<PAGE>
As filed with the Securities and Exchange Commission on December 21, 1998
REGISTRATION STATEMENT NO. 333-____
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------
BOSTON PROPERTIES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 04-2473675
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
8 Arlington Street
Boston, Massachusetts 02116
(617) 859-2600
(Address, including zip code, and telephone number, including area code
of Registrant's principal executive offices)
-------------------------
Mortimer B. Zuckerman, Chairman
Edward H. Linde, President
and Chief Executive Officer
BOSTON PROPERTIES, INC.
8 Arlington Street
Boston, Massachusetts 02116
(617) 859-2600
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copy to:
GILBERT G. MENNA, P.C.
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
(617) 570-1000
-------------------------
Approximate date of commencement of proposed sale to the public: From time to
time after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this form is used to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=================================================================================================================================
Title of Securities being Amount to be Registered(2) Proposed Maximum Proposed Maximum Amount of
Registered(1) Offering Aggregate Registration Fee
Price Per Share(3) Offering Price(4)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Preferred Stock(5)
Common Stock(6) $1,500,000,000 N.A. $1,500,000,000 $417,000
Warrants(7)
=================================================================================================================================
</TABLE>
(1) This Registration Statement also relates to the rights to purchase shares of
Series E Junior Participating Cumulative Preferred Stock of the Registrant
which are attached to all shares of Common Stock issued, pursuant to the
terms of the Registrant's Shareholder Rights Agreement adopted on June 11,
1997. Until the occurrence of certain prescribed events, the rights are not
exercisable, are evidenced by the certificates for the Common Stock and will
be transferred with and only with such Common Stock. Because no separate
consideration is paid for the rights, the registration fee therefor is
included in the fee for the Common Stock. This Registration Statement also
covers contracts which may be issued by the Registrant under which the
counter party may be required to purchase Preferred Stock or Common Stock,
which contracts would be issued with the Preferred Stock, Common Stock
and/or Warrants registered hereby, as the case may be. In addition, the
Securities registered hereunder may be sold separately, together or as units
with other Securities registered hereunder. This Registration Statement
also relates to such additional shares as may be issuable as a result of
certain adjustments including, without limitation, stock dividends, stock
splits and distributions of options, warrants, convertible securities,
evidences of indebtedness or assets.
(2) The amount to be registered consists of up to $1,500,000,000 of an
indeterminate amount of Preferred Stock, Common Stock and/or Warrants.
There is also being registered hereunder such currently indeterminate number
of shares of Preferred Stock or Common Stock as may be issued upon
conversion of Preferred Stock or upon exercise of the Warrants registered
hereby, as the case may be.
(3) The proposed maximum offering price per unit has been omitted pursuant to
Securities Act Release No. 6964. The registration fee has been calculated
in accordance with Rule 457(o) under the Securities Act of 1933, as amended.
(4) Estimated solely for purposes of computing the registration fee. No
separate consideration will be received for Preferred Stock or Common Stock
issued upon conversion of Preferred Stock or upon exercise of the Warrants.
(5) Including such indeterminate number of shares of Preferred Stock as may
issued from time to time at indeterminate prices or upon exercise of
Warrants registered hereby.
(6) Including such indeterminate number of shares of Common Stock as may be
issued from time to time at indeterminate prices or upon conversion of
Preferred Stock registered hereby or upon exercise of Warrants registered
hereby, as the case may be.
(7) Including such indeterminate number of Warrants or other rights, including,
without limitation, share purchase or subscription rights, as may be issued
from time to time at indeterminate prices.
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.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED DECEMBER 21, 1998
PROSPECTUS
- ----------
$1,500,000,000
--------------
BOSTON PROPERTIES, INC.
PREFERRED STOCK
COMMON STOCK
WARRANTS
------------------
Boston Properties, Inc. develops, acquires, owns and manages a diverse
portfolio of office, industrial and hotel properties in the United States. Our
properties are predominantly located in Greater Boston; Midtown Manhattan;
Greater Washington, D.C.; San Francisco, California; Princeton/East Brunswick,
New Jersey; Richmond, Virginia; and Baltimore, Maryland. We are one of the
largest owners and developers of office properties in the United States. We are
a self-administered and self-managed real estate investment trust.
By this prospectus we may offer Preferred Stock, Common Stock and Warrants.
Throughout this prospectus we will refer to our Preferred Stock, Common Stock
and Warrants as "Securities." This prospectus refers to and incorporates
certain filings we have made with the Securities and Exchange Commission. This
prospectus, together with those filings, provides a general description of the
Securities we may offer. Each time we sell Securities we will provide a
prospectus supplement that will contain specific information about the terms of
such offering. That prospectus supplement may also add, update or change
information in this prospectus. You should read this prospectus and any
prospectus supplement carefully before you invest in our Securities. This
prospectus may not be used to consummate sales of Securities unless it is
accompanied by a prospectus supplement.
We may sell the offered Securities: (a) directly to one or more purchasers;
(b) through agents; or (c) through underwriters or dealers. If we sell
Securities through agents or underwriters, we will name them in a prospectus
supplement and describe in that prospectus supplement any applicable purchase
price, fees, commissions or discounts.
SEE "RISK FACTORS" BEGINNING ON PAGE 4 FOR CERTAIN FACTORS YOU SHOULD
CONSIDER BEFORE YOU INVEST IN OUR SECURITIES.
------------------
These Securities have not been approved or disapproved by the Securities and
Exchange Commission or any state securities commission nor has the Securities
and Exchange Commission or any state securities commission passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is
a criminal offense.
The date of this prospectus is December , 1998
<PAGE>
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission (the "SEC") a
Registration Statement on Form S-3 (the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Securities. This prospectus is part of the Registration Statement. This
prospectus does not contain all the information contained in the Registration
Statement because we have omitted certain parts of the Registration Statement in
accordance with the rules and regulations of the SEC. For further information,
we refer you to the Registration Statement, which you may read and copy at the
public reference facilities maintained by the SEC at Judiciary Plaza, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, and at the SEC's Regional
Offices at 7 World Trade Center, 13th Floor, New York, New York 10048, and
Citicorp Center, 500 W. Madison Street, Suite 1400, Chicago, Illinois 60661-
2511. You may also obtain copies at the prescribed rates from the Public
Reference Section of the SEC at its principal office in Washington, D.C. You
may call the SEC at 1-800-SEC-0330 for further information about the public
reference rooms. The SEC maintains a web site that contains reports, proxy and
information statements and other information regarding registrants, including
Boston Properties, Inc., that file electronically with the SEC. You may access
the SEC's web site at http://www.sec.gov.
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and we are required to file reports
and proxy statements and other information with the SEC. Such reports, proxy
statements and other information can be inspected and copied at the locations
described above. Copies of such materials can be obtained by mail from the
Public Reference Section of the SEC at Judiciary Plaza, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, at prescribed rates. Our Common Stock is
listed on the New York Stock Exchange ("NYSE"). You may also read our reports,
proxy and other information statements and other information which we file at
the offices of the NYSE, 20 Broad Street, New York, New York 10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. The SEC allows us to "incorporate by reference" the
information we file with the SEC, which means that we can disclose in this
prospectus important information to you by referring you to those documents.
The information below is incorporated in this prospectus by reference and is an
important part of this prospectus, and certain information that we file after
the date of this prospectus with the SEC will automatically be incorporated in
this prospectus and update and supersede this information. We incorporate by
reference the documents listed below and any future filings made with the SEC
under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act until we sell all
of the Securities.
. Our Annual Report on Form 10-K for the year ended December 31, 1997.
. Our Quarterly Reports on Form 10-Q for the quarters ended March 31,
1998, June 30, 1998 and September 30, 1998 and our Report on Form
10-Q/A filed on December 1, 1998, amending the Report on Form 10-Q
for the quarter ending September 30, 1998.
. The description of the Common Stock contained in our Registration
Statement on Form 8-A, filed on June 12, 1997, and all amendments
and reports updating the description.
. The description of the rights to purchase shares of the Company's
Series E Junior Participating Cumulative Preferred Stock contained
in our Registration Statement on Form 8-A, filed on June 12, 1997,
and the description contained in our Registration Statement on Form
8-A/A filed on June 16, 1997 amending such description, and all
amendments and reports updating such description.
. Our Current Reports on Form 8-K filed on September 26, 1997,
November 6, 1997, November 26, 1997, December 16, 1997, January 12,
1998, January 26, 1998, February 6, 1998, June 9, 1998, July 15,
1998, July 17, 1998, July 27, 1998, October 27, 1998 and November
25, 1998 and our Current Reports on Form 8-K/A filed on November 14,
1997 and November 25, 1997, amending our Current Report on Form 8-K
filed on September 26, 1997, our Current Reports on Form 8-K/A filed
on November 14, 1997 and December 4, 1997, amending our Current
Report on Form 8-K filed on November 6, 1997 and our Current Report
on Form 8-K/A filed on August 25, 1998, amending our Current Reports
on Form 8-K filed on July 15, 1998, July 17, 1998 and July 27, 1998.
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<PAGE>
WE WILL PROVIDE, WITHOUT CHARGE, AT THE WRITTEN OR ORAL REQUEST OF ANYONE TO
WHOM THIS PROSPECTUS IS DELIVERED, COPIES OF THE DOCUMENTS INCORPORATED BY
REFERENCE IN THIS PROSPECTUS, OTHER THAN AN EXHIBIT TO A FILING UNLESS THAT
EXHIBIT IS SPECIFICALLY INCORPORATED BY REFERENCE INTO THAT FILING. WRITTEN
REQUESTS SHOULD BE DIRECTED TO BOSTON PROPERTIES, INC., 8 ARLINGTON STREET,
BOSTON, MASSACHUSETTS 02116, ATTENTION: CHIEF FINANCIAL OFFICER. TELEPHONE
REQUESTS MAY BE DIRECTED TO (617) 859-2600.
You should rely only on the information incorporated by reference or
provided in this prospectus. We have not authorized anyone to provide you with
different information. Any statement contained in this prospectus or in a
document incorporated by reference in this prospectus shall be deemed to be
modified or superseded to the extent that a statement contained in this
prospectus (in the case of a statement in a previously filed document
incorporated by reference herein), in any applicable prospectus supplement or in
any other subsequently filed document which also is incorporated by reference
herein modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this prospectus or any accompanying prospectus supplement.
Subject to the foregoing, all information appearing in this prospectus and each
accompanying prospectus supplement is qualified in its entirety by the
information appearing in the documents incorporated by reference.
We are not making an offer of these Securities in any state where the offer
is not permitted. You should not assume that the information in this prospectus
is accurate as of any date other than the date on the front of those documents.
Statements contained in this prospectus as to the contents of any contract
or other document are not necessarily complete, and in each instance, reference
is made to the copy of such contract or document filed as an exhibit to the
Registration Statement or as an exhibit to another filing, each such statement
being qualified in all respects by such reference and the exhibits and schedules
thereto.
3
<PAGE>
RISK FACTORS
Before you invest in our Securities, you should be aware that there are
various risks in making such an investment, including those described below.
You should consider carefully these risk factors together with all of the
information included or incorporated by reference in this prospectus before you
decide to purchase our Securities. This section includes or refers to certain
forward-looking statements; you should refer to the explanation of the
qualifications and limitations on such forward-looking statements discussed on
page 13.
Unless the context otherwise requires, all references to "we," "us" or the
"Company" refer (i) to Boston Properties, Inc., a Delaware corporation, and its
subsidiaries, including Boston Properties Limited Partnership, a Delaware
limited partnership (the " Operating Partnership"), of which Boston Properties,
Inc. is the sole general partner, and (ii) to the predecessors thereof (the
"Predecessor"). All activities prior to June 23, 1997 refer to activities of
the Predecessor.
OUR PERFORMANCE AND VALUE IS SUBJECT TO RISKS ASSOCIATED WITH THE REAL ESTATE
INDUSTRY
GENERAL REAL ESTATE OWNERSHIP RISKS
Our economic performance and the value of our real estate assets are subject
to the following risks generally associated with the ownership and operation of
real estate:
. changes in national economic conditions;
. increased operating costs (including real estate taxes and utilities);
. changes in interest rates and the availability of financing;
. other market and economic conditions that may affect regional real
estate markets, which are described below; and
. changes in laws and governmental regulations (including those governing
real estate usage, zoning and taxes).
If our properties do not generate sufficient income to meet operating
expenses, including future debt service costs, it will adversely affect our
ability to make distributions to our stockholders.
RISKS ASSOCIATED WITH LOCAL MARKET CONDITIONS
Currently, our properties are located primarily in seven markets: Greater
Boston; Midtown Manhattan; Greater Washington, D.C.; San Francisco, California;
Princeton/East Brunswick, New Jersey; Richmond, Virginia; and Baltimore,
Maryland. Local real estate market conditions may include a large supply of
competing space, and we will need to compete for tenants based on rental rates,
attractiveness and location of a property, and quality of maintenance and
management services. Local economic conditions may affect the ability of our
tenants to make lease payments. The economic condition of each of these local
markets may be dependent on one or more industries, and therefore an economic
downturn in one of these industry sectors may adversely affect our performance
in such market.
DIFFICULTY OF SELLING REAL ESTATE INVESTMENTS
Real estate investments can be hard to sell, especially if local market
conditions are poor. This may limit our ability to change our portfolio
promptly in response to economic or other conditions. In addition, certain
significant expenditures, such as debt service costs (if any), real estate
taxes, and operating and maintenance costs, generally are not reduced when
market conditions are poor, resulting in a reduction in income from the
investment under such circumstances. These and any other factors or events that
would impede the Company from responding to changes in the performance of our
investments could adversely affect our financial condition and results of
operations.
4
<PAGE>
INABILITY TO RENEW LEASES OR RE-LEASE SPACE
We may not be able to renew leases or obtain new tenants to whom space may
be re-leased as leases expire, and the terms of a renewal or a new lease
(including the cost of required renovations or concessions to tenants) may be
less favorable than current lease terms. If we are unable to re-lease
substantial amounts of vacant space promptly, if the rental rates upon a renewal
or new lease are significantly lower than expected, or if reserves for costs of
re-leasing prove inadequate, then our cash flow will decrease and our ability to
make distributions to our stockholders will be adversely affected.
RISKS ASSOCIATED WITH OPERATING HOTEL PROPERTIES
At present we own two hotel properties and are developing a third hotel
property. We lease the hotel properties to a lessee ("ZL Hotel LLC") in which
Messrs. Zuckerman and Linde are the sole member-managers. Messrs. Zuckerman and
Linde have a 9.8% economic interest in such lessee and two unaffiliated public
charities have a 90.2% economic interest. Marriott International, Inc. manages
the two in-service hotel properties under the Marriott(R) name pursuant to a
management agreement with ZL Hotel LLC. ZL Hotel LLC pays us a percentage of
the gross receipts that the hotel properties receive. We intend to make similar
arrangements with respect to a third hotel property under development. Because
the lease payments to the Company are based on a participation in the gross
receipts of the hotel properties, if the hotel properties do not generate
sufficient receipts, our cash flow would be decreased and it could adversely
affect our ability to pay distributions to our stockholders. The following
factors, among others, are common to the hotel industry, and may reduce the
receipts generated by our hotel properties:
. our hotel properties compete for guests with other hotels and a
number of these hotels have greater marketing and financial
resources than our hotel operating business partners;
. if there is an increase in operating costs resulting from inflation
and other factors, ZL Hotel LLC may be unable to offset such
increase by increasing room rates;
. our hotels are subject to the fluctuating and seasonal demands of
business and commercial travelers and tourism;
. increases in energy costs and other expenses of travel may reduce
the travel by potential guests of our hotels; and
. our hotels are subject to general and local economic conditions that
may affect demand for travel.
AMERICANS WITH DISABILITIES ACT COMPLIANCE
The Americans with Disabilities Act (the "ADA") generally requires that
public accommodations, including office buildings and hotels, be accessible to
disabled persons. We believe that our properties are in substantial compliance
with the ADA and that we will not be required to make substantial capital
expenditures to address the requirements of the ADA. However, in the event that
we are not in compliance with the ADA, the federal government could fine the
Company or private litigants could be awarded damages against the Company. If,
pursuant to the ADA, we are required to make substantial alterations in one or
more of our properties, our financial condition and results of operations, as
well as the amount of cash available for distribution to our stockholders, could
be adversely affected.
UNINSURED LOSSES
We carry comprehensive liability, fire, flood, extended coverage and rental
loss insurance, as applicable, with respect to our properties. We believe our
coverage is of the type and amount customarily obtained for or by an owner of
such properties. We believe all of our properties are adequately insured.
However, there are certain types of losses (such as from wars or catastrophic
acts of nature) for which we cannot obtain insurance or for which we cannot
obtain insurance at a reasonable cost. In the event of an uninsured loss or a
loss in excess of our insurance limits, we could lose the revenues generated
from the affected property, as well as the capital we have invested in the
affected property. We would continue to be obligated to repay any mortgage
indebtedness or other obligations related to the property. Any such loss could
materially and adversely affect our business and financial condition and results
of operations.
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<PAGE>
OBTAINING NEW OWNER'S TITLE INSURANCE POLICIES IN CONNECTION WITH CERTAIN
PROPERTIES
We acquired from our Predecessor certain properties at the completion of our
initial public offering of Common Stock on June 23, 1997 (the "Initial
Offering"). Each of these acquired properties was, prior to its acquisition by
us, insured by title insurance policies that insured the owner of the property.
New owner's title insurance policies were not obtained in connection with our
acquisition of such properties. Nevertheless, because in many instances we
acquired the owner of the property and the owner remained in existence, certain
of these title insurance policies may continue to benefit subsidiaries of the
Company, although each such title insurance policy may be in an amount less than
the current value of the applicable property. If there was a title defect
related to any of these properties, or to any of the properties acquired at the
time of the Initial Offering that no longer are covered by title insurance
policies, we could lose both our capital invested in and our anticipated profits
from such property. We have obtained title insurance policies for any properties
that we acquired after the Initial Offering.
CHANGES IN TAX AND ENVIRONMENTAL LAWS
Generally, our leases provide the ability to pass costs resulting from
increases in real estate taxes through to tenants. However, we generally do not
pass increases in income, service or transfer taxes through to our tenants.
Similarly, changes in laws increasing the potential liability for environmental
conditions existing on our properties or increasing the restrictions on
discharges or other conditions may result in significant unanticipated
expenditures. These increased costs could adversely affect our financial
condition and results of operations and the amount of cash available for
distribution to stockholders.
RISKS ASSOCIATED WITH PROPERTY ACQUISITIONS
Since the Initial Offering, we have made large acquisitions of properties
and portfolios of properties. We intend to continue to investigate and pursue
acquisitions of properties and portfolios of properties, including large
portfolios that could continue to significantly increase our size and alter our
capital structure. Our ability to manage our growth effectively requires us to
integrate successfully new acquisitions into our existing operations. We cannot
assure our stockholders that we will be able to quickly and efficiently
integrate such new acquisitions, particularly acquisitions of portfolios of
properties. If we are unable to successfully manage our growth or integrate our
new acquisitions, our results of operations and financial condition could be
adversely affected.
Newly acquired properties may fail to perform as expected. We may
underestimate the costs necessary to bring an acquired property up to standards
established for its intended market position. Additionally, we expect that
other real estate investors with significant capital will compete with us for
attractive investment opportunities. This competition has increased prices for
properties of the type we would likely pursue. We expect to acquire properties
with cash from secured or unsecured financings and proceeds from offerings of
equity or debt. We may not be in a position or have the opportunity in the
future to make suitable property acquisitions on favorable terms.
OUR INVESTMENTS IN PROPERTY DEVELOPMENT MAY BE MORE COSTLY THAN ANTICIPATED
We intend to continue to develop and substantially renovate office,
industrial and hotel properties. To the extent that we engage in such
development activities, we will be subject to the risks normally associated with
such activities. These risks include, among others, the following:
. occupancy rates and rents at newly completed properties may not be
sufficient to enable us to achieve our intended return on investment;
. expenses of operating a completed development may be higher than
anticipated;
. we may be unsuccessful or delayed in obtaining necessary zoning, land
use, building, occupancy, and other governmental permits and regulatory
approvals;
. we may incur construction costs for developing a property which exceed
our estimates due to factors beyond our control, such as weather, labor
conditions or material shortages; and
6
<PAGE>
. we may not be able to obtain construction financing on favorable terms.
These risks could result in substantial unanticipated delays or expense
that could prevent completion or cause us to abandon development activities
which we have already begun to explore. If any of these events occur, it could
adversely affect our ability to achieve our projected yields on properties under
development and could prevent us from making expected distributions to our
stockholders.
In addition, development and construction activities, regardless of whether
or not they are ultimately successful, typically require a substantial portion
of management's time and attention.
We intend to develop properties in joint ventures with other persons or
entities. The use of a joint venture vehicle creates a risk of a dispute or a
risk that we will have to acquire a joint venturer's interest in a development
for a price or at a time that we would otherwise not purchase such interest.
WE DEPEND ON KEY PERSONNEL WHOSE CONTINUED SERVICE IS NOT GUARANTEED
We depend on the efforts of key personnel, particularly Mortimer B.
Zuckerman, Chairman of the Board of Directors, and Edward H. Linde, President
and Chief Executive Officer. Among the reasons that Messrs. Zuckerman and Linde
are important to the success of the Company is that each has a national
reputation which attracts business and investment opportunities and assists us
in negotiations with lenders. If we lost their services, our relationships with
lenders, potential tenants and industry personnel would diminish. The other
executive officers of the Company who serve as managers of the Company's offices
have strong regional reputations. Their strong regional reputations aid us in
identifying opportunities, having opportunities brought to us, and negotiating
with tenants and build-to-suit prospects. While we believe that we could find
replacements for these key personnel, the loss of their services could
materially and adversely effect our operations because of diminished
relationships with lenders, prospective tenants and industry personnel.
Mr. Linde and the Company's other executive officers have employment
agreements in which they agree to devote substantially all of their business
time to the Company's business and affairs and not to have substantial outside
business interests. Because these officers may resign or be terminated at any
time, these employment agreements cannot guarantee that they will remain with
the Company for any particular period of time. The Company does not have an
employment agreement with Mr. Zuckerman. Mr. Zuckerman has substantial outside
business interests, including, serving as Chairman of the Board of Directors of
U.S. News & World Report, The Atlantic Monthly, The New York Daily News and
Applied Graphics Technologies, and serving as a member of the Board of Directors
of Snyder Communications. Such outside business interests could interfere with
his ability to devote time to the Company's business and affairs. Over the last
twenty years, Mr. Zuckerman has devoted a significant portion, although not a
majority, of his business time to the affairs of the Company. He cannot assure
the Company that he will continue to devote any specific portion of his time to
the Company and has therefore declined to enter into an employment agreement
with the Company. At present, Mr. Zuckerman has no commitments which would
prevent him from maintaining his current level of involvement with the Company.
POTENTIAL LIABILITY FOR ENVIRONMENTAL MATTERS COULD ADVERSELY AFFECT OUR
FINANCIAL CONDITION
Under various federal, state and local laws, ordinances and regulations, a
current or previous owner or operator of real property may be required (often
regardless of knowledge or responsibility) to investigate and remediate the
effects of hazardous or toxic substances or petroleum product releases at a
property, and may be held liable to a governmental entity or to third parties
for property damage and for investigation and remediation costs incurred by them
in connection with such contamination. These costs and liabilities could be
substantial and could exceed the value of the affected real estate. If such
substances were present on one of our properties, our ability to borrow against,
sell or rent the affected property could be adversely affected. We have not
been notified by any governmental authority of any noncompliance, liability or
other claim in connection with any of our properties, and we are not aware of
any other environmental condition with respect to any of our properties that we
believe would have a material adverse effect on our business, assets, or results
of operations.
Some of our properties are located in urban and industrial areas where fill
or current or historic industrial uses of the areas have caused site
contamination. Independent environmental consultants have been retained in the
past to conduct or update Phase I environmental assessments (which generally do
not involve invasive techniques such as soil or
7
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groundwater sampling) and asbestos surveys on all of our properties. These
environmental surveys have not revealed any environmental conditions that we
believe will have a material adverse effect on our business, assets or results
of operations, and we are not aware of any other environmental condition with
respect to any of our properties which we believe would have such a material
adverse effect. However, we are aware of environmental conditions at three of
our properties that may require remediation:
. With respect to 17 Hartwell Avenue in Lexington, Massachusetts, we
received a Notice of Potential Responsibility from the state regulatory
authority on January 9, 1997, related to groundwater contamination. In
addition, we received Notices of Downgradient Property Status Submittals
from third parties concerning contamination at two downgradient
properties. On January 15, 1997, we notified the state regulatory
authority that we would cooperate with and monitor the tenant at the
property (which investigated the matter and undertook remedial actions).
That investigation identified the presence of hazardous substances in
and near a catch basin along the property line. The tenant completed an
Immediate Response Action at the site in April 1998. We expect the
tenant will likewise take any additional necessary response actions.
. The 91 Hartwell Avenue property in Lexington, Massachusetts was listed
by the state regulatory authority as an unclassified Confirmed Disposal
Site in connection with groundwater contamination. We engaged a
specially licensed environmental consultant to perform the necessary
investigation and assessment and to prepare submittals to the state
regulatory authority. On August 1, 1997, such consultant submitted to
the state regulatory authority a Phase I--Limited Site Investigation
Report and Downgradient Property Status Opinion. This Opinion concluded
that the property qualifies for Downgradient Property Status under the
state regulatory program, which eliminates certain deadlines for
conducting response actions at a site and may qualify us for liability
relief under recent statutory amendments. Although we believe that the
current or former owners of the upgradient source properties may
ultimately be responsible for some or all of the costs of such response
actions, we will take any necessary further response actions.
. An investigation at the 200 West Street property in Waltham,
Massachusetts identified groundwater contamination. We engaged a
specially licensed environmental consultant to perform the necessary
investigation and assessment and to prepare submittals to the state
regulatory authority. On March 11, 1998, the consultant submitted to the
state regulatory authority a Release Notification and Downgradient
Property Status Opinion. This Opinion concluded that the property
qualifies for Downgradient Property Status under the state regulatory
program, which eliminates certain deadlines for conducting response
actions at a site and may qualify us for liability relief under recent
statutory amendments. Although we believe that the current or former
owners of the upgradient source properties may ultimately be responsible
for some or all of the costs of such response actions, we will take any
necessary further response actions.
No assurance can be given that the environmental assessments and updates
identified all potential environmental liabilities, that no prior owner created
any material environmental condition not known to us or the independent
consultants preparing the assessments, that no environmental liabilities may
have developed since such environmental assessments were prepared, or that
future uses or conditions (including, without limitation, changes in applicable
environmental laws and regulations) will not result in imposition of
environmental liability.
OUR USE OF DEBT TO FINANCE ACQUISITIONS AND DEVELOPMENTS COULD ADVERSELY AFFECT
OUR CASH FLOW
REQUIRED REPAYMENT OF DEBT OR PAYMENT OF INTEREST ON DEBT
We currently have, and may in the future incur, indebtedness that bears
interest at variable rates. Variable rate debt creates higher debt service
requirements if market rates increase, which could adversely affect our cash
flow and the amounts available to pay distributions to our stockholders. We are
subject to risks normally associated with debt financing, including the risk
that our cash flow will be insufficient to make required payments of principal
and interest, the risk that any indebtedness will not be able to be refinanced,
the risk that the terms of any refinancing will not be as favorable as the terms
of such indebtedness and the risk of a default under the terms of any
indebtedness and an acceleration resulting from such default.
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NO LIMITATION ON DEBT
We do not have a policy limiting the amount of debt that we may incur.
Accordingly, our management and Board of Directors have discretion to increase
the amount of the Company's outstanding debt at any time. We could become more
highly leveraged, resulting in an increase in debt service costs that could
adversely affect our cash flow and the amount available for distribution to our
stockholders. If we increase our debt we may also increase the risk of default
on our debt.
FINANCIAL COVENANTS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION.
If a property is mortgaged to secure payment of indebtedness and we are
unable to meet mortgage payments, the mortgagee could foreclose on the property,
resulting in loss of income and asset value. The mortgages on our properties
contain customary negative covenants which, among other things, limit our
ability, without the prior consent of the lender, to further mortgage the
property or to discontinue insurance coverage. In addition, our credit
facilities contain certain customary restrictions, requirements and other
limitations on our ability to incur indebtedness, including total debt to assets
ratios, secured debt to total asset ratios, debt service coverage ratios and
minimum ratios of unencumbered assets to unsecured debt. Foreclosure on
mortgaged properties or an inability to refinance existing indebtedness would
likely have a negative impact on our financial condition and results of
operations.
OUR DEGREE OF LEVERAGE COULD LIMIT OUR ABILITY TO OBTAIN ADDITIONAL
FINANCING.
Our Debt to Market Capitalization Ratio (total debt as a percentage of total
debt plus the market value of the outstanding Common Stock, OP Units and
Preferred Units (assuming conversion of all Preferred Units)) is approximately
43.6% as of September 30, 1998. A real estate company's degree of leverage
could have important consequences to its security holders, because leverage
affects a company's ability to obtain additional financing for working capital,
capital expenditures, acquisitions, development or other general corporate
purposes and makes a company more vulnerable to a downturn in the economy
generally.
To qualify as a REIT, we must distribute to our stockholders each year at
least 95% of our net taxable income (excluding any net capital gain). See
"Certain Federal Income Tax Considerations" below. Because of these
distribution requirements, it is not likely that we will be able to fund all
future capital needs, including for acquisitions and developments, from income
from operations. We therefore will have to rely on third-party sources of
capital, which may or may not be available on favorable terms or at all. Our
access to third-party sources of capital depends on a number of things,
including the market's perception of our growth potential and our current and
potential future earnings. Moreover, additional equity offerings may result in
substantial dilution of security holders' interests, and additional debt
financing may substantially increase our leverage.
FAILURE TO QUALIFY AS A REIT WOULD CAUSE US TO BE TAXED AS A CORPORATION
The Company is a real estate investment trust as defined in the Internal
Revenue Code (the "Code"). Entities that have this characterization under the
Code are also known as "REITs." In general, qualification as a REIT enables us
to deduct from our federal taxable income the amount of any dividends paid to
our stockholders and requires us to pay to our stockholders a certain amount of
our taxable income. If we fail to qualify as a REIT, we will be taxed as a
corporation for both current and past years. Qualification as a REIT involves
the application of highly technical and complex provisions under the Code, as to
which there are only limited judicial and administrative interpretations, and
involves the determination of various factual matters and circumstances not
entirely within our control. Therefore, although we believe that we are
organized and operate as a REIT, there is a risk that we will fail to maintain
our status as a REIT. In addition, we cannot assure you that future
legislation, new regulations, administrative interpretations or court decisions
will not significantly change the tax laws (or their application) with respect
to qualification as a REIT for federal income tax purposes or the federal income
tax consequences of such qualification.
If, in any taxable year, we failed to qualify as a REIT, we will be subject
to federal income tax (including any applicable alternative minimum tax) on our
taxable income at regular corporate rates. In addition, unless entitled to
relief under certain statutory provisions, we would be disqualified from
treatment as a REIT for the four taxable years following the year during which
qualification is lost. The additional tax liability resulting from the failure
to qualify as a REIT would significantly reduce or eliminate the amount of funds
available for distribution to our stockholders. In
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addition, we would no longer be required to make distributions to our
stockholders. See "Certain Federal Income Tax Considerations" on page 31.
THE ABILITY OF OUR STOCKHOLDERS TO CONTROL OUR POLICIES AND AFFECT A CHANGE OF
CONTROL OF THE COMPANY IS LIMITED, WHICH MAY NOT BE IN THE STOCKHOLDERS' BEST
INTERESTS
CHANGE IN COMPANY POLICIES WITHOUT STOCKHOLDERS' APPROVAL
Our operating and financial policies, including the Company's policies with
respect to acquisitions, growth, operations, indebtedness, capitalization and
distributions, are determined by the Company's Board of Directors. Accordingly,
as a stockholder, you will have little direct control over our policies.
ENGAGEMENT IN INVESTMENT ACTIVITY WITHOUT STOCKHOLDERS' APPROVAL
We expect to continue to acquire additional real estate assets pursuant to
our investment strategies and consistent with our investment policies. As a
stockholder, you will generally not be entitled to vote on any such
acquisitions. You will not receive past financial statements regarding the real
estate assets to be acquired. Instead, our stockholders must rely entirely on
the decisions of management (although in the case of material acquisitions, we
will, as required by federal securities law, provide financial information
following the acquisition in filings with the SEC.)
STOCK OWNERSHIP LIMIT
To maintain qualification as a REIT for federal income tax purposes, not
more than 50% in value of the Company's outstanding capital stock may be owned,
directly or indirectly, by five or fewer individuals (as defined in the federal
income tax laws applicable to REITs) at any time during the last half of any
year. See "Certain Federal Income Tax Considerations" on page 31. The
Company's Amended and Restated Certificate of Incorporation (the "Charter")
generally prohibits ownership, directly or by virtue of the attribution
provisions of the Code, by any single stockholder (which does not include
certain pension plans or mutual funds) of more than 6.6% of the issued and
outstanding shares of the Company's Common Stock (the "Ownership Limit"). The
Board of Directors may waive or modify the Ownership Limit with respect to one
or more persons if it is satisfied that ownership in excess of this limit will
not jeopardize the Company's status as a REIT for federal income tax purposes.
Notwithstanding the above, the Charter provides that each of Messrs. Zuckerman
and Linde, along with certain family members and affiliates of each of Messrs.
Zuckerman and Linde, respectively, as well as, in general, pension plans and
mutual funds, may actually and beneficially own up to 15% of the outstanding
shares of Common Stock. The Ownership Limit may have the effect of inhibiting
or impeding a change in control and, therefore, could adversely affect our
stockholders' ability to realize, in connection with such a transaction, a
premium over the then-prevailing market price for the Common Stock. See
"Restrictions on Transfer" on page 24.
CHARTER AND BYLAW PROVISIONS
Certain provisions of the Company's Charter and bylaws, as amended and
restated (the "Bylaws"), could make it more difficult for someone to acquire
control of the Company. The Company's Board of Directors is divided into three
classes, with the members of each class serving a three-year term. The Charter
authorizes the Board of Directors to issue up to 50 million shares of Preferred
Stock without stockholder approval. The Board of Directors may establish the
preferences and rights of any Preferred Stock issued. These and other
restrictions may preclude acquisitions that could otherwise provide our
stockholders with the opportunity to realize a premium over the then-prevailing
market price of such shares.
OPERATING PARTNERSHIP AGREEMENT
We are the sole general partner of the Operating Partnership and, in
connection with most matters which could require a consent or vote of the
Operating Partnership's partners, hold approximately 65.0% of the voting power
therein (assuming conversion of all preferred units of limited partnership
("Preferred Units")). We have agreed in the limited partnership agreement of
the Operating Partnership (the "Operating Partnership Agreement") not to engage
in certain business combinations unless the limited partners who hold the
remaining common units of limited partnership ("Common Units" or "OP Units")
receive, or have the opportunity to receive, the same consideration per OP Unit
as our holders of Common Stock receive per share of Common Stock in the
transaction. If holders of OP Units do not
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receive such consideration, we cannot engage in the transaction unless 75% of
the limited partners (other than the Company) vote to approve the transaction.
In addition, we have agreed in the Operating Partnership Agreement that we will
not consummate certain business combinations in which we conducted a vote of the
stockholders unless (i) a vote of holders of OP Units is conducted and (ii) the
matter would have been approved had holders of OP Units been able to vote as
stockholders on the transaction. The Operating Partnership Agreement does not
enable us or require us to engage in a business combination requiring our
stockholders' approval if our stockholders do not in fact give the required
approval. Rather, if our stockholders approve a business combination that
requires a vote of stockholders, we are therefore authorized under the Charter
to engage in such transaction but we are contractually prohibited under the
Operating Partnership Agreement from consummating the transaction unless:
. holders of OP Units (including the Company) vote on the matter;
. the Company votes the OP Units it holds in the Operating Partnership
(which at all times equals the number of shares of Common Stock
outstanding) in the same proportion as our stockholders voted on the
matter at the stockholder vote; and
. the result of such vote of the OP Unit holders (including the
proportionate vote of the Company's OP Units) is such that had such vote
been a vote of stockholders holding a number of shares equal to the
number of outstanding OP Units, the business combination would have been
approved by our stockholders.
As a result of these provisions of the Operating Partnership, a third party
may be deterred from making an acquisition proposal that it would otherwise make
and we may be prohibited by contract from engaging in a proposed business
combination even though the Company's stockholders approve of the combination
and we have the authority to engage in the combination under our Charter.
SHAREHOLDER RIGHTS AGREEMENT
We have adopted a Shareholder Rights Agreement. Under the terms of this
agreement, we can in effect prevent a person or group from acquiring more than
15% of the outstanding shares of our Common Stock (an "Acquiring Person")
because, unless we approve of the Acquiring Person's purchase, after the
Acquiring Person acquires more than 15% of the outstanding Common Stock, all
stockholders (other than the Acquiring Person) will have the right to purchase
securities from us at a price that is less than their then fair market value.
Such purchases by the other stockholders would substantially reduce the value
and influence of the shares of our Common Stock owned by the Acquiring Person.
However, the Board of Directors can prevent the Shareholder Rights Agreement
from operating in this manner and thus has significant discretion to approve of
an acquiror's efforts to acquire a large interest in the Company. See
"Restrictions on Transfer - Shareholder Rights Agreement" on page 25.
PROVISIONS OF DELAWARE LAW
As a Delaware corporation, we are subject to the provisions of the Delaware
General Corporation Law (the "DGCL"), which imposes restrictions on certain
business combinations and requires compliance with certain procedures before
certain mergers and acquisitions can occur. The DGCL may delay or prevent
offers to acquire us and increase the difficulty of consummating any such
offers, even if an acquisition would be in our stockholders' best interest.
CONFLICTS OF INTEREST EXIST BETWEEN THE COMPANY AND CERTAIN HOLDERS OF OP UNITS
AND PREFERRED UNITS IN CONNECTION WITH THE OPERATION OF THE COMPANY
SALES OF PROPERTIES AND REPAYMENT OF RELATED INDEBTEDNESS WILL HAVE
DIFFERENT EFFECTS ON OP UNITHOLDERS THAN ON STOCKHOLDERS
Certain holders of OP Units and Preferred Units, including Messrs. Zuckerman
and Linde, will incur adverse tax consequences upon the sale of certain of our
properties and on the repayment of related indebtedness which are different from
the tax consequences to the Company and our stockholders. Consequently, such
holders of OP Units and Preferred Units may have different objectives regarding
the appropriate pricing and timing of any such sale or repayment of
indebtedness. While the Company has exclusive authority under the Operating
Partnership Agreement to determine whether, when, and on what terms to sell a
property (subject, in the case of certain properties, to the
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contractual commitments described below) or when to refinance or repay
indebtedness, any such decision would require the approval of the Board of
Directors. As directors and executive officers of the Company, Messrs. Zuckerman
and Linde have substantial influence with respect to any such decision. Their
influence could be exercised in a manner inconsistent with the interests of
some, or a majority, of our stockholders, including in a manner which could
prevent completion of a sale of a property or the repayment of indebtedness.
AGREEMENT NOT TO SELL CERTAIN PROPERTIES
Under the terms of the Operating Partnership Agreement, we have agreed not
to sell or otherwise transfer certain of our properties, prior to specified
dates, in any transaction that would trigger taxable income, without first
obtaining the consent of Messrs. Zuckerman and Linde. However, we are not
required to obtain their consent if, during the applicable period, each of them
does not hold at least 30% of his original OP Units. In addition, we have
entered into similar agreements with respect to other properties that we have
acquired for partnership interests in the Operating Partnership. There are a
total of 16 properties subject to these restrictions, and those 16 properties
are estimated to have accounted for approximately 68% of the Company's total
revenue on a pro forma basis for the year ended December 31, 1997.
The Operating Partnership has also entered into agreements providing Messrs.
Zuckerman and Linde and others with the right to guarantee additional and/or
substitute indebtedness of the Company in the event that certain other
indebtedness is repaid or reduced.
The agreements described above may hinder actions that the Company would
otherwise desire to take because the Company would be required to make payments
to the beneficiaries of such agreements if the Company violates these
agreements.
MESSRS. ZUCKERMAN AND LINDE WILL CONTINUE TO ENGAGE IN OTHER ACTIVITIES
Messrs. Zuckerman and Linde have a broad and varied range of investment
interests. Either one could acquire an interest in a company which is not
currently involved in real estate investment activities but which may acquire
real property in the future. However, pursuant to Mr. Linde's employment
agreement and Mr. Zuckerman's non-compete agreement with the Company, Messrs.
Zuckerman and Linde will not, in general, have management control over such
companies and, therefore, they may not be able to prevent one or more such
companies from engaging in activities that are in competition with our
activities.
POSSIBLE ADVERSE IMPACT OF MARKET CONDITIONS ON MARKET PRICE
As with other publicly traded equity securities, the value of our Common
Stock depends on various market conditions which may change from time to time.
Among the market conditions that may affect the value of our publicly traded
securities are the following: the extent of institutional investor interest in
the Company; the reputation of REITs and office REITs generally and the
attractiveness of their equity securities in comparison to other equity
securities (including securities issued by other real estate companies); our
financial condition and performance; and general financial market conditions.
One of the factors that investors may consider important in deciding whether
to buy or sell shares of a REIT is the dividend with respect to such REIT's
shares (as a percentage of the price of such shares) relative to market interest
rates. If market interest rates go up, prospective purchasers of REIT shares
may expect a higher distribution rate. Higher market interest rates would not,
however, result in more funds for us to distribute and, in fact, would likely
increase our borrowing costs and potentially decrease funds available for
distribution. Thus, higher market interest rates could cause the market price
of our publicly traded securities to go down in order to increase our dividend
as a percentage of the price of a share.
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FORWARD-LOOKING STATEMENTS
Certain statements incorporated by reference or made under the captions
"Risk Factors" and "The Company" and elsewhere in this prospectus are "forward-
looking statements" within the meaning of Section 27A of the Securities Act and
Section 21E of the Exchange Act. Such forward-looking statements include,
without limitation, statements relating to acquisitions (including related pro
forma financial information) and other business development activities, future
capital expenditures, financing sources and availability and the effects of
regulations (including environmental regulation) and competition. When we use
the words "anticipate," "assume," "believe," "estimate," "expect," "intend" and
other similar expressions in this prospectus, they are generally forward-looking
statements. You should exercise caution in interpreting and relying on forward-
looking statements since they involve known and unknown risks, uncertainties and
other factors which are, in some cases, beyond our control and could materially
affect our actual results, performance or achievements. Factors that could
cause our actual results, performance or achievements to differ materially from
those expressed or implied by such forward-looking statements include, but are
not limited to, the following:
. we are subject to general risks affecting the real estate industry
such as the need to enter into new leases or renew leases on
favorable terms to generate rental revenues and dependence on our
tenants' financial condition;
. we may fail to identify, acquire, construct or develop additional
properties; we may develop properties that do not produce a desired
yield on invested capital; or we may fail to effectively integrate
acquisitions of properties or portfolios of properties;
. financing may not be available, or may not be available on favorable
terms;
. we need to make distributions to our stockholders for us to qualify
as a REIT and if we need to borrow the funds to make such
distributions such borrowings may not be available on favorable
terms;
. we depend on the primary markets where our properties are located
and these markets may be adversely affected by local economic and
market conditions which are beyond our control;
. we are subject to potential environmental liabilities;
. we are subject to complex regulations relating to our status as a
REIT and would be adversely affected if we failed to qualify as a
REIT; and
. market interest rates could adversely affect the market prices for
our Common Stock and our performance and cash flow.
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THE COMPANY
BOSTON PROPERTIES, INC.
Boston Properties, Inc., a Delaware corporation, develops, acquires, owns
and manages a diverse portfolio of office, industrial and hotel properties in
the United States. We are one of the largest owners and developers of office
properties in the United States, with a significant presence in Greater Boston;
Midtown Manhattan; Greater Washington, D.C.; San Francisco, California;
Princeton/East Brunswick, New Jersey; Richmond, Virginia; and Baltimore,
Maryland. As of December 14, 1998, we owned 121 properties aggregating over
31.4 million square feet (including nine properties currently under development
that will aggregate approximately 1.9 million square feet). The Company's
properties consist of 108 office properties, including 76 "Class A" office
properties (including nine under development) and 31 "research and development"
properties; nine industrial properties; three hotels (including one under
development); and one parking garage. The Company considers Class A office
properties to be centrally located buildings that are professionally managed and
maintained, attract high-quality tenants and command upper-tier rental rates,
and that are modern structures or have been modernized to compete with newer
buildings. The Company considers research and development properties to be
properties that are designed to address the market for research and development
and other technical uses as well as to be suitable for office use.
We are a self-administered and self-managed REIT. We have elected to be
treated as a REIT under the Code beginning with our taxable year ended December
31, 1997. We are listed on the NYSE under the symbol "BXP."
Our initial public offering of Common Stock was in June 1997.
Contemporaneously with such offering, the Company and its Operating Partnership
subsidiary were formed to succeed to the ownership of real estate, and the real
estate development, redevelopment, acquisition, management, operating and
leasing businesses, associated with the predecessor organization founded by
Messrs. Zuckerman and Linde in 1970.
We are a full-service real estate company, with substantial in-house
expertise and resources in acquisitions, development, financing, construction
management, property management, marketing, leasing, accounting, tax and legal
services. Our headquarters are located at 8 Arlington Street, Boston,
Massachusetts 02116 and our telephone number is (617) 859-2600. In addition, we
have regional offices at the U.S. International Trade Commission Building at 500
E Street, SW, Washington, D.C. 20024, at 599 Lexington Avenue, New York, New
York 10022 and at Four Embarcadero Center, Suite 2600, San Francisco,
California, 94111. The Company's headquarters and regional offices are located
in properties owned by the Company.
BOSTON PROPERTIES LIMITED PARTNERSHIP
Boston Properties Limited Partnership, a Delaware limited partnership (the
"Operating Partnership"), owns all of our assets (either directly or through
subsidiaries) and is the entity through which we conduct substantially all of
our business. This structure is commonly referred to as an umbrella partnership
REIT or UPREIT. Boston Properties, Inc. is the sole general partner of the
Operating Partnership and thus manages the affairs of the Operating Partnership.
On December 14, 1998, Boston Properties, Inc. owned an approximate 65.0% general
and limited partnership interest in the Operating Partnership (assuming
conversion of all preferred units). The other partners of the Operating
Partnership are the investors who contributed their direct or indirect interests
in certain properties to the Operating Partnership in exchange for an interest
in the Operating Partnership, either at the completion of the Initial Offering
or upon subsequent acquisitions of other properties or interests therein by the
Operating Partnership.
Partnership interests in the operating partnership are denominated as
"common units of partnership interest" (also referred to as "OP Units" or
"Common Units") and preferred units of limited partnership ("Preferred Units").
A holder of an OP Unit may present such OP Unit to the Operating Partnership for
redemption at any time (subject to agreements upon the issuance of OP Units to
particular holders that may restrict such right for a period of time, generally
not less than one year). Upon presentation of an OP Unit for redemption, the
Operating Partnership must redeem such OP Unit for cash equal to the then value
of a share of common stock of the Company ("Common Stock"), except that the
Company may, at its election, in lieu of a cash redemption acquire such OP Unit
for one share of Common Stock. With each such redemption or acquisition, our
percentage ownership interest in the Operating Partnership will increase. In
addition, whenever we sell or issue shares of Common Stock, we will be obligated
to contribute any net proceeds from such sale or issuance to the Operating
Partnership, and the Operating Partnership will be obligated to issue an
equivalent number of OP Units to us. Because the number of shares of Common
Stock
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outstanding at all times equals the number of OP Units that the Company
owns, one share of Common stock is generally the economic equivalent of one OP
Unit, and the quarterly distribution that may be paid to the holder of an OP
Unit equals the quarterly dividend that may be paid to the holder of a share of
Common Stock. Each series of Preferred Units bears a distribution that is set
in accordance with an amendment to the partnership agreement of the Operating
Partnership. Preferred Units may also be convertible into OP Units at the
election of the holder thereof or the Company.
All references in this prospectus to the Company or to "we" or similar terms
refer to Boston Properties, Inc. and its subsidiaries, including the Operating
Partnership, collectively, unless the context otherwise requires.
Generally, pursuant to the terms of the Operating Partnership Agreement, we
have the exclusive power to manage and conduct the business of the Operating
Partnership. Under the Operating Partnership Agreement, we generally have the
maximum rights and powers permitted to the general partner of a Delaware limited
partnership. Limited partners of the Operating Partnership generally have only
such rights and powers as are reserved to limited partners expressly by Delaware
law, and have no authority to transact business for, or participate in the
management activities or decisions of, the Operating Partnership. The limited
partners do not have the right to remove us as general partner. The limited
partners of the Operating Partnership do have the right to vote, under certain
circumstances, on business combinations of Boston Properties, Inc. or the
Operating Partnership.
USE OF PROCEEDS
Except as we may describe otherwise in the applicable prospectus supplement,
we intend to use the net proceeds from the sale of Securities for general
corporate and working capital purposes, including, without limitation, to repay
debt, to acquire or invest in new properties and to develop and maintain
currently-owned properties.
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DESCRIPTION OF PREFERRED STOCK
This section describes the general terms and provisions of the Preferred
Stock that we may offer by this prospectus. We may issue Preferred Stock in one
or more series; each series of Preferred Stock will have its own rights and
preferences. We will describe in a prospectus supplement (1) the specific terms
of the series of any Preferred Stock offered through that prospectus supplement
and (2) any general terms outlined in this section that will not apply to those
shares of Preferred Stock. This summary of terms is not complete. For
additional information before you buy any Preferred Stock you should read our
Charter and Bylaws that are in effect on the date that we offer any Preferred
Stock, as well as any applicable amendment to our Charter designating terms of a
series of Preferred Stock (a "Designating Amendment").
GENERAL
Under the Company's Charter, the Company has the authority to issue up to
250 million shares of Common Stock, 150 million shares of Excess Stock ("Excess
Stock") and 50 million shares of Preferred Stock. Prior to issuing shares of
Preferred Stock of a particular series, the Company's Board of Directors will
determine or fix the terms of that series of Preferred Stock, as described below
(see "Terms").
When we issue shares of Preferred Stock, they will be fully paid and
nonassessable. This means the full purchase price for the outstanding Preferred
Stock will be paid at issuance and that you, as the purchaser of such shares of
Preferred Stock, will not be required later to pay us any additional monies for
such Preferred Stock. The Preferred Stock will have no preemptive rights to
subscribe for any additional securities which we may issue in the future. This
means, you will not receive any rights, as holder of Preferred Stock, to buy any
portion of the securities which we may issue in the future. Because the Board
of Directors has the power to establish the preferences and rights of each class
or series of Preferred Stock, the Board of Directors may grant the holders of
any series or class of Preferred Stock preferences, powers and rights, voting or
otherwise, senior to the rights of holders of shares of Common Stock. The
issuance or possibility of issuance of Preferred Stock could have the effect of
delaying or preventing a change in control of the Company.
TERMS
The Preferred Stock will have the dividend, liquidation, redemption, voting
and conversion rights described in this section unless we state otherwise in the
applicable prospectus supplement. You should read the prospectus supplement
relating to the particular series of the Preferred Stock for specific terms,
including:
. the title and liquidation preference of such Preferred Stock and the
number of shares offered;
. the initial offering price of such Preferred Stock;
. the dividend rate or rates (or method of calculation), the dividend
periods, the date(s) on which dividends will be payable and whether the
dividends will be cumulative or noncumulative, and, if cumulative, the
dates from which the dividends will start to cumulate;
. procedures for any auction and remarketing, if any;
. any listing of such Preferred Stock on any securities exchange;
. any conversion provisions;
. any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Stock;
. discussion of federal income tax considerations applicable to such
Preferred Stock;
. relative ranking and preference of such Preferred Stock as to dividend
rights and rights upon liquidation, dissolution or winding up of our
business;
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. any limitations on issuance of any series of Preferred Stock ranking
senior to or on a parity with such series of Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up
of our business; and
. any limitations on direct or beneficial ownership and restrictions on
transfer, in each case as may be appropriate to preserve our status
as a REIT.
RANK
Unless we state otherwise in the applicable prospectus supplement, each
series of Preferred Stock will, with respect to dividend rights and rights upon
liquidation, dissolution or winding up of the Company, rank:
. senior to our Common Stock and any of our other equity securities
ranking junior to such series of Preferred Stock;
. on a parity with all our equity securities which according to their
terms rank on a parity with the Preferred Stock; and
. junior to all our equity securities which according to their terms rank
senior to such series of Preferred Stock.
The term "equity securities" does not include any convertible debt securities we
may issue.
DIVIDENDS
As a holder of shares of Preferred Stock, you will be entitled to receive
cash dividends, if declared by the Board of Directors, out of our assets that we
can legally use to pay dividends. The prospectus supplement relating to a
particular series of Preferred Stock will state the dividend rates and dates on
which the dividends will be payable for such series. We will pay dividends to
the holders of record as they appear on our stock transfer books on the record
dates fixed by the Board of Directors.
The applicable prospectus supplement will also state whether the dividends
on any series of the Preferred Stock are cumulative or non-cumulative.
Dividends, if cumulative, will accumulate from and after the dates stated in the
applicable prospectus supplement. If the Board of Directors does not declare a
dividend payable on a dividend payment date on any series of the Preferred Stock
for which dividends are non-cumulative, then the holders of such series of the
Preferred Stock will have no right to receive a dividend for the dividend period
ending on such dividend payment date and we will not be obligated to pay the
dividend accrued for such period, even if the Board of Directors declares a
dividend in the future.
The Company will not pay a dividend on any class or series of stock ranking
as to dividends equal with or junior to a series of Preferred Stock unless:
. if such series of Preferred Stock has a cumulative dividend, full
cumulative dividends have been or contemporaneously are declared and
paid (or declared and sufficient money is set apart for payment); or
. if such series of Preferred Stock does not have a cumulative dividend,
full dividends for the then current dividend period have been or
contemporaneously are declared and paid (or declared and sufficient
money is set apart for the payment).
If at any time full dividends will not be paid (or declared and sufficient money
set apart for payment) on all shares of Preferred Stock ranking equal as to
dividends, then:
. we will declare any dividends pro rata among all shares of Preferred
Stock ranking equal as to dividends. This means that the dividends we
declare per share on each series of such Preferred Stock (which will not
include any accumulation in respect of unpaid dividends for prior
dividend periods if such Preferred Stock does not have a cumulative
dividend) will bear the same relationship to each other that the full
accrued dividends per share on each such series of Preferred Stock bear
to each other;
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. other than pro rata dividends, we will not declare or pay any dividends
or set any money aside for payment of dividends (except dividends paid
in the form of securities ranking junior to the Preferred Stock as to
dividends and upon liquidation) or declare or make any distributions
upon any security ranking junior to or equal with the Preferred Stock as
to dividends or upon liquidation; and
. we will not redeem, purchase or otherwise acquire (or set aside money
for a sinking fund for) any securities ranking junior to or equal with
the Preferred Stock as to dividends or upon liquidation (except by
conversion into or exchange for shares junior to the Preferred Stock as
to dividends and upon liquidation).
REDEMPTION
A series of Preferred Stock may be redeemable, in whole or in part, at our
option and may be subject to mandatory redemption pursuant to a sinking fund, or
otherwise, as we may describe in the applicable prospectus supplement.
If a series of Preferred Stock is subject to mandatory redemption, we will
specify the following in the applicable prospectus supplement:
. the date on which such mandatory redemption shall commence and the
number of shares of such Preferred Stock that we will redeem each year
after such date;
. the redemption price; and
. whether the redemption price will be paid in cash or other property
together with an amount equal to all accrued and unpaid dividends (which
shall not include any accumulation in respect of unpaid dividends for
prior dividend periods if such Preferred Stock does not have a
cumulative dividend) to the date of redemption.
If we are only permitted to pay the redemption price of a series of Preferred
Stock from the net proceeds of the issuance of shares of our capital stock and
the proceeds from such issuance are insufficient or no such issuance has
occurred, then the terms of that series may provide that such Preferred Stock
will automatically and mandatorily be converted into shares of our capital stock
pursuant to conversion provisions which we will specify in the applicable
prospectus supplement.
Even if the terms of a series of Preferred Stock permit us to redeem such
shares of Preferred Stock in whole or in part, if any dividends, including
accumulated dividends, on that series are past due, we will not:
. redeem any Preferred Stock of that series unless we simultaneously
redeem all outstanding shares of Preferred Stock of that series; and
. purchase or otherwise acquire any Preferred Stock of that series (except
by conversion into or exchange for shares of our capital stock ranking
junior to such Preferred Stock as to dividends and upon liquidation).
The prohibitions regarding redemption discussed in the prior sentence will not
restrict us from purchasing or acquiring Preferred Stock of any series to
preserve our REIT status or pursuant to a purchase or exchange offer made on the
same terms to all holders of that series.
If fewer than all of the outstanding shares of any series of Preferred Stock
are to be redeemed, the Board of Directors will determine the number of shares
to be redeemed. Except when such redemption is to preserve our status as a
REIT, we may redeem the shares pro rata from the holders of record in proportion
to the number of such shares held by them or for which such holder requested
redemption (with adjustments to avoid redemption of fractional shares) or by any
other equitable manner that we determine.
We will give notice of redemption by mailing a notice to each record holder
of shares to be redeemed between 30 and 60 days prior to the date fixed for
redemption. Each notice shall state:
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. the redemption date;
. the number of shares and series of the Preferred Stock to be redeemed;
. the redemption price;
. the place or places where the holders of such Preferred Stock may
surrender the certificates for payment of the redemption price;
. that dividends on the shares to be redeemed will cease to accrue on the
redemption date; and
. the date upon which the holder's conversion rights, if any, will
terminate.
If we redeem fewer than all shares of any series of Preferred Stock, we will
specify in the notice to each holder the number of shares to be redeemed from
such holder. If we have given notice of redemption of any Preferred Stock and
we have set aside the funds necessary for the payment of the redemption price,
then beginning on the redemption date, the dividends on the Preferred Stock
called for redemption will no longer accrue and the holders will no longer have
any rights as stockholders except to receive the redemption price.
LIQUIDATION RIGHTS
Unless we state otherwise in the applicable prospectus supplement, if we
voluntarily or involuntarily liquidate, dissolve or wind up the Company, the
holders of each series of Preferred Stock will be entitled to receive:
. liquidating distributions, if any, in the amount or proportion stated in
the applicable prospectus supplement; and
. all accrued and unpaid dividends (which will not include any
accumulation in respect of unpaid dividends for prior dividend periods
if such Preferred Stock does not have a cumulative dividend).
We will pay these amounts to the holders of shares of each series of the
Preferred Stock, and all amounts owing on any other class or series of our
capital stock ranking senior to or equally with such series of Preferred Stock
as to distributions upon liquidation, out of our assets legally available for
distribution to our stockholders before we make any distribution or payment to
holders of any of our securities ranking junior to such series of Preferred
Stock. After we pay the full amount of the liquidating distributions to the
holders of Preferred Stock to which they are entitled, such holders will have no
right or claim to any of our remaining assets
If we voluntarily or involuntarily liquidate, dissolve or wind up the
Company and our available assets are insufficient to pay the amount of the
liquidating distributions on all outstanding shares of each series of Preferred
Stock and any other shares of our stock ranking senior to or equal with such
series as to any such distribution, then we will only make pro rata
distributions to the holders of all shares ranking equal as to distributions
upon dissolution, liquidation or winding up of the Company.
If we have paid the full liquidation preference to all holders of Preferred
Stock, we will distribute our remaining assets among the holders of any other
classes or series of our capital stock ranking junior to the Preferred Stock
upon liquidation, dissolution or winding up of the Company, according to their
respective rights and preferences. For such purposes, our consolidation with or
into any other corporation, trust or entity, or the sale, lease or conveyance of
all or substantially all of our property or business, will not be considered a
liquidation, dissolution or winding up of the Company.
VOTING RIGHTS
As a holder of Preferred Stock, you will not have any voting rights, except
as we describe in this section or in the applicable prospectus supplement or as
required by law.
Unless we receive the consent of at least two-thirds of all the outstanding
shares of such series of Preferred Stock (except as provided otherwise for any
series of Preferred Stock), we will not:
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. authorize or create, or increase the authorized or issued amount of, any
class or series of shares of capital stock ranking senior to such series
of Preferred Stock with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up of
our business;
. reclassify any authorized capital stock into such shares of capital
stock ranking senior to such series of Preferred Stock with respect to
payment of dividends or the distribution of assets upon liquidation,
dissolution or winding up of our business;
. create, authorize or issue any obligation or security convertible into
or evidencing the right to purchase shares of capital stock ranking
senior to such series of Preferred Stock with respect to payment of
dividends or the distribution of assets upon liquidation, dissolution or
winding up of our business; or
. amend, alter or repeal our Charter, whether by merger, consolidation or
otherwise (such occurrence, an "Event"), so as to materially and
adversely affect any right, preference, privilege or voting power of
such series of Preferred Stock or the holders of that stock.
As a holder of Preferred Stock, you may give your consent in person or by
proxy, either in writing or at a meeting (each series voting separately as a
class). We are not required to obtain your consent, as a holder of Preferred
Stock, for the following actions as such actions will be deemed in the
Designating Amendment not to adversely affect any right, preference, or voting
power of your series of Preferred Stock:
. if upon the occurrence of an Event, such series of Preferred Stock
remain outstanding with its terms materially unchanged, taking into
account that upon the occurrence of an Event, we may not be the
surviving entity;
. any increase in the amount of the authorized Preferred Stock, or the
creation or issuance of any other series of Preferred Stock (provided
such series of Preferred Stock ranks equal with or junior to your series
of Preferred Stock); or
. any increase in the amount of authorized shares of a series of Preferred
Stock, in each case ranking equal with or junior to the Preferred Stock
of such series with respect to payment of dividends, or the distribution
of our assets upon liquidation, dissolution or winding-up of the
Company.
The foregoing voting provisions will not apply if we redeem or call for
redemption all shares of a series of Preferred Stock outstanding at or prior to
the time when the act with respect to which such vote would otherwise be
required shall be effected. All outstanding shares of a series of Preferred
Stock will be deemed to have been redeemed or called for redemption provided
sufficient funds will have been deposited in trust to effect such redemption.
CONVERSION RIGHTS
We will specify in the applicable prospectus supplement the terms and
conditions, if any, upon which any series of Preferred Stock is convertible into
Common Stock. Such terms will include:
. the number of shares of Common Stock to be received on conversion of
each share of such Preferred Stock;
. the conversion price or rate (or method of calculation);
. the conversion period;
. whether conversion is at our and/or at the option of the holder of
Preferred Stock;
. any events resulting in adjustment of the conversion price; and
. rights of conversion in the event we call for redemption such series of
Preferred Stock.
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RESTRICTIONS ON OWNERSHIP
For us to maintain our qualification as a REIT for federal income tax
purposes, not more than 50% in value of our outstanding capital stock may be
owned, directly or indirectly, by five or fewer individuals (as defined for
federal income tax purposes to include certain entities) during the last half of
a taxable year. To assist us in meeting this requirement and to otherwise
protect us from the consequences of a concentration of ownership among our
stockholders, our Charter provides that, in general, no one person may own more
than 6.6% of the outstanding shares of any class or series of capital stock,
including any series of Preferred Stock. See "Restrictions on Transfer" on
page 24.
TRANSFER AGENT
We will name the transfer agent and registrar for the Preferred Stock in the
applicable prospectus supplement.
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DESCRIPTION OF COMMON STOCK
This section describes the general terms and provisions of the shares of the
Company's Common Stock that we may offer by this prospectus. The summary is not
complete. We have incorporated by reference our Charter and Bylaws as exhibits
to this Registration Statement. You should read our Charter and Bylaws before
you acquire any Common Stock.
GENERAL
As of December 14, 1998, our authorized Common Stock was 250,000,000
shares, of which 63,527,819 shares were issued and outstanding. All shares of
Common Stock will, when issued, be duly authorized, fully paid and
nonassessable. This means that the full price for our Common Stock will be paid
at issuance and that you, as a purchaser of such shares of Common Stock, will
not be later required to pay us any additional monies for such Common Stock.
DIVIDENDS
As a holder of Common Stock, you may receive dividends, out of our funds
that we can legally use to pay dividends, when and if such dividends are
declared by the Company's Board of Directors.
VOTING RIGHTS
Subject to the provisions of our Charter regarding Excess Stock, as a holder
of Common Stock you have the exclusive power to vote on all matters presented to
our stockholders unless Delaware law or the Designating Amendment for an
outstanding series of Preferred Stock gives the holders of any outstanding
Preferred Stock the right to vote on certain matters or generally. As a holder
of Common Stock, you are entitled to one vote per share. There is no cumulative
voting in the election of our Directors which means that at any meeting of our
stockholders the holders of a majority of the outstanding shares of Common Stock
can cast all of their votes for each Director to be elected at such meeting,
thus electing all of the Directors then standing for election, and the votes
held by the holders of the remaining Common Stock will not be sufficient to
elect any Director.
OTHER RIGHTS
Subject to the provisions of our Charter regarding Excess Stock, each share
of Common Stock has equal dividend, distribution, liquidation and other rights,
and has no preference, appraisal (except as provided by Delaware law) or
exchange rights.
As a holder of Common Stock, you have no conversion, sinking fund or
redemption rights, or preemptive rights to subscribe for any securities of the
Company.
We intend to furnish our stockholders with annual reports containing our
audited consolidated financial statements and an opinion thereon expressed by an
independent public accounting firm.
Pursuant to Delaware law, a merger or consolidation involving a Delaware
corporation, such as the Company, generally requires the approval of a majority
of the outstanding shares that are entitled to vote on such matters. However,
Delaware law provides that no vote of our stockholders is required to authorize
a merger in which we are the surviving corporation following the merger if:
. our Charter is not amended in any respect by the merger;
. each share of stock outstanding prior to the merger is to be an
identical share of stock after the effective date of the merger; and
. any shares of common stock (together with any other securities
convertible into shares of common stock) to be issued or delivered under
the plan of merger aggregate to no more than 20% of the number of shares
of common stock outstanding immediately prior to the effective date of
the merger.
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TRANSFER AGENT
The transfer agent and registrar for our Common Stock is BankBoston, N.A.
DESCRIPTION OF WARRANTS
We have no Warrants or other share purchase rights outstanding (other than
options issued under our 1997 Stock Option and Incentive Plan). Each OP Unit
issued by our Operating Partnership subsidiary, however, may generally be
redeemed by the holder thereof for cash equal to the fair market value of one
share of Common Stock, except that the Company may at its election acquire any
OP Unit so presented for redemption for one share of Common Stock. In addition,
as of December 14, 1998, the Operating Partnership had outstanding Preferred
Units that at present or at a future date may be converted into an aggregate of
10,454,301 OP Units, with each such OP Unit having the right described in the
preceding sentence.
We may issue Warrants for the purchase of Preferred Stock or Common Stock by
this prospectus. Warrants may be issued independently, together with any other
Securities offered by any prospectus supplement or through a dividend or other
distribution to our stockholders and may be attached to or separate from such
Securities. We may issue Warrants under a warrant agreement to be entered into
between us and a warrant agent. We will name any warrant agent in the
applicable prospectus supplement. The warrant agent will act solely as our
agent in connection with the Warrants of a particular series and will not assume
any obligation or relationship of agency or trust for or with any holders or
beneficial owners of Warrants. In the applicable prospectus supplement, we will
describe the terms of the Warrants and applicable warrant agreement, including,
where applicable, the following:
. the title of such Warrants;
. their aggregate number;
. the price or prices at which we will issue them;
. the designation, number and terms of the Preferred Stock or Common Stock
that can be purchased upon exercise of them;
. the designation and terms of the other Securities, if any, with which
such Warrants are issued and the number of such Warrants issued with
each such Security;
. the date, if any, on and after which they and the related Preferred
Stock or Common Stock, if any, will be separately transferable;
. the price at which each share of Preferred Stock or Common Stock that
can be purchased upon exercise of such Warrants may be purchased;
. the date on which the right to exercise them shall commence and the date
on which such right shall expire;
. the minimum or maximum amount of such Warrants which may be exercised at
any one time;
. information with respect to book-entry procedures, if any;
. a discussion of certain federal income tax considerations, and
. any other terms of such Warrants, including terms, procedures and
limitations relating to the transferability, exchange and exercise of
such Warrants.
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RESTRICTIONS ON TRANSFER
Ownership Limit. Among the requirements that we must meet to qualify as a
REIT under the Code is that not more than 50% in value of our outstanding
capital stock may be owned, directly or indirectly, by five or fewer individuals
(as defined in the federal income tax laws applicable to REITs) during the last
half of a taxable year (other than the first year). Additionally, such shares of
capital stock must be beneficially owned by 100 or more persons during at least
335 days of a taxable year of 12 months (other than the first year) or during a
proportionate part of a shorter taxable year. In order to protect us against
the risk of losing our status as a REIT and to otherwise protect us from the
consequences of a concentration of ownership among our stockholders, our
Charter, subject to certain exceptions, provides that no single person (which
includes any "group" of persons) (other than "Related Parties," as defined
below, and certain "Look-Through Entities," as defined below), may "beneficially
own" more than 6.6% (the "Ownership Limit") of the aggregate number of
outstanding shares of any class or series of capital stock. Under our Charter,
a person generally "beneficially owns" shares if (i) such person has direct
ownership of such shares, (ii) such person has indirect ownership of such shares
taking into account the constructive ownership rules of Section 544 of the Code,
as modified by Section 856(h)(1)(B) of the Code, or (iii) such person would be
deemed to "beneficially own" such shares pursuant to Rule 13d-3 under the
Exchange Act. These ownership limitations may have the effect of precluding
acquisition of control of the Company.
Related Party Ownership Limit. The effect of clause (iii) of the preceding
paragraph is that a person will generally be deemed, for purposes of the
Ownership Limit, to beneficially own any shares with respect to which such
person has the direct or indirect power to vote or cause their disposition.
Notwithstanding the above, (a) a Related Party will not be deemed to
beneficially own shares by virtue of clause (iii) of the preceding paragraph;
and (b) a "group" of which a Related Party is a member will generally not have
attributed to the group's beneficial ownership any shares beneficially owned by
such Related Party. Each of Mr. Zuckerman and his respective heirs, legatees
and devises, and any other person whose beneficial ownership of shares of Common
Stock would be attributed under the Code to Mr. Zuckerman, is a "Related Party,"
and such persons are subject to a "Related Party Ownership Limit" of 15%, such
that none of such persons shall be deemed to beneficially own shares in excess
of the Ownership Limit unless, in the aggregate, such persons own shares of any
class or series of capital stock in excess of 15% of the number of shares of
such class or series outstanding. A similar Related Party Ownership Limit is
applied to Mr. Linde and persons with a similar relationship to Mr. Linde, all
of whom are also Related Parties under our Charter.
Look-Through Ownership Limit. Our Charter provides that pension plans
described in Section 401(a) of the Code and mutual funds registered under the
Investment Company Act of 1940 ("Look-Through Entities") are subject to a 15%
"Look-Through Ownership Limit." Pension plans and mutual funds are among the
entities that are not treated as holders of stock under the Five or Fewer
Requirement and the beneficial owners of such entities will be counted as
holders for this purpose.
Waiver of Ownership Limits by The Board of Directors. The foregoing
restrictions on transferability and ownership will not apply if the Board of
Directors determines that it is no longer in the best interests of the Company
to attempt to qualify, or to continue to qualify, as a REIT. The Board of
Directors may, in its sole discretion, waive the Ownership Limit, the Look-
Through Ownership Limit and the Related Party Ownership Limit in any particular
instance if evidence satisfactory to the Board of Directors is presented that
the waiver of the Limit will not jeopardize our REIT status and the Board of
Directors otherwise decides that such action is in our best interest.
Transfers in Violation of Our Transfer Restrictions Will Be Null and Void.
Any purported transfer of shares of capital stock or of any security convertible
into shares of capital stock that would create a direct or indirect ownership of
shares of capital stock in excess of the Ownership Limit, the Look-Through
Ownership Limit or the Related Party Ownership Limit, as applicable, or that
would result in our disqualification as a REIT, including any transfer that
results in the shares of capital stock being owned by fewer than 100 persons or
results in the Company being "closely held" within the meaning of Section 856(h)
of the Code or results in the Company constructively owning 10% or more of the
ownership interests in a tenant of ours 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 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. The
Prohibited Transferee will 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")
will 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
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shares of Excess Stock (the "Excess Shares"). The Excess Shares will be
transferred automatically, by operation of law, to a trust, the beneficiary of
which will be a qualified charitable organization selected by us (the
"Beneficiary"). Such automatic transfer will be deemed to be effective as of the
close of business on the Trading Day (as defined in our Charter) prior to the
date of such violative transfer. As soon as practical after the transfer of
shares to the trust, the trustee of the trust (who shall be designated by us and
be unaffiliated with us and any Prohibited Transferee or Prohibited Owner) will
be required to sell such Excess Shares to a person or entity who could own such
shares without violating the applicable limit, and distribute to the Prohibited
Transferee an amount equal to the lesser of the price paid by the Prohibited
Transferee for such Excess Shares or the sales proceeds received by the trust
for such Excess Shares. In the case of any Excess Shares resulting from any
event other than a transfer, or from a transfer for no consideration (such as a
gift), the trustee will be required to sell such Excess Shares to a qualified
person or entity and distribute to the Prohibited Owner an amount equal to the
lesser of the fair market value of such Excess Shares as of the date of such
event or the sales proceeds received by the trust for such Excess Shares. In
either case, any proceeds in excess of the amount distributable to the
Prohibited Transferee or Prohibited Owner, as applicable, will be distributed to
the Beneficiary. Prior to a sale of any such Excess Shares by the trust, the
trustee will be entitled to receive in trust for the Beneficiary all dividends
and other distributions paid by us with respect to such Excess Shares.
In addition, shares of stock of the Company held in the trust will 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 we, or our designee, accepts such offer. We will have the right to
accept such offer for a period of 90 days. Upon such a sale to us, the interest
of the Beneficiary in the shares sold will terminate and the trustee shall
distribute the net proceeds of the sale to the Prohibited Transferee (or, in the
case of a devise or gift, the Prohibited Owner).
These restrictions do not preclude settlement of transactions through the
NYSE.
Disclosure of Stock Ownership by Our Stockholders. Our Charter provides
that our stockholders are required upon demand to disclose to us in writing any
information with respect to their 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.
SHAREHOLDER RIGHTS AGREEMENT
On June 11, 1997, the Board of Directors adopted a Shareholder Rights
Agreement (the "Rights Agreement"). The adoption of the Rights Agreement could
make it more difficult for a third party to acquire, or could discourage a third
party from acquiring, the Company or a large block of the Company's Common
Stock.
In accordance with the Rights Agreement, one Preferred Stock Purchase Right
(a "Right") is attached to each outstanding share of Common Stock, and one Right
will be attached to each share of Common Stock issued before the Distribution
Date (as defined below). Under certain conditions, each Right entitles the
registered holder to purchase from the Company one one-thousandth (1/1000) of a
share (a "Series E Unit") of Series E Junior Participating Cumulative Preferred
Stock, par value $.01 per share, of the Company (the "Series E Preferred
Stock"), at a cash exercise price of $100.00 per Series E Unit (the "Exercise
Price"), subject to adjustment. The Company has designated 200,000 shares of
Series E Preferred Stock and has reserved such shares for issuance under the
Rights Agreement.
The Rights are not exercisable until the Distribution Date and will expire
on June 11, 2007, unless previously redeemed or exchanged by the Company as
described below. Until a Right is exercised, the holder will have no rights as
a stockholder of the Company (beyond those as an existing stockholder),
including the right to vote or to receive dividends. While the distribution of
the Rights will not be taxable to stockholders or to the Company, stockholders
may, depending upon the circumstances, recognize taxable income in the event
that the Rights become exercisable for Series E Units, other securities of the
Company, other consideration or for common stock of an acquiring company.
Initially, the Rights are attached to and trade with the outstanding shares
of Common Stock. The Rights will separate from the Common Stock and will become
exercisable upon the earlier of the close of business on:
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(i) the tenth calendar day following the first public announcement that a
person or a group of affiliated or associated persons (an "Acquiring
Person") has acquired beneficial ownership of more than 15% of the sum
of the outstanding shares of Common Stock and Excess Stock ("Common
Shares") (the date of said announcement being referred to as the "Stock
Acquisition Date"); or
(ii) the tenth business day (or such other calendar day as the Board of
Directors may determine) following the commencement of a tender offer
or exchange offer that would result upon its consummation in a person
or group becoming the beneficial owner of more than 15% of the
outstanding Common Shares (the earlier of such dates being herein
referred to as the "Distribution Date").
Under the Rights Agreement, shares of Common Stock that may be issued in
exchange for outstanding OP Units are not included in the definition of
beneficial ownership. Also, a person who became a partner of the Operating
Partnership at the time of the Initial Offering will not be an Acquiring Person
if such person does not acquire a greater percentage of (A) the sum of (i) the
outstanding shares of Common Stock plus (ii) the outstanding OP Units held by
persons other than the Company than (B) the percentage that such person had at
the completion of the Initial Offering. Furthermore, no "group" of which a
Related Party is a member will be deemed to beneficially own the Common Shares
beneficially owned by such Related Party.
In the event that a Stock Acquisition Date occurs, proper provision will be
made so that each holder of a Right (other than an Acquiring Person or its
associates or affiliates, whose Rights shall become null and void) will
thereafter have the right to receive upon exercise that number of Series E Units
of Series E Preferred Stock having a market value of two times the exercise
price of the Right (such right being referred to as the "Subscription Right").
In addition, if at anytime following the Stock Acquisition Date the Company
engages in certain business combinations with an acquiring company, each holder
of a Right shall have the right to receive, upon exercise, common stock of the
acquiring company having a market value equal to two times the exercise price of
the Right (such right being referred to as the "Merger Right") if:
(i) the Company consolidates with, or merges with and into, any other
person, and the Company is not the continuing or surviving corporation;
(ii) any person consolidates with the Company, or merges with and into the
Company and the Company is the continuing or surviving corporation of
such merger and, in connection with such merger, all or part of the
shares of Common Stock are changed into or exchanged for stock or other
securities of any other person or cash or any other property; or
(iii) 50% or more of the Company's assets or earning power is sold,
mortgaged or otherwise transferred.
The holder of a Right will continue to have the Merger Right whether or not such
holder has exercised the Subscription Right.
The Exercise Price payable, and the number of Series E Units of Series E
Preferred Stock or other securities or property issuable, upon exercise of the
Rights are subject to adjustment from time to time to prevent dilution.
At any time after the Stock Acquisition Date, the Board of Directors may, at
its option, exchange all or any part of the then outstanding and exercisable
Rights for shares of Common Stock or Units of Series E Preferred Stock at an
exchange ratio of one share of Common Stock or one Unit of Series E Preferred
Stock per Right. However, the Board of Directors generally will not be
empowered to effect such exchange at any time after any person becomes the
beneficial owner of 50% or more of the Common Stock of the Company.
The Rights may be redeemed in whole, but not in part, at a price of $0.001
per Right (payable in cash, Common Stock or other consideration deemed
appropriate by the Board of Directors) by the Board of Directors only until the
earlier of (i) the close of business on the tenth calendar day after the Stock
Acquisition Date, or (ii) the expiration date of the Rights Agreement.
Immediately upon the action of the Board of Directors ordering redemption of the
Rights, the Rights will terminate and thereafter the only right of the holders
of Rights will be to receive the redemption price.
Until the Distribution Date (or earlier redemption, exchange or expiration
of the Rights), (a) the Rights will be evidenced by the Common Stock
certificates and will be transferred with and only with such Common Stock
certificates,
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(b) new Common Stock certificates issued after the Record Date will contain a
notation incorporating the Shareholder Rights Agreement by reference, and (c)
the surrender for transfer of any certificates for Common Stock will also
constitute the transfer of the Rights associated with the Common Stock
represented by such certificate.
As soon as practicable after the Distribution Date, Rights Certificates will
be mailed to holders of record of Common Stock as of the close of business on
the Distribution Date and, thereafter, the separate Rights Certificates alone
will represent the Rights. Except as otherwise determined by the Board of
Directors, only shares of Common Stock issued prior to the Distribution Date
will be issued with Rights.
The Board of Directors in its sole discretion may amend the Rights Agreement
until the Distribution Date. After the Distribution Date, the Board of
Directors may, subject to certain limitations set forth in the Rights Agreement,
amend the Rights Agreement only to cure any ambiguity, defect or inconsistency,
to shorten or lengthen any time period, or to make changes that do not adversely
affect the interests of Rights holders (excluding the interests of an Acquiring
Person or its associates or affiliates).
A copy of the Rights Agreement has been filed with the SEC. A copy of the
Rights Agreement is also available from the Company upon written request. The
foregoing description of the Rights does not purport to be complete and is
qualified in its entirety by reference to the Rights Agreement, which is
incorporated herein by reference.
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CERTAIN PROVISIONS OF DELAWARE LAW AND
OUR CHARTER AND BYLAWS
The Company's Charter and Bylaws contain certain provisions that could make
more difficult an acquisition of the Company by means of a tender offer, a proxy
contest or otherwise. These provisions are expected to discourage 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. We believe 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. The description set forth below is intended as a summary only and is
qualified in its entirety by reference to our Charter and Bylaws, which have
been filed with the SEC. See also "Restrictions on Transfers" on page 24.
AMENDMENT OF OUR CHARTER AND BYLAWS
Amendments to the Charter must be approved by the Board of Directors and
generally by the vote of a majority of the votes entitled to be cast at a
meeting of stockholders. However, amendments dealing with certain articles of
our Charter (for example, articles relating to stockholder action; the powers,
election of, removal of and classification of directors; limitation of
liability; and amendment of our Bylaws or Charter) require the affirmative vote
of not less than 75% of the outstanding votes entitled to be cast on the matter.
Unless otherwise required by law, the Board of Directors may amend our Bylaws by
the affirmative vote of a majority of the directors then in office. Our Bylaws
may also be amended by our stockholders, at an annual meeting or at a special
meeting called for such purpose, by the affirmative vote of at least seventy-
five percent of the votes entitled to be cast on the matter; provided, that if
the Board of Directors recommends that our stockholders approve such amendment
at such meeting, such amendment will require the affirmative vote of only a
majority of the shares present at such meeting and entitled to vote.
DISSOLUTION OF THE COMPANY
The DGCL and our Charter permit the Company to be dissolved by (i) the
affirmative vote of 75% of the directors then in office declaring such
dissolution to be advisable and directing that the proposed dissolution be
submitted for consideration at an annual or special meeting of our stockholders,
and (ii) upon proper notice, stockholder approval by the affirmative vote of a
majority of the votes entitled to be cast on the matter.
MEETINGS OF STOCKHOLDERS
Under our Bylaws, we will hold annual meetings of our stockholders at such
date and time as determined by the Board of Directors, the Chairman of our Board
or our President. Our Bylaws establish an advance notice procedure for our
stockholders to make nominations of candidates for directors or bring other
business before an annual meeting of stockholders. Special meetings of our
stockholders may be called only by a majority of the Directors then in office
and only matters set forth in the notice of the meeting may be considered and
acted upon at such a meeting.
BOARD OF DIRECTORS
Our Charter provides that the Company's Board of Directors will initially
consist of five directors and thereafter the number of directors of the Company
may be established by the Board of Directors. However, the number of directors
may not be fewer than the minimum number required by the DGCL nor more than
eleven. Subject to the rights, if any, 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 our Charter, the directors are divided into
three classes. 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 of directors may render more
difficult a change in control of the Company or removal of incumbent management.
We believe, however, that classification of the Board of Directors will help to
assure the continuity and stability of our business strategies and policies.
Our Charter provides that the affirmative vote of more than 75% of the
directors then in office is required to approve certain transactions or actions,
including a change of control (as defined) of the Company or of the Operating
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Partnership, any amendment to the Operating Partnership Agreement, any waiver of
the limitations on ownership contained in our Charter, certain issuances of
equity securities by the Company or termination of our status as a REIT.
SHAREHOLDER RIGHTS PLAN AND OWNERSHIP LIMITATIONS
We have adopted a Shareholder Rights Agreement. In addition, our Charter
contains provisions that limit the ownership by any person of shares of any
class or series of capital stock of the Company. See "Restrictions on Transfer
- -- Shareholder Rights Agreement" on page 25 and "Restrictions on Transfer" on
page 24).
LIMITATION OF LIABILITY AND INDEMNIFICATION
Our Charter generally limits the liability of our directors to the Company
to the fullest extent permitted from time to time by Delaware law. The DGCL
permits, but does not require, a corporation to indemnify its directors,
officers, employees or agents and expressly provides that the indemnification
provided for under the DGCL shall not be deemed exclusive of any indemnification
right under any bylaw, vote of stockholders or disinterested directors, or
otherwise. The DGCL permits indemnification against expenses and certain other
liabilities arising out of legal actions brought or threatened against such
persons for their conduct on behalf of a corporation, provided that each such
person acted in good faith and in a manner that he or she reasonably believed
was in or not opposed to such corporation's best interests and, in the case of a
criminal proceeding, provided such person had no reasonable cause to believe his
or her conduct was unlawful. The DGCL does not allow indemnification of
directors in the case of an action by or in the right of a corporation
(including stockholder derivative suits) unless the directors successfully
defend the action or indemnification is ordered by the court.
Our Bylaws provide that our directors and officers will be, and, in the
discretion of the Board of Directors, non-officer employees may be, indemnified
by the Company to the fullest extent authorized by Delaware law, as it now
exists or may in the future be amended, against all expenses and liabilities
actually and reasonably incurred in connection with service for or on behalf of
the Company. Our Bylaws also provide that the right of directors and officers
to indemnification shall be a contract right and shall not be exclusive of any
other right now possessed or hereafter acquired under any bylaw, agreement, vote
of stockholders, or otherwise. Our Charter contains a provision permitted by
Delaware law that generally eliminates the personal liability of directors for
monetary damages for breaches of their fiduciary duty, including breaches
involving negligence or gross negligence in business combinations, unless the
director has breached his or her duty of loyalty, failed to act in good faith,
engaged in intentional misconduct or a knowing violation of law, paid a dividend
or approved a stock repurchase in violation of the DGCL or obtained an improper
personal benefit. This provision does not alter a director's liability under
the federal securities laws. In addition, this provision does not affect the
availability of equitable remedies, such as an injunction or rescission, for
breach of fiduciary duty.
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, we have 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.
BUSINESS COMBINATIONS
We are subject to the provisions of section 203 ("Section 203") of the DGCL.
Section 203 provides, with certain exceptions, that a Delaware corporation may
not engage in any of a broad range of business combinations with a person or
affiliate, or associate of such person, who is an "interested stockholder" for a
period of three years from the date that such person became an interested
stockholder unless:
. the transaction resulting in a person becoming an interested
stockholder, or the business combination, was approved by the board of
directors of the corporation before the consummation of such
transaction;
. the interested stockholder owned 85% or more of the outstanding voting
stock of the corporation immediately after the transaction in which it
became an interested stockholder (excluding shares owned by persons who
are both officers and directors of the corporation, and shares held by
certain employee stock ownership plans); or
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. on or after the date the person becomes an interested stockholder, the
business combination is approved by the corporation's board of directors
and by the holders of at least 66% of the corporation's outstanding
voting stock at an annual or special meeting, excluding shares owned by
the interested stockholder.
Under Section 203, an "interested stockholder" is defined (with certain
exceptions) as any person who, together with affiliates and associates, owns or
within the prior three years did own, 15% or more of the corporation's
outstanding voting stock.
INDEMNIFICATION AGREEMENTS
We have entered into indemnification agreements with each of our directors
and executive officers. The indemnification agreements require, among other
things, that we indemnify our directors and executive officers to the fullest
extent permitted by law and advance to our directors and executive officers all
related expenses, subject to reimbursement if it is subsequently determined that
indemnification is not permitted. Under these agreements, we must also
indemnify and advance all expenses incurred by our directors and executive
officers seeking to enforce their rights under the indemnification agreements
and may cover our directors and executive officers under our 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 our 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 stockholders to eliminate the rights it
provides.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of the material federal income tax
considerations associated with an investment in the Securities. In this section
when we refer to "the Code" we mean the Internal Revenue Code, as amended. The
following discussion is not exhaustive of all possible tax considerations and is
not tax advice. Moreover, this summary does not deal with all tax aspects that
might be relevant to you, as a particular prospective stockholder in light of
your personal circumstances; nor does it deal with particular types of
stockholders that are subject to special treatment under the Code, such as
insurance companies, financial institutions and broker-dealers. The Code
provisions governing the federal income tax treatment of REITs are highly
technical and complex. This summary is qualified in its entirety by the
applicable Code provisions, rules and regulations promulgated thereunder, and
administrative and judicial interpretations thereof. The following discussion
is based on current law. Unless the context requires otherwise, references to
"us," "we," and the "Company" in this "Federal Income Tax Considerations"
section refer only to Boston Properties, Inc.
WE URGE YOU, AS A PROSPECTIVE INVESTOR, TO CONSULT YOUR OWN TAX ADVISER
REGARDING THE SPECIFIC TAX CONSEQUENCES TO YOU OF THE PURCHASE, OWNERSHIP AND
SALE OF THE SECURITIES AND OF OUR ELECTION TO BE TAXED AS A REIT, INCLUDING THE
FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE,
OWNERSHIP AND SALE.
OPINION OF TAX COUNSEL
In the opinion of our counsel, Goodwin, Procter & Hoar LLP, commencing with
our taxable year ended December 31, 1997, we qualified to be taxed as a REIT
under the Code, provided that the Company and the Operating Partnership operated
and continue to operate in accordance with various assumptions and factual
representations made by the Company and the Operating Partnership concerning
their business, properties and operations. It must be emphasized that Goodwin,
Procter & Hoar LLP's opinion is based on various assumptions and is conditioned
upon such assumptions and representations made by the Company and the Operating
Partnership concerning their business and properties. In addition, Goodwin,
Procter & Hoar LLP's opinion is based upon the factual representations of the
Company and the Operating Partnership concerning its business and properties.
Moreover, such qualification and taxation as a REIT depends upon our ability to
meet, through actual annual operating results, distribution levels and diversity
of stock ownership, the various qualification tests imposed under the Code
discussed below, the results of which will not be reviewed by Goodwin, Procter &
Hoar LLP. Accordingly, no assurance can be given that the actual results of our
operations for any one taxable year will satisfy such requirements. See "Risk
Factors--Failure to Qualify as a REIT" on page 9.
The opinion of Goodwin, Procter & Hoar LLP is also based upon existing law
as currently applicable, Internal Revenue Service ("IRS") regulations, currently
published administrative positions of the IRS and judicial decisions, which are
subject to change either prospectively or retroactively. No assurance can be
given that any such changes would not modify the conclusions expressed in their
opinion. Moreover, unlike a tax ruling (which we will not seek), an opinion of
counsel is not binding on the IRS and no assurance can be given that the IRS
will not successfully challenge our status as a REIT.
If we qualify for taxation as a REIT, we generally will not be subject to
federal corporate income taxes on that portion of our ordinary income or capital
gain that we distribute currently to our stockholders. The REIT provisions of
the Code generally allow a REIT to deduct dividends paid to its stockholders.
This substantially eliminates the federal "double taxation" on earnings
(taxation at both the corporate level and stockholder level) that usually
results from investments in a corporation.
Even if we qualify for taxation as a REIT, we will be subject to federal
income tax, as follows:
. we will be taxed at regular corporate rates on our undistributed REIT
taxable income, including undistributed net capital gains;
. under certain circumstances, we will be subject to the "alternative
minimum tax";
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. if we have net income from the sale or other disposition of "foreclosure
property" that is held primarily for sale to customers in the ordinary
course of business or other non-qualifying income from foreclosure
property, we will be subject to tax at the highest corporate rate on
such income;
. if we have 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;
. if we fail to satisfy either the 75% or 95% gross income test (discussed
below) but have nonetheless maintained our qualification as a REIT
because certain other requirements have been met, we will be subject to
a 100% tax on the net income attributable to the greater of the amount
by which we fail the 75% or 95% test, multiplied by a fraction intended
to reflect our profitability;
. if we fail to distribute during each year at least the sum of (i) 85% of
our REIT ordinary income for such year, (ii) 95% of our REIT capital
gain net income for such year and (iii) any undistributed taxable income
from prior periods, we will be subject to a 4% excise tax on the excess
of such required distribution over the amounts actually distributed; and
. if we acquire any asset from a C corporation (i.e., a corporation
generally subject to full corporate-level tax) in a carryover-basis
transaction and we subsequently recognize gain on the disposition of
such asset during the ten-year period (the "Recognition Period")
beginning on the date on which we acquired the asset, then, to the
extent of the excess of (a) the fair market value of the asset as of the
beginning of the applicable Recognition Period over (b) our adjusted
basis in such asset as of the beginning of such Recognition Period (the
"Built-In Gain"), such gain will be subject to tax at the highest
regular corporate rate, pursuant to guidelines issued by the IRS (the
"Built-In Gain Rules").
REQUIREMENTS FOR QUALIFICATION
We elected to be taxable as a REIT for our taxable year ended December 31,
1997. In order for us to have so qualified, we must have met and we must
continue to meet the requirements, discussed below relating to our organization,
source of income, nature of assets and distributions of income to our
stockholders.
ORGANIZATIONAL REQUIREMENTS
Definition of REIT under the Code
The Code defines a REIT as a corporation, trust or association:
. (i) that is managed by one or more directors or trustees;
. (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 the
REIT requirements;
. (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; and
. (vi) during the last half of each taxable year not more than 50% in
value of the outstanding stock of which is owned, directly or
indirectly through the application of certain attribution rules,
by five or fewer individuals (as defined in the Code to include
certain entities). In addition, certain other tests, described
below, regarding the nature of its income and assets also must be
satisfied.
The Code provides that conditions (i) through (iv), inclusive, must be met
during the entire taxable year and that condition (v) must be met during at
least 335 days of a taxable year of 12 months, or during a proportionate part of
a
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taxable year of less than 12 months. Conditions (v) and (vi) (the "100
Stockholder Requirement" and "Five or Fewer Requirement", respectively) will not
apply until after the first taxable year for which an election is made to be
taxed as a REIT. For purposes of conditions (v) and (vi), pension funds and
certain other tax-exempt entities are treated as individuals, subject to a
"look-through" exception in the case of condition (vi).
Protection from Stock Ownership Concentration
In order to protect us from a concentration of ownership of stock that would
cause us to fail the Five or Fewer Requirement, our Charter provides that stock
owned, or deemed to be owned or transferred to a stockholder in excess of the
Ownership Limit or the Look-Through Ownership Limit will automatically be
converted into Excess Stock (as defined below) and transferred to a charity for
resale. The original stockholder is entitled to receive certain proceeds from
such a resale. See "Restrictions on Transfers" on page 24. Excess Stock is a
separate class of our capital stock that is entitled to no voting rights but
shares ratably with the Common Stock in dividends and rights upon dissolution.
Because of the absence of authority on this issue, however, we cannot assure you
that the operation of the Excess Stock or other provisions contained in our
Charter will, as a matter of law, prevent a concentration of ownership of stock
in excess of the Ownership Limit from causing us to violate the Five or Fewer
Requirement. If there were such a concentration of ownership and the operation
of the Excess Stock or other provisions contained in our Charter were not held
to cure such violation, we would be disqualified as a REIT. In rendering its
opinion that we are organized in a manner that permits us to qualify as a REIT,
Goodwin, Procter & Hoar LLP is relying on our representation that the ownership
of our stock (without regard to the Excess Stock provisions) satisfies the Five
or Fewer Requirement. Goodwin, Procter & Hoar LLP expresses no opinion as to
whether, as a matter of law, the Excess Stock or other provisions contained in
our Charter preclude us from failing the Five or Fewer Requirement.
Calendar Year Requirement
A corporation may not elect to become a REIT unless its taxable year is the
calendar year. Our taxable year is the calendar year.
Certain Treasury Regulations Relating to Our Status as a REIT and Partner
In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT is deemed to own its proportionate share
(based on its interest in partnership capital) of the assets of the partnership
and is deemed to be entitled to the income of the partnership attributable to
such share. In addition, the character of the assets and gross income of the
partnership shall retain the same character in the hands of the REIT for
purposes of Section 856 of the Code, including satisfying the gross income tests
and asset tests. Thus, our proportionate share of the assets, liabilities and
items of income of the Operating Partnership (including the Operating
Partnership's share of the assets and liabilities and items of income with
respect to any partnership in which it holds an interest) are treated as our
assets, liabilities and items of income for purposes of applying the
requirements described herein.
INCOME TESTS
Gross Income Requirements
To maintain our qualification as a REIT, we must satisfy annually two gross
income requirements.
. At least 75% of our gross income for each taxable year must be derived
directly or indirectly from investments relating to real property or
mortgages on real property. Gross income includes "rents from real
property" and, in certain circumstances, interest, but excludes gross
income from certain disposition or property held primarily for sale to
customers in the ordinary course of a trade or business ("prohibited
transactions").
. At least 95% of our gross income (excluding gross income from prohibited
transactions) for each taxable year must be derived from such real
property investments described above and from dividends, interest and
gain from the sale or disposition of stock or securities or from any
combination of the foregoing.
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Rents from Real Property
The rents we receive or that we are deemed to receive qualify as "rents from
real property" in satisfying the gross income requirements for a REIT described
above only if the following conditions are met.
. The amount of rent generally must not be based in whole or in part on
the income or profits of any person. An amount received or accrued
generally will not be excluded from the term "rents from real property,"
however, solely by reason of being based on a fixed percentage or
percentages of gross receipts or sales.
. The Code provides that rents received from a tenant will not qualify as
"rents from real property" in satisfying the gross income tests if the
REIT, or an owner of 10% or more of the REIT, directly or constructively
owns 10% or more of such tenant (a "Related Party Tenant") or a
subtenant of such tenant (in which case only rent attributable to the
subtenant is disqualified).
. If rent attributable to personal property, leased in connection with a
lease of real property, is greater than 15% of the total rent received
under the lease, then the portion of rent attributable to the personal
property will not qualify as "rents from real property."
. For rents to qualify as "rents from real property" the REIT must not
operate or manage the property or furnish or render services to tenants,
other than through an "independent contractor" who is adequately
compensated and from whom the REIT does not derive any income. However,
a REIT may provide services with respect to its properties and the
income will qualify as "rents from real property" if the services are
"usually or customarily rendered" in connection with the rental of room
or other space for occupancy only and are not otherwise considered
"rendered to the occupant." Even if the services with respect to a
property are impermissible tenant services the income will qualify as
"rent from real property" if the income from such services does not
exceed one percent of all amounts received or accrued with respect to
that property. In establishing the amount of impermissible tenant
services income, such amount must be at least 150 percent of the direct
cost of providing the tenant services, or managing or operating the
property.
We do not charge rent that is based in whole or in part on the income or
profits of any person (except by reason of being based on a fixed percentage or
percentages of receipts or sales consistent with the rule described above). We
do not derive, and do not anticipate deriving, rent attributable to personal
property leased in connection with real property that exceeds 15% of the total
rents.
Rents from Real Property with Respect to Hotel Property Leases
Pursuant to leases with respect to two hotel properties, ZL Hotel LLC leases
from the Operating Partnership the two hotel properties under a 10 year lease.
The hotel leases provide that ZL Hotel LLC is obligated to pay to the Operating
Partnership (i) the greater of a "Base Rent" or a "Participating Rent"
(collectively, the "Rents") and (ii) certain additional charges (as defined in
the leases) ("Additional Charges"). Participating Rent is calculated by
multiplying fixed percentages by various revenue categories for each of the
hotel properties. Both Base Rent and the thresholds in the Participating Rent
formulas adjust for inflation. Base Rent accrues and is required to be paid
monthly. Participating Rent is payable monthly, in the form of monthly
adjustments based on actual results.
In order for the Rents and Additional Charges to constitute "rents from real
property," the leases must be respected as true leases for federal income tax
purposes and not treated as service contracts, joint ventures or some other type
of arrangement. The determination of whether the leases are true leases depends
on an analysis of all the surrounding facts and circumstances. In making such a
determination, courts have considered a variety of factors, including the
following:
. the intent of the parties;
. the form of the agreement;
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. the degree of control over the property that is retained by the property
owner (e.g., whether the lessee has substantial control over the
operation of the property or whether the lessee was required simply to
use its best efforts to perform its obligations under the agreement);
and
. the extent to which the property owner retains the risk of loss with
respect to the property (e.g., whether the lessee bears the risk of
increases in operating expenses or the risk of damage to the property)
or the potential for economic gain (e.g., appreciation ) with respect to
the property.
In addition, Code section 7701(e) provides that a contract that purports to
be a service contract (or a partnership agreement) is treated instead as a lease
of property if the contract is properly treated as such, taking into account all
relevant factors, including whether or not:
. the service recipient is in physical possession of the property;
. the service recipient controls the property;
. the service recipient has a significant economic or possessory interest
in the property (e.g., the property's use is likely to be dedicated to
the service recipient for a substantial portion of the useful life of
the property, the recipient shares the risk that the property will
decline in value, the recipient shares in any appreciation in the value
of the property, the recipient shares in savings in the property's
operating costs, or the recipient bears the risk of damage to or loss of
the property);
. the service provider does not bear any risk of substantially diminished
receipts or substantially increased expenditures if there is
nonperformance under the contract;
. the service provider does not use the property concurrently to provide
significant services to entities unrelated to the service recipient; and
. the total contract price does not substantially exceed the rental value
of the property for the contract period.
Since the determination whether a service contract should be treated as a lease
is inherently factual, the presence or absence of any single factor may not be
dispositive in every case. The hotel leases were structured to qualify as true
leases for federal income tax purposes.
You should be aware that there are no controlling Treasury Regulations,
published rulings, or judicial decisions involving leases with terms
substantially the same as the hotel leases that discuss whether such leases
constitute true leases for federal income tax purposes. Therefore, there can be
no complete assurance that the IRS will not assert a contrary position. If the
leases are recharacterized as service contracts or partnership agreements,
rather than true leases, part or all of the payments that the Operating
Partnership receives from the lessee would not be considered rent or would not
otherwise satisfy the various requirements for qualification as "rents from real
property." In that case, we likely would not be able to satisfy either the 75%
or 95% gross income tests and, as a result, would lose our REIT status.
As indicated above, "rents from real property" must not be based in whole or
in part on the income or profits of any person. The Participating Rent should
qualify as "rents from real property" since it is based on percentages of
receipts or sales which percentages are fixed at the time the leases are entered
into, provided (i) the leases are not renegotiated during the term of the leases
in a manner that has the effect of basing Participating Rent on income or
profits and (ii) the leases conform with normal business practice. More
generally, the Participating Rent will not qualify as "rents from real property"
if, considering the hotel leases and all the surrounding circumstances, the
arrangement does not conform with normal business practice, but is in reality
used as a means of basing the Participating Rent on income or profits. Since
the Participating Rent is based on fixed percentages of the gross revenues from
the hotels that are established in the hotel leases, and we have represented
that the percentages (i) will not be renegotiated during the terms of the leases
in a manner that has the effect of basing the Participating Rent on income or
profits and (ii) conform with normal business practice, the Participating Rent
should not be considered based in whole or in part on the income or profits of
any person. Furthermore, we have represented that, with respect to other hotel
properties that we acquire
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in the future, we will not charge rent for any property that is based in whole
or in part on the income or profits of any person (except by reason of being
based on a fixed percentage of gross revenues, as described above.)
Rents from Real Property with Respect to Parking Leases and Parking Management
Agreements
Pursuant to leases with independent third parties, the Operating Partnership
or certain subsidiary partnerships lease certain garage property and the garage
portions of certain office properties to independent third parties for periods
between one to three years. The parking leases provide that the Operating
Partnership will receive rent based on the gross receipts of the parking garage.
The same "true lease" and "rent from real property" analysis applies with
respect to the parking leases as is described above for the hotel leases. These
garage leases also have been structured to qualify as true leases for federal
income tax purposes. As is the case with respect to the hotel leases, there can
be no complete assurance that the IRS will not assert a contrary position, which
if successful could result in the loss of our status as a REIT.
Additionally, the Company has engaged independent contractors to manage and
operate, for a fee, certain parking facilities that the Company owns and that
are not subject to the leases described in the preceding paragraph. These
management agreements were the subject of a private letter ruling received by
the Company from the Internal Revenue Service which concluded that certain
arrangements with such independent contractors (as described in the private
letter ruling) do not preclude either the rental income from the tenants of such
properties or the income from operating the parking facilities from qualifying
as rents from real property.
Income from Usually or Customarily Rendered Services
We provide certain services with respect to our properties through the
Operating Partnership. The Operating Partnership is not an "independent
contractor." We believe (and have represented to Goodwin, Procter & Hoar LLP)
that all such services are considered "usually or customarily rendered" in
connection with the rental of space for occupancy only. Therefore, our
provision of such services does not jeopardize the qualification of rent from
the Properties as "rents from real property." In rendering its opinion on our
ability to qualify as a REIT, Goodwin, Procter & Hoar LLP is relying on such
representations. In the case of any services that are not "usual and customary"
under the foregoing rules, we intend to employ "independent contractors" to
provide such services.
Non-Qualifying Income Received by the Operating Partnership
The Operating Partnership may receive certain types of income with respect
to the properties it owns that will not qualify under the 75% or 95% gross
income test. We believe, however, that the aggregate amount of such non-
qualifying income in any taxable year will not cause us to exceed the limits on
non-qualifying income under the 75% and 95% gross income tests.
Eligibility for Relief Under the Code if We Fail to Qualify as a REIT
If we fail to satisfy one or both of the 75% or 95% gross income tests for
any taxable year, we may still qualify as a REIT for that year if we are
eligible for relief under certain provisions of the Code. These relief
provisions generally will be available if:
. our failure to meet these tests was due to reasonable cause and not due
to willful neglect;
. we attach a schedule of our income sources to our federal income tax
return; and
. any incorrect information on the schedule is not due to fraud with
intent to evade tax.
It is not possible, however, to state whether, in all circumstances, we would be
entitled to the benefit of these relief provisions. For example, if we fail to
satisfy the gross income tests because nonqualifying income that we
intentionally incur exceeds the limits on such income, the IRS could conclude
that our failure to satisfy the tests was not due to reasonable cause. As
discussed above in "Opinion of Tax Counsel," even if these relief provisions
apply, a tax would be imposed with respect to the excess net income.
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For taxable years prior to January 1, 1998, a REIT had to satisfy an additional
gross income test annually -- less than 30% of the company's gross income could
consist of short-term gain from the sale or other disposition of stock or
securities, gain from prohibited transactions and gain from the sale or other
disposition of real property held for less than four years. No mitigation
provision was applicable if we were to fail to satisfy the 30% income test for
our taxable year ended December 31, 1997. See "Risk Factors--Failure to Qualify
as a REIT" on page 9.
ASSET TESTS
At the close of each quarter of our taxable year, we also must satisfy three
tests relating to the nature and diversification of our assets.
. First, at least 75% of the value of our total assets must be represented
by real estate assets, cash, cash items and government securities.
. Second, no more than 25% of our total assets may be represented by
securities other than those in the 75% asset class.
. Third, of the investments included in the 25% asset class, the value of
any one issuer's securities that we own may not exceed 5% of the value
of our total assets. Additionally, we may not own more than 10% of any
one issuer's outstanding voting securities.
The 5% test must generally be met for any quarter in which we acquire
securities of an issuer. After initially meeting the asset tests at the close
of any quarter, we will not lose our status as a REIT for failure to satisfy the
asset tests at the end of a later quarter solely by reason of changes in asset
values. If the failure to satisfy the asset tests results from an acquisition
of securities or other property during a quarter, we can cure the failure by
disposition of sufficient nonqualifying assets within 30 days after the close of
that quarter. We maintain, and will continue to maintain, adequate records of
the value of our assets to ensure compliance with the asset tests and will take
such other actions within 30 days after the close of any quarter as may be
required to cure any noncompliance.
ANNUAL DISTRIBUTION REQUIREMENTS
In order to be taxed as a REIT, we are required to distribute dividends
(other than capital gain dividends) to our stockholders. The amount of these
distributions must be at least equal to:
. the sum of 95% of our "REIT taxable income" (computed without regard to
the dividends-paid deduction and our capital gain) and 95% of the net
income, if any, from foreclosure property in excess of the special tax
on income from foreclosure property
. minus the sum of certain items of cash income.
We must pay such distributions in the taxable year to which they relate.
Alternatively, we may pay such distributions in the following taxable year if
declared before we timely file our federal income tax return for such year and
if paid on or before the first regular dividend payment after such declaration.
Even if we satisfy the foregoing distribution requirements, to the extent that
we do not distribute all of our net capital gain or "REIT taxable income" as
adjusted, we will be subject to tax thereon at regular capital gains or ordinary
corporate tax rates. Furthermore, if we should fail to distribute during each
calendar year at least the sum of (a) 85% of our ordinary income for that year,
(b) 95% of our capital gain net income other than such capital gain net income
which we elect to retain and pay tax on for that year and (c) any undistributed
taxable income from prior periods, we would be subject to a 4% excise tax on the
excess of such required distribution over the amounts actually distributed.
Election to Retain Our Long-Term Capital Gains
Pursuant to recently enacted legislation, we may elect to retain, rather
than distribute our net long-term capital gains for tax years beginning after
August 5, 1997. The effect of such an election is that:
. we are required to pay the tax on such gains;
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. common stockholders, while required to include their proportionate share
of the undistributed long-term capital gains in income, will receive a
credit or refund for their share of the tax paid by the REIT; and
. the basis of such stockholders' Common Stock would be increased by the
amount of the undistributed long-term capital gains (minus the amount of
capital gains tax paid by the Company) included in the domestic
stockholders' long-term capital gains.
In addition, if we dispose of any asset subject to the Built-in Gain Rules
during the applicable Recognition Period, we will be required, pursuant to
guidance issued by the IRS, to distribute at least 95% of the Built-In Gain
(after tax), if any, recognized on the disposition of the asset.
We believe we have made and we intend to continue to make timely
distributions sufficient to satisfy the annual distribution requirements. In
this regard, the Operating Partnership Agreement authorizes us, as general
partner, to take such steps as may be necessary to cause the Operating
Partnership to distribute to its partners an amount sufficient to permit us to
meet these distribution requirements.
We expect that our REIT taxable income will be less than our cash flow due
to the allowance of depreciation and other non-cash charges in computing REIT
taxable income. Accordingly, we anticipate that we will generally have
sufficient cash or liquid assets to enable us to satisfy the 95% distribution
requirement. It is possible, however, we, from time to time, may not have
sufficient cash or other liquid assets to meet the 95% distribution requirement
or to distribute such greater amount as may be necessary to avoid income and
excise taxation. This could occur as a result of timing differences between (i)
the actual receipt of income and actual payment of deductible expenses and (ii)
the inclusion of such income and deduction of such expenses in arriving at our
taxable income, or as a result of nondeductible expenses such as principal
amortization or capital expenditures in excess of noncash deductions. In the
event that such timing differences occur, we may find it necessary to arrange
for borrowings or, if possible, pay taxable stock dividends in order to meet the
dividend requirement.
Deficiency Dividends
Under certain circumstances, we may be able to rectify a failure to meet the
distribution requirement for a year by paying "deficiency dividends" to our
stockholders in a later year, which may be included in our deduction for
dividends paid for the earlier year. Thus, we may be able to avoid being taxed
on amounts distributed as deficiency dividends. We will, however, be required
to pay interest based upon the amount of any deduction taken for deficiency
dividends.
FAILURE TO QUALIFY
If we fail to qualify for taxation as a REIT in any taxable year and the
relief provisions do not apply, we will be subject to tax (including any
applicable alternative minimum tax) on our taxable income at regular corporate
rates. Distributions to our stockholders in any year in which we fail to qualify
will not be deductible, nor will they be required to be made. In such event, to
the extent of current or accumulated earnings and profits, all distributions to
our stockholders will be dividends, taxable as ordinary income, and subject to
certain limitations of the Code, corporate distributees may be eligible for the
dividends-received deduction. Unless we are entitled to relief under specific
statutory provisions, we also will be disqualified from taxation as a REIT for
the four taxable years following the year during which qualification was lost.
It is not possible to state whether in all circumstances we would be entitled to
such statutory relief. For example, if we fail to satisfy the gross income
tests because nonqualifying income that we intentionally incur exceeds the limit
on such income, the IRS could conclude that our failure to satisfy the tests was
not due to reasonable cause. See "Risk Factors--Failure to Qualify as a REIT
Would Cause Us to be Taxed as a Corporation" on page 9.
TAXATION OF DOMESTIC STOCKHOLDERS
DEFINITION
In this section, the phrase "domestic stockholder" means a holder of Common
Stock and Preferred Stock that for United States federal income tax purposes:
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. is a citizen or resident of the United States;
. is a corporation, partnership or other entity created or organized in or
under the laws of the United States or of any political subdivision
thereof;
. is an estate or trust, the income of which is subject to United States
federal income taxation regardless of its source; or
. a trust if a United States court is able to exercise primary supervision
over the administration of such trust and one or more United States
persons have the authority to control all substantial decisions of such
trust.
For any taxable year for which we qualify for taxation as a REIT, amounts
distributed to taxable domestic stockholders will be taxed as follows.
DISTRIBUTIONS GENERALLY
Distributions to domestic stockholders, other than capital gain dividends
discussed below, will constitute dividends up to the amount of our current or
accumulated earnings and profits and will be taxable to the stockholders as
ordinary income. These distributions are not eligible for the dividends-
received deduction for corporations. To the extent that we make a distribution
in excess of our current or accumulated earnings and profits, the distribution
will be treated first as a tax-free return of capital, reducing the tax basis in
each domestic stockholder's Common Stock, and the amount of such distribution in
excess of a domestic stockholder's tax basis in its Common Stock will be taxable
as gain realized from the sale of its Common Stock. Dividends that we declare
in October, November or December of any year payable to a stockholder of record
on a specified date in any such month will be treated as both paid by the
Company and received by the stockholder on December 31 of the year, provided
that we actually pay the dividend during January of the following calendar year.
Stockholders may not include any of our losses on their own federal income tax
returns.
We will be treated as having sufficient earnings and profits to treat as a
dividend any distribution by the Company up to the amount required to be
distributed in order to avoid imposition of the 4% excise tax , discussed in the
section titled "Opinion of Tax Counsel" above. Moreover, any "deficiency
dividend" will be treated as an ordinary or capital gain dividend, as the case
may be, regardless of our earnings and profits. As a result, stockholders may
be required to treat certain distributions that would otherwise result in a tax-
free return of capital as taxable dividends.
CAPITAL GAIN DIVIDENDS
Dividends to domestic stockholders that we properly designate as capital
gain dividends will be treated as long-term capital gains (to the extent they do
not exceed our actual net capital gain) for the taxable year without regard to
the period for which the stockholder has held his stock.
PASSIVE ACTIVITY LOSS AND INVESTMENT INTEREST LIMITATIONS
Distributions from the Company and gain from the disposition of the
Securities will not be treated as passive activity income, and therefore
stockholders may not be able to apply any "passive losses" against such income.
Dividends from the Company (to the extent they do not constitute a return of
capital) will generally be treated as investment income for purposes of the
investment income limitation. Net capital gain from the disposition of
Securities and capital gain dividends generally will be included in investment
income for purposes of the investment interest deduction limitations only if and
to the extent you so elect, in which case such capital gains will be taxed as
ordinary income.
CERTAIN DISPOSITIONS OF SECURITIES
Losses incurred on the sale or exchange of Securities that you hold for less
than six months (after applying certain holding period rules) will be deemed
capital losses to the extent of any capital gain dividends received by you from
those shares.
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TREATMENT OF TAX-EXEMPT STOCKHOLDERS
Distributions from the Company to a tax-exempt employee pension trust or
other domestic tax-exempt stockholder generally, will not constitute "unrelated
business taxable income" ("UBTI") unless the stockholder has borrowed to acquire
or carry its Securities. Qualified trusts that hold more than 10% (by value) of
the shares of certain REITs, however, may be required to treat a certain
percentage of such a REIT's distributions as UBTI. This requirement will apply
only if (i) the REIT would not qualify as such for federal income tax purposes
but for the application of the "look-through" exception to the Five or Fewer
Requirement applicable to shares held by qualified trusts and (ii) the REIT is
"predominantly held" by qualified trusts. A REIT is predominantly held by
qualified trusts if either (i) a single qualified trust holds more than 25% by
value of the interests in the REIT or (ii) one or more qualified trusts, each
owning, more than 10% by value of the interests in the REIT, hold in the
aggregate more than 50% of the interests in the REIT. The percentage of any
REIT dividend treated as UBTI is equal to the ratio of (a) the UBTI earned by
the REIT (treating the REIT as if it were a qualified trust and therefore
subject to tax on UBTI) to (b) the total gross income (less certain associated
expenses) of the REIT. A de minimis exception applies where the ratio set forth
in the preceding sentence is less than 5% for any year. For these purposes, a
qualified trust is any trust described in section 401(a) of the Code and exempt
from tax under section 501 (a) of the Code. The provisions requiring qualified
trusts to treat a portion of REIT distributions as UBTI will not apply if the
REIT is able to satisfy the Five or Fewer Requirement without relying upon the
"look-through" exception.
SPECIAL TAX CONSIDERATIONS FOR FOREIGN STOCKHOLDERS
The rules governing United States income taxation of non-resident alien
individuals, foreign corporations, foreign partnerships and foreign trusts and
estates (collectively, "foreign stockholders") are complex. The following
discussion is intended only as a summary of these rules. Prospective foreign
stockholders should consult with their own tax advisors to determine the impact
of federal, state and local income tax laws on an investment in the Company,
including any reporting requirements.
TAXATION IF EFFECTIVELY CONNECTED WITH A UNITED STATES TRADE OR BUSINESS
In general, foreign stockholders will be subject to regular United States
federal income tax with respect to their investment in the Company if the
investment is "effectively connected" with the foreign stockholder's conduct of
a trade or business in the United States. A corporate foreign stockholder that
receives income that is (or is treated as) effectively connected with a United
States trade or business also may be subject to the branch profits tax under
section 884 of the Code, which is payable in addition to regular United States
federal corporate income tax. The following discussion will apply to foreign
stockholders whose investment in the Company is not so effectively connected.
DISTRIBUTIONS NOT ATTRIBUTABLE TO GAIN FROM THE SALE OR EXCHANGE OF A UNITED
STATES REAL PROPERTY INTEREST
A distribution by the Company that is not attributable to gain from the sale
or exchange by the Company of a United States real property interest and that we
do not designate as a capital gain dividend will be treated as an ordinary
income dividend to the extent that it is made out of current or accumulated
earnings and profits. Generally, any ordinary income dividend will be subject
to a United States federal income tax equal to 30% of the gross amount of the
dividend unless this tax is reduced by an applicable tax treaty. Such a
distribution in excess of our earnings and profits will be treated first as a
return of capital that will reduce each foreign stockholder's basis in its
Common Stock (but not below zero) and then as gain from the disposition of such
shares, the tax treatment of which is described under the rules discussed below
with respect to dispositions of Common Stock.
DISTRIBUTIONS ATTRIBUTABLE TO GAIN FROM THE SALE OR EXCHANGE OF A UNITED STATES
REAL PROPERTY INTEREST
Distributions by the Company that are attributable to gain from the sale or
exchange of a United States real property interest will be taxed to a foreign
stockholder under the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Under FIRPTA, such distributions are taxed to a foreign stockholder
as if the distributions were gains "effectively connected" with a United States
trade or business. Accordingly, a foreign stockholder will be taxed at the
normal capital gain rates applicable to a domestic stockholder (subject to any
applicable alternative minimum tax and a special alternative minimum tax in the
case of non-resident alien individuals). Distributions subject to FIRPTA also
may
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be subject to a 30% branch profits tax when made to a foreign corporate
stockholder that is not entitled to treaty exemptions.
WITHHOLDING OBLIGATIONS FROM DISTRIBUTIONS TO FOREIGN STOCKHOLDERS
Although tax treaties may reduce our withholding obligations, we generally
will be required to withhold from distributions to foreign stockholders, and
remit to the IRS, (i) 35% of designated capital gain dividends (or, if greater,
35% of the amount of any distributions that could be designated as capital gain
dividends) and (ii) 30% of ordinary dividends paid out of earnings and profits.
In addition, if we designate prior distributions as capital gain dividends,
subsequent distributions, up to the amount of such prior distributions, will be
treated as capital gain dividends for purposes of withholding. A distribution
in excess of our earnings and profits will be subject to 30% dividend
withholding if at the time of the distribution it cannot be determined whether
the distribution will be in an amount in excess of our current or accumulated
earnings and profits. If the amount of tax withheld by the Company with respect
to a distribution to a foreign stockholder exceeds the stockholder's United
States tax liability with respect to such distribution, the foreign stockholder
may file for a refund of such excess from the IRS.
SALE OF OUR SECURITIES BY A FOREIGN STOCKHOLDER
Unless our Securities constitute a "United States real property interest"
within the meaning of FIRPTA, a sale of our Securities by a foreign stockholder
generally will be subject to United States federal income taxation. Our
Securities will not constitute a United States real property interest if we are
a "domestically controlled REIT." A domestically controlled REIT is a REIT in
which at all times during a specified testing period less than 50% in value of
its shares is held directly or indirectly by foreign stockholders. We currently
anticipate that we will be a domestically controlled REIT. Therefore, sales of
our Securities will not be subject to taxation under FIRPTA. However, because
our Securities will be publicly traded, no assurance can be given that we will
continue to be a domestically controlled REIT. If we were not a domestically
controlled REIT, whether a foreign stockholder's sale of our Securities would be
subject to tax under FIRPTA as a sale of a United States real property interest
would depend on whether our Securities were "regularly traded" on an established
securities market (such as the NYSE on which our Common Stock will be listed)
and on the size of the selling stockholder's interest in the Company. If the
gain on the sale of Securities were subject to taxation under FIRPTA, the
foreign stockholder would be subject to the same treatment as a domestic
stockholder with respect to the gain (subject to any applicable alternative
minimum tax and a special alternative minimum tax in the case of non-resident
alien individuals). In addition, distributions that are treated as gain from
the disposition of Securities and are subject to tax under FIRPTA also may be
subject to a 30% branch profit tax when made to a corporate foreign stockholder
that is not entitled to treaty exemptions. In any event, a purchaser of
Securities from a foreign stockholder will not be required to withhold under
FIRPTA on the purchase price if the purchased Securities is "regularly traded"
on an established securities market (such as the NYSE) or if we are a
domestically controlled REIT. Otherwise, under FIRPTA the purchaser of our
Securities may be required to withhold 10% of the purchase price and remit this
amount to the IRS. Capital gains not subject to FIRPTA will be taxable to a
foreign stockholder if the foreign stockholder is a non-resident alien
individual who is present in the United States for 183 days or more during the
taxable year and certain other conditions apply, in which case the non-resident
alien individual will be subject to a 30% tax on his or her U.S. source capital
gains.
On October 6, 1997, the U.S. Treasury Department issued final Treasury
regulations governing information reporting and the certification procedures
regarding withholding and backup withholding on certain amounts paid to foreign
stockholders after December 31, 1999. The new Treasury regulations may alter
the procedures for claiming the benefits of an income tax treaty. Our foreign
stockholders should consult their tax advisors concerning the effect, if any, of
such new Treasury regulations on an investment in our Common Stock.
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INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX
BACKUP WITHHOLDING TAX FOR DOMESTIC STOCKHOLDERS
Under certain circumstances, domestic stockholders may be subject to backup
withholding at a rate of 31% on payments made with respect to, or cash proceeds
of a sale or exchange of, Common Stock. Backup withholding will apply only if
the holder:
. fails to furnish his or her taxpayer identification number ("TIN")
(which, for an individual, would be his or her Social Security Number);
. furnishes an incorrect TIN;
. is notified by the IRS that he or she has failed properly to report
payments of interest and dividends or is otherwise subject to backup
withholding; or
. under certain circumstances, fails to certify, under penalties of
perjury, that he or she has furnished a correct TIN and (a) that he or
she has not been notified by the IRS that he or she is subject to backup
withholding for failure to report interest and dividend payments or (b)
that he or she has been notified by the IRS that he or she is no longer
subject to backup withholding.
Backup withholding will not apply with respect to payments made to certain
exempt recipients, such as corporations and tax-exempt organizations.
Domestic stockholders should consult their own tax advisors regarding their
qualifications for exemption from backup withholding and the procedure for
obtaining such an exemption. Backup withholding is not an additional tax.
Rather, the amount of any backup withholding with respect to a payment to a
domestic stockholder will be allowed as a credit against the domestic
stockholder's United States federal income tax liability and may entitle the
domestic stockholder to a refund, provided that the required information is
furnished to the IRS.
BACKUP WITHHOLDING TAX FOR FOREIGN STOCKHOLDERS
Additional issues may arise pertaining to information reporting and backup
withholding for foreign stockholders. Foreign stockholders should consult their
tax advisors with regard to U.S. information reporting and backup withholding.
OTHER TAX CONSIDERATIONS
EFFECT OF TAX STATUS OF OPERATING PARTNERSHIP ON REIT QUALIFICATION
Substantially all of our investments are through the Operating Partnership.
In addition, the Operating Partnership holds interests in certain of our
properties through subsidiary partnerships. Our interest in these partnerships
may involve special tax considerations. Such considerations include (i) the
allocations of items of income and expense, which could affect the computation
of our taxable income, (ii) the status of the Operating Partnership, and other
subsidiary partnerships as partnerships (as opposed to associations taxable as
corporations) for federal income tax purposes and (iii) the taking of actions by
the Operating Partnership and subsidiary partnerships that could adversely
affect our qualifications as a REIT. In the opinion of Goodwin, Procter & Hoar
LLP, based on certain representations of the Company and our subsidiaries, each
of the Operating Partnership, and the other subsidiary partnerships in which the
Operating Partnership has an interest will be treated for federal income tax
purposes as a partnership (and not as an association taxable as a corporation).
If any of the Operating Partnership, or other subsidiary partnerships in which
the Operating Partnership has an interest were treated as an association taxable
as a corporation, we would fail to qualify as a REIT for a number of reasons.
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TAX ALLOCATIONS WITH RESPECT TO THE PROPERTIES
When property is contributed to a partnership in exchange for an interest in
the partnership, the partnership generally takes a carryover basis in that
property for tax purposes equal to the adjusted basis of the contributing
partner in the property, rather than a basis equal to the fair market value of
the property at the time of contribution. Pursuant to section 704(c) of the
Code, income, gain, loss and deduction attributable to such contributed property
must be allocated in a manner such that the contributing partner is charged
with, or benefits from, respectively, the unrealized gain or unrealized loss
associated with the property at the time of the contribution. The amount of
such unrealized gain or unrealized loss is generally equal to the difference
between the fair market value of the contributed property at the time of
contribution and the adjusted tax basis of such property at the time of
contribution (this difference is referred to as a "Book-Tax Difference"). Such
allocations are solely for federal income tax purposes. Such allocations do not
affect the book capital accounts or other economic or legal arrangements among
the partners. The Operating Partnership was formed by way of contributions of
appreciated property (including certain of our properties). Consequently, the
Operating Partnership Agreement requires such allocations to be made in a manner
consistent with section 704(c) of the Code. Final and temporary Regulations
under Section 704(c) of the Code provide partnerships with a choice of several
methods of accounting for Book-Tax Differences for property contributed to a
partnership on or after December 21, 1993. The choices include the retention of
the "traditional method" that was available under prior law or the election of
certain alternative methods. Currently, we generally have elected and intend to
continue to elect the "traditional method with curative allocations" of Section
704(c) allocations. Under the traditional method, which is the least favorable
method from our perspective, the carryover basis of contributed interests in our
properties in the hands of the Operating Partnership could cause us (i) to be
allocated lower amounts of depreciation deductions for tax purposes than would
be allocated to us if all properties were to have a tax basis equal to their
fair market value at the time of the contribution (the "ceiling rule") and (ii)
to be allocated taxable gain in the event of a sale of such contributed
interests in our properties in excess of the economic or book income allocated
to the Company as a result of such sale, with a corresponding benefit to the
other partners in the Operating Partnership. For properties with respect to
which we elect the "traditional method with curative allocations" the Operating
Partnership Agreement will specially allocate taxable gain on sale of such
properties to the contributing partners up to the aggregate amount of
depreciation deductions with respect to each such property that the "ceiling
rule" prevented the Company from being allocated. In addition, with respect to
at least one property, the Company has elected the "remedial method" of
allocations under Section 704(c) of the Code.
Interests in our properties purchased for cash by the Operating Partnership
simultaneously with or subsequent to our admission to the Operating Partnership
initially had a tax basis equal to their fair market value. Thus, Section
704(c) of the Code does not apply to such interests.
STATE AND LOCAL TAX
We and our operating subsidiaries may be subject to state and local tax in
states and localities in which we or they do business or own property. The tax
treatment of the Company and our operating subsidiaries and the holders of our
Common Stock in such jurisdictions may differ from the federal income tax
treatment described above.
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RATIOS OF COMBINED EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The following table sets forth the consolidated ratios of earnings to fixed
charges and Preferred Stock Dividends for the Company and the Predecessor for
the periods shown:
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
------------------------------------- -----------------------------------------------------------
NINE MONTHS JUNE 23, 1997- YEARS ENDED DECEMBER 31,
ENDED DECEMBER 31, JANUARY 1, 1997- -----------------------------------------
SEPTEMBER 30, 1998 1997(1) JUNE 22, 1997(1) 1996(1) 1995(1) 1994(1)(2) 1993
------------------ ----------------- ---------------- -------- ---------- ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio.. 2.08x 1.93x 1.07x 1.07x 0.95x 1.08x 1.19x
</TABLE>
______________
(1) Ratios for the period January 1 - June 22, 1997 and the years ended December
31, 1996, 1995, 1994 and 1993 are of the Predecessor and reflect periods
prior to the Initial Offering on June 23, 1997.
The ratios of earnings to fixed charges were computed by dividing earnings by
fixed charges. For this purpose, earnings consist of net income (loss) before
minority interest, gain on sale of real estate assets and extraordinary items,
plus fixed charges (excluding capitalized interest). Fixed charges consist of
interest expense, capitalized interest, credit enhancement fees and loan cost
amortization. To date, we have not issued any Preferred Stock; therefore, the
ratios of earnings to combined fixed charges and Preferred Stock dividend
requirements are the same as the ratios of earnings to fixed charges presented
above.
PLAN OF DISTRIBUTION
We may sell Securities to or through one or more underwriters or dealers for
public offering and sale by or through them; directly to one or more individual,
institutional or other purchasers; through agents; or through a combination of
any such methods of sale. Direct sales to investors may also be accomplished
through subscription rights distributed to our stockholders on a pro rata basis,
which may or may not be transferable. In connection with any distribution of
subscription rights to stockholders, if all of the underlying Securities are not
subscribed for, we may sell the unsubscribed Securities directly to third
parties or may engage the services of one or more underwriters, dealers or
agents, including standby underwriters, to sell the unsubscribed Securities to
third parties.
The distribution of the Securities may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices, or at negotiated prices (any of which may represent a discount
from the prevailing market prices).
In connection with the sale of Securities, underwriters or agents may
receive compensation from the Company or from purchasers of Securities, for whom
they may act as agents, in the form of discounts, concessions or commissions.
Underwriters may sell Securities to or through dealers, and such dealers may
receive compensation in the form of discounts, concessions or commissions from
the underwriters and/or commissions from the purchasers for whom they may act as
agents. Underwriters, dealers, and agents that participate in the distribution
of Securities may be deemed to be underwriters under the Securities Act, and any
discounts or commissions they receive from the Company and any profit on the
resale of Securities they realize may be deemed to be underwriting discounts and
commissions under the Securities Act. Any such underwriter or agent will be
identified, and any such compensation received from the Company will be
described, in the applicable prospectus supplement.
Unless otherwise specified in the related prospectus supplement, each series
of Securities will be a new issue with no established trading market, other than
the shares of Common Stock which are listed on the NYSE. Any shares of Common
Stock sold pursuant to a prospectus supplement will be listed on the NYSE,
subject to official notice of issuance. We may elect to list any series of
Preferred Stock on an exchange, but we are not obligated to do so. It is
possible that one or more underwriters may make a market in a series of
Securities, but one will not be obligated to do so and any underwriter may
discontinue any market making at any time without notice. Therefore, no
assurance can be given as to the liquidity of, or the trading market for, the
Securities.
44
<PAGE>
Until the distribution of the Securities is completed, rules of the SEC may
limit the ability of any underwriters and selling group members to bid for and
purchase the Securities. As an exception to these rules, underwriters are
permitted to engage in certain transactions that stabilize the price of the
Securities. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the Securities.
If any underwriters create a short position in the Securities in connection
with an offering, i.e., if they sell more Securities than are set forth on the
cover page of the applicable prospectus supplement, the underwriters may reduce
that short position by purchasing Securities in the open market.
The lead underwriters may also impose a penalty bid on certain other
underwriters and selling group members participating in an offering. This means
that if the lead underwriters purchase Securities in the open market to reduce
the underwriters' short position or to stabilize the price of the Securities,
they may reclaim the amount of any selling concession from the underwriters and
selling group members who sold those Securities as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security before the distribution is completed.
We do not make any representation or prediction as to the direction or
magnitude of any effect that the transactions described above might have on the
price of the Securities. In addition, we do not make any representation that
underwriters will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
Under agreements into which we may enter, underwriters, dealers and agents
who participate in the distribution of Securities may be entitled to
indemnification by the Company against certain liabilities, including
liabilities under the Securities Act.
Underwriters, dealers and agents may engage in transactions with, or perform
services for, or be tenants of, the Company in the ordinary course of business.
If so indicated in the applicable prospectus supplement, we will authorize
dealers or other persons acting as our agents to solicit offers by certain
institutions to purchase Securities from the Company at the public offering
price set forth in such prospectus supplement pursuant to delayed delivery
contracts ("Contracts") providing for payment and delivery on the date or dates
stated in such prospectus supplement. Institutions with which such Contracts,
when authorized, may be made include commercial and savings banks, insurance
companies, pension funds, investment companies, educational and charitable
institutions and other institutions, but will in all cases be subject to our
approval. The obligations of any purchaser under any such contracts will be
subject to the condition that the purchase of the Securities shall not at the
time of delivery be prohibited under the laws of the jurisdiction to which such
purchase is subject. The underwriters and such other agents will not have any
responsibility in respect of the validity or performance of such Contracts.
In order to comply with the securities laws of certain states, if
applicable, the Securities offered hereby will be sold in such jurisdictions
only through registered or licensed brokers or dealers. In addition, in certain
states securities may not be sold unless they have been registered or qualified
for sale in the applicable state or an exemption from the registration or
qualification requirement is available and is complied with.
LEGAL MATTERS
Certain legal matters, including the legality of the Securities, will be
passed upon for the Company by Goodwin, Procter & Hoar LLP. Gilbert G. Menna,
the sole shareholder of Gilbert G. Menna, P.C., a partner of Goodwin, Procter &
Hoar LLP, serves as an Assistant Secretary of the Company. Certain partners of
Goodwin, Procter & Hoar LLP or their affiliates, together with Mr. Menna, own
approximately 20,000 shares of Common Stock. Goodwin, Procter & Hoar LLP
occupies approximately 26,000 square feet at 599 Lexington Avenue, New York
under a lease that expires in 2002.
45
<PAGE>
EXPERTS
The financial statements and schedules for the year ended December 31, 1997
referred to and incorporated by reference in this prospectus or elsewhere in the
Registration Statement of which this prospectus is a part have been audited by
PricewaterhouseCoopers LLP, independent accountants, and are incorporated herein
in reliance upon the authority of said firm as experts in accounting and
auditing.
46
<PAGE>
================================================================================
We have not authorized anyone else to give any information or to make any
representations not contained or incorporated by reference in this prospectus in
connection with the offering covered by this prospectus. If given or made, such
information or representations must not be relied upon as having been authorized
by the Company. This prospectus does not constitute an offer to sell, or a
solicitation of an offer buy, the Securities, in any jurisdiction where, or to
any person to whom, it is unlawful to make any such offer or solicitation.
Neither the delivery of this prospectus nor any offer or sale made hereunder
shall, under any circumstances, create an implication that there has not been
any change in the facts set forth in this prospectus or in the affairs of the
Company since the date hereof.
TABLE OF CONTENTS
PAGE
----
Available Information................... 2
Incorporation of Certain
Documents by Reference................ 2
Risk Factors............................ 4
The Company............................. 14
Use of Proceeds......................... 15
Description of Preferred Stock.......... 16
Description of Common Stock............. 22
Description of Warrants................. 23
Restrictions on Transfer................ 24
Certain Provisions of Delaware Law and
Our Charter and Bylaws.................. 28
Federal Income Tax Considerations....... 31
Ratios of Earnings to Fixed Charges..... 44
Plan of Distribution.................... 44
Legal Matters........................... 45
Experts................................. 46
================================================================================
================================================================================
$1,500,000,000
[LOGO]
BOSTON PROPERTIES, INC.
PREFERRED STOCK
COMMON STOCK
WARRANTS
------------------------
PROSPECTUS
------------------------
________________, 1998
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated fees and expenses payable by
the Company in connection with the issuance and distribution of the Securities
registered hereby (all amounts except the registration fee are estimated):
Registration fee................... $ 417,000
Printing and duplicating expenses.. 200,000
Legal fees and expenses............ 300,000
Accounting fees and expenses....... 150,000
Blue sky fees and expenses......... -0-
Miscellaneous...................... 10,000
Total.............................. $1,077,000
----------
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our Charter and Bylaws provide certain limitations on the liability of our
directors and officers for monetary damages to the Company. Our Charter and
Bylaws obligate the Company to indemnify its directors and officers, and permit
the Company to indemnify its employees and other agents, against certain
liabilities incurred in connection with their service in such capacities. These
provisions could reduce the legal remedies available to the Company and our
stockholders against these individuals.
Our Charter limits the liability of our directors and officers to the
Company to the fullest extent permitted from time to time by the DGCL. The DGCL
permits, but does not require, a corporation to indemnify its directors,
officers, employees or agents and expressly provides that the indemnification
provided for under the DGCL shall not be deemed exclusive of any indemnification
right under any bylaw, vote of stockholders or disinterested directors, or
otherwise. The DGCL permits indemnification against expenses and certain other
liabilities arising out of legal actions brought or threatened against such
persons for their conduct on behalf of the corporation, provided that each such
person acted in good faith and in a manner that he reasonably believed was in or
not opposed to the corporation's best interests and in the case of a criminal
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The DGCL does not allow indemnification of directors in the case of an action by
or in the right of the corporation (including stockholder derivative suits)
unless the directors successfully defend the action or indemnification is
ordered by the court.
Our Charter contains a provision permitted by Delaware law that generally
eliminates the personal liability of directors for monetary damages for breaches
of their fiduciary duty, including breaches involving negligence or gross
negligence in business combinations, unless the director has breached his or her
duty of loyalty, failed to act in good faith, engaged in intentional misconduct
or a knowing violation of law, paid a dividend or approved a stock repurchase in
violation of the DGCL or obtained an improper personal benefit. The provision
does not alter a director's liability under the federal securities laws. In
addition, this provision does not affect the availability of equitable remedies,
such as an injunction or rescission, for breach of fiduciary duty.
Our Bylaws provide that our directors and officers will be, and, in the
discretion of the Board of Directors, non-officer employees may be, indemnified
by us to the fullest extent authorized by Delaware law, as it now exists or may
in the future be amended, against all expenses and liabilities actually and
reasonably incurred in connection with service for or on behalf of the Company.
Our Bylaws also provide that the right of directors and officers to
indemnification shall be a contract right and shall not be exclusive of any
other right now possessed or hereafter acquired under any bylaw, agreement, vote
of stockholders, or otherwise.
We have entered into indemnification agreements with each of our directors
and executive officers. The indemnification agreements require, among other
matters, that we indemnify our directors and officers to the fullest extent
permitted by law and advance to the directors and officers all related expenses,
subject to reimbursement if it is subsequently determined that indemnification
is not permitted. Under these agreements, we must also indemnify and advance
all expenses incurred by directors and officers seeking to enforce their rights
under the indemnification agreements and may cover directors and officers under
our directors' and officers' liability insurance. Although the form of
indemnification agreement offers substantially the same scope of coverage
afforded by law, it provides additional assurance to directors and officers that
indemnification will be available because, as a contract, it cannot be modified
unilaterally in the future by the Board of Directors or our stockholders to
eliminate the rights it provides. It is the position of the SEC that
indemnification of
II-1
<PAGE>
directors and officers for liabilities under the Securities Act is against
public policy and unenforceable pursuant to Section 14 of the Securities Act.
ITEM 16. EXHIBITS.
4.1 Amended and Restated Certificate of Incorporation of the Company
(incorporated herein by reference to the Company's Registration
Statement on Form S-11 (File No. 333-25279)).
4.2 Amended and Restated Bylaws of the Company (incorporated herein by
reference to the Company's Registration Statement on Form S-11 (File
No. 333-25279)).
4.3 Second Amended and Restated Agreement of Limited Partnership of the
Operating Partnership (incorporated herein by reference to the
Company's Current Report on Form 8-K dated June 30, 1998, filed with
the Commission on July 15, 1998).
4.4 Shareholder Rights Agreement dated as of June 16, 1997 between the
Company and BankBoston, N.A., as Rights Agent (incorporated herein by
reference to the Company's Registration Statement on Form S-11 (File
No. 333-25279).
*5.1 Opinion of Goodwin, Procter & Hoar LLP as to the legality of the
Securities being registered.
*8.1 Opinion of Goodwin, Procter & Hoar LLP as to certain tax matters.
*12.1 Calculation of Ratios of Earnings to Combined Fixed Charges and
Preferred Stock Dividends.
*23.1 Consent of PricewaterhouseCoopers LLP, Independent Public
Accountants.
*23.2 Consent of Goodwin, Procter & Hoar LLP (included as part of
Exhibits 5.1 and 8.1 hereto).
*24.1 Powers of Attorney (included on signature page of Registration
Statement as filed).
__________________________________
* Filed herewith
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any acts or events arising after the
effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement;
notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change
in the maximum aggregate offering price set forth in "Calculation
of Registration Fee" table in the effective registration
statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) herein do not
apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed by the
undersigned registrant pursuant to Section 13 or Section 15(d) of the
Exchange Act that are incorporated by reference in the registration
statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities
II-2
<PAGE>
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof; and
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing
of the registrant's annual report pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act of 1934 that is incorporated by reference in
the registration statement 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.
(c) 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 provisions described under
Item 15 above, 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 Securities Act of 1933 and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
respective 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, such 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 Securities Act of 1933
and will be governed by the final adjudication of such issue.
(d) The undersigned registrant hereby undertakes to supplement the
prospectus, after the expiration of the subscription period, to set
forth the results of the subscription offer, the transactions by the
underwriters during the subscription period, the amount of unsubscribed
securities to be purchased by the underwriters, and the terms of any
subsequent reoffering thereof. If any public offering by the
underwriters is to be made on terms differing from those set forth on
the cover page of the prospectus, a post-effective amendment will be
filed to set forth the terms of such offering.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, BOSTON
PROPERTIES, INC. CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT
MEETS ALL OF THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO
DULY AUTHORIZED, IN THE CITY OF BOSTON, THE COMMONWEALTH OF MASSACHUSETTS, ON
THIS 21ST DAY OF DECEMBER, 1998.
BOSTON PROPERTIES, INC.
By: /s/ Edward H. Linde
-------------------------------
Name: Edward H. Linde
Title: President and Chief
Executive Officer
KNOW ALL BY THESE PRESENTS THAT EACH INDIVIDUAL WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS EACH OF MORTIMER B. ZUCKERMAN, EDWARD H. LINDE
AND DAVID G. GAW AS SUCH PERSON'S TRUE AND LAWFUL ATTORNEY-IN-FACT AND AGENT
WITH FULL POWER OF SUBSTITUTION AND RESUBSTITUTION, FOR SUCH PERSON IN SUCH
PERSON'S NAME, PLACE AND STEAD, IN ANY AND ALL CAPACITIES, TO SIGN ANY AND ALL
AMENDMENTS (INCLUDING POST-EFFECTIVE AMENDMENTS) TO THIS REGISTRATION STATEMENT
(OR ANY REGISTRATION STATEMENT FOR THE SAME OFFERING THAT IS TO BE EFFECTIVE
UPON FILING PURSUANT TO RULE 462(B) UNDER THE SECURITIES ACT OF 1933), AND TO
FILE THE SAME, WITH ALL EXHIBITS THERETO, AND ALL DOCUMENTS IN CONNECTION
THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO EACH SAID
ATTORNEY-IN-FACT AND AGENT FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND
EVERY ACT AND THING REQUISITE AND NECESSARY TO BE DONE IN AND ABOUT THE
PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS SUCH PERSON MIGHT OR COULD DO
IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT ANY SAID ATTORNEY-IN-FACT
AND AGENT, OR ANY SUBSTITUTE OR SUBSTITUTES OF ANY OF THEM, MAY LAWFULLY DO OR
CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Mortimer B. Zuckerman
- ------------------------------ Chairman of the Board of Directors December 21, 1998
Mortimer B. Zuckerman
/s/ Edward H. Linde
- ------------------------------ President and Chief Executive December 21, 1998
Edward H. Linde Officer, Director (Principal
Executive Officer)
/s/ David G. Gaw
- ------------------------------ Chief Financial Officer (Principal December 21, 1998
David G. Gaw Financial Officer and Principal
Accounting Officer)
/s/ Alan J. Patricof
- ------------------------------ Director December 21, 1998
Alan J. Patricof
/s/ Ivan G. Seidenberg
- ------------------------------ Director December 21, 1998
Ivan G. Seidenberg
/s/ Martin Turchin
- ------------------------------ Director December 21, 1998
Martin Turchin
/s/ Alan B. Landis
- ------------------------------ Director December 21, 1998
Alan B. Landis
/s/ Richard A. Salomon
- ------------------------------ Director December 21, 1998
Richard A. Salomon
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ---------- -----------
4.1 Amended and Restated Certificate of Incorporation of the Company
(incorporated herein by reference to the Company's Registration
Statement on Form S-11 (File No. 333-25279)).
4.2 Amended and Restated Bylaws of the Company (incorporated herein by
reference to the Company's Registration Statement on Form S-11
(File No. 333-25279)).
4.3 Second Amended and Restated Agreement of Limited Partnership of
the Operating Partnership (incorporated herein by reference to the
Company's Current Report on Form 8-K dated June 30, 1998, filed
with the Commission on July 15, 1998).
4.4 Shareholder Rights Agreement dated as of June 16, 1997 between the
Company and BankBoston, N.A., as Rights Agent (incorporated herein
by reference to the Company's Registration Statement on Form S-11
(File No. 333-25279).
*5.1 Opinion of Goodwin, Procter & Hoar LLP as to the legality of the
Securities being registered.
*8.1 Opinion of Goodwin, Procter & Hoar LLP as to certain tax matters.
*12.1 Calculation of Ratios of Earnings to Combined Fixed Charges and
Preferred Stock Dividends.
*23.1 Consent of PricewaterhouseCoopers LLP, Independent Public
Accountants.
*23.2 Consent of Goodwin, Procter & Hoar LLP (included as part of
Exhibits 5.1 and 8.1 hereto).
*24.1 Powers of Attorney (included on signature page of Registration
Statement as filed).
__________________________________
* Filed herewith
<PAGE>
Exhibit 5.1
GOODWIN, PROCTER & HOAR LLP
COUNSELLORS AT LAW
EXCHANGE PLACE
BOSTON, MASSACHUSETTS 02109-2881
December 21, 1998
Boston Properties, Inc.
8 Arlington Street
Boston, MA 02116
Re: Legality of Securities to be Registered Under
Registration Statement on Form S-3
-----------------------------------------------
Ladies and Gentlemen:
This opinion is delivered in our capacity as counsel to Boston Properties,
Inc., a Delaware corporation (the "Company"), in connection with the Company's
registration statement on Form S-3 (the "Registration Statement") filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "Securities Act"), relating to an indeterminate amount of Preferred Stock,
Common Stock and Warrants (as such terms are defined in the Registration
Statement) authorized for issuance under the Company's Amended and Restated
Certificate of Incorporation (the "Certificate"), with an aggregate public
offering price of up to $1,500,000,000 (such securities being referred to
collectively as the "Securities"). The Registration Statement provides that the
Securities may be offered separately or together, in separate series, in
amounts, at prices and on terms to be set forth in one or more prospectus
supplements (each a "Prospectus Supplement") to the Prospectus contained in the
Registration Statement.
In connection with rendering this opinion, we have examined the Certificate
of the Company, as amended to the date hereof and on file with the Delaware
Secretary of State; the Amended and Restated Bylaws of the Company; such records
of corporate proceedings of the Company as we deemed appropriate for the
purposes of this opinion; and the Registration Statement and the exhibits
thereto.
We express no opinion concerning the laws of any jurisdictions other than
the laws of the United States of America and The Commonwealth of Massachusetts
and the Delaware General Corporation Law.
Based upon the foregoing, we are of the opinion that, when specifically
authorized for issuance by the Company's Board of Directors or an authorized
committee thereof (the "Authorizing Resolution") and when issued as described in
the Registration Statement and a
<PAGE>
Boston Properties, Inc.
December 21, 1998
Page 2
Prospectus Supplement that is consistent with the Authorizing Resolution, and
upon receipt by the Company of the consideration provided for in the Authorizing
Resolution (which consideration is not less than the $.01 par value per share in
the case of Common Stock or Preferred Stock), the Securities will be legally
issued, fully paid and nonassessable, and in the case of the Warrants binding
obligations of the Company.
The foregoing assumes that all requisite steps will be taken to comply with
the requirements of the Securities Act and applicable requirements of state laws
regulating the offer and sale of securities.
We hereby consent to being named as counsel to the Company in the
Registration Statement, to the references therein to our firm under the caption
"Legal Matters" and to the inclusion of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ Goodwin, Procter & Hoar LLP
GOODWIN, PROCTER & HOAR LLP
<PAGE>
Exhibit 8.1
GOODWIN, PROCTER & HOAR LLP
COUNSELLORS AT LAW
EXCHANGE PLACE
BOSTON, MASSACHUSETTS 02109-2881
December 21, 1998
Boston Properties, Inc.
8 Arlington Street
Boston, Massachusetts 02116
Ladies and Gentlemen:
We have acted as counsel to Boston Properties, Inc., a Delaware corporation
(the "Company") in connection with the preparation of a registration statement
(the "Registration Statement") filed with the Securities and Exchange Commission
on Form S-3, as amended, relating to an indeterminate amount of Preferred Stock,
Common Stock and Warrants (as such terms are defined in the Registration
Statement) authorized for issuance under the Company's Amended and Restated
Certificate of Incorporation (the "Certificate"), with an aggregate public
offering price of up to $1,500,000,000 (the "Offering"). You have requested our
opinion on certain federal income tax matters in connection with the Offering.
Capitalized terms not defined herein shall have the same meaning as in the
Registration Statement.
In rendering the following opinion, we have examined the Amended and
Restated Certificate of Incorporation (the "Articles") and Bylaws of the
Company, and such other records, certificates and documents as we have deemed
necessary or appropriate for purposes of rendering the opinion set forth herein
(collectively, the "Documents"). We have reviewed the investment activities,
operations and governance of the Company and its subsidiaries. We have relied
upon representations of duly appointed officers of the Company and the Operating
Partnership (including without limitation, representations contained in a letter
dated as of the date hereof (the "Officer's Certificate")), principally relating
to the Company's organization and operations. We assume that each such
representation is and will be true, correct and complete and that all
representations that speak in the future, or to the intention, or to the best of
the belief and knowledge of any person(s) or party(ies) are and will be true,
correct and complete as if made without such qualification. Nothing has come to
our attention which would cause us to believe that any of such representations
are untrue, incorrect or incomplete. We assume that the
<PAGE>
Boston Properties, Inc.
December 21, 1998
Page 2
Company will be operated in accordance with the applicable laws and the terms
and conditions of applicable documents. We have also reviewed the Registration
Statement, the Amended and Restated Agreement of Limited Partnership of the
Operating Partnership, and such other documents as we have deemed appropriate.
In addition, we have relied upon certain additional facts and assumptions
described below.
In rendering the opinion set forth herein, we have assumed (i) the
genuineness of all signatures on documents we have examined, (ii) the
authenticity of all documents submitted to us as originals, (iii) the conformity
to the original documents of all documents submitted to us as copies, (iv) the
conformity of final documents to all documents submitted to us as drafts, (v)
the authority and capacity of the individual or individuals who executed any
such documents on behalf of any person, (vi) the accuracy and completeness of
all records made available to us, and (vii) the factual accuracy of all
representations, warranties and other statements made by all parties. In
addition, we assume that all interests in the Operating Partnership have been
and will be issued in a transaction (or transactions) that are not required to
be registered under the Securities Act of 1933 and that no interest in the
Operating Partnership offered for sale outside the United States would have been
required to be registered under the Securities Act of 1933 if such interest had
been offered for sale within the United States. We have further assumed that
during its short 1997 taxable year ending December 31, 1997 and subsequent
taxable years, the Company has operated and will operate in such a manner that
has made and will make the representations contained in the Officer's
Certificate true for all such years, and that the Company and its subsidiaries
will not make any amendments to its organizational documents after the date of
this opinion that would affect the Company's qualification as a real estate
investment trust for any taxable year. For purposes of our opinion, we have
made no independent investigation of the facts contained in the documents and
assumptions set forth above, the representations set forth in the Officer's
Certificate, or the Registration Statement. No facts have come to our
attention, however, that would cause us to question the accuracy and
completeness of such facts or documents in a material way.
The discussion and conclusion set forth below are based upon the Code, the
Income Tax Regulations and Procedure and Administration Regulations promulgated
thereunder and existing administrative and judicial interpretation thereof, all
of which are subject to change. No assurance can therefore be given that the
federal income tax consequences described below will not be altered in the
future. Based on the documents and assumptions set forth above, the
representations set forth in the Officer's Certificate and provided that the
Company continues to meet the applicable asset composition, source of income,
shareholder diversification, distribution, and other requirements of the Code
necessary for a corporation to qualify as a real
<PAGE>
Boston Properties, Inc.
December 21, 1998
Page 3
estate investment trust, we are of the opinion that:
(1) Commencing with the Company's initial taxable year ended December 31,
1997, the Company has been operated and organized in conformity with the
requirements for qualification as a "real estate investment trust" under the
Code, and its method of operation, as described in the Officers Certificate,
will enable it to continue to meet the requirements for qualification as a "real
estate investment trust" under the Code, and
(2) The information in the Registration Statement under the caption
"Certain Federal Income Tax Considerations" to the extent that it constitutes
matters of law or legal conclusions, have been reviewed by us and is correct in
all material respects, and our opinion set forth in such discussion is
confirmed.
We will not review on a continuing basis the Company's compliance with the
documents or assumptions set forth above, or the representations set forth in
the Officer's Certificate. Accordingly, no assurance can be given that the
actual results of the Company's operations for any given taxable year will
satisfy the requirements for qualification and taxation as a real estate
investment trust under the Code. The ability of the Company to continue to meet
the requirements for qualification and taxation as a real estate investment
trust will be dependent upon the Company's ability to continue to meet in each
year the applicable asset composition, source of income, shareholder
diversification, distribution, and other requirements of the Code necessary for
a corporation to qualify as a real estate investment trust. The foregoing
opinions are limited to the federal income tax matters addressed herein, and no
other opinions are rendered with respect to other federal tax matters or to any
issues arising out of the tax laws of any state or locality. We express no
opinion with respect to the transactions described herein other than those
expressly set forth herein. You should recognize that our opinion is not
binding on the Internal Revenue Service and that the Internal Revenue Service
may disagree with the opinion contained herein. Although we believe that our
opinion will be sustained if challenged, there is no guarantee that this will be
the case. Except as specifically discussed above, the opinion expressed herein
is based upon the laws that currently exist. Consequently, future changes in
the law may cause the federal income tax treatment of the transactions herein to
be materially and adversely different from that described above. This opinion
may be relied on solely by you in connection with the Offering.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. We also consent to the references to Goodwin, Procter &
Hoar, LLP under the caption "Certain Federal Income Tax Considerations" in the
Registration Statement. In giving this consent, we do not admit that we are in
the category of persons whose consent is required by
<PAGE>
Boston Properties, Inc.
December 21, 1998
Page 4
Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations promulgated thereunder by the Securities and Exchange Commission.
Very truly yours,
/s/ Goodwin, Procter & Hoar LLP
GOODWIN, PROCTER & HOAR LLP
<PAGE>
<TABLE>
<CAPTION>
Exhibit 12.1
Boston Properties Predecessor Group
Boston Properties, Inc. -------------------------------------------------
------------------------------- Years Ended December 31,
9 months ended 6/23/97- 1/1/97- ------------------------------------
9/30/98 12/31/97 6/22/97 1996 1995 1994 1993
-------------- --------- -------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income before minority
interest, and extraordinary items 96,744 38,878 4,840 8,657 (3,707) 7,583 17,477
Plus Fixed Charges:
Interest Expense 80,163 38,264 53,324 109,394 108,793 97,273 90,335
Interest capitalized 3,612 1,168 1,111 366 1,543 -- --
Loan amortization expense 1,763 934 943 2,273 1,841 1,942 1,892
Total Fixed Charges 85,738 40,366 55,378 112,033 112,177 99,215 92,227
Less:
Interest capitalized 3,812 1,168 1,111 366 1,543 -- --
Adjusted earnings 178,670 78,076 59,107 120,324 106,927 106,798 109,704
Ratio 2.08 1.93 1.07 1.07 0.95 1.08 1.19
</TABLE>
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" in this
Form S-3 Registration Statement of Boston Properties, Inc. and to the
incorporation by reference therein of our reports indicated below with respect
to the financial statements indicated below of Boston Properties, Inc.
Date of
Independent
Financial Statements Accountants Report
-------------------- ------------------
Financial statements of Boston Properties, Inc. January 23, 1998,
as of December 31, 1997 and for the period from except for
June 23, 1997 to December 31, 1997, and of Note 16 as to which
The Boston Properties Predecessor Group as of the date is
December 31, 1996 and for the years ended February 2, 1998
December 31, 1996 and 1995, and for the period
from January 1, 1997 to June 22, 1997.
Financial statement schedules of Boston Properties,
Inc. as of December 31, 1997. January 23, 1998
Statement of revenue over certain operating expenses of
Riverfront Plaza for the year ended December 31, 1997. August 17, 1998
Statement of revenue over certain operating expenses
of Mulligan/Griffin Portfolio for the year ended
December 31, 1997. August 14, 1998
Statement of revenue over certain operating expenses
of Carnegie Center Portfolio for the year ended
December 31, 1997. July 30, 1998
Statement of revenue over certain operating expenses of
Prudential Center for the year ended December 31, 1997. July 24, 1998
Statement of revenue over certain operating expenses
of Metropolitan Square for the year ended
December 31, 1997. July 10, 1998
Statement of revenue over certain operating expenses of
Riverfront Plaza for the year ended December 31, 1996. November 25, 1997
Statement of revenue over certain operating expenses
of Mulligan/Griffin Portfolio for the year ended
December 31, 1996. November 20, 1997
Statement of revenue over certain operating expenses
of 100 East Pratt Street for the year ended
December 31, 1996. November 3, 1997
Statement of revenue over certain operating expenses
of 875 Third Avenue for the year ended
December 31, 1996. October 17, 1997
Statement of revenue over certain operating expenses of
280 Park Avenue for the year ended December 31, 1996. October 17, 1997
/s/ PricewaterhouseCoopers LLP
------------------------------
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 21, 1998
