exchange Act. If two years have elapsed since the
date of acquisition of restricted shares from the Company or from any Affiliate
of the Company, and the acquiror or subsequent holder thereof is deemed not to
have been an Affiliate of the Company at any time during the three months
preceding a sale, such person would be entitled to sell such shares in the
public market under Rule 144(k) without regard to the volume limitations, manner
of sale provisions, public information requirements or notice requirements.
No assurance can be given as to (i) the likelihood that an active market for
the shares will develop, (ii) the liquidity of any such market, (iii) the
ability of the stockholders to sell their Common Stock, or (iv) the prices that
stockholders may obtain for their Common Stock.
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OPERATING PARTNERSHIP AGREEMENT
THE FOLLOWING SUMMARY OF THE OPERATING PARTNERSHIP AGREEMENT DESCRIBES THE
MATERIAL PROVISIONS OF SUCH AGREEMENT. THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE OPERATING PARTNERSHIP AGREEMENT.
CLASSES OF UNITS
The Operating Partnership has authority to issue three classes of units of
limited partnership interests: Units; Convertible Units; and Incentive Units.
The Units, and the Incentive Units once issued (collectively, the "OP Units"),
will share equally on a unit-by-unit basis in all distributions of the Operating
Partnership. The Convertible Units will not participate in any distributions of
the Operating Partnership and represent solely the right to convert into a
certain number of Incentive Units (if any) with a fair market value equal to the
Incentive Return. See "The Company--Long-Term Incentive Plan."
MANAGEMENT
The Operating Partnership is a Delaware limited partnership. BCP is the sole
general partner of, and holds approximately 99% of the economic interests in the
Operating Partnership. BCP holds an approximate 1% general partner interest in
the Operating Partnership and the balance is held as a limited partner interest.
BCP intends to conduct substantially all of its business through the Operating
Partnership and its subsidiaries.
Pursuant to the Operating Partnership Agreement, BCP, as the sole general
partner of the Operating Partnership, generally has full, exclusive and complete
responsibility and discretion in the management, operation and control of the
Operating Partnership, including the ability to cause the Operating Partnership
to enter into certain major transactions, including acquisitions, developments
and dispositions of properties and refinancings of existing indebtedness. No
limited partner may take part in the operation, management or control of the
business of the Operating Partnership by virtue of being a holder of any class
of units of the Operating Partnership. Certain restrictions apply to the
Company's ability to engage in a Business Combination, as described more fully
under "Extraordinary Transactions" below.
The limited partner of the Operating Partnership has agreed that in the
event of any conflict in the fiduciary duties owed by BCP to its stockholders
and by BCP, as general partner of the Operating Partnership, to such limited
partners, BCP may act in the best interests of BCP's stockholders without
violating its fiduciary duties to such limited partners or being liable for any
resulting breach of its duties to the limited partners.
The Operating Partnership Agreement provides that all business activities of
BCP, including all activities pertaining to the acquisition and operation of
properties, must be conducted through the Operating Partnership, and that the
Operating Partnership must be operated in a manner that will enable BCP to
satisfy the requirements for being classified as a REIT.
REMOVAL OF THE GENERAL PARTNER; TRANSFER OF THE GENERAL PARTNER'S INTEREST
The Operating Partnership Agreement provides that the limited partners may
not remove BCP as general partner of the Operating Partnership. BCP may not
transfer any of its interests as general or limited partner in the Operating
Partnership except (i) in connection with a merger or sale of all or
substantially all of its assets pursuant to a transaction for which it has
obtained the requisite approval in accordance with the terms of the Operating
Partnership Agreement, (ii) if the limited partners holding at least 66 2/3% of
the OP Units (excluding OP Units owned by BCP) consent to such transfer or (iii)
to certain affiliates of BCP.
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AMENDMENTS OF THE OPERATING PARTNERSHIP AGREEMENT
Generally, the Operating Partnership Agreement may be amended with the
approval of BCP, as general partner, and limited partners (including BCP)
holding a majority of the OP Units. Certain amendments that would, among other
things, convert a limited partner's interest into a general partner's interest,
modify the limited liability of a limited partner, alter the interest of a
partner in profits or losses or the right to receive any distributions, alter or
modify the redemption right described below, or cause the termination of the
Operating Partnership at a time or on terms inconsistent with those set forth in
the Operating Partnership Agreement must be approved by BCP and each limited
partner that would be adversely affected by such amendment. Notwithstanding the
foregoing, BCP, as general partner, has the power, without the consent of the
limited partners, to amend the Operating Partnership Agreement as may be
required to (1) add to the obligations of BCP as general partner or surrender
any right or power granted to BCP as general partner, (2) reflect the admission,
substitution, termination or withdrawal of partners in accordance with the terms
of the Operating Partnership Agreement, (3) establish the rights, powers, duties
and preferences of any additional partnership interests issued in accordance
with the terms of the Operating Partnership Agreement, (4) reflect a change of
an inconsequential nature that does not materially adversely affect the limited
partners, or cure any ambiguity, correct or supplement any provisions of the
Operating Partnership Agreement not inconsistent with law or with other
provisions of the Operating Partnership Agreement, or make other changes
concerning matters under the Operating Partnership Agreement that are not
otherwise inconsistent with the Operating Partnership Agreement or law, or (5)
satisfy any requirements of federal or state law. Certain provisions affecting
the rights and duties of BCP as general partner (e.g., restrictions on BCP's
power to conduct businesses other than owning OP Units; restrictions relating to
the issuance of securities of BCP and related capital contributions to the
Operating Partnership; restrictions relating to certain extraordinary
transactions involving BCP or the Operating Partnership) may not be amended
without the approval of a majority of the OP Units not held by BCP.
TRANSFER OF UNITS; SUBSTITUTE LIMITED PARTNERS
The Operating Partnership Agreement provides that limited partners generally
may transfer their OP Units and Convertible Units without the consent of any
other person, but may substitute a transferee as a limited partner only with the
prior written consent of BCP as the sole general partner of the Operating
Partnership. In addition, limited partners may not transfer OP Units in any
event until the one-year anniversary of the Closing of this Offering or in
violation of certain regulatory and other restrictions set forth in the
Operating Partnership Agreement.
REDEMPTION OF OP UNITS
The Operating Partnership will be obligated after the one-year anniversary
of the Closing Date of the Original Offering to redeem each OP Unit at the
request of the holder thereof for cash equal to the fair market value of such
unit at the time of such redemption (as determined in accordance with the
provisions of the Operating Partnership Agreement), provided that BCP may elect
to acquire any such OP Unit presented for redemption for one share of Common
Stock or an amount of cash of the same value. If Incentive Units are presented
for redemption, the election by BCP to acquire such Incentive Units for shares
of Common Stock must be approved by the Independent Directors. With each
redemption or acquisition by BCP, BCP's percentage ownership interest in the
Operating Partnership will increase. The BCP Affiliate shall have certain
rights, pursuant to separate registration rights agreements, to have the
issuance of shares of Common Stock that may be issued to it in exchange for its
OP Units, or the resale of such shares, registered under the Securities Act. See
"Common Stock Available for Future Sale."
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OPERATIONS
The Operating Partnership Agreement requires that the Operating Partnership
be operated in a manner that will enable BCP to satisfy the requirements for
being classified as a REIT for federal tax purposes, to avoid any federal income
or excise tax liability imposed by the Code, and to ensure that the Operating
Partnership will not be classified as a "publicly traded partnership" for
purposes of Section 7704 of the Code. In addition, the Operating Partnership
will be operated in a manner so as to qualify it as a "real estate operating
company" under the Plan Assets Regulation, at least until such time as the
Common Stock qualifies as shares of "publicly offered securities" within the
meaning of the Plan Assets Regulation.
In addition to the administrative and operating costs and expenses incurred
by the Operating Partnership, it is anticipated that the Operating Partnership
will pay all administrative costs and expenses of the Company (collectively, the
"Company Expenses") and such Company Expenses will be treated as expenses of the
Operating Partnership. The Company Expenses generally will include (i) all
expenses relating to the formation and continuity of existence of the Company,
(ii) all expenses relating to this offering and any registration of securities
by the Company, (iii) all expenses associated with the preparation and filing of
any periodic reports by the Company under federal, state or local laws or
regulations, (iv) all expenses associated with compliance by the Company with
laws, rules and regulations promulgated by any regulatory body, and (v) all
other operating or administrative costs of the Company incurred in the ordinary
course of its business on behalf of the Operating Partnership.
ISSUANCE OF ADDITIONAL LIMITED PARTNERSHIP INTERESTS
BCP as general partner is authorized, without the consent of the limited
partners, to cause the Operating Partnership to issue additional Units,
Incentive Units and Convertible Units to BCP, to the limited partners or to
other persons for such consideration and on such terms and conditions as BCP as
general partner deems appropriate. If additional OP Units are issued to BCP,
then BCP must (i) issue additional shares of Common Stock and must contribute to
the Operating Partnership the entire proceeds received by BCP from such issuance
or (ii) issue additional OP Units to all partners in proportion to their
respective interests in the Operating Partnership. In addition, BCP may cause
the Operating Partnership to issue to BCP additional partnership interests in
different series or classes, which may be senior to the OP Units, in conjunction
with an offering of securities of BCP having substantially similar rights, in
which the proceeds thereof are contributed to the Operating Partnership.
Consideration for additional partnership interests may be cash or other property
or assets. No limited partner has preemptive, preferential or similar rights
with respect to additional capital contributions to the Operating Partnership or
the issuance or sale of any partnership interests therein.
EXTRAORDINARY TRANSACTIONS
The Operating Partnership Agreement provides that BCP 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 OP Units will
receive, or have the opportunity to receive, the same consideration per OP Unit
as holders of Common Stock receive per share of Common Stock in the transaction;
if holders of OP Units will not be treated in such manner in connection with a
proposed Business Combination, BCP may not engage in such transaction unless
limited partners (other than BCP) holding at least 66 2/3% of the OP Units held
by limited partners vote to approve the Business Combination.
EXCULPATION AND INDEMNIFICATION OF THE GENERAL PARTNER
The Operating Partnership Agreement generally provides that BCP, as general
partner of the Operating Partnership, 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 BCP carried
62
out its duties in good faith. In addition, BCP is not responsible for any
misconduct or negligence on the part of its agents, provided BCP appointed such
agents in good faith. BCP 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 that BCP reasonably believes to be within their
professional or expert competence, shall be conclusively presumed to have been
done or omitted in good faith and in accordance with such opinion.
The Operating Partnership Agreement also provides for indemnification of
BCP, the Directors and officers of BCP, and such other persons as BCP may from
time to time designate against any judgments, penalties, fines, settlements and
reasonable expenses actually incurred by such person in connection with the
preceding unless it is established that: (1) the act or omission of the
indemnified person was material to the matter giving rise to the preceding and
either was committed in bad faith or was the result of active and deliberate
dishonesty; (2) the indemnified person actually received an improper personal
benefit in money, property or services; or (3) in the case of any criminal
proceeding, the indemnified person had reasonable cause to believe that the act
or omission was unlawful.
TAX MATTERS
BCP is the tax matters partner of the Operating Partnership and, as such,
has the authority to make tax elections under the Code on behalf of the
Operating Partnership.
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FEDERAL INCOME TAX CONSIDERATIONS
The following summary of material federal income tax considerations is based
upon current law and is for general information purposes only. The discussion
contained herein does not address all aspects of taxation that may be relevant
to particular stockholders in light of their personal investment or tax
circumstances, or to certain types of stockholders (including, without
limitation, insurance companies, tax-exempt organizations (except as described
below), financial institutions or broker-dealers, and, except as discussed
below, foreign corporations and persons who are not citizens or residents of the
United States) subject to special treatment under the federal income tax laws.
The statements in this discussion are based on current provisions of the
Code, existing, temporary, and currently proposed Treasury Regulations
promulgated under the Code, the legislative history of the Code, existing
administrative rulings and practices of the Service, and judicial decisions. No
assurance can be given that future legislative, judicial, or administrative
actions or decisions, which may be retroactive in effect, will not affect the
accuracy of any statements in this Prospectus with respect to the transactions
entered into or contemplated prior to the effective date of such changes.
EACH PROSPECTIVE PURCHASER SHOULD CONSULT HIS OWN TAX ADVISOR REGARDING THE
SPECIFIC TAX CONSEQUENCES TO HIM, HER OR IT OF THE PURCHASE, OWNERSHIP, AND SALE
OF THE COMMON STOCK AND OF BCP'S ELECTION TO BE TAXED AS A REIT, INCLUDING THE
FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE,
OWNERSHIP, SALE, AND ELECTION, AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY
BCP intends to make an election to be taxed as a REIT under Sections 856
through 860 of the Code, commencing with the year ending on December 31, 1998.
The sections of the Code relating to qualification and operation as a REIT
are highly technical and complex. The following discussion sets forth only the
material aspects of the Code sections that govern the federal income tax
treatment of a REIT and its stockholders. The discussion is qualified in its
entirety by the applicable Code provisions, Treasury Regulations promulgated
thereunder, and administrative and judicial interpretations thereof, all of
which are subject to change prospectively or retroactively.
Goodwin, Procter & Hoar LLP has acted as counsel to BCP in connection with
the Offering and BCP's election to be taxed as a REIT. In the opinion of
Goodwin, Procter & Hoar LLP (the "Opinion"), provided that the elections and
other procedural steps described in this discussion of "Federal Income Tax
Considerations" are completed by BCP in a timely fashion, BCP will be organized
in conformity with the requirements for qualification as a REIT pursuant to
Sections 856 through 860 of the Code, and BCP's proposed method of operation
will enable it to continue to meet the requirements for qualification and
taxation as a REIT under the Code. Investors should be aware, however, that
opinions of counsel are not binding upon the Service or any court. It must be
emphasized that the Opinion is based on various assumptions and is conditioned
upon certain representations made by BCP as to factual matters, including
representations regarding the nature of BCP's properties and the past and future
conduct of its business. Such factual assumptions and representations are
described below in this discussion of "Federal Income Tax Considerations" and
are set out in the Opinion. Moreover, such qualification and taxation as a REIT
depends upon BCP's ability to meet on a continuing basis, through actual annual
operating results, distribution levels, and stock ownership, the various
qualification tests imposed under the Code discussed below. Goodwin, Procter &
Hoar LLP will not review BCP's compliance with those tests on a continuing
basis. Accordingly, no assurance can be given that the actual results of BCP's
operations for any particular taxable year will satisfy any such requirements.
For a discussion of the tax consequences of failure to qualify as a REIT. See
"--Failure to Qualify."
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If BCP qualifies for taxation as a REIT, it generally will not be subject to
federal corporate income tax on its net income that is distributed currently to
its stockholders. That treatment substantially eliminates the "double taxation"
(i.e., taxation at both the corporate and stockholder levels) that generally
results from an investment in a corporation. However, BCP will be subject to
federal income tax in the following circumstances. First, BCP will be taxed at
regular corporate rates on any undistributed REIT taxable income, including
undistributed net capital gains. Second, under certain circumstances, BCP may be
subject to the "alternative minimum tax" on its undistributed items of tax
preference, if any. Third, if BCP has (i) 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 (ii) other nonqualifying income
from foreclosure property, it will be subject to tax at the highest corporate
rate on such income. Fourth, if BCP 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 BCP
should fail to satisfy the 75% gross income test or the 95% gross income test
(as discussed below), but has maintained its qualification as a REIT because
certain other requirements have been met, it will be subject to a 100% tax on
the gross income attributable to the greater of the amount by which BCP fails
the 75% or 95% gross income test, multiplied by a fraction intended to reflect
BCP's profitability. Sixth, if BCP should fail to distribute during each
calendar year at least the sum of (i) 85% of its REIT ordinary income for such
year, (ii) 95% of its REIT capital gain net income for such year (other than
such capital gain net income which BCP elects to retain and pay tax on) , and
(iii) any undistributed taxable income from prior periods, BCP would be subject
to a 4% excise tax on the excess of such required distribution over the amounts
actually distributed. Seventh, if BCP acquires any asset from a "C" corporation
(i.e., a corporation generally subject to full corporate-level tax) in a merger
or other transaction in which the basis of the asset in BCP's hands is
determined by reference to the basis of the asset (or any other asset) in the
hands of a "C" corporation and BCP recognizes gain on the disposition of such
asset during the 10-year period beginning on the date on which it acquired such
asset, then to the extent of such asset's "built-in-gain" (i.e., the excess of
the fair market value of such asset at the time of acquisition by BCP over the
adjusted basis in such asset at such time), BCP will be subject to tax at the
highest regular corporate rate applicable (as provided in Treasury Regulations
that have not yet been promulgated). The results described above with respect to
the tax on "built-in-gain" assume that BCP will elect pursuant to IRS Notice
88-19 to be subject to the rules described in the preceding sentence if it were
to make any such acquisition.
REQUIREMENTS FOR QUALIFICATION
The Code defines a REIT as a corporation, trust, or association (i) that is
managed by one or more trustees or directors; (ii) the beneficial ownership of
which is evidenced by transferable shares, or by transferable certificates of
beneficial interest; (iii) that would be taxable as a domestic corporation, but
for Sections 856 through 860 of the Code; (iv) that is neither a financial
institution nor an insurance company subject to certain provisions of the Code;
(v) the beneficial ownership of which is held by 100 or more persons; (vi) not
more than 50% in value of the outstanding shares of which is owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of each taxable year (the "5/50 Rule");
(vii) that makes an election to be a REIT (or has made such election for a
previous taxable year) and satisfies all relevant filing and other
administrative requirements established by the Service that must be met in order
to elect and maintain REIT status; (viii) that uses a calendar year for federal
income tax purposes; and (ix) that meets certain other tests, described below,
regarding the nature of its income and assets. The Code provides that conditions
(i) to (iv) above, inclusive, must be met during the entire taxable year and
that condition (v) above must be met during at least 335 days of a taxable year
of 12 months, or during a proportionate part of a taxable year of less than 12
months. Conditions (v) and (vi) above will not apply until after the first
taxable year for which an election is made by BCP to be taxed as a REIT. For
purposes of determining stock ownership under the 5/50 Rule, a supplemental
unemployment compensation benefits plan, a private foundation, or a portion of a
trust permanently set aside or
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used exclusively for charitable purposes generally is considered an individual.
A trust that is a qualified trust under Code Section 401(a), however, generally
is not considered an individual and beneficiaries of such trust are treated as
holding shares of a REIT in proportion to their actuarial interests in such
trust for purposes of the 5/50 Rule. If BCP complies with all the requirements
for ascertaining the ownership of its outstanding stock in a taxable year and
does not know or have reason to know that it violated the 5/50 Rule, BCP will be
deemed to have complied with the 5/50 Rule for such taxable year.
Prior to the consummation of the Offering, BCP did not satisfy conditions
(v) and (vi) in the preceding paragraph. BCP anticipates issuing sufficient
Common Stock with sufficient diversity of ownership pursuant to the Offering to
allow it to satisfy requirements (v) and (vi). In addition, BCP's Charter
provides for restrictions regarding the transfer of the Common Stock that are
intended to assist BCP in continuing to satisfy the share ownership requirements
described in clauses (v) and (vi) above. Such transfer restrictions are
described in "Description of Securities--Transfer Restrictions."
Code Section 856(i) provides that a corporation that is a "qualified REIT
subsidiary" shall not be treated as a separate corporation, and all assets,
liabilities, and items of income, deduction, and credit of a "qualified REIT
subsidiary" shall be treated as assets, liabilities, and items of income,
deduction, and credit of the REIT. A "qualified REIT subsidiary" is a
corporation, all of the capital stock of which is held by the REIT. If BCP
acquires a corporation already in existence at the time of acquisition, such
corporation would be treated as liquidating on the date of acquisition and BCP
would be required to distribute any C corporation earnings and profits of the
corporation before the end of the taxable year. Thus, in applying the
requirements described herein, any "qualified REIT subsidiaries" of BCP will be
ignored, and all assets, liabilities, and items of income, deduction, and credit
of such subsidiaries will be treated as assets, liabilities, and items of
income, deduction, and credit of BCP.
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
of the assets of the partnership and will be deemed to be entitled to the gross
income of the partnership attributable to such share. In addition, the assets
and gross income of the partnership will retain the same character in the hands
of the REIT for purposes of Section 856 of the Code, including for purposes of
satisfying the gross income and asset tests described below. BCP's proportionate
share of the assets and gross income of the Operating Partnership will be
treated as assets and gross income of BCP for purposes of applying the
requirements described herein.
INCOME TESTS
In order for BCP to qualify and to maintain its qualification as a REIT, two
requirements relating to BCP's gross income must be satisfied annually. First,
at least 75% of BCP's gross income (excluding gross income from prohibited
transactions) for each taxable year must consist of defined types of income
derived directly or indirectly from investments relating to real property or
mortgages on real property (including "rents from real property" and interest on
obligations secured by mortgages on real property or on interests in real
property, and dividends or other distributions on and gain from the sale of
stock in other REITs) or from certain types of temporary investment income.
Second, at least 95% of BCP's gross income (excluding gross income from
prohibited transactions) for each taxable year must be derived from such real
property, mortgages on real property, or temporary investments, and from
dividends, other types of interest, and gain from the sale or disposition of
stock or securities, or from any combination of the foregoing.
The rent received by BCP from the tenants of the Real Property ("Rent") will
qualify as "rents from real property" in satisfying the gross income tests for a
REIT described above only if several conditions are met. First, the amount of
Rent must not be based, in whole or in part, on the income or profits of any
person. However, an amount received or accrued generally will not be excluded
from the term "rents from real property" solely by reason of being based on a
fixed percentage or percentages of receipts or sales or solely by reason of
being based on the income or profits of a tenant if such tenant derives
substantially all
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of its gross income from the related property through the sub-leasing of
substantially all of its interest in the property to the extent the amounts
received by such tenant would be characterized as rents from real property if
received by the REIT. Second, the Code provides that the Rent received from a
tenant will not qualify as "rents from real property" in satisfying the gross
income tests if BCP, or a direct or indirect owner of 10% or more of BCP, owns
10% or more of such tenant, either actually or constructively (a "Related Party
Tenant"). 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 (taking into account both
actual and constructive ownership) to such personal property will not qualify as
"rents from real property." Finally, for the Rent to qualify as "rents from real
property," BCP generally must not operate or manage the Real Property or furnish
or render services to the tenants of such Real Property, other than through an
"independent contractor" who is adequately compensated by the tenants and from
whom BCP derives no revenue. The "independent contractor" requirement, however,
does not apply to the extent that the services provided by BCP are "usually or
customarily rendered" in connection with the rental of space for occupancy only
and are not otherwise considered "rendered to the occupant."
BCP has represented that it will not charge Rent for any portion of any Real
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 or percentages of
receipts or sales, as described above) to the extent that the receipt of such
Rent would jeopardize BCP's status as a REIT. In addition, BCP has represented
that, to the extent that it receives Rent from a Related Party Tenant, such Rent
will not cause BCP to fail to satisfy either the 75% or 95% gross income test.
BCP also has represented that it will not allow the Rent attributable to
personal property leased in connection with any lease of Real Property to exceed
15% of the total Rent received under the lease, if the receipt of such Rent
would cause BCP to fail to satisfy either the 75% or 95% gross income test.
Finally, BCP has represented that it will not operate or manage its Real
Property or furnish or render noncustomary services to the tenants of its Real
Property other than through an "independent contractor," to the extent that such
operation or the provision of such services would jeopardize BCP's status as a
REIT.
The Ownership Limit and the Excess Share Provisions in the Company's Charter
are designed in part to prevent a stockholder of the Company from owning Company
stock that would cause the Company to own, actually or constructively, 10% or
more of the ownership interests in a tenant, including any BCP Sister Corp.
However, because the relevant constructive ownership rules are broad and it is
not possible to monitor continually direct and indirect transfers of Company
shares, and because the Charter provisions referred to above may not be
effective, there can be no absolute assurance that transfers or other events
will not cause the Company to constructively own 10% or more of one or more
tenants at some future date.
The term "interest," as defined for purposes of the 75% and 95% gross income
tests, generally does not include any amount received or accrued (directly or
indirectly) if the determination of such amount depends in whole or in part on
the income or profits of any person. However, an amount received or accrued
generally will not be excluded from the term "interest" solely by reason of
being based on a fixed percentage or percentages of receipts or sales. In
addition, an amount received or accrued generally will not be excluded from the
term "interest" solely by reason of being based on the income or profits of a
debtor if the debtor derives substantially all of its gross income from the
related property through the leasing of substantially all of its interests in
the property, to the extent the amounts received by the debtor would be
characterized as rents from real property if received by a REIT. Furthermore, to
the extent that interest from a loan that is based on the cash proceeds from the
sale of the property securing the loan constitutes a "shared appreciation
provision" (as defined in the Code), income attributable to such participation
feature will be treated as gain from the sale of the secured property, which
generally is qualifying income for purposes of the 75% and 95% gross income
tests.
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Interest will qualify as "interest on obligations secured by mortgages on
real property or on interests in real property" if the obligation is secured by
a mortgage on real property having a fair market value, as of the date on which
the commitment to make or purchase the obligation becomes binding on BCP, at
least equal to the highest principal amount of the loan outstanding during the
taxable year. However, if BCP receives interest income with respect to a
mortgage loan that is secured by both real property and other property and the
highest principal amount of the loan outstanding during a taxable year exceeds
the fair market value of the real property on the date on which the commitment
to acquire or originate the mortgage loan becomes binding on BCP, the interest
income will be apportioned between the real property and the other property,
which apportionment may cause BCP to recognize income that is not qualifying
income for purposes of the 75% gross income test.
BCP may receive income not described above that is not qualifying income for
purposes of one or both of the 75% and 95% gross income tests. For example, it
is possible that certain fees for services rendered by the Operating Partnership
will not be qualifying income for purposes of either gross income test. It is
not anticipated that the Operating Partnership will receive a significant amount
of such fees. In addition, dividends received from Real Estate Companies that
are C corporations generally will be qualifying income for purposes of the 95%
gross income test, but not the 75% gross income test. BCP will monitor the
amount of nonqualifying income produced by its assets and has represented that
it will manage its portfolio in order to comply at all times with the two gross
income tests.
REITs generally are subject to tax at the maximum corporate rate on any
income from foreclosure property (other than income that would be qualifying
income for purposes of the 75% gross income test), less expenses directly
connected with the production of such income. "Foreclosure property" is defined
as any real property (including interests in real property) and any personal
property incident to such real property (i) that is acquired by a REIT as the
result of such REIT having bid in such property at foreclosure, or having
otherwise reduced such property to ownership or possession by agreement or
process of law, after there was a default (or default was imminent) on a lease
of such property or on an indebtedness owed to the REIT that such property
secured, (ii) for which the related loan was acquired by the REIT at a time when
default was not imminent or anticipated, and (iii) for which such REIT makes a
proper election to treat such property as foreclosure property. BCP does not
anticipate that it will receive any income from foreclosure property that is not
qualifying income for purposes of the 75% gross income test, but, if BCP does
receive any such income, BCP will make an election to treat the related property
as foreclosure property.
Property acquired by BCP will not be eligible for the election to be treated
as foreclosure property ("Ineligible Property") if the related loan was acquired
by BCP at a time when default was imminent or anticipated. In addition, income
received with respect to such Ineligible Property may not be qualifying income
for purposes of the 75% or 95% gross income tests.
Net income derived from a prohibited transaction is subject to a 100% tax.
The term "prohibited transaction" generally includes a sale or other disposition
of property (other than foreclosure property) that is held primarily for sale to
customers in the ordinary course of a trade or business. BCP intends to conduct
its operations so that no asset owned by BCP or the Operating Partnership will
be held for sale to customers and that a sale of any such asset will not be in
the ordinary course of BCP's or the Operating Partnership's business. Whether
property is held "primarily for sale to customers in the ordinary course of a
trade or business" depends, however, on the facts and circumstances in effect
from time to time, including those related to a particular property.
Nevertheless, BCP will attempt to comply with the terms of safe-harbor
provisions in the Code prescribing when asset sales will not be characterized as
prohibited transactions. Complete assurance cannot be given, however, that BCP
can comply with the safe-harbor provisions of the Code or avoid owning property
that may be characterized as property held "primarily for sale to customers in
the ordinary course of a trade or business."
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From time to time, BCP may enter into hedging transactions with respect to
one or more of its assets or liabilities. Any such hedging transactions could
take a variety of forms, including, without limitation, interest rate swap
contracts, interest rate cap or floor contracts, futures or forward contracts,
and options. To the extent that BCP enters into such a contract to hedge against
the interest rate risks of any indebtedness incurred to acquire or carry real
estate assets, any periodic income or gain from the disposition of such contract
should be qualifying income for purposes of the 95% gross income test, but not
the 75% gross income test. To the extent that BCP hedges with other types of
financial instruments or in other situations, it may not be entirely clear how
the income from those transactions will be treated for purposes of the various
income tests that apply to REITs under the Code. BCP intends to structure any
hedging transactions in a manner that does not jeopardize its status as a REIT.
If BCP fails to satisfy one or both of the 75% and 95% gross income tests
for any taxable year, it nevertheless may qualify as a REIT for such year if it
is entitled to relief under certain provisions of the Code. Those relief
provisions generally will be available if BCP's failure to meet such tests is
due to reasonable cause and not due to willful neglect, BCP attaches a schedule
of the sources of its income to its return, and any incorrect information on the
schedule was not due to fraud with intent to evade tax. It is not possible,
however, to state whether in all circumstances BCP would be entitled to the
benefit of those relief provisions. As discussed above in "--Taxation of the
Company," even if those relief provisions apply, a 100% tax would be imposed on
the gross income attributable to the greater of the amount by which BCP fails
the 75% or 95% gross income test, multiplied by a fraction intended to reflect
BCP's profitability.
ASSET TESTS
BCP, at the close of each quarter of each taxable year, also must satisfy
three tests relating to the nature of its assets. First, at least 75% of the
value of BCP's total assets must be represented by cash or cash items (including
certain receivables), government securities, "real estate assets," or, in cases
where BCP raises new capital through stock or long-term (at least five-year)
debt offerings, temporary investments in stock or debt instruments during the
one-year period following BCP's receipt of such capital. The term "real estate
assets" includes interests in real property, interests in mortgages on real
property to the extent the principal balance of a mortgage does not exceed the
fair market value of the associated real property, and shares of other REITs.
For purposes of the 75% asset test, the term "interest in real property"
includes an interest in mortgage loans or land or improvements thereon, such as
buildings or other inherently permanent structures (including items that are
structural components of such buildings or structures), a leasehold of real
property, and an option to acquire real property (or a leasehold of real
property). Second, not 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 not included in the 75% asset class, the value of any one issuer's
securities owned by BCP may not exceed 5% of the value of BCP's total assets,
and BCP may not own more than 10% of any one issuer's outstanding voting
securities (except for its interests in the Operating Partnership, the General
Partner, the Limited Partner, any qualified REIT subsidiaries, and other
qualified REITs).
BCP expects that any interests in Real Estate Companies and interests in
Real Property that it acquires generally will be qualifying assets for purposes
of the 75% asset test. If BCP acquires any interest in a Real Estate Company
that is a C corporation, such interest may not (i) represent more than 5% of the
value of BCP's total assets or (ii) constitute more than 10% of the Real Estate
Company's outstanding voting securities. BCP will monitor the status of the
assets that it acquires for purposes of the various asset tests and has
represented that it will manage its portfolio in order to comply at all times
with such tests.
If BCP should fail to satisfy the asset tests at the end of a calendar
quarter, such a failure would not cause it to lose its REIT status if (i) it
satisfied the asset tests at the close of the preceding calendar quarter and
(ii) the discrepancy between the value of BCP's assets and the asset test
requirements arose from changes in the market values of its assets and was not
wholly or partly caused by the acquisition of one or more non-qualifying assets.
If the condition described in clause (ii) of the preceding sentence were not
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satisfied, BCP still could avoid disqualification by eliminating any discrepancy
within 30 days after the close of the calendar quarter in which it arose.
DISTRIBUTION REQUIREMENTS
In order to avoid corporate income taxation of the earnings that it
distributes, BCP is required to distribute with respect to each taxable year
dividends (other than capital gain dividends) to its stockholders in an
aggregate amount at least equal to (i) the sum of (A) 95% of its "REIT taxable
income" (computed without regard to the dividends paid deduction and its net
capital gain) and (B) 95% of the net income (after tax), if any, from
foreclosure property, minus (ii) the sum of certain items of noncash income.
Such distributions must be paid in the taxable year to which they relate, or in
the following taxable year if declared before BCP timely files its federal
income tax return for such year and if paid on or before the first regular
dividend payment date after such declaration. To the extent that BCP does not
distribute all of its net capital gain or distributes at least 95%, but less
than 100%, of its "REIT taxable income," as adjusted, it will be subject to tax
thereon at regular ordinary and capital gains corporate tax rates. Furthermore,
if BCP should fail to distribute during each calendar year (or, in the case of
distributions with declaration and record dates falling in the last three months
of the calendar year, by the end of the January immediately following such year)
at least the sum of (i) 85% of its REIT ordinary income for such year, (ii) 95%
of its REIT capital gain income for such year (other than capital gain income
which BCP elects to retain and pay tax on), and (iii) any undistributed taxable
income from prior periods, BCP would be subject to a 4% nondeductible excise tax
on the excess of such required distribution over the amounts actually
distributed. Pursuant to recently enacted legislation, BCP may elect to retain,
rather than distribute, all or a portion of its net long-term capital gains. The
effect of such an election is that (i) BCP is required to pay the tax on such
gains, (ii) U.S. stockholders (as defined below), 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 BCP
and (iii) the basis of a 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 BCP) included in such U.S. stockholder's long-term
capital gains.
In certain circumstances, the Company's investments may generate income for
federal income tax purposes without a corresponding receipt of cash ("Phantom
Income"). In order for BCP to meet REIT qualifications and/or avoid tax at the
REIT level on such Phantom Income, BCP may be forced to use cash generated from
other sources, including, without limitation, asset sales and borrowings, to
make required distributions. See "Risk Factors--Legal and Tax Risks--Tax Risks."
Under certain circumstances, BCP may be able to rectify a failure to meet
the distribution requirements for a year by paying "deficiency dividends" to its
stockholders in a later year, which may be included in BCP's deduction for
dividends paid for the earlier year. Although BCP may be able to avoid being
taxed on amounts distributed as deficiency dividends, it will be required to pay
to the Service interest based upon the amount of any deduction taken for
deficiency dividends.
RECORDKEEPING REQUIREMENTS
Pursuant to applicable Treasury Regulations, BCP must maintain certain
records and request on an annual basis certain information from its stockholders
designed to disclose the actual ownership of its outstanding stock. Failure to
comply with such record keeping requirements could result in substantial
monetary penalties to BCP. BCP intends to comply with such requirements.
EXCESS INCLUSION INCOME
It is anticipated that BCP may purchase mortgage loans. If BCP purchases
such assets and is deemed to have issued debt obligations having two or more
maturities, the payments on which correspond to payments on such mortgage loans,
such arrangement will be treated as a "taxable mortgage pool" for
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federal income tax purposes. If all or a portion of BCP is considered a "taxable
mortgage pool," BCP's status as a REIT generally should not be impaired;
however, a portion of BCP's taxable income may be characterized as "excess
inclusion income" and allocated to the stockholders of BCP. Any excess inclusion
income (i) could not be offset by net operating losses of a stockholder, (ii)
would be subject to tax as "unrelated business taxable income" to a tax-exempt
stockholder, (iii) would be subject to the application of federal income tax
withholding (without reduction pursuant to any otherwise applicable income tax
treaty) with respect to amounts allocable to foreign stockholders, and (iv)
would be taxable (at the highest corporate tax rate) to BCP, rather than its
stockholders, to the extent allocable to shares of stock of BCP held by
disqualified organizations (generally, tax-exempt entities not subject to
unrelated business income tax, including governmental organizations).
IMPACT OF PROPOSED LEGISLATION
BCP's qualification as a REIT or its ability to utilize the BCP Sister Corp.
structure could be affected as a result of proposed or future legislation. In
that regard, on February 2, 1998, the Clinton Administration released a
description of revenue proposals that included, among other things, a freeze on
the grandfathered status of REITs that are "paired" or "stapled" with a related
operating company. Although such proposed legislation in its current form does
not affect "paper clip" structures, there can be no assurance that the Clinton
Administration proposals or similar proposed legislation affecting the BCP
Sister Corp. structure will not place legislative or judicial scrutiny on the
"paper clip" structure, or that legislation adversely affecting such structure
will not be proposed and enacted, possibly on a retroactive basis. Any such
legislation could have an adverse impact on BCP's qualification as a REIT. See
"Risk Factors--Legal and Tax Risks--Tax Risks."
FAILURE TO QUALIFY
If BCP fails to qualify for taxation as a REIT in any taxable year, and the
relief provisions do not apply, BCP will be subject to tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
rates. Distributions to BCP's stockholders in any year in which BCP fails to
qualify will not be deductible by BCP nor will they be required to be made. In
such event, to the extent of BCP's current and accumulated earnings and profits,
all distributions to stockholders will be taxable as ordinary income and,
subject to certain limitations of the Code, corporate distributees may be
eligible for the dividends received deduction. Unless entitled to relief under
specific statutory provisions, BCP also will be disqualified from taxation as a
REIT for the four taxable years following the year during which BCP ceased to
qualify as a REIT. It is not possible to state whether in all circumstances BCP
would be entitled to statutory relief from its failure to qualify as a REIT.
TAXATION OF TAXABLE U.S. STOCKHOLDERS
As used herein, the term "U.S. stockholder" means a holder of Common Stock
that for U.S. federal income tax purposes is (i) a citizen or resident of the
United States, (ii) a corporation, partnership, or other entity created or
organized in or under the laws of the United States or of any state or political
subdivision thereof, (iii) an estate whose income from sources without the
United States is includible in gross income for U.S. federal income tax purposes
regardless of its connection with the conduct of a trade or business within the
United States, or (iv) any trust with respect to which (A) a U.S. court is able
to exercise primary supervision over the administration of such trust and (B)
one or more U.S. persons have the authority to control all substantial decisions
of the trust.
As long as BCP qualifies as a REIT, distributions (including distributions
of the BCP Sister Corp. equity interests by BCP upon the formation of the BCP
Sister Corp.) made to BCP's taxable U.S. stockholders out of current or
accumulated earnings and profits (and not designated as capital gain dividends
or retained capital gains) will be taken into account by such U.S. stockholders
as ordinary income and will not be eligible for the dividends received deduction
generally available to corporations.
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Distributions that are designated as capital gain dividends by BCP will be taxed
as long-term capital gains (to the extent that they do not exceed BCP's actual
net capital gain for the taxable year) without regard to the period for which
the stockholder has held his Common Stock. Pursuant to recently enacted
legislation, in the case of a stockholder who is an individual, an estate or a
trust, long-term capital gains and losses are separated into three tax rate
groups, a 20% group, a 25% group and a 28% group, and are subject to tax at the
rate effective for each group. Pursuant to Notice 97-64, 1997-47 IRB 1, the
Company will designate capital gain dividends, if any, as 20% rate gain
distributions, 25% rate gain distributions or 28% rate gain distributions and
detail such designations in a manner intended to comply with applicable
requirements. Final regulations, if and when issued by the Treasury Department,
could affect the rules set forth in the Notice. In addition, the Service has not
issued regulations or other guidance regarding the application of the new rates
to sales of interests in REITs such as the Company, and it remains unclear how
the new rules will affect such sales, if at all. If BCP elects to retain capital
gains rather than distribute them, a U.S. stockholder will be deemed to receive
a capital gain dividend equal to the amount of such retained capital gains. A
U.S. stockholder will be allowed a credit against its federal income tax
liability for its proportionate share of tax paid by BCP on retained capital
gains. See "--Requirements for Qualification." Such gains are subject to
apportionment among the three tax rate groups as set forth above. Corporate
stockholders may be required to treat up to 20% of certain capital gain
dividends as ordinary income. Distributions in excess of current and accumulated
earnings and profits will not be taxable to a stockholder to the extent that
they do not exceed the adjusted basis of the stockholder's Common Stock, but
rather will reduce the adjusted basis of such stock. To the extent that such
distributions in excess of current and accumulated earnings and profits exceed
the adjusted basis of a stockholder's Common Stock, such distributions will be
included in income as long-term capital gain (or, in the case of individuals,
trusts and estates, mid-term capital gain if the Common Stock has been held for
more than one year but not more than 18 months, and in the case of all taxpayers
short-term capital gain if the Common Stock had been held for one year or less),
provided that the Common Stock is a capital asset in the hands of the
stockholder. In addition, any distribution declared by BCP in October, November,
or December of any year and payable to a stockholder of record on a specified
date in any such month shall be treated as both paid by BCP and received by the
stockholder on December 31 of such year, provided that the distribution is
actually paid by BCP during January of the following calendar year.
Stockholders may not include in their individual income tax returns any net
operating losses or capital losses of BCP. Instead, such losses would be carried
over by BCP for potential offset against its future income (subject to certain
limitations). Taxable distributions from BCP and gain from the disposition of
the Common Stock will not be treated as passive activity income and, therefore,
stockholders generally will not be able to apply any "passive activity losses"
(such as losses from certain types of limited partnerships in which a
stockholder is a limited partner) against such income. In addition, taxable
distributions from BCP generally will be treated as investment income for
purposes of the investment interest limitations. Capital gains from the
disposition of Common Stock (or distributions treated as such), however, will be
treated as investment income only if the stockholder so elects, in which case
such capital gains will be taxed at ordinary income rates. BCP will notify
stockholders after the close of BCP's taxable year as to the portions of the
distributions attributable to that year that constitute ordinary income or
capital gain dividends and in the case of capital gain dividends to
non-corporate stockholders, those designated as 20% rate gain distributions, 25%
rate gain distributions and 28% rate gain distributions.
It is possible that BCP may invest in certain types of mortgage loans that
may cause it under certain circumstances to recognize taxable income in excess
of its economic income (also known as "Phantom Income") and to experience an
offsetting excess of economic income over its taxable income in later years. As
a result, stockholders may from time to time be required to pay federal income
tax on distributions that economically represent a return of capital, rather
than a dividend. Such distributions would be offset in later years by
distributions representing economic income that would be treated as returns of
capital for federal income tax purposes. Accordingly, if BCP receives Phantom
Income, its stockholders may be required to pay federal income tax with respect
to such income on an accelerated basis, i.e., before such
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income is realized by the stockholders in an economic sense. If there is taken
into account the time value of money, such an acceleration of federal income tax
liabilities would cause stockholders to receive an after-tax rate of return on
an investment in BCP that would be less than the after-tax rate of return on an
investment with an identical before-tax rate of return that did not generate
Phantom Income. In general, as the ratio of BCP's Phantom Income to its total
income increases, the after-tax rate of return received by a taxable stockholder
of BCP will decrease. BCP will consider the potential effects of Phantom Income
on its taxable stockholders in managing its investments.
TAXATION OF STOCKHOLDERS ON THE DISPOSITION OF THE COMMON STOCK
In general, any gain or loss realized upon a taxable disposition of the
Common Stock by a U.S. stockholder who is not a dealer in securities will be
treated as capital gain or loss. Any such capital gain or loss generally will
(x) in the case of U.S. stockholders which are corporations, be long-term
capital gain or loss if the Common Stock has been held for more than 12 months,
and (y) in the case of U.S. stockholders who are non-corporate taxpayers, be
long-term capital gain or loss taxed at a maximum federal income tax rate of (i)
20% if the U.S. stockholder's holding period in such Common Stock was more than
18 months at the time of such disposition or (ii) 28% if the U.S. stockholder's
holding period was more than one year but not more than 18 months at the time of
such disposition. In general, any loss upon a sale or exchange of Common Stock
by a U.S. stockholder who has held such Common Stock for six months or less
(after applying certain holding period rules) will be treated as long-term
capital loss to the extent of distributions from BCP required to be treated by
that stockholder as long-term capital gain.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
BCP will report to its U.S. stockholders and to the Service the amount of
distributions paid during each calendar year, and the amount of tax withheld, if
any. Under the backup withholding rules, a stockholder may be subject to backup
withholding at the rate of 31% with respect to distributions paid unless such
holder (i) is a corporation or comes within certain other exempt categories and,
when required, demonstrates this fact or (ii) provides a taxpayer identification
number, certifies as to no loss of exemption from backup withholding, and
otherwise complies with the applicable requirements of the backup withholding
rules. A stockholder who does not provide BCP with his correct taxpayer
identification number also may be subject to penalties imposed by the Service.
Any amount paid as backup withholding will be creditable against the
stockholder's income tax liability.
TAXATION OF TAX-EXEMPT STOCKHOLDERS
Tax exempt entities, including qualified employee pension and profit sharing
trusts and individual retirement accounts ("Exempt Organizations"), generally
are exempt from federal income taxation. However, they are subject to taxation
on their unrelated business taxable income ("UBTI"), as defined in Section
512(a)(1) of the Code. While many investments in real estate generate UBTI, the
Service has issued a published ruling that dividend distributions from a REIT to
an exempt employee pension trust do not constitute UBTI, provided that the
shares of the REIT are not otherwise used in an unrelated trade or business of
the exempt employee pension trust. Based on that ruling, amounts distributed by
BCP to Exempt Organizations generally should not constitute UBTI. However, if an
Exempt Organization finances its acquisition of the Common Stock with debt, a
portion of its income from BCP will constitute UBTI pursuant to the
"debt-financed property" rules. In addition, in certain circumstances, a pension
trust that owns more than 10% of BCP's stock is required to treat a percentage
of the dividends from BCP as UBTI. This rule applies to a pension trust holding
more than 10% (by value) of BCP's stock only if (i) the percentage of income of
BCP that is UBTI (determined as if BCP were a pension trust) is at least 5% and
(ii) BCP is treated as a "pension-held" REIT. BCP will be treated as a
"pension-held" REIT if (i) BCP qualifies as a REIT by reason of the modification
of the 5/50 Rule that allows the beneficiaries of the pension trust to be
treated as holding shares of BCP in proportion to their actuarial interests in
the
73
pension trust, and (ii) either (A) one pension trust owns more than 25% of the
value of BCP's stock or (B) a group of pension trusts individually holding more
than 10% of the value of BCP's stock collectively owns more than 50% of the
value of BCP's stock. BCP is unlikely to become a "pension-held" REIT because,
pursuant to the Aggregate Stock Ownership Limit and the Look-Through Ownership
Limit in the Charter of BCP, no person may beneficially own shares of Common
Stock in excess of 9.8% of the outstanding shares of Common Stock of BCP;
provided, however, that certain Look-Through Entities may beneficially own up to
15% of such shares of Common Stock. Although the Board of Directors of BCP has
the discretion to waive the application of the Aggregate Stock Ownership Limit
or the Look-Through Ownership Limit with respect to any person, the Board of
Directors intends to grant such waivers only in a manner that would not cause
BCP to be or become a "pension-held" REIT. However, there can be no assurance
that BCP will not become a "pension-held" REIT or that pension trusts will not
be required to treat a percentage of dividends received from BCP as UBTI.
TAXATION OF NON-U.S. STOCKHOLDERS
The rules governing U.S. federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships, and other foreign
stockholders (collectively, "Non-U.S. Stockholders") are complex, and no attempt
will be made herein to provide more than a summary of such rules. PROSPECTIVE
NON-U.S. STOCKHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS TO DETERMINE
THE IMPACT OF FEDERAL, STATE, AND LOCAL INCOME TAX LAWS WITH REGARD TO AN
INVESTMENT IN THE COMMON STOCK, INCLUDING ANY REPORTING REQUIREMENTS.
Distributions to Non-U.S. Stockholders that are not attributable to gain
from sales or exchanges by BCP of U.S. real property interests and are not
designated by BCP as capital gains dividends or returned capital gains will be
treated as dividends of ordinary income to the extent that they are made out of
current or accumulated earnings and profits of BCP. Such distributions
ordinarily will be subject to a withholding tax equal to 30% of the gross amount
of the distribution unless an applicable tax treaty reduces or eliminates that
tax. However, if income from the investment in the Common Stock is treated as
effectively connected with the Non-U.S. Stockholder's conduct of a U.S. trade or
business, the Non-U.S. Stockholder generally will be subject to federal income
tax at graduated rates, in the same manner as U.S. stockholders are taxed with
respect to such distributions (and also may be subject to the 30% branch profits
tax in the case of a Non-U.S. Stockholder that is a non-U.S. corporation). BCP
expects to withhold U.S. income tax at the rate of 30% on the gross amount of
any such distributions made to a Non-U.S. Stockholder unless (i) a lower treaty
rate applies and any required form evidencing eligibility for that reduced rate
is filed with BCP or (ii) the Non-U.S. Stockholder files an IRS Form 4224 with
BCP claiming that the distribution is effectively connected income. Furthermore,
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 Withholding Regulations"). The
New Withholding Regulations may alter the procedure for claiming the benefits of
an income tax treaty.
Distributions in excess of current and accumulated earnings and profits of
BCP will not be taxable to a Non-U.S. Stockholder to the extent that such
distributions do not exceed the adjusted basis of the stockholder's Common
Stock, but rather will reduce the adjusted basis of such shares. To the extent
that distributions in excess of current and accumulated earnings and profits
exceed the adjusted basis of a Non-U.S. Stockholder's Common Stock, such
distributions will give rise to tax liability if the Non-U.S. Stockholder would
otherwise be subject to tax on any gain from the sale or disposition of his
Common Stock, as described below. Because it generally cannot be determined at
the time a distribution is made whether or not such distribution will be in
excess of current and accumulated earnings and profits, the entire amount of any
distribution normally will be subject to withholding at the same rate as a
dividend. However, amounts so withheld are refundable to the extent it is
determined subsequently that such
74
distribution was, in fact, in excess of current and accumulated earnings and
profits of BCP. BCP is required to withhold 10% of any distribution in excess of
BCP's current and accumulated earnings and profits. Consequently, although BCP
intends to withhold at a rate of 30% on the entire amount of any distribution,
to the extent that BCP does not do so, any portion of a distribution not subject
to withholding at a rate of 30% will be subject to withholding at a rate of 10%.
For any year in which BCP qualifies as a REIT, distributions that are
attributable to gain from sales or exchanges by BCP of U.S. real property
interests (i.e., interests in real property located in the United States and
interests in U.S. corporations at least 50% or whose assets consist of U.S. real
property interests) will be taxed to a Non-U.S. Stockholder under the provisions
of the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). Under
FIRPTA, distributions attributable to gain from sales of U.S. real property
interests are taxed to a Non-U.S. Stockholder as if such gain were effectively
connected with a U.S. trade or business. Non-U.S. Stockholders thus would be
taxed at the normal capital gain rates applicable to U.S. stockholders (subject
to applicable alternative minimum tax and a special alternative minimum tax in
the case of nonresident alien individuals). Distributions subject to FIRPTA also
may be subject to the 30% branch profits tax in the hands of a non-U.S.
corporate stockholder not entitled to treaty relief or exemption. BCP is
required to withhold 35% of any distribution that is designated by BCP as a
capital gains dividend. The amount withheld is creditable against the Non-U.S.
Stockholder's FIRPTA tax liability.
Gain recognized by a Non-U.S. Stockholder upon a sale of his or her Common
Stock generally will not be taxed under FIRPTA if BCP is a "domestically
controlled REIT," defined generally as a REIT in which at all times during a
specified testing period less than 50% in value of the stock was held directly
or indirectly by non-U.S. persons. Although it is currently anticipated that BCP
will be a "domestically controlled REIT" and, therefore, that the sale of the
Common Stock will not be subject to taxation under FIRPTA, there can be no
assurance that BCP will be a "domestically-controlled REIT." Even if such gain
is not subject to FIRPTA, such gain will be taxable to a Non-U.S. Stockholder if
(i) investment in the Common Stock is effectively connected with the Non-U.S.
Stockholder's U.S. trade or business, in which case the Non-U.S. Stockholder
will be subject to the same treatment as U.S. stockholders with respect to such
gain, or (ii) the Non-U.S. Stockholder is a nonresident alien individual who was
present in the United States for 183 days or more during the taxable year and
certain other conditions apply, in which case the nonresident alien individual
will be subject to a 30% tax on the individual's capital gains. If the gain on
the sale of the Common Stock were to be subject to taxation under FIRPTA, the
Non-U.S. Stockholder would be subject to the same treatment as U.S. stockholders
with respect to such gain (subject to applicable alternative minimum tax and a
special alternative minimum tax in the case of nonresident alien individuals).
In addition, a purchaser of Common Stock subject to taxation under FIRPTA would
generally be required to deduct and withhold a tax equal to 10% of the amount
realized on the disposition by a Non-U.S. Stockholder. Any amount withheld would
be creditable against the Non-U.S. Stockholder's FIRPTA tax liability.
Additional issues may arise pertaining to information reporting and backup
withholding with respect to Non-U.S. Stockholders. The New Withholding
Regulations alter the application of the information reporting and backup
withholding rules to Non-U.S. Stockholders. Non-U.S. Stockholders should consult
with a tax advisor with respect to any such information reporting and backup
withholding requirements. Backup withholding with respect to a Non-U.S.
Stockholder is not an additional tax. Rather, the amount of any backup
withholding with respect to a payment to a Non-U.S. Stockholder will be allowed
as a credit against any United States federal income tax liability of such
Non-U.S. Stockholder. If withholding results in an overpayment of taxes, a
refund may be obtained, provided that the required information is furnished to
the Service.
75
OTHER TAX CONSEQUENCES
BCP, BCP's stockholders, the Operating Partnership or its General Partner or
Limited Partners may be subject to state and local tax in various states and
localities, including those states and localities in which it or they transact
business, own property, or reside. The state and local tax treatment of the
Company and its stockholders in such jurisdictions may differ from the federal
income tax treatment described above. Consequently, prospective stockholders
should consult their own tax advisors regarding the effect of state and local
tax laws upon an investment in the Common Stock. In addition, the Taxpayer
Relief Act of 1997 includes several provisions, some of which have been
described 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 BCP's
ability to operate as a REIT.
BCP SISTER CORP.
Each BCP Sister Corp. organized as a corporation will pay federal, state and
local income taxes on its taxable income at regular corporate rates. Any such
taxes will reduce amounts available for distribution by the BCP Sister Corp. to
its stockholders.
76
ERISA CONSIDERATIONS
ERISA and the Code impose certain restrictions on (a) Plans, including
individual retirement accounts or Keogh plans, (b) any entities whose underlying
assets include Plan assets by reason of a Plan's investment in such entities
("Plan Assets Entities") and (c) persons who have certain specified
relationships to such Plans and Plan Assets Entities ("Parties-in-Interest"
under ERISA and "Disqualified Persons" under the Code). Moreover, based on the
reasoning of the United States Supreme Court in JOHN HANCOCK LIFE INS. CO. V.
HARRIS TRUST AND SAV. BANK, 114 S. Ct. 517 (1993), an insurance company's
general account may be deemed to include assets of the Plans investing in the
general account (e.g., through the purchase of an annuity contract), and the
insurance company might be treated as a Party-in-Interest or Disqualified Person
with respect to a Plan by virtue of such investment. ERISA also imposes certain
duties on persons who are fiduciaries of Plans subject to ERISA and prohibits
certain transactions between a Plan and Parties-in-Interest or Disqualified
Persons with respect to such Plans.
THE TREATMENT OF THE COMPANY'S UNDERLYING ASSETS UNDER ERISA
The DOL has issued the Plan Assets Regulation which defines what constitutes
the assets of a Plan. This regulation provides that, as a general rule, the
underlying assets and properties of corporations, partnerships, trusts and
certain other entities in which a Plan purchases an "equity interest" will be
deemed for purposes of ERISA and the Code to be assets of the investing Plan
unless certain exceptions apply. The Plan Assets Regulation defines an "equity
interest" as any interest in an entity other than an instrument that is treated
as indebtedness under applicable local law and which has no substantial equity
features. The Common Stock offered hereby should be treated as "equity
interests" for purposes of the Plan Assets Regulation.
One exception under the Plan Assets Regulation provides that an investing
Plan's assets will not include any of the underlying assets of an entity if at
all times less than 25% of each class of "equity" interests in the entity is
held by "benefit plan investors," which is defined to include Plans that are not
subject to ERISA such as foreign benefit plans, governmental pension plans and
individual retirement accounts as well as Plans that are subject to ERISA.
Another exception is provided for an investment in an "operating company," which
is defined in the Plan Assets Regulation to include a "real estate operating
company." To be a "real estate operating company" an entity must have, on the
date of its first long-term investment and on certain annual testing dates
thereafter, at least 50% of its assets (other than short-term investments
pending long-term commitment or distribution to investors), valued at cost,
invested in real estate that is managed or developed and with respect to which
such entity has the right to substantially participate in such management or
development activities. Another exception under the Plan Assets Regulation
provides that an investing Plan's assets will not include any of the underlying
assets of an entity if the class of "equity" interests in question is a class of
"publicly offered securities." Publicly offered securities are securities that
are (i) widely held (i.e., held by 100 or more investors who are independent of
the issuer and each other), (ii) freely transferable, and (iii) part of a class
of securities registered under Section 12(b) or 12(g) of the Exchange Act.
The Board of Directors of the Company and any Sister Corp. will take such
steps as may be necessary to qualify for one or more of the exceptions available
under the Plan Assets Regulation and thereby prevent the assets of the Company
or any BCP Sister Corp. from being treated as assets of any investing Plan.
Specifically, BCP intends to qualify as a real estate operating company until at
least such time as the Common Stock qualifies as a class of publicly offered
securities. In this connection, BCP has obtained an opinion of counsel that, on
the date of the Operating Partnership's first long-term investment BCP qualified
as a real estate operating company. It is intended that, thereafter, on at least
one date during each of BCP's "annual valuation periods" (as defined in the Plan
Assets Regulation) until at least such time as the Common Stock qualifies as
publicly offered securities, at least 50% of the assets of BCP (valued at cost
and excluding certain short-term investments) will be invested, by reason of its
investment in the Operating Partnership, in real estate which is managed or
developed and as to which BCP will have
77
the right to substantially participate in the management or development of the
real estate. Consequently, BCP should qualify as a real estate operating
company. In addition, with respect to any BCP Sister Corp., the Company will
take such steps as may be necessary to qualify such BCP Sister Corp. as an
operating company or a venture capital operating company or for another
available exception under the Plan Assets Regulation prior to distribution of
its equity interests.
Any Plan fiduciary that proposes to cause a Plan to purchase Common Stock
should consult with its counsel with respect to the potential applicability of
ERISA and the Code to such investment and determine on its own whether any
exceptions or exemptions are applicable and whether all conditions of any such
exceptions or exemptions have been satisfied. Moreover, each Plan fiduciary
should determine whether, under the general fiduciary standards of investment
prudence and diversification, an investment in the Common Stock is appropriate
for the Plan, taking into account the overall investment policy of the Plan and
the composition of the Plan's investment portfolio.
SELLING STOCKHOLDERS
The Common Stock was originally issued by BCP and sold by NationsBanc
Montgomery Securities LLC (the "Initial Purchaser"), in a transaction exempt
from registration requirements of the Securities Act, to persons reasonably
believed by the Initial Purchaser to be "qualified institutional buyers" (as
defined in Rule 144A under the Securities Act), to a limited number of
institutional "accredited investors" (as defined in Rule 501 (a) (1), (2), (3)
or (7) under the Securities Act) and to individual "accredited investors" (as
defined in Rule 501 (a) (4), (5) or (6) under the Securities Act). The Selling
Stockholders may from time to time offer and sell pursuant to this Prospectus
any or all of the Common Stock. The term Selling Stockholders, includes the
holders listed below and the beneficial owners of the Common Stock and their
transferees, pledgees, donees or other successors.
The following table sets forth information with respect to the Selling
Stockholders of the Common Stock and the respective number of shares of Common
Stock beneficially owned by each Selling Stockholders that may be offered
pursuant to this Prospectus.
SELLING STOCKHOLDER NUMBER OF SHARES
[INSERT CHART]
78
Except as shown above, none of the Selling Stockholders has, or within the
past three years has had, any position, office or other material relationship
with the BCP or any of its predecessors or affiliates. Because the Selling
Stockholders may, pursuant to this Prospectus, offer all or some portion of the
Common Stock, no estimate can be given as to the amount of the Common Stock that
will be held by the Selling Stockholders upon termination of any such sales. In
addition, the Selling Stockholders identified above may have sold, transferred
or otherwise disposed of all or a portion of their Common Stock since the date
on which they provided the information regarding their Common Stock, in
transactions exempt from the registration requirements of the Securities Act,
including transactions pursuant to Rule 144 under the Securities Act.
PLAN OF DISTRIBUTION
The Offered Securities may be sold from time to time to purchasers directly
by the Selling Stockholders. Alternatively, the Selling Stockholders may from
time to time offer the Offered Securities to or through underwriters,
broker/dealers or agents, who may receive compensation in the form of
underwriting discounts, concessions or commissions from the Selling Stockholders
or the purchasers of such securities for whom they may act as agents. The
Selling Stockholders and any underwriters, broker/dealers or agents that
participate in the distribution of Offered Securities may be deemed to be
"underwriters" within the meaning of the Securities Act and any profit on the
sale of such securities and any discounts, commissions, concessions or other
compensation received by any such underwriter, broker/dealer or agent may be
deemed to be underwriting discounts and commissions under the Securities Act.
The Offered Securities may be sold from time to time in one or more
transactions at fixed prices, at prevailing market prices at the time of sale,
at varying prices determined at the time of sale or at negotiated prices. The
sale of the Offered Securities may be effected in transactions (which may
involve crosses or block transactions) (i) on any national securities exchange
or quotation service on which the Offered Securities may be listed or quoted at
the time of sale, (ii) in the over-the-counter market, (iii) in transactions
otherwise than on such exchanges or in the over-the-counter market or (iv)
through the writing of options. At the time a particular offering of the Offered
Securities is made, a Prospectus Supplement, if required, will be distributed
which will set forth the aggregate amount and type of Offered Securities being
offered and the terms of the offering, including the name or names of any
underwriters, broker/dealers or agents, any discounts, commissions and other
terms constituting compensation from the Selling Stockholders and any discounts,
commissions or concessions allowed or reallowed or paid to broker/ dealers.
Each Common Stock certificate contains a legend to the effect that the
holder thereof, by its acceptance thereof, will be deemed to have agreed to be
bound by the provisions of the Registration Rights Agreement. In that regard,
each holder is deemed to have agreed that, upon receipt of notice from the
Company of the occurrence of any event which makes a statement in this
prospectus untrue in any material respect or which requires the making of any
changes in such prospectus in order to make the statements therein not
misleading, or of certain other events specified in the Registration Rights
Agreement, such holder will suspend the sale of Common Stock pursuant to this
prospectus until the Company has amended or supplemented such prospectus to
correct such misstatement or omission and has furnished copies of the amended or
supplemented prospectus to such holder or the Company has given notice that the
sale of the Common Stock may be resumed.
To comply with the securities laws of certain jurisdictions, if applicable,
the Offered Securities will be offered or sold in such jurisdictions only
through registered or licensed brokers or dealers. In addition, in certain
jurisdictions the Offered Securities may not be offered or sold unless they have
been registered or qualified for sale in such jurisdictions or any exemption
from registration or qualification is available and is complied with.
79
The Selling Stockholders will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, which provisions may
limit the timing of the purchases and sales of any of the Offered Securities by
the Selling Stockholders. The foregoing may affect the marketability of such
securities.
All expenses of the registration of the Offered Securities will be paid by
the Company, including, without limitation, Commission filing fees and expenses
of compliance with state securities or "blue sky" laws; provided, however, that
the Selling Stockholders will pay all the underwriting discounts and selling
commissions, if any. The Selling Stockholders will be indemnified by the Company
against certain civil liabilities, including certain liabilities under the
Securities Act, or will be entitled to contribution in connection therewith. The
Company will be indemnified by the Selling Stockholders severally against
certain civil liabilities, including certain liabilities under the Securities
Act, or will be entitled to contribution in connection therewith.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Goodwin,
Procter & Hoar LLP, Boston, Massachusetts. Certain partners of Goodwin, Procter
& Hoar LLP directly or indirectly own an aggregate of 7,237 shares of Common
Stock of the Company.
EXPERTS
The (i) consolidated financial statements of Beacon Capital Partners, Inc.
at March 31, l998 and for the period from January 21, l998 (inception) through
March 31, l998, (ii) the combined historical summary of gross income and direct
operating expenses for The Athenaeum Portfolio for the year ended December 31,
l997, and (iii) the historical summary of gross income and direct operating
expenses for Technology Square and The Draper Building for the year ended
December 31, 1997, all appearing in this Prospectus and Registration Statement
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their reports thereon appearing elsewhere herein, and are included in reliance
upon such reports given upon the authority of such firm as experts in accounting
and auditing.
80
INDEX TO FINANCIAL STATEMENT AND SCHEDULES
Pro Forma Financial Information (Unaudited):
Beacon Capital Partners, Inc.
Pro Forma Condensed Consolidated Balance Sheet as of March 31, l998............. F-3
Notes to Pro Forma Condensed Consolidated Balance Sheet......................... F-4
Pro Forma Condensed Consolidated Statements of Operations for the Three Months
Ended March 31, l998 and the Year Ended December 31, l997...................... F-5
Notes to Pro Forma Condensed Consolidated Statements of Operations.............. F-7
Historical Financial Information:
Beacon Capital Partners, Inc.
Report of Independent Auditors.................................................. F-8
Consolidated Balance Sheet as of March 31, l998................................. F-9
Consolidated Statement of Operations from January 21, l998 (Inception) to March
31, l998....................................................................... F-10
Consolidated Statement of Stockholders' Equity from January 21, l998 (Inception)
to March 31, l998.............................................................. F-11
Consolidated Statement of Cash Flows from January 21, l998 (Inception) to March
31, l998....................................................................... F-12
Notes to Consolidated Financial Statements...................................... F-13
The Athenaeum Portfolio
Report of Independent Auditors.................................................. F-18
Combined Historical Summary of Gross Income and Direct Operating Expenses for
the Three Months ended March 31, l998 (Unaudited) and the Year Ended December
31, l997....................................................................... F-19
Notes to Combined Historical Summary of Gross Income and Direct Operating
Expenses....................................................................... F-20
Technology Square and The Draper Building
Report of Independent Auditors.................................................. F-21
Historical Summary of Gross Income and Direct Operating Expenses for the Three
Months ended March 31, l998 (Unaudited) and the Year Ended December 31, l997... F-22
Notes to Historical Summary of Gross Income and Direct Operating Expenses....... F-23
F-1
BEACON CAPITAL PARTNERS, INC.
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
The accompanying unaudited pro forma condensed consolidated balance sheet as
of March 31, 1998 has been prepared to reflect the acquisition of properties
subsequent to March 31, 1998, and the exercise of the underwriter's
over-allotment as if such transactions had occurred on March 31, 1998. The
accompanying unaudited pro forma condensed consolidated statements of operations
have been prepared to reflect the acquisition of properties subsequent to March
31, 1998 and the exercise of the underwriter's over-allotment as if such
transactions had occurred on January 1, 1997.
The pro forma information is unaudited and is not necessarily indicative of
the consolidated results that would have occurred if the transactions and
adjustments reflected therein had been consummated in the period or on the date
presented, or on any particular date in the future, nor does it purport to
represent the financial position, results of operations or changes in cash flows
for future periods. The pro forma information should be read in conjunction with
all of the financial statements and notes thereto and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.
F-2
BEACON CAPITAL PARTNERS, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
MARCH 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
PRO FORMA ADJUSTMENTS
---------------------------
PURCHASE OTHER
HISTORICAL TRANSACTIONS ADJUSTMENTS
(A) (B) (C) PRO FORMA
----------- ------------ ------------- -----------
ASSETS:
Real Estate
Operating properties................... $ -- $ 123,000 $ -- $ 123,000
----------- ------------ ------------- -----------
Total real estate.................. -- 123,000 -- 123,000
Cash and cash equivalents................ 323,893 (186,000) 67,185 205,078
Contributions receivable--affiliate...... 4,200 -- -- 4,200
Other assets............................. 3,777 -- -- 3,777
Investment in and advance to joint
venture................................ -- 63,000 -- 63,000
----------- ------------ ------------- -----------
Total assets....................... $ 331,870 $ -- $ 67,185 $ 399,055
----------- ------------ ------------- -----------
----------- ------------ ------------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Loans payable--affiliate............... $ 3,560 $ -- $ -- $ 3,560
Accounts payable and accrued
expenses............................. 1,387 -- -- 1,387
----------- ------------ ------------- -----------
Total liabilities.................. 4,947 -- -- 4,947
Minority interest (D).................... 4,200 -- -- 4,200
Stockholders' equity..................... 322,723 -- 67,185 389,908
----------- ------------ ------------- -----------
Total liabilities and stockholders'
equity........................... $ 331,870 $ -- $ 67,185 $ 399,055
----------- ------------ ------------- -----------
----------- ------------ ------------- -----------
SEE ACCOMPANYING NOTES.
F-3
BEACON CAPITAL PARTNERS, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
MARCH 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
(A) Reflects the historical consolidated balance sheet of Beacon Capital
Partners, Inc. as of March 31, 1998.
(B) Reflects the acquisition of (1) a portfolio of eleven buildings located in
Cambridge, MA known as The Athenaeum Portfolio and (2) the pending
acquisition of a four building complex known as Technology Square and an
adjacent building known as The Draper Building, also located in Cambridge,
MA, subsequent to March 31, 1998. The Company funded or will fund these
acquisitions with existing cash and the assumption of debt. The Athenaeum
Portfolio transaction reflects the formation by the Company of a 50% joint
venture with an affiliate of PaineWebber subsequent to the closing of the
transaction as if the formation of the joint venture had occurred on March
31, 1998. The following is a summary of the pro forma adjustments related to
purchase transactions as if they occurred on March 31, 1998:
TECHNOLOGY SQUARE
THE ATHENAEUM AND
PORTFOLIO THE DRAPER BUILDING TOTAL
-------------- ------------------- -----------
ASSETS
Real Estate:
Operating properties......................................... $ -- $ 123,000 $ 123,000
-------------- ---------- -----------
Total real estate........................................ -- 123,000 123,000
Cash and cash equivalents...................................... (63,000) (123,000) (186,000)
Investment in and advance to joint venture..................... 63,000 -- 63,000
-------------- ---------- -----------
Total assets............................................. $ -- $ -- $ --
-------------- ---------- -----------
-------------- ---------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities.................................................... $ -- $ -- $ --
Minority interest.............................................. -- -- --
Stockholders' equity........................................... -- -- --
-------------- ---------- -----------
Total liabilities and stockholders' equity............... $ -- $ -- $ --
-------------- ---------- -----------
-------------- ---------- -----------
(C) Reflects the issuance of 3,613,163 shares of common stock by the Company at
$20 per share (before giving effect to the Initial Purchaser's Discount as
defined in the Offering Memorandum covering issuance of the shares), net of
$4,885 of discounts and expenses, subsequent to March 31, 1998. Of the total
shares issued, 55,084 shares were sold net of the Initial Purchaser's
Discount.
(D) Minority interest of income represents a 1.1% minority interest in the
Operating Partnership.
F-4
BEACON CAPITAL PARTNERS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
PRO FORMA ADJUSTMENTS
----------------------------------
ACQUISITION OTHER CONSOLIDATED
HISTORICAL (A) PROPERTIES (B) ADJUSTMENTS (C) PRO FORMA
--------------- --------------- ----------------- ------------
Revenues:
Rental revenue................................... $ -- $ 2,575 $ -- $ 2,575
Equity in earnings of joint venture.............. -- 739 -- 739
Interest income.................................. 576 -- (207) 369
Other revenues................................... 8 -- -- 8
----- ------ ----- ------------
Total revenues............................... 584 3,314 (207) 3,691
----- ------ ----- ------------
Expenses:
Property operating............................... -- 478 -- 478
Real estate taxes................................ -- 496 -- 496
General and administrative....................... 968 -- -- 968
Depreciation and amortization.................... 3 540 -- 543
----- ------ ----- ------------
Total expenses............................... 971 1,514 -- 2,485
----- ------ ----- ------------
Income (loss) before minority interest............. (387) 1,800 (207) 1,206
Minority interest in operating
partnership (D).................................. -- (20) 7 (13)
----- ------ ----- ------------
Net income (loss).................................. $ (387) $ 1,780 $ (200) $ 1,193
----- ------ ----- ------------
----- ------ ----- ------------
Pro forma net income per share--basic and
diluted.......................................... $ .06
------------
------------
Weighted average number of common shares
outstanding (in thousands) (E)................... 20,974
------------
------------
SEE ACCOMPANYING NOTES.
F-5
BEACON CAPITAL PARTNERS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
PRO FORMA ADJUSTMENTS
------------------------------------
ACQUISITION OTHER CONSOLIDATED
HISTORICAL (A) PROPERTIES (B) ADJUSTMENTS (C) PRO FORMA
--------------- ----------------- ----------------- ------------
Revenues:
Rental revenue................................ $ -- $ 10,299 $ -- $ 10,299
Equity in earnings of joint venture........... -- 2,956 -- 2,956
----- ------- ----- ------------
Total revenues............................ -- 13,255 -- 13,255
----- ------- ----- ------------
Expenses:
Property operating............................ -- 1,962 -- 1,962
Real estate taxes............................. -- 1,929 -- 1,929
General and administrative.................... -- -- -- --
Depreciation and amortization................. -- 2,159 -- 2,159
----- ------- ----- ------------
Total expenses............................ -- 6,050 -- 6,050
----- ------- ----- ------------
Income before minority interest................. -- 7,205 -- 7,205
Minority interest in operating partnership (D).. -- (79) -- (79)
----- ------- ----- ------------
Net income...................................... $ -- $ 7,126 $ -- $ 7,126
----- ------- ----- ------------
----- ------- ----- ------------
Pro forma net income per share--basic and
diluted....................................... $ .34
------------
------------
Weighted average number of common shares
outstanding (in thousands) (E)................ 20,974
------------
------------
SEE ACCOMPANYING NOTES.
F-6
BEACON CAPITAL PARTNERS, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
(A) Reflects the historical condensed consolidated statement of operations of
Beacon Capital Partners, Inc. for the period January 21, 1998 (inception)
through March 31, 1998. Beacon Capital Partners, Inc. was not in existence
prior to January 21, 1998. See the historical consolidated financial
statements and notes thereto of Beacon Capital Partners, Inc. included
elsewhere in this prospectus.
(B) Reflects the acquisition of The Athenaeum Portfolio and the pending
acquisition of Technology Square and The Draper Building subsequent to March
31, 1998 based on the historical operations of such properties for periods
prior to acquisition by the Company. The Athenaeum Portfolio acquisition
reflects the formation by the Company of a 50% joint venture with an
affiliate of PaineWebber subsequent to the closing of the transaction as if
the formation of the joint venture had occurred on January 1, 1997. The
joint venture will be accounted for using the equity method of accounting
and, accordingly, 50% of the historical operations of The Athenaeum
Portfolio, adjusted for depreciation using an asset life of 40 years, has
been reflected in equity in earnings of joint venture. The pending
Technology Square and The Draper Building acquisition also reflects
estimated depreciation based upon an asset life of 40 years. See the
Combined Historical Summary of Gross Income and Direct Operating Expenses
and notes thereto for each of the properties included elsewhere in this
prospectus.
(C) Reflects interest income reduction attributed to cash used to fund the
acquisition of The Athenaeum Portfolio and the pending acquisition of
Technology Square and The Draper Building.
(D) Minority interest in operating partnership represents a 1.1% minority
interest in the Operating Partnership.
(E) Pro Forma net income per share includes the issuance 3,613,163 shares of
common stock by the Company subsequent to March 31, 1998. As each Operating
Partnership unit is redeemable for one share of common stock, the
calculation of earnings per share upon redemption will be unaffected as unit
holders and stockholders share equally on a per unit and per share basis in
the net income of the Company.
F-7
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
Beacon Capital Partners, Inc.
We have audited the accompanying consolidated balance sheet of Beacon
Capital Partners, Inc. as of March 31, 1998 and the related consolidated
statements of operations, stockholders' equity and cash flows for the period
from January 21, 1998 (inception) through March 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Beacon Capital
Partners, Inc. at March 31, 1998, and the consolidated results of its operations
and its cash flows for the period from January 21, 1998 (inception) through
March 31, 1998, in conformity with generally accepted accounting principles.
/S/ ERNST & YOUNG LLP
Boston, Massachusetts
June 3, 1998
F-8
BEACON CAPITAL PARTNERS, INC.
CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
ASSETS
Cash and cash equivalents......................................................... $ 323,893
Contributions receivable--affiliate............................................... 4,200
Other assets...................................................................... 3,777
---------
Total assets................................................................ $ 331,870
---------
---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Loans payable--affiliate........................................................ $ 3,560
Accounts payable and accrued expenses........................................... 1,387
---------
Total liabilities........................................................... 4,947
---------
Commitments and contingencies
Minority interest in consolidated partnership..................................... 4,200
Stockholders' Equity:
Preferred stock; $.01 par value, 200,000,000 shares authorized, none issued or
outstanding................................................................... --
Excess stock; $.01 par value, 250,000,000 shares authorized, none issued or
outstanding................................................................... --
Common stock; $.01 par value, 500,000,000 shares authorized, 17,360,769 shares
issued and outstanding........................................................ 174
Additional paid-in capital...................................................... 322,936
Accumulated deficit............................................................. (387)
---------
Total stockholders' equity.................................................. 322,723
---------
Total liabilities and stockholders' equity.................................. $ 331,870
---------
---------
SEE ACCOMPANYING NOTES.
F-9
BEACON CAPITAL PARTNERS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JANUARY 21, 1998 (INCEPTION) TO MARCH 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
Revenues:
Interest income.................................................................. $ 576
Other income..................................................................... 8
---------
Total revenues............................................................... 584
---------
Expenses:
General and administrative....................................................... 968
Depreciation..................................................................... 3
---------
Total expenses............................................................... 971
---------
Loss before minority interest...................................................... (387)
Minority interest in operating partnership......................................... --
---------
Net loss..................................................................... $ (387)
---------
---------
Loss per common share--basic and diluted........................................... $ (0.02)
---------
---------
Weighted average number of common shares outstanding (in thousands)................ 17,361
---------
---------
SEE ACCOMPANYING NOTES.
F-10
BEACON CAPITAL PARTNERS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 21, 1998 (INCEPTION) TO MARCH 31, 1998
(DOLLARS IN THOUSANDS)
ADDITIONAL
NUMBER OF COMMON PAID-IN ACCUMULATED
SHARES STOCK CAPITAL DEFICIT TOTAL
------------ ----------- ---------- ------------- ----------
Issuance of Common Stock, net..................... 17,360,769 $ 174 $ 322,936 $ -- $ 323,110
Net loss.......................................... -- -- -- (387) (387)
------------ ----- ---------- ----- ----------
Balance at March 31, 1998......................... 17,360,769 $ 174 $ 322,936 $ (387) $ 322,723
------------ ----- ---------- ----- ----------
------------ ----- ---------- ----- ----------
SEE ACCOMPANYING NOTES.
F-11
BEACON CAPITAL PARTNERS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 21, 1998 (INCEPTION) TO MARCH 31, 1998
(DOLLARS IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................................................ $ (387)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation expense.......................................................... 3
Increase (decrease) in cash arising from changes in operating assets and
liabilities:
Other assets.................................................................. (617)
Accounts payable and accrued expenses......................................... 1,387
---------
Net cash provided by operating activities................................... 386
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Deposits........................................................................ (3,000)
Acquisition costs............................................................... (119)
Purchases of furniture, fixtures and equipment.................................. (44)
---------
Net cash used in investing activities....................................... (3,163)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans payable--affiliate.......................................... 3,560
Issuance of common stock........................................................ 345,800
Offering costs.................................................................. (22,690)
---------
Net cash provided by financing activities................................... 326,670
---------
Net increase in cash and cash equivalents and balance at end of period.......... $ 323,893
---------
---------
SEE ACCOMPANYING NOTES.
F-12
BEACON CAPITAL PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
1. ORGANIZATION
Beacon Capital Partners, Inc. ("BCP") was incorporated on January 21, 1998
as a Massachusetts corporation (the "Formation"), and was initially capitalized
through loans payable from the two founders (Messrs. Leventhal and Fortin),
which were repaid in May 1998. BCP intends to qualify as a real estate
investment trust under the Internal Revenue Code of 1986, as amended. BCP was
formed to develop, acquire, lease and manage real estate and real estate related
assets.
On March 17, 1998, BCP was reincorporated as a Maryland corporation and on
March 20, 1998 it completed an initial private offering (the "Original
Offering") in accordance with Rule 144A of the Securities Act. BCP initially
issued 17,360,769 common shares with proceeds, net of expenses, of $323,110.
Subsequent to March 31, 1998, 3,613,163 additional shares were issued through
the exercise of the underwriter's over-allotment, with proceeds, net of
expenses, of $67,185.
In connection with the reincorporation of BCP in Maryland, BCP established
Beacon Capital Partners, L.P. (the "Operating Partnership"). BCP and the
Operating Partnership are collectively referred to as the "Company". The
Operating Partnership is a Delaware limited partnership. BCP is the sole general
partner of, and holds approximately 99% of the economic interest in, the
Operating Partnership. BCP holds an approximate 1% general partnership interest
in the Operating Partnership and the balance is held as a limited partnership
interest. The limited partnership interests not held by BCP are presented as
minority interest in the accompanying consolidated financial statements. The
term of the Operating Partnership commenced on March 16, 1998 and shall continue
until January 1, 2056 or until such time as a Liquidating Event, as defined, has
occurred. As contemplated in the Original Offering, a contribution of $4,200 was
due from an entity controlled by Messrs. Leventhal and Fortin to the Operating
Partnership for a 1% limited partner interest. For technical reasons, such
contribution could only be made subsequent to the closing of the first real
estate transaction of the Company. The $4,200 contribution was made on May 4,
1998.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The accompanying consolidated financial statements are prepared in
accordance with generally accepted accounting principles and include the
accounts of BCP and its majority-owned subsidiary, Beacon Capital Partners, L.P.
BCP consolidates all wholly-owned subsidiaries and those majority-owned
subsidiaries in which it exercises control. Investor entities over which BCP can
exercise influence, but does not control, are accounted for on the equity
method. All significant intercompany transactions and balances have been
eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
F-13
BEACON CAPITAL PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
BASIS OF ACCOUNTING (CONTINUED)
INCOME TAXES
For the period ending March 31, 1998, BCP had limited operations. Although
BCP is not yet able to elect to be taxed as a real estate investment trust
("REIT") under the Internal Revenue Code, BCP intends to make such election on
its initial Federal return for the taxable year ended December 31, 1998. As a
result of such election, BCP will generally not be subject to Federal income
taxes to the extent that it makes timely distributions to its shareholders at
least equal to its taxable income and meets certain other requirements for
qualification as a real estate investment trust.
BCP has indicated that it may acquire and operate businesses that do not
satisfy the REIT qualification tests prescribed by the Internal Revenue Code.
Transactions that give rise to such assets and income are expected to be owned
through a C corporation known as a "paper clip", the shares of such entity would
be distributed to BCP's stockholders. Such C corporation, if formed, will be
subject to Federal, state and local taxation.
REVENUE RECOGNITION
Revenues are recognized when earned and the amounts can be reasonably
estimated on the accrual basis of accounting.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of short-term, highly liquid assets with
original maturities of three months or less from the date of purchase.
FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment are recorded at cost and depreciated over
their useful lives, ranging from three to ten years.
STOCK OPTIONS
BCP has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related Interpretations
in accounting for its employee stock options because the alternative fair value
accounting provided for under FASB Statement No. 123, "Accounting for Stock-
Based Compensation," requires use of option valuation models that were not
developed for use in valuing employee stock options. Under APB 25, because the
exercise price of BCP's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
FAIR VALUE OF FINANCIAL INSTRUMENTS
BCP is required to disclose the fair value of financial instruments, for
which it is practicable to estimate such fair value. The fair value of financial
instruments are estimates based upon market conditions and perceived risks at
March 31, 1998 and require varying degrees of management judgment.
F-14
BEACON CAPITAL PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
BASIS OF ACCOUNTING (CONTINUED)
The fair value of financial instruments presented may not be indicative of
amounts BCP could realize on the disposition of the financial instruments.
Cash and cash equivalents are carried at an amount, which due to their
nature, approximates fair value.
BASIC EARNINGS PER COMMON SHARE
Computation of basic earnings per common share is based upon the weighted
average number of shares of common stock outstanding during the period
subsequent to the Original Offering.
As BCP has no dilutive securities, there is no difference between basic and
diluted earnings per share of common stock.
3. STOCK INCENTIVE PLAN
The Company has adopted a Stock Incentive Plan, which authorizes the grant
of options to purchase shares of common stock and other stock-based awards to
the Company's executive officers, independent directors and employees and other
key persons. The Stock Incentive Plan will be administered by the Compensation
Committee of the Board of Directors (the "Administrator").
The maximum number of shares of common stock reserved and available for
issuance under the Stock Incentive Plan will be such aggregate number of shares
as does not exceed the sum of (i) 12% of the outstanding equity interests in the
Company (including common stock and units subject to redemption rights) (as
determined as of the final original offering closing date plus (ii) as of the
last business day of each calendar quarter ending after the final original
offering closing date, an additional positive number equal to 10% of any net
increase of outstanding equity interests in the Company.
The Stock Incentive Plan permits the granting of (i) options to purchase
common stock intended to qualify as incentive stock options ("Incentive
Options") under Section 422 of the Internal Revenue Code and (ii) options that
do not so qualify ("Non-Qualified Options"). The option exercise price of each
option may not be less than 100% of the fair market value of the common stock on
the date of grant in the case of Incentive Options, and may not be less than 25%
of the fair market value of the common stock on the date of grant in the case of
Non-Qualified Options.
The term of each option will be fixed and may not exceed ten years from date
of grant in the case of an Incentive Option. The Administrator will determine at
what time or times each option may be exercised and, subject to the provisions
of the Stock Incentive Plan, the period of time, if any, after retirement,
death, disability or termination of employment during which options may be
exercised. Options may be made exercisable in installments, and the
exercisability of options may be accelerated by the Administrator.
F-15
BEACON CAPITAL PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
3. STOCK INCENTIVE PLAN (CONTINUED)
Changes in options outstanding under the Stock Incentive Plan during the
period were as follows:
NUMBER OF
SHARES UNDER PER SHARE OPTION
OPTION PRICE-AVERAGE
------------- -----------------
Granted at Initial Private Offering.......................... 649,500 $ 20.00
Granted March 20-March 31, 1998.............................. -- --
Canceled March 20-March 31, 1998............................. -- --
------------- ------
Shares under option at March 31, 1998........................ 649,500 $ 20.00
------------- ------
------------- ------
Options available for grant at beginning of period........... --
-------------
-------------
Options available for grant at end of period................. 1,460,816
-------------
-------------
The weighted-average fair value of the options granted during the period is
$20.00.
4. LONG-TERM INCENTIVE PLAN
The Company has adopted a Long-Term Incentive Plan which is designed to
reward certain members of management for growth of the Company's Funds from
Operations, as defined by the National Association of Real Estate Investment
Trusts, in excess of a specified benchmark. If the Company's Funds from
Operations exceeds the specified benchmark, management will be entitled to
receive an incentive return which shall be calculated at the end of the three
year period following the completion of the first calendar year following the
closing of the original offering (the "Determination Date").
The incentive return shall equal the product of (A) 12% of the dollar amount
by which (i) the Actual Return, as defined, exceeds (ii) the Base Return, as
defined, multiplied by (B) the weighted average of shares of common stock and
units outstanding for the 12 months immediately preceding the Determination Date
multiplied by (C) the Company's Multiple, as defined.
The Long-Term Incentive Plan will take the form of a convertible unit which
will be issued to an affiliated organization in connection with the closing of
the original offering. The convertible unit is convertible at the Determination
Date into a certain number of incentive units in the Operating Partnership with
a fair market value equal to the amount of the incentive return. No amount has
been earned with respect to the Long-Term Incentive Plan.
5. SUBSEQUENT EVENTS
On May 1, 1998 the Company purchased a portfolio of eleven buildings in
Cambridge, MA known as The Athenaeum Portfolio. The mixed-use portfolio consists
of approximately 970,000 square feet and contains office, laboratory and retail
uses as well as a 1,530 space parking garage. The purchase price for the
portfolio was $195,000, including the assumption of approximately $69,000 of
first mortgage debt. Subsequent to the closing of the transaction, the Company
completed the formation of a joint venture with an affiliate of PaineWebber, in
which both parties hold a 50% equity interest in the properties.
F-16
BEACON CAPITAL PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
5. SUBSEQUENT EVENTS (CONTINUED)
On April 22, 1998, the Company entered into a purchase and sale agreement
with The Prudential Insurance Company of America ("Prudential") to acquire a
four-building complex known as Technology Square and an adjacent building known
as The Draper Building. The properties are located in Cambridge, MA, and consist
of approximately 1,026,000 square feet. The purchase price for the properties
under the purchase and sale agreement is $123,000. The Company and Prudential
are currently negotiating the form of the consideration for the properties.
F-17
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
Beacon Capital Partners, Inc.
We have audited the accompanying Combined Historical Summary of Gross Income
and Direct Operating Expenses (the "Historical Summary") for One Kendall Square
Buildings 100-500, One Kendall Square Buildings 600/650/700, One Kendall Square
Building 1400, One Kendall Square Building 1500, One Kendall Square Building
1700, 215 First Street, the One Kendall Square Cinema, the One Kendall Square
Parking Garage, and 195 First Street Parking Lot (collectively, known as "The
Athenaeum Portfolio") for the year ended December 31, 1997. This Historical
Summary is the responsibility of The Athenaeum Portfolio's management. Our
responsibility is to express an opinion on the Historical Summary based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the Historical Summary is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the Historical Summary. An audit also includes
assessing the basis of accounting used and significant estimates made by
management, as well as evaluating the overall presentation of the Historical
Summary. We believe that our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission for inclusion in the Registration Statement on Form S-11 of Beacon
Capital Partners, Inc. as described in Note 1, and is not intended to be a
complete presentation of The Athenaeum Portfolio's revenues and expenses.
In our opinion, the Historical Summary referred to above presents fairly, in
all material respects, the gross income and direct operating expenses described
in Note 1 of The Athenaeum Portfolio for the year ended December 31, 1997, in
conformity with generally accepted accounting principles.
/S/ ERNST & YOUNG LLP
Boston, Massachusetts
May 22, 1998
F-18
COMBINED HISTORICAL SUMMARY OF GROSS INCOME AND DIRECT OPERATING EXPENSES
FOR THE ATHENAEUM PORTFOLIO
(DOLLARS IN THOUSANDS)
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
1998 1997
------------- ------------
(UNAUDITED)
Gross income
Rental income..................................................................... $ 4,948 $ 19,593
Reimbursement of operating expenses and taxes..................................... 1,349 5,238
Other income...................................................................... 53 213
------ ------------
Total gross income.................................................................. 6,350 25,044
------ ------------
Direct operating expenses
Property operating................................................................ 1,420 5,514
Real estate taxes................................................................. 963 3,740
------ ------------
Total direct operating expenses..................................................... 2,383 9,254
------ ------------
Gross income in excess of direct operating expenses............................... $ 3,967 $ 15,790
------ ------------
------ ------------
SEE ACCOMPANYING NOTES.
F-19
NOTES TO COMBINED HISTORY SUMMARY OF GROSS INCOME
AND DIRECT OPERATING EXPENSES
FOR THE ATHENAEUM PORTFOLIO
(DOLLARS IN THOUSANDS)
1. GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Presented herein is the combined historical summary ("Historical Summary")
of gross income and direct operating expenses of the following properties, held
under common control (collectively, "The Athenaeum Portfolio"):
One Kendall Square Buildings 100-500 One Kendall Square Cinema
One Kendall Square Buildings 600/650/700 195 First Street Parking Lot
One Kendall Square Building 1400 215 First Street
One Kendall Square Building 1500 One Kendall Square Parking Garage
One Kendall Square Building 1700
The mixed-use properties were acquired by Beacon Capital Partners, Inc. on
May 1, 1998.
The accompanying Historical Summary has been prepared in accordance with
Rule 3-14 of Regulation S-X of the Securities and Exchange Commission for
inclusion in the Registration Statement on Form S-11 of Beacon Capital Partners,
Inc. Accordingly, certain historical expenses which may not be comparable to the
expenses expected to be incurred in the proposed future operations of The
Athenaeum Portfolio have been excluded. Excluded expenses consist of
depreciation and amortization, and interest not directly related to the future
operations of The Athenaeum Portfolio.
Rental income is recognized on a straight line basis over the term of the
related leases.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. LEASES
Minimum future rentals under operating leases with The Athenaeum Portfolio
in effect at December 31, 1997 are summarized as follows:
YEAR
- -----------------------------------------------------------------------------------
1998............................................................................... $ 16,711
1999............................................................................... 16,195
2000............................................................................... 13,833
2001............................................................................... 12,090
2002............................................................................... 9,876
Thereafter......................................................................... 20,633
---------
$ 89,338
---------
---------
Terms of the leases range from one to twenty years and provide for operating
expense reimbursement, real estate tax escalations and, in certain cases,
percentage rent and increases in minimum rent. Approximately 26% of The
Athenaeum Portfolio's revenue for the year ended December 31, 1997 was derived
from one tenant.
F-20
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
Beacon Capital Partners, Inc.
We have audited the accompanying Historical Summary of Gross Income and
Direct Operating Expenses (the "Historical Summary") for Technology Square and
The Draper Building owned by Asahi Seimei-Prudential Associates, Number Three
for the year ended December 31, 1997. This Historical Summary is the
responsibility of Technology Square and The Draper Building's management. Our
responsibility is to express an opinion on the Historical Summary based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the Historical Summary is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the Historical Summary. An audit also includes
assessing the basis of accounting used and significant estimates made by
management, as well as evaluating the overall presentation of the Historical
Summary. We believe that our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission for inclusion in the Registration Statement on Form S-11 of Beacon
Capital Partners, Inc. as described in Note 1, and is not intended to be a
complete presentation of Technology Square and The Draper Building's revenues
and expenses.
In our opinion, the Historical Summary referred to above presents fairly, in
all material respects, the gross income and direct operating expenses described
in Note 1 of Technology Square and The Draper Building for the year ended
December 31, 1997, in conformity with generally accepted accounting principles.
/S/ ERNST & YOUNG LLP
Boston, Massachusetts
May 22, 1998
F-21
HISTORICAL SUMMARY OF GROSS INCOME AND DIRECT OPERATING EXPENSES
FOR TECHNOLOGY SQUARE AND THE DRAPER BUILDING
(DOLLARS IN THOUSANDS)
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
1998 1997
------------- -------------
(UNAUDITED)
Gross income
Rental income..................................................................... $ 2,077 $ 8,164
Reimbursement of operating expenses and taxes..................................... 498 2,077
Other income...................................................................... -- 58
------ ------
Total gross income.................................................................. 2,575 10,299
------ ------
Direct operating expenses
Property operating................................................................ 478 1,962
Real estate taxes................................................................. 496 1,929
------ ------
Total direct operating expenses..................................................... 974 3,891
------ ------
Gross income in excess of direct operating expenses............................... $ 1,601 $ 6,408
------ ------
------ ------
SEE ACCOMPANYING NOTES.
F-22
NOTES TO HISTORICAL SUMMARY OF GROSS INCOME
AND DIRECT OPERATING EXPENSES
FOR TECHNOLOGY SQUARE AND THE DRAPER BUILDING
(DOLLARS IN THOUSANDS)
1. GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Asahi Seimei-Prudential Associates, Number Three (the "Joint Venture") owns
five office buildings, two garages leased to two tenants and land with a surface
parking lot located in Cambridge, Massachusetts (collectively, "Technology
Square and The Draper Building"). Asahi International Ltd. and The Prudential
Insurance Company of America ("Prudential") are the Joint Venture Partners and
each have a 50% interest in the Joint Venture.
The accompanying Historical Summary has been prepared in accordance with
Rule 3-14 of Regulation S-X of the Securities and Exchange Commission for
inclusion in the Registration Statement on Form S-11 of Beacon Capital Partners,
Inc. Accordingly, certain historical expenses which may not be comparable to the
expenses expected to be incurred in the proposed future operations of Technology
Square and The Draper Building have been excluded. Excluded expenses consist of
depreciation and amortization, interest and asset management costs not directly
related to the future operations of Technology Square and The Draper Building.
Rental income is recognized on a straight line basis over the term of the
related leases.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amount reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. LEASES
The Joint Venture, as lessor, has entered into non-cancelable operating
leases at Technology Square and The Draper Building. Minimum future rentals
under the leases in effect at December 31, 1997 are summarized as follows:
YEAR
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1998............................................................................... $ 8,309
1999............................................................................... 5,616
2000............................................................................... 2,923
2001............................................................................... 2,436
---------
$ 19,284
---------
---------
The leases at Technology Square are generally for a term greater than one
year and no more than five years and provide for operating expense
reimbursement, real estate tax escalations and, in certain cases, increases in
minimum rent. The Draper Building is leased on a triple net basis to a single
tenant on a long-term lease through 2001, with extension options through October
2051. Approximately 99% of Technology Square and The Draper Building's revenue
at December 31, 1997 was derived from three tenants.
F-23
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NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OTHER PERSON. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY
JURISDICTION IN WHICH 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 ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
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TABLE OF CONTENTS
PAGE
-----
NOTE REGARDING MANAGEMENT'S EXPERIENCE........... i
CAUTIONARY STATEMENTS FOR PURPOSES OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995....... i
AVAILABLE INFORMATION............................ ii
OFFERING SUMMARY................................. 1
RISK FACTORS..................................... 10
INVESTMENT STRATEGIES AND EXPERIENCE............. 22
THE COMPANY...................................... 27
USE OF PROCEEDS.................................. 44
DISTRIBUTION POLICY.............................. 44
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT................................. 45
PRICE RANGE OF COMMON STOCK...................... 47
CAPITALIZATION................................... 47
SELECTED HISTORICAL AND UNAUDITED PRO FORMA
FINANCIAL DATA................................. 48
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............ 49
DESCRIPTION OF SECURITIES........................ 50
CERTAIN PROVISIONS OF MARYLAND LAW AND OF BCP'S
CHARTER AND BYLAWS............................. 55
COMMON STOCK AVAILABLE FOR FUTURE SALE........... 59
OPERATING PARTNERSHIP AGREEMENT.................. 60
FEDERAL INCOME TAX CONSIDERATIONS................ 64
ERISA CONSIDERATIONS............................. 77
SELLING STOCKHOLDERS............................. 78
PLAN OF DISTRIBUTION............................. 79
LEGAL MATTERS.................................... 80
EXPERTS.......................................... 80
INDEX TO FINANCIAL STATEMENT AND SCHEDULES....... F-1
20,394,843 SHARES
BEACON CAPITAL
PARTNERS, INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
, 1998
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 31. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION (1)
The following table sets forth the estimated expenses payable by the Company
in connection with this offering (excluding underwriting discounts and
commissions):
NATURE OF EXPENSE AMOUNT
- ---------------------------------------------------------------------------------- ----------
SEC Registration Fee.............................................................. $ 120,330
Accounting Fees and Expenses...................................................... 200,000
Legal Fees and Expenses........................................................... 250,000
Printing Expenses................................................................. 75,000
Miscellaneous..................................................................... 75,000
----------
Total....................................................................... $ 720,330
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(1) The amounts set forth above, except for the SEC Registration fee, are in
each case estimated.
ITEM 32. SALES TO SPECIAL PARTIES.
See Item 33.
ITEM 33. RECENT SALES OF UNREGISTERED SECURITIES
Set forth in chronological order below is information regarding the number
of unregistered shares of capital stock issued by the Registrant since its
incorporation in 1998. Further included is the consideration, if any, received
by the Registrant for such shares, and information relating to the section of
the Securities Act of 1933, as amended (the "Securities Act"), or rule of the
Securities and Exchange Commission under which exemption from registration was
claimed.
(1) In March 1998, BCP issued 1,000 shares of its Common Stock for an
aggregate purchase price of $10.00 to Beacon Capital Partners, Inc., a
Massachusetts corporation, in reliance upon the exemption from registration
under Section 4(2) of the Securities Act.
(2) In March 1998, BCP issued 200 shares of its Common Stock to the
stockholders of Beacon Capital Partners, Inc., a Massachusetts corporation,
in exchange for all of the outstanding capital stock of Beacon Capital
Partners, Inc., a Massachusetts corporation, pursuant to a merger agreement
and in reliance upon the exemption from registration under Section 4(2) of
the Securities Act.
(3) On March 20, 1998, BCP issued an aggregate of 16,781,680 shares of
Common Stock to Qualified Institutional Buyers (as defined in Rule 144A
under the Securities Act) in reliance upon the exemption from registration
requirements provided by Rule 144A under the Securities Act and to a limited
number of "accredited investors" (as defined in Rule 501 under the
Securities Act) in reliance upon the exemption from registration provided by
Regulation D under the Securities Act. The initial purchaser of such shares
of Common Stock was NationsBanc Montgomery Securities LLC. The aggregate
proceeds to BCP from such offering and the aggregate initial purchaser's
discount were $312,969,332 and $22,021,651, respectively.
(4) On March 20, 1998, the Company issued an aggregate of 579,089 shares
of Common Stock and 225,201 Units to two trusts established by Alan M.
Leventhal and Lionel P. Fortin for an
II-1
aggregate cash purchase price of approximately $15,000,000 in reliance upon
the exemption from registration under Section 4(2) of the Securities Act.
(5) On April 3, 1998, BCP issued an aggregate of 2,707,213 shares of
Common Stock pursuant to an over-allotment option granted to NationsBanc
Montgomery Securities LLC in connection with the offering on March 20, 1998,
to Qualified Institutional Buyers (as defined in Rule 144A under the
Securities Act) in reliance upon the exemption from registration
requirements provided by Rule 144A under the Securities Act and to a limited
number of "accredited investors" (as defined in Rule 501 under the
Securities Act) in reliance upon the exemption from registration provided by
Regulation D under the Securities Act. The initial purchaser of such shares
of Common Stock was NationsBanc Montgomery Securities LLC. The aggregate
proceeds to BCP from such offering and the aggregate initial purchaser's
discount were $50,489,522 and $3,510,503, respectively.
(6) On April 13, 1998, BCP issued an aggregate of 905,950 shares of
Common Stock pursuant to an over-allotment option granted to NationsBanc
Montgomery Securities LLC in connection with the offering on March 20, 1998,
to Qualified Institutional Buyers (as defined in Rule 144A under the
Securities Act) in reliance upon the exemption from registration
requirements provided by Rule 144A under the Securities Act and to a limited
number of "accredited investors" (as defined in Rule 501 under the
Securities Act) in reliance upon the exemption from registration provided by
Regulation D under the Securities Act. The initial purchaser of such shares
of Common Stock was NationsBanc Montgomery Securities LLC. The aggregate
proceeds to BCP from such offering and the aggregate initial purchaser's
discount were $16,895,968 and $1,174,904, respectively.
ITEM 34. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The MGCL permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability result
from (a) actual receipt of an improper benefit or profit in money, property or
services or (b) active and deliberate dishonesty established by a final judgment
as being material to the cause of action. The Charter contains such a provision
which eliminates such liability to the maximum extent permitted by the MGCL.
The Charter authorizes BCP, to the maximum extent permitted by Maryland law,
to obligate itself to indemnify and to pay or reimburse reasonable expenses in
advance of final disposition of a proceeding to (a) any present or former
director or officer or (b) any individual who, while a director of BCP and at
the request of BCP serves or has served another corporation, real estate
investment trust, partnership, joint venture, trust, employee benefit plan or
any other enterprise as a director, officer, partner or trustee of such
corporation, real estate investment trust, partnership, joint venture, trust,
employee benefit plan or other enterprise from and against any claim or
liability to which such person may become subject or which such person may incur
by reason of his or her status as a present or former director or officer of
BCP. The Bylaws obligate BCP, to the maximum extent permitted by Maryland law,
to indemnify and, without requiring a preliminary determination of the ultimate
entitlement to indemnification, to pay or reimburse reasonable expenses in
advance of final disposition of a proceeding to (a) any present or former
director or officer who is made a party to the proceeding by reason of his
service in that capacity or (b) any individual who, while a director of BCP and
at the request of BCP, serves or has served another corporation, real estate
investment trust, partnership, joint venture, trust, employee benefit plan or
any other enterprise as a director, officer, partner or trustee of such
corporation, real estate investment trust, partnership, joint venture, trust,
employee benefit plan or other enterprise and who is made a party to the
proceeding by reason of his service in that capacity. The Charter and Bylaws
also permit BCP to indemnify and advance expenses to any person who served a
predecessor of BCP in any of the capacities described above. Under the Bylaws,
if a claim for indemnification or advancement of expenses by a director or
officer is not paid in full by BCP within (a) 60 days after the receipt by BCP
of a written claim for indemnification or (b) in the case of a director, 10 days
after the receipt by BCP of documentation of expenses and the required
II-2
undertaking, such director or officer may at any time thereafter bring suit
against BCP to recover the unpaid amount of the claim, and if successful in
whole or in part, such director or officer is also entitled to be paid the
expenses of prosecuting such claim. The Bylaws permit BCP to maintain (and it
does maintain) insurance, at its expense, to protect itself and any director,
officer, or non-officer employee against any liability of any character asserted
against or incurred by BCP or any such director, officer, or non-officer
employee, or arising out of any such person's corporate status, whether or not
BCP would have the power to indemnify such person against such liability under
the MGCL or the Bylaws.
The MGCL requires a corporation (unless its charter provides otherwise,
which the Charter does not) to indemnify a director or officer who has been
successful, on the merits or otherwise, in the defense of any proceeding to
which his is made a party by reason of his service in that capacity. The MGCL
permits a corporation to indemnify its present and former directors and
officers, among others, against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by them in connection with any proceeding
to which they may be made a party by reason of their service in those or other
capacities unless it is established that (a) the act or omission of the director
or officer was material to the matter giving rise to the proceeding and (i) was
committed in bad faith or (ii) was the result of active and deliberate
dishonesty, (b) the director or officer actually received an improper personal
benefit in money, property or services or (c) in the case of any criminal
proceeding, the director or officer had reasonable cause to believe that the act
or omission was unlawful. However, under the MGCL, a Maryland corporation may
not indemnify for an adverse judgment in a suit by or in the right of the
corporation or for a judgment of liability on the basis that personal benefit
was improperly received, whether or not received in the director's or officer's
official capacity, unless in either case a court orders indemnification and then
only for expenses. In addition, the MGCL permits a corporation to advance
reasonable expenses to a director or officer upon the corporation's receipt of
(a) a written affirmation by the director or officer of his good belief that he
has met the standard of conduct necessary for indemnification by the corporation
and (b) a written undertaking by or on his behalf to repay the amount paid or
reimbursed by the corporation if it shall ultimately be determined that the
standard of conduct was not met. Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors, officers or
persons controlling BCP pursuant to the foregoing provisions, BCP has been
informed that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is therefore unenforceable.
BCP has entered into indemnification agreements with each of its directors
and senior officers. The indemnification agreements require, among other
matters, that BCP indemnify its directors and officers, as well as their spouses
and children, to the fullest extent permitted by Maryland 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, BCP must also indemnify and advance all expenses incurred by
directors and officers seeking to enforce their rights under the indemnification
agreements or recovery under any directors' and officers' liability insurance
policies maintained by BCP.. BCP is not required to indemnify the director or
officer for amounts paid or to be paid in settlement unless such settlement is
approved in advance by BCP. The agreements also require BCP to provide to the
directors or officers the maximum amount of directors' and officers' liability
insurance available under any insurance policy or policies maintained by BCP,
and to continue such coverage for seven years after the directors or officers no
longer serve as directors or officers of BCP for events occurring during their
service with BCP.
Under Section 8 of the Purchase Agreement filed as Exhibit 1.1 hereto, the
Initial Purchaser has agreed to indemnify, under certain conditions, BCP, its
directors, officers, employees and persons who control BCP within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act against
certain losses, claims, damages, liabilities or expenses.
II-3
ITEM 35. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED.
Not applicable.
ITEM 36. FINANCIAL STATEMENTS AND EXHIBITS.
(a) The following financial statements are being filed as part of this
Registration Statement:
Pro Forma Financial Information (Unaudited):
Beacon Capital Partners, Inc.
Pro Forma Condensed Consolidated Balance Sheet as of March 31, l998
Notes to Pro Forma Condensed Consolidated Balance Sheet
Pro Forma Condensed Consolidated Statements of Operations for the Three Months
Ended March 31, l998 and the Year Ended December 31, l997
Notes to Pro Forma Condensed Consolidated Statements of Operations
Historical Financial Information:
Beacon Capital Partners, Inc.
Report of Independent Auditors
Consolidated Balance Sheet as of March 31, l998
Consolidated Statement of Operations from January 21, l998 (Inception) to March
31, l998
Consolidated Statement of Stockholders' Equity from January 21, l998
(Inception) to March 31, l998
Consolidated Statement of Cash Flows from January 21, l998 (Inception) to March
31, l998
Notes to Consolidated Financial Statements
The Athenaeum Portfolio
Report of Independent Auditors
Combined Historical Summary of Gross Income and Direct Operating Expenses for
the Three Months ended March 31, l998 (Unaudited) and the Year Ended December
31, l997
Notes to Historical Summary of Gross Income and Direct Operating Expenses
Technology Square and The Draper Building
Report of Independent Auditors
Historical Summary of Gross Income and Direct Operating Expenses for the Three
Months ended March 31, l998 (Unaudited) and the Year Ended December 31, l997
Notes to Historical Summary of Gross Income and Direct Operating Expenses
II-4
(b) Exhibits. The following is a complete list of Exhibits filed or
incorporated by reference as part of this Registration Statement.
1.1 Placement Agent Agreement between NationsBanc Montgomery Securities LLC and the
Company, as amended.
2.1 Agreement and Plan of Merger by and between the Predecessor and the Company.
3.1 Articles of Incorporation.
3.2 Certificate of Correction to Articles of Incorporation.
3.3 Amended and Restated By-laws.
3.4* Agreement of Limited Partnership of Beacon Capital Partners, L.P.
4.1 Specimen certificate for shares of Common Stock, $.01 par value, of the Company.
5.1* Opinion of Goodwin, Procter & Hoar LLP as to the validity of the securities being
offered.
10.1 Employment and Non-Competition Agreement for Alan M. Leventhal.
10.2 Employment and Non-Competition Agreement for Lionel P. Fortin.
10.3 Beacon Capital Partners 1998 Stock Option and Incentive Plan.
10.4 Form of Indemnification Agreement between the Registrant and its directors and
executive officers.
10.5 Purchase and Sale Contract between Eastern Properties Master LLC and the Registrant.
21.1* Subsidiaries of the Registrant.
23.1* Consent of Goodwin, Procter & Hoar LLP (included in Exhibit 5.1 hereto).
23.2 Consent of Ernst & Young LLP.
24. Power of Attorney (included on the signature page hereto).
27. Financial Data Schedule.
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* To be filed by amendment
ITEM 37. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant 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, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-5
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of this Registration Statement as of the time it
was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Boston, Massachusetts, on June 12,
1998.
BEACON CAPITAL PARTNERS, INC.
By: /s/ ALAN M. LEVENTHAL
---------------------------------------------
Alan M. Leventhal
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE
OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each individual whose signature appears
below constitutes and appoints each of Alan M. Leventhal and Lionel P. Fortin
such person's true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for such person and 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 to any
other registration statement for the same offering that is to be effective upon
filing pursuant to Rule 462(b) under the Securities Act), 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.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------------------------- ------------------------------------------ ---------------
/s/ ALAN M. LEVENTHAL Chairman of the Board and Chief June 12, 1998
--------------------------------------- Executive Officer and
Alan M. Leventhal Director (Principal Executive Officer)
/s/ LIONEL P. FORTIN President, Chief Operating Officer June 12, 1998
--------------------------------------- Executive Officer and
Lionel P. Fortin and Director
/s/ RANDY J. PARKER Senior Vice President and Chief June 12, 1998
--------------------------------------- Financial Officer (Principal Financial
Randy J. Parker and Accounting Officer)
/s/ STEPHEN T. CLARK Director June 12, 1998
---------------------------------------
Stephen T. Clark
/s/ STEVEN SHULMAN Director June 12, 1998
---------------------------------------
Steven Shulman
/s/ SCOTT M. SPERLING Director June 12, 1998
---------------------------------------
Scott M. Sperling
II-7
EXHIBIT INDEX
1.1 Placement Agent Agreement between NationsBanc Montgomery Securities LLC and the
Company, as amended
2.1 Agreement and Plan of Merger by and between the Predecessor and the Company.
3.1 Articles of Incorporation.
3.2 Certificate of Correction to Articles of Incorporation.
3.3 Amended and Restated By-laws.
3.4* Agreement of Limited Partnership of Beacon Capital Partners, L.P.
4.1 Specimen certificate for shares of Common Stock, $.01 par value, of the Company.
5.1* Opinion of Goodwin, Procter & Hoar LLP as to the validity of the securities being
offered.
10.1 Employment and Non-Competition Agreement for Alan M. Leventhal.
10.2 Employment and Non-Competition Agreement for Lionel P. Fortin.
10.3 Beacon Capital Partners 1998 Stock Option and Incentive Plan.
10.4 Form of Indemnification Agreement between the Registrant and its directors and
executive officers.
10.5 Purchase and Sale Contract between Eastern Properties Master LLC and the Registrant.
21.1* Subsidiaries of the Registrant.
23.1* Consent of Goodwin, Procter & Hoar LLP (included in Exhibit 5.1 hereto).
23.2 Consent of Ernst & Young LLP.
24. Power of Attorney (included on the signature page hereto).
27. Financial Data Schedule.
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* To be filed by amendment