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|X|     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
|_|     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _________ to _________
Commission file number 1-13087
BOSTON PROPERTIES, INC.
Delaware                                                              04-2473675
(State or Other Jurisdiction                           (IRS Employer Id. Number)
of Incorporation or Organization)
Boston, Massachusetts                                                      02199
(Address of Principal Executive Offices)                              (Zip Code)
Registrant's telephone number, including area code: (617) 236-3300
Title of Each Class                    Name of Exchange on Which Registered
-------------------                    ------------------------------------
Common Stock, Par Value $.01                New York Stock Exchange
Preferred Stock Purchase Rights
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
As of March 14, 2001, the aggregate market value of the 85,291,023 shares of
common stock held by non-affiliates of the Registrant was $3,389,465,254 based
upon the closing price of $39.74 on the New York Stock Exchange composite tape
on such date. (For this computation, the Registrant has excluded the market
value of all shares of common stock reported as beneficially owned by executive
officers and directors of the Registrant; such exclusion shall not be deemed to
constitute an admission that any such person is an affiliate of the Registrant.)
As of March 14, 2001, there were 89,701,122 shares of Common Stock outstanding.
Certain information contained in the Registrant's Proxy Statement relating to
its Annual Meeting of Stockholders to be held May 2, 2001 are incorporated by
reference in Part III, Items 10, 11, 12 and 13.
ITEM NO.                           DESCRIPTION                          PAGE NO.
1.    BUSINESS .........................................................       1
2.    PROPERTIES .......................................................      26
3.    LEGAL PROCEEDINGS ................................................      28
4.    SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS .............................................      29
5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS .............................................      29
6.    SELECTED FINANCIAL DATA ..........................................      30
7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS .............................      32
7a.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK ............................................................      46
8.    FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA ..............................................      46
9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE .............................      46
10.   DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT ...............................................      47
11.   EXECUTIVE COMPENSATION ...........................................      47
12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT ...........................................      47
13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ...................      47
14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K .............................................      48
SIGNATURES .......................................................      53
Item 1. Business
As used herein, the terms "we," "us," "our" or the "Company" refer to
Boston Properties, Inc., a Delaware corporation organized in 1997, individually
or together with its subsidiaries, including Boston Properties Limited
Partnership, a Delaware limited partnership, and our predecessors. We are a
fully integrated self-administered and self-managed real estate investment trust
or "REIT" and one of the largest owners and developers of office properties in
the United States. Our properties are concentrated in four core markets -
Boston, Washington, D.C., midtown Manhattan and San Francisco. We conduct
substantially all our business through Boston Properties Limited Partnership. At
December 31, 2000 we owned 145 properties, totaling 37.9 million net rentable
square feet. Our properties consisted of 134 office properties, comprised of 103
Class A office buildings and 31 properties that support both office and
technical uses, including 15 properties under construction, eight industrial
properties and three hotels. We consider Class A office buildings 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.
We have a $605 million unsecured revolving line of credit with Fleet
National Bank, as agent, which expires in March 2003. As of March 14, 2001, zero
was outstanding under our unsecured revolving line of credit. You should refer
to "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources" for additional
information regarding our unsecured revolving line of credit and our other
indebtedness.
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. As of December 31, 2000, we had over 600 employees. Our 25 senior
officers, together with Mr. Mortimer Zuckerman, Chairman of our board of
directors, have an average of 24 years experience in the real estate industry
and an average of 14 years tenure with us. Our principal executive office is
located at 800 Boylston Street, Boston, Massachusetts 02199 and its telephone
number is (617) 236-3300. In addition, we have regional offices at 401 9th
Street, NW, Washington, D.C. 20004; 599 Lexington Avenue, New York, New York
10022; Four Embarcadero Center, San Francisco, California 94111; and 502
Carnegie Center, Princeton, New Jersey 08540.
Boston Properties Limited Partnership
Boston Properties Limited Partnership, a Delaware limited partnership, is
the entity through which we conduct substantially all of our business and own
(either directly or through subsidiaries) substantially all of our assets. We
are the sole general partner and, as of March 14,
2001, the owner of approximately 74.3% of the economic interests in Boston
Properties Limited Partnership. This structure is commonly referred to as an
umbrella partnership REIT or "UPREIT". Our general and limited partnership
interests in Boston Properties Limited Partnership entitle us to share in cash
distributions from, and in the profits and losses of, Boston Properties Limited
Partnership in proportion to our percentage interest therein and entitle us to
vote on all matters requiring a vote of the limited partners. The other partners
of Boston Properties Limited Partnership are persons who contributed their
direct or indirect interests in certain properties to Boston Properties Limited
Partnership in exchange for common units of limited partnership interest in
Boston Properties Limited Partnership or preferred units of limited partnership
interest in Boston Properties Limited Partnership. Pursuant to the limited
partnership agreement of Boston Properties Limited Partnership, as amended,
unitholders may tender their common units of Boston Properties Limited
Partnership for cash equal to the value of an equivalent number of shares of our
common stock. In lieu of delivering cash, however, we may, at our option, choose
to acquire any units so tendered by issuing common stock in exchange for the
units. Our common stock will be exchanged for units on a one-for-one basis. This
one-for- one exchange ratio may be adjusted to prevent dilution. We currently
anticipate that we will elect to issue our common stock in connection with each
such presentation for redemption rather than having Boston Properties Limited
Partnership pay cash. With each such exchange or redemption, our percentage
ownership in Boston Properties Limited Partnership will increase. In addition,
whenever we issue shares of our common stock other than to acquire common units
of Boston Properties Limited Partnership, we must contribute any net proceeds we
receive to Boston Properties Limited Partnership and Boston Properties Limited
Partnership must issue to us an equivalent number of common units of Boston
Properties Limited Partnership.
Preferred units of Boston Properties Limited Partnership have the rights,
preferences and other privileges (including the right to convert into common
units of Boston Properties Limited Partnership) as are set forth in amendments
to the limited partnership agreement of Boston Properties Limited Partnership.
Boston Properties Limited Partnership currently has four series of its preferred
units (excluding preferred units held by Boston Properties, Inc.). The Series
One preferred units have an aggregate liquidation preference of approximately
$85 million and bear a preferred distribution at a rate of 7.25% per annum,
payable quarterly. Series One units are convertible into common units at the
rate of $38.25 per common unit at the holder's election at any time. We also
have the right to convert into common units of Boston Properties Limited
Partnership all or part of the Series One units on or after June 3, 2003, if our
common stock at the time of our election is trading at a price of at least
$42.08 per share.
The Series Two and Series Three preferred units, which together have an
aggregate liquidation preference of approximately $311 million, have, between
each other, similar economic terms. On and after December 31, 2002, the Series
Two and Series Three units will be convertible, at the holder's election, into
common units at a conversion price of $38.10 per common unit. Distributions on
the Series Two and Series Three units are payable quarterly and generally accrue
at rates of: 5.0% per annum through March 31, 1999; 5.5% through December 31,
1999; 5.625% through December 2000; 6.0% through December 31, 2001; 6.5% through
December 31, 2002; 7.0% until May 12, 2009; and 6.0% thereafter. The terms of
the Series Two and Series Three units provide that they may be redeemed for cash
in six annual tranches,
beginning on May 12, 2009, at the election of us or the holders. We also have
the right to convert into common units of Boston Properties Limited Partnership
any Series Two and Series Three units that are not redeemed when they are
entitled to redemption.
The Series Z preferred units have an aggregate liquidation preference of
the greater of the value of our common stock or $37.25 per unit. The Series Z
preferred units are not entitled to receive any distributions until after August
11, 2001. From August 11, 2001 until February 11, 2002, each Series Z preferred
unit entitles its holder to receive one-half of any distributions paid on a
common unit. After February 11, 2002, to the extent that any Series Z preferred
units are still outstanding, each Series Z preferred unit entitles its holder to
receive an amount equal to 100% of any distributions paid on a common unit. The
Series Z preferred units will automatically convert into common units on
February 11, 2002 or, if later, the date on which we register with the
Securities and Exchange Commission the shares of our common stock issuable in
exchange for the common units into which the Series Z units are convertible.
Real Estate Acquisitions during 2000
On January 12, 2000, we acquired our joint venture partner's 75% interest
in One and Two Reston Overlook, an unconsolidated joint venture, for cash of
approximately $15.2 million and the assumption of approximately $69.0 million in
debt.
On March 1, 2000, we acquired three Class A office buildings totaling
approximately 408,163 square feet at Carnegie Center in Princeton, New Jersey,
under the terms of the original Carnegie Center Portfolio acquisition. The
properties were acquired from a related party for approximately $66.5 million,
which was funded through the assumption of debt of approximately $49.0 million
at a rate of 7.39% and the issuance of 577,817 common units of partnership
interest in Boston Properties Limited Partnership valued at approximately $17.5
million. The acquisition was approved by a vote of our independent directors.
On August 22, 2000, we acquired the remaining 50% interest in the
development rights at the Prudential Center in Boston, Massachusetts for
approximately $18.2 million, which was funded through the issuance of 439,059
shares of our common stock.
On December 1, 2000, we acquired the leasehold interest and ground rent
credits at the site of the future Times Square Tower in midtown Manhattan, for
approximately $165.1 million in cash. This development will consist of a 47-
floor, 1.2 million square foot office tower.
Developments Placed in Service during 2000
In the second quarter of 2000, the Orbital Sciences project was
placed-in-service. This project consists of two Class A office buildings
totaling approximately 174,832 square feet and is located in Dulles, VA. We
developed this project, in which we have a 100% interest, at a total cost to us
of approximately $30.5 million.
In the fourth quarter of 2000, the 140 Kendrick Street project was
placed-in-service. This
project consists of three Class A office buildings totaling approximately
381,000 square feet and is located in Needham, Massachusetts. We developed the
project, in which we have a 25% interest, at a total cost to us of approximately
$18.8 million.
In the fourth quarter of 2000, the Market Square North project was
placed-in-service. This project consists of a Class A office building totaling
approximately 401,255 square feet and is located in Washington, D.C. We
developed the project, in which we have a 50% interest, at a total cost to us of
approximately $59.2 million.
New Joint Venture with Financial Partner during 2000
On May 12, 2000, we entered into a joint venture with the New York State
Common Retirement Fund. The initial term of the joint venture agreement runs for
three years or until the New York State Common Retirement Fund's equity
commitment of $270 million is met, although it has the right to increase its
financial commitment prior to the end of the third year. During the term of the
joint venture agreement, New York State Common Retirement Fund has the right to
participate in our acquisition opportunities and development projects that we
pursue with an institutional partner. We will manage the development and
operation of all joint venture properties.
On May 12, 2000, pursuant to the joint venture agreement, the New York
State Common Retirement Fund acquired partial interests in two properties that
we previously owned in their entirety. We retained a 51% interest in the first
property, Metropolitan Square, a 582,194-square foot office property in
Washington, D.C. and a 25% interest in the second property, 140 Kendrick Street,
a 381,000-square foot build-to-suit development property in Needham,
Massachusetts. The interests in the properties were acquired for cash of
approximately $46.7 million and the assumption of debt of approximately $88.2
million and resulted in a gain to us of $0.4 million.
On September 13, 2000, we acquired a 35% interest in 265 Franklin Street,
a 325,699 square foot office property in Boston, Massachusetts through our joint
venture with the New York State Common Retirement Fund, which acquired 65% of
this property. Our interest in this property was acquired with cash and new debt
financing totaling approximately $34.3 million.
On December 8, 2000, we agreed with the New York State Common Retirement
Fund to develop 901 New York Avenue, a Class A office building in Washington,
D.C. totaling 550,000 square feet. We have a 25% interest and manage the
development of the property, while the New York State Common Retirement Fund
owns a 75% interest.
Equity Financing Activities during 2000
On August 22, 2000, we issued 439,059 shares of common stock, valued at
approximately $18.2 million, in connection with the acquisition of the remaining
50% interest in the development rights at the Prudential Center in Boston,
Massachusetts.
On October 31, 2000, we completed a public offering of 17,110,000 shares
of our common stock at a price per share of $39.0625 (including 2,110,000 shares
issued as a result of the exercise of an overallotment option by the
underwriters) resulting in net proceeds to us of approximately $633.8 million.
Business and Growth Strategies
Our primary business objective is to maximize return on investment so as
to provide our stockholders with the greatest possible total return. Our
strategy to achieve this objective is:
o     to concentrate on a few carefully selected markets and to be one of,
if not the leading, owner and developer in each of those markets. We
select markets and submarkets where tenants have demonstrated a
preference for high quality office buildings and other facilities.
o     to emphasize markets and submarkets within those markets where there
are barriers to the creation of new supply and where skill,
financial strength and diligence are required to successfully
develop and manage high quality office, research and development
and/or industrial space.
o     to take on complex, technically challenging projects, leveraging the
skills of our management team to successfully develop, acquire or
reposition properties which other organizations may not have the
capacity or resources to pursue.
o     to concentrate on high quality, state-of-the-art real estate
designed to meet the demands of today's knowledge-based tenants and
to manage those facilities so as to become the landlord of choice
for both existing and prospective clients.
o     to opportunistically acquire assets which increase our penetration
in the markets in which we have chosen to concentrate and which
exhibit an opportunity to improve returns through repositioning,
changes in management focus and re-leasing as existing leases
terminate.
We believe that we are well positioned to realize significant growth
through external asset development and acquisition. We believe that our
development experience and our organizational depth position us to continue to
develop a range of property types, from single-story suburban office properties
to high-rise urban developments, within budget and on schedule. Other factors
that contribute to our competitive position include:
o     the significant increase in demand for new, high quality office
space in our core markets;
o     our control of sites (including sites under contract or option to
acquire) in our core markets that will support approximately 10.6
million square feet of new office development;
o     our reputation gained through the stability and strength of our
existing portfolio of properties;
o     our relationships with leading national corporations and public
institutions seeking new facilities and development services;
o     our relationships with nationally recognized financial institutions
that provide capital to the real estate industry; and
o     the substantial amount of commercial real estate owned by domestic
and foreign institutions, private investors, and corporations who
are seeking to sell these assets in our market areas.
We have targeted three areas of development and acquisition as significant
opportunities to execute our external growth strategy:
o     Pursue development in selected submarkets. We believe that
development of well-positioned office buildings is and will continue
to be justified in many of our submarkets. We believe in acquiring
land in response to market conditions that allow for its development
in the relative near term. While we purposely concentrate in markets
with high barriers to entry, we have demonstrated over our 30 year
history an ability to make carefully timed land acquisitions in
submarkets where we can become one of the market leaders in
establishing rent and other business terms. We believe that there
are opportunities in our existing and other markets for a well
capitalized developer to acquire land with development potential at
key locations.
In the past, we have been particularly successful at acquiring
sites or options to purchase sites that need governmental approvals.
Because of our development expertise, knowledge of the governmental
approval process and reputation for quality development with local
government approval regulatory bodies, we generally have been able
to secure the permits necessary to allow development, and profit
resulting increase in land value. We seek out complex projects where
we can add value through the efforts of our experienced and skilled
management team leading to significantly enhanced returns on
o     Acquire assets and portfolios of assets from institutions or
individuals. We believe that due to our size, management strength
and reputation, we are in an advantageous position to acquire
portfolios of assets or individual properties from institutions or
individuals. We may acquire properties for cash, but we believe that
we are particularly well positioned to appeal to sellers wishing to
convert on a tax-deferred basis their ownership of property to the
ownership of equity in a diversified real estate operating company
that offers liquidity through access to the public equity markets.
In addition, we may pursue mergers with and acquisitions of
compatible real estate firms. Our ability to offer units in Boston
Properties Limited Partnership to sellers who would otherwise
recognize a gain upon a sale of assets for cash or our common stock
may facilitate this type of transaction on a tax-efficient basis.
o     Acquire existing underperforming assets and portfolios of assets. We
continue to actively pursue opportunities to acquire existing
buildings that, while currently generating income, are either
underperforming the market due to poor management or are currently
leased at below market rents with anticipated roll-over of space.
These opportunities may include the acquisition of entire portfolios
of properties. We believe that because of our in-depth market
knowledge and development experience in each of our markets, our
national reputation with brokers, financial institutions and others
involved in the real estate market and our access to
competitively-priced capital, we are well-positioned to identify and
acquire existing, underperforming properties for competitive prices
and to add significant additional value to such properties through
our effective marketing strategies and responsive property
management program.
Internal Growth
We believe that significant opportunities exist to increase cash flow from
our existing properties because they are of high quality and in desirable
locations in markets that, in general, are experiencing rising rents, low
vacancy rates and increasing demand for office and industrial space. In
addition, our properties are in markets where, in general, supply is limited by
the lack of available sites and the difficulty of receiving the necessary
approvals for development on vacant land. Our strategy for maximizing the
benefits from these opportunities is two-fold: (1) to provide high quality
property management services using our own employees in order to encourage
tenants to renew, expand and relocate in our properties, and (2) to achieve
speed and transaction cost efficiency in replacing departing tenants through the
use of in-house services for marketing, lease negotiation, and design and
construction of tenant improvements. In addition, we believe that our hotel
properties will add to our internal growth because of their desirable locations
in the downtown Boston and East Cambridge submarkets, which are experiencing
high occupancy rates and continued growth in room rates. The effective
management of Marriott International, Inc., has resulted in high occupancy,
guest satisfaction and growth in room rates
while limiting increases in operating costs. We expect to continue our internal
growth as a result of our ability to:
o     Cultivate existing submarkets. In choosing locations for our
properties, we have paid particular attention to transportation and
commuting patterns, physical environment, adjacency to established
business centers, proximity to sources of business growth and other
local factors.
Many of these submarkets are experiencing increasing rents
and, as a result, current market rates often exceed the rents being
paid by our tenants. Based on leases in place at December 31, 2000,
leases with respect to 7.27% of our office properties and 13.95% of
our industrial properties will expire in calendar year 2001. We
believe that leases expiring over the next three years in these
submarkets will be renewed, or space re-let, at higher rents than
previously in effect.
o     Directly manage properties to maximize the potential for tenant
retention. We provide property management services ourselves, rather
than contracting for this service, to maintain awareness of and
responsiveness to tenant needs. We and our properties also benefit
from cost efficiencies produced by an experienced work force
attentive to preventive maintenance and energy management and from
our continuing programs to assure that our property management
personnel at all levels remain aware of their important role in
tenant relations. Our philosophy has not been to invest significant
capital in technology, but to form alliances to provide better
tenant service and realize potential incremental revenues with
little additional capital investment.
o     Replace tenants quickly at best available market terms and lowest
possible transaction costs. We believe that we have a competitive
advantage in attracting new tenants and achieving rental rates at
the higher end of our markets as a result of our well located, well
designed and well maintained properties, our reputation for high
quality building services and responsiveness to tenants, and our
ability to offer expansion and relocation alternatives within our
submarkets.
The Hotel Properties
To assist in maintaining our status as a REIT, we lease our three hotel
properties to ZL Hotel LLC pursuant to a lease that entitles us to a percentage
of the gross receipts of our hotel properties. Mr. Mortimer B. Zuckerman, the
Chairman of our board of directors, and Edward H. Linde, our President and Chief
Executive Officer, are the sole member-managers of, and have a 9.8% economic
interest in, ZL Hotel LLC; two unaffiliated public charities own the remaining
90.2% economic interest. Marriott International, Inc. manages our hotel
properties under the Marriott(R) name pursuant to a management agreement with ZL
Hotel LLC. Under the REIT requirements, revenues from a hotel are not considered
to be rental income for purposes of certain income tests, which a REIT must
meet. Accordingly, in order to maintain our qualification as a REIT, we have
entered into the participating leases with ZL Hotel LLC described above to
provide revenue that qualifies as rental income under the REIT requirements.
We compete in the leasing of office and industrial space with a
considerable number of other real estate companies, some of which may have
greater marketing and financial resources. In addition, our hotel properties
compete for guests with other hotels, some of which may have greater marketing
and financial resources than are available to us and Marriott International,
Our hotel properties traditionally have experienced significant
seasonality in their operating income, with weighted average net operating
income by quarter over the three years 1998 through 2000 as follows:
First Quarter       Second Quarter        Third Quarter          Fourth Quarter
- -------------       --------------        -------------          --------------
14%                  29%                  32%                     25%
Our other properties have not traditionally experienced significant
seasonality.
Set forth below are the risks that we believe are material to our stockholders.
We refer to the shares of our common and preferred stock and the units of
limited partnership interest in Boston Properties Limited Partnership together
as our "securities," and the investors who own shares and/or units as our
"securityholders." 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 beginning on page 32.
We may be unable to manage effectively our rapid growth and expansion into new
We have grown rapidly since our initial public offering in June 1997 and
have entered or significantly expanded our real estate holdings in new markets.
If we do not effectively manage our rapid growth, we may not be able to make
expected distributions to our securityholders and the value of our securities
may decline.
Our performance and value are subject to risks associated with our real estate
assets and with the real estate industry.
Our economic performance and the value of our real estate assets, and
consequently the value of our securities, are subject to the risk that if our
office, industrial, and hotel properties do not generate revenues sufficient to
meet our operating expenses, including debt service and capital expenditures,
our cash flow and ability to pay distributions to our securityholders will be
adversely affected. The following factors, among others, may adversely affect
the revenues generated by our office, industrial, and hotel properties:
o     downturns in the national, regional and local economic climate;
o     competition from other office, industrial, hotel and other
commercial buildings;
o     local real estate market conditions, such as oversupply or reduction
in demand for office, industrial, hotel or other commercial space;
o     changes in interest rates and availability of financing;
o     vacancies or inability to rent spaces on favorable terms;
o     increased operating costs, including insurance premiums, utilities,
and real estate taxes; and
o     civil disturbances, earthquakes and other natural disasters or acts
of God that may result in uninsured or underinsured losses.
Significant expenditures associated with each investment, such as debt
service payments, real estate taxes, insurance and maintenance costs are
generally not reduced when circumstances cause a reduction in revenues from a
We are dependent upon the economic climates of our four core markets-Boston,
Washington, D.C., midtown Manhattan and San Francisco.
A majority of our revenues are derived from properties located in our four
core markets- Boston, Washington, D.C., midtown Manhattan and San Francisco. A
downturn in the economies of these core markets, or the impact that a downturn
in the overall national economy may have upon these economies, could result in
reduced demand for office space. Because our portfolio consists primarily of
office buildings (as compared to a more diversified real estate portfolio), a
decrease in demand for office space in turn could adversely affect our result
from operations. Additionally, there are submarkets within our core markets that
are dependent upon a limited number of industries and a significant downturn in
one or more of these industries could also adversely affect our results from
Our investment in property development may be more costly than anticipated.
We have a significant development pipeline and intend to continue to
develop and substantially renovate office, industrial and hotel properties. Our
current and future development and construction activities may be exposed to the
following risks:
o     we may be unable to proceed with the development of properties
because we cannot obtain financing with favorable terms;
o     we may incur construction costs for a development project which
exceed our original estimates due to increased materials, labor or
other costs, which could make completion of the project uneconomical
because we may not be able to increase rents to compensate for the
increase in construction costs;
o     we may be unable to obtain, or face delays in obtaining, required
zoning, land-use, building, occupancy, and other governmental
permits and authorizations, which could result in increased costs
and could require us to abandon our activities entirely with respect
to a project;
o     we may abandon development opportunities after we begin to explore
them and as a result we may fail to recover expenses already
incurred;
o     we may expend funds on and devote management's time to projects
which we do not complete;
o     we may be unable to complete construction and leasing of a property
on schedule, resulting in increased debt service expense and
construction or renovation costs;
o     we may lease developed properties at below expected rental rates;
o     occupancy rates and rents at newly completed properties may
fluctuate depending on a number of factors, including market and
economic conditions, and may result in our investment not being
profitable.
Our use of joint ventures may limit our flexibility with jointly owned
investments.
We intend to develop and acquire properties in joint ventures with other
persons or entities when circumstances warrant the use of this structure. The
use of a joint venture vehicle creates a risk of a dispute with our joint
venturer's and a risk that we will have to acquire a joint venturer's interest
in a development for a price at which or at a time when we would otherwise not
purchase such interest. Our joint venture partners may have different objectives
from us regarding the appropriate timing and pricing of any sale or refinancing
of properties.
In 2000, we entered into a joint venture with the New York State Common
Retirement Fund which has agreed to contribute up to $270 million to acquire and
develop properties with us. During the three-year term of this joint venture,
the New York State Common Retirement Fund has the right to participate in all of
our acquisition opportunities that meet agreed criteria and any development
projects that we choose to pursue with an institutional partner.
We face risks associated with property acquisitions.
Since our initial public offering, we have made large acquisitions of
properties and portfolios of properties. We intend to continue to acquire
properties and portfolios of properties, including large portfolios that could
continue to significantly increase our size and alter our capital structure. Our
acquisition activities and their success may be exposed to the following risks:
o     we may be unable to acquire a desired property because of
competition from other well capitalized real estate investors,
including both publicly traded real estate investment trusts and
institutional investment funds;
o     even if we enter into an acquisition agreement for a property, it is
usually subject to customary conditions to closing, including
completion of due diligence investigations to our satisfaction;
o     even if we are able to acquire a desired property, competition from
other real estate investors may significantly increase the purchase
o     we may be unable to finance acquisitions on favorable terms;
o     acquired properties may fail to perform as we expected in analyzing
our investments;
o     our estimates of the costs of repositioning or redeveloping acquired
properties may be inaccurate;
o     acquired properties may be located in new markets where we may face
risks associated with a lack of market knowledge or understanding of
the local economy, lack of business relationships in the area and
unfamiliarity with local governmental and permitting procedures; and
o     we may be unable to quickly and efficiently integrate new
acquisitions, particularly acquisitions of portfolios of properties,
into our existing operations, and as a result our results of
operations and financial condition could be adversely affected.
We may acquire properties subject to liabilities and without any recourse,
or with only limited recourse, with respect to unknown liabilities. As a result,
if a liability were asserted against us based upon those properties, we might
have to pay substantial sums to settle it, which could adversely affect our cash
flow. Unknown liabilities with respect to properties acquired might include:
o     liabilities for clean-up of undisclosed environmental contamination;
o     claims by tenants, vendors or other persons dealing with the former
owners of the properties;
o     liabilities incurred in the ordinary course of business; and
o     claims for indemnification by general partners, directors, officers
and others indemnified by the former owners of the properties.
We face potential difficulties or delays renewing leases or re-leasing space.
We derive most of our income from rent received from our tenants. If a
tenant experiences a downturn in its business or other types of financial
distress, it may be unable to make timely rental payments. Also, when our
tenants decide not to renew their leases, we may not be able to relet the space.
Even if tenants decide to renew, the terms of renewals or new leases, including
the cost of required renovations or concessions to tenants, may be less
favorable than current lease terms. As a result, our cash flow could decrease
and our ability to make distributions to our securityholders could be adversely
affected.
We face potential adverse effects from major tenants' bankruptcies or
insolvencies.
The bankruptcy or insolvency of a major tenant may adversely affect the
income produced by our properties. Although we have not experienced material
losses from tenant
bankruptcies or insolvencies in the past, our tenants could file for bankruptcy
protection or become insolvent in the future. We cannot evict a tenant solely
because of its bankruptcy. On the other hand, a court might authorize the tenant
to reject and terminate its lease with us. In such case, our claim against the
bankrupt tenant for unpaid, future rent would be subject to a statutory cap that
might be substantially less than the remaining rent actually owed under the
lease, and, even so, our claim for unpaid rent would likely not be paid in full.
This shortfall could adversely affect our cash flow and results from operations.
We may have difficulty selling our properties which may limit our flexibility.
Large and high quality office, industrial and hotel properties like the
ones that we own 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
changes in economic or other conditions. In addition, federal tax laws limit our
ability to sell properties that we have owned for fewer than four years, and
this may affect our ability to sell properties without adversely affecting
returns to our stockholders. These restrictions reduce our ability to respond to
changes in the performance of our investments and could adversely affect our
financial condition and results of operations.
Our properties face significant competition.
We face significant competition from developers, owners and operators of
office, industrial and other commercial real estate. Substantially all of our
properties face competition from similar properties in the same market. Such
competition may effect our ability to attract and retain tenants and may reduce
the rents we are able to charge. These competing properties may have vacancy
rates higher than our properties, which may result in their owners being willing
to make space available at lower prices than the space in our properties.
Because we own three hotel properties, we face the risks associated with the
hospitality industry.
We own three hotel properties. We lease these hotel properties to ZL Hotel
LLC, in which Mortimer B. Zuckerman, Chairman of our board of directors, and
Edward H. Linde, our President and Chief Executive Officer, are the sole
member-managers and have a 9.8% economic interest; two unaffiliated public
charities have a 90.2% economic interest in ZL Hotel LLC. Marriott
International, Inc. manages these 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. Because the
lease payments we receive are based on a participation in the gross receipts of
the hotels, if the hotels do not generate sufficient receipts, our cash flow
would be decreased, which could reduce the amount of cash available for
distribution to our securityholders. The following factors, among others, are
common to the hotel industry, and may reduce the receipts generated by our hotel
o     our hotel properties compete for guests with other hotels, a number
of which have greater marketing and financial resources than our
hotel-operating business partners;
o     if there is an increase in operating costs resulting from inflation
and other factors, our hotel-operating business partners may not be
able to offset such increase by increasing room rates;
o     our hotel properties are subject to the fluctuating and seasonal
demands of business travelers and tourism; and
o     our hotel properties are subject to general and local economic
conditions that may affect demand for travel in general.
Compliance or failure to comply with the Americans with Disabilities Act and
other similar laws could result in substantial costs.
The Americans with Disabilities Act generally requires that public
buildings, including office buildings and hotels, be made accessible to disabled
persons. Noncompliance could result in imposition of fines by the federal
government or the award of damages to private litigants. If, pursuant to the
Americans with Disabilities Act, we are required to make substantial alterations
and capital expenditures in one or more of our properties, including the removal
of access barriers, it could adversely affect our financial condition and
results of operations, as well as the amount of cash available for distribution
to our securityholders.
We may also incur significant costs complying with other regulations. Our
properties are subject to various federal, state and local regulatory
requirements, such as state and local fire and life safety requirements. If we
fail to comply with these requirements, we could incur fines or private damage
awards. We believe that our properties are currently in material compliance with
all of these regulatory requirements. However, we do not know whether existing
requirements will change or whether compliance with future requirements will
require significant unanticipated expenditures that will affect our cash flow
and results from operations.
Some potential losses are not covered by insurance.
We carry comprehensive liability, fire, flood, extended coverage and
rental loss insurance, as applicable, on our properties. We believe our coverage
is of the type and amount customarily obtained for or by an owner of similar
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 both the revenues generated from
the affected property and the capital we have invested in the affected property.
We would, however, remain 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.
We carry earthquake insurance on our properties located in areas known to
be subject to earthquakes in an amount and subject to deductions which we
believe are commercially
reasonable. However, the amount of our earthquake insurance coverage may not be
sufficient to cover losses from earthquakes. In addition, we may discontinue
earthquake insurance on some or all of our properties in the future if the
premiums exceed our estimation of the value of the coverage discounted for the
risk of loss. If we experience a loss which is uninsured or which exceeds policy
limits, we could lose the capital invested in the damaged properties as well as
the anticipated future revenue from those properties. Moreover, if the damaged
properties are subject to recourse indebtedness, we would continue to be liable
for the indebtedness, even if the properties were irreparable. Any such loss
could materially and adversely affect our business and financial condition and
results from operations.
Potential liability for environmental contamination could result in substantial
costs.
Under federal, state and local environmental laws, ordinances and
regulations, we may be required to investigate and clean up the effects of
releases of hazardous or toxic substances or petroleum products at our
properties, regardless of our knowledge or responsibility, simply because of our
current or past ownership or operation of the real estate. If unidentified
environmental problems arise, we may have to make substantial payments which
could adversely affect our cash flow and our ability to make distributions to
our securityholders because:
o     as owner or operator we may have to pay for property damage and for
investigation and clean-up costs incurred in connection with the
contamination;
o     the law typically imposes clean-up responsibility and liability
regardless of whether the owner or operator knew of or caused the
o     even if more than one person may be responsible for the
contamination, each person who shares legal liability under the
environmental laws may be held responsible for all of the clean-up
o     governmental entities and third parties may sue the owner or
operator of a contaminated site for damages and costs.
These costs could be substantial and in extreme cases could exceed the
value of the contaminated property. The presence of hazardous or toxic
substances or petroleum products or the failure to properly remediate
contamination may materially and adversely affect our ability to borrow against,
sell or rent an affected property. In addition, applicable environmental laws
create liens on contaminated sites in favor of the government for damages and
costs it incurs in connection with a contamination.
Environmental laws also govern the presence, maintenance and removal of
asbestos. Such laws require that owners or operators of buildings containing
asbestos:
o     properly manage and maintain the asbestos;
o     notify and train those who may come into contact with asbestos; and
o     undertake special precautions, including removal or other abatement,
if asbestos would be disturbed during renovation or demolition of a
Such laws may impose fines and penalties on building owners or operators who
fail to comply with these requirements and may allow third parties to seek
recovery from owners or operators for personal injury associated with exposure
to asbestos fibers.
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 conducted Phase I
environmental site assessments at all of our properties. These assessments
included, at a minimum, a visual inspection of the properties and the
surrounding areas, an examination of current and historical uses of the
properties and the surrounding areas and a review of relevant state, federal and
historical documents. Where appropriate, on a property-by-property basis, these
consultants have conducted additional testing, including sampling for asbestos,
for lead in drinking water, for soil contamination where underground storage
tanks are or were located or where other past site usages create a potential
environmental problem, and for contamination in groundwater. Even though these
environmental assessments have been conducted, there is still the risk that:
o     the environmental assessments and updates did not identify all
potential environmental liabilities;
o     a prior owner created a material environmental condition that is not
known to us or the independent consultants preparing the
assessments;
o     new environmental liabilities have developed since the environmental
assessments were conducted; and
o     future uses or conditions such as changes in applicable
environmental laws and regulations could result in environmental
liability for us.
We face risks associated with the use of debt to fund acquisitions and
developments, including refinancing risk.
We are subject to the risks normally associated with debt financing,
including the risk that our cash flow will be insufficient to meet required
payments of principal and interest. We anticipate that only a small portion of
the principal of our debt will be repaid prior to maturity. Therefore, we are
likely to need to refinance at least a portion of our outstanding debt as it
matures. There is a risk that we may not be able to refinance existing debt or
that the terms of any refinancing will not be as favorable as the terms of the
existing debt. If principal payments due at maturity cannot be refinanced,
extended or repaid with proceeds from other sources, such as new equity capital,
our cash flow will not be sufficient to repay all maturing debt in years when
significant "balloon" payments come due.
Rising interest rates would increase our interest costs.
We currently have, and may incur more, indebtedness that bears interest at
variable rates. Accordingly, if interest rates increase, so will our interest
costs, which would adversely affect our cash flow, our ability to service debt
and our ability to make distributions to our securityholders.
We have no corporate limitation on the amount of debt we can incur.
Our management and board of directors have discretion under our
certificate of incorporation and bylaws to increase the amount of our
outstanding debt. Our decisions with regard to the incurrence and maintenance of
debt are based on available investment opportunities for which capital is
required, the cost of debt in relation to such investment opportunities, whether
secured or unsecured debt is available, the effect of additional debt on
existing financial ratios and the maturity of the proposed new debt relative to
maturities of existing debt. We could become more highly leveraged, resulting in
increased debt service costs that could adversely affect our cash flow and the
amount available for payment of dividends. If we increase our debt we may also
increase the risk we will be unable to repay our debt.
Our financial covenants could adversely affect our financial condition.
The mortgages on our properties contain customary negative covenants such
as those that limit our ability, without the prior consent of the lender, to
further mortgage the applicable 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 which we must maintain. Our ability to borrow under our credit facilities
is subject to compliance with our financial and other covenants. We rely on
borrowings under our credit facilities to finance acquisitions and development
activities and for working capital, and if we are unable to borrow under our
credit facilities, or to refinance existing indebtedness our financial condition
and results of operations would likely be adversely impacted. If we breach
covenants in our debt agreements, the lender can declare a default and require
us to repay the debt immediately and, if the debt is secured, can immediately
take possession of the property securing the loan. In addition, our credit
facilities are cross-defaulted to our other indebtedness, which would give the
lenders under our other credit facilities the right also to declare a default
and require immediate repayment.
Our degree of leverage could limit our ability to obtain additional financing or
affect the market price of our common stock.
Debt to Market Capitalization Ratio is a measure of our total debt as a
percentage of the aggregate of our total debt plus the market value of our
outstanding securities. Our Debt to Market Capitalization Ratio was
approximately 38.7% as of December 31, 2000. To the extent that our board of
directors uses our Debt to Market Capitalization Ratio as a measure of
appropriate leverage, the total amount of our debt could increase as our common
stock price increases, even if we may not have a corresponding increase in our
ability to service or repay the debt. Our degree of leverage could affect our
ability to obtain additional financing for working capital, capital
expenditures, acquisitions, development or other general corporate purposes. Our
degree of leverage could also make us more vulnerable to a downturn in business
or the economy generally. There is a risk that changes in our Debt to Market
Capitalization Ratio, which is in part a function of our stock price, or our
ratio of indebtedness to other measures of asset value used by financial
analysts may have an adverse effect on the market price of our common stock.
Further issuances of equity securities may be dilutive to current stockholders.
The interests of our existing stockholders could be diluted if additional
equity securities are issued to finance future developments and acquisitions
instead of incurring additional debt. Our ability to execute our business
strategy depends on our access to an appropriate blend of debt financing,
including unsecured lines of credit and other forms of secured and unsecured
debt, and equity financing, including common and preferred equity.
Failure to qualify as a real estate investment trust would cause us to be taxed
as a corporation, which would substantially reduce funds available for payment
of dividends.
If we fail to qualify as a real estate investment trust for federal income
tax purposes, we will be taxed as a corporation. We believe that we are
organized and qualified as a real estate investment trust, and intend to operate
in a manner that will allow us to continue to qualify as a real estate
investment trust. However, we cannot assure you that we are qualified as such,
or that we will remain qualified as such in the future. This is because
qualification as a real estate investment trust involves the application of
highly technical and complex provisions of the Internal Revenue Code as to which
there are only limited judicial and administrative interpretations, and involves
the determination of facts and circumstances not entirely within our control. In
addition, future legislation, new regulations, administrative interpretations or
court decisions may significantly change the tax laws or the application of the
tax laws with respect to qualification as a real estate investment trust for
federal income tax purposes or the federal income tax consequences of such
If we fail to qualify as a real estate investment trust we will face
serious tax consequences that will substantially reduce the funds available for
payment of dividends for each of the years involved because:
o     we would not be allowed a deduction for dividends paid to
stockholders in computing our taxable income and would be subject to
federal income tax at regular corporate rates;
o     we also could be subject to the federal alternative minimum tax and
possibly increased state and local taxes;
o     unless we are entitled to relief under statutory provisions, we
could not elect to be subject to tax as a real estate investment
trust for four taxable years following the year during which we were
disqualified; and
o     all dividends will be subject to tax as ordinary income to the
extent of our current and accumulated earnings and profits.
In addition, if we fail to qualify as a real estate investment trust, we
will no longer be required to pay dividends. As a result of all these factors,
our failure to qualify as a real estate investment trust could impair our
ability to expand our business and raise capital, and would adversely affect the
value of our common stock.
In order to maintain our real estate investment trust status, we may be forced
to borrow funds on a short-term basis during unfavorable market conditions.
In order to maintain our real estate investment trust status, we may need
to borrow funds on a short-term basis to meet the real estate investment trust
distribution requirements, even if the then prevailing market conditions are not
favorable for these borrowings. To qualify as a real estate investment trust, we
generally must distribute to our stockholders at least 95% of our net taxable
income each year, excluding capital gains. In addition, we will be subject to a
4% nondeductible excise tax on the amount, if any, by which dividends paid by us
in any calendar year are less than the sum of 85% of our ordinary income, 95% of
our capital gain net income and 100% of our undistributed income from prior
years. We may need short-term debt to fund required distributions as a result of
differences in timing between the actual receipt of income and the recognition
of income for federal income tax purposes, or the effect of non-deductible
capital expenditures, the creation of reserves or required debt or amortization
Limits on changes in control may discourage takeover attempts beneficial to
stockholders.
Provisions in our certificate of incorporation and bylaws, our shareholder
rights agreement and the limited partnership agreement of Boston Properties
Limited Partnership, as well as provisions of the Internal Revenue Code and
Delaware corporate law, may:
o     delay or prevent a change of control over us or a tender offer, even
if such action might be beneficial to our stockholders; and
o     limit our stockholders' opportunity to receive a potential premium
for their shares of common stock over then-prevailing market prices.
Stock Ownership Limit
Primarily to facilitate maintenance of our qualification as a real estate
investment trust, our corporate charter generally prohibits ownership, directly,
indirectly or beneficially, by any single stockholder of more than 6.6% of the
number of outstanding shares of any class or series of our equity stock. We
refer to this limitation as the "ownership limit." Our 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 our
status as a real estate investment trust for federal income tax purposes. In
addition, under our corporate charter each of Messrs. Zuckerman and Linde, along
with their family and affiliates, as well as, in general, pension plans and
mutual funds, may actually and beneficially own up to 15% of the number of
outstanding shares of any class or series of our equity common stock. Shares
owned in violation of the ownership limit will be subject to the loss of rights
to distributions and voting and other penalties. The ownership limit may have
the effect of inhibiting or impeding a change in control.
Boston Properties Limited Partnership Agreement
We have agreed in the limited partnership agreement of Boston Properties
Limited Partnership not to engage in business combinations unless limited
partners of Boston Properties Limited Partnership other than Boston Properties,
Inc. receive, or have the opportunity to receive, the same consideration for
their partnership interests as holders of our common stock in the transaction.
If these limited partners do not receive such consideration, we cannot engage in
the transaction unless 75% of these limited partners vote to approve the
transaction. In addition, we have agreed in the limited partnership agreement of
Boston Properties Limited Partnership that we will not consummate business
combinations in which we received the approval of our stockholders unless these
limited partners are also allowed to vote and the transaction would have been
approved had these limited partners been able to vote as stockholders on the
transaction. Therefore, if our stockholders approve a business combination that
requires a vote of stockholders, the partnership agreement requires the
following before we can consummate the transaction:
o     holders of interests in Boston Properties Limited Partnership
(including Boston Properties, Inc.) must vote on the matter;
o     Boston Properties, Inc. must vote its partnership interests in the
same proportion as our stockholders voted on the transaction; and
o     the result of the vote of holders of interests in Boston Properties
Limited Partnership must be such that had such vote been a vote of
stockholders, the business combination would have been approved.
As a result of these provisions, a potential acquirer may be deterred from
making an acquisition proposal and we may be prohibited by contract from
engaging in a proposed business combination even though our stockholders approve
of the combination.
Shareholder Rights Plan
We have adopted a shareholder rights plan. Under the terms of this plan,
we can in effect prevent a person or group from acquiring more than 15% of the
outstanding shares of our common stock, because, unless we approve of the
acquisition, after the person acquires more than 15% of our outstanding common
stock, all other stockholders will have the right to purchase
securities from us at a price that is less than their then fair market value,
which would substantially reduce the value and influence of the stock owned by
the acquiring person. Our board of directors can prevent the plan from operating
by approving of the transaction, which gives us significant power to approve or
disapprove of the efforts of a person or group to acquire a large interest in
We may change our policies without obtaining the approval of our stockholders.
Our operating and financial policies, including our policies with respect
to acquisitions, growth, operations, indebtedness, capitalization and dividends,
are determined by our board of directors. Accordingly, as a stockholder, you
will have little direct control over these policies.
Our success depends on key personnel whose continued service is not guaranteed.
We depend on the efforts of key personnel, particularly Mortimer B.
Zuckerman, Chairman of our board of directors, and Edward H. Linde, our
President and Chief Executive Officer. Among the reasons that Messrs. Zuckerman
and Linde are important to our success 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.
Our other executive officers who serve as managers of our offices have
strong regional reputations. Their 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. Zuckerman has substantial outside business interests, including
serving as trustee for New York University, a trustee of Memorial
Sloan-Kettering Cancer Institute, a trustee of the Institute for Advanced
Studies at Princeton and a member of the Council on Foreign Relations and the
International Institute for Strategic Studies. He is also Chairman and
Editor-in-Chief of U.S. News & World Report, Chairman and Co-Publisher of the
New York Daily News and Chairman of the Board of Applied Graphics Technologies
and a member of the Board of Directors of Chase Manhattan Corporation National
Advisory Board, Loews Cineplex and WNET/Channel. Such outside business interests
could interfere with his ability to devote time to our 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 Boston
Properties and its predecessors. We have no assurance that he will continue to
devote any specific portion of his time to us, although at present, he has no
commitments which would prevent him from maintaining his current level of
involvement with our business.
Conflicts of interest exist with holders of interests in Boston Properties
Limited Partnership.
Sales of properties and repayment of related indebtedness will have
different effects on holders of interests in Boston Properties Limited
Partnership than on our stockholders.
Some holders of interests in Boston Properties Limited Partnership,
including Messrs. Zuckerman and Linde, would incur adverse tax consequences upon
the sale of certain of our properties and on the repayment of related debt which
differ from the tax consequences to us and our stockholders. Consequently, such
holders of interests in Boston Properties Limited Partnership may have different
objectives regarding the appropriate pricing and timing of any such sale or
repayment of debt. While we have exclusive authority under the limited
partnership agreement of Boston Properties Limited Partnership to determine when
to refinance or repay debt or whether, when, and on what terms to sell a
property, subject, in the case of certain properties, to the contractual
commitments described below, any such decision would require the approval of our
board of directors. As directors and executive officers, 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 some properties.
Under the terms of the limited partnership agreement of Boston Properties
Limited Partnership, we have agreed not to sell or otherwise transfer some 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
interests in Boston Properties Limited Partnership. In addition, we have entered
into similar agreements with respect to other properties that we have acquired
in exchange for interests in Boston Properties Limited Partnership. There are a
total of 35 properties subject to these restrictions, and those 35 properties
are estimated to have accounted for approximately 55% of our total revenue for
the year ended December 31, 2000.
Boston Properties Limited Partnership has also entered into agreements
providing Messrs. Zuckerman and Linde and others with the right to guarantee
specific amounts of indebtedness and, in the event that the specific
indebtedness they guarantee is repaid or reduced, additional and/or substitute
indebtedness. These agreements may hinder actions that we may otherwise desire
to take to repay or refinance guaranteed indebtedness because we would be
required to make payments to the beneficiaries of such agreements if we violate
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, 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.
Changes in market conditions could adversely affect the market price of our
common stock.
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 common stock are
o     the extent of investor interest in us;
o     the general reputation of real estate investment trusts and the
attractiveness of our equity securities in comparison to other
equity securities, including securities issued by other real
estate-based companies;
o     our financial performance; and
o     general stock and bond market conditions.
The market value of our common stock is based primarily upon the market's
perception of our growth potential and our current and potential future earnings
and cash dividends. Consequently, our common stock may trade at prices that are
higher or lower than our net asset value per share of common stock. If our
future earnings or cash dividends are less than expected, it is likely that the
market price of our common stock will diminish.
Market interest rates may have an effect on the value of our common stock.
One of the factors that investors may consider important in deciding
whether to buy or sell shares of a real estate investment trust is the dividend
with respect to such real estate investment trust'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 shares of our common stock may expect a
higher distribution rate on our common stock. Higher market interest rates would
not, however, result in more funds for us to distribute and, to the contrary,
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 common stock to go down.
The number of shares available for future sale could adversely affect the market
price of our stock.
As part of our initial public offering and since then we have completed
many private placement transactions where shares of capital stock of Boston
Properties, Inc. or interests in Boston Properties Limited Partnership were
issued to owners of properties we acquired or to institutional investors. This
common stock, or common stock issuable on conversion of our preferred stock or
in exchange for such interests in Boston Properties Limited Partnership, may be
sold in the public market over time pursuant to registration rights we granted
to these investors. Additional common stock reserved under our employee benefit
and other incentive plans, including stock options, may also be sold in the
public at some time in the future. Future sales of our common stock in the
public securities markets could adversely affect the price of our common stock.
We cannot predict the effect the perception in the market that such sales may
occur will have on the market price of our common stock.
We did not obtain new owner's title insurance policies in connection with
properties acquired during our initial public offering.
We acquired many of our properties from our predecessors at the completion
of our initial public offering in June 1997. Before we acquired these properties
each of them was insured by a title insurance policy. We did not, however,
obtain new owner's title insurance policies in connection with the acquisition
of such properties. Nevertheless, because in many instances we acquired these
properties indirectly by acquiring ownership of the entity which owned the
property and those owners remain in existence as our subsidiaries, some of these
title insurance policies may continue to benefit us. Many of these title
insurance policies may be for amounts less than the current values of the
applicable properties. If there was a title defect related to any of these
properties, or to any of the properties acquired at the time of our initial
public offering, that is no longer covered by a title insurance policy, we could
lose both our capital invested in and our anticipated profits from such
We have obtained title insurance policies for all properties that we have
acquired after our initial public offering.
We face possible adverse changes in tax and environmental laws.
Generally, we pass through to our tenants costs resulting from increases
in real estate taxes. However, we generally do not pass through to our tenants
increases in income, service or transfer taxes. 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 payment of dividends.
Item 2. Properties
At December 31, 2000, our portfolio consisted of 145 properties totaling
37.9 million net rentable square feet, including 15 properties under
construction. Our properties consisted of 134 office properties, including 103
technical uses; eight industrial properties; and three hotels. In addition, we
own or control an additional 49 parcels of land for future development. The
following table sets forth information relating to the properties we owned at
Number of        Net Rentable
Properties                                           Location                                        Buildings        Square Feet
- ----------                                           --------                                        ----------       -----------
Class A Office
The Prudential Center                         Boston, MA                                          3               2,140,832
280 Park Avenue                               New York, NY                                        1               1,160,622
599 Lexington Avenue                          New York, NY                                        1               1,000,497
Embarcadero Center Four                       San Francisco, CA                                   1                 935,519
Riverfront Plaza                              Richmond, VA                                        1                 894,015
Embarcadero Center One                        San Francisco, CA                                   1                 821,009
Embarcadero Center Two                        San Francisco, CA                                   1                 779,172
Embarcadero Center Three                      San Francisco, CA                                   1                 770,969
875 Third Avenue                              New York, NY                                        1                 690,126
Democracy Center                              Bethesda, MD                                        3                 680,475
100 East Pratt Street                         Baltimore, MD                                       1                 635,323
Two Independence Square                       Washington, D.C.                                    1                 579,665
Metropolitan Square (51% ownership)           Washington, D.C.                                    1                 578,340
Candler Building                              Baltimore, MD                                       1                 537,363
Reservoir Place                               Waltham, MA                                         1                 529,991
The Gateway                                   South San Francisco, CA                             2                 506,395
West Tower                                    San Francisco, CA                                   1                 475,120
One Tower Center                              East Brunswick, NJ                                  1                 417,903
One Freedom Square (25% ownership)            Reston, VA                                          1                 408,773
Market Square North (50% ownership)           Washington, D.C.                                    1                 401,255
Capital Gallery                               Washington, D.C.                                    1                 396,776
140 Kendrick Street (25% ownership)           Needham, MA                                         3                 381,000
One Independence Square                       Washington, D.C.                                    1                 337,794
265 Franklin Street (35% ownership)           Boston, MA                                          1                 325,699
One Reston Overlook                           Reston, VA                                          1                 312,685
2300 N Street                                 Washington, D.C.                                    1                 276,930
NIMA Building                                 Reston, VA                                          1                 263,870
Reston Corporate Center                       Reston, VA                                          2                 261,046
Lockheed Martin Building                      Reston, VA                                          1                 255,244
200 West Street                               Waltham, MA                                         1                 248,341
500 E Street, N. W.                           Washington, D.C.                                    1                 242,769
510 Carnegie Center                           Princeton, NJ                                       1                 234,160
One Cambridge Center                          Cambridge, MA                                       1                 215,385
Sumner Square                                 Washington, D.C.                                    1                 209,507
University Place                              Cambridge, MA                                       1                 195,282
Eight Cambridge Center                        Cambridge, MA                                       1                 177,226
Orbital Sciences, Buildings One and Three     Dulles, VA                                          2                 174,832
Newport Office Park                           Quincy, MA                                          1                 168,829
1301 New York Avenue                          Washington, D.C.                                    1                 168,371
Lexington Office Park                         Lexington, MA                                       2                 167,293
191 Spring Street                             Lexington, MA                                       1                 162,700
10 & 20 Burlington Mall Road                  Burlington, MA                                      2                 156,416
Ten Cambridge Center                          Cambridge, MA                                       1                 152,664
Federal Reserve                               San Francisco, CA                                   1                 149,592
Two Reston Overlook                           Reston, VA                                          1                 131,594
Waltham Office Center                         Waltham, MA                                         3                 131,479
91 Hartwell Avenue                            Lexington, MA                                       1                 122,135
Montvale Center                               Gaithersburg, MD                                    1                 120,815
Three Cambridge Center                        Cambridge, MA                                       1                 107,484
The Arboretum                                 Reston, VA                                          1                  95,584
Bedford Business Park                         Bedford, MA                                         1                  90,000
Eleven Cambridge Center                       Cambridge, MA                                       1                  79,616
33 Hayden Avenue                              Lexington, MA                                       1                  79,564
Decoverly Two                                 Rockville, MD                                       1                  77,747
Decoverly Three                               Rockville, MD                                       1                  77,040
170 Tracer Lane                               Waltham, MA                                         1                  73,203
105 Carnegie Center                           Princeton, NJ                                       1                  69,648
32 Hartwell Avenue                            Lexington, MA                                       1                  69,154
195 West Street                               Waltham, MA                                         1                  63,500
100 Hayden Avenue                             Lexington, MA                                       1                  55,924
181 Spring Street                             Lexington, MA                                       1                  53,595
204 Second Avenue                             Waltham, MA                                         1                  40,974
201 Carnegie Center                           Princeton, NJ                                       -                   6,500
----------       ------------
Subtotal for Class A Office Properties:                                                              89             23,802,521
Bedford Business Park                         Bedford, MA                                         2                 383,704
Fullerton Square                              Springfield, VA                                     2                 178,294
Hilltop Office Center                         South San Francisco, CA                             9                 144,366
7601 Boston Boulevard                         Springfield, VA                                     1                 103,750
8000 Grainger Court                           Springfield, VA                                     1                  90,465
7700 Boston Boulevard                         Springfield, VA                                     1                  82,224
Fourteen Cambridge Center                     Cambridge, MA                                       1                  67,362
164 Lexington Road                            Billerica, MA                                       1                  64,140
Sugarland Business Park, Building Two         Herndon, VA                                         1                  59,215
Sugarland Business Park, Building One         Herndon, VA                                         1                  52,797
8000 Corporate Court                          Springfield, VA                                     1                  52,539
Subtotal for Research and Development Properties:                                                    30              1,831,901
2391 West Winton                              Hayward, CA                                         1                 220,213
40-46 Harvard Street                          Westwood, MA                                        1                 169,273
38 Cabot Boulevard                            Bucks County, PA                                    1                 161,000
6201 Columbia Park Road                       Landover, MD                                        1                 100,337
2000 South Club Drive                         Landover, MD                                        1                  83,608
25-33 Dartmouth Road                          Westwood, MA                                        1                  78,045
560 Forbes Blvd                               South San Francisco, CA                             1                  40,000
430 Rozzi Place                               South San Francisco, CA                             1                  20,000
Subtotal for Industrial Properties:                                                                  8                 872,476
Subtotal for In-Service Class A Office, Research and Development and Industrial Properties:         127             26,506,898
Properties Under Construction
5 Times Square                                New York, NY                                        1               1,099,154
111 Huntington Avenue                         Boston, MA                                          1                 890,000
Two Freedom Square                            Reston, VA                                          1                 417,113
One and Two Discovery Square                  Reston, VA                                          2                 362,868
Waltham Weston Corporate Center               Waltham, MA                                         1                 295,000
Quorum Office Park                            Chelmsford, MA                                      2                 259,918
611 Gateway Boulevard                         South San Francisco, CA                             1                 249,732
New Dominion Technology Park - Building One   Herndon, VA                                         1                 235,201
2600 Tower Oaks Boulevard                     Rockville, MD                                       1                 178,216
Orbital Sciences Phase II - Building 2        Dulles, VA                                          1                 160,502
Broad Run Business Park - Building E          Dulles, VA                                          1                 124,650
Andover Office Park - Building 1              Andover, MA                                         1                 120,000
Subtotal for Properties Under Construction:                                                          15              4,456,919
Hotel Properties
Long Wharf Marriott                           Boston, MA                                          1                 420,000
Cambridge Center Marriott                     Cambridge, MA                                       1                 330,400
Residence Inn by Marriott                     Cambridge, MA                                       1                 187,474
Subtotal for Hotel Properties:                                                                       3                 937,874
Structured Parking                                                                                6,017,423
Total for all properties:                                                                           145             37,919,114
==========       ============
Neither we, nor our affiliates, are presently subject to any material
litigation or, to our knowledge, have any litigation threatened against us or
our affiliates other than routine actions and administrative proceedings
substantially all of which are expected to be covered by liability or other
insurance and in the aggregate are not expected to have a material adverse
effect on our business or financial condition.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of our stockholders during the fourth
quarter of the year ended December 31, 2000.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Our common stock is listed on the New York Stock Exchange under the symbol
"BXP". The high and low closing sales prices for the periods indicated in the
table below were:
Quarter Ended      High        Low        Distributions
-------------      ----        ---        -------------
December 31, 2000    $44 3/4     $38 7/8       $.530 (a)
September 30, 2000    43 1/4      37 9/16       .530
June 30, 2000         38 31/32    31 3/4        .530
March 31, 2000        32 3/8      29 13/16      .450
December 31, 1999     31 1/8      27 1/2        .450
June 30, 1999         37 1/8      31 1/4        .425
March 31, 1999        34 11/16    30 5/16       .425
(a) Paid on January 29, 2001 to stockholders of record on December 29, 2000.
At March 14, 2001, we had approximately 468 shareholders of record. This
does not include beneficial owners for whom Cede & Co. or others act as nominee.
We have adopted a policy of paying regular quarterly distributions on our
common stock and cash distributions have been paid on our common stock since our
initial public offering. In order to maintain our qualification as a REIT, we
must make annual distributions to our shareholders of at least 95% of our
taxable income (not including net capital gains). We intend that any dividend
paid in respect of our common stock during the last quarter of each year will,
if necessary, be adjusted to satisfy the REIT requirement that at least 95% of
taxable income for such taxable year be distributed.
Item 6. Selected Financial Data
The following sets forth our selected financial and operating data for
Boston Properties, Inc., and Boston Properties Limited Partnership, together
with their subsidiaries on a historical consolidated basis and for our
predecessor business on a historical combined basis. The following data should
be read in conjunction with the financial statements and notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere in this Form 10-K.
Historical operating results for Boston Properties, Inc., and Boston
Properties Limited Partnership, together with their subsidiaries and for our
predecessor business, including net income, may not be comparable to our future
operating results.
For the year ended December 31,
(in thousands, except per share data)                                     2000                    1999                  1998
================================================================================================================================
Statement of Operations Information
Total revenue                                                          $   879,353            $   786,564           $   513,847
-----------            -----------           -----------
Property                                                                 264,701                249,268               150,490
Hotel                                                                         --                     --                    --
General and administrative                                                35,659                 29,455                22,504
Interest                                                                 217,064                205,410               124,860
Depreciation and amortization                                            133,150                120,059                75,418
Income before minority interests and unconsolidated joint
venture income                                                         228,779                182,372               140,575
Income from unconsolidated joint ventures                                  1,758                    468                    --
Minority interests                                                       (76,971)               (69,531)              (41,982)
Income before gain (loss) on sale of real estate                         153,566                113,309                98,593
Gain (loss) on sale of real estate, net of minority interest                (234)                 6,467                    --
Income before extraordinary items                                        153,332                119,776                98,593
Extraordinary gain (loss), net of minority interest                         (334)                    --                (5,481)
Net income before preferred dividend                                     152,998                119,776                93,112
Preferred dividend                                                        (6,572)                (5,829)                   --
Net income available to common shareholders                          $   146,426            $   113,947           $    93,112
===========            ===========           ===========
Basic earnings per share:
Income before extraordinary items                                  $      2.05            $      1.72           $      1.62
Extraordinary gain (loss), net of minority interest                         --                     --                 (0.09)
Net income                                                         $      2.05            $      1.72           $      1.53
Weighted average number of common shares outstanding                    71,424                 66,235                60,776
Diluted earnings per share:
Weighted average number of common and common
equivalent shares outstanding                                         72,741                 66,776                61,308
Balance Sheet Information:
Real estate, gross                                                   $ 6,112,779            $ 5,609,424           $ 4,917,193
Real estate, net                                                       5,526,060              5,138,833             4,559,809
Cash                                                                     280,957                 12,035                12,166
Total assets                                                           6,226,470              5,434,772             5,235,087
Total indebtedness                                                     3,414,891              3,321,584             3,088,724
Minority interests                                                       877,715                781,962             1,079,234
Convertible Redeemable Preferred Stock                                   100,000                100,000                    --
Stockholders' and owners' equity (deficit)                             1,647,727              1,057,564               948,481
Funds from operations                                                    247,371                196,101               153,045
Dividends per share                                                         2.04                   1.75                  1.64
Cash flow provided by operating activities                               339,664                303,469               215,287
Cash flow used in investing activities                                  (573,363)              (654,996)           (2,179,215)
Cash flow provided by (used in) financing activities                     502,621                351,396             1,958,534
Total square feet at end of year                                          37,926                 35,621                31,077
Occupancy rate at end of year                                              98.9%                  98.4%                 97.1%
The Company              The Predecessor Group
------------------  -------------------------------------
Period from         Period from
June 23, 1997       January 1, 1997      Year ended
to                    to           December 31,
(in thousands, except per share data)                                  December 31, 1997      June 22, 1997         1996
Total revenue                                                                 $   145,643           $ 129,818      $  269,933
-----------           ---------      ----------
Property                                                                         40,093              27,032          58,195
Hotel                                                                                --              22,452          46,734
General and administrative                                                        6,689               5,116          10,754
Interest                                                                         38,264              53,324         109,394
Depreciation and amortization                                                    21,719              17,054          36,199
Income before minority interests and unconsilidated joint
venture income                                                                 38,878               4,840           8,657
Income from unconsolidated joint ventures                                            --                  --              --
Minority interests                                                              (11,652)               (235)           (384)
Income before gain (loss) on sale of real estate                                 27,226               4,605           8,273
Gain (loss) on sale of real estate, net of minority interest                         --                  --              --
Income before extraordinary items                                                27,226               4,605           8,273
Extraordinary gain (loss), net of minority interest                               7,925                  --            (994)
Net income before preferred dividend                                             35,151               4,605           7,279
Preferred dividend                                                                   --                  --              --
Net income available to common shareholders                                 $    35,151           $   4,605      $    7,279
===========           =========      ==========
Income before extraordinary items                                         $      0.70                  --              --
Extraordinary gain (loss), net of minority interest                              0.21                  --              --
Net income                                                                $      0.91                  --              --
Weighted average number of common shares outstanding                           38,694                  --              --
equivalent shares outstanding                                                39,108                  --              --
Real estate, gross                                                          $ 1,796,500                  --      $1,035,571
Real estate, net                                                              1,502,282                  --         771,660
Cash                                                                             17,560                  --           8,998
Total assets                                                                  1,672,521                  --         896,511
Total indebtedness                                                            1,332,253                  --       1,442,476
Minority interests                                                              100,636                  --              --
Convertible Redeemable Preferred Stock                                               --                  --              --
Stockholders' and owners' equity (deficit)                                      175,048                  --        (576,632)
Funds from operations                                                            42,258                  --              --
Dividends per share                                                                1.62  a               --              --
Cash flow provided by operating activities                                       46,146              25,090          55,907
Cash flow used in investing activities                                         (519,743)            (32,844)        (34,315)
Cash flow provided by (used in) financing activities                            491,157               9,266         (38,461)
Total square feet at end of year                                                 16,101                  --          10,424
Occupancy rate at end of year                                                     98.4%                  --           94.2%
a - annualized
(1) The White Paper on Funds from Operations approved by the Board of Governors
of the National Association of Real Estate Investment Trusts in March 1995
defines funds from operations as net income (loss) (computed in accordance with
generally accepted accounting principles), excluding gains (or losses) from debt
restructuring and sales of properties, plus real estate related depreciation and
amortization and after adjustments for unconsolidated partnerships and joint
ventures. During 1999, the National Association of Real Estate Investment Trusts
clarified the definition of funds from operations to include non-recurring
events, except for those that are defined as "extraordinary items" under
accounting principles generally accepted in the United States and gains and
losses from sales of depreciable operating properties. This clarification is
effective for periods ending subsequent to January 1, 2000. We adopted this
definition for the quarters ending on or after March 31, 2000. We believe that
funds from operations is helpful to investors as a measure of the performance of
an equity REIT because, along with cash flow from operating activities,
financing activities and investing activities, it provides investors with an
indication of our ability to incur and service debt, to make capital
expenditures and to fund other cash needs. We compute funds from operations in
accordance with standards established by the National Association of Real Estate
Investment Trusts which may not be comparable to funds from operations reported
by other REITs that do not define the term in accordance with the current
National Association of Real Estate Investment Trusts definition or that
interpret the current National Association of Real Estate Investment Trusts
definition differently. Funds from operations does not represent cash generated
from operating activities determined in accordance with accounting principles
generally accepted in the United States and should not be considered as an
alternative to net income (determined in accordance with accounting principles
generally accepted in the United States) as a measure of our liquidity, nor is
it indicative of funds available to fund our cash needs, including our ability
to make cash distributions.
Our funds from operations for the respective periods is calculated as follows:
Year ended December 31,            Period from
-----------------------------------    June 23, 1997 to
(in thousands)                                                  2000         1999         1998       December 31, 1997
======================================================================================================================
Income before minority interests and unconsolidated
joint venture income                                        $ 228,779    $ 182,372    $ 140,575        $  38,878
Real estate depreciation and amortization                  134,386      119,583       74,649           21,417
Income from unconsolidated joint ventures                    1,758          468           --
Less:
Minority property partnership's share
of funds from operations                                 (1,061)      (3,681)      (4,185)            (287)
Preferred dividends and distributions                      (32,994)     (32,111)      (5,830)              --
Non-recurring item - significant lease termination fee          --           --           --               --
---------    ---------    ---------        ---------
Funds from operations                                         $ 330,868    $ 266,631    $ 205,209        $  60,008
=========    =========    =========        =========
Funds from operations available to common shareholders        $ 247,371    $ 196,101    $ 153,045        $  42,258
Weighted average shares outstanding - basic                      71,424       66,235       60,776           38,694
The Predecessor Group
Period from        Year ended
January 1, 1997     December 31,
(in thousands)                                                to June 22, 1997        1996
joint venture income                                           $   4,840         $   8,657
Real estate depreciation and amortization                      16,808            35,643
Income from unconsolidated joint ventures
of funds from operations                                      (198)             (479)
Preferred dividends and distributions                              --                --
Non-recurring item - significant lease termination fee             --            (7,503)
---------         ---------
Funds from operations                                            $  21,450         $  36,318
=========         =========
Funds from operations available to common shareholders                  --                --
Weighted average shares outstanding - basic                             --                --
Reconciliation to Diluted Funds from Operations:
For the year ended              For the year ended
December 31, 2000               December 31, 1999
----------------------------    ----------------------------
Income       Shares/Units       Income       Shares/Units
(in thousands)                                      (Numerator)    (Denominator)    (Numerator)    (Denominator)
- ----------------------------------------------------------------------------------------------------------------
Basic Funds from Operations                          $ 330,868         95,532        $ 266,631         90,058
Effect of Dilutive Securities
Convertible Preferred Units                         26,422         10,393           26,428         10,360
Convertible Preferred Stock                          6,572          2,625            5,834          2,337
Stock Options                                           --          1,280               --            541
---------        -------        ---------        -------
Diluted Funds from Operations                        $ 363,862        109,830        $ 298,893        103,296
=========        =======        =========        =======
Company's share of Diluted Funds from Operations     $ 283,994         85,723        $ 229,961         79,473
For the period from
For the year ended               June 23, 1997 to
December 31, 1998              December 31, 1997
---------------------------    ----------------------------
Income       Shares/Units       Income        Shares/Units
Basic Funds from Operations                          $ 205,209         81,487        $ 60,008          54,950
Convertible Preferred Units                          2,819          1,135              --              --
Convertible Preferred Stock                             --             --              --              --
Stock Options                                           --            532              --             414
---------         ------        --------          ------
Diluted Funds from Operations                        $ 208,028         83,154        $ 60,008          55,364
=========         ======        ========          ======
Company's share of Diluted Funds from Operations     $ 156,215         62,443        $ 42,258          39,108
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the selected
financial data and the historical consolidated and combined financial statements
and related notes thereto.
Statements made under the caption "Risk Factors," elsewhere in this Form
10-K, in our press releases, and in oral statements we make by or with the
approval of our authorized executives are "forward-looking statements" within
the meaning of federal securities laws. When we use the words "anticipate,"
"assume," "believe," "estimate," "expect," "intend" and other similar
expressions, they generally identify forward-looking statements. Forward-looking
statements include, for example, statements relating to acquisitions and related
financial information, development activities, business strategy and prospects,
future capital expenditures, sources and availability of capital, environmental
and other regulations, and competition.
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. Some of the factors that could
cause our actual results, performance or achievements to differ materially from
those expressed or implied by forward-looking statements include, but are not
limited to, the following:
o     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;
o     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;
o     financing may not be available, or may not be available on favorable
terms;
o     we need to make distributions to our stockholders for us to qualify
as a real estate investment trust, and if we need to borrow the
funds to make such distributions such borrowings may not be
available on favorable terms;
o     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;
o     we are subject to potential environmental liabilities;
o     we are subject to complex regulations relating to our status as a
trust and would be adversely affected if we failed to qualify as a
real estate investment trust; and
o     market interest rates could adversely affect the market prices for
our common stock, as well as our performance and cash flow.
We caution you that, while forward-looking statements reflect our good
faith beliefs when we make them, they are not guarantees of future performance
and are impacted by actual events when they occur after we make such statements.
We expressly disclaim any obligation to publicly update or revise any
forward-looking statement, whether as a result of new information, future events
or otherwise.
We are a fully integrated, self-administered and self-managed real estate
investment trust or "REIT" and are one of the largest owners and developers of
office and industrial properties in the United States. Our properties are
concentrated in four core markets - Boston, Washington, D.C., midtown Manhattan
and San Francisco. We conduct substantially all of our business through Boston
Properties Limited Partnership. At December 31, 2000, we owned 145 properties
totaling 37.9 million net rentable square feet, including 15 properties under
construction. The properties consisted of 134 office properties, including 103
technical uses; eight industrial properties; and three hotels.
In 2000, we continued to identify and complete attractive acquisitions and
development transactions. During 2000, we added 2.1 million net rentable square
feet to our portfolio by completing acquisitions totaling approximately $167.7
million and completing developments totaling approximately $108.5 million. In
addition, as of December 31, 2000, we had construction in progress representing
a total anticipated investment of approximately $1.3 billion and a total of
approximately 4.5 million net rentable square feet.
We are focused on increasing the cash flow from our existing portfolio of
properties by maintaining high occupancy levels and increasing effective rents.
On the 3.8 million net-rentable square feet of second generation space renewed
or re-leased during the year, new net rents were on average approximately 47.1%
higher than the expiring net rents. At December 31 2000, our portfolio of office
and industrial properties was 98.9% occupied.
We also continue to strengthen our balance sheet. In October 2000, we
raised $633.8 million, net of expenses, in equity capital by completing a public
offering of our common stock. In 2000 we also issued shares of our common stock
and common and preferred units in Boston Properties Limited Partnership that
were valued when issued at $62.9 million to acquire properties and development
Results of Operations
The following discussion is based on our Consolidated Financial Statements
for the years ended December 31, 2000, 1999 and 1998.
From January 1, 1998 through December 31, 2000, we increased our total
from 92 properties to 145 properties and from 16.1 million net rentable square
feet to 37.9 million net rentable square feet. As a result of this rapid growth
of our total portfolio, the financial data presented below shows significant
changes in revenues and expenses from period to period. We do not believe our
period to period financial data are comparable. Therefore, the comparison of
operating results for the years ended December 30, 2000, 1999 and 1998 show
changes resulting from properties that we owned for each period compared (for
which each comparison we refer to as our "Same Property Portfolio") and the
changes attributable to our total portfolio.
Comparison of the year ended December 31, 2000 to the year ended December 31,
The table below shows selected operating information for our total
portfolio and the 106 buildings acquired or placed in service on or prior to
January 1, 1999 and that remained in the total portfolio through December 31,
2000 (which comprise the Same Property Portfolio for the years ended December
31, 2000 and 1999):
Same Property Portfolio
Increase/
(dollars in thousands)                               2000          1999     (Decrease)   % Change
- -------------------------------------------------------------------------------------------------
Rental Revenue                                 $ 766,141    $ 717,654    $ 48,487      6.76%
Development and management services                   --           --          --        --
Interest and other                                    --           --          --        --
---------    ---------    --------      ----
Total revenue                                766,141      717,654      48,487      6.76%
Operating                                        237,107      230,178       6,929      3.01%
General and administrative                            --           --          --        --
Interest                                              --           --          --        --
Depreciation and amortization                    117,863      112,463       5,400      4.80%
Total expenses                               354,970      342,641      12,329      3.60%
Income before minority interests
and unconsolidated joint venture income    $ 411,171    $ 375,013    $ 36,158      9.64%
=========    =========    ========      ====
Total Portfolio
(dollars in thousands)                                2000         1999      (Decrease)  % Change
Rental Revenue                                 $ 858,942    $ 765,417     $ 93,525    12.22%
Development and management services               11,837       14,708       (2,871)  -19.52%
Interest and other                                 8,574        6,439        2,135    33.16%
---------    ---------     --------    -----
Total revenue                                879,353      786,564       92,789    11.80%
Operating                                        264,701      249,268       15,433     6.19%
General and administrative                        35,659       29,455        6,204    21.06%
Interest                                         217,064      205,410       11,654     5.67%
Depreciation and amortization                    133,150      120,059       13,091    10.90%
Total expenses                               650,574      604,192       46,382     7.68%
and unconsolidated joint venture income    $ 228,779    $ 182,372     $ 46,407    25.45%
=========    =========     ========   ======
The increase in rental revenues in our Same Property Portfolio for these
years is primarily a result of an overall increase in rental rates on new leases
and rollovers, in addition to an increase in occupancy from year to year and an
increase in termination fees from $2.3 million to $3.3 million. The occupancy
for our Same Property Portfolio increased from 97.4% as of December 31, 1999 to
98.8% as of December 31, 2000. The increase in rental revenues in our total
portfolio is primarily the result of properties we acquired or placed-in-service
after January 1, 1998.
The decrease in development and management services income in the total
portfolio is mainly due to contracts expiring during 1999 and 2000.
The increase in interest and other income in the total portfolio is a
result of interest earned on proceeds received from the public offering of our
common stock in October 2000.
Property operating expenses (real estate taxes, utilities, repairs and
maintenance, cleaning and other property-related expenses) in our Same Property
Portfolio increased mainly due to increases in real estate taxes of $4.0
million, or 4.2%. Small increases in other property-related expenses account for
the remaining increase. Property operating expenses in our total portfolio
increased due to properties we acquired or placed-in-service after January 1,
1999 as well as increases in other property-related expenses.
General and administrative expenses increased due to increases in the
overall size of our total portfolio since January 1, 1999. In addition, we
incurred a $3.0 million charge related to the departure of two senior employees,
which included a non-cash charge of approximately $2.0 million.
Interest expense for our total portfolio increased due to net increase in
mortgage indebtedness and our unsecured revolving line of credit with Fleet
National Bank, as agent, from $3.3 billion to $3.4 billion.
Depreciation and amortization expense for our Same Property Portfolio
increased as a result of capital and tenant improvements made during 2000.
Depreciation and amortization expense for our total portfolio increased as a
result of properties we acquired or placed-in-service after January 1, 2000 and
that remained in our total portfolio through December 31, 2000 and related
capital and tenant improvements.
portfolio and the 76 buildings acquired or placed in service on or prior to
Depreciation and amortization                     51,494       50,083       1,411      2.82%
Total expenses                               155,542      150,809       4,733      3.14%
(dollars in thousands)                                1999         1998      (Decrease)   % Change
- --------------------------------------------------------------------------------------------------
Rental Revenue                                 $ 765,417    $ 487,577    $ 277,840    56.98%
Development and management services               14,708       12,411        2,297    18.51%
Interest and other                                 6,439       13,859       (7,420)  -53.54%
---------    ---------     --------   ------
Total revenue                                786,564      513,847      272,717    53.07%
Operating                                        249,268      150,490       98,778    65.64%
Interest                                         205,410      124,860       80,550    64.51%
Depreciation and amortization                    120,059       75,418       44,641    59.19%
Total expenses                               604,192      373,272      230,920    61.86%
and rollovers as well as an increase in termination fees from $0.7 million to
$2.3 million, offset by a small decrease in occupancy from year to year. The
occupancy for our Same Property Portfolio decreased from 97.8% as of December
31, 1998 to 97.4% as of December 31, 1999. The increase in rental revenues in
our total portfolio is primarily the result of properties we acquired or
placed-in-service after January 1, 1998.
The increase in development and management services income in our total
portfolio is a result of fees earned on new projects begun during the year, and
increased fees on projects in progress.
The decrease in interest and other income in our total portfolio is a
result of less cash and cash equivalents on deposit during 1999. During 1998,
our average cash balances were higher due to $765.0 million of net proceeds
received from a public offering of our common stock in January 1998.
Portfolio increased mainly due to real estate taxes. Real estate taxes increased
approximately $1.0 million due to higher property tax assessments. Small
increases in other property-related expenses account for the remaining increase.
Property operating expenses in our total portfolio increased mainly due to
properties we acquired or placed-in service after January 1, 1998.
General and administrative expenses increased due to the significant
increase in the size of our total portfolio since January 1, 1998. We hired
additional employees as a result of acquisitions.
Interest expense for our total portfolio increased due to an increase in
mortgage indebtedness and an increase in borrowing under our unsecured revolving
line of credit with Fleet National Bank, as agent.
Depreciation and amortization expense for our total portfolio increased
primarily as a result of properties we acquired or placed- in-service after
January 1, 1998 and related capital and tenant improvements.
Cash and cash equivalents were $281.0 million and $12.0 million at
December 31, 2000 and December 31, 1999, respectively. The increase was a result
of the following increases and decreases in cash flows:
Year Ended December 31,
(in millions)                                  2000           1999         $ Change
----           ----         --------
Cash Provided by Operating Activities         $339.7         $303.5         $ 36.2
Cash Used for Investing Activities           ($573.4)       ($655.0)        $ 81.6
Cash Provided by Financing Activities         $502.6         $351.4         $151.2
The increase in cash provided by operating activities is primarily due to
the increase in net income resulting from the 1999 and 2000 property
acquisitions and developments placed-in- service and our 2000 Same Property
Net cash used for investing activities decreased from $655.0 million for
the year ended
December 31, 1999 to $573.4 million for the year ended December 31, 2000 mainly
due to fewer property acquisitions during 2000. The cash and capital used in the
2000 investing activities was primarily for the following transactions:
Acquisitions, Dispositions  and Development Transactions
o     On January 12, 2000, we acquired our joint venture partner's 75%
interest in One and Two Reston Overlook, for cash of approximately
$15.2 million and the assumption of approximately $69.0 million in
o     On March 1, 2000, we acquired three Class A office buildings
totaling approximately 408,163 square feet at Carnegie Center in
Princeton, New Jersey, under the terms of the original Carnegie
Center Portfolio acquisition entered into in June 1998. We acquired
the properties from a related party for approximately $66.5 million,
which was funded through the assumption of debt of approximately
$49.0 million at a rate of 7.39% and the issuance of 577,817 common
units of partnership interest in Boston Properties Limited
Partnership valued at approximately $17.5 million. The acquisition
was reviewed and approved by a vote of our independent directors.
o     On May 12, 2000, an unrelated third party acquired partial interests
in two properties that we previously owned in their entirety. We
retained a 51% interest in the first property, Metropolitan Square,
a 582,194-square foot office property in Washington, DC and a 25%
interest in the second property, 140 Kendrick Street, a
381,000-square foot build-to-suit development property in Needham,
Massachusetts. The interests in the properties were acquired for
cash of approximately $46.7 million and the assumption of debt of
approximately $88.2 million and resulted in a gain to us of $0.4
million.
o     On August 22, 2000, we acquired the remaining 50% interest in the
development rights at the Prudential Center in Boston, Massachusetts
for approximately $18.2 million, which was funded through the
issuance of 439,059 shares of our common stock.
o     On September 13, 2000, we acquired a 35% interest in 265 Franklin
Street, a 325,699 square foot office property in Boston,
Massachusetts through a joint venture. Our interest in this property
was acquired with cash of approximately $10.6 million and new debt
financing of approximately $23.8 million.
o     On September 29, 2000, we sold 910 and 930 Clopper Road, two
office/technical use properties totaling 240,596 square feet in
Gaithersburg, Maryland for approximately $24.1 million. This sale
resulted in a loss to us of approximately $0.8 million.
o     On October 13, 2000, we sold 1950 Stanford Court, a single story
industrial building totaling 53,250 square feet, and an adjacent
parcel of land totaling approximately 2 acres in Landover, Maryland,
for approximately $2.2 million. This sale resulted in a gain to us
of approximately $0.1 million.
o     On December 1, 2000, we acquired the leasehold interest and ground
rent credits at the site of the future Times Square Tower in midtown
Manhattan, for approximately $165.1 million in cash. This
development will consist of a 47-floor, 1.2 million square foot
office tower.
o     We acquired additional land parcels in Greater Boston, Greater
Washington, D.C. and Greater San Francisco for potential future
developments for an aggregate amount of
approximately $39.7 million, of which approximately $12.5 million
was funded with cash and approximately $27.2 million was funded
through the issuance of common and preferred units of Boston
o     We placed six Class A office buildings in service which resulted in
a total investment during 2000 of approximately $43.4 million. We
began or continued construction on additional Class A office
buildings and incurred approximately $319.6 million of construction
costs during 2000. Our properties under construction as of December
31, 2000 were as follows:
# of
Properties Under Construction                             Location         Buildings   Square feet
- -----------------------------                             --------         ---------   -----------
Class A Office Buildings
302 Carnegie Center                            Princeton, NJ             1              64,565
New Dominion Tech Park - Building 1            Herndon, VA               1             235,201
2600 Tower Oaks Boulevard                      Rockville, MD             1             178,216
Broad Run Business Park- Building E            Dulles, VA                1             124,650
Orbital Sciences Phase II - Building 2         Dulles, VA                1             160,502
Quorum Office Park                             Chelmsford, MA            2             259,918
111 Huntington Avenue - Prudential Center      Boston, MA                1             890,000
5 Times Square                                 New York, NY              1           1,099,154
One and Two Discovery Square (50% ownership)   Reston, VA                2             362,868
Waltham Weston Corporate Center                Waltham, MA               1             295,000
Andover Office Park, Building 1                Andover, MA               1             120,000
611 Gateway Boulevard                          S. San Francisco, CA      1             249,732
Two Freedom Square (50% ownership)             Reston, VA                1             417,113
--------   --------------
Total Construction Properties                                                15           4,456,919
========   ==============
Investment          Total
Properties Under Construction                           to Date        Investment
- -----------------------------                           -------        ----------
302 Carnegie Center                             $  10,085,110   $   13,435,000
New Dominion Tech Park - Building 1                41,870,052       48,770,000
2600 Tower Oaks Boulevard                          26,314,660       38,295,000
Broad Run Business Park- Building E                 6,531,465       14,696,000
Orbital Sciences Phase II - Building 2             13,641,517       27,618,000
Quorum Office Park                                 16,164,660       41,747,000
111 Huntington Avenue - Prudential Center         164,195,234      291,637,000
5 Times Square                                    281,044,727      536,115,000
One and Two Discovery Square (50% ownership)       10,609,713       42,587,000 (1)
Waltham Weston Corporate Center                    20,533,037       95,446,000
Andover Office Park, Building 1                     8,380,612       17,381,000
611 Gateway Boulevard                               8,664,576       77,523,240
Two Freedom Square (50% ownership)                  8,896,757       49,336,000 (1)
---------------  ---------------
Total Construction Properties                        $ 616,932,120   $1,294,586,240
===============  ===============
(1) Represents our share of the investment.
In addition, we incurred costs of approximately $37.0 million on
properties in the preconstruction phase of the development process.
Cash provided by financing activities increased by $151.2 million for
2000, compared to the year ended 1999. During 2000, we received proceeds from
new debt totaling approximately $976.4 million. This was offset by $525.2
million of paydowns and principal payments during 2000. The remaining increase
is mainly due to the increase in proceeds received from the public offering
described below.
Recent Equity Financing
of our common stock (including 2,110,000 shares issued pursuant to the exercise
of the underwriters' overallotment option) at a price per share of $39.0625. Our
proceeds from this public offering, net of underwriter's discount and offering
costs, were approximately $633.8 million.
Market risk is the risk of loss from adverse changes in market prices and
interest rates. Our future earnings, cash flows and fair values relevant to
financial instruments are dependent upon prevalent market interest rates. Our
primary market risk results from our long-term indebtedness, which bears
interest at fixed and variable rates. The fair value of our long-term debt
obligation is affected by changes in the market interest rates. We manage our
market risk by matching long-term leases with long-term fixed rate non-recourse
debt of similar duration. In
addition, we maintain a major unencumbered portion of our portfolio. We continue
to follow a conservative strategy of pre-leasing development projects on a
long-term basis to strong tenants in order to achieve the most favorable
construction and permanent financing terms. Approximately 85% of our outstanding
debt has fixed interest rates, which minimizes the interest rate risk until the
maturity of such outstanding debt.
We have entered into hedging arrangements with financial institutions. Our
primary objective when undertaking hedging transactions and derivative positions
is to reduce our floating rate exposure, which, in turn, reduces the risks that
the variability of cash flows imposes on variable rate debt. Our strategy
protects us against future increases in interest rates. At December 31, 2000, we
had hedge contracts totaling $450.0 million. The hedging agreements provide for
a fixed interest rate when the London Interbank Offered Rate ("LIBOR") is less
than 5.76% and when LIBOR is greater than 6.35% or 7.95% for terms ranging from
three to five years per the individual hedging agreements. In addition, we have
an interest rate swap agreement for a total of $213.0 million which provides for
a fixed interest rate of 6.0% through September 11, 2002. We will consider
entering into additional hedging agreements with respect to all or a portion of
our variable rate debt. We may borrow additional money with variable rates in
the future. Increases in interest rates could increase interest expense, which
in turn, could affect cash flow and our ability to service our debt. As a result
of the hedging agreements, decreases in interest rates could increase interest
expense as compared to the underlying variable rate debt and could result in us
making payments to unwind such agreements.
At December 31, 2000, our variable rate debt outstanding was approximately
$404.1 million. At December 31, 2000, the average interest rate on variable rate
debt was approximately 8.56%. Taking the hedging contracts into consideration,
if market interest rates on our variable rate debt were to increase by ten
percent (approximately 86 basis points), total interest would increase
approximately $1.7 million.
These amounts were determined solely by considering the impact of
hypothetical interest rates on our financial instruments. Due to the uncertainty
of specific actions we may undertake to minimize possible effects of market
interest rate increases, this analysis assume no changes in our financial
structure.
At December 31, 2000, our total consolidated debt was approximately $3.4
billion. The weighted average rate of our consolidated indebtedness was 7.37%
and the weighted average maturity was approximately 6.2 years.
Our total market capitalization was approximately $8.8 billion at December
31, 2000. Total market capitalization was calculated using the December 31, 2000
closing stock price of $43.50 per share and includes the following: (1)
86,630,089 shares of our common stock, (2) 23,862,206 of common units of Boston
Properties Limited Partnership (excluding common units held by Boston
Properties, Inc.), (3) an aggregate of 11,021,064 common units issuable upon
conversion of all Series One, Two, Three and Z preferred units, (4) 2,624,672
shares of our common stock issuable upon conversion of all 2,000,000 shares of
our Series A preferred stock,
and (5) our consolidated debt. Our total consolidated debt at December 31, 2000
represented approximately 38.7% of our total market capitalization.
The table below summarizes our mortgage notes and bonds payable and our
unsecured revolving line of credit with Fleet Boston, as agent, at December 31,
2000 and 1999:
December 31,
2000          1999
----          ----
(dollars in thousands)
DEBT SUMMARY:
Fixed rate                          $3,010,760    $2,820,650
Variable rate                          404,131       500,934
----------    ----------
Total                             $3,414,891    $3,321,584
==========    ==========
Percent of total debt:
Fixed rate                               88.17%        84.92%
Variable rate                            11.83%        15.08%
Total                                 100.00%       100.00%
Weighted average interest rate:
Fixed rate                                7.21%         7.06%
Variable rate                             8.56%         7.61%
Total                                   7.37%         7.14%
The variable rate debt shown above bears interest based on various spreads
over LIBOR or Eurodollar rates.
We utilize our $605.0 million unsecured revolving line of credit
principally to fund development of properties, other land and property
acquisitions and for working capital purposes. Our unsecured revolving line of
credit is a recourse obligation of Boston Properties Limited Partnership. Our
ability to borrow under our unsecured revolving line of credit is subject to our
compliance with a number of customary financial and other covenants on an
ongoing basis, including: (1) loan-to-value ratio against our total borrowing
base not to exceed 55%, unless our leverage ratio exceeds 60%, in which case it
is not to exceed 50%, (2) a loan-to-value ratio against the total secured
borrowing base not to exceed 55%, (3) debt service coverage ratio of 1.40 for
our borrowing base, or 1.50 if our leverage ratio equals or exceeds 60%, and
1.30 for us as a whole for full fixed charges, (4) a leverage ratio not to
exceed 60%, however five consecutive quarters (not including the two quarters
prior to expiration) can go to 65% (5) an interest rate applicable to any
amounts drawn under our unsecured revolving line of credit for Eurodollar based
loans shall be equal to a floating rate based on a spread over Eurodollar equal
to 105 to 170 basis points, (6) limitations on additional indebtedness and
stockholder distributions, and (7) a minimum net worth requirement.
At December 31, 2000, we had issued letters of credit totaling $3.3
million and had the ability to borrow an additional $601.7 million under our
unsecured revolving line of credit. As of March 14, 2001 there was zero
outstanding under our unsecured revolving line of credit.
The following table sets forth certain information regarding our mortgage notes
and bonds payable at December 31, 2000:
Properties                   Rate    Principal Amount        Maturity Date
----------                   ----    ----------------        -------------
Embarcadero Center One, Two and Federal
Reserve                                        6.70%          $312,876   December 12, 2008
Prudential Center                               6.72%           291,896   July 1,2008
280 Park Avenue                                 7.65%           270,000   December 31, 2009
599 Lexington Avenue (1)                        7.00%           225,000   July 19, 2005
5 Times Square (2)                              8.66%           184,157   January 26, 2003
Embarcadero Center Four                         6.79%           154,549   February 1, 2008
875 Third Avenue (3)                            8.00%           150,959   December 31, 2002
Embarcadero Center Three                        6.40%           146,313   January 1, 2007
Two Independence Square (4)                     8.09%           116,377   February 27, 2003
Riverfront Plaza                                6.61%           115,647   February 1, 2008
Democracy Center                                7.05%           107,717   April 1, 2009
New Dominion Technology Park, Building 1          (5)            98,142   (5)
Embarcadero Center West Tower                   6.50%            97,587   January 1, 2006
100 East Pratt Street                           6.73%            91,851   November 1, 2008
601 and 651 Gateway Boulevard                   8.40%            89,888   October 1, 2010
111 Huntington Avenue (6)                       8.69%            76,041   September 27, 2002
One Independence Square (4)                     8.12%            74,114   August 21, 2001
Reservoir Place (7)                             6.88%            73,858   November 1, 2006
One & Two Reston Overlook                       7.45%            68,190   September 1, 2004
2300 N Street                                   6.88%            66,000   August 3, 2003
202, 206, 214 Carnegie Center                   8.13%            62,917   October 1, 2001
Capital Gallery                                 8.24%            57,161   August 15, 2006
504,506,508 Carnegie Center                     7.39%            48,312   January 1, 2008
10 and 20 Burlington Mall Road (8)              8.33%            37,000   October 1, 2001
10 Cambridge Center                             8.27%            35,741   May 1, 2010
1301 New York Avenue                              (9)            32,710   August 15, 2009
Eight Cambridge Center                          7.73%            28,412   July 15, 2010
Sumner Square (10)                              8.38%            28,298   April 22, 2004
510 Carnegie Center                             7.39%            27,653   January 1, 2008
Lockheed Martin Building                        6.61%            26,289   June 1, 2008
Orbital Sciences - Buildings One and Three
(11)                                           8.35%            25,761   August 9, 2002
University Place                                6.94%            25,253   August 1, 2021
Reston Corporate Center                         6.56%            24,809   May 1, 2008
191 Spring Street                               8.50%            22,797   September 1, 2006
Bedford Business Park                           8.50%            21,717   December 10, 2008
NIMA Building                                   6.51%            21,495   June 1, 2008
2600 Tower Oaks Boulevard (12)                  8.59%            18,083   October 10, 2002
Quorum Office Park (13)                         8.34%            11,111   August 30, 2003
101 Carnegie Center                             7.66%             8,348   April 1, 2006
Orbital Sciences - Phase 2 (14)                 8.35%             8,032   June 13, 2003
Montvale Center                                 8.59%             7,564   December 1, 2006
40 Shattuck Road (15)                           8.53%             6,224   December 4, 2003
Newport Office Park                             8.13%             5,923   July 1, 2001
302 Carnegie Center (16)                        8.61%             5,893   March 15, 2003
Hilltop Business Center                         6.81%             5,738   March 1, 2019
201 Carnegie Center                             7.08%               488   February 1, 2010
Total                                                        $3,414,891
(1)   At maturity the lender has the option to purchase a 33.33% interest in
this property in exchange for the cancellation of the principal balance of
$225.0 million.
(2)   Total construction loan in the amount of $420.0 million at a variable rate
of Eurodollar + 2.00%.
(3)   The principal amount and interest rate shown have been adjusted to reflect
the fair value of the note. The stated principal balance at December 31,
2000 was $150.0 million and the interest rate was 8.75%.
the effective rates on the loans. The stated principal balances at
December 31, 2000 were $116.8 million and $74.4 million, respectively. The
stated interest rates are 8.50% and continue at such rates through the
loan expiration.
(5)   Includes construction loan in the amount of $48.6 million which was paid
off on January 31, 2001 and $57.6 million of bond financing which was
being held in escrow until the New Dominion project was completed. The
bond financing bears interest at a rate of 7.70% and matures in January
of LIBOR + 2.00%.
2000 was $65.5 million and the interest rate was 9.09%.
(8)   Includes outstanding indebtedness secured by 91 Hartwell Avenue and 92 and
100 Hayden Avenue.
(9)   Includes outstanding principal in the amounts of $19.9 million, $8.4
million and $4.4 million which bear interest at fixed rates of 6.70%,
8.54% and 6.75%, respectively.
(10)  Outstanding principal bears interest at a floating rate equal to
Eurodollar + 1.50%
(11)  Total construction loan in the amount of $27.0 million at a variable rate
NOTE: LIBOR and Eurodollar rate contracts in effect on December 31, 2000 ranged
from 6.56% to 6.82%. The LIBOR and Eurodollar rates at December 31, 2000 were
We have determined that our estimated cash flows and available sources of
liquidity are adequate to meet liquidity needs for the next twelve months. We
believe that our principal liquidity needs for the next twelve months are to
fund normal recurring expenses, debt service requirements, current development
costs not covered under construction loans and the minimum distribution required
to maintain our REIT qualifications under the Internal Revenue Code of 1986, as
amended. We believe that these needs will be fully funded from cash flows
provided by operating and financing activities.
We expect to meet liquidity requirements for periods beyond twelve months
for the costs of development, property acquisitions, scheduled debt maturities,
major renovations, expansions and other non-recurring capital improvements
through construction loans, the incurrence of long-term secured and unsecured
indebtedness, income from operations and sales of real estate and possibly the
issuance of additional common and preferred units of Boston Properties Limited
Partnership and equity securities of Boston Properties, Inc. In addition, we may
finance the development, redevelopment or acquisition of additional properties
by using our unsecured
revolving line of credit.
Rental revenues, operating expense reimbursement income from tenants, and
income from the operations are our principal sources of capital used to pay
operating expenses, debt service and recurring capital expenditures. We seek to
increase income from our existing properties by maintaining quality standards
for our properties that promote high occupancy rates and permit increases in
rental rates while reducing tenant turnover and controlling operating expenses.
Our sources of revenue include third party fees generated by our office and
industrial real estate management, leasing, development and construction
businesses. Consequently, we believe our revenue will continue to provide the
necessary funds for operating expenses, debt service and recurring capital
expenditures.
During the year ended December 31, 2000, we paid or declared quarterly
dividends totaling $2.04 per common share (consisting of $.45 related to the
quarter ended March 31, 2000 and $.53 related to each of the quarters ended June
30, 2000, September 30, 2000 and December 31, 2000). We intend to continue
paying dividends quarterly.
Funds from Operations
Pursuant to the National Association of Real Estate Investment Trusts
revised definition of Funds from Operations, we calculate Funds From Operations
by adjusting net income (loss) (computed in accordance with accounting
principles generally accepted in the United States, including non-recurring
items), for gains (or losses) from debt restructuring and sales of properties
(except gains and losses from sales of depreciable operating properties), real
estate related depreciation and amortization and unconsolidated partnerships and
joint ventures. We believe that Funds From Operations is helpful to investors as
a measure of the performance of an equity REIT because, along with cash flow
from operating activities, financing activities and investing activities, it
provides investors with an indication of our ability to incur and service debt,
to make capital expenditures and to fund other cash needs. We compute Funds From
Operations in accordance with standards established by the National Association
of Real Estate Investment Trusts which may not be comparable to Funds From
Operations reported by other REITs that do not define the term in accordance
with the current National Association of Real Estate Investment Trusts or that
interpret the definition differently. Funds From Operations does not represent
cash generated from operating activities determined in accordance with
accounting principles generally accepted in the United States and should not be
considered as an alternative to net income (determined in accordance with
accounting principles generally accepted in the United States) as a measure of
our liquidity, nor is it indicative of funds available to fund our cash needs,
including our ability to make cash distributions.
Environmental Matters
fill or current or historical industrial uses of the areas have caused site
contamination. With respect to all of our properties, 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 ground water sampling) and asbestos surveys. These environmental
assessments 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:
On January 15, 1992, a property in 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, our 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 another property in Massachusetts identified
groundwater contamination. We engaged a specially licensed environmental
submittals to the state regulatory authority. On March 11, 1998, our 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.
In February 1999, one of our affiliates acquired from Exxon Corporation a
property in Massachusetts that was formerly used as a petroleum bulk storage and
distribution facility and was known by the state regulatory authority to contain
soil and groundwater contamination. We anticipate development of an office park
on the property. Pursuant to the property acquisition agreement, Exxon has
agreed to (1) bear the liability arising from releases or discharges of oil and
hazardous substances which occurred at the site prior to our ownership, (2)
continue remediating such releases and discharges as necessary and appropriate
to comply with applicable requirements, and (3) indemnify our affiliate for
certain losses arising from preexisting site conditions, including up to
$500,000 for the premium costs associated with construction-related management
of contaminated soil not otherwise subject to remediation by Exxon. Any
indemnity claim may be subject to various defenses. Our affiliate has engaged a
specially licensed environmental consultant to oversee the management of
contaminated soil that may be disturbed in the course of construction.
We expect that any resolution of the environmental matters relating the
above will not have a material impact on our financial position, results of
operations or liquidity.
Newly Issued Accounting Standard
As of January 1, 2001, we adopted Statement of Financial Accounting
Standard ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities" as amended by SFAS No. 137 and No. 138 ("SFAS No. 133"). SFAS No.
133 establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and
hedging activities. It requires the recognition of all derivative instruments as
assets or liabilities in our consolidated balance sheets at fair value. Changes
in the fair value of derivative instruments that are not designated as hedges or
that do not meet the hedge accounting criteria in SFAS No. 133 are required to
be reported in earnings. For derivatives designated as hedging instruments in
qualifying cash flow hedges, the effective portion of changes in fair value of
the derivatives are recognized in accumulated other comprehensive loss until the
forecasted transactions occur and the ineffective portions are recognized in
earnings.
The nature of our derivatives include investments in warrants to purchase
shares of common stock of other companies and interest rate agreements to
protect against changes in interest rates for variable rate debt. Based on the
terms of the warrant agreements, the warrants meet the definition of a
derivative and accordingly, must be marked to fair value through earnings. We
had been recording the warrants at fair value through other comprehensive loss
as available for sale securities under SFAS No. 115. We estimate that upon
adoption of SFAS No. 133, we will reclass approximately $6.8 million, the fair
value of the warrants, from accumulated other comprehensive loss to a cumulative
effect of a change in accounting principle. Our interest rate protection
agreements will be designated as hedging instruments in qualifying cash flow
hedges. As such, we estimate that, upon adoption of SFAS No. 133, we will record
an asset of approximately $0.2 million and record a liability of approximately
$11.4 million for the fair values of these agreements. The offset for these
entries will be to a cumulative effect of a change in accounting principle and
accumulated other comprehensive loss, respectively. Finally, we estimate we will
write-off deferred charges of approximately $1.6 million as a cumulative effect
of a change in accounting principle.
Substantially all of our leases provide for separate real estate tax and
operating expense escalations over a base amount. In addition, many of our
leases provide for fixed base rent increases or indexed increases. We believe
that inflationary increases may be at least partially offset by the contractual
rent increases described above.
Item 7a. Quantitative and Qualitative Disclosures about Market Risk
Approximately $3.0 billion of our long-term debt bears interest at fixed
rates, and therefore the fair value of these instruments is affected by changes
in the market interest rates. The following table presents principal cash flows
based upon maturity dates of the debt obligations and the related
weighted-average interest rates by expected maturity dates for the fixed rate
debt. The interest rate on the variable rate debt as of December 31, 2000 ranged
from LIBOR or Eurodollar plus 1.50% to LIBOR or Eurodollar plus 2.00%.
Mortgage debt, including current portion (in thousands)
2001       2002       2003       2004       2005        2006+         Total      Fair Value
----       ----       ----       ----       ----        -----         -----      ----------
Fixed Rate ..........   $153,415    186,338    218,925    106,666    269,378    2,076,038    $3,010,760    $3,010,760
Average Interest Rate       7.93%      7.76%      7.54%      7.30%      7.01%        7.09%         7.21%           --
Variable Rate .......   $ 40,532    119,885    215,416     28,298         --           --    $  404,131    $  404,131
Item 8. Financial Statements and Supplementary Data
See "Index to Financial Statements" on page 54 this Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Item 10. Directors and Executive Officers of the Registrant
The information concerning our directors and executive officers required
by Item 10 shall be included in the Proxy Statement to be filed relating to the
2001 Annual Meeting of our stockholders and is incorporated herein by reference.
Item 11. Executive Compensation
The information concerning our executive compensation required by Item 11
shall be included in the Proxy Statement to be filed relating to the 2001 Annual
Meeting of our stockholders and is incorporated herein by reference.
Item 12. Security Ownership of Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K
(a) Financial Statements and Financial Statement Schedule
See "Index to Financial Statements" on page 54 of this Form 10-K.
(b) Reports on Form 8-K
We filed a report on Form 8-K on October 16, 2000 which included
information regarding Item 5. We filed this Form 8-K in connection with our
press release regarding our third quarter 2000 earnings and information
presented to investors and analysts.
(c) Exhibits
Exhibit No.             Description
- -----------             -----------
3.1   Form of Amended and Restated Certificate of Incorporation of Boston
Properties, Inc. (2)
3.2   Form of Amended and Restated Bylaws of Boston Properties, Inc. (2)
3.3   Amendment No. 1 to Amended and Restated Bylaws of Boston Properties, Inc.
4.1   Form of Shareholder Rights Agreement dated as of June , 1997 between
Boston Properties, Inc. and BankBoston, N.A., as Rights Agent. (2)
4.2   Form of Certificate of Designation for Series E Junior Participating
Cumulative Preferred Stock, par value $.01 per share. (2)
4.3   Form of Certificate of Designations for the Series A Preferred Stock. (9)
4.4   Form of Common Stock Certificate. (2)
10.1  Second Amended and Restated Agreement of Limited Partnership of Boston
Properties Limited Partnership, dated as of June 29, 1998. (6)
10.2  Certificate of Designations for the Series One Preferred Units, dated June
30, 1998, constituting an amendment to the Second Amended and Restated
Agreement of Limited Partnership of Boston Properties Limited Partnership.
10.3  Certificate of Designations for the Series Two Preferred Units, dated
November 12, 1998, constituting an amendment to the Second Amendment and
Restated Agreement of Limited Partnership of Boston Properties Limited
Partnership. (9)
10.4  Certificate of Designations for the Series Three Preferred Units, dated
November 12, 1998, constituting an amendment to the Second Amended and
10.5  Certificate of Designations for the Series Z Preferred Units, dated
December 11, 2000, constituting an amendment to the Second Amended and
10.6  Amended and Restated 1997 Stock Option and Incentive Plan dated May 3,
2000 and forms of option agreements.
10.7  Amendment #1 to Amended and Restated 1997 Stock Option and Incentive Plan
dated November 14, 2000.
10.8  Form of Noncompetition Agreement between Boston Properties, Inc. and
Mortimer B. Zuckerman. (2)
10.9  Form of Employment and Noncompetition Agreement between Boston Properties,
Inc. and Edward H. Linde. (2)
10.10 Form of Employment Agreement between Boston Properties, Inc. and certain
executive officers. (2)
10.11 Form of Indemnification Agreement between Boston Properties, Inc. and each
of its directors and executive officers. (2)
10.12 Omnibus Option Agreement by and among Boston Properties Limited
Partnership and the Grantors named therein dated as of April 9, 1997. (2)
10.13 Second Amended and Restated Revolving Credit Agreement with Fleet National
Bank, as agent, dated as of March 31, 2000. (10)
10.14 Amendment #1 to Second Amended and Restated Revolving Credit Agreement
with Fleet National Bank, as agent, dated as of September 20, 2000.
10.15 Form of Registration Rights Agreement among Boston Properties, Inc. and
the holders named therein. (2)
10.16 Form of Lease Agreement dated as of June , 1997 between Edward H. Linde
and Mortimer B. Zuckerman, as Trustees of Downtown Boston Properties
Trust, and ZL Hotel LLC. (2)
and Mortimer B. Zuckerman, as Trustees of Two Cambridge Center Trust, and
ZL Hotel LLC. (2)
10.18 Form of Certificate of Incorporation of Boston Properties Management, Inc.
10.19 Form of By-laws of Boston Properties Management, Inc. (2)
10.20 Form of Limited Liability Agreement of ZL Hotel LLC. (2)
10.21 Indemnification Agreement between Boston Properties Limited Partnership
and Mortimer B. Zuckerman and Edward H. Linde. (2)
10.22 Compensation Agreement between Boston Properties, Inc. and Robert Selsam,
dated as of August 10, 1995 relating to 90 Church Street.(2)
10.23 Contribution and Conveyance Agreement concerning the Carnegie Portfolio,
dated June 30, 1998 by and among Boston Properties, Inc., Boston
Properties Limited Partnership, and the parties named therein as Landis
Parties. (6)
10.24 Contribution Agreement, dated June 30, 1998, by and among Boston
Properties, Inc., Boston Properties Limited Partnership, and the parties
named therein as Landis Parties. (6)
10.25 Registration Rights and Lock-Up Agreement, dated June 30, 1998 by and
among Boston Properties, Inc., Boston Properties Limited Partnership and
the parties named therein as Holders. (6)
10.26 Non-Competition Agreement, dated as of June 30, 1998, by and between Alan
B. Landis and Boston Properties, Inc. (6)
10.27 Agreement Regarding Directorship, dated as of June 30, 1998, by and
between Boston Properties, Inc. and Alan B. Landis. (6)
10.28 Purchase and Sale Agreement, dated May 7, 1998, by and between The
Prudential Insurance Company of America and Boston Properties Limited
10.29 Contribution Agreement, dated as of May 7, 1998, by and between The
10.30 Registration Rights Agreement, dated as of July 2, 1998, by and among the
Registrant, Strategic Value Investors II, LLC and The Prudential Insurance
Company of America. (7)
10.31 Purchase and Sale Agreement, dated as of November 12, 1998, by and between
Two Embarcadero Center West and BP OFR LLC. (9)
10.32 Contribution Agreement, dated as of November 12, 1998, by and among Boston
Properties, Inc., Boston Properties Limited Partnership, Embarcadero
Center Investors Partnership and the partners in Embarcadero Center
Investors Partnership listed on Exhibit A thereto. (9)
Properties, Inc., Boston Properties Limited Partnership, Three Embarcadero
Center West and the partners in Three Embarcadero Center West listed on
Exhibit A thereto. (9)
10.34 Three Embarcadero Center West Redemption Agreement, dated as of November
12, 1998, by and among Three Embarcadero Center West, Boston Properties
Limited Partnership, BP EC West LLC, The Prudential Insurance Company of
America, PIC Realty Corporation and Prudential Realty Securities II,
Inc.(9)
10.35 Three Embarcadero Center West Property Contribution Agreement, dated as of
November 12, 1998, by and among Three Embarcadero Center West, The
Prudential Insurance Company of America, PIC Realty Corporation,
Prudential Realty Securities II, Inc., Boston Properties Limited
Partnership, Boston Properties, Inc. and BP EC West LLC. (9)
10.36 Registration Rights and Lock-Up Agreement, dated November 12, 1998, by and
the Holders named therein.(9)
10.37 Third Amended and Restated Partnership Agreement of One Embarcadero Center
Venture, dated as of November 12, 1998, by and between Boston Properties
LLC, as managing general partner, BP EC1 Holdings LLC, as non-managing
general partner, and PIC Realty Corporation, as non-managing general
partner. (9)
10.38 Third Amended and Restated Partnership Agreement of Embarcadero Center
Associates, dated as of November 12, 1998, by and between BP LLC, as
managing general partner, BP EC2 Holdings LLC, as non-managing general
partner, and PIC Realty Corporation, as non- managing general partner. (9)
10.39 Second Amended and Restated Partnership Agreement of Three Embarcadero
Center Venture, dated as of November 12, 1998, by and between Boston
Properties LLC, as managing general partner, BP EC3 Holdings LLC, as non-
managing general partner, and The Prudential Insurance Company of America,
as non-managing general partner. (9)
10.40 Second Amended and Restated Partnership Agreement of Four Embarcadero
10.41 Note Purchase Agreement, dated as of November 12, 1998, by and between
Prudential Realty Securities, Inc. and One Embarcadero Center Venture. (9)
Prudential Realty Securities, Inc. and Embarcadero Center Associates. (9)
10.43 Note Purchase Agreement, dated November 12, 1998, by and between
Prudential Realty Securities, Inc. and Three Embarcadero Center Venture.
Prudential Realty Securities, Inc. and Four Embarcadero Center Venture.
10.45 Redemption Agreement, dated as of November 12, 1998, by and among One
Embarcadero Center Venture, Boston Properties LLC, BP EC1 Holdings LLC and
PIC Realty Corporation. (9)
10.46 Redemption Agreement, dated as of November 12, 1998, by and among
Embarcadero Center Associates, Boston Properties LLC, BP EC2 Holdings LLC
and PIC Realty Corporation. (9)
10.47 Redemption Agreement, dated as of November 12, 1998, by and among Three
The Prudential Insurance Company of America. (9)
10.48 Redemption Agreement, dated as on November 12, 1998, by and among Four
10.49 Option and Put Agreement, dated as of November 12, 1998, by and between
One Embarcadero Center Venture and The Prudential Insurance Company of
Embarcadero Center Associates and The Prudential Insurance Company of
Three Embarcadero Center Venture and The Prudential Insurance Company of
Four Embarcadero Center Venture and The Prudential Insurance Company of
10.53 Stock Purchase Agreement, dated as of September 28, 1998, by and between
Boston Properties, Inc. and The Prudential Insurance Company of America.
10.54 Master Agreement by and between New York State Common Retirement Fund and
Boston Properties Limited Partnership, dated as of May 12, 2000.
21.1  Schedule of Subsidiaries of Boston Properties, Inc. (2)
23.1  Consent of PricewaterhouseCoopers LLP, Independent Accountants
(1)   Incorporated herein by reference to Boston Properties, Inc.'s Registration
Statement on Form S-11 (No. 333-41449).
(3)   Incorporated herein by reference to Boston Properties, Inc.'s Current
Report on Form 8-K filed on November 25, 1997.
Report on Form 8- K/A filed on November 14, 1997.
Report on Form 8-K filed on July 15, 1998.
(10)  Incorporated herein by reference to Boston Properties, Inc.'s Report on
Form 10-Q filed on May 15, 2000.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant, Boston Properties, Inc., has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
By: /s/ Douglas T. Linde
March 29, 2001                          --------------------------
Douglas T. Linde
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
March 29, 2001                          By: /s/ Mortimer B. Zuckerman
Mortimer B. Zuckerman
By: /s/ Edward H. Linde
Edward H. Linde
By: /s/Alan J. Patricof
Alan J. Patricof
By:  /s/ Ivan G. Seidenberg
Ivan G. Seidenberg
By:  /s/ Martin Turchin
Martin Turchin
By: /s/ Alan B. Landis
Alan B. Landis
By: /s/ Richard E. Salomon
Richard E. Salomon
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants .......................................   55
Consolidated Balance Sheets as of December 31, 2000 and 1999 ............   56
Consolidated Statements of Operations for the years ended
December 31, 2000, 1999 and 1998 ......................................   57
Consolidated Statements of Stockholder's Equity
for the years ended December 31, 2000, 1999 and 1998 ..................   58
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998 ......................................  59-60
Notes to Consolidated Financial Statements ..............................   61
Financial Statement Schedule - Schedule III .............................  80-83
All other schedules for which a provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Boston Properties, Inc.:
In our opinion, the accompanying consolidated financial statements and the
financial statement schedule listed in the accompanying index present fairly, in
all material respects, the financial position of Boston Properties, Inc. (the
"Company") at December 31, 2000 and 1999, and the results of its operations and
its cash flows for each of the three years in the period ended December 31, 2000
in conformity with accounting principles generally accepted in the United States
of America. These financial statements and financial statement schedule are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements and financial statement schedule are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements and financial
statement schedule, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
/s/ PricewaterhouseCoopers LLP
2000                       1999
-----------                -----------
(in thousands, except for share amounts)
Real estate:                                                                  $ 6,112,779                $ 5,609,424
Less: accumulated depreciation                                             (586,719)                  (470,591)
Total real estate                                                      5,526,060                  5,138,833
Cash and cash equivalents                                                         280,957                     12,035
Escrows                                                                            85,561                     40,254
Investments in securities                                                           7,012                     14,460
Tenant and other receivables (net of allowance for doubtful                        26,852                     28,259
accounts of $2,112 and $3,254, respectively)
Accrued rental income (net of allowance of $3,300 and                              91,684                     82,228
$3,300, respectively)
Deferred charges, net                                                              77,319                     53,733
Prepaid expenses and other assets                                                  41,154                     28,452
Investments in unconsolidated joint ventures                                       89,871                     36,518
Total assets                                                         $ 6,226,470                $ 5,434,772
===========                ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgage notes and bonds payable                                        $ 3,414,891                $ 2,955,584
Unsecured line of credit                                                         --                    366,000
Accounts payable and accrued expenses                                        57,338                     66,780
Dividends and distributions payable                                          71,274                     50,114
Accrued interest payable                                                      5,599                      8,486
Other liabilities                                                            51,926                     48,282
Total liabilities                                                      3,601,028                  3,495,246
Commitments and contingencies                                                          --                         --
Minority interests                                                                877,715                    781,962
Series A Convertible Redeemable Preferred Stock, liquidation
preference $50.00 per share, 2,000,000 shares issued
and outstanding                                                             100,000                    100,000
Stockholders' equity:
Excess stock, $.01 par value, 150,000,000 shares
authorized, none issued or outstanding                                        --                         --
Common stock, $.01 par value, 250,000,000 shares
authorized, 86,630,089 and 67,910,434 issued and
outstanding in 2000 and 1999, respectively                                   866                        679
Additional paid-in capital                                                1,673,349                  1,067,778
Dividends in excess of earnings                                             (13,895)                   (10,893)
Unearned compensation                                                          (848)                        --
Accumulated other comprehensive loss                                        (11,745)                        --
Total stockholders' equity                                             1,647,727                  1,057,564
Total liabilities and stockholders' equity                   $ 6,226,470                $ 5,434,772
The accompanying notes are an integral part of these financial statements.
2000         1999         1998
---------    ---------    ---------
(in thousands, except for per share amounts)
Rental:
Base rent                                                     $ 715,358    $ 646,924    $ 419,756
Recoveries from tenants                                          92,692       72,742       48,718
Parking and other                                                50,892       45,751       19,103
Total rental revenue                                        858,942      765,417      487,577
Development and management services                                 11,837       14,708       12,411
Interest and other                                                   8,574        6,439       13,859
Total revenue                                               879,353      786,564      513,847
Operating                                                          264,701      249,268      150,490
General and administrative                                          35,659       29,455       22,504
Interest                                                           217,064      205,410      124,860
Depreciation and amortization                                      133,150      120,059       75,418
Total expenses                                              650,574      604,192      373,272
Income before minority interests and joint venture income             228,779      182,372      140,575
Minority interest in property partnerships                               (932)      (4,614)      (2,554)
Income from unconsolidated joint ventures                               1,758          468           --
Income before minority interest in Operating Partnership              229,605      178,226      138,021
Minority interest in Operating Partnership                            (76,039)     (64,917)     (39,428)
Income before gain (loss) on sale of real estate                      153,566      113,309       98,593
Gain (loss) on sale of real estate, net of minority interest             (234)       6,467           --
Income before extraordinary items                                     153,332      119,776       98,593
Extraordinary loss, net of minority interest                             (334)          --       (5,481)
Net income before preferred dividend                                  152,998      119,776       93,112
Preferred dividend                                                     (6,572)      (5,829)          --
Net income available to common shareholders                         $ 146,426    $ 113,947    $  93,112
=========    =========    =========
Income before extraordinary items                                $    2.05    $    1.72    $    1.62
Extraordinary loss, net of minority interest                            --           --        (0.09)
Net income available to common shareholders                      $    2.05    $    1.72    $    1.53
Weighted average number of common shares outstanding                71,424       66,235       60,776
equivalent shares outstanding                                    72,741       66,776       61,308
Common Stock          Additional       Dividends
------------           Paid-in        in excess of
Shares        Amount        Capital          Earnings
------        ------        -------          --------
Stockholders' Equity, December 31, 1997                                38,694         $ 387        $ 172,347         $ 2,314
Sale of Common Stock net of offering costs                             23,000           230          764,760
Unregistered Common Stock issued                                        1,823            18           58,819
Conversion of operating partnership units to Common Stock                  10            --              250
Allocation of minority interest                                                                      (40,490)
Net income for the year                                                                                93,112
Dividends declared                                                                                (103,291)
Stock options exercised                                                     1            --               25
------         -----      -----------       ---------
Stockholders' Equity, December 31, 1998                                63,528           635          955,711          (7,865)
Sale of Common Stock net of offering costs                              4,000            40          140,648
Unregistered Common Stock issued                                          343             4           12,321
Net income for the year                                                                                113,947
Shares issued pursuant to stock purchase plan                               5            --              181
Stock options exercised                                                    24            --              622
Stockholders' Equity, December 31, 1999                                67,910           679        1,067,778         (10,893)
Conversion of operating partnership units to Common Stock                 614             6           20,239
Shares issued pursuant to stock purchase plan                              11            --              374
Stock options exercised                                                   511             5           17,961
Issuance of restricted stock                                               35             1            1,059
Amortization of restricted stock award
Unrealized holding losses
Stockholders' Equity, December 31, 2000                                86,630         $ 866      $ 1,673,349       $ (13,895)
======         =====      ===========       =========
Unearned       Comprehensive
Compensation          Loss             Total
------------          ----             -----
Stockholders' Equity, December 31, 1997                                                                       $ 175,048
Sale of Common Stock net of offering costs                                                                      764,990
Unregistered Common Stock issued                                                                                58,837
Conversion of operating partnership units to Common Stock                                                           250
Allocation of minority interest                                                                                (40,490)
Net income for the year                                                                                93,112
Dividends declared                                                                                (103,291)
Stock options exercised                                                                                25
------          ---------       -----------
Stockholders' Equity, December 31, 1998                                                                         948,481
Net income for the year                                                                                113,947
Shares issued pursuant to stock purchase plan                                                                       181
Stock options exercised                                                                                622
Stockholders' Equity, December 31, 1999                                                                       1,057,564
Conversion of operating partnership units to Common Stock                                                        20,245
Stock options exercised                                                                                17,966
Issuance of restricted stock                                               $(1,060)                                  --
Amortization of restricted stock award                                         212                                  212
Unrealized holding losses                                                                   $ (11,745)          (11,745)
-------          ---------       -----------
Stockholders' Equity, December 31, 2000                                    $  (848)         $ (11,745)      $ 1,647,727
=======          =========       ===========
2000           1999           1998
-----------    -----------    -----------
Cash flows from operating activities:
Net income before preferred dividend                                               $   152,998    $   119,776    $    93,112
Adjustments to reconcile net income before preferred dividend
to net cash provided by operating activities:
Depreciation and amortization                                                      133,150        120,059         75,418
Non-cash portion of interest expense                                                 3,693          2,364            247
Loss (gain) on sale of real estate                                                     314         (8,736)            --
Extraordinary loss                                                                     433             --          7,743
Distributions in excess of earnings from  unconsolidated joint ventures                 90           (468)            --
Compensation related to restricted shares                                              212             --             --
Non-cash compensation                                                                1,958             --             --
Minority interests                                                                  75,860         67,186         38,760
Change in assets and liabilities:
Escrows                                                                             12,303        (21,240)        (4,836)
Tenant and other receivables, net                                                    1,407         12,571        (16,372)
Accrued rental income, net                                                         (14,509)       (17,977)        (9,061)
Prepaid expenses and other assets                                                  (12,702)       (10,354)        (5,833)
Accounts payable and accrued expenses                                              (14,300)        23,277         19,075
Accrued interest payable                                                            (2,887)         1,179            726
Other liabilities                                                                    1,644         15,832         16,308
Total adjustments                                                             186,666        183,693        122,175
Net cash provided by operating activities                                     339,664        303,469        215,287
Cash flows from investing activities:
Acquisitions/additions to real estate                                                 (604,164)      (661,007)    (1,697,449)
Tenant leasing costs                                                                   (21,032)       (11,329)       (17,979)
Investments in unconsolidated joint ventures                                           (16,582)        10,737        (43,644)
Net proceeds from sales of real estate                                                  70,712         13,103             --
Investments in securities                                                               (2,297)        (6,500)            --
Notes receivable                                                                            --             --       (420,143)
Net cash used in investing activities                                        (573,363)      (654,996)    (2,179,215)
Cash flows from financing activities:
Net proceeds from the issuance of common and preferred stock                           633,762        240,688        819,103
Borrowings on unsecured line of credit                                                 184,000        696,000        322,000
Repayments of unsecured line of credit                                                (550,000)      (345,000)      (540,000)
Repayments of mortgage notes                                                          (525,241)       (33,362)      (159,714)
Proceeds from mortgage notes                                                           976,390        307,525      1,226,717
Proceeds from (repayments of) notes payable                                                 --       (328,143)       420,143
Dividends and distributions                                                           (209,723)      (181,493)      (127,307)
Proceeds from exercise of stock options                                                 16,008            622             --
Proceeds from employee stock purchase plan                                                 374            181             --
Deferred financing costs                                                               (22,949)        (5,622)        (2,408)
Net cash provided by financing activities                                     502,621        351,396      1,958,534
Net increase (decrease) in cash                                                            268,922           (131)        (5,394)
Cash and cash equivalents, beginning of period                                              12,035         12,166         17,560
Cash and cash equivalents, end of period                                               $   280,957    $    12,035    $    12,166
===========    ===========    ===========
The accompanying notes are an integral part of these financial statements
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
2000        1999        1998
---------   ---------   ---------
Supplemental disclosures:
Cash paid for interest                                                       $ 253,971   $ 218,820   $  46,422
=========   =========   =========
Interest capitalized                                                         $  37,713   $  16,953   $   6,933
Non-cash investing and financing activities:
Additions to real estate included in accounts payable                        $   4,858   $     606   $   6,198
Mortgage notes payable assumed in connection with acquisitions               $ 117,831   $  28,331   $ 496,926
Mortgage notes payable assigned in connection with the sale of real estate   $ 166,547   $      --   $      --
Bonds payable proceeds escrowed                                              $  57,610   $      --   $      --
Issuance of minority interest in connection with acquisitions                $  44,712   $   2,063   $ 941,318
Dividends and distributions declared but not paid                            $  71,274   $  50,114   $  40,494
Notes receivable assigned in connection with an acquisition                  $      --   $ 420,143   $      --
Notes payable assigned in connection with an acquisition                     $      --   $  92,000   $      --
Common Stock issued in connection with an acquisition of real estate         $   2,660   $  12,325   $   5,000
Common Stock issued in connection with an acquisition of minority interest   $  15,500   $      --   $      --
Conversion of Operating Partnership Units to Common Stock                    $  20,245   $     260   $     250
Real estate contributed to joint ventures                                    $  36,999   $      --   $      --
Unrealized loss related to investments in securities                         $  11,745   $      --   $      --
(dollars in thousands, except per share amounts)
1. Organization and Basis of Presentation
Boston Properties, Inc. (the "Company"), a Delaware corporation, is a
self-administered and self-managed real estate investment trust ("REIT"). Boston
Properties, Inc. is the sole general partner of Boston Properties Limited
Partnership (the "Operating Partnership") and at December 31, 2000, owned an
approximate 71.9% general and limited partnership interest in the Operating
Partnership. Partnership interests in the Operating Partnership are denominated
as "common units of partnership interest" (also referred to as "OP Units") or
"preferred units of partnership interest" (also referred to as "Preferred
Units"). All references to OP Units and Preferred Units exclude such units held
by the Company. A holder of an OP Unit may present such OP Unit to the Operating
Partnership for redemption at any time (subject to restrictions agreed upon at
the issuance of OP Units to particular holders that may restrict such right for
a period of time, generally one year from issuance). 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. Because the
number of shares of Common Stock 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, subject to
the terms of such Preferred Units.
All references to the Company hereafter refer to Boston Properties, Inc.
and its subsidiaries, including the Operating Partnership, collectively, unless
the context otherwise requires.
At December 31, 2000, the Company owned a portfolio of 145 commercial real
estate properties (136 properties at December 31, 1999) (the "Properties")
aggregating more than 37.9 million net rentable square feet (including 15
properties under construction totaling approximately 4.5 million net rentable
square feet). The Properties consist of 134 office properties, including 103
Class A office properties and 31 Research and Development properties; eight
industrial properties; three hotels; and structured parking for 17,179 vehicles
containing approximately 6.0 million square feet. In addition, the Company owns
or controls 49 parcels of land totaling 558.3 acres (which will support
approximately 10.6 million net rentable square feet of development). The Company
considers Class A office properties to be centrally located buildings that are
professionally managed and maintained, that 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 support office, research and
development and other technical uses.
The consolidated financial statements of the Company include all the
accounts of the Company, its majority-owned Operating Partnership, and
subsidiaries. All significant intercompany balances and transactions have been
eliminated.
2. Summary of Significant Accounting Policies
Real estate is stated at depreciated cost. The Company periodically
reviews its properties to determine if its carrying costs will be recovered from
future operating cash flows. If the Company determines that an impairment has
occurred, those assets shall be reduced to fair value. No such impairment losses
have been recognized to date.
The cost of buildings and improvements include the purchase price of
property, legal fees and acquisition costs. The costs of buildings under
development include the capitalization of interest, property taxes and other
costs incurred during the period of development.
Expenditures for repairs and maintenance are charged to operations as
incurred. Significant betterments are capitalized. When assets are sold or
retired, their costs and related accumulated depreciation are removed from the
accounts with the resulting gains or losses reflected in net income or loss for
the period.
Depreciation is computed on the straight-line basis over the estimated
useful lives of the assets as follows:
Land improvements                        25 to 40 years
Buildings and improvements               10 to 40 years
Tenant improvements                      Shorter of useful life
or terms of related lease
Furniture, fixtures, and equipment       3 to 7 years
Cash and cash equivalents consist of cash on hand and investments with
maturities of three months or less from the date of purchase. The majority of
the Company's cash and cash equivalents are held at major commercial banks. The
Company has not experienced any losses to date on its invested cash.
Escrows
Escrows include amounts established pursuant to various agreements for
security deposits, property taxes, insurance and other costs. At December 31,
2000, proceeds of $57.6 million from the permanent financing of a development
property have been deposited into an escrow account and recorded in mortgage
notes and bonds payable until the completion of construction on the development
property, at which time the construction loan will be repaid and the proceeds
will be available to the Company.
Investments in Securities
The Company accounts for investments in securities of publicly traded
companies in accordance with Statement of Financial Accounting Standard ("SFAS")
No. 115 "Accounting for Certain Investments in Debt and Equity Investments" and
has classified the securities as available-for-sale. Investments in securities
of non-publicly traded companies are recorded at cost as they are not considered
marketable under SFAS 115. As of December 31, 2000, the fair value of the
investments in common stocks and warrants was approximately $7.0 million. The
gross unrealized holding loss of approximately $11.7 million is included in
accumulated other comprehensive loss on the consolidated balance sheets. At
December 31, 1999, the investments in securities were reflected at cost in the
consolidated balance sheet, as they were not considered marketable under SFAS
No. 115.
Deferred Charges
Deferred charges include leasing costs and financing fees. Fees and costs
incurred in the successful negotiation of leases, including brokerage, legal and
other costs have been deferred and are being amortized on a straight-line basis
over the terms of the respective leases. Fees and costs incurred to obtain
long-term financing have been deferred and are being amortized over the terms of
the respective loans on a basis that approximates the effective interest method
and are included with interest expense. Unamortized financing and leasing costs
are charged to expense upon the early repayment of financing or upon the early
termination of the lease. Fully amortized deferred charges are removed from the
books upon the expiration of the lease or maturity of the debt.
Investments in Unconsolidated Joint Ventures
The Company accounts for its investments in joint ventures, which it does
not control, using the equity method of accounting. Under the equity method of
accounting, the net equity investment of the Company is reflected on the
consolidated balance sheets, and the Company's share of net income or loss from
the joint ventures is included on the consolidated statements of operations.
The Company serves as the development manager for the joint ventures
currently under development. The profit on development fees received from joint
ventures is recognized to the extent attributable to the outside interests in
the joint ventures.
Offering Costs
Underwriting commissions and offering costs have been reflected as a
reduction of additional paid-in capital.
Earnings and profits, which determine the taxability of dividends to
shareholders, will differ from income reported for financial reporting purposes
due to the differences for federal income tax purposes primarily in the
estimated useful lives used to compute depreciation. Dividends declared
represented 100% ordinary income for federal income tax purposes for the
years ended December 31, 2000, 1999 and 1998.
Base rental revenue is reported on a straight-line basis over the terms of
the respective leases. The impact of the straight-line rent adjustment increased
revenue by $13,071, $17,044, and $18,510 for the years ended December 31, 2000,
1999 and 1998, respectively. Property operating cost reimbursements due from
tenants for common area maintenance, real estate taxes and other recoverable
costs are recognized in the period the expenses are incurred.
Accrued rental income represents rental income earned in excess of rent
payments received pursuant to the terms of the individual lease agreements, net
of an allowance for doubtful accounts.
Development fees are recognized ratably over the period of development.
Management fees are recognized as revenue as they are earned.
The estimated fair value of warrants received in conjunction with
communications license agreements are recognized over the ten-year effective
terms of the license agreements.
Interest Expense and Interest Rate Protection Agreements
Interest expense on fixed rate debt with predetermined periodic rate
increases is computed using the effective interest method over the terms of the
respective loans.
The Company has entered into certain interest rate protection agreements
to reduce the impact of changes in interest rates on its variable rate debt.
Amounts paid for the agreements are amortized over the lives of the agreements
on a basis that approximates the effective interest method.
Basic earnings per share ("EPS") is computed by dividing net income by the
weighted average number of shares of Common Stock outstanding during the year.
Diluted EPS reflects the potential dilution that could occur from shares
issuable through stock-based compensation including stock options, conversion of
the minority interests in the Operating Partnership and conversion of the
preferred stock of the Company.
The carrying values of cash and cash equivalents, escrows, receivables,
accounts payable, accrued expenses and other assets and liabilities are
reasonable estimates of their fair values because of the short maturities of
these instruments. Mortgage notes payable have aggregate carrying values that
approximate their estimated fair values based upon the remaining maturities for
certain debt and interest rates for debt with similar terms and remaining
maturities. The fair value of these financial instruments were not materially
different from their carrying or contract values.
The Company has elected to be treated as a REIT under Sections 856 through
860 of the Internal Revenue Code of 1986, as amended (the "Code"), commencing
with its taxable year
ended December 31, 1997. As a result, the Company generally will not be subject
to federal corporate income tax on its taxable income that is distributed to its
shareholders. A REIT is subject to a number of organizational and operational
requirements, including a requirement that it currently distribute at least 95%
of its annual taxable income (90% effective January 1, 2001). The Company's
policy is to distribute 100% of its taxable income. Accordingly, no provision
has been made for federal income taxes in the accompanying consolidated
To assist the Company in maintaining its status as a REIT, the Company
leases its three in-service hotel properties, pursuant to leases with a
participation in the gross receipts of such hotel properties, to a lessee ("ZL
Hotel LLC") in which Messrs. Zuckerman and Linde, the Chairman of the Board and
Chief Executive Officer, respectively, are the sole member-managers. Marriott
pursuant to management agreements with the lessee. Rental revenue from these
leases totaled approximately $38.1 million, $32.1 million and $25.7 million for
the years ended December 31, 2000, 1999 and 1998, respectively.
The net difference between the tax basis and the reported amounts of the
Company's assets and liabilities is approximately $1.2 billion as of December
31, 2000 and 1999.
Certain entities included in the Company's consolidated financial
statements are subject to District of Columbia franchise taxes. Franchise taxes
are recorded as operating expenses in the accompanying consolidated financial
statements.
Reclassifications
Certain prior-year balances have been reclassified in order to conform to
current-year presentation.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. These estimates include such items as depreciation,
allowances for doubtful accounts and accrued rent. Actual results could differ
from those estimates.
3.       Real Estate
Real estate consisted of the following at December 31:
Land                                                   $  965,140    $  956,222
Land held for future development                          107,005       127,508
Buildings and improvements                              3,939,857     3,962,789
Tenant improvements                                       225,305       186,878
Furniture, fixtures and equipment                          57,994        38,537
Development in process                                    817,478       337,490
Total                                                   6,112,779     5,609,424
Less: Accumulated depreciation                           (586,719)     (470,591)
$5,526,060    $5,138,833
4.       Deferred Charges
Deferred charges consisted of the following at December 31:
--------      --------
Leasing costs                                            $ 88,681      $ 69,530
Financing costs                                            51,453        33,954
140,134       103,484
Less: Accumulated amortization                            (62,815)      (49,751)
$ 77,319      $ 53,733
========      ========
5. Investments in Unconsolidated Joint Ventures
The investments in unconsolidated joint ventures consists of the
Entity                              Property                 Ownership
----------------------------------------     ------------------------       ------------
One Freedom Square LLC                       One Freedom Square                 25%  (1)
Square 407 LP                                Market Square North                50%
The Metropolitan Square Associates LLC       Metropolitan Square                51%
BP 140 Kendrick Street LLC                   140 Kendrick Street                25%  (1)
BP/CRF 265 Franklin Street
Holdings LLC                               265 Franklin Street                35%
Discovery Square LLC                         Discovery Square     (2)           50%
BP/CRF 901 New York Avenue LLC               901 New York Avenue  (3)           25%  (1)
Two Freedom Square LLC                       Two Freedom Square   (2)           50%
(1) Ownership can increase based on certain return hurdles
(2) Property is currently under development
(3) Land held for development
The combined summarized financial information of the unconsolidated joint
ventures are as follows:
Balance Sheets                                             2000             1999
--------         --------
Real estate and development in process, net           $640,688         $236,995
Other assets                                            30,919           10,473
Total assets                                   $671,607         $247,468
========         ========
Mortgage and construction loans payable               $446,520         $164,185
Other liabilities                                       10,904            6,770
Partners' equity                                       214,183           76,513
Total liabilities and partners' equity         $671,607         $247,468
Company's share of equity                                 $89,871          $36,518
Statements of Operations (1)                               Year Ended December 31,
2000             1999
Total revenue                                             $42,754          $12,836
Total expenses                                             37,978           10,383
Net income                                                 $4,776           $2,453
Company's share of net income                              $1,758             $468
(1)   There were no in-service joint ventures during the year ended
6. Mortgage Notes and Bonds Payable
The Company had outstanding mortgage notes and bonds payable totaling
$3,414,891 and $2,955,584 as of December 31, 2000 and 1999, respectively, each
collateralized by one or more buildings and related land included in real estate
assets. The mortgage notes payable are generally due in monthly installments and
mature at various dates through August 1, 2021.
Fixed rate mortgage notes and bonds payable totaled approximately
$3,010,760 and $2,820,650 at December 31, 2000 and 1999, respectively, with
interest rates ranging from 6.40% to 8.59% (averaging 7.21% and 7.06% at
December 31, 2000 and 1999, respectively).
Variable rate mortgage notes payable (including construction loans
payable) totaled approximately $404,131 and $134,934 at December 31, 2000 and
1999, respectively, with interest rates ranging from 1.00% above the London
Interbank Offered Rate ("LIBOR") (6.57% and 5.82% at December 31, 2000 and 1999,
respectively) to 2.00% above LIBOR.
At December 31, 2000, the Company had hedge contracts totaling $450.0
million. The hedging agreements provide for a fixed interest rate when LIBOR is
less than 5.76% and when LIBOR is greater than 6.35% or 7.95% for terms
remaining from two to four years per the individual hedging agreements. In
addition, the Company has an interest rate swap agreement for a total of $213.0
million which provides for a fixed interest rate of 6.0% through September 11,
Mortgage notes payable aggregating approximately $190,492 and $207,132 at
31, 2000 and 1999, respectively, are subject to periodic scheduled interest rate
increases. Interest expense for these mortgage notes payable is computed using
the effective interest method. Mortgage notes payable aggregating approximately
$224,818 and $320,110 at December 31, 2000 and 1999, respectively, have been
accounted for at their fair value on the date the mortgage loans were assumed.
The impact of using these accounting methods decreased interest expense by
$3,579, $4,742 and $2,656 for the years ended December 31, 2000, 1999 and 1998,
respectively. The cumulative liability related to these accounting methods was
$9,642 and $13,575 at December 31, 2000 and 1999, respectively, and is included
in mortgage notes and bonds payable.
Combined aggregate principal payments of mortgage notes and bonds payable
at December 31, 2000 are as follows:
2001                               $  193,947
Thereafter                         $2,076,037
7. Unsecured Line of Credit
As of December 31, 2000, the Company has an agreement for a $605,000
unsecured revolving credit facility (the "Unsecured Line of Credit") maturing in
March 2003. Outstanding balances under the Unsecured Line of Credit currently
bear interest at a floating rate based on an increase over Eurodollar from 105
to 170 basis points, depending upon the Company's applicable leverage ratio, or
the lender's prime rate. The Unsecured Line of Credit requires monthly payments
of interest only.
The outstanding balance of the Unsecured Line of Credit was $0 and
$366,000 at December 31, 2000 and 1999, respectively. The weighted average
balance outstanding was approximately $233,052 and $256,685 during the year
ended December 31, 2000 and 1999, respectively. The weighted-average interest
rate on amounts outstanding was approximately 7.65% and 6.50% during the year
ended December 31, 2000 and 1999, respectively.
The Company's ability to borrow under the Unsecured Line of Credit is
subject to the Company's ongoing compliance with a number of financial and other
covenants, including, but not limited to, maintaining a certain ratio of secured
indebtedness to total asset value, as defined.
8. Commitments and Contingencies
Concentrations of Credit Risk
Management of the Company performs ongoing credit evaluations of tenants
and may require tenants to provide some form of credit support such as corporate
guarantees and/or other financial guarantees. Although the Company's properties
are geographically diverse and the tenants operate in a variety of industries,
to the extent the Company has a significant
concentration of rental revenue from any single tenant, the inability of that
tenant to make its lease payments could have an adverse effect on the Company.
The Company is subject to various legal proceedings and claims that arise
in the ordinary course of business. These matters are generally covered by
insurance. Management believes that the final outcome of such matters will not
have a material adverse effect on the financial position, results of operations
or liquidity of the Company.
Some of the Properties are located in urban and industrial areas where
contamination. With respect to all of the Properties, independent environmental
such as soil or ground water sampling) and asbestos surveys on all of the
Properties. These environmental assessments have not revealed any environmental
conditions that the Company believes will have a material adverse effect on its
business, assets or results of operations, and the Company is not aware of any
other environmental condition with respect to any of the Properties which the
Company believes would have such a material adverse effect.
with groundwater contamination. The Company 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
response actions at a site and may qualify the Company for liability relief
under recent statutory amendments. Although the Company believes 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, the Company
will take any necessary further response actions.
An investigation at an additional property in Massachusetts identified
groundwater contamination. The Company engaged a specially licensed
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 the Company for liability relief under recent
statutory amendments. Although the Company believes 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, the Company will take any
necessary further response actions.
In February 1999, an affiliate of the Company acquired from Exxon
Corporation a property in Massachusetts that was formerly used as a petroleum
bulk storage and distribution facility and was known by the state regulatory
authority to contain soil and groundwater contamination. The Company anticipates
development of an office park on the property. Pursuant to the property
acquisition agreement, Exxon has agreed to (1) bear the liability arising from
releases or discharges of oil and hazardous substances which occurred at the
site prior to the Company's ownership, (2) continue remediating such releases
and discharges as necessary and appropriate to comply with applicable
requirements, and (3) indemnify the purchaser for certain losses arising from
preexisting site conditions, including up to $500,000 for the premium costs
associated with construction-related management of contaminated soil not
otherwise subject to remediation by Exxon. Any indemnity claim may be subject to
various defenses. The affiliate has engaged a specially licensed environmental
consultant to perform necessary pre-construction assessment activities and to
oversee the management of contaminated soil that may be disturbed in the course
of construction.
The Company expects that any resolution of the environmental matters
relating to the above will not have a material impact on the financial position,
results of operations or liquidity of the Company.
The Company has entered into contracts for the construction and renovation
of properties currently under construction. Commitments under these arrangements
totaled approximately $677,654 and $759,501 at December 31, 2000 and 1999,
The Operating Partnership Agreement provides that, until June 23, 2007,
the Operating Partnership may not sell or otherwise transfer four designated
properties in a taxable transaction without the prior written consent of the
Chairman and Chief Executive Officer. In connection with the acquisition or
contribution of 31 other Properties, the Company entered into similar agreements
for the benefit of the selling or contributing parties which specifically state
the Company will not sell or otherwise transfer the Properties in a taxable
transaction until a period ranging from June 2002 to November 2008. The
Operating Partnership is not required to obtain the consent from a party
protected thereby if such party does not continue to hold at least a specified
percentage of such party's original OP Units.
9. Minority Interests
Minority interests primarily relate to the interests of the Company in the
Operating Partnership. As of December 31, 2000, the minority interest in the
Operating Partnership consisted of 23,862,206 OP Units and 9,357,536 Preferred
Units held by parties other than the Company.
On March 1, 2000, the Operating Partnership issued 577,817 OP Units valued
at approximately $17.5 million in connection with the acquisition of three
office properties at Carnegie Center in Princeton, New Jersey.
On June 19, 2000, the Operating Partnership issued 82,215 OP Units valued
at approximately $3.0 million in connection with the acquisition of a land
parcel in Chelmsford, Massachusetts.
On December 11, 2000, the Operating Partnership issued 650,876 Series Z
Preferred Units of limited partnership of the Operating Partnership (the "Series
Z Preferred Units"), valued at approximately $24.2 million, in connection with
the acquisition of a 3.7-acre site known as the Plaza at Almaden in San Jose,
The Preferred Units at December 31, 2000 consist of 2,493,529 Series One
Preferred Units of limited partnership in the Operating Partnership (the "Series
One Preferred Units"), which bear a preferred distribution of 7.25% per annum on
a liquidation preference of $34.00 per unit and are convertible into OP Units at
a rate of $38.25 per Preferred Unit; 6,213,131 Series Two and Three Preferred
Units of limited partnership in the Operating Partnership (the "Series Two and
Three Preferred Units"), which bear a preferred distribution at an increasing
rate, ranging from 5.00% to 7.00% per annum on a liquidation preference of
$50.00 per unit and are convertible into OP Units at a rate of $38.10 per
Preferred Unit; and 650,876 Series Z Preferred Units, which bear distributions
at a rate ranging from zero to the distribution rate of an OP Unit, with a
liquidation preference of $37.25 per unit and are convertible into OP Units at a
rate equal to the greater of (1) one for one or (2) $37.25 divided by the fair
market value of an OP Unit. Distributions to holders of Preferred Units are
recognized on a straight-line basis that approximates the effective interest
10. Redeemable Preferred Stock and Stockholders' Equity
On August 22, 2000, the Company issued 439,059 unregistered shares of
Common Stock for approximately $18.2 million, in connection with its acquisition
of the remaining 50% interest in the development rights associated with the
Prudential Center in Boston, Massachusetts.
On October 31, 2000, the Company completed a public offering of 17,110,000
shares of Common Stock at a price per share to the public of $39.0625 (including
2,110,000 shares issued as a result of the exercise of an overallotment option
by the underwriters on November 2, 2000), resulting in net proceeds to the
Company, net of underwriter's discount and offering costs, of approximately
As of December 31, 2000, the Company had 86,630,089 shares of Common Stock
and 2,000,000 shares of Series A Convertible Redeemable Preferred Stock (the
"Preferred Stock") outstanding. The Preferred Stock bears a preferred dividend
at an increasing rate, ranging from 5.00% to 7.00% per annum on a liquidation
preference of $50.00 per share and are convertible into Common Stock at a rate
of $38.10 per share. The preferred dividend is recognized on a straight-line
basis that approximates the effective interest method. These shares of Preferred
Stock are not classified as equity in certain instances as they are convertible
into shares of Common Stock at the election of the holder after December 31,
2002 or are redeemable for cash at the election of the holder in six annual
tranches commencing on May 12, 2009.
11. Future Minimum Rents
The Properties are leased to tenants under net operating leases with
initial term expiration dates ranging from 2001 to 2029. The future minimum
lease payments to be received (excluding operating expense reimbursements) by
the Company as of December 31, 2000, under non-cancelable operating leases, are
Years Ending December 31,
2001                $  706,952
2002                   696,506
Thereafter           2,509,988
The geographic concentration of the future minimum lease payments to be
received is detailed as follows:
Location                          (in thousands)
------------------               --------------
Greater Boston                     $1,243,948
Greater Washington, DC              1,532,001
New Jersey and Pennsylvania           382,014
Midtown Manhattan                   1,651,524
Greater San Francisco                 954,157
No one tenant represented more than 10.0% of the Company's total rental
income for the years ended December 31, 2000, 1999 and 1998.
12. Segment Reporting
The Company has determined that its reportable segments are those that are
based on the Company's method of internal reporting, which classifies its
operations by both geographic area and property type. The Company's reportable
segments by geographic area are: Greater Boston, Greater Washington, DC, Midtown
Manhattan, Greater San Francisco, and New Jersey and Pennsylvania. Segments by
property type include: Class A Office, R&D, Industrial, Hotel and Garage.
Asset information by reportable segment is not reported, since the Company
does not use this measure to assess performance; therefore, the depreciation and
amortization expenses are not allocated among segments. Development and
management services revenue, interest and other revenue, general and
administrative expenses and interest expense are not included in operating
income, as the internal reporting addresses these on a corporate level.
Information by Geographic Area and Property Type:
For the year ended December 31, 2000:
Greater            Greater            Midtown          Greater San            and
Boston         Washington, DC       Manhattan          Francisco         Pennsylvania           Total
Rental Revenue:
Class A                  $187,426           $212,512           $141,400           $182,657            $59,442           $783,437
R&D                         5,912             19,846                  0              1,851                  0             27,609
Industrial                  1,921              1,348                  0              1,736                714              5,719
Hotels                     38,703                  0                  0                  0                  0             38,703
Garage                      3,474                  0                  0                  0                  0              3,474
Total              237,436            233,706            141,400            186,244             60,156            858,942
% of Grand Totals             27.64%             27.21%             16.46%             21.68%              7.01%            100.00%
Rental Expenses:
Class A                    66,688             56,078             47,537             62,940             18,255            251,498
R&D                         2,315              3,498                  0                334                  0              6,147
Industrial                    553                452                  0                224                117              1,346
Hotels                      4,694                  0                  0                  0                  0              4,694
Total               75,266             60,028             47,537             63,498             18,372            264,701
Net Operating Income       $162,170           $173,678            $93,863           $122,746            $41,784           $594,241
Industrial                    506                450                  0                215                 83              1,254
Garage                        817                  0                  0                  0                  0                817
Class A                   $94,284           $169,882           $129,644            $18,914            $17,407           $430,131
Total              129,538            188,434            129,644             21,765             18,196            487,577
% of Grand Totals             26.57%             38.65%             26.59%              4.46%              3.73%            100.00%
Class A                    36,591             45,156             44,787              7,099              5,663            139,296
Total               43,018             49,116             44,787              7,799              5,770            150,490
Net Operating Income        $86,520           $139,318            $84,857            $13,966            $12,426           $337,087
The following is a reconciliation of net operating income to income before
minority interests and joint venture income:
2000            1999           1998
--------        --------       --------
Net operating income                                   $594,241        $516,149       $337,087
Development and management services                    11,837          14,708         12,411
Interest and other                                      8,574           6,439         13,859
General and administrative                             35,659          29,455         22,504
Interest expense                                      217,064         205,410        124,860
Depreciation and amortization                         133,150         120,059         75,418
Income before minority interests and joint
venture income                                       $228,779        $182,372       $140,575
========        ========       ========
13. Gain on Sale of Real Estate and Extraordinary Items
The Company realized a loss of $0.2 million (net of minority interest
share of $0.1 million) for the year ended December 31, 2000 related to the sales
of various properties. The Company realized a gain of $6.5 million (net of
minority interest share of $2.2 million) for the year ended December 31, 1999
from the sale of a property.
The Company incurred an extraordinary loss of $0.3 million (net of
from the write-off of unamortized deferred financing costs related to the early
extinguishment of a mortgage note payable. The Company incurred an extraordinary
loss of $5.5 million (net of minority interest share of $2.2
million) for the year ended December 31, 1998 primarily related to fees incurred
in connection with the repayment of certain mortgage notes payable in connection
with a property acquisition.
14. Earnings Per Share
Earnings per share is computed as follows:
For the year ended December 31, 2000
Income                Shares           Per Share
(Numerator)          (Denominator)         Amount
-----------          -------------         ------
Income available to common shareholders                          $146,426               71,424             $2.05
Effect of Dilutive Securities:
Stock Options and other                                                --                1,317              (.04)
Stock Options                                                          --                  541              (.01)
Income available to common shareholders                           $93,112               60,776             $1.53
15. Employee Benefit Plan
Effective January 1, 1985, the predecessor to the Company adopted a
401(k) Savings Plan (the "Plan") for its employees. Under the Plan, as amended,
employees as defined, are eligible to participate in the Plan after they have
completed three months of service. In addition, participants may elect to make
an after-tax contribution of up to 10% of their wages. Upon formation, the
Company adopted the Plan and the terms of the Plan.
In November 1999, the Company amended the Plan by increasing the Company's
matching contribution to 200% of the first 3% from 200% of the first 2% of
participant's pay contributed (utilizing pay that is not in excess of $100) and
by eliminating the vesting requirement. The effective date of these changes was
The Plan provides that matching employer contributions are to be
determined at the discretion of the Company. The Company's matching contribution
for the years ended December 31, 2000, 1999 and 1998 was $1,702, $889 and $583,
16. Stock Option and Incentive Plan
The Company has established a stock option and incentive plan for the
purpose of attracting and retaining qualified executives and rewarding them for
superior performance in achieving the Company's business goals and enhancing
stockholder value.
Under the plan, the number of shares available for option grant is
14,699,162 shares plus as of the first day of each calendar quarter after
January 1, 2000, 9.5% of any net increase since the first day of the preceding
calendar quarter in the total number of shares of Common Stock outstanding, on a
fully converted basis (excluding Preferred Stock). The strike price on the
shares granted is equal to the market price of the Company's Common Stock on the
grant date. Shares granted under the plan vest over three or five years. The
term of each option is ten years from the date of grant.
During the year ended December 31, 2000, the Company issued 34,822 shares
of restricted stock valued at approximately $1.0 million ($30.4375 per share).
The restricted stock vests over a five-year period, with one-fifth of the shares
vesting each year and has been recognized net of amortization as unearned
compensation on the consolidated balance sheets. There was no restricted stock
issued prior to the year 2000.
A summary of the status of the Company's stock options as of December 31,
2000, 1999 and 1998 and changes during the years ended December 31, 2000, 1999
and 1998 are presented below:
Shares      Exercise Price
------      --------------
Outstanding at January 1, 1998           2,284,100        $25.00
Granted                                  3,621,663        $34.13
Exercised                                   (1,034)       $25.00
Canceled                                   (66,779)       $31.61
---------        ------
Outstanding at December 31, 1998         5,837,950        $30.58
Exercised                                  (24,023)       $25.87
Exercised                                 (511,281)       $30.59
=========        ======
The per share weighted average fair value of options granted was $3.79,
$3.98 and $5.49 for the years ended December 31, 2000, 1999 and 1998,
respectively. The per share fair value of each option granted is estimated on
the date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions for grants in 2000, 1999 and 1998.
2000                  1999                  1998
--------------        -------------         --------------
Dividend yield                                       6.90%                   6.08%                  4.80%
Expected life of option                           6 Years                 6 Years                6 Years
Risk-free interest rate                              6.51%                   5.07%                  5.58%
Expected stock price volatility                        20%                     20%                    20%
The following table summarizes information about stock options outstanding
at December 31, 2000:
Options Outstanding                            Options Exercisable
-------------------                            -------------------
Number       Weighted Average                           Number            Weighted
Range of           Outstanding at       Remaining      Weighted Average    Exercisable at        Average
Exercise Prices         12/31/00       Contractual Life    Exercise Price        12/31/00        Exercise Price
- ---------------         --------       ----------------    --------------        --------        --------------
$25.00 - $36.81         8,101,682            7.47              $31.15            3,397,714           $32.11
The Company applies Accounting Practice Bulletin 25 and related
interpretations in accounting for its stock option plan. Accordingly, no
compensation cost has been recognized.
The compensation cost under SFAS 123 for the stock performance-based plan
would have been $11,993, $10,443 and $6,847 for the years ended December 31,
2000, 1999 and 1998, respectively. Had compensation cost for the Company's
grants for stock-based compensation plans been determined consistent with SFAS
123, the Company's net income, and net income per common share for 2000, 1999
and 1998 would approximate the pro forma amounts below:
--------    --------     -------
Net income                                $134,433    $103,504     $86,265
Net income per common share - basic       $   1.88    $   1.56     $  1.42
Net income per common share - diluted     $   1.85    $   1.55     $  1.41
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS 123 does not apply to future anticipated
17. Employee Stock Purchase Plan
The Company adopted the 1999 Non-Qualified Employee Stock Purchase Plan
(the "Stock Purchase Plan") to encourage the ownership of Common Stock by
eligible employees. The Stock Purchase Plan became effective on January 1, 1999
with an aggregate maximum of 250,000 shares of Common Stock available for
issuance. The Stock Purchase Plan provides for eligible employees to purchase at
the end of the biannual purchase periods shares of Common Stock for 85% of the
average closing price during the valuation period, as defined. The Company
issued 11,105 and 5,115 shares under the Stock Purchase Plan as of December 31,
2000 and 1999, respectively. No shares were issued in 1998.
18. Selected Interim Financial Information (unaudited)
2000 Quarter Ended
March 31,            June 30,        September 30,       December 31,
Total revenue                                        $210,254            $217,259           $223,313           $228,527
Income before minority interest in
Operating Partnership                                  50,172              56,419             58,404             64,610
Income before gain on sale                             32,620              37,030             38,777             45,139
Net income available to common
shareholders                                           30,977              35,684             36,530             43,235
Income before gain on sale per share
- - basic                                                   .46                 .52                .54                .54
- - diluted                                                 .45                 .51                .53                .52
19. Newly Issued Accounting Standard
As of January 1, 2001, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" as amended by SFAS No. 137 and
SFAS No. 138 ("SFAS No. 133"). SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and hedging activities. It requires the recognition
of all derivative instruments as assets or liabilities in the Company's
consolidated balance sheets at fair value. Changes in the fair value of
derivative instruments that are not designated as hedges or that do not meet the
hedge accounting criteria in SFAS No. 133 are required to be reported in
earnings. For derivatives designated as hedging instruments in qualifying cash
flow hedges, the effective portion of changes in fair value of the derivatives
are recognized in accumulated other comprehensive loss until the forecasted
transactions occur and the ineffective portions are recognized in earnings.
The nature of the Company's derivatives includes investments in warrants
to purchase shares of common stock of other companies and interest rate
agreements to protect against changes in interest rates for variable rate debt.
Based on the terms of the warrant agreements, the warrants meet the definition
of a derivative and accordingly must be marked to fair value through earnings.
The Company has been recording the warrants at fair value through accumulated
other comprehensive loss as available-for-sale securities under SFAS No. 115.
The Company estimates that, upon adoption of SFAS No. 133, it will reclass
approximately $6.8 million, the fair value of the warrants, from accumulated
other comprehensive loss to a cumulative effect of a change in accounting
principle. The Company's interest rate protection agreements will be designated
as hedging instruments in qualifying cash flow hedges. As such, the Company
estimates that upon adoption of SFAS No. 133, it will record an asset of
approximately $0.2 million and record a liability of approximately $11.4 million
for the fair values of these agreements. The offset for these entries will be to
a cumulative effect of a change in accounting principle and accumulated other
comprehensive loss, respectively. Finally, the Company estimates it will
Schedule 3 - Real Estate and Accumulated Depreciation
Property Name                    Type         Location          Encumbrances        Land
- -------------                    ----         --------          ------------        ----
Embarcadero Center              Office     San Francisco, CA        $711,325       $211,297
Prudential Center               Office     Boston, MA                367,937         77,850
Carnegie Center                 Office     Princeton, NJ             153,611        100,434
280 Park Avenue                 Office     New York, NY              270,000        125,288
599 Lexington Avenue            Office     New York, NY              225,000         81,040
875 Third Avenue                Office     New York, NY              150,959         74,880
Riverfront Plaza                Office     Richmond, VA              115,647         18,000
100 East Pratt Street           Office     Baltimore, MD              91,851         27,562
Gateway Center                  Office     San Francisco, CA          89,888         21,516
Reservoir Place                 Office     Waltham, MA                73,858         18,207
Democracy Center                Office     Bethesda, MD              107,717         12,550
Two Independence Square         Office     Washington, DC            116,377         14,053
One and Two Reston Overlook     Office     Reston, VA                 68,190         16,456
NIMA Building                   Office     Reston, VA                 21,495         10,567
Lockheed Martin Building        Office     Reston, VA                 26,289         10,210
Candler Building                Office     Baltimore, MD                   -         12,500
One Independence Square         Office     Washington, DC             74,114          9,356
2300 N Street                   Office     Washington, DC             66,000         16,509
Reston Corporate Center         Office     Reston, VA                 24,809          9,135
Capital Gallery                 Office     Washington, DC             57,161          4,725
191 Spring Street               Office     Lexington, MA              22,797          2,850
1301 New York Avenue            Office     Washington, DC             32,710          9,250
200 West Street                 Office     Waltham, MA                     -         16,148
Sumner Square                   Office     Washington, DC             28,298            624
University Place                Office     Cambridge, MA              25,253              -
500 E Street                    Office     Washington, DC                  -            109
One Cambridge Center            Office     Cambridge, MA                   -            134
Orbital Sciences, Phase One     Office     Dulles, VA                 25,761          3,150
Eight Cambridge Center          Office     Cambridge, MA              28,412            921
Ten Cambridge Center            Office     Cambridge, MA              35,741          1,299
Newport Office Park             Office     Quincy, MA                  5,923          3,500
Bedford Business Park           Office     Bedford, MA                21,717            534
Subsequent                                    Land
to         Land and    Building and     Held for
Property Name                        Building   Acquisition  Improvements  Improvements    Development
- -------------                        --------   -----------  ------------  ------------    -----------
Embarcadero Center                   $996,442       $37,979      $212,149    $1,033,569        $     -
Prudential Center                     443,180       234,421        77,850       479,060         28,095
Carnegie Center                       340,259        14,814       107,415       338,486              -
280 Park Avenue                       201,115        31,912       125,288       233,027              -
599 Lexington Avenue                  100,507        71,381        81,040       171,888              -
875 Third Avenue                      139,151         7,756        74,880       146,907              -
Riverfront Plaza                      156,733           827        18,274       157,286              -
100 East Pratt Street                 109,662         2,515        27,562       112,177              -
Gateway Center                         86,395        14,517        22,290        87,537            193
Reservoir Place                        88,018         5,130        18,207        93,148              -
Democracy Center                       50,015        24,735        13,689        73,611              -
Two Independence Square                59,883         9,171        15,039        68,068              -
One and Two Reston Overlook            66,192             -        16,456        66,192              -
NIMA Building                          67,431             2        10,567        67,433              -
Lockheed Martin Building               58,884             -        10,210        58,884              -
Candler Building                       48,734         1,166        12,555        49,845              -
One Independence Square                33,701        17,504         9,634        50,927              -
2300 N Street                          22,415        13,284        16,509        35,699              -
Reston Corporate Center                41,398           748         9,135        42,146              -
Capital Gallery                        29,560        14,507         4,730        44,062              -
191 Spring Street                      27,166        18,775         2,850        45,941              -
1301 New York Avenue                   18,750        16,961         9,250        35,711              -
200 West Street                        24,983             5        16,148        24,988              -
Sumner Square                          28,745        10,349           958        38,760              -
University Place                       37,091           973            27        38,037              -
500 E Street                           22,420        11,448         1,569        32,408              -
One Cambridge Center                   25,110         7,200           134        32,310              -
Orbital Sciences, Phase One            26,229            18         3,150        26,247              -
Eight Cambridge Center                 25,042           262         1,101        25,124              -
Ten Cambridge Center                   12,943         7,593         1,868        19,967              -
Newport Office Park                    18,208            22         3,500        18,230              -
Bedford Business Park                   3,403        16,135           534        19,538              -
and                                    Year(s)
Construction               Accumulated      Built         Depreciable
Property Name                      in Progress     Total     Depreciation   Renovated      Lives (Years)
- -------------                      -----------     -----     ------------   ---------      -------------
Embarcadero Center                    $      -   $1,245,718       $57,032   1924/1989           (1)
Prudential Center                      170,446      755,451        29,552   1965/1993           (1)
Carnegie Center                          9,606      455,507        17,414   1983-1999           (1)
280 Park Avenue                              -      358,315        20,698   1968/95-96          (1)
599 Lexington Avenue                         -      252,928        79,874   1986                (1)
875 Third Avenue                             -      221,787        10,833   1982                (1)
Riverfront Plaza                             -      175,560        11,372   1990                (1)
100 East Pratt Street                        -      139,739         9,454   1975/1991           (1)
Gateway Center                          12,408      122,428         2,938   1984/1986           (1)
Reservoir Place                              -      111,355         5,184   1955/1987           (1)
Democracy Center                             -       87,300        28,590   1985-88/94-96       (1)
Two Independence Square                      -       83,107        16,791   1992                (1)
One and Two Reston Overlook                  -       82,648         2,455   1999                (1)
NIMA Building                                -       78,000         4,917   1987/1988           (1)
Lockheed Martin Building                     -       69,094         4,293   1987/1988           (1)
Candler Building                             -       62,400         2,832   1911/1990           (1)
One Independence Square                      -       60,561        16,958   1991                (1)
2300 N Street                                -       52,208        13,094   1986                (1)
Reston Corporate Center                      -       51,281         3,105   1984                (1)
Capital Gallery                              -       48,792        21,395   1981                (1)
191 Spring Street                            -       48,791        15,093   1971/1995           (1)
1301 New York Avenue                         -       44,961         1,938   1983/1998           (1)
200 West Street                              -       41,136         1,270   1999                (1)
Sumner Square                                -       39,718         1,452   1985                (1)
University Place                             -       38,064         2,327   1985                (1)
500 E Street                                 -       33,977        15,328   1987                (1)
One Cambridge Center                         -       32,444        11,909   1987                (1)
Orbital Sciences, Phase One                  -       29,397           526   2000                (1)
Eight Cambridge Center                       -       26,225           986   1999                (1)
Ten Cambridge Center                         -       21,835         7,479   1990                (1)
Newport Office Park                          -       21,730         1,594   1988                (1)
Bedford Business Park                        -       20,072         8,606   1980                (1)
201 Spring Street               Office     Lexington, MA                   -          2,849
10 and 20 Burlington Mall
Road                            Office     Burlington, MA             16,613            930
Montvale Center                 Office     Gaithersburg, MD            7,564          1,574
Fullerton Square                Office     Springfield, VA                 -          3,045
The Arboretum                   Office     Reston, VA                      -          2,850
Three Cambridge Center          Office     Cambridge, MA                   -            174
Lexington Office Park           Office     Lexington, MA                   -            998
Sugarland Business Park         Office     Herndon, VA                     -          1,569
Decoverly Three                 Office     Rockville, MD                   -          2,650
Decoverly Two                   Office     Rockville, MD                   -          1,994
7700 Boston Boulevard,
Building Twelve                 Office     Springfield, VA                 -          1,105
Building Seven                  Office     Springfield, VA                 -            665
91 Hartwell Avenue              Office     Lexington, MA              11,322            784
92-100 Hayden Avenue            Office     Lexington, MA               9,065            594
195 West Street                 Office     Waltham, MA                     -          1,611
Waltham Office Center           Office     Waltham, MA                     -            422
Eleven Cambridge Center         Office     Cambridge, MA                   -            121
Building One                    Office     Springfield, VA                 -            392
170 Tracer Lane                 Office     Waltham, MA                     -            398
Building Three                  Office     Springfield, VA                 -          1,165
8000 Grainger Court,
Building Five                   Office     Springfield, VA                 -            366
Fourteen Cambridge Center       Office     Cambridge, MA                   -            110
32 Hartwell Avenue              Office     Lexington, MA                   -            168
Building Nine                   Office     Springfield, VA                 -            127
Building Eight                  Office     Springfield, VA                 -            200
Building Six                    Office     Springfield, VA                 -            138
33 Hayden Avenue                Office     Lexington, MA                   -            266
8000 Corporate Court,
Building Eleven                 Office     Springfield, VA                 -            136
Building Ten                    Office     Springfield, VA                 -             23
Building Two                    Office     Springfield, VA                 -            249
204 Second Avenue               Office     Waltham, MA                     -             37
Building Four                   Office     Springfield, VA                 -            241
Property Name                       Building   Acquisition  Improvements  Improvements    Development
- -------------                       --------   -----------  ------------  ------------    ------------
201 Spring Street                     15,303            63         2,849        15,366              -
Road                                   6,928         9,320           938        16,240              -
Montvale Center                        9,786         4,361         2,399        13,322              -
Fullerton Square                      11,522           622         3,045        12,144              -
The Arboretum                          9,025         2,380         2,850        11,405              -
Three Cambridge Center                12,200         1,257           174        13,457              -
Lexington Office Park                  1,426        11,088         1,073        12,439              -
181 Spring Street                      9,520         1,924         1,066        11,444              -
Sugarland Business Park                5,955         4,108         1,569        10,063              -
Decoverly Three                        8,465            40         2,650         8,505              -
Decoverly Two                          8,814            94         1,994         8,908              -
Building Twelve                        9,077           259         1,105         9,336              -
Building Seven                         9,273             9           665         9,282              -
91 Hartwell Avenue                     6,464         2,420           784         8,884              -
92-100 Hayden Avenue                   6,748         2,229           594         8,977              -
195 West Street                        6,652           622         1,611         7,274              -
Waltham Office Center                  2,719         5,290           425         8,006              -
Eleven Cambridge Center                5,535         2,316           121         7,851              -
Building One                           3,822         2,277           486         6,005              -
170 Tracer Lane                        4,601         1,396           418         5,977              -
Building Three                         4,681           248         1,327         4,767              -
Building Five                          4,282           995           453         5,190              -
Fourteen Cambridge Center              4,483           569           110         5,052              -
Building Nine                          2,839         1,743           189         4,520              -
Building Eight                           878         3,506           378         4,206              -
Building Six                           3,749           323           273         3,937              -
33 Hayden Avenue                       3,234           181           266         3,415              -
Building Eleven                        3,071           153           271         3,089              -
Building Ten                           2,685           630            47         3,291              -
Building Two                           1,542         1,510           535         2,766              -
204 Second Avenue                      2,402           822            37         3,224              -
Building Four                          1,605           439           303         1,982              -
and                                   Year(s)
Construction               Accumulated     Built                Depreciable
Property Name                    in Progress     Total     Depreciation   Renovated            Lives (Years)
- -------------                    -----------     -----     ------------   ---------            -------------
201 Spring Street                          -       18,215         1,620   1997                     (1)
Road                                       -       17,178         6,829   1984-1989/95-96          (1)
Montvale Center                            -       15,721         5,462   1987                     (1)
Fullerton Square                           -       15,189           866   1987                     (1)
The Arboretum                              -       14,255           709   1999                     (1)
Three Cambridge Center                     -       13,631         4,522   1987                     (1)
Lexington Office Park                      -       13,512         5,661   1982                     (1)
181 Spring Street                          -       12,510           264   1999                     (1)
Sugarland Business Park                    -       11,632         1,517   1986/1997                (1)
Decoverly Three                            -       11,155           548   1989                     (1)
Decoverly Two                              -       10,902           656   1987                     (1)
Building Twelve                            -       10,441           902   1997                     (1)
Building Seven                             -        9,947           772   1997                     (1)
91 Hartwell Avenue                         -        9,668         4,040   1985                     (1)
92-100 Hayden Avenue                       -        9,571         3,521   1985                     (1)
195 West Street                            -        8,885         2,142   1990                     (1)
Waltham Office Center                      -        8,431         3,831   1968-1970/87-88          (1)
Eleven Cambridge Center                    -        7,972         2,974   1984                     (1)
Building One                               -        6,491         2,853   1982                     (1)
170 Tracer Lane                            -        6,395         3,542   1980                     (1)
Building Three                             -        6,094           333   1987                     (1)
Building Five                              -        5,643         2,148   1984                     (1)
Fourteen Cambridge Center                  -        5,162         2,067   1983                     (1)
32 Hartwell Avenue                         -        4,852         3,497   1968-1979/1987           (1)
Building Nine                              -        4,709         1,957   1987                     (1)
Building Eight                             -        4,584         1,711   1986                     (1)
Building Six                               -        4,210         1,597   1985                     (1)
33 Hayden Avenue                           -        3,681         1,709   1979                     (1)
Building Eleven                            -        3,360           983   1989                     (1)
Building Ten                               -        3,338         1,207   1988                     (1)
Building Two                               -        3,301         2,028   1982                     (1)
204 Second Avenue                          -        3,261         1,645   1981/1993                (1)
Building Four                              -        2,285           896   1984                     (1)
164 Lexington Road              Office     Billerica, MA                   -            592
Hilltop Business Center         Office     San Francisco, CA           5,738             53
17 Hartwell Avenue              Office     Lexington, MA                   -             26
6201 Columbia Park Road,
Building Two                  Industrial   Landover, MD                    -            505
38 Cabot Boulevard            Industrial   Langhorne, PA                   -            329
40-46 Harvard Street          Industrial   Westwood, MA                    -            351
2000 South Club Drive,
Building Three                Industrial   Landover, MD                    -            465
25-33 Dartmouth Street        Industrial   Westwood, MA                    -            273
2391 West Winton Avenue       Industrial   Hayward, CA                     -            182
430 Rozzi Place               Industrial   San Francisco, CA               -              9
560 Forbes Boulevard          Industrial   San Francisco, CA               -              9
Cambridge Center Marriott        Hotel     Cambridge, MA                   -            478
Long Wharf Marriott              Hotel     Boston, MA                      -          1,752
Residence Inn by Marriott        Hotel     Cambridge, MA                   -          2,307
Cambridge Center North
Garage                          Garage     Cambridge, MA                   -          1,163
Five Times Square             Development  New York, NY              184,157              -
Times Square Tower            Development  New York, NY                    -              -
New Dominion Technology
Park, One                     Development  Herndon, VA                98,142              -
Plaza at Almaden              Development  San Jose, CA                    -              -
2600 Tower Oaks Boulevard     Development  Rockville, MD              18,083              -
Waltham/Weston Corporate
Center                        Development  Waltham, MA                     -              -
Quorum Office Park            Development  Chelmsford, MA             11,111              -
Orbital Sciences, Phase Two   Development  Dulles, VA                  8,032              -
One Preserve Parkway          Development  Rockville, MD                   -              -
40 Shattuck Road              Development  Andover, MA                 6,224              -
Broad Run Business Park,
Building E                    Development  Loudon County, VA               -              -
Decoverly Seven               Development  Rockville, MD                   -              -
ITT Educational Services
Building                      Development  Springfield, VA                 -              -
Tower Oaks Master Plan           Land      Rockville, MD                   -              -
Washingtonian North              Land      Gaithersburg, MD                -              -
Crane Meadow                     Land      Marlborough, MA                 -              -
Broad Run Business Park          Land      Loudon County, VA               -              -
12050 Sunset Hills Road          Land      Reston, VA                      -              -
Property Name                      Building   Acquisition  Improvements  Improvements    Development
- -------------                      --------   -----------  ------------  ------------    -----------
164 Lexington Road                    1,370           132           592         1,502              -
Hilltop Business Center                 492         1,504           109         1,940              -
17 Hartwell Avenue                      150           587            26           737              -
Building Two                          2,746         1,227           960         3,518              -
38 Cabot Boulevard                    1,238         2,608           329         3,846              -
40-46 Harvard Street                  1,782         1,327           351         3,109              -
Building Three                        2,125           740           859         2,471              -
25-33 Dartmouth Street                1,596           503           273         2,099              -
2391 West Winton Avenue               1,217           615           182         1,832              -
430 Rozzi Place                         217            33             9           250              -
560 Forbes Boulevard                    120             -             9           120              -
Cambridge Center Marriott            37,918         7,806           478        45,724              -
Long Wharf Marriott                  31,904         9,302         1,752        41,206              -
Residence Inn by Marriott            22,732            75         2,307        22,807              -
Garage                               11,633           147         1,163        11,780              -
Five Times Square                         -       273,773             -             -              -
Times Square Tower                        -       175,724             -             -              -
Park, One                                 -        41,870             -             -              -
Plaza at Almaden                          -        26,956             -             -              -
2600 Tower Oaks Boulevard                 -        26,315             -             -              -
Center                                    -        20,533             -             -              -
Quorum Office Park                        -        16,165             -             -              -
Orbital Sciences, Phase Two               -        13,642             -             -              -
One Preserve Parkway                      -         9,057             -             -              -
40 Shattuck Road                          -         8,381             -             -              -
Building E                                -         6,531             -             -              -
Decoverly Seven                           -         5,290             -             -              -
Building                                  -           781             -             -              -
Tower Oaks Master Plan                    -        19,195             -             -         19,195
Washingtonian North                       -        16,175             -             -         16,175
Crane Meadow                              -         7,760             -             -          7,760
Broad Run Business Park                   -         5,575             -             -          5,575
12050 Sunset Hills Road                   -         5,529             -             -          5,529
Construction               Accumulated     Built          Depreciable
Property Name                  in Progress     Total     Depreciation   Renovated      Lives (Years)
- -------------                  -----------     -----     ------------   ---------      -------------
164 Lexington Road                       -        2,094           199   1982                (1)
Hilltop Business Center                  -        2,049           914   early 1970's        (1)
17 Hartwell Avenue                       -          763           579   1968                (1)
Building Two                             -        4,478         1,650   1986                (1)
38 Cabot Boulevard                       -        4,175         2,581   1972/1984           (1)
40-46 Harvard Street                     -        3,460         3,100   1967/1996           (1)
Building Three                           -        3,330           987   1988                (1)
25-33 Dartmouth Street                   -        2,372         1,564   1966/1996           (1)
2391 West Winton Avenue                  -        2,014         1,101   1974                (1)
430 Rozzi Place                          -          259            52   early 1970's        (1)
560 Forbes Boulevard                     -          129            74   early 1970's        (1)
Cambridge Center Marriott                -       46,202        15,196   1986                (1)
Long Wharf Marriott                      -       42,958        18,909   1982                (1)
Residence Inn by Marriott                -       25,114           735   1999                (1)
Garage                                   -       12,943         3,325   1990                (1)
Five Times Square                  273,773      273,773             -   Various             N/A
Times Square Tower                 175,724      175,724             -   Various             N/A
Park, One                           41,870       41,870             -   Various             N/A
Plaza at Almaden                    26,956       26,956             -   Various             N/A
2600 Tower Oaks Boulevard           26,315       26,315             -   Various             N/A
Center                              20,533       20,533             -   Various             N/A
Quorum Office Park                  16,165       16,165             -   Various             N/A
Orbital Sciences, Phase Two         13,642       13,642             -   Various             N/A
One Preserve Parkway                 9,057        9,057             -   Various             N/A
40 Shattuck Road                     8,381        8,381             -   Various             N/A
Building E                           6,531        6,531             -   Various             N/A
Decoverly Seven                      5,290        5,290             -   Various             N/A
Building                               781          781             -   Various             N/A
Tower Oaks Master Plan                   -       19,195             -   Various             N/A
Washingtonian North                      -       16,175             -   Various             N/A
Crane Meadow                             -        7,760             -   Various             N/A
Broad Run Business Park                  -        5,575             -   Various             N/A
12050 Sunset Hills Road                  -        5,529             -   Various             N/A
12280 Sunrise Valley Drive       Land      Reston, VA                      -              -
Park, Two                        Land      Herndon, VA                     -              -
599 Van Buren Street             Land      Herndon, VA                     -              -
Decoverly Six                    Land      Rockville, MD                   -              -
Cambridge Master Plan            Land      Cambridge, MA                   -              -
Decoverly Five                   Land      Rockville, MD                   -              -
Decoverly Four                   Land      Rockville, MD                   -              -
Seven Cambridge Center           Land      Cambridge, MA                   -              -
30 Shattuck Road                 Land      Andover, MA                     -              -
Virginia Master Plan             Land      Springfield, VA                 -              -
----------       --------
$3,414,891       $948,165
==========       ========
Property Name                         Building   Acquisition  Improvements  Improvements    Development
- -------------                         --------   -----------  ------------  ------------    -----------
12280 Sunrise Valley Drive                   -         3,902             -             -          3,902
Park, Two                                    -         3,827             -             -          3,827
599 Van Buren Street                         -         3,640             -             -          3,640
Decoverly Six                                -         3,624             -             -          3,624
Cambridge Master Plan                        -         2,969             -             -          2,969
Decoverly Five                               -         1,806             -             -          1,806
Decoverly Four                               -         1,785             -             -          1,785
Seven Cambridge Center                       -         1,157             -             -          1,157
30 Shattuck Road                             -         1,007             -             -          1,007
Virginia Master Plan                         -           766             -             -            766
----------    ----------      --------    ----------       --------
$3,718,234    $1,388,386      $965,140    $4,165,162       $107,005
==========    ==========      ========    ==========       ========
12280 Sunrise Valley Drive                   -        3,902             -   Various             N/A
Park, Two                                    -        3,827             -   Various             N/A
599 Van Buren Street                         -        3,640             -   Various             N/A
Decoverly Six                                -        3,624             -   Various             N/A
Cambridge Master Plan                        -        2,969             -   Various             N/A
Decoverly Five                               -        1,806             -   Various             N/A
Decoverly Four                               -        1,785             -   Various             N/A
Seven Cambridge Center                       -        1,157             -   Various             N/A
30 Shattuck Road                             -        1,007             -   Various             N/A
Virginia Master Plan                         -          766             -   Various             N/A
--------   ----------      --------
$817,478   $6,054,785      $553,264
========   ==========      ========
(1)   Depreciation of the buildings and improvements are calculated over lives
ranging from the life of the lease to 40 years.
(2)   The aggregate cost and accumulated depreciation for tax purposes was
approximately $4,900,000 and $820,000, respectively.
Real Estate and Accumulated Depreciation
A summary of activity for real estate and accumulated depreciation is as
Balance at the beginning of the year               $ 5,570,887    $ 4,881,483    $ 1,754,780
Additions to and improvements of real estate       759,540        691,199      3,129,121
Assets sold and written-off                       (275,642)        (1,795)        (2,418)
Balance at the end of the year                     $ 6,054,785    $ 5,570,887    $ 4,881,483
Accumulated Depreciation:
Balance at the beginning of the year               $   445,138    $   336,165    $   266,987
Depreciation expense                               118,748        110,768         71,596
Assets sold and written-off                        (10,622)        (1,795)        (2,418)
Balance at the end of the year                     $   553,264    $   445,138    $   336,165
CERTIFICATE OF DESIGNATIONS
ESTABLISHING AND FIXING THE RIGHTS, LIMITATIONS AND
PREFERENCES OF A SERIES OF PREFERRED UNITS
DENOMINATED THE SERIES Z PREFERRED UNITS
Reference is made to the Second Amended and Restated Agreement of Limited
Partnership (the "Partnership Agreement") of Boston Properties Limited
Partnership, a Delaware limited partnership (the "Partnership"), of which this
Certificate of Designations (this "Certificate") shall become a part.
Capitalized terms used herein and not defined herein have the meanings ascribed
thereto in the main part of the Partnership Agreement.  Section references are
(unless otherwise specified) references to sections in this Certificate.
WHEREAS, Section 14.1.B(3) of the main part of the Partnership Agreement
permits the General Partner, without the consent of the Limited Partners, to
amend the Partnership Agreement for the purpose of setting forth and reflecting
in the Partnership Agreement the designations, rights, powers, duties, and
preferences of holders of any additional Partnership Interests issued pursuant
to Section 4.2.A of the main part of the Partnership Agreement; and
WHEREAS, the General Partner desires by this Certificate to so amend the
Partnership Agreement as of this __ day of December, 2000.
NOW, THEREFORE, the General Partner has set forth in this Certificate the
following description of the preferences and other rights, voting powers,
restrictions, limitations as to distributions, qualifications and terms and
conditions of redemption and conversion of a class and series of Partnership
Interest to be represented by Partnership Units which shall be referred to as
"Series Z Preferred Units":
1.   Designation and Number.  A series of Preferred Units, designated the
"Series Z Preferred Units," is hereby established.
2.   Definitions.  For purposes of this Certificate of Designations, the
following terms shall have the meanings indicated:
"Adjusted Fair Market Value" shall have the meaning set forth in paragraph
(b) of Section 5 hereof.
"Adjustment Event" shall have the meaning set forth in paragraph (d) of
Section 7 hereof.
"Adjustment Factor" shall mean a factor equal to one (1), unless one or
more Adjustment Events occur between the Signing Date and any of the Conversion
Date, a Redemption Date or
an Option Strike Date, as applicable, in which case this factor shall be
recalculated pursuant to Section 7(d) hereof.
"Constituent Person" shall have the meaning set forth in paragraph (e) of
Section 7  hereof.
"Contribution Agreement" means that certain Contribution Agreement dated as
of February 11, 2000 by and among the Owner, as named therein, on the one hand,
and the Partnership, on the other hand (as may be amended, modified or
supplemented from time to time).
"Conversion Price" shall mean the Fair Market Value of a Common Unit as of
either the Conversion Date or the Option Strike Date, as applicable.
"Conversion Date" shall have the meaning set forth in Section 7(a) hereof.
"Current Market Price" of a REIT Share or of a publicly traded security of
any other issuer for any day shall mean the last reported sales price, regular
way, on such day, or, if no sale takes place on such day, the average of the
reported closing bid and asked prices on such day, regular way, in either case
as reported on the New York Stock Exchange ("NYSE") or, if such security is not
listed or admitted for trading on the NYSE, on the principal national securities
exchange on which such security is listed or admitted for trading or, if not
listed or admitted for trading on any national securities exchange, on the
Nasdaq National Market or, if such security is not quoted on such Nasdaq
National Market, the average of the closing bid and asked prices on such day in
the over-the-counter market as reported by Nasdaq or, if bid and asked prices
for such security on such day shall not have been reported through Nasdaq, the
average of the bid and asked prices on such day as furnished by any NYSE member
firm regularly making a market in such security selected for such purpose by the
Chief Executive Officer of the Partnership or the General Partner.  "Current
Market Price" of a Common Unit as of any day means the Current Market Price of a
REIT Share multiplied by the Conversion Factor, as such term is defined in the
main part of the Partnership Agreement.
"Distribution Payment Date" shall mean the dates upon which the General
Partner makes quarterly distributions in accordance with Section 5.1 of the main
part of the Partnership Agreement.
"Distribution Periods" shall have the meaning given such term in the main
"Fair Market Value" shall mean the average of the daily Current Market
Prices per Common Unit during the ten (10) consecutive Trading Days ending not
later than (and including) the third business day immediately preceding the day
in question.
"Full Distribution Period" shall have the meaning set forth in paragraph
(a) of Section 3 hereof.
"Half Distribution Period" shall have the meaning set forth in paragraph
"Junior Units" shall mean the Common Units and any other class or series of
Partnership Units constituting junior units within the meaning set forth in
paragraph (c) of Section 9 hereof.
"Liquidation Event" shall have the meaning set forth in paragraph (a) of
"Liquidation Preference" shall have the meaning set forth in paragraph (a)
of Section 4 hereof.
"Non-Electing Unit" shall have the meaning set forth in paragraph (e) of
"Optional Conversion Notice" shall have the meaning set forth in paragraph
"Optional Conversion Right" shall have the meaning set forth in paragraph
"Option Strike Date" shall have the meaning set forth in paragraph (a) of
"Parity Units" shall have the meaning set forth in paragraph (b) of Section
9 hereof.
"Redemption Amount" shall have the meaning set forth in paragraph (a) of
"Redemption Date" shall have the meaning set forth in paragraph (a) of
"Redemption Notice" shall have the meaning set forth in paragraph (a) of
"Redemption Requirement" shall have the meaning set forth in paragraph (a)
"Reference Record Date" shall have the meaning set forth in paragraph (a)
"Registration Rights and Lock-Up Agreement" shall mean that certain
Registration Rights and Lock-Up Agreement, dated as of December __, 2000,
between the Company and the Holders named therein.
"Regular Common Unit Distribution" shall have the meaning set forth in
paragraph (a) of Section 3 hereof.
"Securities" shall have the meaning set forth in paragraph (d)(iii) of
"Set apart for payment" shall be deemed to include, without any action
other than the following, the recording by the Partnership in its accounting
ledgers of any accounting or bookkeeping entry which indicates, pursuant to a
declaration of a distribution by the General Partner, the allocation of funds to
be so paid on any series or class of Partnership Units; provided, however, that
if any funds for any class or series of Junior Units or Parity Units are placed
in a separate account of the Partnership or delivered to a disbursing, paying or
other similar agent, then "set apart for payment" with respect to the Series Z
Preferred Units shall mean placing such funds in a separate account or
delivering such funds to a disbursing, paying or other similar agent.
"Signing Date" shall mean February 11, 2000 (the date of signing of the
Contribution Agreement).
"Stated Distribution" shall have the meaning set forth in paragraph (a) of
"Trading Day" shall mean any day on which the securities in question are
traded on the New York Stock Exchange ("NYSE"), or if such securities are not
exchange on which such securities are listed or admitted, or if not listed or
admitted for trading on any national securities exchange, on the Nasdaq National
Market, or if such securities are not quoted on such Nasdaq National Market, in
the applicable securities market in which the securities are traded.
"Transaction" shall have the meaning set forth in paragraph (e) of Section
"Zero Distribution Period" shall have the meaning set forth in paragraph
3.   Distributions.
(a) The holders of Series Z Preferred Units shall not be entitled to
receive any distributions until and including August 11, 2001 (18 months from
the Signing Date) (the "Zero Distribution Period").  After August 11, 2001 and
until and including February 11, 2002 (24 months from the Signing Date) (the
"Half  Distribution Period"), in respect of each Distribution Payment Date,
when, as and if authorized and declared by the General Partner out of assets
legally available for that purpose, the holders of Series Z Preferred Units
shall be entitled to receive distributions in an amount per Series Z Preferred
Unit equivalent to one-half of the regular, quarterly cash distribution per
Common Unit (the "Regular Common Unit Distribution") paid to holders of record
of Common Units on the record date (the "Reference Record Date") established by
the General Partner with respect to such Distribution Payment Date.   After
February 11, 2002 (24 months from the Signing Date), so long as Series Z
Preferred Units continue to be outstanding (the "Full  Distribution Period"), in
respect of each Distribution Payment Date, when, as and if authorized and
declared by the General Partner out of assets legally available for that
purpose, the holders of Series Z Preferred Units shall be entitled to receive
Stated Distribution in an amount per Series Z Preferred Unit equivalent to the
Common Unit Distribution paid to holders of record of Common Units on the
Reference Record Date. If a Distribution Period includes portions of the Zero
Distribution Period and the Half Distribution Period or parts of the Half
Distribution Period and the Full Distribution Period, then the Stated
Distribution shall be pro rated as appropriate on the basis of the number of
days within such Distribution Period included in a Zero Distribution Period, a
Half Distribution Period or a Full Distribution Period, as applicable.
For purposes of determining the amount distributable to the holders of
Series Z Preferred Units on a per Series Z Preferred Units basis (the "Stated
Distribution"):
(i) if an Adjustment Event occurs after the Signing Date, then the
Stated Distribution for the applicable Distribution Period shall
be calculated by multiplying the applicable Regular Common Unit
Distribution by the Adjustment Factor, as recalculated to give
effect to such Adjustment Event; and
(ii) if a special cash distribution was paid to holders of Common
Units on the Reference Record Date or at any time prior to the
Reference Record Date and after the last record date for regular,
quarterly cash distributions, then the Stated Distribution shall
include, in addition to the Regular Distribution paid in respect
of the Reference Record Date, an amount equal to the applicable
proportionate share (depending on whether the payment is made
during a Zero Distribution Period, a Half Distribution Period or a
Full Distribution Period) of such special cash distribution paid
in respect of each Common Unit (for clarity, it is noted that the
effect of this sentence is to assure that in calculating the
Stated Distribution the holders of Series Z Preferred Units will
benefit from any cash distributions paid in respect of Common
Units even if such cash distributions might not be characterized
as "regular, quarterly cash distributions").
In the event that a Series Z Preferred Unit is outstanding for only a portion of
a Distribution Period, then the Stated Distribution with respect to such Series
Z Preferred Unit and such Distribution Period shall be determined as provided in
the preceding sentence but shall then be adjusted by multiplying such amount by
a fraction, the numerator of which equals the number of days such Series Z
Preferred Unit had been outstanding during such period and the denominator of
which shall equal the total number of days during such Distribution Period.
Such distributions shall, with respect to each Series Z Preferred Unit, be
payable in arrears on each Distribution Payment Date.  Each such distribution
shall be payable to the holders of record of the Series Z Preferred Units, as
they appear on the records of the Partnership on the applicable Reference Record
(b) During any Distribution Period, so long as any Series Z Preferred Units
are outstanding, no distributions (whether in cash or in kind or upon
liquidation of the Partnership), except as described in the immediately
following sentence, shall be authorized and declared or paid on any series or
class or classes of Parity Units for such Distribution Period, unless full
distributions have been or contemporaneously are authorized and declared and
paid on the Series
Z Preferred Units for such Distribution Period. When distributions are not paid
in full upon the Series Z Preferred Units and any other class or classes of
Parity Units, all distributions authorized upon the Series Z Preferred Units and
any other class or classes of Parity Units shall be authorized and declared
ratably in proportion to the respective amounts of distributions unpaid on the
Series Z Preferred Units and such Parity Units (which shall not include any
accrual in respect of unpaid distributions for prior distribution periods if
such Parity Units do not have a cumulative distribution).
(c) During any Distribution Period, so long as any Series Z Preferred Units
are outstanding, no distributions (other than distributions paid solely in
Junior Units, or options, warrants or rights to subscribe for or purchase Junior
Units) shall be authorized and declared or paid or other distribution authorized
and declared or made upon Junior Units for any period, unless the full
distributions on all outstanding Series Z Preferred Units and any other Parity
Units shall have been paid or are contemporaneously paid for such Distribution
Period with respect to the Series Z Preferred Units.
(d) Without limiting the other provisions hereof, no distributions on
Series Z Preferred Units (other than liquidating distributions made in
accordance with Section 13.2 of the main part of the Partnership Agreement and
Section 4 hereof) shall be paid by the Partnership at such time as the terms and
provisions of any agreement of the Partnership or its affiliates or
subsidiaries, relating to bona fide indebtedness for borrowed money, prohibits
such declaration or payment or provides that such declaration or payment would
constitute a breach thereof or a default thereunder, or if such declaration or
payment shall be restricted or prohibited by law.
(e) Upon liquidation, dissolution or winding up of the Partnership, no
distributions shall be made to any series or class or classes of Junior Units
until after payment shall have been made in full to the holders of any Series Z
Preferred Units then outstanding, as provided in Section 4(a).
(f) With respect to Common Units issued upon conversion of Series Z
Preferred Units pursuant to Sections 6 or 7 hereof or upon redemption of Series
Z Preferred Units pursuant to Section 5 hereof, the first Regular Common Unit
Distribution subsequent to the date of conversion or redemption, as applicable,
shall be reduced by multiplying the amount of such distribution by a fraction,
the numerator of which equals the number of days such Common Units had been
outstanding during the quarterly period to which such distribution relates and
the denominator of which shall equal the total number of days during such
quarterly period.
4.   Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of the
Partnership, whether voluntary or involuntary ("Liquidation Event"), before any
payment or distribution of the assets of the Partnership (whether capital or
surplus) shall be made to or set apart for the holders of Junior Units, the
holders of Series Z Preferred Units shall be entitled to receive Thirty-Seven
Dollars and Twenty-Five Cents ($37.25) per Series Z Preferred Unit (the
"Liquidation Preference").
If, upon any such Liquidation Event, the assets of the Partnership, or
proceeds thereof, distributable among the holders of Series Z Preferred Units
shall be insufficient to pay in full the preferential amount aforesaid and
liquidating payments on any other Parity Units, then such assets, or the
proceeds thereof, shall be distributed among the holders of such Series Z
Preferred Units and any such other Parity Units ratably in accordance with the
respective amounts that would be payable on such Series Z Preferred Units and
any such other Parity Units if all amounts payable thereon were paid in full.
(b) Subject to the rights of the holders of Units of any series or class or
classes of Units ranking on a parity with or senior to the Series Z Preferred
Units upon any such Liquidation Event, after payment shall have been made in
full to the holders of the Series Z Preferred Units and Parity Units, as
provided in this Section 4, any series or class or classes of Junior Units
shall, subject to any respective terms and provisions applying thereto, be
entitled to receive any and all assets remaining to be paid or distributed.
(c) After payment of the full amount of the liquidating distributions to
which they are entitled pursuant to Sections 4(a) and (b), the holders of Series
Z Preferred Units will have no right or claim to any of the remaining assets of
the Partnership.
(d) The consolidation or merger of the Partnership with or into any other
corporation, partnership or entity or of any other corporation, partnership or
entity with or into the Partnership, or an exchange of Units or partnership
interests, or the sale, lease or conveyance of all or substantially all of the
property or business of the Partnership, shall not be deemed to constitute a
Liquidation Event.
5.   Redemption.
(a) If the Conversion Date has not occurred by August 11, 2002 (30 months
after the Signing Date) the General Partner shall give written notice on that
date as required below and must thereafter redeem for cash all but not less than
all of the Series Z Preferred Units which have not been converted pursuant to
Section 6 or Section 7 hereof on or before the Redemption Date (as defined
below).  The obligation of the General Partner described in this paragraph 5(a)
shall be referred to as the "Redemption Requirement."  Pursuant to the
Redemption Requirement, the General Partner shall deliver a notice on  August
11, 2002 (30 months after the Signing Date) (the "Redemption Notice") to each
holder of record of Series Z Preferred Units.  The date on which the Series Z
Preferred Units are to be redeemed (the "Redemption Date") shall be selected by
the General Partner, shall be specified in the Redemption Notice, and shall be
not less than thirty (30) days or more than sixty (60) days after August 11,
2002 (30 months after the Signing Date).  The Redemption Notice shall be
delivered by the General Partner to each holder of record of outstanding Series
Z Preferred Units in accordance with Section 10.  If the General Partner
delivers a Redemption Notice to the holders of Series Z Preferred Units, such
holders shall have the right, subject to Section 7(a) hereof, to convert their
Series Z Preferred Units pursuant to Section 6 hereof on or before the
Redemption Date.  To the extent that Series Z Preferred Units are so converted,
the General Partner's obligation to redeem such units shall terminate effective
upon such conversion.
(b) Upon redemption of Series Z Preferred Units by the Partnership on the
Redemption Date, each holder of a Series Z Preferred Unit so redeemed shall be
entitled to receive from the Partnership an amount in cash with respect to each
Series Z Preferred Unit redeemed pursuant to the Redemption Requirement an
amount (the "Redemption Amount") determined in accordance with clause (i) or
clause (ii), as applicable, of this paragraph 5(b) in exchange for such Series Z
Preferred Unit:
(i)  if on the Redemption Date the Adjusted Fair Market Value (as
defined below) of a Common Unit is equal to or greater than
the Liquidation Preference, then the Redemption Amount shall
equal the product of (A) the Fair Market Value of a Common
Unit as of the Redemption Date multiplied by (B) the
Adjustment factor;
(ii) If on the Redemption Date the Adjusted Fair Market Value of
a Common Unit is less than the Liquidation Preference, then
the Redemption Amount shall equal the Liquidation
Preference.
For purposes of this Section 5(b), the Adjusted Fair Market Value as of any date
shall equal the Fair Market Value as of such date multiplied by the Adjustment
Factor.
(c) A Redemption Notice shall be provided in the manner provided in Section
10. Any defect in a Redemption Notice or in the mailing thereof, to any
particular holder, shall not affect the sufficiency of the notice or the
validity of the proceedings for redemption with respect to the other holders.
Any Redemption Notice that was mailed in the manner herein provided shall be
conclusively presumed to have been duly given on the date of deemed delivery
provided in Section 10, whether or not the holder receives the notice.  Notice
having been delivered as aforesaid, from and after the Redemption Date, said
Series Z Preferred Units shall no longer be deemed to be outstanding, and all
rights of the holders thereof as holders of Series Z Preferred Units of the
Partnership shall cease (except the rights to receive cash upon such
redemption).
(d) After the redemption of Series Z Preferred Units as aforesaid, the
Partnership shall deliver to such holder, upon his written request, a
certificate of the General Partner certifying the number of Series Z Preferred
Units held by such person immediately after such redemption.
(e) Each Series Z Preferred Unit holder covenants and agrees with the
Partnership that all Series Z Preferred Units delivered for redemption pursuant
to this Section 5 shall be delivered to the Partnership free and clear of all
liens, and, notwithstanding anything contained herein to the contrary, the
Partnership shall not be under any obligation to redeem Series Z Preferred Units
which are subject to any liens.
(f) The rights of each holder of Series Z Preferred Unit pursuant to this
Certificate of Designations in general and this Section 5 in particular arise
solely from such holder ownership as a limited partner of partnership interests
in the Partnership and not from such holder being a creditor of the Partnership,
and none of such rights with respect to any required redemption pursuant to this
Section 5 shall constitute a "claim" as such term is defined in Section 101 of
the United States Bankruptcy Code, as amended; provided, however, that any
rights in respect of such Series Z Preferred Units shall constitute equity
interests of each holder thereof hereunder, it being agreed and understood that
no holder of Series Z Preferred Units is waiving any equity interest such holder
has in the Partnership or any rights to assert any such interests in any
bankruptcy proceeding or otherwise.
6.   Conversion at the Option of a Holder.
Holders of Series Z Preferred Units shall have the right to convert all or
a portion of such units into Common Units, as follows:
(a) Subject to and upon compliance with the provisions of this Section 6,
on the earlier of (A) any day from and after February 11, 2002 (24 months from
the Signing Date) or (B) the effective time of a Liquidation Event or (C) the
effective time of a Transaction (each such day, an "Option Strike Date"), each
holder of Series Z Preferred Units, upon giving prior written notice as provided
below, shall have the right to convert all or any portion of such holder's
Series Z Preferred Units into a number of fully paid and non-assessable Common
Units equal to the greater of (i) one (1) multiplied by the Adjustment Factor or
(ii) Liquidation Preference of  the Series Z Preferred Units to be converted
divided by the Conversion Price.  Such right of each holder of Series Z
Preferred Units described in this Section 6(a) shall be referred to as the
"Optional Conversion Right."
In order to exercise its Optional Conversion Right, a holder of Series Z
Preferred Units shall deliver a notice (an "Optional Conversion Notice") in the
form attached hereto as Exhibit A to the Partnership (with a copy to the General
Partner) not less than 30 nor more than 60 days prior to an Option Strike Date;
provided, however, that the right of a holder of Series Z Preferred Units to
deliver an Optional Conversion Notice with respect to Series Z Preferred Units
called for redemption pursuant to Section 5 hereof shall terminate on that date
which is the third business day prior to the Redemption Date, unless the
Partnership shall default in making the cash payment required upon redemption on
the Redemption Date as provided in Section 5 hereof; and provided, further,
however, that if the General Partner has not given to the holders of Series Z
Preferred Units notice of a proposed or upcoming Liquidation Event or
Transaction at least forty-five (45) days prior to the effective date of such
Liquidation Event or Transaction, then holders of Series Z Preferred Units shall
have the right to deliver an Optional Conversion Notice until the earlier of (x)
the Twentieth day after such notice from the General Partner of a Liquidation
Event or Transaction or (y) the third business day immediately preceding the
effective date of the applicable Liquidation Event or Transaction.
(b) A conversion of Series Z Preferred Units for which the holder thereof
has given an Optional Conversion Notice shall occur automatically after the
close of business on the applicable Option Strike Date without any action on the
part of the holders of Series Z Preferred Units, and immediately after the close
of business on the Option Strike Date the holders of Series Z Preferred Units
who had all or a portion of their Series Z Preferred Units converted shall be
credited on the books and records of the Partnership with the issuance as of the
opening of business on the next day of the Common Units issuable upon such
conversion.
After the conversion of Series Z Preferred Units as aforesaid, the
certificate of the General Partner certifying the number of Common Units and
Preferred Units held by such person immediately after such conversion.
Each conversion shall be deemed to have been effected immediately prior to
the close of business on the Option Strike Date specified in the Optional
Conversion Notice and the Series Z Preferred Units so presented for conversion
shall be deemed converted into Common Units at the close of business on such
date, and such conversion shall be at the Conversion Price in effect on such
date (unless such day is not a Business Day, in which event such conversion
shall be deemed to have become effective at the close of business on the next
succeeding Business Day).
(c) No fractions of Common Units shall be issued upon conversion of the
Series Z Preferred Units.  Instead of any fractional interest in a Common Unit
that would otherwise be deliverable upon the conversion of a Series Z Preferred
Unit, the Partnership shall pay to the holder of such Series Z Preferred Unit an
amount in cash based upon the Current Market Price of Common Units on the
Trading Day immediately preceding the date of conversion. If more than one
Series Z Preferred Unit shall be surrendered for conversion at one time by the
same holder, the number of full Common Units issuable upon conversion thereof
shall be computed on the basis of the aggregate number of Series Z Preferred
Units so surrendered.
(d) The Partnership further covenants that any Common Units issued upon
conversion of the Series Z Preferred Units shall be validly issued, fully paid
and non-assessable.
(e) The Assignee of any Limited Partner pursuant to Section 11 hereof
and/or Section 11 of the main part of the Partnership Agreement (and pursuant to
the terms of the Registration Rights and Lock-Up Agreement) may exercise the
rights of such Limited Partner pursuant to this Section 6, and such Limited
Partner shall be deemed to have assigned such rights to such Assignee and shall
be bound by the exercise of such rights by the Assignee.  In connection with any
exercise of such rights by an Assignee of a Limited Partner, the cash amount
shall be paid by the Partnership directly to such Assignee and not to such
Limited Partner.
(f) An Optional Conversion Notice shall be provided in the manner provided
in Section 10.  Any defect in an Optional Conversion Notice or in the mailing
thereof to the Partnership shall not affect the sufficiency of the notice or the
Any notice that was mailed in the manner herein provided shall be conclusively
presumed to have been duly given on the date of deemed delivery provided in
Section 10, whether or not the holder receives the notice.
(g) Each Series Z Preferred Unit holder covenants and agrees with the
Partnership that all Series Z Preferred Units delivered for conversion pursuant
Partnership shall not be under any obligation to convert Series Z Preferred
Units which are subject to any liens.
(h) Notwithstanding any thing to the contrary in the main part of the
Partnership Agreement, a holder of Series Z Preferred Units may deliver a
Redemption Notice pursuant to
Section 8.6A of the main part of the Partnership Agreement relating to those
Common Units that will be issued to such holder upon conversion of such Series Z
Preferred Units into Common Units in advance of the Option Strike Date or
Conversion Date, as applicable; provided, however, that the redemption of such
Common Units by the Partnership shall in no event take place until such Common
Units are issued upon the conversion of the Series Z Preferred Units pursuant to
either Section 6 or Section 7 hereof. For clarity, it is noted that the
objective of this paragraph is to put a holder in a position where, if he so
wishes, the Common Units into which his Series Z Preferred Units will be
converted can be redeemed by the Partnership simultaneously with such
conversion, with the further consequence that, if the Partnership elects to
satisfy its redemption obligation with respect to such Common Units under
Section 6A of the main part of the Partnership Agreement by delivering to
such holder Common Shares (as defined in the Registration Rights and Lock-Up
Agreement) rather than cash, then such holder will have such common Shares
issued to him simultaneously with the conversion of his Series Z Preferred Units
into Common Units, such that such holder can be in a position to sell such
Common Shares as contemplated by the Registration Rights and Lock-Up Agreement
or otherwise without delay. The General Partner shall cooperate with a holder of
Series Z Preferred Units to coordinate the timing of the different events
described in the foregoing sentence (including the calculation of the number of
Common Units into which such holder's Series Z Preferred Units will convert and
the mechanics of issuing and delivering Common Units and Common Shares) and
shall use commercially reasonable efforts to cause the conversion of such
holder's Series Z Preferred Units, the redemption of the Common Units issued
upon such conversion and the issuance of the Common Shares to be issued upon
such redemption, if applicable, to occur in such a manner as to accomplish the
objective described in the foregoing sentence.
7.   Mandatory Automatic Conversion.
(a) Unless redeemed by the Partnership pursuant to Section 5 hereof, or
previously converted at the election of the holders pursuant to Section 6
hereof, on the later of (a) February 11, 2002 (24 months from the Signing Date)
or (b) the expiration of the Lock-up (as defined in the Registration Rights and
Lock-Up Agreement) pursuant to Section 2(a) of the Registration Rights and Lock-
Up Agreement or (c) the earlier of either (i) the date upon which, pursuant to
and in accordance with the terms of the Registration Rights and Lock-Up
Agreement a Registration Statement (as defined therein) relating to all of the
Registrable Shares (as defined therein) has been declared effective by the
Securities and Exchange Commission, provided that the General Partner has given
at least five (5) trading days prior written notice to the holders of Series Z
Preferred Units that such declaration of effectiveness would be forthcoming on
such date or (ii) if such written notice has not been given at least five (5)
trading days prior to such a declaration of effectiveness, then the date that is
the fifth (5th) trading day after a written notice of such declaration of
effectiveness is given to the holders of Series Z Preferred Units by the General
Partner (the "Conversion Date"), each Series Z Preferred Unit that has not been
redeemed prior to such date pursuant to Section 5 hereof or converted pursuant
to Section 6 hereof shall automatically and without any notice or action being
required of the Partnership, the General Partner or any holder of Series Z
Preferred Units, be converted into a number of Common Unit(s) equal to the
greater of (i) one (1) multiplied by the Adjustment Factor or (ii) the
Liquidation Preference of each Series Z Preferred Unit held by such holder
divided by the Conversion Price.  Fractional Units shall be paid in dollars as
described in (c) below.
(b) The conversion of all unredeemed Series Z Preferred Units shall occur
automatically at the close of business on the Conversion Date, without any
action on the part of the holders of Series Z Preferred Units or the
Partnership, and immediately after the close of business on such date any holder
of Series Z Preferred Units who had all or a portion of its Series Z Preferred
Units converted shall be credited on the books and records of the Partnership
with the issuance as of the opening of business on the next day of the Common
Units issuable upon such conversion.  The conversion shall be deemed to have
been effected immediately at the close of business on the Conversion Date, and
the Series Z Preferred Units shall be deemed converted into Common Units at the
close of business on such date.  After the conversion of Series Z Preferred
Units as aforesaid, the Partnership shall deliver to such holder, upon his
written request, a certificate of the General Partner certifying the number of
Common Units held by such person immediately after such conversion.
Notwithstanding anything in this Section 7 to the contrary, if within ten (10)
trading days after a Conversion Date the Company initiates a Suspension Period
(as defined in Section 8(c) of the Registration Rights and Lock-Up Agreement) or
an Offering Blackout Period (as defined in Section 8(d) of the Registration
Rights and Lock-Up Agreement), then immediately upon such event (a "Reconversion
Event"), and retroactive as of the Conversion Date, all Common Units issued to
holders of Series Z Preferred Units upon conversion pursuant to this Section 7
which continue to be held by such holders on the date of the Reconversion Event
(the "Reconversion Date") shall be deemed to have been reconverted into the
corresponding original number of Series Z Preferred Units held by such holder on
the Conversion Date prior to such conversion.  Following a Reconversion Event,
all provisions hereof (including without limitation this Section 7, including
without limitation this paragraph (b)) shall again apply to the Series Z
Preferred Units into which the Common Units shall have been reconverted to the
same extent as they applied before the original Conversion Date, except the new
Conversion Date shall be the business date immediately following the date on
which the Suspension Period or Offering Blackout Period, as applicable, ends, if
on such date the Registration Statement (as defined in the Registration Rights
and Lock-Up Agreement) is effective and available to holders of Registrable
Shares (as defined in the Registration Rights and Lock-Up Agreement) for resales
thereof.  For clarity, it is noted that the objective of the preceding sentence
is to provide for the application of all of the provisions of this Certificate
as to any and all Series Z Preferred Units that are reconverted in accordance
with this Section, including, without limitation, the terms for reconversion set
forth in this Section, such that any Series Z Preferred Units that are again
converted into Common Units after previous reconversion(s) in accordance with
this Section will be subject to a further reconversion in the event of another
subsequent Suspension Period or Offering Blackout Period within the time frame
set forth above.
that would otherwise be deliverable upon the conversion of Series Z Preferred
Units, the Partnership shall pay to the holder of such Series Z Preferred Units
within two Business Days of the Conversion Date by certified check to or on the
order of the holders of Series Z Preferred Units, an amount in cash based upon
the Current Market Price of Common Units on the Trading Day immediately
preceding the date of conversion, it being understood that if a holder has more
than one Series Z Preferred Unit, then the number of full Common Units issuable
upon conversion thereof shall be computed on the basis of the aggregate number
of Series Z Preferred Units held by such holder.
(d)  (i)  The following events shall be "Adjustment Events": if the
Partnership shall after the date hereof (A) make a distribution
on its Common Units in Common Units, (B) subdivide its
outstanding Common Units into a greater number of units, (C)
combine its outstanding Common Units into a smaller number of
units or (D) issue any units by reclassification of its Common
(ii) If one or more Adjustment Events occur between the Signing Date
and the Redemption Date, Option Strike Date, or Conversion Date,
as applicable, then on the Redemption Date, Option Strike Date,
or Conversion Date, as applicable, the Adjustment Factor shall be
recalculated once by using a single formula that takes into
account each and every Adjustment Event as if all Adjustment
Events occurred simultaneously the Redemption Date, Option Strike
Date, or Conversion Date, as applicable, as described in clause
(iii) of this Section 7(d).
(iii)  With respect to each single Adjustment Event, the Adjustment
Factor shall be recalculated by multiplying it by a fraction (A)
the numerator of which shall be the number of Common Units
outstanding immediately after giving effect to such Adjustment
Event and (B) the denominator of which shall be the number of
Common Units outstanding immediately before giving effect to such
Adjustment Event.
(iv) Notwithstanding any other provisions of this Section 7, the
Partnership shall not be required to make any adjustment of the
Adjustment Factor for the issuance of any Common Units pursuant
to any employee benefit or compensation plan or other plan
providing for the reinvestment of distributions or interest
payable on securities of the Partnership and the investment of
additional optional amounts in Common Units under such plan (or
the issuance of any Common Units to the Company in respect of a
capital contribution by it resulting from an analogous sale of
its securities). All calculations under this Section 7 shall be
made to the nearest cent with $.005 being rounded upward) or to
the nearest one-tenth of a Unit (with .05 of a Unit being rounded
upward), as the case may be.
(e) If the Partnership shall be a party to any transaction (including
without limitation a merger, consolidation, unit exchange, self tender offer for
all or substantially all Common Units or sale of all or substantially all of the
Partnership's assets, but excluding any transaction which constitutes an
Adjustment Event for purposes of paragraph (d) of this Section 7) (each of the
foregoing being referred to herein as a "Transaction"), in each case as a result
of which Common Units shall be converted into the right to receive securities or
other property (including cash or any combination thereof), each Series Z
Preferred Unit shall automatically be converted
into the right to receive in connection with such Transaction the kind and
amount of securities and other property (including cash or any combination
thereof) receivable upon the consummation of such Transaction by a holder of
that number of Common Units into which one Series Z Preferred Unit would have
been converted immediately prior to such Transaction pursuant to Section 6(a)
applied as of the effective date of such Transaction (assuming that such date
was the Option Strike Date), assuming such holder of Common Units (i) is not a
Person with which the Partnership consolidated or into which the Partnership
merged or which merged into the Partnership or to which such sale or transfer
was made, as the case may be (a "Constituent Person"), or an affiliate of a
Constituent Person and (ii) failed to exercise his or her rights of election, if
any, as to the kind or amount of securities and other property (including cash)
receivable upon such Transaction (provided that if the kind or amount of stock,
securities and other property (including cash) receivable upon such Transaction
is not the same for each Common Unit of the Partnership held immediately prior
to such Transaction by other than a Constituent Person or an affiliate thereof
and in respect of which such rights of election by such person shall not have
been exercised ("Non-Electing Unit"), then for the purpose of this paragraph (e)
the kind and amount of securities and other property (including cash) receivable
upon such Transaction by each Non-Electing Unit shall be deemed to be the kind
and amount so receivable per Unit by a plurality of the Non- Electing Units).
(f) If the Adjustment Factor is adjusted as herein provided, the
Partnership shall promptly file in the books and records of the Partnership an
officer's certificate setting forth the Adjustment Factor after such adjustment
as required by the terms hereof and setting forth a brief statement of the facts
requiring such adjustment, which certificate shall be conclusive evidence of the
correctness of such adjustment absent manifest error. Promptly after filing of
such certificate, the Partnership shall prepare a notice of such adjustment of
the Adjustment Factor setting forth the adjusted Adjustment Factor and the
effective date such adjustment becomes effective and shall mail such notice of
such adjustment of the Adjustment Factor to the holders of each Series Z
Preferred Unit at such holder's last address as shown on the records of the
(g) In any case in which paragraph (d) of this Section 7 provides that an
adjustment shall become effective upon the occurrence of an Adjustment Event,
the Partnership may defer until the occurrence of such event (A) issuing to the
holder of any Series Z Preferred Unit converted before the occurrence of such
event the additional Common Units issuable upon such conversion by reason of the
adjustment required by such event over and above the Common Units issuable upon
such conversion before giving effect to such adjustment and (B) paying to such
holder any amount of cash in lieu of any fractional Common Unit.
(h) There shall be no adjustment of the Adjustment Factor in case of the
issuance of any Units in a financing, reorganization, acquisition or other
similar business transaction except as specifically set forth in this Section 7.
If any action would require adjustment of the Adjustment Factor pursuant to more
than one paragraph of this Section 7, only one adjustment shall be made, and
such adjustment shall be the amount of adjustment that has the highest absolute
(i) If the Partnership shall take any action affecting the Common Units,
other than action described in this Section 7, that in the opinion of the
General Partner would materially adversely affect the conversion rights of the
holders of the Series Z Preferred Units, the Adjustment Factor may be adjusted,
to the extent permitted by law, in such manner, if any, and at such time, as the
General Partner, in its sole discretion, may determine to be equitable in the
(j) The Assignee of any Limited Partner pursuant to Section 11 hereof
(k) Notwithstanding any thing to the contrary in the main part of the
Redemption Notice pursuant to Section 8.6A of the main part of the Partnership
Agreement relating to those Common Units that will be issued to such holder upon
conversion of such Series Z Preferred Units into Common Units in advance of the
Option Strike Date or Conversion Date, as applicable; provided, however, that
the redemption of such Common Units by the Partnership shall in no event take
place until such Common Units are issued upon the conversion of the Series Z
Preferred Units pursuant to either Section 6 or Section 7 hereof.   For clarity,
it is noted that the objective of this paragraph is to put a holder in a
position where, if he so wishes, the Common Units into which his Series Z
Preferred Units will be converted can be redeemed by the Partnership
simultaneously with such conversion, with the further consequence that, if the
Partnership elects to satisfy its redemption obligation with respect to such
Common Units under Section 6A of the main part of the Partnership Agreement
by delivering to such holder Common Shares (as defined in the Registration
Rights and Lock-Up Agreement) rather than cash, then such holder will have such
Common Shares issued to him simultaneously with the conversion of his Series Z
Preferred Units into Common Units, such that such holder can be in a position to
sell such Common Shares as contemplated by the Registration Rights  and Lock-Up
Agreement or otherwise without delay. The General Partner shall cooperate with a
holder of Series Z Preferred Units to coordinate the timing of the different
events described in the foregoing sentence (including the calculation of the
number of Common Units into which such holder's Series Z Preferred Units will
convert and the mechanics of issuing and delivering Common Units and Common
Shares) and shall use commercially reasonable efforts to cause the conversion of
such holder's Series Z Preferred Units, the redemption of the Common Units
issued upon such conversion and the issuance of the Common Shares to be issued
upon such redemption, if applicable, to occur in such a manner as to accomplish
the objective described in the foregoing sentence.
The Partnership further covenants that any Common Units issued upon
conversion or redemption of the Series Z Preferred Units shall be validly
issued, fully paid and non-assessable.
8.   Voting Rights.
(a) Holders of the Series Z Preferred Units will (a) have those voting
rights from time to time required by law, (b) have the same voting rights as a
holder of Common Units has under the main part of the Partnership Agreement,
voting as a single class with the Common Units, with each Series Z Preferred
Unit being treated as one (1) Common Unit for purposes of any such vote, and (c)
have those additional voting rights that are set forth below.
(b) So long as any Series Z Preferred Units remain outstanding, the
Partnership shall not, without the affirmative vote of the holders of at least a
majority of the Series Z Preferred Units outstanding at the time, given in
person or by proxy, either in writing or at a meeting (voting separately as a
class), amend, alter or repeal the provisions of the Partnership Agreement,
whether by merger, consolidation or otherwise, so as to materially and adversely
affect any right, preference, privilege or voting power of the Series Z
Preferred Units or the holders thereof in their capacity as holders of Series Z
Preferred Units, unless such amendment, alteration, or repeal affects equally,
ratably and proportionately the rights, privileges and voting powers of the
holders of Common Units; but subject, in any event, to the following provisions:
(i)  With respect to the occurrence of any merger, consolidation or
other business combination or reorganization, so long as the
Series Z Preferred Units are treated in accordance with paragraph
(e) of Section 7 hereof, the occurrence of any such event shall
not be deemed to materially and adversely affect such rights,
preferences, privileges or voting powers of the holders of the
Series Z Preferred Units.
(ii) Any creation or issuance of any Common Units or of any class or
series of Preferred Units, whether ranking senior to, junior to,
or on a parity with the Series Z Preferred Units with respect to
the payment of distributions and the distribution of assets upon
liquidation, dissolution or winding up, shall not be deemed to
materially and adversely affect such rights, preferences,
privileges or voting powers of the holders of the Series Z
Preferred Units.
(c) The foregoing voting provisions will not apply if, at or prior to the
time when the act, with respect to which such vote would otherwise be required,
will be effected, all outstanding Series Z Preferred Units shall have been
redeemed or converted.
9.   Ranking.  The Series Z Preferred Units shall rank junior to all other
classes or series of Units of the Partnership whether now authorized or
outstanding or hereafter created, authorized or issued, except that (a) as to
distribution of assets upon liquidation, dissolution or winding up, the Series Z
Preferred Units shall rank senior to the Common Units, (b) as to the payment of
distributions, during the Half Distribution Period and any Full Distribution
Period, the Series Z Preferred Units shall rank pari passu with the Common
Units, and (c) as to the payment of distributions and as to distribution of
assets upon liquidation, dissolution or winding up, any class or series which by
its terms specifies that it shall rank junior ("Junior Units") to or on a parity
("Parity Units") with Series Z Preferred Units shall rank junior or pari passu,
as the case may be with the Series Z Preferred Units.
10.  Notices.  All notices, demand, requests or other communications which
may be or are required to be given, served or sent hereunder will be in writing
and delivered by certified U.S. mail, return receipt required, with postage
prepaid, or by nationally recognized overnight courier service that provides
tracking and proof of receipt.  Notices shall be deemed delivered upon the
earlier of (i) delivery, (ii) refusal of delivery by addressee, (iii) two
Business Days after deposit in the U.S. Mails in the case of certified U.S.
mail, or (iv) one Business Day after deposit with a nationally recognized
overnight courier.  Notices to Series Z Preferred Unitholders shall be sent to
their address of record with the Partnership.  Any Series Z Preferred Unitholder
may change its address of record by written notice as given as aforesaid.
Notices delivered to the Partnership shall be addressed to Boston Properties
Limited Partnership, Attn.: Chief Financial Officer, 800 Boylston Street, Suite
400, Boston, MA 02199-8001 or to such other address as the Partnership may have
notified holders in the manner provided in this Section 10.
11.  Transfers.  Subject to the terms of the Registration Rights and Lock-
Up Agreement, a holder of Series Z Preferred Units shall be entitled to transfer
such Series Z Preferred Units to the same extent that holders of Common Units
are entitled to transfer their Common Units pursuant to Article 11 of the main
IN WITNESS WHEREOF, Boston Properties, Inc., as General Partner of the
Partnership, has caused this Certificate of Designations to become effective,
and the Partnership Agreement is hereby amended by giving effect to the terms
set forth herein.
By:_________________________________
Date: December __, 2000
to the Certificate of Designations for the
Series Z Preferred Units
NOTICE OF ELECTION BY PARTNER TO CONVERT
SERIES Z PREFERRED UNITS INTO COMMON UNITS
The undersigned Series Z Preferred Unitholder hereby irrevocably (i) elects
to convert the number of Series Z Preferred Units in Boston Properties Limited
Partnership (the "Partnership") set forth below into Common Units in accordance
with the terms of the Second Amended and Restated Agreement of Limited
Partnership of the Partnership and the Certificate of Designations relating to
the Series Z Preferred Units that is a part thereof; and (ii) directs that any
cash in lieu of Common Units that may be deliverable upon such conversion be
delivered to the address specified below.  The undersigned hereby represents,
warrants, and certifies that the undersigned (a) has title to such Series Z
Preferred Units, free and clear of the rights or interests of any other person
or entity other than the Partnership; (b) has the full right, power, and
authority to cause the conversion of such Series Z Preferred Units as provided
herein; and (c) has obtained the consent or approval of all persons or entities,
if any, having the right to consent or approve such conversion.
Name of Series Z Preferred Unit holder:_____________________________________
(Please Print: Exact Name as Registered with Partnership)
Date of this Notice:
(Signature of Limited Partner: Sign Exact
Name as Registered with Partnership)
(Street Address)
(City)                (State)  (Zip Code)
Signature Guaranteed by:
1997 STOCK OPTION AND INCENTIVE PLAN
AS AMENDED AND RESTATED ON JANUARY 24, 2000
SECTION 1.  GENERAL PURPOSE OF THE PLAN; DEFINITIONS
The name of the plan is the Boston Properties, Inc. 1997 Stock Option and
Incentive Plan (the "Plan").  The purpose of the Plan is to encourage and enable
the officers, employees, Independent Directors and other key persons of Boston
Properties, Inc. (the "Company"), and the employees and other key persons of
Boston Properties Limited Partnership (the "Operating Partnership") and the
Company's other Subsidiaries, upon whose judgment, initiative and efforts the
Company largely depends for the successful conduct of its business to acquire a
proprietary interest in the Company.  It is anticipated that providing such
persons with a direct stake in the Company's welfare will assure a closer
identification of their interests with those of the Company, thereby stimulating
their efforts on the Company's behalf and strengthening their desire to remain
with the Company.
The following terms shall be defined as set forth below:
"Act" means the Securities Exchange Act of 1934, as amended from time to
"Administrator" is defined in Section 2(a).
"Award" or "Awards," except where referring to a particular category of
grant under the Plan, shall include Incentive Stock Options, Non-Qualified Stock
Options, Restricted Stock Awards, Deferred Stock Awards, Unrestricted Stock
Awards, Performance Share Awards, Dividend Equivalent Rights and Other Stock-
Based Awards.
"Board" means the Board of Directors of the Company as constituted from
time to time.
"Change of Control" is defined in Section 16.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and any successor Code, and related rules, regulations and
interpretations.
"Committee" means the Committee of the Board referred to in Section 2.
"Company" means Boston Properties, Inc., a Delaware corporation, and any
successor thereto.
"Deferred Stock Award" means Awards granted pursuant to Section 7.
"Dividend Equivalent Right" means Awards granted pursuant to Section 10.
"Effective Date" means the date on which the Plan is initially approved by
stockholders as set forth in Section 18.
"Fair Market Value" on any given date means the last reported sale price at
which Stock is traded on such date or, if no Stock is traded on such date, the
next preceding date on which Stock was traded, as reflected on the principal
stock exchange or, if applicable, any other national stock exchange on which the
Stock is traded or admitted to trading.  Notwithstanding the foregoing, the Fair
Market Value on the first day of the Company's initial public offering of Stock
shall be the initial public offering price as set forth in the final prospectus
for the Company's initial public offering.
"Incentive Stock Option" means any Stock Option that qualifies as and is
designated in writing in the related Option agreement as constituting an
"incentive stock option" as defined in Section 422 of the Code.
"Independent Director" means a member of the Board who is not also an
employee of the Company or any Subsidiary.
"Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
"Operating Partnership" means Boston Properties Limited Partnership, a
Delaware limited partnership, and any successor thereto.
"Option" or "Stock Option" means any option to purchase shares of Stock
granted pursuant to Section 5.
"Other Stock-Based Award" means Awards granted pursuant to Section 11.
"Performance Share Award" means Awards granted pursuant to Section 9.
"Restricted Stock Award" means Awards granted pursuant to Section 6.
"Retirement" means the employee's termination of employment with the
Company and its Subsidiaries after attainment of the age and/or service
requirements to qualify for early or normal retirement under the Company's
qualified retirement plan.
"Stock" means the Common Stock, par value $.01 per share, of the Company,
subject to adjustments pursuant to Section 3.
"Subsidiary" means any corporation or other entity (other than the Company)
in any unbroken chain of corporations or other entities beginning with the
Company if each of the corporations or entities (other than the last corporation
or entity in the unbroken chain) owns
stock or other interests possessing 50 percent or more of the economic interest
or the total combined voting power of all classes of stock or other interests in
one of the other corporations or entities in the chain.
"Unrestricted Stock Award" means any Award granted pursuant to Section 8.
SECTION 2.  ADMINISTRATION OF PLAN; ADMINISTRATOR AUTHORITY TO SELECT
PARTICIPANTS AND DETERMINE AWARDS
(a) Committee.  The Plan shall be administered by either the Board or a
committee of not less than two Independent Directors (in either case, the
"Administrator").  Each member of the Committee shall be a "non-employee
director" within the meaning of Rule 16b-3(b)(3)(i) promulgated under the Act,
or any successor definition under said rule. Each member of the Committee shall
also be an "outside director" within the meaning of Section 162(m) of the Code
and the regulations promulgated thereunder.
(b) Powers of Administrator.  The Administrator shall have the power and
authority to grant Awards consistent with the terms of the Plan, including the
power and authority:
(i) to select the individuals to whom Awards may from time to time be
granted;
(ii) to determine the time or times of grant, and the extent, if any,
of Incentive Stock Options, Non-Qualified Stock Options, Restricted Stock
Awards, Deferred Stock Awards, Unrestricted Stock Awards, Performance Share
Awards, Dividend Equivalent Rights and Other Stock-Based Awards, or any
combination of the foregoing, granted to any one or more participants;
(iii)  to determine the number of shares of Stock to be covered by any
Award;
(iv) to determine and modify from time to time the terms and
conditions, including restrictions, not inconsistent with the terms of the
Plan, of any Award, which terms and conditions may differ among individual
Awards and participants, and to approve the form of written instruments
evidencing the Awards; provided, however, that except as otherwise provided
in Section 3(b) or 3(c), the Administrator is not permitted to reduce the
exercise price of stock options or effect repricing through cancellation
and re-grants;
(v) to accelerate at any time the exercisability or vesting of all or
any portion of any Award in circumstances involving a Change of Control or
the death, disability or termination of employment of a Plan participant;
(vi) subject to the provisions of Section 5(a)(iii), to extend at any
time the post-termination period in which Stock Options may be exercised;
(vii)  to determine at any time whether, to what extent, and under
what circumstances Stock and other amounts payable with respect to an Award
shall be deferred either automatically or at the election of the
participant and whether and to what extent the Company shall pay or credit
amounts constituting deemed interest (at rates determined by the
Administrator) or dividends or deemed dividends on such deferrals; and
(viii)  at any time to adopt, alter and repeal such rules, guidelines
and practices for administration of the Plan and for its own acts and
proceedings as it shall deem advisable; to interpret the terms and
provisions of the Plan and any Award (including related written
instruments); to make all determinations it deems advisable for the
administration of the Plan; to decide all disputes arising in connection
with the Plan; and to otherwise supervise the administration of the Plan.
All decisions and interpretations of the Administrator shall be made in the
Administrator's sole and absolute discretion and shall be final and binding on
all persons, including the Company and Plan participants.
(c) Delegation of Authority to Grant Awards.  The Administrator, in its
discretion, may delegate to the Chief Executive Officer of the Company all or
part of the Administrator's authority and duties with respect to Awards,
including the granting thereof, to individuals who are not subject to the
reporting and other provisions of Section 16 of the Act or "covered employees"
within the meaning of Section 162(m) of the Code.  Any such delegation by the
Administrator shall include a limitation as to the amount of Awards that may be
awarded during the period of the delegation and shall contain guidelines as to
the determination of the exercise price of any Option, the conversion ratio or
price of other Awards and the vesting criteria.  The Administrator may revoke or
amend the terms of a delegation at any time but such action shall not invalidate
any prior actions of the Administrator's delegate or delegates that were
consistent with the terms of the Plan.
SECTION 3.  STOCK ISSUABLE UNDER THE PLAN; RECAPITALIZATIONS; MERGERS;
SUBSTITUTE AWARDS
(a) Stock Issuable.  The maximum number of shares of Stock reserved and
available for issuance under the Plan shall be increased from 9,699,162 shares
to 14,699,162 shares as of the date of this restatement, an increase of
5,000,000 shares; plus (ii) as of the first day of each calendar quarter after
January 1, 2000, 9.5 percent of any net increase since the first day of the
preceding calendar quarter in the total number of shares of Stock actually
outstanding (assuming all units of partnership interests in the Operating
Partnership that are subject to redemption rights are converted into Stock).
Notwithstanding the foregoing, the maximum number of shares of Stock for which
Awards other than Options may be granted under the Plan shall not exceed
2,000,000 shares in the aggregate.  The foregoing limitation shall apply to
shares available for issuance under the Plan prior to this restatement as well
as shares added to the Plan as a result of this restatement.  For purposes of
the limitations of this
Section 3(a), if any portion of an Award is forfeited, cancelled, reacquired by
the Company, satisfied without the issuance of Stock or otherwise terminated,
the shares of Stock underlying such portion of the Award shall be added back to
the shares of Stock available for issuance under the Plan. With respect to
grants made or compensation earned under the Plan, Stock Options with respect to
no more than 1,500,000 shares of Stock may be granted to any one individual
participant during any one calendar year period. The shares available for
issuance under the Plan may be authorized but unissued shares of Stock or shares
of Stock reacquired by the Company.
(b) Recapitalizations.  If, through or as a result of any merger,
consolidation, sale of all or substantially all of the assets of the Company,
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other similar transaction, the outstanding shares of
Stock are increased or decreased or are exchanged for a different number or kind
of shares or other securities of the Company, or additional shares or new or
different shares or other securities of the Company or other non-cash assets are
distributed with respect to such shares of Stock or other securities, the
Administrator may make an appropriate or proportionate adjustment in (i) the
maximum number of shares reserved for issuance under the Plan, (ii) the number
of Stock Options that can be granted to any one individual participant, (iii)
the number and kind of shares or other securities subject to any then
outstanding Awards under the Plan, and (iv) the price for each share subject to
any then outstanding Stock Options under the Plan, without changing the
aggregate exercise price (i.e., the exercise price multiplied by the number of
Stock Options) as to which such Stock Options remain exercisable.  The
adjustment by the Administrator shall be final, binding and conclusive.  No
fractional shares of Stock shall be issued under the Plan resulting from any
such adjustment, but the Administrator in its discretion may make a cash payment
in lieu of fractional shares.
(c) Mergers.  In contemplation of and subject to the consummation of a
consolidation or merger or sale of all or substantially all of the assets of the
Company in which outstanding shares of Stock are exchanged for securities, cash
or other property of an unrelated corporation or business entity or in the event
of a liquidation of the Company (in each case, a "Transaction"), the Board, or
the board of directors of any corporation assuming the obligations of the
Company, may, in its discretion, take any one or more of the following actions,
as to outstanding Awards:  (i) provide that such Awards shall be assumed or
equivalent awards shall be substituted, by the acquiring or succeeding
corporation (or an affiliate thereof), and/or (ii) upon written notice to the
participants, provide that all Awards will terminate immediately prior to the
consummation of the Transaction.  In the event that, pursuant to clause (ii)
above, Awards will terminate immediately prior to the consummation of the
Transaction, all vested Awards, other than Options, shall be fully settled in
cash or in kind  at such appropriate consideration as determined by the
Administrator in its sole discretion after taking into account the consideration
payable per share of Stock pursuant to the business combination (the "Merger
Price") and all Stock Options shall be fully settled, in cash or in kind, in an
amount equal to the difference between (A) the Merger Price times the number of
shares of Stock subject to such outstanding Stock Options (to the extent then
exercisable at prices not in excess of the Merger Price) and (B) the aggregate
exercise price of all such
outstanding Stock Options; provided, however, that each participant shall be
permitted, within a specified period determined by the Administrator prior to
the consummation of the Transaction, to exercise all outstanding Stock Options,
including those that are not then exercisable, subject to the consummation of
the Transaction.
(d) Substitute Awards.  The Administrator may grant Awards under the Plan
in substitution for stock and stock based awards held by employees of another
corporation who become employees of the Company or a Subsidiary as the result of
a merger or consolidation of the employing corporation with the Company or a
Subsidiary or the acquisition by the Company or a Subsidiary of property or
stock of the employing corporation.  The Administrator may direct that the
substitute awards be granted on such terms and conditions as the Administrator
considers appropriate in the circumstances.
SECTION 4.  ELIGIBILITY
Participants in the Plan will be such full or part-time officers and other
employees, Independent Directors and key persons of the Company, the Operating
Partnership and the Company's other Subsidiaries who are responsible for or
contribute to the management, growth or profitability of the Company, the
Operating Partnership and the Company's other Subsidiaries as are selected from
time to time by the Administrator in its sole discretion.
SECTION 5.  STOCK OPTIONS
Any Stock Option granted under the Plan shall be in such form as the
Administrator may from time to time approve.
Stock Options granted under the Plan may be either Incentive Stock Options
or Non-Qualified Stock Options.  Incentive Stock Options may be granted only to
employees of the Company or any Subsidiary that is a "subsidiary corporation"
within the meaning of Section 424(f) of the Code.  To the extent that any Option
does not qualify as an Incentive Stock Option, it shall be deemed a Non-
Qualified Stock Option.
No Incentive Stock Option shall be granted under the Plan after January 24,
(a) Stock Options Granted to Employees and Key Persons.  The Administrator
in its discretion may grant Stock Options to eligible employees and key persons
of the Company or any Subsidiary.  Stock Options granted pursuant to this
Section 5(a) shall be subject to the following terms and conditions and shall
contain such additional terms and conditions, not inconsistent with the terms of
the Plan, as the Administrator shall deem desirable.  If the Administrator so
determines, Stock Options may be granted in lieu of cash compensation at the
participant's election, subject to such terms and conditions as the
Administrator may establish, as well as in addition to other compensation.
(i) Exercise Price.  The exercise price per share for the Stock
covered by a Stock Option granted pursuant to this Section 5(a) shall be
determined by the Administrator at the time of grant but shall not be less
than 100 percent of the Fair Market Value on the date of grant (other than
options granted in lieu of cash compensation).  If an employee owns or is
deemed to own (by reason of the attribution rules of Section 424(d) of the
Code) more than 10 percent of the combined voting power of all classes of
stock of the Company or any parent or subsidiary corporation and an
Incentive Stock Option is granted to such employee, the option price of
such Incentive Stock Option shall be not less than 110 percent of the Fair
Market Value on the grant date.
(ii) Option Term.  The term of each Stock Option shall be fixed by the
Administrator, but no Option shall be exercisable more than ten years after
the date the option is granted.  If an employee owns or is deemed to own
(by reason of the attribution rules of Section 424(d) of the Code) more
than 10 percent of the combined voting power of all classes of stock of the
Company or any parent or subsidiary corporation and an Incentive Stock
Option is granted to such employee, the term of such option shall be no
more than five years from the date of grant.
(iii)  Exercisability; Rights of a Stockholder.  Stock Options shall
become exercisable at such time or times, whether or not in installments,
as shall be determined by the Administrator at or after the grant date;
provided, however, that Stock Options granted in lieu of compensation shall
be exercisable in full as of the grant date unless the Administrator
otherwise provides in the Award agreement; provided further, however, that
an optionee's Stock Options, other than those held by Mortimer B. Zuckerman
and Edward H. Linde, shall be exercisable in full upon and after such
optionee's attainment of age 65.  The Administrator may at any time
accelerate the exercisability of all or any portion of any Stock Option.
An optionee shall have the rights of a stockholder only as to shares
acquired upon the exercise of a Stock Option and not as to unexercised
Stock Options.
(iv) Method of Exercise.  Stock Options may be exercised in whole or
in part, by giving written notice of exercise to the Company, specifying
the number of shares to be purchased.  Payment of the purchase price may be
made by one or more of the following methods to the extent provided in the
Option Award agreement:
(A) In cash, by certified or bank check or other instrument
acceptable to the Administrator;
(B) Through the delivery (or attestation to the ownership) of
shares of Stock that are not then subject to restrictions under any
Company plan and that have been beneficially owned by the optionee for
at least six months, if permitted by the Administrator in its
discretion.  Such surrendered shares shall be valued at Fair Market
Value on the exercise date;
(C) By the optionee delivering to the Company a properly executed
exercise notice together with irrevocable instructions to a broker to
promptly deliver to the Company cash or a check payable and acceptable
to the Company to pay the purchase price; provided that in the event
the optionee chooses to pay the purchase price as so provided, the
optionee and the broker shall comply with such procedures and enter
into such agreements of indemnity and other agreements as the
Administrator shall prescribe as a condition of such payment
procedure; or
(D) By the optionee delivering to the Company a promissory note
if the Administrator has expressly authorized the loan of funds to the
optionee for the purpose of enabling or assisting the optionee to
effect the exercise of his Stock Option; provided that at least so
much of the exercise price as represents the par value of the Stock
shall be paid other than with a promissory note.
Payment instruments will be received subject to collection.  The delivery
of certificates representing the shares of Stock to be purchased pursuant
to the exercise of a Stock Option will be contingent upon receipt from the
optionee (or a purchaser acting in his stead in accordance with the
provisions of the Stock Option) by the Company of the full purchase price
for such shares and the fulfillment of any other requirements contained in
the Stock Option or applicable provisions of laws.  In the event an
optionee chooses to pay the purchase price by previously-owned shares of
Stock through the attestation method, the number of shares of Stock
transferred to the optionee upon the exercise of the Stock Option shall be
net of the shares attested to.
(v) Annual Limit on Incentive Stock Options.  To the extent required
for "incentive stock option" treatment under Section 422 of the Code, the
aggregate Fair Market Value (determined as of the time of grant) of the
shares of Stock with respect to which Incentive Stock Options granted under
this Plan and any other plan of the Company or its parent and subsidiary
corporations become exercisable for the first time by an optionee during
any calendar year shall not exceed $100,000.  To the extent that any Stock
Option exceeds this limit, it shall constitute a Non-Qualified Stock
(b) Reload Options.  At the discretion of the Administrator and subject to
such restrictions, terms and conditions as the Administrator may establish,
Options granted under the Plan may include a "reload" feature pursuant to which
an optionee exercising an option by the delivery of a number of shares of Stock
in accordance with Section 5(a)(iv)(B) hereof would automatically be granted an
additional Option (with an exercise price equal to the Fair Market Value of the
Stock on the date the additional Option is granted and with such other terms as
the Administrator may provide) to purchase that number of shares of Stock equal
to the number delivered to exercise the original Option with an Option term
equal to the remainder of the original Option term unless the Administrator
otherwise determines in the Award agreement for the original Option grant.
(c) Stock Options Granted to Independent Directors.
(i)  Automatic Grant of Options.
(A) Each person who was an Independent Director on the effective
date of the Company's initial public offering was granted on such date
a Non-Qualified Stock Option to acquire 10,000 shares of Stock.  The
exercise price per share for the Stock covered by such Non-Qualified
Stock Option shall be the initial public offering price as set forth
in the final prospectus for the Company's initial public offering.
(B) Each Independent Director who is first elected to serve as a
Director after the effective date of the Company's initial public
offering shall be granted, on the fifth business day after his
election, a Non-Qualified Stock Option to acquire 10,000 shares of
Stock.
(C) Each Independent Director who is serving as Director of the
Company on the fifth business day after each annual meeting of
shareholders, beginning with the 1998 annual meeting, shall
automatically be granted on such day a Non-Qualified Stock Option to
acquire 5,000 shares of Stock.
(D) The exercise price per share for the Stock covered by a Stock
Option granted under this Section 5(c)(i)(B) and (C) shall be equal to
the Fair Market Value of the Stock on the date the Stock Option is
(E) The Board, in its discretion, may grant additional Non-
Qualified Stock Options to Independent Directors.  Any such grant may
vary among individual Independent Directors.
(ii)  Exercise; Termination.
(A) Unless otherwise determined by the Administrator, an Option
granted under Section 5(c)(i)(A), (B) or (C) shall be exercisable with
respect to 50 percent of the underlying shares on the first
anniversary of the grant date and shall be exercisable with respect to
all of the underlying shares on the second anniversary of the grant
date.  An Option granted under Section 5(c)(i)(E) shall be subject to
such vesting and exercisability provisions as the Board may provide at
the time of grant.  An Option issued under this Section 5(c) shall not
be exercisable after the expiration of ten years from the date of
grant.
(B) Options granted under this Section 5(c) may be exercised only
by written notice to the Company specifying the number of shares to be
purchased.  Payment of the full purchase price of the shares to be
purchased may be made by one or more of the methods specified in
Section 5(a)(iv).  An optionee shall
have the rights of a stockholder only as to shares acquired upon the
exercise of a Stock Option and not as to unexercised Stock Options.
(d) Non-transferability of Options.  No Stock Option shall be transferable
by the optionee otherwise than by will or by the laws of descent and
distribution and all Stock Options shall be exercisable, during the optionee's
lifetime, only by the optionee.  Notwithstanding the foregoing, the
Administrator, in its sole discretion, may provide in the Award agreement
regarding a given Option that the optionee may transfer, without consideration
for the transfer, his Non-Qualified Stock Options to members of his family, to
trusts for the benefit of such family members, or to partnerships in which such
family members are the only partners, provided that the transferee agrees in
writing with the Company to be bound by all of the terms and conditions of this
Plan and the applicable option agreement.
(e)  Termination.
(i) Except as may otherwise be provided by the Administrator either in
the Award agreement, or subject to Section 14 below, in writing after the
Award agreement is issued, an optionee's rights in all Stock Options shall
automatically terminate upon the participant's termination of employment
(or cessation of business relationship) with the Company and its
Subsidiaries for any reason, except by reason of Retirement.
(ii) Any Stock Option held by an optionee, other than Mortimer B.
Zuckerman and Edward H. Linde, whose employment by the Company and its
Subsidiaries is terminated by reason of Retirement may thereafter be
exercised, to the extent it was exercisable at the time of such
termination, for a period of 24 months (or such other period as the
Administrator shall specify at any time) from the date of such termination
of employment by reason of Retirement, or until the expiration of the
stated term of the Stock Option, if earlier.
SECTION 6.  RESTRICTED STOCK AWARDS
(a) Nature of Restricted Stock Awards.  A Restricted Stock Award is an
Award entitling the recipient to acquire, at par value or such other higher
purchase price determined by the Administrator, shares of Stock subject to such
restrictions and conditions as the Administrator may determine at the time of
grant ("Restricted Stock").  Conditions may be based on continuing employment
(or other business relationship) and/or achievement of pre-established
performance goals and objectives.  The grant of a Restricted Stock Award is
contingent on the participant executing the Restricted Stock Award agreement.
The terms and conditions of each such agreement shall be determined by the
Administrator, and such terms and conditions may differ among individual Awards
and participants.
(b) Rights as a Stockholder.  Upon execution of the Restricted Stock Award
agreement and paying any applicable purchase price, a participant shall have the
rights of a stockholder with respect to the voting of the Restricted Stock,
subject to such terms and conditions as may be contained in the Restricted Stock
Award agreement.  Unless the Administrator shall otherwise determine,
certificates evidencing the Restricted Stock shall remain in the possession of
the Company until such Restricted Stock is vested as provided in Section 6(d)
below, and the participant shall be required, as a condition of the grant, to
deliver to the Company a stock power endorsed in blank.
(c) Restrictions.  Restricted Stock may not be sold, assigned, transferred,
pledged or otherwise encumbered or disposed of except as specifically provided
herein or in the Restricted Stock Award agreement.  If a participant's
employment (or other business relationship) with the Company and its
Subsidiaries terminates for any reason, the Company shall have the right to
repurchase Restricted Stock that has not vested at the time of termination at
its original purchase price, from the participant or the participant's legal
(d) Vesting of Restricted Stock.  The Administrator at the time of grant
shall specify the date or dates and/or the attainment of pre-established
performance goals, objectives and other conditions on which the non-
transferability of the Restricted Stock and the Company's right of repurchase or
forfeiture shall lapse.  Subsequent to such date or dates and/or the attainment
of such pre-established performance goals, objectives and other conditions, the
shares on which all restrictions have lapsed shall no longer be Restricted Stock
and shall be deemed "vested."  The vesting period of a Restricted Stock Award
shall be at least three years, except that in the case of a Restricted Stock
Award that may become transferable and no longer subject to forfeiture upon the
attainment of pre-established performance goals, the vesting period shall be at
least one year.  Except as may otherwise be provided by the Administrator either
in the Award agreement or, subject to Section 14 below, in writing after the
Award agreement is issued, a participant's rights in any shares of Restricted
Stock that have not vested shall automatically terminate upon the participant's
termination of employment (or other business relationship) with the Company and
its Subsidiaries and such shares shall be subject to the Company's right of
repurchase as provided in Section 6(c) above.
(e) Waiver, Deferral and Reinvestment of Dividends.  The Restricted Stock
Award agreement may require or permit the immediate payment, waiver, deferral or
reinvestment (in the form of additional Restricted Stock) of dividends paid on
the Restricted Stock.
SECTION 7.  DEFERRED STOCK AWARDS
(a) Nature of Deferred Stock Awards.   A Deferred Stock Award is an Award
of phantom stock units to a participant, subject to restrictions and conditions
as the Administrator may determine at the time of grant.  Conditions may be
based on continuing employment (or other business relationship) and/or
achievement of pre-established performance goals and
objectives. Except in the case of Deferred Stock Awards granted pursuant to
Section 7(b) below, the vesting period of a Deferred Stock Award shall be at
least three years, except that in the case of a Deferred Stock Award that may
become transferable and no longer subject to forfeiture upon the attainment of
pre-established performance goals, the vesting period shall be at least one
year. The grant of a Deferred Stock Award is contingent on the participant
executing the Deferred Stock Award agreement. The terms and conditions of each
such agreement shall be determined by the Administrator, and such terms and
conditions may differ among individual Awards and participants. At the end of
the deferral period, the Deferred Stock Award, to the extent vested, shall be
paid to the participant in the form of shares of Stock.
(b) Election to Receive Deferred Stock Awards in Lieu of Compensation.  The
Administrator may, in its sole discretion, permit a participant to elect to
receive a portion of the cash compensation or Restricted Stock Award otherwise
due to such participant in the form of a Deferred Stock Award.  Any such
election shall be made in writing and shall be delivered to the Company no later
than the date specified by the Administrator and in accordance with rules and
procedures established by the Administrator.  The Administrator shall have the
sole right to determine whether and under what circumstances to permit such
elections and to impose such limitations and other terms and conditions thereon
as the Administrator deems appropriate.
(c) Rights as a Stockholder.  During the deferral period, a participant
shall have no rights as a stockholder; provided, however, that the participant
may be credited with Dividend Equivalent Rights with respect to the phantom
stock units underlying his Deferred Stock Award, subject to such terms and
conditions as the Administrator may determine.
(d) Restrictions.  A Deferred Stock Award may not be sold, assigned,
transferred, pledged or otherwise encumbered or disposed of during the deferral
(e) Termination.  Except as may otherwise be provided by the Administrator
either in the Award agreement or, subject to Section 14 below, in writing after
the Award agreement is issued, a participant's right in all Deferred Stock
Awards that have not vested shall automatically terminate upon the participant's
termination of employment (or cessation of business relationship) with the
Company and its Subsidiaries for any reason.
SECTION 8.  UNRESTRICTED STOCK AWARDS
Grant or Sale of Unrestricted Stock.  The Administrator may, in its sole
discretion, grant (or sell at par value or such other higher purchase price
determined by the Administrator) an Unrestricted Stock Award to any participant
pursuant to which such participant may receive shares of Stock free of any
restrictions ("Unrestricted Stock") under the Plan.  Unrestricted Stock Awards
may be granted or sold as described in the preceding sentence in respect of past
services or other valid consideration, or in lieu of any cash compensation due
to such participant.
SECTION 9.  PERFORMANCE SHARE AWARDS
(a) Nature of Performance Share Awards.  A Performance Share Award is an
Award entitling the recipient to acquire shares of Stock upon the attainment of
specified performance goals.  The Administrator may make Performance Share
Awards independent of or in connection with the granting of any other Award
under the Plan.  The Administrator in its sole discretion shall determine
whether and to whom Performance Share Awards shall be made, the performance
goals applicable under each such Award, the periods during which performance is
to be measured, and all other limitations and conditions applicable to the
awarded Performance Shares; provided, however, that the Administrator may rely
on the performance goals and other standards applicable to other performance
unit plans of the Company in setting the standards for Performance Share Awards
under the Plan.
(b) Rights as a Stockholder.  A participant receiving a Performance Share
Award shall have the rights of a stockholder only as to shares actually received
by the participant under the Plan and not with respect to shares subject to the
Award but not actually received by the participant.  A participant shall be
entitled to receive a stock certificate evidencing the acquisition of shares of
Stock under a Performance Share Award only upon satisfaction of all conditions
specified in the written instrument evidencing the Performance Share Award (or
in a performance plan adopted by the Administrator).
(c) Termination.  Except as may otherwise be provided by the Administrator
the Award agreement is issued, a participant's rights in all Performance Share
Awards shall automatically terminate upon the participant's termination of
employment (or cessation of business relationship) with the Company and its
Subsidiaries for any reason.
(d) Acceleration, Waiver, Etc.  At any time prior to the participant's
termination of employment (or other business relationship) by the Company and
its Subsidiaries, the Administrator may in its sole discretion accelerate, waive
or, subject to Section 14, amend any or all of the goals, restrictions or
conditions imposed under any Performance Share Award.
SECTION 10.  DIVIDEND EQUIVALENT RIGHTS
(a) Dividend Equivalent Rights.  A Dividend Equivalent Right is an Award
entitling the recipient to receive credits based on cash dividends that would
have been paid on the shares of Stock specified in the Dividend Equivalent Right
(or other award to which it relates) if such shares had been issued to and held
by the recipient.  A Dividend Equivalent Right may be granted hereunder to any
participant as a component of another Award or as a freestanding award.  The
terms and conditions of Dividend Equivalent Rights shall be specified in the
grant.  Dividend equivalents credited to the holder of a Dividend Equivalent
Right may be paid currently or may be deemed to be reinvested in additional
shares of Stock, which may thereafter accrue additional equivalents.  Any such
reinvestment shall be at Fair
Market Value on the date of reinvestment. Dividend Equivalent Rights may be
settled in cash or shares of Stock or a combination thereof, in a single
installment or installments. A Dividend Equivalent Right granted as a component
of another Award may provide that such Dividend Equivalent Right shall be
settled upon exercise, settlement, or payment of, or lapse of restrictions on,
such other award, and that such Dividend Equivalent Right shall expire or be
forfeited or annulled under the same conditions as such other award. A Dividend
Equivalent Right granted as a component of another Award may also contain terms
and conditions different from such other award.
(b) Interest Equivalents.  Any Award under this Plan that is settled in
whole or in part in cash on a deferred basis may provide in the grant for
interest equivalents to be credited with respect to such cash payment.  Interest
equivalents may be compounded and shall be paid upon such terms and conditions
as may be specified by the grant.
the Award agreement is issued, a participant's rights in all Dividend Equivalent
Rights or interest equivalents shall automatically terminate upon the
participant's termination of employment (or cessation of business relationship)
with the Company and its Subsidiaries for any reason.
SECTION 11.  OTHER STOCK-BASED AWARDS
(a) Nature of Other Stock-Based Awards.  An Other Stock-Based Award
includes other Awards of Stock and other Awards that are valued in whole or in
part by reference to, or are otherwise based on, Stock, including without
limitation, convertible preferred stock, convertible debentures, exchangeable
securities and Awards valued by reference to book value or subsidiary
performance.  An Other Stock-Based Award may be granted to any participant
either along side or in addition to or in tandem with Stock Options, Restricted
Stock or Deferred Stock granted under the Plan and/or cash awards made outside
of the Plan.  Stock (including securities convertible into Stock) issued on a
bonus basis under this Section 11 may be issued for no cash consideration.
Stock (including securities convertible into Stock) purchased with a purchase
right awarded under this Section 11 shall be priced at least 25 percent of the
Fair Market Value of the Stock on the date of grant.  The grant of an Other
Stock-Based Award may be subject to restrictions and conditions as the
Administrator may determine at the time of grant, including conditions based on
continuing employment (or other business relationship) and/or achievement of
pre-established performance goals and objectives.  The grant of an Other Stock-
Based Award is contingent on the participant executing the Award agreement.  The
terms and conditions of each such agreement shall be determined by the
(b) Rights as a Stockholder.  Until such time as an Other Stock-Based Award
is actually paid out in shares of Stock, a participant shall have no rights as a
holder of Stock.
(c) Restrictions.  An Other Stock-Based Award may not be sold, assigned,
transferred, pledged or otherwise encumbered or disposed of except as
specifically provided herein or in the Award agreement.
(d) Termination.  Except as may otherwise be provided by the Administrator
Award agreement is issued, a participant's right in his Other Stock-Based Awards
that have not vested shall automatically terminate upon the participant's
SECTION 12.  TAX WITHHOLDING
(a) Payment by Participant.  Each participant shall, no later than the date
as of which the value of an Award or of any Stock or other amounts received
thereunder first becomes includable in the gross income of the participant for
Federal income tax purposes, pay to the Company, or make arrangements
satisfactory to the Administrator regarding payment of, any Federal, state, or
local taxes of any kind required by law to be withheld with respect to such
income.  The Company and its Subsidiaries shall, to the extent permitted by law,
have the right to deduct any such taxes from any payment of any kind otherwise
due to the participant.  The Company's obligation to deliver stock certificates
to any participant is subject to and conditioned on tax obligations being
satisfied by the participant.
(b) Payment in Stock.  Subject to approval by the Administrator, a
participant may elect to have the minimum tax withholding obligation satisfied,
in whole or in part, by (i) authorizing the Company to withhold from shares of
Stock to be issued pursuant to any Award a number of shares with an aggregate
Fair Market Value (as of the date the withholding is effected) that would
satisfy the minimum withholding amount due, or (ii) transferring to the Company
shares of Stock owned by the participant with an aggregate Fair Market Value (as
of the date the withholding is effected) that would satisfy the minimum
withholding amount due, or (iii) any combination of (i) and (ii).
SECTION 13.  TRANSFER, LEAVE OF ABSENCE, ETC.
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer to the employment of the Company from a Subsidiary or from
the Company to a Subsidiary, or from one Subsidiary to another Subsidiary; or
(b) an approved leave of absence for military service or sickness, or for
any other purpose approved by the Company, if the employee's right to re-
employment is guaranteed either by a statute or by contract or under the written
policy pursuant to which the leave of absence was granted or if the
Administrator otherwise so provides in writing.
SECTION 14.  AMENDMENTS AND TERMINATION
The Administrator may, at any time, amend or discontinue the Plan and the
Administrator may, at any time, amend or cancel any outstanding Award for the
purpose of satisfying changes in law or for any other lawful purpose, but no
such action shall adversely affect rights under any outstanding Award without
the holder's written consent.  Except as provided in Section 3(b) or 3(c), in no
event may the Administrator exercise its discretion to reduce the exercise price
of outstanding Stock Options or effect repricing through cancellation and re-
grants.  If and to the extent determined by the Administrator to be required by
the Code to ensure that Incentive Stock Options granted under the Plan are
qualified under Section 422 of the Code or ensure that compensation earned under
Stock Options granted under the Plan qualifies as performance-based compensation
under Section 162(m) of the Code, if and to the extent intended to so qualify,
Plan amendments shall be subject to approval by the Company stockholders
entitled to vote at a meeting of stockholders.  Nothing in this Section 14 shall
limit the Board's authority to take any action permitted pursuant to Section
3(c).
SECTION 15.  STATUS OF PLAN
Unless the Administrator shall otherwise expressly determine in writing,
with respect to the portion of any Award which has not been exercised and any
payments in cash, Stock or other consideration not received by a participant, a
participant shall have no rights greater than those of a general creditor of the
Company.  In its sole discretion, the Administrator may authorize the creation
of trusts or other arrangements to meet the Company's obligations to deliver
Stock or make payments with respect to Awards hereunder, provided that the
existence of such trusts or other arrangements is consistent with the foregoing
sentence.
SECTION 16.  CHANGE OF CONTROL PROVISIONS
(a) Upon the occurrence of a Change of Control as defined in this Section
16, all outstanding Options shall become immediately exercisable in full, and
all other Awards under the Plan shall become fully vested.
(b) "Change of Control" shall mean the occurrence of any one of the
following events:
(i) any "person," as such term is used in Sections 13(d) and 14(d) of
the Act (other than the Company, any of its Subsidiaries, Mortimer B.
Zuckerman, Edward H. Linde, any "affiliate" or "associate" (as such terms
are defined in Rule 12b-2 under the Act) of Mortimer B. Zuckerman or Edward
H. Linde, or any trustee, fiduciary or other person or entity holding
securities under any employee benefit plan or trust of the Company or any
of its Subsidiaries), together with all "affiliates" and "associates" (as
such terms are defined in Rule 12b-2 under the Act) of such person, shall
become the "beneficial owner" (as such term is defined in Rule 13d-3 under
the Act), directly or indirectly, of securities of the Company representing
25 percent or
more of the combined voting power of the Company's then outstanding
securities having the right to vote in an election of the Company's Board
of Directors ("Voting Securities") (other than as a result of an
acquisition of securities directly from the Company); provided that for
purposes of determining the "beneficial ownership" (as such term is defined
in Rule 13d-3 under the Act) of any "group" of which Mortimer B. Zuckerman,
Edward H. Linde or any of their affiliates or associates is a member (each
such entity or individual, a "Related Party"), there shall not be
attributed to the "beneficial ownership" (as such term is defined in Rule
13d-3 under the Act) of such group any shares beneficially owned by any
Related Party; or
(ii) persons who, as of the effective date of the Company's initial
public offering of Stock, constitute the Company's Board of Directors (the
"Incumbent Directors") cease for any reason, including, without limitation,
as a result of a tender offer, proxy contest, merger or similar
transaction, to constitute at least a majority of the Board, provided that
any person becoming a director of the Company subsequent to such date shall
be considered an Incumbent Director if such person's election was approved
by or such person was nominated for election by either (A) a vote of at
least two-thirds of the Incumbent Directors or (B) a vote of at least a
majority of the Incumbent Directors who are members of a nominating
committee comprised, in the majority, of Incumbent Directors; or
(iii)  the stockholders of the Company shall approve (A) any
consolidation or merger of the Company where the stockholders of the
Company, immediately prior to the consolidation or merger, would not,
immediately after the consolidation or merger, "beneficially own" (as such
term is defined in Rule 13d-3 under the Act), directly or indirectly,
shares representing in the aggregate 60 percent or more of the voting
shares of the corporation issuing cash or securities in the consolidation
or merger (or of its ultimate parent corporation, if any), (B) any sale,
lease, exchange or other transfer to an unrelated party (in one transaction
or a series of transactions contemplated or arranged by any party as a
single plan) of all or substantially all of the assets of the Company or
(C) any plan or proposal for the liquidation or dissolution of the Company.
Notwithstanding the foregoing, a "Change of Control" shall not be deemed to
have occurred for purposes of the foregoing clause (i) solely as the result of
an acquisition of securities by the Company which, by reducing the number of
shares of Voting Securities outstanding, increases the proportionate number of
shares of Voting Securities beneficially owned by any person (as defined in the
foregoing clause (i)) to 25 percent or more of the combined voting power of all
then outstanding Voting Securities; provided, however, that if such person shall
thereafter become the beneficial owner of any additional shares of Voting
Securities (other than pursuant to a stock split, stock dividend, or similar
transaction or as a result of an acquisition of securities directly from the
Company), then a "Change of Control" shall be deemed to have occurred for
purposes of the foregoing clause (i).
SECTION 17.  GENERAL PROVISIONS
(a) No Distribution; Compliance with Legal Requirements.  The Administrator
may require each person acquiring Stock pursuant to an Award to represent to and
agree with the Company in writing that such person is acquiring the shares
without a view to distribution thereof.
No shares of Stock shall be issued pursuant to an Award until all
applicable securities law and other legal and stock exchange or similar
requirements have been satisfied.  The Administrator may require the placing of
such stop-orders and restrictive legends on certificates for Stock and Awards as
it deems appropriate.
(b) Delivery of Stock Certificates.  Stock certificates to be delivered to
participants under this Plan shall be deemed delivered for all purposes when the
Company or a stock transfer agent of the Company shall have mailed such
certificates in the United States mail, addressed to the participant, at the
participant's last known address on file with the Company.
(c) Other Compensation Arrangements; No Employment Rights.  Nothing
contained in this Plan shall prevent the Board from adopting other or additional
compensation arrangements, including trusts, and such arrangements may be either
generally applicable or applicable only in specific cases.  The adoption of this
Plan and the grant of Awards shall not confer upon any employee any right to
continued employment with the Company or any Subsidiary and shall not interfere
in any way with the right of the Company or any Subsidiary to terminate the
employment of any of its employees at any time.
(d) Trading Policy Restrictions.  Option exercises and other Awards under
the Plan shall be subject to such Company insider-trading-policy-related
restrictions, terms and conditions as may be established by the Administrator,
or in accordance with policies set by the Administrator, from time to time.
SECTION 18.  EFFECTIVE DATE OF PLAN
This Plan became effective on June 11, 1997.
SECTION 19.  GOVERNING LAW
This Plan and all Awards and actions taken thereunder shall be governed by,
and construed in accordance with, the laws of the State of Delaware, applied
without regard to conflict of law principles.
DATE OF APPROVAL OF INITIAL PLAN BY BOARD OF DIRECTORS:  June 11, 1997
DATE OF APPROVAL BY STOCKHOLDERS:  June 11, 1997
DATE OF APPROVAL OF AMENDED AND RESTATED PLAN
BY COMPENSATION COMMITTEE OF THE BOARD:  January 24, 2000
DATE OF APPROVAL OF AMENDED AND RESTATED PLAN BY SHAREHOLDERS:   May 3, 2000.
NON-QUALIFIED STOCK OPTION AGREEMENT
Pursuant to the Boston Properties, Inc. 1997 Stock Option and Incentive
Plan (the "Plan"), Boston Properties, Inc. (the "Company") hereby grants to
(the "Optionee"), a non-qualified stock option (the "Stock Option") to purchase
shares of Common Stock of the Company (the "Stock") at the price of $_____ per
share, subject to the terms of this Agreement and the Plan.  The Stock Option is
granted as of        the "Grant Date") and shall expire on        (the
"Expiration Date").  All terms used herein that are defined in the Plan shall
have the same meaning given them in the Plan.
1. Timing of Exercise. Subject to Section 2 below and the discretion of
the Administrator to accelerate the vesting schedule hereunder, the Stock Option
shall become vested and exercisable with respect to the following whole number
of shares according to the timetable set forth below:
Number of Years            Percentage of Shares          Cumulative Percentage
After Date of Grant     Becoming Available for Exercise          Available
- -------------------     -------------------------------          ---------
Less than 3 years                     0%                             0%
At least 3 years                     33 1/3%                       33 1/3%
5 or more years                      33 1/3%                       100%
Notwithstanding the foregoing, the Stock Option shall become fully vested
and exercisable for the reasons stated in Sections 2(a), 2(b), 2(c) and 2(d)
below.   The Stock Option shall remain exercisable until the Expiration Date,
unless the Stock Option is terminated sooner as provided herein.
2.  Termination of Employment.  If the Optionee ceases to be an employee of
the Company or Subsidiary, the period within which to exercise the Stock Option
may be subject to earlier termination as set forth below.
(a) Termination Due to Death.  If the Optionee ceases to be an
employee due to death, the Stock Option held by the Optionee shall become
fully vested and exercisable and may thereafter be exercised by the
Optionee's beneficiary or legal representative for a period of twelve (12)
months from the date of death, or until the Expiration Date, if earlier.
(b) Termination Due to Disability. If the Optionee ceases to be an
employee as a result of incapacity due to physical or mental illness or
disability which qualifies him to receive benefits under the Company's
long-term disability plan, the Stock Option held by the Optionee shall
become fully vested and exercisable and may thereafter be
exercised by the Optionee (or Optionee's legal representative if Optionee
is incapacitated) for a period of twelve (12) months from the date of
termination or until the Expiration Date, if earlier.
(c) Termination by the Company without Cause or by Employee for Good
Reason.  If the Optionee is terminated by the Company for reasons other
than "Cause" (as defined herein), or if the Optionee terminates for Good
Reason (as defined herein), the Stock Option held by the Optionee shall
become fully vested and exercisable and may thereafter be exercised by the
Optionee for a period of twelve (12) months from the date of termination or
until the Expiration Date, if earlier.
(d) Termination in Connection with a Change of  Control.  If the
Optionee is terminated by the Company for reasons other than "Cause" (as
defined herein) in connection with a Change of Control, or if the Optionee
terminates employment for "Good Reason" (as defined herein), the Stock
Option held by the Optionee shall become fully vested and exercisable and
may thereafter be exercised by the Optionee for a period of twelve (12)
months from the date of termination or until the Expiration Date, if
earlier.  Notwithstanding the foregoing, nothing in this Section 2(d) shall
limit the Board's authority to take any action permitted pursuant to
Section 3(c) of the Plan.
(e) Termination for Cause.  If the Optionee ceases to be an employee
for Cause (as defined herein), the Stock Option held by the Optionee shall
immediately terminate and be of no further force and effect.
(f) Other Termination.  If the Optionee ceases to be an employee for
any reason other than those stated in Sections 2(a), 2(b), 2(c), 2(d) or
2(e) of this Agreement, the Stock Option held by the Optionee may be
exercised to the extent exercisable at the time of his or her termination,
for a period of three (3) months from the date of termination or until the
Expiration Date, if earlier.  The remaining portion of the Stock Option
held by the Optionee shall immediately terminate and be of no further force
and effect.
For this purpose, neither a transfer of employment from the Company to a
Subsidiary (or from a Subsidiary to the Company) nor a leave of absence approved
in writing shall be deemed a "termination of employment."
3.  Manner of Exercise.  Subject to Section 5 below, the Stock Option may
be exercised in whole or in part by giving written notice of exercise to the
Company specifying the number of shares of Stock to be purchased.  Payment of
the purchase price may be made by one or more of the following methods:
(a) In cash, by certified or bank check or other instrument acceptable
to the Administrator;
(b)  In the form of shares of Stock that the Optionee has beneficially
owned for more than six months and that are not then subject to
restrictions under any Company plan.  Such surrendered shares shall be
valued at Fair Market Value on the exercise date; or
(c)  By the Optionee delivering to the Company a properly executed
promptly deliver to the Company cash or a check payable and acceptable to
the Company to pay the purchase price; provided that in the event the
Optionee chooses to pay the purchase price as so provided, the Optionee and
the broker shall comply with such procedures and enter into such agreements
of indemnity and other agreements as the Administrator shall prescribe as a
condition of such payment procedure.
Payment instruments will be received subject to collection. The delivery of
certificates representing the shares of Stock to be purchased pursuant to the
exercise of a Stock Option will be contingent upon receipt from the Optionee (or
a purchaser acting in the Optionee's stead in accordance with the provisions
contained in the Plan or this Agreement) by the Company of the full purchase
price for such shares and any required withholding taxes, and the fulfillment of
any other requirements contained in the Plan, this Agreement or applicable
provisions of law.
4.  Definitions.  For purposes of this Agreement:
(a)   "Cause" shall mean:  (A) gross negligence or willful misconduct
by Optionee in connection with the performance of his or her material
duties as an employee of the Company or any Subsidiary; (B) a breach by
Optionee of any of his or her material duties as an employee of the Company
or any Subsidiary and the failure of Optionee to cure such breach within
thirty (30) days after written notice thereof by the Company or any
Subsidiary; (C) conduct by Optionee against the material best interests of
the Company or any Subsidiary or a material act of common law fraud against
the Company, any Subsidiary or the employees of either the Company or any
Subsidiary; or (D) conviction of Optionee of a felony and such conviction
has a material adverse effect on the interests or reputation of the Company
or any Subsidiary.
(b) "Good Reason" shall mean the voluntary termination of employment
by Optionee following the occurrence of any of the following events: (A) a
substantial adverse change, not consented to by Optionee, in the nature or
scope of Optionee's responsibilities, authorities, powers, functions or
duties from the responsibilities, authorities, powers, functions or duties
exercised by Optionee immediately prior to a Change of Control; (B) an
involuntary reduction in Optionee's annual base salary except for across-
the-board salary reduction similarly affecting all or substantially all
employees; (C) the relocation of the company's offices at which Optionee is
principally employed or the relocation of the offices of Optionee's primary
workgroup to a location more than thirty (30) miles from such offices, or
the requirement by the Company for Optionee to be based anywhere other than
the Company's offices at such location on an extended basis,
except for required travel of the Company's business to an extent
substantially consistent
with Optionee's business travel obligations; or (D) the failure by the
Company to pay the Optionee any portion of his compensation within fifteen
(15) days of the date such compensation is due without the prior written
consent of the Optionee.
5.  Trading Policy Restrictions.  Option exercises shall be subject to such
Company trading-policy-related restrictions, terms and conditions as may be
established by the Administrator, or in accordance with policies set by the
Administrator, from time to time.
6.  The Stock Option Transferable in Limited Circumstances.  Subject to
prior written notification to the Company by the Optionee, the Stock Option may
be transferred to a family member, a trust for the benefit of one or more family
members or a partnership in which family members are the only partners;
provided, however, that the transferee agrees in writing with the Company to be
bound by the terms of this Agreement and the Plan.  Except as permitted in the
preceding sentence, the Stock Option is not transferable otherwise than by will
or by the laws of descent and distribution, and shall be exercisable during the
Optionee's lifetime only by the Optionee.
7.  Stock Option Shares.  The shares to be issued under the Plan are shares
of the Common Stock of the Company as constituted as of the date of this
Agreement, subject to adjustments pursuant to Section 3 of the Plan.
8.  Rights as a Stockholder.  The Optionee shall have the rights of a
stockholder only as to shares of Stock acquired upon exercise of the Stock
Option and not as to any shares of Stock covered by unexercised Stock Options.
No adjustment shall be made for dividends or other rights for which the record
date is prior to the date such shares are acquired.
9.  Tax Withholding.   No later than the date on which part or all of the
value of any shares of Stock received under the Plan first becomes includible in
the Optionee's gross income for Federal income tax purposes, the Optionee shall
make arrangements with the Administrator in accordance with Section 12 of the
Plan regarding the payment of any federal, state or local taxes required to be
withheld with respect to such income.  Such payment may be either in cash or in
Stock, subject to approval by the Administrator.
10.  Tax Status.  The Stock Option is not intended to qualify as an
incentive stock option under Section 422 of the Internal Revenue Code of 1986,
as amended.
11.  The Plan.  The Stock Option is subject in all respects to the terms,
conditions, limitations and definitions contained in the Plan.  In the event of
any discrepancy or inconsistency between this Agreement and the Plan, the terms
and conditions of the Plan shall control.
12.  No Obligation to Exercise Stock Option.  The grant and acceptance of
the Stock Option imposes no obligation on the Optionee to exercise it.
13.  No Obligation to Continue Employment.  Neither the Company nor any
Subsidiary is obligated by or as a result of the Plan or this Agreement to
continue the Optionee in employment and neither the Plan nor this Agreement
shall interfere in any way with the right of the Company or any Subsidiary to
terminate the employment of the Optionee at any time.
14.  Notices.  Notices hereunder shall be mailed or delivered to the
Company at its principal place of business and shall be mailed or delivered to
the Optionee at the address on file with the Company or, in either case, at such
other address as one party may subsequently furnish to the other party in
15.  Purchase Only for Investment.  To insure the Company's compliance with
the Securities Act of 1933, as amended, the Optionee agrees for himself or
herself, the Optionee's legal representatives and estate, or other persons who
acquire the right to exercise the Stock Option upon his or her death, that
shares will be purchased in the exercise of the Stock Option for investment
purposes only and not with a view to their distribution, as that term is used in
the Securities Act of 1933, as amended, unless in the opinion of counsel to the
Company such distribution is in compliance with or exempt from the registration
and prospectus requirements of that Act.
16.  Governing Law.  This Agreement and the Stock Option shall be governed
by, and construed in accordance with, the laws of the State of Delaware, applied
17.  Beneficiary Designation.  The Optionee hereby designates the following
person(s) as the Optionee's beneficiary(ies) to whom shall be transferred any
rights under the Stock Option which survive the Optionee's death.  If the
Optionee names more than one primary beneficiary and one or more of such primary
beneficiaries die, the deceased primary beneficiary's interest will be
apportioned among any surviving primary beneficiaries before any contingent
beneficiary receives any amount, unless the Optionee indicates otherwise in a
signed and dated additional page.  The same rule shall apply within the category
of contingent beneficiaries.  Unless the Optionee has specified otherwise
herein, any rights which survive the Optionee's death will be divided equally
among the Optionee's primary beneficiaries or contingent beneficiaries, as the
case may be.  If no beneficiary survives the Optionee or there is no effective
beneficiary designation, the Optionee's estate shall be deemed to be his or her
beneficiary.
PRIMARY BENEFICIARY(IES)
(Please Print)
Name            Relationship        %              Address
-----------------------  ------------    ---------   ------------------------
CONTINGENT BENEFICIARY(IES)
The undersigned hereby acknowledges receipt of the foregoing Stock Option
and agrees to its terms and conditions:
Optionee
Number of Years            Percentage of Shares           Cumulative Percentage
- -------------------     -------------------------------    ---------------------
Less than 3 years                    0%                             0%
At least 3 years                    33 1/3%                        33 1/3%
5 or more years                     33 1/3%                        100%
Reason (as defined in the Employment Agreement dated June 14, 1997, between
the Company and the Optionee), the Stock Option held by the Optionee shall
until the Expiration Date, if earlier
of certificates representing the shares of Stock to be purchased pursuant to the
substantially consistent with Optionee's business travel obligations; or
(D) the failure by the Company to pay the Optionee any portion of his
compensation within fifteen (15) days of the date such compensation is due
without the prior written consent of the Optionee.
Name            Relationship    %              Address
--------------------------  --------    ------   ---------------------------
Title:   Vice President
Plan (the "Plan"), Boston Properties, Inc. (the "Company") hereby grants to (the
"Optionee"), a non-qualified stock option (the "Stock Option") to purchase
shares of Common Stock of the Company (the "Stock") at the price of $ per share,
subject to the terms of this Agreement and the Plan. The Stock Option is granted
as of (the "Grant Date") and shall expire on (the "Expiration Date"). All terms
used herein that are defined in the Plan shall have the same meaning given them
in the Plan.
Less than 1 year                       0%                          0%
At least 1 year                       33 1/3%                     33 1/3%
At least 2 years                      33 1/3%                     66 2/3%
3 or more years                       33 1/3%                      100%
and exercisable when the Optionee attains age 65, dies or becomes incapacitated
(as defined in Section 2(b) below) or upon a Change in Control (as defined in
the Plan) of the Company.  The Stock Option shall remain exercisable until the
Expiration Date, unless the Stock Option is terminated sooner as provided
herein.
disability which qualifies him or her to receive benefits under the
Company's long-term disability plan, the Stock
may thereafter be exercised by the Optionee (or Optionee's legal
representative if Optionee is incapacitated) for a period of twelve (12)
earlier.
(c) Termination in Connection with Retirement.  If the Optionee's
employment terminates by reason of Retirement (as defined in the Plan), the
Stock Option held by the Optionee may be exercised to the extent
exercisable at the time of his or her Retirement, for a period of twenty-
four (24) months from the date of Retirement or until the Expiration Date,
if earlier.
(d) Termination for Cause.  If the Optionee ceases to be an employee
(e) Other Termination.  If the Optionee ceases to be an employee for
any reason other than those stated in Sections 2(a), 2(b), 2(c) or 2(d) of
this Agreement, the Stock Option held by the Optionee may be exercised to
the extent exercisable at the time of his or her termination, for a period
of three (3) months from the date of termination or until the Expiration
Date, if earlier.  The remaining portion of the Stock Option held by the
Optionee shall immediately terminate and be of no further force and effect.
of certificates
representing the shares of Stock to be purchased pursuant to the exercise of a
Stock Option will be contingent upon receipt from the Optionee (or a purchaser
acting in the Optionee's stead in accordance with the provisions contained in
the Plan or this Agreement) by the Company of the full purchase price for such
shares and any required withholding taxes, and the fulfillment of any other
requirements contained in the Plan, this Agreement or applicable provisions of
"Cause" shall mean:  (A) gross negligence or willful misconduct by
Optionee in connection with the performance of his or her material duties
as an employee of the Company or any Subsidiary; (B) a breach by Optionee
of any of his or her material duties as an employee of the Company or any
Subsidiary and the failure of Optionee to cure such breach within thirty
(30) days after written notice thereof by the Company or any Subsidiary;
(C) conduct by Optionee against the material best interests of the Company
or any Subsidiary or a material act of common law fraud against the
Company, any Subsidiary or the employees of either the Company or any
6.  Non-Transferability of Stock Option. The Stock Option is not
transferable otherwise than by will or by the laws of descent and distribution,
and shall be exercisable during the Optionee's lifetime only by the Optionee.
withheld with respect to such income.  Such payment may be either in cash
or in Stock, subject to approval by the Administrator.
Number of Years          Percentage of Shares            Cumulative Percentage
After Date of Grant    Becoming Available for Exercise           Available
- -------------------    -------------------------------           ---------
Less than 1 year                     0%                              0%
At least 1 year                     33 1/3%                         33 1/3%
At least 2 years                    33 1/3%                         66 2/3%
3 or more years                     33 1/3%                          100%
(b) Termination Due to Disability.  If the Optionee ceases to be an
disability which qualifies
him or her to receive benefits under the Company's long-term disability
plan, the Stock Option held by the Optionee shall become fully vested and
exercisable and may thereafter be exercised by the Optionee (or Optionee's
legal representative if Optionee is incapacitated) for a period of twelve
(12) months from the date of termination or until the Expiration Date, if
of indemnity and other agreements as the Administrator shall prescribe
as a condition of such payment procedure.
designation, the Optionee's estate shall be deemed to be his or her beneficiary.
shares of Common Stock of the Company (the "Stock") at the price of   $      per
granted as of        (the "Grant Date") and shall expire on        (the
Number of Years             Percentage of Shares         Cumulative Percentage
After Date of Grant      Becoming Available for Exercise         Available
- -------------------      -------------------------------         ---------
Less than 1 year                       0%                            0%
At least 1 year                       50%                           50%
2 or more years                       50%                          100%
and exercisable for the reasons stated in Sections 2(a), 2(b) and 2(c) below.
The Stock Option shall remain exercisable until the Expiration Date, unless the
Stock Option is terminated sooner as provided herein.
2.  Termination as Director.  If the Optionee ceases to be a Director of
the Company, the period within which to exercise the Stock Option may be subject
to earlier termination as set forth below.
(a) Termination Due to Death.  If the Optionee ceases to be a Director
due to death, the Stock Option held by the Optionee shall become fully
vested and exercisable and may thereafter be exercised by the Optionee's
beneficiary or legal representative for a period of twelve (12) months from
the date of death, or until the Expiration Date, if earlier.
(b) Termination Due to Disability.  If the Optionee ceases to be a
Director as a result of incapacity due to physical or mental illness or
disability, the Stock Option held by the Optionee shall become fully vested
and exercisable and may thereafter be exercised by the Optionee (or
Optionee's legal representative if Optionee is incapacitated) for a period
of twelve (12) months from the date the Director ceases to serve as a
Director or until the Expiration Date, if earlier.
(c) Termination in Connection with a Change of Control. If the
Optionee ceases to be a Director as a result of a Change of Control, the
Stock Option held by the Optionee shall become fully vested and exercisable
and may thereafter be exercised by the Optionee for a period of twelve (12)
earlier. Notwithstanding the foregoing, nothing in this Section 2(c) shall
(d) Other Termination.  If the Optionee ceases to be a Director for
any reason other than death, disability or Change of Control, the Stock
Option held by the Optionee may be exercised to the extent exercisable at
the time of his termination, for a period of twelve (12) months from the
date the Director ceases to serve as a Director or until the Expiration
(b) In the form of shares of Stock that the Optionee has beneficially
restrictions under any Company plan. Such surrendered shares shall be
established by the Board, or in accordance with policies set by the Board, from
8.  Tax Status.  The Stock Option is not intended to qualify as an
9.  The Plan.  The Stock Option is subject in all respects to the terms,
11.  No Obligation to Continue as Director.  This Stock Option does not
confer upon the Optionee any rights with respect to continuance as a Director.
by, and
construed in accordance with, the laws of the State of Delaware, applied without
regard to conflict of law principles.
AMENDMENT NO. 1
The Boston Properties, Inc. 1997 Stock Option and Incentive Plan (the
"Plan"), as amended and restated on January 24, 2000, is hereby amended, by
action of the Board of Directors of the Company at a meeting of the Board duly
called and held on November 14, 2000, as follows:
1. Section 1 is hereby amended by adding thereto the following definition
"`Retirement' means the employee's termination of employment with the
Company and its Subsidiaries after attainment of age 65, or attainment of
age 55 and completion of seven (7) years of employment with the Company
and/or a Subsidiary."
IN WITNESS WHEREOF, the undersigned certifies that the Amendment set forth
above was adopted by the Board on November 14, 2000.
William J. Wedge, Secretary
Exhibit 10.14
FIRST AMENDMENT TO SECOND AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
This First Amendment (this "First Amendment") to Second Amended and
Restated Revolving Credit Agreement is made and entered into and has an
effective date as of the 20th day of September, 2000, by and among BOSTON
PROPERTIES LIMITED PARTNERSHIP ("BPLP") and the Subsidiaries of BPLP which are
listed on Schedule 1 (as amended in connection herewith and as such Schedule 1
may be amended from time to time) (BPLP and any such Subsidiary being
hereinafter referred to collectively as the "Borrower" unless referred to in
their individual capacities) to a certain Second Amended and Restated Revolving
Credit Agreement (as amended hereby, the "Credit Agreement") dated as of March
31, 2000, each having its principal place of business at 800 Boylston Street,
Boston, Massachusetts 02199, FLEET NATIONAL BANK ("Fleet"), a national banking
association, having its principal place of business at One Federal Street,
Boston, Massachusetts 02109 and certain other lending institutions (collectively
with Fleet, the "Banks") and FLEET NATIONAL BANK, as agent for itself and each
other Bank.
WHEREAS, the Borrower has requested that the Total Commitment under (and
as defined in) the Credit Agreement be increased by an aggregate amount equal to
$105,000,000;
WHEREAS, each of the Banks has agreed to permit such increase in the Total
Commitment on the terms and conditions set forth herein:
WHEREAS, Credit Lyonnais, New York Branch, Wells Fargo Bank and Bankers
Trust Company have agreed to provide Commitments (as defined in the Credit
Agreement) to the Borrower in the aggregate amount equal to $105,000,000;
WHEREAS, in connection with the foregoing, the Borrower has requested
certain amendments to the Credit Agreement, as set forth herein.
NOW, THEREFORE, in consideration of One Dollar ($1.00) and other good and
valuable consideration by each of the parties hereto, the receipt and
sufficiency of which are hereby acknowledged, it is agreed as follows:
1.    Capitalized terms used but not defined herein shall have the
respective meanings assigned to such terms in the Credit Agreement.
2.    From and after the effective date hereof, (i) each of Credit
Lyonnais, New York Branch, Wells Fargo Bank and Bankers Trust
Company shall be a Bank and a Co-Agent for all purposes under the
Credit Agreement and other Loan Documents, and (ii) the term Loan
Documents shall include
this First Amendment to Second Amended and Restated Credit
Agreement, dated as of September 20, 2000, among the Borrower, the
Banks and the Agent.
3.    The definition of "Revolving Credit Notes" contained in Section 1 of
the Credit Agreement is amended by deleting the reference to
"$500,000,000" contained therein, and by inserting in place thereof
the following new reference: "$605,000,000."
4.    The definition of "Total Commitment" contained in Section 1 of the
Credit Agreement is amended by deleting the reference to
5.    Section 2.6 of the Credit Agreement is amended by adding the
following parenthetical at the end thereof: "(provided that as to
any Bank which is required to fund Revolving Credit Loans from its
head office located in the Pacific Time Zone (U.S.), the preceding
reference to `11:00 a.m.' shall be deemed to be a reference to `1:00
p.m.')".
6.    Schedule 2 to the Credit Agreement is amended to read in its
entirety as set forth in Annex 1 hereto.
7.    The Borrower hereby represents and warrants as follows:
(a) Representations in Credit Agreement. Both before and after
giving effect to this First Amendment, each of the representations
and warranties made by or on behalf of the Borrower, the Guarantor
or any of their respective Subsidiaries contained in the Credit
Agreement or any of the other Loan Documents, was true when made and
is true on and as of the date hereof with the same full force and
effect as if each of such representations and warranties had been
made on the date hereof and in this First Amendment, except (i) to
the extent of changes resulting from transactions contemplated or
not prohibited by the Credit Agreement or the other Loan Documents
and changes occurring in the ordinary course of business, and (ii)
to the extent that such representations and warranties relate
expressly to an earlier date.
(b) No Events of Default. No Default or Event of Default exists on
the date hereof (both before and after giving effect to this First
Amendment). Without limitation of the foregoing, after giving effect
to this First Amendment, there exists no Default or Event of Default
as a result of non-compliance with Sections 9 or 10 of the Credit
(c) Binding Effect of Documents. This First Amendment has been duly
executed and delivered by the Borrower and is in full force and
effect as of the date hereof, and the agreements and obligations of
the Borrower contained herein constitute legal, valid and binding
obligations of the Borrower enforceable against the Borrower in
accordance with their respective terms. Revolving Credit Notes
(substantially in the form of Exhibit A to the Credit Agreement) in
favor of Credit Lyonnais, New York Branch, Wells Fargo Bank and
Bankers Trust Company and the fee letter of even date herewith have
been duly executed and delivered by each Borrower and,
simultaneously with the closing of this First Amendment, shall be in
full force and effect as of the date hereof, and the agreements and
obligations of the Borrower contained herein and therein constitute
legal, valid and binding obligations of each of Borrower enforceable
against each Borrower in accordance with their respective terms.
8.    Provisions of General Application.
(a) No Other Changes. Except as otherwise expressly provided by this
First Amendment, all of the terms, conditions and provisions of the
Credit Agreement and each of the other Loan Documents remain
unaltered. The Credit Agreement and this First Amendment shall be
read and construed as one agreement.
(b) Governing Law. This First Amendment is intended to take effect
as a sealed instrument and shall be deemed to be a contract under
the laws of the Commonwealth of Massachusetts. This First Amendment
and the rights and obligations of each of the parties hereto shall
be governed by and interpreted and determined in accordance with the
laws of the Commonwealth of Massachusetts.
(c) Binding Effect; Assignment. This First Amendment shall be
binding upon and inure to the benefit of each of the parties hereto
and their respective successors in title and assigns.
(d) Counterparts. This First Amendment may be executed in any number
of counterparts, but all such counterparts shall together constitute
but one and the same agreement. In making proof of this First
Amendment, it shall not be necessary to produce or account for more
than one counterpart thereof signed by each of the parties hereto.
(e) Conflict with Other Agreements. If any of the terms of this
First Amendment shall conflict in any respect with any of the terms
of any of the Credit Agreement or any other Loan Document, the terms
of this First Amendment shall be controlling.
(f) Conditions Precedent. The effectiveness of this First Amendment
is subject to the conditions precedent that:
(i) The Agent shall have received, in form and substance
satisfactory to it, a fully executed original of (a) this
First Amendment, (b) the new Revolving Credit Notes in favor
of Credit Lyonnais, New York Branch, Wells Fargo Bank and
Bankers Trust Company, respectively, from each Borrower, (c)
the fee letter of even date herewith relating to the fees
payable by the Borrower in connection with this First
Amendment, and (d) the certificate required to be delivered by
Section 8.14 (relating to removal of a Borrower), with such
certificate to take into account the increase in the Total
Commitment contained herein;
(ii) The Agent and the Banks shall have received satisfactory
legal opinions from counsel to the Borrower with respect to
this First Amendment and the new Revolving Credit Notes; and
(iii) Borrower shall have paid to the Agent all fees required
to be paid by the fee letter entered into by the Borrower and
the Agent on the date hereof.
[Remainder of page intentionally left blank]
WITNESS the execution hereof, under seal, as of the day and year first
written above.
FLEET NATIONAL BANK,
individually and as Managing Administrative
Agent*
By: ____________________________
CREDIT LYONNAIS, NEW YORK BRANCH
BANKERS TRUST COMPANY
- --------
* The Managing Administrative Agent has received Unanimous Bank Approval for the
amendments contained in this First Amendment.
32 Hartwell Avenue, Lexington, MA**
MBZ-LEX TRUST
By:   Boston Properties Limited Partnership,
its beneficiary
By:   Boston Properties, Inc., its
By:___________________(SEAL)
David Gaw
Waltham Office Center, Waltham, MA
ZEE EM TRUST II
** The designation of the specific Real Estate Asset or Assets owned by any
signatory to this Agreement or any other Loan Document is for informational
purposes only and does not in any way limit the joint and several liability of
each Borrower, for so long as it is a Borrower, for the Obligations.
204 Second Avenue, Waltham, MA
WP TRUST
170 Tracer Lane, Waltham, MA
TRACER LANE TRUST II
33 Hayden Avenue, Lexington, MA
HAYDEN OFFICE TRUST
Lexington Office Park, 420-430 Bedford Street,
ELANDZEE TRUST
40-46 Harvard Street, Westwood, MA
40-46 HARVARD STREET TRUST
17 Hartwell Avenue, Lexington, MA
ZEE BEE TRUST II
One Cambridge Center, Cambridge, MA
ONE CAMBRIDGE CENTER TRUST
Three Cambridge Center, Cambridge, MA
THREE CAMBRIDGE CENTER TRUST
Eleven Cambridge Center, Cambridge, MA
ELEVEN CAMBRIDGE CENTER TRUST
Fourteen Cambridge Center, Cambridge, MA
FOURTEEN CAMBRIDGE CENTER TRUST
500 E Street, S.W., Washington, D.C.
SCHOOL STREET ASSOCIATES LIMITED
By:   Boston Properties LLC, its sole general
By:   Boston Properties Limited
Partnership, its managing member
By:______________(SEAL)
1950 Stanford Court, Building One (MD 1),
Landover, MD
MARYLAND 50 BUILDING I ASSOCIATES
By:   Boston Properties LLC, its general partner
6201 Columbia Park Road, Building Two (MD2),
MARYLAND 50 BUILDING II ASSOCIATES
2000 South Club Drive, Building Three (MD3),
MARYLAND 50 BUILDING III ASSOCIATES
Long Wharf Marriott, Boston, MA
DOWNTOWN BOSTON PROPERTIES TRUST
Cambridge Center Marriott, Cambridge, MA
TWO CAMBRIDGE CENTER TRUST
910 Clopper Road, Gaithersburg, MD
TECH PARK 270 LIMITED PARTNERSHIP
By:   Boston Properties
LLC, its general partner
TECH PARK 270 PHASE III LIMITED
Decoverly Two, Rockville, MD
DECOVERLY TWO LIMITED PARTNERSHIP
The Candler Building, 111 Market Place,
CANDLER ASSOCIATES L.L.C.
By:   Boston Properties, Inc., its managing
By:_____________________(SEAL)
104 Carnegie Center, Princeton, NJ
CARNEGIE CENTER ASSOCIATES
By:   Boston Properties Limited Partnership, its
By:   Boston Properties, Inc., its general
By:______________________(SEAL)
210 ASSOCIATES LIMITED PARTNERSHIP
its managing member
Cambridge Center North Garage, Cambridge, MA
CAMBRIDGE CENTER NORTH TRUST
181 Spring Street, Lexington, MA
191 SPRING STREET TRUST
By:____________________(SEAL)
9509 Key West Avenue, Decoverly Seven,
DECOVERLY SEVEN LIMITED PARTNERSHIP
By:__________________(SEAL)
One Tower Center, East Brunswick, NJ
SCV PARTNERS
By:   Boston Properties Limited Partnership, a
195 West Street, Waltham, MA
25-33 Dartmouth Street, Westwood, MA
7435 Boston Boulevard, Building One,
7451 Boston Boulevard, Building Two,
7374 Boston Boulevard, Building Four,
8000 Grainger Court, Building Five,
7500 Boulevard, Building Six,
7501 Boston Boulevard, Building Seven,
7601 Boston Boulevard, Building Eight,
7600 Boston Boulevard, Building Nine,
7375 Boston Boulevard, Building Ten,
8000 Corporate Court, Building Eleven,
7700 Boston Boulevard, Building Twelve,
38 Cabot Boulevard, Bucks County, PA
2391 West Winton Avenue, Hayward, CA
365 Herndon Parkway (Sugarland I),
397 Herndon Parkway (Sugarland II),
164 Lexington Road, Billerica, MA
Fullerton Square, Springfield, VA
The Arboretum, 12700 Sunrise Valley Drive,
Residence Inn, Cambridge, MA
Decoverly Three, 15204 Omega Drive, Rockville,
7450 Boston Boulevard, Building Three,
By:   Boston Properties, Inc., its sole general
By:_________________________(SEAL)
ACKNOWLEDGED AND AGREED:
Bank                                                Commitment Amount            Commitment Percentage
- ----                                                -----------------            ---------------------
Fleet National Bank                                    $ 82,000,000                      13.55%
One Federal Street
Bank of America, N.A.                                  $ 81,500,000                      13.47%
MD2-600-06-14
6610 Rock Ledge Drive
Bethesda, MD  20817
Commerzbank AG, New York Branch and Grand              $ 81,500,000                      13.47%
Cayman Branch
2 World Financial Center
New York, NY  10281-1050
PNC Bank, National Association                         $ 40,000,000                       6.61%
One PNC Plaza
Mail Stop P1-P0PP-19-2
Pittsburgh, PA  15265
The Bank of New York                                   $ 35,000,000                       5.79%
One Wall Street
New York, NY  10286
Bayerische Hypo- Und Vereinsbank AG, New York          $ 40,000,000                       6.61%
The Chase Manhattan Bank                               $ 20,000,000                       3.30%
KeyBank                                                $ 40,000,000                       6.61%
Dresdner Bank AG, New York and Grand Gayman            $ 35,000,000                       5.79%
Citizens Bank                                          $ 25,000,000                       4.13%
Boston, MA  02109
Summit Bank                                            $ 20,000,000                       3.30%
Commerce Center
1800 Chapel Avenue West
Cherry Hill, NJ  08002
Credit Lyonnais, New York Branch                       $ 35,000,000                       5.79%
Wells Fargo Bank                                       $ 35,000,000                       5.79%
125 Pearl Street, 3rd Floor
Bankers Trust Company                                  $ 35,000,000                       5.79%
130 Liberty Street, 25th Floor
New York, New York  10006
TOTAL                                                  $605,000,000                        100%
by and between
New York State Common Retirement Fund
Boston Properties Limited Partnership,
dated as of May 12, 2000.
Section                                                              Page
ARTICLE 1   DEFINITIONS................................................1
Section 1.1 Definitions..........................................1
ARTICLE 2   RIGHT OF FIRST OFFER FOR OPERATING PROPERTIES..............6
Section 2.1 Pre-Offer............................................6
Section 2.2 Offer................................................7
Section 2.3 Certain Restrictions................................10
Section 2.4 Loss of the Common Fund's ROFO for
Operating Properties................................10
Section 2.5 Excluded Transactions...............................12
ARTICLE 3   RIGHT OF FIRST OFFER FOR DEVELOPMENT PROPERTIES...........12
Section 3.1 Offer...............................................12
ARTICLE 4   GENERAL PROVISIONS APPLICABLE TO THE RIGHTS OF
FIRST OFFER...............................................16
Section 4.1 Permitted Changes...................................16
Section 4.2 Reporting Requirements..............................17
Section 4.3 Superior Rights.....................................17
Section 4.4 Good Faith..........................................17
Section 4.5 Financing...........................................18
Section 4.6 Remedies............................................18
Section 4.7 Additional Termination Right........................20
Section 4.8 Property Management Agreements;
Development Agreements..............................20
ARTICLE 5   GUARANTY..................................................21
Section 5.1 Boston Properties Guaranty..........................21
Section 5.2 Common Fund Guaranty................................22
Section 5.3 General Provisions..................................22
ARTICLE 6   REPRESENTATIONS AND WARRANTIES............................24
Section 6.1 Boston Properties...................................24
Section 6.2 The Common Fund.....................................27
ARTICLE 7   RESTRICTIONS RELATING TO QUALIFIED ORGANIZATIONS..........28
Section 7.2 Definitions.........................................28
Section 7.2 Representation and Warranty.........................31
Section 7.3 Restriction.........................................31
Section 7.4 Sale of Promote Interests...........................31
Section 7.5 Additional Remedies.................................35
Section 7.6 Dispute Resolution Mechanism........................37
ARTICLE 8   MISCELLANEOUS.............................................38
Section 8.1 Notices.............................................40
Section 8.2 No Assignment.......................................40
Section 8.3 Entire Agreement....................................40
Section 8.4 Counterparts........................................40
Section 8.5 Modification; Waiver................................40
Section 8.6 Attorney's Fees.....................................40
Section 8.7 Severability; Construction..........................40
Section 8.8 Captions; Usage of Words of Reference;
Relationship of the Parties.........................41
Section 8.9 No Third Party Beneficiaries........................41
Section 8.10 Governing Law......................................41
Section 8.11 Confidentiality....................................41
Section 8.12 Successors.........................................42
Section 8.13 Non-Imputation Proceeds............................42
Section 8.14 Further Assurances.................................42
This agreement (this "Agreement"), dated as of the 12th day of May,
2000, by and between COMPTROLLER OF THE STATE OF NEW YORK AS TRUSTEE OF THE
COMMON RETIREMENT FUND (the "Common Fund"), having an address at 633 Third
Avenue, New York, New York 10017, and BOSTON PROPERTIES LIMITED PARTNERSHIP
("Boston Properties"), a Delaware limited partnership, having an address at 800
Boylston Street, Boston, Massachusetts 02119.
W I T N E S S E T H:
WHEREAS, the Common Fund and Boston Properties desire to set forth
their agreement with respect to the acquisition from time to time by entities
owned by the Common Fund and Boston Properties of certain types of real
property; and
WHEREAS, Boston Properties has agreed to grant the Common Fund
certain rights of first offer with respect to such acquisitions and certain
other transactions.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Boston Properties and the Common
Fund hereby agree as follows:
Section 1.1. Definitions. For purposes of this Agreement, the following
terms shall have the following meanings:
"Acquisition Cost" shall mean, with respect to any Development
Property Interest, the sum of the following amounts as of any given date (the
"Determination Date"): (i) an amount equal to all of the third party
out-of-pocket sums actually paid by Boston Properties (or the applicable Boston
Properties Subsidiary, as the case may be) in connection with the acquisition by
Boston Properties (or such Boston Properties Subsidiary) of such Development
Property Interest, plus (ii) an amount equal to all of the third party
Properties Subsidiary, as the case may be), as of the Determination Date, in
connection with the ownership of such Development Property Interest from and
after such acquisition, plus (iii) an amount equal to the simple interest that
would have accrued on the amounts described in the preceding clauses (i) and
(ii), from the date that such amounts were paid by Boston Properties (or such
Boston Properties Subsidiary) through the Determination Date, at the rate of 8%
per annum.
"Advisor" shall mean the person or entity (if any) that, at the time
in question, is advising the Common Fund in connection with the transactions
contemplated
by this Agreement. As of the date hereof, J.P. Morgan Investment Management,
Inc. is the Advisor.
"Boston Properties Guaranty Party" shall mean (i) any Boston
Properties Subsidiary, (ii) any so-called "preferred stock" subsidiary of Boston
Properties, (iii) such other subsidiary as to which Boston Properties is
entitled to no less than 95% of the economics of such subsidiary, and (iv) any
permitted assignee of any of the foregoing entities under any Venture Agreement
(whether the applicable assignment was effected after all consents required
under such Venture Agreement were obtained by the assignor or such assignment
was permitted to be effected under the terms of such Venture Agreement without
the assignor obtaining any consents). Any entity described in any of the
preceding clauses (i), (ii) and (iii) shall be referred to herein as a "BP
Subsidiary Party".
"Boston Properties Subsidiary" shall mean any entity that (directly
or indirectly) (i) is wholly-owned by Boston Properties or (ii) is wholly-owned
by Boston Properties and Boston Properties, Inc. (sometimes referred to herein
as "BP Inc.").
"Business Day" or "business day" shall mean any day except
Saturdays, Sundays and the following days: New Year's Day, President's Day,
Memorial Day, Independence Day, Labor Day, Columbus Day, Thanksgiving, the day
following Thanksgiving, Christmas and any other day that shall be observed by
the New York State government as a legal holiday.
"BXP Development Property" shall mean any Development Property in
which Boston Properties or any Boston Properties Subsidiary holds a Development
Property Interest that was acquired by Boston Properties or such Boston
Properties Subsidiary more than 180 days prior to the date in question.
"Common Fund Guaranty Party" shall mean (i) any Common Fund
Subsidiary, and (ii) any permitted assignee of the Common Fund or any Common
Fund Subsidiary under any Venture Agreement (whether the applicable assignment
was effected after all consents required under such Venture Agreement were
obtained by the assignor or such assignment was permitted to be effected under
the terms of such Venture Agreement without the assignor obtaining any
consents).
"Common Fund Subsidiary" shall mean any entity that (directly or
indirectly) is wholly-owned by the Common Fund. However, the parties agree that
CRF Met Square, LLC shall constitute a Common Fund Subsidiary (notwithstanding
the fact that CRF Met Square, LLC is not wholly-owned by the Common Fund).
"Common Fund's Surviving Obligations" shall mean any obligations
imposed on the Common Fund pursuant to (i) the second-to-last sentence of
Section 2.1(a) below, (ii) Section 2.3(b) below, or (iii) Section 3.2(b) below.
"Development Property" shall mean any real property located anywhere
in the Target Markets that, at the time in question, either (i) consists
primarily of unimproved land or (ii) consists of land that contains improvements
which (x) are substantially vacant and (y) require Major Work in order to be
able to be used primarily for office and related uses generally.
"Development Property Interest" shall mean any of the following
interests in a Development Property: (i) fee title to such Development Property,
(ii) the lessee's interest in a lease for such Development Property, (iii) any
other interest that gives a person or entity 100% ownership (directly or
indirectly) of such Development Property, or (iv) all the ownership interests in
one or more entities that (directly or indirectly) hold 100% of any of the
interests described in the preceding clauses (i), (ii) and (iii).
"Excluded Information" shall mean, with respect to any Operating
Property Interest, any information that (i) was generated by or for the then
seller of such Operating Property Interest, (ii) was obtained by Boston
Properties solely because of the particular nature of its relationship with such
seller, and (iii) is not generally available to other potential purchasers of
such Operating Property Interest.
"Existing Venture Entities" shall mean (i) BP 140 Kendrick Street
LLC (the "140 Kendrick Street Entity"), a Delaware limited liability company and
(ii) The Metropolitan Square Associates LLC, a District of Columbia limited
liability company
"Existing Venture Entity Operating Agreements" shall mean (i) that
certain Limited Liability Company Agreement of BP 140 Kendrick Street LLC, dated
as of the date hereof, between the Common Fund and Boston Properties (the "140
Kendrick Street Operating Agreement"), and (ii) that certain Limited Liability
Company Agreement of The Metropolitan Square Associates LLC, dated as of the
date hereof, between Boston Properties and CRF Met Square, LLC.
"Institutional Development Transaction" shall mean any transaction
or proposed transaction with respect to a Development Property pursuant to which
either (a) Boston Properties (or a Boston Properties Subsidiary) and an
Institutional Partner will jointly acquire a Development Property Interest in a
Development Property or (b) an Institutional Partner otherwise agrees to
contribute capital for any direct or indirect legal or beneficial interest in
(including, without limitation, any right to share in the profits and/or
appreciation in value of) a Development Property in which Boston Properties (or
any Boston Properties Subsidiary) holds, or intends to acquire, a Development
Property Interest. By way of example only (and without limiting the foregoing),
an Institutional Development Transaction would include a mortgage with an
"equity kicker" or similar component. However, a legal or beneficial interest in
Boston Properties or Boston Properties, Inc. shall not, in and of itself,
constitute an "indirect" legal or beneficial interest in a Development Property
for purposes of this definition. Notwithstanding the foregoing, the transactions
described on Schedule VIII annexed hereto shall not constitute Institutional
Development Transactions.
"Institutional Partner" shall mean any of the following types of
entities (or any entity that is directly or indirectly owned or controlled by
any of the following types of entities), whether domestic or foreign: (a) a
commercial bank, trust company (whether acting individually or in a fiduciary
capacity for another entity that constitutes an Institutional Partner), savings
and loan association, savings bank, financing company or similar institution;
(b) an insurance company; (c) an investment bank; (d) an employee's welfare,
benefit, profit-sharing, pension or retirement trust, fund or system (whether
federal, state, municipal, private or otherwise); (e) a religious, educational
or eleemosynary institution or foundation; (f) a governmental agency; (g) a
credit union, trust or endowment fund; (h) a hedge fund, opportunity fund or
similar type of fund; (i) an entity not referred to in the foregoing provisions
of this definition that is subject to supervision and regulation by the
insurance or banking department of any of the United States, the Board of
Governors of the Federal Reserve System, the Comptroller of the Currency, the
Federal Deposit Insurance Corporation or the Federal Savings and Loan Insurance
Corporation or by any successor hereafter exercising similar functions; or (j)
any combination of one or more of the foregoing entities. Notwithstanding the
foregoing, no entity that satisfies any of the foregoing criteria but of which
Boston Properties owns at least 90% of the voting interests, owns at least 90%
of the equity interests, and otherwise solely controls all aspects of the
management shall constitute an Institutional Partner. Boston Properties
represents and warrants to the Common Fund that, as of the date hereof, no such
entity exists.
"Major Operating Property Interest" shall mean any Operating
Property Interest that, at the time in question, is being offered for sale
(whether by bid or otherwise) for a gross purchase price that is reasonably
anticipated to exceed Two Hundred Million ($200,000,000) Dollars.
"Major Work" shall mean any of the following types of work: (i) the
installation or replacement of all or substantially all of the elevator,
electrical, plumbing, HVAC and other major systems of the building in question,
or (ii) the installation or replacement of all or substantially all of a
building's facade.
"New BXP Development Property" shall mean any Development Property
in which Boston Properties or any Boston Properties Subsidiary holds a
Development Property Interest that was acquired by Boston Properties or such
Boston Properties Subsidiary within 180 days prior to the date in question.
"Offer Term" shall mean the period commencing on the date of this
Agreement and ending on the sooner to occur of (i) the third anniversary of such
date and (ii) the first date on which the Common Fund (x) has invested at least
$270,000,000 of initial capital to acquire Venture Properties in accordance with
the terms of this Agreement and (y) has no approval from the Common Fund's Real
Estate Advisory Committee (the "REAC") to continue investing with Boston
Properties in Operating Properties or Development Properties under the terms of
this Agreement.
"Operating Property" shall mean any real property located anywhere
in Target Markets that, at the time in question, (i) is used or is intended to
be used primarily for office and related purposes and (ii) is not a Development
"Operating Property Interest" shall mean any of the following
interests in an Operating Property: (i) fee title to such Operating Property,
(ii) the lessee's interest in a lease for such Operating Property, (iii) any
indirectly) of such Operating Property, or (iv) all the ownership interests in
"Opportunity Fund" shall mean (a) any real estate opportunity fund,
real estate hedge fund or similar fund (i) in which the Common Fund holds any
direct or indirect interest and (ii) with respect to which the Common Fund
generally has no right to consent to the acquisition of any real property by
such real estate opportunity fund, real estate hedge fund or similar fund, and
(b) any entity that is directly or indirectly owned or controlled by any such
real estate opportunity fund, real estate hedge fund or similar fund.
"Target Markets" shall mean the areas of the United States described
in Schedule VI annexed hereto.
"Venture Agreements" shall mean, collectively, all of the following
agreements (as such agreements may be amended or modified from time to time):
(i) this Agreement; (ii) all of the Venture Entity Operating Agreements; (iii)
all of the agreements to which any Venture Entity is a party or by which any
Venture Entity is bound (including, without limitation, all property management
agreements, leasing agency agreements, development agreements and similar
agreements); and (iv) any other agreements that are executed pursuant to this
"Venture Entities" shall mean, collectively, (i) the Existing
Venture Entities; (ii) any entity that is created by or on behalf of Boston
Properties and the Common Fund pursuant to the provisions of Sections 2.2(c) or
3.1(c) of this Agreement; (iii) any entity (x) that Boston Properties and the
Common Fund (in their sole discretion) mutually agree to create other than in
accordance with such Sections 2.2(c) and 3.1(c), and (y) that is wholly-owned
(whether directly or indirectly) by Boston Properties and the Common Fund; and
(iv) any Boston Properties Subsidiary into which the Common Fund (or a Common
Fund Subsidiary) is admitted pursuant to Section 3.1(c) below.
"Venture Entity Operating Agreements" shall mean, collectively, all
of the following agreements (as such agreements may be amended or modified from
time to time): (i) the Existing Venture Entity Operating Agreements; (ii) any
operating or similar agreement that is entered into pursuant to the provisions
of Sections 2.2(c) or 3.1(c) of this Agreement; and (iii) any operating or
similar agreement that relates to any entity described in clause (iii) of the
definition of "Venture Entities."
"Venture Property Interest" shall mean (i) each Development Property
Interest that is held by a Venture Entity and (ii) each Operating Property
Interest that is held by a Venture Entity.
RIGHT OF FIRST OFFER FOR OPERATING PROPERTIES
Section 2.1. Pre-Offer. (a) Subject to Section 2.5 and Section 4.3 below,
if at any time during the Offer Term either Boston Properties or any Boston
Properties Subsidiary (i) intends to submit an offer to acquire any Operating
Property Interest or (ii) otherwise intends to acquire any Operating Property
Interest, then Boston Properties, prior to submitting an offer, or commencing
material negotiations, to acquire (or permitting any Boston Properties
Subsidiary to submit an offer, or commence material negotiations, to acquire)
such Operating Property Interest, shall give the Common Fund and the Advisor
notice to that effect (each such notice, a "Pre-Offer Notice"). Each Pre-Offer
Notice shall be accompanied by all information (other than any Excluded
Information) with respect to the applicable Operating Property Interest that (x)
was generated by or for the seller thereof and (y) is then in the possession of,
or is otherwise reasonably available to, Boston Properties (provided, however,
that if and to the extent that such information does not include all of the
information set forth on Schedule VII annexed hereto with respect to such
Operating Property Interest, then such Pre-Offer Notice shall also include all
the information set forth on Schedule VII annexed hereto with respect to such
Operating Property Interest, which information shall be set forth on the form
that is annexed hereto as Schedule VII). If the Common Fund, in its sole
discretion, desires to pursue the acquisition of such Operating Property
Interest with Boston Properties (or the applicable Boston Properties Subsidiary,
as the case may be), then the Common Fund, on or before the date (the "Pre-Offer
Outside Response Date") that is 5 business days after the Common Fund's receipt
of a properly given Pre-Offer Notice with respect to such Operating Property
Interest, shall give Boston Properties notice to that effect (each such notice,
a "Pre-Offer Acceptance Notice"). Boston Properties acknowledges and agrees
that, until Boston Properties is notified to the contrary by the Common Fund,
the Advisor shall be entitled to give any Pre-Offer Acceptance Notice on behalf
of the Common Fund, and any Pre-Offer Acceptance Notice so given shall be of the
same force and effect as if the Common Fund had given such Pre-Offer Acceptance
Notice itself. If the Common Fund gives Boston Properties a Pre-Offer Acceptance
Notice with respect to any Operating Property Interest, then the Common Fund may
not pursue the acquisition of such Operating Property Interest with any person
or entity other than Boston Properties (or the applicable Boston Properties
Subsidiary) for a period of one year following the date that the Common Fund
gave such Pre-Offer Acceptance Notice (it being agreed, however, that if Boston
Properties is still diligently pursuing the acquisition of such Operating
Property Interest at the end of such one-year period, then such one-year period
shall be extended for so long as Boston Properties is so diligently pursuing
such acquisition); provided, however, that (notwithstanding the foregoing) if at
any time Boston Properties fails to comply with all of its obligations
under this Article 2 with respect to such Operating Property Interest, then
(from and after such failure) the restriction contained in this sentence shall
no longer apply. Notwithstanding anything to the contrary contained herein, the
Common Fund shall not be deemed to have breached its obligations contained in
the preceding sentence with respect to any applicable Operating Property
Interest by reason of any Opportunity Fund, during the applicable time period
referred to in such sentence, pursuing the acquisition of such Operating
Property Interest.
(b) If (i) Boston Properties complies with all of its obligations
under this Section 2.1 with respect to any Operating Property Interest and (ii)
the Common Fund fails to give Boston Properties a Pre-Offer Acceptance Notice
with respect to such Operating Property Interest by the Pre-Offer Outside
Response Date applicable thereto, then either Boston Properties or a Boston
Properties Subsidiary may acquire such Operating Property Interest without any
further obligation to the Common Fund under this Article 2 with respect to such
Operating Property Interest.
Section 2.2. Offer. (a) If the Common Fund timely gives Boston Properties
a Pre-Offer Acceptance Notice with respect to any Operating Property Interest,
then Boston Properties, as soon as is reasonably practicable after Boston
Properties' receipt of such Pre-Offer Acceptance Notice, shall give the Common
Fund an additional notice with respect to such Operating Property Interest (each
such additional notice, an "Offer Notice"). Each Offer Notice shall (i) set
forth the economic and other material terms on which the applicable Operating
Property Interest is available for acquisition, (ii) set forth the price that
Boston Properties (or such Boston Properties Subsidiary) desires to offer
(whether by bid or otherwise) for such Operating Property Interest, as well as
all of the other material terms that Boston Properties (or such Boston
Properties Subsidiary) desires to include in such offer, (iii) constitute an
offer to the Common Fund to pursue the joint acquisition of such Operating
Property Interest with Boston Properties using the structure set forth and
described in Section 2.2(c) below, (iv) contain a reasonably detailed estimate
of all the Due Diligence Costs (as defined below) that Boston Properties expects
to incur in connection with the acquisition of such Operating Property Interest
(which estimate shall set forth any such Due Diligence Costs theretofore
actually incurred), and (v) contain all other information that is reasonably
necessary for the Common Fund to evaluate whether to accept such offer (which
information shall include, without limitation, the information set forth on
Schedule I annexed hereto with respect to the Operating Property to which such
Operating Property Interest pertains).
(b) If the Common Fund, in its sole discretion, desires to accept
such an offer with respect to any Operating Property Interest, then the Common
Fund, on or before the Outside Response Date (as defined below) applicable to
such Operating Property Interest, shall give Boston Properties notice to that
effect (each such notice, an "Offer Acceptance Notice"); provided, however, that
if such offer pertains to a Major Operating Property Interest, then the Common
Fund shall have the right to state in such notice that the acceptance of such
offer is conditioned on the Common Fund obtaining the REAC's approval of such
acceptance (in which case such notice shall, for purposes of this Article 2,
constitute a "Conditional Offer Acceptance Notice", not an Offer
Acceptance Notice). If (i) the Common Fund gives Boston Properties a Conditional
Offer Acceptance Notice with respect to any Major Operating Property Interest,
and (ii) the Common Fund, prior to receiving a Rescission Notice (as defined
below) from Boston Properties with respect to such Major Operating Property
Interest in accordance with the immediately following sentence, gives Boston
Properties an additional notice (a "REAC Approval Notice") stating that the REAC
has approved the joint acquisition of such Major Operating Property Interest
with Boston Properties in accordance with this Agreement, then, for all purposes
of this Agreement (including Section 2.2(c) below), the giving of such REAC
Approval Notice shall constitute, and have the same force and effect as, a
timely given Offer Acceptance Notice with respect to such Major Operating
Property Interest. If (i) the Common Fund gives Boston Properties a Conditional
and (ii) the Common Fund fails to give Boston Properties a REAC Approval Notice
within 10 business days after Boston Properties' receipt of such Conditional
Offer Acceptance Notice, then Boston Properties, prior to receiving a REAC
Approval Notice from the Common Fund with respect to such Major Operating
Property Interest, shall have the right to give the Common Fund a notice (a
"Rescission Notice") rescinding the offer contained in the Offer Notice that
pertains such Major Operating Property Interest, whereupon either Boston
Properties or a Boston Properties Subsidiary may acquire such Major Operating
Property Interest without any further obligation to the Common Fund under this
Article 2 with respect to such Operating Property Interest. For purposes of this
Article 2, the term "Outside Response Date" shall mean, with respect to any
Operating Property Interest, the date that is 10 business days after the Common
Fund receives a properly given Offer Notice with respect to such Operating
(c) If the Common Fund timely gives Boston Properties an Offer
Acceptance Notice with respect to any Operating Property Interest, then (i)
Boston Properties and the Common Fund shall pursue the joint acquisition of such
Operating Property Interest, and (ii) until such time (if ever) as the parties
shall execute (or cause to be executed) an operating agreement with respect to
such Operating Property Interest in accordance with the immediately following
sentence, each of such parties shall, in connection with the pursuit of such
joint acquisition, deal with the other as if Boston Properties and the Common
Fund were parties to an operating agreement in the form of Exhibit A annexed
hereto with respect to such Operating Property Interest (it being agreed that,
without limiting the foregoing, the Common Fund shall have all of the consent
rights contained in Section 7.02 of such form of operating agreement in
connection with the pursuit of such joint acquisition). If Boston Properties and
the Common Fund are the winning bidder with respect to such Operating Property
Interest, or if the seller thereof is otherwise willing to sell such Operating
Property Interest to Boston Properties and the Common Fund on terms that are
acceptable to Boston Properties and the Common Fund, as the case may be, then
(i) Boston Properties shall promptly create a Delaware limited liability company
for purposes of acquiring and holding such Operating Property Interest, of which
limited liability company Boston Properties (or, at Boston Properties' election,
an entity wholly-owned and controlled by Boston Properties) and the Common Fund
(or, at the Common Fund's election, an entity wholly-owned and controlled by the
Common Fund) shall be the sole members, and (ii)
immediately after such limited liability company is created, the Common Fund
(or, at the Common Fund's election, any entity that is wholly-owned and
controlled by the Common Fund) and Boston Properties (or, at Boston Properties'
election, any entity that is wholly-owned and controlled by Boston Properties)
shall execute and deliver (or cause to be executed and delivered) an operating
agreement for such limited liability company substantially in the form of
Exhibit A annexed hereto, subject, however, to Section 4.1 below.
(d) If the Common Fund timely gives Boston Properties an Offer
Acceptance Notice with respect to any Operating Property Interest, then the
Common Fund, within 30 days after its receipt of a reasonably detailed invoice
therefor (together with such corroborating documentation as the Common Fund may
reasonably request), shall pay to Boston Properties sixty-five percent (65%) of
the Due Diligence Costs incurred by Boston Properties in connection with such
Operating Property Interest; provided, however, that (notwithstanding the
foregoing) (x) the Common Fund shall not be required to pay or reimburse Boston
Properties for any portion of the Due Diligence Costs incurred by Boston
Properties in connection with such Operating Property Interest to the extent
that such Due Diligence Costs exceed $10,000 in the aggregate, unless and to the
extent that the Common Fund gives its approval to Boston Properties to incur
such Due Diligence Costs (which approval shall not be unreasonably withheld);
(y) upon the execution of a Venture Entity Operating Agreement with respect to
such Operating Property Interest, such Venture Entity Operating Agreement shall
govern the payment and/or reimbursement of any Due Diligence Costs incurred with
respect to such Operating Property Interest from and after such execution, and
the Common Fund shall have no further obligation under this paragraph (d) to pay
or reimburse Boston Properties for any such Due Diligence Costs so incurred; and
(z) if (i) the Common Fund and Boston Properties for any reason fail to jointly
acquire such Operating Property Interest (whether directly or indirectly) in
accordance with this Article 2, and (ii) Boston Properties, within a period of 1
year thereafter, acquires such Operating Property Interest (whether directly or
indirectly) itself or with any person or entity, then Boston Properties shall
reimburse the Common Fund for any Due Diligence Costs paid or reimbursed to
Boston Properties by the Common Fund with respect to such Operating Property
Interest. For purposes hereof, the term "Due Diligence Costs" means all of the
reasonable and customary out- of-pocket costs and expenses paid or incurred by
Boston Properties to unaffiliated third parties on account of any due diligence
performed in connection with the acquisition (or attempted acquisition) by
Boston Properties and the Common Fund, in accordance with Section 2.2 hereof, of
any Operating Property Interest.
(e) If (i) Boston Properties complies with all of its obligations
the Common Fund fails to give Boston Properties an Offer Acceptance Notice or a
Conditional Offer Acceptance Notice with respect to such Operating Property
Interest by the Outside Response Date applicable thereto, then either Boston
Properties or a Boston Properties Subsidiary may acquire such Operating Property
Interest without any further obligation to the Common Fund under this Article 2
with respect to such Operating Property Interest.
Section 2.3. Certain Restrictions. (a) Notwithstanding anything to the
contrary contained herein, if (i) the Common Fund timely gives Boston Properties
an Offer Acceptance Notice with respect to any Operating Property Interest (or
the Common Fund and Boston Properties otherwise agree to acquire such Operating
Property Interest jointly) and (ii) the Venture Entity created pursuant to
Section 2.2(c) above fails to acquire such Operating Property Interest because
of any act or omission of Boston Properties or a Boston Properties Subsidiary,
including, without limitation, any refusal to consent to such acquisition by
Boston Properties (or a Boston Properties Subsidiary) under the applicable
Venture Entity Operating Agreement, or Boston Properties and the Common Fund
otherwise fail to acquire such Operating Property Interest jointly because of
any such act or omission, then (x) from and after the date of such act or
omission, the restriction contained in the second-to-last sentence of Section
2.1(a) with respect to such Operating Property Interest shall no longer be
applicable to the Common Fund and (y) in no event may Boston Properties acquire
(whether directly or indirectly) such Operating Property Interest (or any
portion thereof) for a period of one year following such act or omission (it
being agreed, however, that if the Common Fund is still diligently pursuing the
acquisition of such Operating Property Interest at the end of such one-year
period, then such one-year period shall be extended for so long as the Common
Fund is diligently pursuing such acquisition).
(b) Notwithstanding anything to the contrary contained herein, if
(i) the Common Fund timely gives Boston Properties an Offer Acceptance Notice
with respect to any Operating Property Interest (or the Common Fund and Boston
Properties otherwise agree to acquire such Operating Property Interest jointly)
and (ii) the Venture Entity created pursuant to Section 2.2(c) above fails to
acquire such Operating Property Interest because of any act or omission of the
Common Fund or a Common Fund Subsidiary, including, without limitation, any
refusal to consent to such acquisition by the Common Fund (or a Common Fund
Subsidiary) under the applicable Venture Entity Operating Agreement, or Boston
Properties and the Common Fund otherwise fail to acquire such Operating Property
Interest jointly because of any such act or omission, then in no event may the
Common Fund acquire (whether directly or indirectly) such Operating Property
Interest (or any portion thereof) for a period of one year following such act or
omission (it being agreed, however, that if Boston Properties is still
diligently pursuing the acquisition of such Operating Property Interest at the
end of such one-year period, then such one-year period shall be extended for so
long as Boston Properties is diligently pursuing such acquisition).
Notwithstanding anything to the contrary contained herein, the Common Fund shall
not be deemed to have breached its obligations contained in the preceding
sentence with respect to any applicable Operating Property Interest by reason of
any Opportunity Fund, during the applicable time period referred to in such
sentence, acquiring such Operating Property Interest.
Section 2.4. Loss of the Common Fund's ROFO for Operating Properties (a)
If (i) within any Measurement Period (as defined below), Boston Properties
properly gives the Common Fund separate Pre-Offer Notices with respect to at
least 8 Operating Property Interests, and (ii) the Common Fund fails to give a
Pre-Offer Acceptance Notice
with respect to at least 50% of the Operating Property Interests in respect of
which the Common Fund, during such Measurement Period, receives separate
duly-given Pre-Offer Notices, then Boston Properties shall have the right, by
notice (each, an "Inquiry Notice") given to the Common Fund within 15 business
days thereafter, to request that the Common Fund certify to Boston Properties
whether or not at least 50% of the Operating Property Interests in respect of
which the Common Fund received separate duly-given Pre-Offer Notices during such
Measurement Period constitute Qualified Rejected OP Interests (as defined
below). Each Inquiry Notice shall (1) state in capital letters that such notice
constitutes an Inquiry Notice under this Section 2.4(a), (2) specify the
Measurement Period in respect of which it is being given, (3) list all of the
Operating Property Interests for which Boston Properties properly gave the
Common Fund Pre-Offer Notices during such Measurement Period and (4) state
whether or not the Common Fund gave Boston Properties a Pre-Offer Acceptance
Notice in respect of each of such Operating Property Interests. If the Common
Fund receives a properly given Inquiry Notice on account of any Measurement
Period, then the Common Fund, within 15 business days after its receipt of such
Inquiry Notice, shall certify to Boston Properties whether or not at least 50%
of the Operating Property Interests in respect of which the Common Fund received
separate duly-given Pre-Offer Notices during such Measurement Period constitute
Qualified Rejected OP Interests. If, in response to any properly given Inquiry
Notice, the Common Fund certifies to Boston Properties that at least 50% of the
Operating Property Interests in respect of which the Common Fund received
separate duly-given Pre-Offer Notices during the applicable Measurement Period
constitute Qualified Rejected OP Interests, then Boston Properties shall have
the right, within 30 days after its receipt of such certification, to terminate
the provisions of this Article 2 (but no other provisions of this Agreement) by
giving written notice of such termination to the Common Fund. If Boston
Properties properly gives such written notice of termination to the Common Fund,
then (except for the Common Fund's Surviving Obligations contained in this
Article 2) both parties shall be relieved of any obligations or liabilities that
accrue under this Article 2 from and after the date such termination notice is
so given. For purposes hereof, (I) the term "Measurement Period" means any
consecutive 12-month period that occurs during the Offer Term; and (II) the term
"Qualified Rejected OP Interest" shall mean an Operating Property Interest in
respect of which the Common Fund (x) receives a properly given Pre-Offer Notice,
and (y) fails to give a Pre-Offer Acceptance Notice because the Common Fund, as
of the Pre-Offer Outside Response Date for such Operating Property Interest, was
already having material discussions about pursuing, or was already pursuing, the
joint acquisition of such Operating Property Interest with an entity other than
Boston Properties or a Boston Properties Subsidiary. Notwithstanding the
foregoing, for purposes of the definition of "Qualified Rejected OP Interest,"
the Common Fund shall not be deemed to be having material discussions about
pursuing, or actually pursuing, the acquisition of any Operating Property
Interest by reason of any Opportunity Fund taking any such actions.
(b) If (i) within any Measurement Period, Boston Properties properly
gives the Common Fund separate Offer Notices with respect to at least 8
Operating Property Interests that constitute Qualified Operating Property
Interests (as defined below), and (ii) the Common Fund fails to give an Offer
Acceptance Notice with respect
to at least 50% of the Qualified Operating Property Interests in respect of
duly-given Offer Notices, then Boston Properties may terminate the provisions of
this Article 2 (but no other provisions of this Agreement) by giving written
notice of such termination to the Common Fund. If Boston Properties properly
gives such written notice of termination to the Common Fund, then (except for
the Common Fund's Surviving Obligations contained in this Article 2) both
parties shall be relieved of any obligations or liabilities that accrue under
this Article 2 from and after the date such termination notice is so given. For
purposes hereof, a "Qualified Operating Property Interest" shall mean an
Operating Property Interest with respect to which all of the criteria set forth
on Schedule II annexed to this Agreement are fulfilled both (i) on the date on
which the Common Fund receives an Offer Notice with respect to such Operating
Property Interest and (ii) on the Outside Response Date applicable to such
Section 2.5. Excluded Transactions. The provisions of this Article 2 shall
not apply to the transactions described on Schedule IX annexed hereto.
RIGHT OF FIRST OFFER FOR
Section 3.1. Offer. (a) Subject to Section 4.3 below, if at any time
during the Offer Term either Boston Properties or any Boston Properties
Subsidiary intends to enter into an Institutional Development Transaction with
respect to any Development Property, then Boston Properties, prior to engaging a
broker, finder or other third party for purposes of seeking, or commencing
negotiations with, any Institutional Partner in connection therewith (or
permitting any Boston Properties Subsidiary to seek, or commence negotiations
with, any Institutional Partner in connection therewith), shall give the Common
Fund notice to that effect (each such notice, a "Development Property Offer
Notice"). Each Development Property Offer Notice shall (i) describe in
reasonable detail the manner in which Boston Properties (or the applicable
Boston Properties Subsidiary) proposes to develop or refurbish the Development
Property that is the subject of such Institutional Development Transaction, (ii)
either (x) if (as of the date Boston Properties gives such Development Property
Offer Notice) such Development Property is a BXP Development Property, set forth
Boston Properties' good faith determination ("Boston Properties' FMV
Determination") of the fair market value (as of such date) of the Development
Property Interest held by Boston Properties (or the applicable Boston Properties
Subsidiary) in such Development Property, (y) if (as of the date Boston
Properties gives such Development Property Offer Notice) such Development
Property is a New BXP Development Property, set forth in reasonable detail the
Acquisition Cost (as of such date) for the Development Property Interest held by
Boston Properties (or the applicable Boston Properties Subsidiary) in such
Development Property (and be accompanied by such corroborating documentation as
shall be reasonably necessary to
establish such Acquisition Cost), or (z) in all other cases, set forth the price
at which the Development Property Interest that is the subject of such
Institutional Development Transaction is available for acquisition, and (iii)
contain all other information that is reasonably necessary for the Common Fund
to evaluate whether to accept such offer (which information shall include,
without limitation, (x) the information set forth on Schedule III annexed hereto
with respect to such Development Property and (y) Boston Properties' good faith
estimate of the costs to develop or refurbish such Development Property in the
manner described in such Development Property Offer Notice, which estimate shall
be in the form and shall contain the information set forth and described on
Schedule IV annexed hereto). Further, each Development Property Offer Notice
shall constitute an offer to the Common Fund to acquire an interest in the
corresponding Development Property using the structure described in Section
3.1(c) below, which offer shall be at a price that is based on the Agreed Value
(as defined below) of the applicable Development Property Interest in such
Development Property. For purposes hereof, the "Agreed Value" of any Development
Property Interest shall mean (as the case may be): (i) if such Development
Property Interest was acquired by Boston Properties (or the applicable Boston
Properties Subsidiary, as the case may be) more than 180 days prior to the date
on which Boston Properties gives the Development Property Offer Notice
pertaining thereto, an amount equal to Boston Properties' FMV Determination of
such Development Property Interest, (ii) if such Development Property Interest
was acquired by Boston Properties (or the applicable Boston Properties
Subsidiary, as the case may be) within 180 days prior to the date on which
Boston Properties gives the Development Property Offer Notice pertaining
thereto, an amount equal to the Acquisition Cost of such Development Property
Interest as of the date that the applicable Venture Entity acquires such
Development Property Interest (or as of the date on which the Common Fund or a
Common Fund Subsidiary is admitted into the Boston Properties Subsidiary that is
the holder of such Development Property Interest, as the case may be), or (iii)
in all other cases, an amount equal to the price at which such Development
Property Interest is ultimately acquired by the applicable Venture Entity.
any offer pursuant to Section 3.1(a) with respect to any Development Property,
then the Common Fund, on or before the DP Outside Response Date (as defined
below) applicable to such Development Property, shall give Boston Properties
notice to that effect (each such notice, a "Development Property Acceptance
Notice"). For purposes of this Article 3, the term "DP Outside Response Date"
shall mean, with respect to any Development Property, the date that is 30
business days after the Common Fund receives a properly given Development
Property Offer Notice that pertains to such Development Property.
(c) If the Common Fund gives Boston Properties a Development
Property Acceptance Notice with respect to any Development Property by the
applicable DP Outside Response Date, then (i) within 15 days after Boston
Properties receives such Development Property Acceptance Notice, Boston
Properties shall create a Delaware limited liability company for purposes of
acquiring and holding the applicable Development Property Interest in such
Development Property, of which limited liability
company Boston Properties (or, at Boston Properties' election, an entity
wholly-owned and controlled by Boston Properties) and the Common Fund (or, at
the Common Fund's election, an entity wholly-owned and controlled by the Common
Fund) shall be the sole members, and (ii) immediately after such limited
liability company is created, Boston Properties (or, at Boston Properties'
election, an entity wholly-owned and controlled by Boston Properties) and the
Common Fund (or, at the Common Fund's election, an entity wholly-owned and
controlled by the Common Fund) shall execute (or cause to be executed) an
operating agreement for such limited liability company substantially in the form
of Exhibit B annexed hereto, subject, however, to Section 4.1 below. If, on the
date on which any Venture Entity is created pursuant to the first sentence of
this paragraph, either Boston Properties or any Boston Properties Subsidiary
holds any Development Property Interests in the applicable Development Property,
then, promptly after such Venture Entity is so created, (i) Boston Properties
shall convey or otherwise transfer (or, as the case may be, cause the applicable
Boston Properties Subsidiary to convey or otherwise transfer) to such Venture
Entity all the Development Property Interests held by Boston Properties (or held
by the applicable Boston Properties Subsidiary) in such Development Property for
the Agreed Value of such Development Property Interests, and (ii) simultaneously
with the execution of the operating agreement for such Venture Entity, Boston
Properties (or, as the case may be, the applicable Boston Properties
Subsidiary), the Common Fund (or, as the case may be, the applicable Common Fund
Subsidiary) and such Venture Entity shall enter into a contribution agreement
substantially in the form annexed hereto as Exhibit C with respect to the Common
Fund's admission into such Venture Entity (the "Contribution Agreement Form")
(with the initial capital contribution of the Common Fund (or such Common Fund
Subsidiary) being calculated based on such Agreed Value). Notwithstanding the
foregoing, if, as of the date on which the Common Fund gives a Development
Property Acceptance Notice with respect to any Development Property, (i) a
Boston Properties Subsidiary holds the applicable Development Property Interest
in such Development Property, and (ii) such Boston Properties Subsidiary has
held such interest for less than 90 days, then Boston Properties may elect, in
lieu of creating a new Venture Entity to hold such Development Property Interest
in accordance with the first sentence of this subsection, to have the Common
Fund (or, at the Common Fund's election, a Common Fund Subsidiary) be admitted
into such Boston Properties Subsidiary. If Boston Properties makes such an
election, then (x) Boston Properties, the Common Fund (or, as the case may be,
the applicable Common Fund Subsidiary) and such Boston Properties Subsidiary
shall enter into a contribution agreement in substantially the form annexed
hereto as Exhibit C with respect to the Common Fund's admission into such Boston
Properties Subsidiary (with the initial capital contribution of the Common Fund
(or such Common Fund Subsidiary) being calculated based on the Agreed Value of
such Development Property Interest), (y) simultaneously with the execution of
such contribution agreement, Boston Properties and the Common Fund (or such
Common Fund Subsidiary) shall execute (or cause to be executed) an operating
agreement for such Boston Properties Subsidiary in the form of Exhibit B annexed
hereto, subject, however, to Section 4.1 below and (z) upon such execution, such
Boston Properties Subsidiary shall constitute a Venture Entity for all purposes
of this Agreement. The parties acknowledge that the Contribution Agreement Form
contains certain provisions that may not be applicable to all transactions (as
indicated in the Contribution Agreement Form), and the parties, in executing
each contribution agreement in accordance with the provisions of this Section
3.1(c), shall act reasonably and in good faith to delete all such provisions
that are not applicable to the transaction in question. The parties also
acknowledge that the Contribution Agreement Form contains certain blank spaces
for certain terms that must be added thereto, and the parties, in executing each
such contribution agreement, shall act reasonably and in good faith to cause
such information to be added thereto. If the Common Fund timely gives Boston
Properties a Development Property Acceptance Notice with respect to any
Development Property Interest, then until such time as the parties shall execute
(or cause to be executed) an operating agreement with respect to such
Development Property Interest in accordance with the foregoing provisions of
this Section 3.1(c), each of such parties shall, in connection with such
Development Property Interest, deal with the other as if Boston Properties and
the Common Fund were parties to an operating agreement in the form of Exhibit B
annexed hereto with respect to such Development Property Interest (it being
agreed that, without limiting the foregoing, the Common Fund shall have all of
the consent rights contained in Section 7.02 of such form of operating agreement
in connection therewith).
(d) If (i) Boston Properties complies with all of its obligations
under this Section 3.1 with respect to any Development Property and (ii) the
Common Fund fails to give Boston Properties a Development Property Acceptance
Notice with respect to such Development Property by the DP Outside Response Date
applicable thereto, then either Boston Properties or a Boston Properties
Subsidiary may enter into any Institutional Development Transaction with respect
to such Development Property.
a Development Property Acceptance Notice with respect to any Development
Property (or Boston Properties otherwise agrees to permit the Common Fund to
acquire an interest in such Development Property) and (ii) the Venture Entity
created pursuant to Section 3.1(c) above fails to acquire the applicable
interests in such Development Property because of any act or omission of Boston
Properties or a Boston Properties Subsidiary, including, without limitation, any
refusal to consent to such acquisition by Boston Properties (or a Boston
Properties Subsidiary) under the applicable Venture Entity Operating Agreement,
or the Common Fund otherwise fails to acquire an interest in such Development
Property because of any such act or omission, then in no event may Boston
Properties enter into (or permit any Boston Properties Subsidiary to enter into)
any Institutional Development Transaction with respect to such Development
Property for a period of one year following such act or omission.
(i) the Common Fund timely gives Boston Properties a Development Property
Acceptance Notice with respect to any Development Property (or Boston Properties
otherwise agrees to permit the Common Fund to acquire an interest in such
Development Property) and (ii) the Venture Entity created pursuant to Section
3.1(c) above fails to acquire the applicable interests in such Development
Property because of any act or
omission of the Common Fund or a Common Fund Subsidiary, including, without
limitation, any refusal to consent to such acquisition by the Common Fund (or a
Common Fund Subsidiary) under the applicable Venture Entity Operating Agreement,
or such Venture Entity otherwise fails to acquire an interest in such
Development Property because of any such act or omission, then in no event may
the Common Fund acquire (or permit any Common Fund Subsidiary to acquire) any
direct or indirect ownership interest in such Development Property for a period
of one year following such act or omission (it being agreed, however, that (x)
if, at the time the Common Fund gave such Development Property Acceptance
Notice, Boston Properties did not (directly or indirectly) own the applicable
interest in such Development Property, and (y) Boston Properties is still
diligently pursuing the acquisition of such interest at the end of such one-year
period, then such one-year period shall be extended for so long as Boston
Properties is so diligently pursuing such acquisition). Notwithstanding anything
to the contrary contained herein, the Common Fund shall not be deemed to have
breached its obligations contained in the preceding sentence with respect to any
applicable Development Property by reason of any Opportunity Fund, during the
applicable period referred to in such sentence, acquiring any direct or indirect
ownership interest in such Development Property.
GENERAL PROVISIONS APPLICABLE
TO THE RIGHTS OF FIRST OFFER
Section 4.1. Permitted Changes. The parties acknowledge that each
Operating Agreement Form (as defined below) contains certain provisions that may
not be applicable to all transactions (as indicated in each such Operating
Agreement Form), and the parties, in executing each operating agreement in
accordance with the provisions of Articles 2 and 3 above, shall act reasonably
and in good faith to delete all such provisions that are not applicable to the
transaction in question. The parties also acknowledge that each Operating
Agreement Form contains certain blank spaces for certain terms that must be
added thereto, and the parties, in executing each such operating agreement,
shall act reasonably and in good faith to cause such information to be added
thereto. Further, the parties, in executing each such operating agreement, shall
act reasonably and in good faith to make such changes to the applicable
Operating Agreement Form (a) as are necessary to effect the transaction in
question in the most mutually cost-effective and efficient manner and (b) as are
otherwise necessary in connection with the particular nature of such transaction
(in either such case, without affecting the rights or obligations of each party
that are set forth in the applicable Operating Agreement Form). Finally, the
parties agree that in certain instances a limited liability company might not be
the appropriate entity in which to hold an Operating Property Interest or a
Development Property Interest to be acquired pursuant to Article 2 or Article 3
above; accordingly, the parties agree that, in such instances, the parties will
act reasonably and in good faith in order to select a different form of entity
to hold such Operating Property Interest or Development Property Interest (as
the case may be), without limiting the rights or obligations of either party
under this Agreement with respect to such Operating Property
Interest or Development Property Interest (as the case may be). Boston
Properties and the Common Fund agree that, in executing an operating agreement
with respect to any Development Property Interest pursuant to Section 3.1(c)
above, the Common Fund may elect whether or not to include in such operating
agreement the provisions described in Schedule IV of Exhibit B annexed hereto.
Moreover, the Common Fund, in connection with any Venture Entity Operating
Agreement that is executed with respect to a Development Property Interest, may
elect at any time to unilaterally amend such Venture Entity Operating Agreement
to include in such Venture Entity Operating Agreement the provisions described
in Schedule IV of Exhibit B annexed hereto. For purposes hereof, the term
"Operating Agreement Form" means either (i) the form of operating agreement
annexed to this Agreement as Exhibit A or (ii) the form of operating agreement
annexed to this Agreement as Exhibit B (or, as the context requires, each of
such forms).
Section 4.2. Reporting Requirements. Boston Properties, within 30 days
after its receipt of a request therefor from the Common Fund, shall furnish to
the Common Fund such information as is reasonably requested by the Common Fund
to determine whether Boston Properties has complied with Boston Properties'
obligations under Articles 2 and 3 above (which information shall include,
without limitation, a reasonably detailed list of all real property interests
directly or indirectly acquired by Boston Properties (and/or any Boston
Properties Subsidiary) since the date of the last such request by the Common
Fund (or, in the case of the first such request, since the date of this
Agreement)). Notwithstanding the foregoing, Boston Properties shall not be
required to deliver such information to the Common Fund more than 4 times in any
12 month period.
Section 4.3. Superior Rights. All of the Common Fund's rights under
Article 2 and Article 3 above shall be subject to the rights and options
(collectively, the "Superior Rights") that are described on, and that are held
by the applicable entities described on, Schedule V attached hereto. Boston
Properties represents and warrants to the Common Fund that, as of the date
hereof, except as and to the extent set forth on Schedule V annexed hereto, (a)
all the Superior Rights are in full force and effect, (b) Boston Properties is
bound by all the Superior Rights, and (c) Boston Properties does not have the
right to terminate (or cause to be terminated) any of the Superior Rights
without the payment of a material sum of money or the incurrence of material
liability by Boston Properties or any Boston Properties Subsidiary.
Section 4.4. Good Faith. Boston Properties agrees that, in connection with
the discharge of its obligations under Articles 2 and 3 above, Boston Properties
shall act in good faith. In amplification and not in limitation of the preceding
sentence, Boston Properties shall not take any actions that in any way
circumvent (or that are intended in any way to circumvent) any of Boston
Properties' obligations, or any of the Common Fund's rights, under either
Article 2 or Article 3 above. By way of example only (and without limiting the
foregoing), Boston Properties shall be deemed to have breached its obligations
under this Section 4.4 if Boston Properties, for non-economic reasons, creates
an entity that is not wholly-owned by Boston Properties to acquire an Operating
Property Interest (and Boston Properties thereby avoids its obligations under
Article 2). The
Common Fund agrees that, in connection with the discharge of its obligations
under Articles 2 and 3 above, the Common Fund shall act in good faith. In
amplification and not in limitation of the preceding sentence, the Common Fund
shall not take any actions that in any way circumvent (or that are intended in
any way to circumvent) any of the Common Fund's obligations, or any of Boston
Properties' rights, under either Article 2 or Article 3 above.
Section 4.5. Financing. (a) Because the Common Fund (or the applicable
Common Fund Subsidiary) will have the right to participate in and consent to any
financing decisions relating to any Operating Property or Development Property
in which the Common Fund acquires an interest pursuant to Article 2 or Article 3
above, the parties agree as follows: (I) Boston Properties will not obtain or
commit to obtain (or permit any Boston Properties Subsidiary to obtain or commit
to obtain) any financing with respect to any Operating Property Interest that
Boston Properties (or any Boston Properties Subsidiary) intends to acquire
during the Offer Term unless and until either (x) the Common Fund gives an Offer
Acceptance Notice with respect to such Operating Property Interest (whereupon
the Common Fund will have the right to participate in and consent to any
decision relating to such financing in accordance with Section 2.2(c) above and
the applicable Venture Entity Operating Agreement), (y) the Common Fund, after
receiving a properly given Pre-Offer Notice with respect to such Operating
Property Interest, fails to give a Pre-Offer Acceptance Notice with respect to
such Operating Property Interest by the Pre-Offer Outside Response Date
applicable thereto, or (z) the Common Fund, after receiving a properly given
Offer Notice with respect to such Operating Property Interest, fails to give an
Offer Acceptance Notice with respect to such Operating Property Interest by the
Outside Response Date applicable thereto; and (II) Boston Properties will not
obtain or commit to obtain (or permit any Boston Properties Subsidiary to obtain
or commit to obtain) any financing for a Development Property with respect to
which Boston Properties (or any Boston Properties Subsidiary) intends to enter
into an Institutional Development Transaction during the Offer Term unless and
until either (x) the Common Fund gives a Development Property Acceptance Notice
with respect to such Development Property (whereupon the Common Fund will have
the right to participate in and consent to any decision relating to such
financing in accordance with Section 3.1(c) above and the applicable Venture
Entity Operating Agreement) or (y) the Common Fund, after receiving a properly
given Development Property Offer Notice with respect to such Development
Property, fails to give a Development Property Acceptance Notice with respect to
such Development Property by the DP Outside Response Date applicable thereto.
(b) Boston Properties and the Common Fund acknowledge that it is
their intention that the total debt encumbering all the stabilized Venture
Properties at the end of the Offer Term will not exceed 60% of the total value
of all such Venture Properties at such time.
Section 4.6. Remedies. (a) If Boston Properties materially breaches any of
its non-monetary obligations under Article 2 or Article 3 above, then the Common
Fund (as the Common Fund's sole and exclusive remedy on account of such breach)
shall be
entitled, within 45 days after the Common Fund learns of such breach, to
exercise (or cause to be exercised) the Reverse Buy-Sell Rights (as defined
below) contained in the Venture Entity Operating Agreements with respect all
(but not less than all) of the then existing Venture Properties. In the case of
all other breaches by Boston Properties of Boston Properties' obligations under
Article 2 or Article 3 above, the Common Fund shall be entitled to pursue all
remedies available to the Common Fund on account thereof at law or in equity.
For purposes hereof, the term "Reverse Buy-Sell Rights" shall mean either (i)
the rights described in Section 13.04 of each Operating Agreement Form or (ii)
any rights contained in any Venture Entity Operating Agreement that are
substantially similar to the rights contained in such Section 13.04.
(b) If the Common Fund materially breaches any of its non-monetary
obligations under Article 2 or Article 3 above, then Boston Properties (as
Boston Properties' sole and exclusive remedy on account of such breach) shall be
entitled, within 45 days after Boston Properties learns of such breach, to
terminate the provisions of Articles 2 and 3 of the Agreement (but no other
provisions of this Agreement). In the case of all other breaches by the Common
Fund of the Common Fund's obligations under Article 2 or Article 3 above, Boston
Properties shall be entitled to pursue all remedies available to Boston
Properties on account thereof at law or in equity. If Boston Properties, in
accordance with the first sentence of this paragraph (b), properly elects to
terminate the provisions of such Articles 2 and 3, then (except for the Common
Fund's Surviving Obligations) both parties shall be relieved of any obligations
or liabilities that accrue under such Articles 2 and 3 from and after the
effective date of such termination. The Common Fund's Surviving Obligations
shall survive any termination of Articles 2 and 3 of this Agreement by Boston
Properties pursuant to this Section 4.6(b) or any termination of such Article 2
by Boston Properties pursuant to Section 2.4 above; provided that if, after such
termination, the Common Fund in bad faith breaches any of the Common Fund's
Surviving Obligations, then, subject to the further provisions of this Section
4.6(b) below, Boston Properties, as its sole and exclusive remedy on account of
such breach, may pursue one (and only one) of the following remedies (the
"Applicable Remedies") (with the Common Fund, in accordance with the following
provisions of this Section 4.6(b), electing in its sole discretion which one of
such remedies Boston Properties may pursue): (i) the exercise of the BP Reverse
Buy Sell Rights (as defined below) with respect all (but not less than all) of
the then existing Venture Properties, or (ii) the prosecution of an action for
the actual damages (other than consequential damages) suffered by Boston
Properties on account of such breach (the remedy referenced in this clause (ii),
the "Damages Remedy"). If Boston Properties believes that, after any such
termination of this Article 2 by Boston Properties, the Common Fund in bad faith
has breached any of the Common Fund's Surviving Obligations, then, within 45
days after Boston Properties learns of such breach, Boston Properties may send
the Common Fund a reasonably detailed notice of such alleged breach. If, in
accordance with the preceding sentence, the Common Fund receives a notice from
Boston Properties alleging any such breach by the Common Fund, then the Common
Fund, within 45 days after it receives such notice, shall have the right (a) to
acknowledge that such breach occurred, in which case the Common Fund shall elect
one of the Applicable Remedies for Boston Properties to pursue on account of
such breach (whereupon Boston Properties
shall have the right to pursue such Applicable Remedy (and no other remedy) on
account of such breach); or (b) to (i) deny that such breach occurred and (ii)
notify Boston Properties as to which one of the two Applicable Remedies Boston
Properties may pursue if a court of law ultimately determines that such breach
did occur, in which case Boston Properties shall have the right to bring an
action to determine (x) whether or not such a breach occurred and (y) if the
Common Fund so elects for Boston Properties to pursue the Damages Remedy, what
damages, if any, the Common Fund is liable for as a result of such breach. If
(i) Boston Properties brings such an action and (ii) it is determined in such
action that the Common Fund in bad faith breached any of the Common Fund's
Surviving Obligations after the termination of this Article 2 by Boston
Properties in accordance herewith, then Boston Properties may, on account of
such breach, pursue the Applicable Remedy selected by the Common Fund in
accordance with the preceding sentence (and no other remedy). For purposes
hereof, the term "BP Reverse Buy-Sell Rights" shall mean either (i) the rights
described in Section 13.06 of the Operating Agreement Form annexed hereto as
Exhibit A, (ii) the rights described in Section 13.06 of the Operating Agreement
Form annexed hereto as Exhibit B or (iii) any rights contained in any Venture
Entity Operating Agreement that are substantially similar to the foregoing
Section 4.7. Additional Termination Right. If the Common Fund exercises
its Buy-Sell Rights (as defined below) with respect to any Venture Property
Interest, then Boston Properties shall have the right, within 45 days after such
exercise, to terminate the provisions of Articles 2 and 3 of the Agreement (but
no other provisions of this Agreement). If Boston Properties, in accordance with
the preceding sentence, properly elects to terminate the provisions of such
Articles 2 and 3, then both parties shall be relieved of any obligations or
liabilities that accrue under such Articles 2 and 3 from and after the effective
date of such termination. For purposes hereof, the term "Buy-Sell Rights" shall
mean either (i) the rights described in Article XIII of each Operating Agreement
Form or (ii) any rights contained in any Venture Entity Operating Agreement that
are substantially similar to the rights contained in such Article XIII.
Section 4.8. Property Management Agreements; Development Agreements. (a)
Simultaneously with the acquisition of an Operating Property Interest by a
Venture Entity during the Offer Term, Boston Properties, with respect to such
Operating Property Interest, shall enter into (or, at Boston Properties'
election, cause a BP Subsidiary Party to enter into) a property management
agreement with such Venture Entity in the form annexed hereto as Exhibit D
(subject, however, to Section 4.8(d) below).
(b) Within 60 days after either (i) any Venture Entity acquires a
Development Property Interest during the Offer Term, or (ii) the Common Fund (or
a Common Fund Subsidiary) is admitted during the Offer Term into any Boston
Properties Subsidiary that holds a Development Property Interest, Boston
Properties, with respect to such Development Property Interest, shall enter into
(or, at Boston Properties' election, cause a BP Subsidiary Party to enter into)
a property management agreement with such Venture Entity (or with such Boston
Properties Subsidiary that holds such Development
Property Interest, as the case may be) in the form annexed hereto as Exhibit D
(c) Within 60 days after either (i) any Venture Entity acquires a
Development Property Interest during the Offer Term, or (ii) the Common Fund is
admitted during the Offer Term into any Boston Properties Subsidiary that holds
a Development Property Interest, Boston Properties, with respect to such
Development Property Interest, shall enter into (or, at Boston Properties'
election, cause a BP Subsidiary Party to enter into) a development and services
agreement with such Venture Entity (or with such Boston Properties Subsidiary
that holds such Development Property Interest, as the case may be) in the form
annexed hereto as Exhibit E (subject, however, to Section 4.8(d) below).
(d) Boston Properties acknowledges that each form described in this
Section 4.8 contains certain provisions that may not be applicable to all
transactions (as indicated in each such form), and Boston Properties, in
executing (or causing to be executed) each agreement in accordance with the
provisions of this Section 4.8, shall act reasonably and in good faith in
negotiating to delete all such provisions that are not applicable to the
transaction in question. Boston Properties also acknowledges that each such form
contains certain blank spaces for certain terms that must be added thereto, and
Boston Properties, in executing (or causing to be executed) each such agreement,
shall act reasonably and in good faith in negotiating what information should be
added to such blank spaces.
Section 5.1. Boston Properties Guaranty. Boston Properties, as primary
obligor and not as surety merely, hereby unconditionally guarantees to the
Common Fund the punctual payment and performance by each Boston Properties
Guaranty Party of all of the obligations of such Boston Properties Guaranty
Party under each of the Venture Agreements to which such Boston Properties
Guaranty Party is now or hereafter becomes a party or otherwise bound
(including, without limitation, the agreements described on Schedule X annexed
hereto). The guaranty contained in the preceding sentence (the "Boston
Properties Guaranty") shall be self-operative with respect to any Venture
Agreement that is entered into after the date hereof by any Boston Properties
Guaranty Party (or with respect to any Venture Agreement by which any Boston
Properties Guaranty Party otherwise hereafter becomes bound), and no further
instrument of guaranty shall be required in order for the Boston Properties
Guaranty to apply to any such Venture Agreement. However, if requested by the
Common Fund, Boston Properties shall execute, acknowledge and deliver to the
Common Fund an instrument (in form and substance reasonably satisfactory to the
Common Fund) confirming that the Boston Properties Guaranty applies to any such
Venture Agreement. Boston Properties hereby acknowledges and agrees that each of
the following entities is an intended third-party beneficiary of the Boston
Properties Guaranty: (i) each Venture Entity that is a
party to (or is otherwise entitled to the benefits of) any Venture Agreement
with a Boston Properties Guaranty Party (including, without limitation, any
Venture Entity that is a party to any Management Agreement, Leasing Agency
Agreement or Development Agreement with a Boston Properties Guaranty Party) and
(ii) any Common Fund Guaranty Party that holds a direct or indirect interest in
any Venture Entity. Without limiting the generality of the foregoing, Boston
Properties shall cause each Boston Properties Guaranty Party that is a party to
(or is otherwise bound by) any Venture Agreement to comply with all of the
obligations of such Boston Properties Guaranty Party under such Venture
Section 5.2. Common Fund Guaranty. The Common Fund, as primary obligor and
not as surety merely, hereby unconditionally guarantees to Boston Properties the
punctual payment and performance by each Common Fund Guaranty Party of all of
the obligations of such Common Fund Guaranty Party under each of the Venture
Agreements to which such Common Fund Guaranty Party is now or hereafter becomes
a party or otherwise bound (including, without limitation, the agreements
described on Schedule XI annexed hereto). The guaranty contained in the
preceding sentence (the "Common Fund Guaranty") shall be self-operative with
respect to any Venture Agreement that is entered into after the date hereof by
any Common Fund Guaranty Party (or with respect to any Venture Agreement by
which any Common Fund Guaranty Party otherwise hereafter becomes bound), and no
further instrument of guaranty shall be required in order for the Common Fund
Guaranty to apply to any such Venture Agreement. However, if requested by Boston
Properties, the Common Fund shall execute, acknowledge and deliver to Boston
Properties an instrument (in form and substance reasonably satisfactory to
Boston Properties) confirming that the Common Fund Guaranty applies to any such
Venture Agreement. The Common Fund hereby acknowledges and agrees that each of
the following entities is an intended third-party beneficiary of the Common Fund
Guaranty: (i) any Boston Properties Guaranty Party that holds a direct or
indirect interest in any Venture Entity in which a Common Fund Guaranty Party
also holds a direct or indirect interest and (ii) any Venture Entity in which a
Common Fund Guaranty Party holds a direct interest. Without limiting the
generality of the foregoing, the Common Fund shall cause each Common Fund
Guaranty Party that is a party to (or is otherwise bound by) any Venture
Agreement to comply with all of the obligations of such Common Fund Guaranty
Party under such Venture Agreement.
Section 5.3. General Provisions.
(a) The following provisions of this Section 5.3 shall apply
separately to each of the Boston Properties Guaranty and the Common Fund
Guaranty. For purposes of the application of such provisions to the Boston
Properties Guaranty, the following terms shall have the following meanings: (i)
"Guaranty" shall mean the Boston Properties Guaranty; (ii) "Guarantor" shall
mean Boston Properties; (iii) "Beneficiary" shall mean the Common Fund (together
with all intended third-party beneficiaries of the Boston Properties Guaranty);
(iv) "Guaranteed Obligations" shall mean all of the obligations guaranteed by
the Boston Properties Guaranty; and (v) "Obligor" shall mean each Boston
Properties Guaranty Party whose obligations are being guaranteed by the
Boston Properties Guaranty. For purposes of the application of such provisions
to the Common Fund Guaranty, the following terms shall have the following
meanings: (i) "Guaranty" shall mean the Common Fund Guaranty; (ii) "Guarantor"
shall mean the Common Fund; (iii) "Beneficiary" shall mean Boston Properties
(together with all intended third-party beneficiaries of the Common Fund
Guaranty); (iv) "Guaranteed Obligations" shall mean all of the obligations
guaranteed by the Common Fund Guaranty; and (v) "Obligor" shall mean each Common
Fund Guaranty Party whose obligations are being guaranteed by the Common Fund
Guaranty.
(b) The Guaranty is and is intended to be a continuing guaranty of
the payment and performance of the Guaranteed Obligations, independent of and in
addition to any other guaranty, endorsement, collateral or other agreement held
by the applicable Beneficiary thereof or with respect thereto, whether or not
furnished by the Guarantor under such Guaranty. The Guaranty is absolute and
unconditional and shall not be changed or affected by any representation, oral
agreement, act or thing whatsoever, except as herein provided. Further, the
Guaranty is unlimited in amount.
(c) Guarantor hereby consents and agrees that each Beneficiary may
at any time and from time to time, in its discretion, without affecting
Guarantor or releasing Guarantor from any of its obligations under this Article
5, take any of the following actions without notice, demand or any reservation
of rights: (1) renew, extend, increase, accelerate or otherwise change the time
for payment or performance of, or the manner, place or terms of payment or
performance of, any of the Guaranteed Obligations or (2) amend, modify, renew,
extend, terminate or cancel any of the Venture Agreements to which any of the
Guaranteed Obligations relate. Nothing in this paragraph (c) shall be construed
to give any Beneficiary the unilateral right to amend or modify any Venture
Agreement to which it is a party (or by which it is otherwise bound).
(d) Guarantor hereby agrees to pay and perform the Guaranteed
Obligations in full: (1) without reduction by reason of any setoff, defense or
counterclaim of any Obligor; (2) without requiring presentment, protest or
notice of non-payment or notice of default to the Guarantor, to any Obligor or
to any other person or entity; (3) without demand for payment by the applicable
Obligor or Guarantor or proof of such demand; (4) without requiring the
applicable Beneficiary to resort first to the applicable Obligor (this being a
guaranty of payment and not of collection merely) or to any other guaranty or
endorsement or any collateral which the applicable Beneficiary may hold; (5)
without requiring notice of acceptance hereof or assent hereto; and (6) without
requiring notice that any of the Guaranteed Obligations have been incurred or of
the reliance by the applicable Beneficiary upon the Guaranty; and Guarantor
hereby waives all of the foregoing.
(e) None of Guarantor's obligations under this Article 5 shall be
affected by any of the following, all of which Guarantor hereby waives: (i) any
defense arising by reason of the cessation or termination from any cause
whatsoever of liability of the applicable Obligor with respect to all or any of
the Guaranteed Obligations including, without limitation, any failure,
negligence or omission by the applicable Beneficiary in
enforcing its claims against the applicable Obligor; (ii) any release,
settlement, waiver or compromise of the applicable Obligor's obligation to pay
or perform any of the Guaranteed Obligations; (iii) any release, non-perfection
or invalidity of any direct or indirect security or guaranty held by the
applicable Beneficiary for any of the Guaranteed Obligations; (iv) a
cancellation or termination of any of the Venture Agreements; (v) the invalidity
or unenforceability of any of the Guaranteed Obligations; (vi) any suretyship
defenses and defenses in the nature thereof; or (vii) any other act or omission
or other thing which might, but for the provisions of this paragraph, constitute
a legal or equitable discharge of Guarantor's obligations under this Article 5.
(f) Guarantor agrees to pay on demand all costs and expenses of
every kind incurred by each Beneficiary in enforcing the Guaranty, including,
without limitation, the actual attorney's fees incurred by such Beneficiary in
retaining counsel for advice, suit, appeal, any insolvency or other proceedings
under the Federal Bankruptcy Code or otherwise.
(g) The Guaranty shall continue and be effective notwithstanding
any bankruptcy, insolvency or other similar or dissimilar proceeding relating to
any Obligor and notwithstanding any failure by or inability of any Beneficiary
to enforce any of the Guaranteed Obligations against any Obligor because of or
any prohibition of such enforcement arising out of such proceeding. Whenever any
of the Guaranteed Obligations could be declared due by any Beneficiary from the
applicable Obligor were it not for such proceeding, such Beneficiary may declare
the same to be due from Guarantor notwithstanding such proceeding.
(h) The applicable Beneficiary may remedy any default by any
Obligor or with respect to any Guaranteed Obligations in any manner without
waiving the default remedied and without waiving any other prior or subsequent
default by any Obligor. All rights and remedies of each Beneficiary under this
Article 5 are cumulative.
(i) Guarantor hereby waives all rights of subrogation, indemnity,
contribution, exoneration, reimbursement or other claim which Guarantor now has,
or may hereafter have, against any Obligor in connection with the Guaranteed
Obligations.
(j) The provisions of this Article 5 shall survive the expiration or
termination of this Agreement.
Section 6.1. Boston Properties. Boston Properties hereby represents and
warrants to the Common Fund that, as of the date hereof:
6.1.1 Boston Properties is a Delaware limited partnership,
duly organized, validly existing and in good standing under the laws of
the State of Delaware.
6.1.2 Boston Properties has duly authorized, executed and
delivered this Agreement, and this Agreement and all of the obligations of
Boston Properties hereunder constitute legal, valid and binding
obligations of Boston Properties enforceable against Boston Properties in
accordance with their terms. Boston Properties has the requisite
partnership power and authority to execute this Agreement and to enter
into the transactions contemplated hereby. Boston Properties has caused
this Agreement to be executed by a duly authorized partner of Boston
Properties. Neither the execution of this Agreement nor the consummation
or performance by Boston Properties of the transactions contemplated by
this Agreement will result in any of the following (to the extent that any
of the following would adversely affect Boston Properties' ability to
perform its obligations under this Agreement): (I) a violation of, or a
conflict with, or a default (or an event which, with notice and/or lapse
of time, would constitute a default) under any of the terms or provisions
of (a) any agreement or instrument to which Boston Properties (or any
Boston Properties Subsidiary) is a party to or by which Boston Properties
(or any Boston Properties Subsidiary) is bound, (b) the limited
partnership agreement or the other organizational documents of Boston
Properties, or (c) any applicable legal requirements, or (II) the creation
of any lien, security interest, charge or encumbrance upon any properties
that are directly or indirectly owned by Boston Properties or any Boston
Properties Subsidiary.
6.1.3 Boston Properties is not required to do any of the
following (to the extent that the failure to do any of the following would
adversely affect Boston Properties' ability to perform its obligations
under this Agreement): obtain any consent, approval, order or
authorization from, or make any declaration or filing with, any person or
any governmental authority, in connection with the execution and delivery
of this Agreement or the performance and consummation of the transactions
contemplated hereby.
6.1.4 BP Inc. is a Delaware corporation, duly incorporated,
validly existing and in good standing under the laws of the State of
Delaware.
6.1.5 BP Inc. is the sole general partner of Boston Properties
and owns approximately 66% of the limited partnership interests in Boston
Properties.
6.1.6 BP Inc. has timely filed all required forms, reports and
documents (the "BP Reports") required to be filed by BP Inc. under the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934,
as amended, and the rules and regulations promulgated thereunder
(collectively, the "Securities Laws") with the Securities and Exchange
Commission (the "SEC"). As of their respective dates, the BP Reports (i)
complied in all material respects with the
applicable requirements of the Securities Laws and (ii) did not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading. Each of the consolidated balance sheets of BP Inc. included in
or incorporated by reference into the BP Reports (including the related
notes and schedules) fairly presents in all material respects the
consolidated financial position of BP Inc. and its subsidiaries as of its
date and each of the consolidated statements of income, retained earnings
and cash flows of BP Inc. included in or incorporated by reference into
the BP Reports (including any related notes and schedules) fairly presents
in all material respects the results of operations, retained earnings or
cash flows, as the case may be, of BP Inc. and its subsidiaries for the
periods set forth therein (subject, in the case of unaudited statements,
to normal year-end audit adjustments which would not be material in amount
or effect), in each case in accordance with generally accepted accounting
principles consistently applied during the periods involved, except as may
be noted therein and except, in the case of the unaudited statements, as
permitted by Form 10-Q or Form 8-K of the SEC.
6.1.7 There are (i) no continuing orders, injunctions or
decrees of any governmental entity to which BP Inc. or any subsidiary of
BP Inc. is a party or by which any of their respective properties or
assets are bound, and (ii) no actions, suits or proceedings pending (of
which service or notice of process has been received by an employee of BP
Inc.) against BP Inc. or any subsidiary of BP Inc. or, to the actual
knowledge of BP Inc., threatened against BP Inc. or any subsidiary of BP
Inc., at law or in equity, or before or by any federal or state
commission, board, bureau, agency or instrumentality, that, if decided
adversely, could, individually or in the aggregate, have a material
adverse effect on the business, results of operations, financial condition
or prospects of BP Inc. and its subsidiaries, considered as a whole (a "BP
Material Adverse Effect").
6.1.8 Except as disclosed in the BP Reports filed with the SEC
prior to the date hereof, since December 31, 1999, BP Inc. and its
subsidiaries have conducted their business only in the ordinary course of
such business and there has not been any event or occurrence that would,
or is reasonably likely to, result in a BP Material Adverse Effect
6.1.9 Since June 24, 1997 through the most recent December
31st, BP Inc. has been subject to taxation as a real estate investment
trust (a "REIT") within the meaning of Section 856 of the Internal Revenue
Code of 1986, as amended (the "Code"), and has satisfied all requirements
to qualify as a REIT for such years and (ii) BP Inc. has operated and
intends to operate, in such a manner as to qualify as a REIT for the
taxable year ending December 31, 1999. BP Inc. has not taken any action or
failed to take any action which would reasonably be expected to, result in
a challenge to its status as a REIT for 2000, and to the knowledge of BP
Inc., no such challenge is pending or threatened.
6.1.10 Sections 11.1, 11.3, 11.4, 11.5 and 11.6 of Boston
Properties' operating agreement contain all of the material provisions of
such operating agreement that relate to the right of BP Inc. to consent to
direct and indirect transfers of interests in Boston Properties by limited
partners thereof.
All of the foregoing representations and warranties shall be deemed
to have been re-made as of the date on which each Venture Entity Operating
Agreement is entered into (whether pursuant to this Agreement or otherwise).
Section 6.2 The Common Fund. The Common Fund hereby represents and
warrants to Boston Properties that, as of the date hereof:
6.2.1 The Common Fund has duly authorized, executed and
the Common Fund hereunder constitute legal, valid and binding obligations
of the Common Fund enforceable against the Common Fund in accordance with
their terms. The Common Fund has caused this Agreement to be executed by a
duly authorized representative of the Common Fund. Neither the execution
of this Agreement nor the consummation or performance by the Common Fund
of the transactions contemplated by this Agreement will result in any of
the following (to the extent that any following would adversely affect the
Common Fund's ability to perform its obligations under this Agreement): a
violation of, or a conflict with, or a default (or an event which, with
notice and/or lapse of time, would constitute a default) under any of the
terms or provisions of (a) any agreement or instrument to which the Common
Fund (or any Common Fund Subsidiary) is a party to or by which the Common
Fund (or any Common Fund Subsidiary) is bound, or (b) any applicable legal
6.2.2 The Common Fund is not required to do any of the
adversely affect the Common Fund's ability to perform its obligations
RESTRICTIONS RELATING TO
QUALIFIED ORGANIZATIONS
Section 7.1 Definitions. For purposes of this Article 7, the following
"Acceptable Appraiser" shall mean any real estate appraiser who (a)
is a member of the American Institute of Real Estate Appraisers, or a successor
body exercising similar functions, (b) is a member of a national appraisal firm
that performs appraisals throughout the United States, (c) has at least ten (10)
years' experience as an appraiser of office properties, and (d) is unaffiliated
with either the Common Fund or Boston Properties.
"Boston Properties Party" shall mean Boston Properties, any
Qualified BP Transferee, any Qualified BP Subsidiary and any Successor of any of
the foregoing.
"Fair Market Value" shall mean, with respect to any Qualified
Venture Property Interest, the price, as of the date in question, at which a
willing seller would sell, and a willing buyer would buy, the applicable Venture
Entity's interest in such Qualified Venture Property Interest, assuming that (i)
neither the seller nor the purchaser is under any compulsion to act, and (ii)
both the seller and the buyer are acting prudently, with full knowledge and for
their self interest. The Fair Market Value of such Qualified Venture Property
Interest shall (subject to the proviso at the end of this sentence) be
determined by taking into consideration all relevant factors, including, without
limitation, both the physical condition and use, as of the applicable date, of
the underlying land and improvements (including, without limitation, all leases
and other encumbrances affecting such land and improvements as of such date);
provided, however, that (notwithstanding anything to the contrary contained
herein) the Fair Market Value of any Qualified Venture Property Interest in
unimproved land shall be calculated without regard to the highest use to which
such land could be put as of such applicable date, if such highest use is not
primarily office use.
"Percentage Interest" with respect to any Venture Entity, shall mean
the percentage interest held by each member (or analogous interest holder) in
such Venture Entity, as set forth in the Venture Entity Operating Agreement for
such Venture Entity. By way of example only, the Percentage Interest of each
member in the 140 Kendrick Street Venture Entity shall be the percentage set
forth opposite its name in the definition of "Percentage Interest" contained in
the 140 Kendrick Street Operating Agreement (subject to adjustment as provided
in the 140 Kendrick Street Operating Agreement).
"Prohibited Transaction" shall mean shall mean (i) the admission of
a party directly into any Boston Properties Party, (ii) the admission of a party
indirectly into any Boston Properties Party, (iii) the transfer of a direct or
indirect interest in any Boston Properties Party, or (iv) any other action by a
Boston Properties Party or the
suffering by any Boston Properties Party of an action, in each case that has the
effect of causing any Qualified Venture Entity not to meet the requirements of
Section 514(c)(9)(E) of the Code (including, without limitation, by reason of
Section 514(c)(9)(D) of the Code) and the Treasury Regulations thereunder (or,
if applicable, any successor provisions of the Internal Revenue Code or Treasury
Regulations); provided, however, that no admission, transfer or other action
described in any of the preceding clauses (ii), (iii) and (iv) shall constitute
a Prohibited Transaction if, and to the extent that, such admission, transfer or
other action does not (under the partnership agreement, operating agreement or
other organizational documents of the applicable Boston Properties Party)
require the consent of the applicable Boston Properties Party (any such
admission, transfer or other action that meets the criteria in this proviso, an
"Uncontrollable QO Transaction"). Without limiting the generality of the
foregoing, and by way of example only, the following transaction is among the
transactions that do not constitute Prohibited Transactions: the transfer of an
interest in a Boston Properties Party to a Qualified Organization in such a way
that (i) such Qualified Organization has no direct or indirect interest in any
Qualified Promote Interest and (ii) no Qualified Venture Entity otherwise fails
to meet the requirements of Section 514(c)(9)(E) of the Code as a result of such
"Promote Interest" shall mean, with respect to any Venture Entity,
the portion (if any) of the membership (or analogous) interest in such Venture
Entity that entitles the holder thereof to distributions and allocations in
excess of the product of (i) the Percentage Interest of the member (or analogous
interest holder) owning such interest and (ii) the total distributions and
allocations of such Venture Entity. The Promote Interest for any Venture Entity
shall include the difference (whether positive or negative) of (x) the capital
account balance of the holder of the Promote Interest and (y) the product of (A)
the Percentage Interest of the member (or analogous interest holder) owning such
interest and (B) the total aggregate capital account balances of such Venture
Entity.
"Promote Interest Purchase Price" shall mean, with respect to any
Promote Interest as of any date (the "Determination Date"), an amount equal to
the product of (a) 0.75, multiplied by (b) an amount (the "Promote Interest FMV
Price") equal to the net proceeds that, pursuant to the applicable Venture
Entity Operating Agreement, would be distributed to the holder of such Promote
Interest (as if such Promote Interest were the only interest in the applicable
Venture Entity held by such holder) if (i) the Qualified Venture Property
Interest then held by such Venture Entity was sold or otherwise disposed of (on
the Determination Date) for a price equal to the Fair Market Value (as of the
Determination Date) of such Qualified Venture Property Interest and (ii) the
proceeds of such sale or other disposition were first applied to pay (x) the
estimated costs and expenses that would be incurred by such Venture Entity in
connection with such a sale or other disposition to a bona fide third party and
(y) any debt of such Venture Property that is outstanding as of the
Determination Date.
"Qualified BP Subsidiary" shall mean any Boston Properties
Subsidiary (or any entity that, directly or indirectly, is wholly-owned by any
Successor to Boston
Properties and/or Boston Properties, Inc.) that, at the time in question, is the
holder of any Promote Interest.
"Qualified BP Transferee" shall mean any transferee (whether direct
or remote) of Boston Properties' (or the applicable Boston Properties
Subsidiary's) interest in a Venture Entity, which transferee, at the time in
question, (x) is an affiliate of Boston Properties (or any Successor thereto)
and (y) is the holder of the Promote Interest in such Venture Entity.
"Qualified Organization" shall have the meaning ascribed to it in
Section 514(c)(9)(C) of the Internal Revenue Code of 1986, as amended (or, if
applicable, any successor provision of the Internal Revenue Code).
"Qualified Promote Interest" shall mean, at any time, any Promote
Interest that, at such time, is held by a Boston Properties Party.
"Qualified Venture Entity" shall mean, at any time, any Venture
Entity in which, at such time, any Boston Properties Party is the holder of the
Promote Interest (if any) in such Venture Entity.
"Qualified Venture Property Interest" shall mean, at any time, any
Venture Property Interest that is held by a Venture Entity which, at such time,
constitutes a Qualified Venture Entity.
"Restriction Period" shall mean the period of time commencing on the
date hereof and ending on the earlier to occur of (x) the later to occur of (1)
the last day of the Offer Term and (2) the first date on which the Common Fund
no longer has any direct or indirect interest in any Qualified Venture Entity
(the later to occur of such dates, the "Restriction Expiration Date") and (y)
the date on which the first Permitted Admission is effected in accordance with
Section 7.4 below; provided, however, that if, during any other period prior to
the Restriction Expiration Date, no direct or indirect partner of Boston
Properties (or any Successor of Boston Properties) shall constitute a Qualified
Organization (whether because the entity that was the subject of the last
Permitted Admission is no longer a partner of Boston Properties (or such
Successor) or otherwise), then the term "Restriction Period" shall also include
each such period that commences on the first date on which no direct or indirect
partner of Boston Properties (or such Successor of Boston Properties)
constitutes a Qualified Organization and ends on the earlier to occur of (x) the
Restriction Expiration Date and (y) the date on which the next Permitted
Admission is effected in accordance with Section 7.4 below.
"Successor" shall mean, with respect to any entity, any one of the
following: (i) an entity resulting from a merger, consolidation, reorganization
or recapitalization of or with such entity or (ii) a purchaser (or other
transferee) of all or substantially all of such entity's assets and all or
substantially all of such entity's liabilities.
Section 7.2 Representation and Warranty. Boston Properties represents and
warrants to the Common Fund that, as of the date hereof, (a) Boston Properties
does not constitute (and no other Boston Properties Party constitutes) a
Qualified Organization, and (b) no direct or, to Boston Properties' knowledge,
indirect partner in Boston Properties (or any other Boston Properties Party)
constitutes a Qualified Organization such that a potential direct or indirect
allocation from any Qualified Venture Entity could cause such Qualified Venture
Entity not to meet the requirements of Section 514(c)(9)(E) of the Code
(including, without limitation, by reason of Section 514(c)(9)(D) of the Code)
and the Treasury Regulations thereunder (or, if applicable, any successor
provisions of the Internal Revenue Code or Treasury Regulations). Moreover, if
any Venture Entity Operating Agreement is entered into during any Restriction
Period, then Boston Properties shall be deemed to have represented and warranted
to the Common Fund (as of the date on which such Venture Entity Operating
Agreement is so entered into) that Section 7.3 below has not been violated
during such Restriction Period. Boston Properties shall promptly notify the
Common Fund if at any time Boston Properties learns that any direct or indirect
partner in Boston Properties (or any other Boston Properties Party) constitutes
a Qualified Organization such that a potential direct or indirect allocation
from any Qualified Venture Entity could cause such Qualified Venture Entity not
to meet the requirements of Section 514(c)(9)(E) of the Code (including, without
limitation, by reason of Section 514(c)(9)(D) of the Code) and the Treasury
Regulations thereunder (or, if applicable, any successor provisions of the
Internal Revenue Code or Treasury Regulations).
Section 7.3 Restriction. At no time during any Restriction Period shall
Boston Properties effect, or permit or suffer to be effected, any Prohibited
Transaction, except as and to the extent expressly permitted by Section 7.4
below. Without limiting the generality of the foregoing or anything in Section
7.4 below, in no event shall Boston Properties, prior to the first anniversary
of the date of this Agreement, admit into Boston Properties any direct partner
that constitutes a Qualified Organization, regardless of the type or amount of
consideration proposed to be paid in connection therewith (it being agreed,
however, that such an admission shall not be prohibited by this sentence if such
admission does not constitute a Prohibited Transaction, i.e., if such admission
would not cause any Qualified Venture Entity not to meet the requirements of
Regulations)).
Section 7.4 Sale of Promote Interests. (a) If (i) Boston Properties, at
any time after the first anniversary of the date of this Agreement but before
the end of any Restriction Period, desires to admit into Boston Properties any
direct partner that constitutes a Qualified Organization and such admission
would constitute a Prohibited Transaction, and (ii) the amount of the
consideration to be paid or contributed by such direct partner to or on account
of Boston Properties in connection with such admission is a least One Hundred
Million ($100,000,000) Dollars (any such admission described in the preceding
clauses (i) and (ii), a "Permitted Admission"), then Boston Properties shall be
permitted to effect such admission, provided that Boston Properties first
complies with
all of the following provisions of this Section 7.4. Boston Properties shall
give the Common Fund prior notice (a "Promote Interest Offer Notice") of its
intention to effect a Permitted Admission, which notice shall (i) set forth the
name of the Qualified Organization that is the subject of such Permitted
Admission and a reasonably detailed description of the business and operations
of such Qualified Organization, (ii) contain a reasonably detailed description
of such Permitted Admission (including, without limitation, (x) a certification
of Boston Properties as to the type and amount of the consideration to be paid
or contributed to or on account of Boston Properties in connection therewith and
(y) the anticipated closing date of such Permitted Admission, which anticipated
closing date shall be no later than 120 days after the date of such Promote
Interest Offer Notice), (iii) be accompanied by a written agreement between
Boston Properties and such Qualified Organization that binds each of such
parties to effect such Permitted Admission, (iv) be accompanied by an MAI
appraisal for each Venture Property Interest that (i) as of such anticipated
closing date, will constitute a Qualified Venture Property Interest and (ii) was
acquired by the applicable Venture Entity during the then current Restriction
Period, each of which appraisals (x) shall be prepared by an Acceptable
Appraiser, (y) shall be dated no earlier than 30 days prior to the date of such
Promote Interest Offer Notice and (z) shall set forth such appraiser's
determination of the Fair Market Value (as of such anticipated closing date) of
the Venture Property Interest in question (such Fair Market Value determination
for each such Venture Property Interest, the "Initial Appraiser's
Determination"), (v) be accompanied by such documentation as is reasonably
necessary to corroborate the Initial Appraiser's Determination of the Fair
Market Value of each such Venture Property Interest, and (vi) constitute an
offer to convey (and/or cause the applicable Boston Properties Subsidiary(ies)
and Qualified BP Transferee(s) to convey, as the case may be) to the Common Fund
(and/or the applicable Common Fund Subsidiary) the Qualified Promote Interest
pertaining to each such Venture Property Interest for a purchase price equal to
the Promote Interest Purchase Price for such Qualified Promote Interest as of
the effective date of such conveyance (which Promote Interest Purchase Price
shall be determined in accordance with the provisions of Section 7.4(d) and, if
applicable, Section 7.6 below). If the Common Fund desires to accept such offer
with respect to all of such Qualified Promote Interests, then the Common Fund,
within 45 days after receiving a duly given Promote Interest Offer Notice, shall
deliver to Boston Properties a notice to that effect (each, a "Promote Interest
Acceptance Notice"), which notice shall indicate, with respect to each such
Qualified Promote Interest (each, an "Elected Promote Interest"), whether the
Common Fund agrees with Initial Appraiser's Determination of the Fair Market
Value of the Qualified Venture Property Interest that corresponds to such
Elected Promote Interest. If Boston Properties gives the Common Fund a Promote
Interest Offer Notice, then (i) Boston Properties from time to time shall allow
(or cause to be allowed) all officers, employees, attorneys, advisors,
accountants and other representatives (collectively, "Representatives") of the
Common Fund access at all reasonable times to the records and files, audits and
properties of each applicable Qualified Venture Entity, as well as to all
information relating to commitments, contracts, titles and financial position,
or otherwise pertaining to the business and affairs, of such Qualified Venture
Entity, (ii) Boston Properties shall from time to time provide (or cause to be
provided) all information regarding the business and affairs of such Qualified
Venture Entity, including without limitation, information regarding leasing
negotiations, that the Common Fund may request and (iii) Boston Properties shall
from time to time be available, and shall cause its Representatives (and the
Representatives of such Qualified Venture Entity) to be available, at all
reasonable times to answer questions and provide information regarding the
business and affairs of such Qualified Venture Entity.
(b) If, after the date on which Boston Properties gives a Promote
Interest Offer Notice but before the date on which the Permitted Admission that
pertains thereto is effected, the Common Fund gives Boston Properties a
Development Property Acceptance Notice with respect to any Development Property
Interest (or the Common Fund and Boston Properties otherwise jointly acquire any
Development Property Interest), then the parties shall act in good faith to
structure the transaction involving such Development Property Interest such that
the Venture Entity that will hold such Development Property Interest will not
fail to comply with Section 514(c)(9)(E) of the Internal Revenue Code of 1986,
as amended (or, if applicable, any successor provision of the Internal Revenue
Code).
(c) If (i) Boston Properties properly gives the Common Fund a
Promote Interest Offer Notice with respect to any Permitted Admission, and (ii)
the Common Fund fails to give timely a Promote Interest Acceptance Notice in
response thereto, then Boston Properties may thereafter effect such Permitted
Admission, without further obligation under this Section 7.4 on account of such
Permitted Admission.
(d) If the Common Fund, in any Promote Interest Acceptance Notice,
indicates that it agrees with the Initial Appraiser's Determination of the Fair
Market Value of any applicable Qualified Venture Property Interest, then the
Promote Interest Purchase Price for the Elected Promote Interest that
corresponds to such Qualified Venture Property Interest shall be computed by the
Common Fund and Boston Properties based upon the Initial Appraiser's
Determination of the Fair Market Value of such Qualified Venture Property
Interest. If (i) the Common Fund, in any Promote Interest Acceptance Notice,
indicates that it does not agree with the Initial Appraiser's Determination of
the Fair Market Value of any applicable Qualified Venture Property Interest, and
(ii) such disagreement is not resolved within 15 days after the Common Fund
gives such Promote Interest Acceptance Notice, then the Fair Market Value of
such Qualified Venture Property Interest shall, for purposes of calculating the
Promote Interest Purchase Price for the corresponding Elected Promote Interest,
be determined in accordance with Section 7.6 below. If the Fair Market Value of
any Qualified Venture Property Interest is to be determined pursuant to Section
7.6 below, then, until at least 15 days after such determination is made, (i)
the applicable Permitted Admission shall not be effected, and (ii) the
corresponding Elected Promote Interest (as well as all of the other Elected
Promote Interests that were covered by the same Promote Interest Acceptance
Notice) shall not be conveyed to the Common Fund in accordance with Section
7.4(e) below. Notwithstanding the preceding sentence, Boston Properties may
elect, upon at least 30 days prior notice to the Common Fund, to convey all such
Elected Promote Interests to the Common Fund in accordance with Section 7.4(e)
below before any such determination is made, provided that, at the closing of
such conveyance, the amount to be
paid by the Common Fund for each such Elected Promote Interest with respect to
which such a determination is being made shall be equal to 75% of the Promote
Interest Purchase Price that would otherwise be payable by the Common Fund if
such Promote Interest Purchase Price was calculated based on the Initial
Appraiser's Determination of the Fair Market Value of the corresponding
Qualified Venture Property Interest; and upon the determination, in accordance
with Section 7.6 below, of the Fair Market Value of each applicable Qualified
Venture Property Interest, the Promote Interest Purchase Price for the
corresponding Elected Promote Interest shall be recomputed based on such
determination and any adjustment between the parties thereto, together with
interest on the adjusted amount at the rate of 8% per annum from the date of
such closing until paid, shall be made within 30 days after such recomputation.
(e) If the Common Fund timely gives Boston Properties a Promote
Interest Acceptance Notice with respect to one or more Elected Promote
Interests, then, immediately prior to Boston Properties effecting the applicable
Permitted Admission (but in no case sooner), Boston Properties shall convey
(and/or cause the applicable Boston Properties Subsidiary(ies) or Qualified BP
Transferee(s)to convey) to the Common Fund (and/or to the Common Fund
Subsidiary(ies) that is a member of the applicable Venture Entity) each Elected
Promote Interest that was covered by such Promote Interest Acceptance Notice,
free and clear of all liens, encumbrances and other claims, for a purchase price
equal to the Promote Interest Purchase Price (as of the date of such conveyance)
for such Elected Promote Interest. In connection therewith, Boston Properties
shall execute and tender (and/or cause to be executed and tendered) all
documentation that the Common Fund may reasonably require in connection with
such conveyance (including, without limitation, (x) any required amendment to
the applicable Venture Entity Operating Agreement, and (y) representations and
warranties of the transferor, which shall be guarantied by Boston Properties if
it is not the transferor, that the transferor has good title to the applicable
Promote Interest and is transferring the same free and clear of any liens,
encumbrances and other claims). The closing of such conveyance shall take place
in the offices of the Common Fund's attorneys (or such other location as the
Common Fund may reasonably designate). Each party shall pay its own legal fees
in connection with such conveyance. Recording, transfer or similar taxes (if
any) arising in connection with such conveyance shall be paid by Boston
Properties. Moreover, all other costs and expenses relating to such conveyance
shall be paid by Boston Properties.
(f) Notwithstanding anything to the contrary contained herein, but
without limiting the restriction contained in Section 7.3 above, if the Common
Fund, in response to any Promote Interest Offer Notice, timely gives Boston
Properties a Promote Interest Acceptance Notice with respect to one or more
Elected Promote Interests, then in no event may Boston Properties effect the
applicable Permitted Admission unless and until all the Elected Promote
Interests covered by such Promote Interest Acceptance Notice are conveyed to the
Common Fund (and/or the applicable Common Fund Subsidiary) in accordance with
this Section 7.4.
(g) Immediately following the conveyance of a Qualified Promote
Interest to the Common Fund (and/or to the Common Fund Subsidiary(ies) that is a
Member of the applicable Venture Entity), the capital account balance of each
member of the Venture Entity shall be equal to the product of such member's
Percentage Interest in such entity and the aggregate capital account balances of
such entity.
(h) This Article 7 is intended to permit the respective Venture
Entities to comply with Section 514(c)(9)(E) of the Internal Revenue Code of
1986, as amended (or, if applicable, any successor provision of the Internal
Revenue Code) and shall be interpreted consistently therewith.
Section 7.5 Additional Remedies. (a) If Boston Properties at any time
breaches its representations and warranties in Section 7.2 above or breaches its
obligations under Section 7.3 above, then (in addition to all rights and
remedies available to the Common Fund at law or in equity on account of such
breach) the Common Fund shall have the right, to be exercised by the Common
Fund's delivery of written notice to Boston Properties (each, a "Default
Exercise Notice"), to purchase all of the Promote Interests that, as of the date
such Exercise Notice is given, constitute Qualified Promote Interests, for a
purchase price equal to the Promote Interest Purchase Price of each of such
Qualified Promote Interests as of the date of the conveyance thereof in
accordance with the following sentence. If the Common Fund gives Boston
Properties a Default Exercise Notice with respect to any Qualified Promote
Interests, then (i) for purposes of determining the Promote Interest Purchase
Price of each such Qualified Promote Interest, the Fair Market Value of the
corresponding Qualified Venture Property Interest shall be determined in
accordance with Section 7.5(c) below, and (ii) Boston Properties shall convey
(and/or cause to be conveyed) each such Qualified Promote Interest, free and
clear of all liens, encumbrances and other claims, to the Common Fund (or, if
applicable, to the Common Fund Subsidiary that is a member of the corresponding
Venture Entity) within 30 days after such determination is made, for a purchase
price equal to the Promote Interest Purchase Price thereof as of the date of
such conveyance. In connection therewith, Boston Properties shall execute and
tender (and/or cause to be executed and tendered) all documentation that the
Common Fund may reasonably require in connection with such conveyance
(including, without limitation, (x) any required amendment to the applicable
Venture Entity Operating Agreement, and (y) representations and warranties of
the transferor, which shall be guarantied by Boston Properties if it is not the
transferor, that the transferor has good title to the applicable Promote
Interest and is transferring the same free and clear of any liens, encumbrances
and other claims). The closing of such conveyance shall take place in the
offices of the Common Fund's attorneys (or such other location as the Common
Fund may reasonably designate). All costs and expenses relating to such
conveyance shall be paid by Boston Properties.
(b) If an Uncontrollable QO Transaction occurs, then the Common Fund
shall have the right, to be exercised by the Common Fund's delivery of written
notice to Boston Properties (each, a "FMV Exercise Notice"), to purchase all of
the Promote Interests that, as of the date such Exercise Notice is given,
constitute Qualified
Promote Interests, for a purchase price equal to the Promote Interest FMV Price
of each of such Qualified Promote Interests (to be calculated as of the date of
the conveyance of each of such Qualified Promote Interests in accordance with
the following sentence). If the Common Fund gives Boston Properties an FMV
Exercise Notice with respect to any Qualified Promote Interests, then (i) for
purposes of determining the Promote Interest FMV Price of each such Qualified
Promote Interest, the Fair Market Value of the corresponding Qualified Venture
Property Interest shall be determined in accordance with Section 7.5(c) below,
and (ii) Boston Properties shall convey (and/or cause to be conveyed) each such
Qualified Promote Interest, free and clear of all liens, encumbrances and other
claims, to the Common Fund (or, if applicable, to the Common Fund Subsidiary
that is a member of the corresponding Venture Entity) within 30 days after such
determination is made, for a purchase price equal to the Promote Interest FMV
Price thereof as of the date of such conveyance. In connection therewith, Boston
Properties shall execute and tender (and/or cause to be executed and tendered)
all documentation that the Common Fund may reasonably require in connection with
Common Fund may reasonably designate). All costs and expenses relating to such
(c) In any instance under this Section 7.5 where the Fair Market
Value of a Qualified Venture Property Interest is to be determined pursuant to
this Section 7.5(c), the following procedures shall be followed in connection
with such Qualified Venture Property Interest: Boston Properties and the Common
Fund, within 10 days after the date on which the Common Fund gives the
applicable Default Exercise Notice or the applicable FMV Exercise Notice, as the
case may be, shall select an Acceptable Appraiser to perform an MAI appraisal of
such Qualified Venture Property Interest and determine the Fair Market Value
thereof as of the applicable date. If, within such 10 day period, the parties
are unable to agree upon an Acceptable Appraiser, then either party may apply to
the American Arbitration Association to have an Acceptable Appraiser appointed
thereby, which appointment shall be made within 10 days after such application
is made. Such determination of the Fair Market Value of such Qualified Venture
Property Interest by the Acceptable Appraiser so selected or appointed (x) shall
be made by such Acceptable Appraiser within 15 days of its selection and (y)
shall be made in accordance with the provisions and definitions contained in
this Section 7.5(c). In rendering such determination, the Acceptable Appraiser
so selected shall not add to, subtract from or otherwise modify the provisions
of this Section 7.5(c) or the definition of "Fair Market Value" (and,
notwithstanding anything to the contrary contained herein, any such addition,
subtraction or modification shall be disregarded by the parties). Upon
completion of such appraisal, (i) such Acceptable Appraiser shall deliver its
Interest (together with all supporting documentation) to the Common Fund and
Properties, which determination shall be binding on the Common Fund and the
Advisor for purposes of this Article 7, and (ii) the Common Fund and Boston
Properties shall then compute the Promote Interest Purchase Price or the Promote
Interest FMV Price (as the case may be) for the corresponding Promote Interest
based on such Fair Market Value determination. In the case of a determination
for purposes of Section 7.5(a) above, Boston Properties shall in each instance
be responsible for all the fees and expenses of the Acceptable Appraiser. In the
case of a determination for purposes of Section 7.5(b) above, Boston Properties
and the Common Fund shall each be responsible for one-half of the fees and
expenses of the Acceptable Appraiser.
Section 7.6 Dispute Resolution Mechanism. In any instance under this
Article 7 where the Fair Market Value of any Qualified Venture Property Interest
is to be determined pursuant to this Section 7.6, the following procedures shall
be followed in connection therewith: the Common Fund, within 15 days after the
procedures in this Section 7.6 are invoked, shall, by notice to Boston
Properties, select an Acceptable Appraiser (the Acceptable Appraiser so
selected, the "Common Fund Appraiser") to perform an MAI appraisal of such
Qualified Venture Property Interest and determine the Fair Market Value of such
Qualified Venture Property Interest. The Fair Market Value of such Qualified
Venture Property Interest shall be so determined as of the anticipated closing
date for the corresponding Elected Promote Interest (or if such closing already
occurred, as of the actual closing date, as the case may be) (such anticipated
or actual closing date, as the case may be, the "Applicable Date"). Upon
completion of such appraisal, the Common Fund Appraiser shall deliver its
Interest (such determination, the "Common Fund Appraiser's Determination") to
the Common Fund and Boston Properties, together with the underlying appraisal.
If the Common Fund Appraiser's Determination with respect to such Qualified
Venture Property Interest is equal to at least 95% of the Initial Appraiser's
Determination with respect to such Qualified Venture Property Interest, then the
Fair Market Value of such Qualified Venture Property Interest shall, for
purposes of this Article 7, be equal to the mathematical average of such Common
Fund Appraiser's Determination and such Initial Appraiser's Determination. If
the Common Fund Appraiser's Determination with respect to such Qualified Venture
Property Interest is less than 95% of the Initial Appraiser's Determination with
respect to such Qualified Venture Property Interest, then, within 10 days after
the Common Fund Appraiser's Determination is so delivered to the Common Fund and
Boston Properties, the Common Fund and Boston Properties shall select a third
Acceptable Appraiser (the "Third Appraiser") to perform an MAI appraisal of such
Qualified Venture Property Interest and determine the Fair Market Value thereof
as of the Applicable Date. If, within such 10 day period, the parties are unable
to agree upon the Third Appraiser, then either party may apply to the American
Arbitration Association to have an Acceptable Appraiser appointed thereby, which
appointment shall be made within 10 days after such application is made. Upon
the selection or appointment of the Third Appraiser, the Third Appraiser shall
be advised (x) that the determination of the Fair Market Value at issue shall be
governed by the definition of same set forth in this Agreement and (y) of the
requirement that the Third Appraiser select (without compromise) the
Determination (defined below), as between the Initial Appraiser's Determination
and the Common Fund
Appraiser's Determination, that more accurately reflects the Fair Market Value
of such Qualified Venture Property Interest as of the Applicable Date. Within 30
days after the Third Appraiser is so selected or appointed, the Third Appraiser
shall perform an MAI appraisal of such Qualified Venture Property Interest and
select which of such Determinations more accurately reflects the Fair Market
Value of such Qualified Venture Property Interest as of the Applicable Date.
Upon making such selection, the Third Appraiser shall deliver such selection to
the Common Fund and Boston Properties in writing, and the Determination so
selected shall be binding on the parties and constitute the Fair Market Value of
such Qualified Venture Property Interest for the purposes of this Article 7.
Each of the Common Fund and Boston Properties shall pay the fees and expenses of
its own appraiser. The fees and expenses of the Third Appraiser, if any, shall
be borne by the losing party to the applicable arbitration. For purposes hereof,
"Determination" means, with respect to each Qualified Venture Property Interest
to which this Section 7.6 applies, either the Initial Appraiser's Determination
with respect thereto or the Common Fund Appraiser's determination with respect
Section 7.7 Good Faith. Each of Boston Properties and the Common Fund
agrees that, in connection with the discharge of its obligations under this
Article 7, it shall act in good faith.
Section 8.1 Notices. Except as otherwise provided in this Agreement, all
notices, demands, requests, consents, approvals and other communications (herein
collectively called "notices") that may or must be given hereunder, shall be in
writing, shall be deemed to have been properly given when received by the party
to whom such notice is addressed (or when such party refuses delivery), and
shall be personally delivered or sent by overnight express courier, postage
prepaid, addressed to the party to be so notified as follows:
If intended for the Common Fund, to:
Comptroller of the State of New York
as Trustee of the Common Retirement Fund
633 Third Avenue, 31st Floor
New York, New York 10017-6754
Attention: Assistant Deputy Comptroller for
Investments and Cash Management
With a copy to:
Attention: Assistant Counsel
J.P. Morgan Investment Management
522 Fifth Avenue, 9th Floor
Attention: Daniel Volpano
Attention: Elizabeth Propp
If intended for Boston Properties, to:
Boston, Massachusetts 02199-8001
Attention: Douglas T. Linde
Attention:  General Counsel
and a copy to:
Goulston & Storrs, P.C.
Attention:  Steven R. Astrove, Esq.
Each party, upon not less than five (5) days notice to the other party (given in
accordance with this Section), shall each have the right, from time to time
during the term of this
Agreement, to designate additional and/or substitute parties and/or address(es)
to receive notices on behalf of such party in accordance with this Section.
Section 8.2 No Assignment. Neither this Agreement nor any of the rights of
Boston Properties hereunder may be assigned, transferred or encumbered without
the Common Fund's prior written consent (which may be withheld in the Common
Fund's sole discretion), and any such purported assignment, transfer or
encumbrance without the Common Fund's prior written consent shall be void.
Neither this Agreement nor any of the rights of the Common Fund hereunder may be
assigned, transferred or encumbered without Boston Properties' prior written
consent (which may be withheld in Boston Properties' sole discretion), and any
such purported assignment, transfer or encumbrance without Boston Properties'
prior written consent shall be void.
Section 8.3 Entire Agreement. This Agreement, together with the documents
and instruments executed and delivered in connection herewith, set forth the
entire agreement between Boston Properties and the Common Fund relating to the
transactions contemplated hereby and all other prior agreements, understandings,
representations or statements, oral or written, relating directly to the subject
matter of this Agreement are superseded hereby.
Section 8.4 Counterparts. This Agreement may be executed by one or more of
the parties hereto on any number of separate counterparts, each of which, when
so executed, shall be deemed to be an original and all of which, when taken
together, shall be deemed to constitute one and the same instrument.
Section 8.5 Modification; Waiver. This Agreement and the terms hereof may
not be changed, waived, modified, supplemented, canceled, discharged or
terminated orally, but only by an instrument or instruments in writing executed
and delivered by the parties hereto. Neither the failure of either party to
exercise any power given such party hereunder or to insist upon strict
compliance by the other party with its obligations hereunder, nor any custom or
practice of the parties at variance with the terms hereof shall constitute a
waiver of either party's right to demand exact compliance with the terms hereof.
Section 8.6 Attorney's Fees. In the event that either party hereto shall
commence litigation against the other in connection herewith, the losing party
in such action shall reimburse the attorneys' fees and disbursements of the
prevailing party in such action.
Section 8.7 Severability; Construction. If any of the provisions of this
Agreement or the application thereof to any person or circumstance shall, to any
extent, be or become invalid or unenforceable, the remainder of this Agreement,
or the application of such provision or provisions to persons or circumstances
other than those as to which it shall be held invalid or unenforceable, shall
not be affected thereby; and every provision of this Agreement shall be valid
and enforceable to the fullest extent of the law.
Section 8.8 Captions; Usage of Words of Reference; Relationship of the
Parties. Captions and Section headings appearing herein are included solely for
convenience of reference and are not intended to affect the interpretation of
any provision of this Agreement. The words "hereto", "hereby", "herein",
"hereunder" and "hereof" shall refer to this Agreement in its entirety, together
with any exhibits and schedules attached to this Agreement, and any documents
incorporated by reference in this Agreement, unless specifically limited by the
provisions in question. As used in this Agreement, the masculine shall include
the feminine and neuter, the singular shall include the plural and the plural
shall include the singular, as the context may require. The use of the term
"including" in this Agreement shall mean in all cases "including but not limited
to" unless specifically designated otherwise. No rules of construction against
the drafter of this Agreement shall apply in any interpretation or enforcement
of this Agreement, any documents or certificates executed pursuant hereto, or
any provisions of any of the foregoing. Nothing in this Agreement shall be
deemed or construed to have created any joint venture or partnership
relationship between Boston Properties and the Common Fund, except as and to the
extent provided in Sections 2.2(c) and 3.1(c) above or in any Venture Entity
Operating Agreement that is entered into by the parties pursuant to this
Section 8.9 No Third Party Beneficiaries. Except as otherwise provided in
Article 5 above, the rights granted under this Agreement shall be solely for the
benefit of the parties hereto and their successors and permitted assigns, and no
third party shall have any claim to any such right or the benefit thereof.
Section 8.10 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York, without regard
to conflict of law principles.
Section 8.11 Confidentiality. Each of Boston Properties and the Common
Fund agrees that the existence of, the terms and provisions set forth in, and
the transactions contemplated by, this Agreement (all of the foregoing,
collectively, the "Confidential Information") are, subject to the terms of this
Section 8.11, confidential. Each of Boston Properties and the Common Fund
further agrees that, from and after the date hereof, it will use reasonable
efforts to cause the Confidential Information to be held in strict confidence
and not disclosed to any persons other than (i) employees, officers, directors,
prospective lenders and agents of such party (including such party's attorneys,
advisors, and third party consultants), or (ii) in connection with a Permitted
Transaction (as defined below) involving such party, unless and to the extent
such disclosure is required by applicable legal requirements, SEC filings,
supplemental filings, or judicial process. For purposes hereof, the term
"Permitted Transaction" shall mean (i) with respect to the Common Fund, any
transaction involving the Common Fund that is not prohibited by Article 2,
Article 3 or any other provision of this Agreement, and (ii) with respect to
Boston Properties, any transaction involving Boston Properties that is not
prohibited by Article 2, Article 3 or any other provision of this Agreement.
Section 8.12 Successors. All of the provisions of this Agreement and of
any of the documents and instruments executed in connection herewith shall apply
to and be binding upon, and inure to the benefit of the Common Fund and Boston
Properties, and their successors and their permitted assigns.
Section 8.13 Non-Imputation Proceeds. If, in connection with the
acquisition by a Venture Entity of a Venture Property Interest from a Boston
Properties affiliate (or the admission of the Common Fund or a Common Fund
Subsidiary into a Venture Entity), such Venture Entity obtains a title insurance
policy that contains a Non-Imputation Endorsement (as defined below), then the
Common Fund (or the Common Fund Subsidiary that holds an interest in such
Venture Entity, as the case may be) shall be entitled to all insurance proceeds
payable to such Venture Entity under such policy, to the extent that such
proceeds would not have been payable to such Venture Entity in the absence of
such Non-Imputation Endorsement. For purposes hereof, a "Non-Imputation
Endorsement" shall mean a title policy endorsement that provides (in effect)
that the applicable title insurance company will not deny liability to the
insured Venture Entity on the grounds that such Venture Entity had knowledge of
a matter by reason of knowledge of such matter being imputed to such Venture
Entity from Boston Properties or a Boston Properties Subsidiary.
Section 8.14 Further Assurances. Each party, from and after the date
hereof, shall execute, acknowledge and/or deliver such other instruments as may
reasonably be requested by the other party in order to effectuate the purposes
of this Agreement; provided, however, that the foregoing provisions of this
Section 8.14 shall not obligate either party to execute, acknowledge or deliver
any instrument which would or might impose upon such party any additional
liability or obligations.
IN WITNESS WHEREOF, this Agreement has been entered into on the date
first above written.
COMPTROLLER OF THE STATE
OF NEW YORK AS TRUSTEE OF THE
COMMON RETIREMENT FUND
By:_____________________________
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Boston Properties, Inc. on Forms S-3 (File Numbers 333-36142, 333-39114,
333-40618, 333-51024, 333-60219, 333-61799, 333-68379, 333-69375, 333-70765,
333-86585, and 333-91425) and on Forms S-8 (File Numbers 333-52845, 333-54550
and 333-70321) of our report dated January 24, 2001 relating to the financial
statements and financial statement schedule, which appears in this Form 10-K.