SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
For Annual and Transitional Reports Pursuant to
Sections 13 or 15(d) of the Securities
Exchange Act of 1934
|X| Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 For the
fiscal year ended December 31, 2001
|_| Transition Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
Commission File No. 0-32615
Maryland 04-3578653
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
401 Edgewater Place, Suite 200, Wakefield, Massachusetts 01880-6210
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(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (781) 557-1300
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.0001 par value per share
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|
On March 26, 2002, the aggregate fair market value of Common Stock held by non-affiliates of the registrant, as determined in good faith by the Board of Directors of the Company, was $316,602,130.
The number of shares of Common Stock outstanding as of March 26, 2002 was 24,586,249.
Documents Incorporated By Reference
-----------------------------------
Document Part Form 10-K
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Definitive Proxy Statement on Schedule 14A for the Annual Part III
Meeting of Stockholders to be held on May 20, 2002, to be
filed with the Securities and Exchange Commission
Appendices B and C of the Definitive Proxy Statement on Part IV
Schedule 14A, filed with the Securities and Exchange
Commission on December 18, 2001
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TABLE OF CONTENTS
PART I.........................................................................1
Item 1. Business............................................................1
Item 1A. Risk Factors........................................................4
Item 2. Properties..........................................................8
Item 3. Legal Proceedings...................................................9
Item 4. Submission of Matters to a Vote of Security Holders.................9
Item 4A. Executive Officers of the Company..................................10
Item 5. Market For Registrant's Common Equity and Related
Stockholder Matters................................................11
Item 6. Selected Financial and Other Data..................................12
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................12
Item 7A, Quantitative and Qualitative Disclosure About Market Risk..........26
Item 8. Financial Statements and Supplementary Data........................26
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure................................26
PART II.......................................................................27
Item 10. Directors and Executive Officers of the Registrant.................27
Item 11. Executive Compensation.............................................27
Item 12. Security Ownership of Certain Beneficial Owners And Management.....27
Item 13. Certain Relationships and Related Transactions.....................27
PART III......................................................................27
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K........................................................27
Index to Consolidated Financial Statements...................................F-1
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PART I
Item 1. Business.
History
Franklin Street Properties Corp. (the "Company") is a Maryland corporation and is the successor to Franklin Street Partners Limited Partnership, a Massachusetts limited partnership (the "Partnership"). The Company intends to qualify for federal income tax purposes as a real estate investment trust. The Partnership was originally formed as a Massachusetts general partnership in January 1997 as the successor to a Massachusetts general partnership that was formed in 1981 and known as Franklin Street Partners, and was subsequently formed as a Massachusetts limited partnership in February 1997. On January 1, 2002, the Partnership merged with and into the Company, which was a wholly owned subsidiary of the Partnership, with the Company being the surviving entity (the "Conversion"). Pursuant to the Conversion, the Partnership ceased to exist, the Company succeeded to the business of the Partnership and each unit of both general and limited partnership interests in the Partnership was converted into one share of common stock, $.0001 par value per share (the "Common Stock") of the Company. As a result of the Conversion, the Company now holds, directly and indirectly, 100% of the interest in three former subsidiaries of the Partnership: FSP Investments LLC, a Massachusetts limited liability company ("FSP Investments"), FSP Property Management LLC, a Massachusetts limited liability company ("FSP Property Management"), and FSP Holdings LLC, a Delaware limited liability company ("FSP Holdings").
Organization
FSP Investments acts as a real estate investment firm and broker/dealer with respect to (a) the organization of investment vehicles which are typically syndicated through private placements exempt from registration under the Securities Act of 1933 ("Sponsored Entities"), some of which were limited partnerships (the "Sponsored Partnerships") and some of which are corporations intended to qualify for federal income tax purposes as real estate investment trusts (the "Sponsored REITs"), (b) the acquisition of real estate by the Sponsored Entities and (c) the sale of equity interests in the Sponsored Entities. FSP Investments derives revenue from commissions received in connection with the sale of equity interests in the Sponsored Entities. FSP Investments also derives revenue from fees paid by the Sponsored Entities for the services of FSP Investments in identifying, inspecting and negotiating to purchase real properties on behalf of the Sponsored Entities. FSP Investments is a registered broker/dealer with the Securities and Exchange Commission and is a member of the National Association of Securities Dealers, Inc.
On April 1, 1997, FSP Holdings acquired the general partnership interest in four Sponsored Partnerships (the "Prior Entities"), each of which had been organized by the executive officers of the general partner of the Partnership prior to the formation of the Partnership while they were employed by another entity. Between June 1997 and June 2000, FSP Investments completed the offerings of limited partnership interests in 14 Sponsored Partnerships. The sole general partner of each of the Sponsored Partnerships is FSP Holdings. Between June 2000 and December 31, 2001, FSP Investments completed the offerings of preferred stock in nine Sponsored REITs. Effective January 1, 2001, one of the Sponsored Partnerships converted from a Partnership to a Sponsored REIT. Accordingly, as of December 31, 2001, there were 27 Sponsored Entities, of which 17 were Sponsored Partnerships and ten were Sponsored REITs. The Company expects that future Sponsored Entities will be Sponsored REITs.
Each Sponsored Entity sold its equity interests only to "accredited
investors'" within the meaning of Regulation D under the Securities Act. The
Sponsored Entities (other than a Prior Entity that conducted its offering
pursuant to a registration statement on Form S-11) conducted their offerings
pursuant to exemptions from registration under Rule 506 of Regulation D and
Section 4(2) of the Securities Act. The Sponsored Entities issued equity
interests for aggregate gross cash proceeds of $480,200,000. Each Sponsored
Entity holds a single real property.
Pursuant to mergers effective January 1, 1999, January 1, 2000 and October 1, 2000, respectively, the Partnership acquired all limited partners' interest in the 17 Sponsored Partnerships. In connection with these mergers, the Partnership issued units of its limited partnership interest (the "Units") to the limited partners of the Sponsored Partnerships. The mergers that were effective January 1, 1999 were approved by a vote of limited partners of the Partnership. Neither the Partnership's governing documents nor applicable state law required the approval of the limited partners of the Partnership for the mergers that were effective January 1, 2000 and October 1,
2000. Each merger was approved by a vote of the limited partners of the applicable Sponsored Partnerships. Pursuant to the mergers, limited partners in the Sponsored Partnerships exchanged an interest in a finite-life entity for an interest in an infinite-life entity. As a result of the mergers, FSP Holdings is the sole general partner of each Sponsored Partnership that was acquired and the Partnership was the sole limited partner of each such Sponsored Partnership.
Prior to the Conversion, the Partnership owned, directly or indirectly, 100% of the interest in the 17 Sponsored Partnerships, each of which owns real property. As a result of the Conversion, the Company is now the sole limited partner of each such Sponsored Partnership and now owns, directly or indirectly, 100% of the interest in the 17 Sponsored Partnerships. Reference in this annual report to the Company's properties means the real properties owned by these 17 Sponsored Partnerships. The preferred stockholder interests in the ten Sponsored REITs have not been acquired by the Company.
FSP Property Management provides asset management services to each Sponsored Entity and property management services to six Sponsored Entities. FSP Property Management receives fee income from those Sponsored Entities that have not been acquired by the Partnership or the Company. FSP Property Management does not receive any rental income.
FSP Holdings acts as the general partner of each Sponsored Partnership.
Investment Objectives
The Company has two principal sources of revenue:
o Investment banking income consisting of brokerage commissions and other related fees paid to FSP Investments in connection with the organization and offering of Sponsored Entities and loan origination fees paid in connection with loans to Sponsored Entities.
o Rental income from the real properties it owns.
The Company's investment objective is to increase the cash available for distribution to its stockholders by increasing its revenue from investment banking services and rental income. The Company expects that, through FSP Investments, it will continue to organize and cause the offering of Sponsored REITs in the future and that it will continue to derive investment banking income from such activities. The Company also expects that in the future it will acquire additional real properties. The Company may sell from time to time the real properties it owns as market conditions warrant (although to date it has only sold vacant land) and either distribute the proceeds to its stockholders or retain some or all of such proceeds for investment in real properties or other Company activities. The Company may acquire real properties in any geographic area of the United States and of any property type. Of the 17 properties the Company owns, four are apartment complexes, 11 are office buildings and two are industrial; four of these properties are located in Texas, three properties are located in Massachusetts, three properties are located in northern California, two properties are located in Maryland, and one property is located in each of southern California, Louisiana, Michigan, North Carolina and South Carolina. See Item 2 hereof. The Company has no restrictions on the percentage of its assets that may be invested in any one real property. The Company acquires its properties primarily for their rental income and seeks to manage its properties with a goal of increasing their value.
The Company relies on the following principles in selecting real properties for acquisition by a Sponsored Entity or the Company:
o Buying investment properties at a price which produces value for investors and avoiding overpaying for real estate merely to outbid competitors.
o Buying properties in excellent locations with substantial infrastructure in place around them and avoiding investing in locations where the construction of such infrastructure is speculative.
o Buying properties that are well-constructed and designed to appeal to a broad base of users and avoiding properties where quality has been sacrificed to cost savings in construction or which appeal only to a narrow group of users.
o Aggressively managing, maintaining and upgrading a property and refusing to neglect or undercapitalize management, maintenance and capital improvement programs.
o Having the ability to hold properties through down cycles and avoiding over leveraging properties and placing them at risk of foreclosure.
The Company acquires and operates its real properties on an unleveraged basis not subject to any mortgage loans. The Company has a revolving line of credit that provides for borrowings of up to $50,000,000. The Company has drawn on this line of credit, and intends to draw on this line of credit in the future, to obtain funds for the purpose of making interim mortgage loans to Sponsored Entities. The Company's policy is to cause these loans to be secured by a first mortgage of the real property (which may be of any type) owned by the Sponsored Entity. The Company makes these loans to enable a Sponsored Entity to acquire real property prior to the consummation of the offering of its equity interests, and the loan is repaid out of the offering proceeds. The Company has no restriction on the percentage of its assets that may be invested in any single mortgage.
Policies
The Company's policy is not to invest in the securities of other common stock issuers except short-term investments in money market funds and similar securities and the holding of a nominal interest in Sponsored REITs for the purpose of facilitating the organization and operation of such Sponsored REITs. The Company does not expect to receive any material amounts of revenue from its nominal interest in any Sponsored REITs.
The Company's policy is not to issue senior securities, borrow money (except as described above), make loans to other persons (except as described above), invest in the securities of other issuers for the purpose of exercising control, underwrite the securities of other issuers (except that FSP Investments expects to continue to sell interests in Sponsored Entities on a best efforts basis in offerings exempt from registration under the Securities Act) or offer securities in exchange for property. The Company expects that it will engage in the purchase and sale of real estate investments as market conditions warrant. The Company may repurchase or otherwise reacquire its securities.
Any of the Company's policies may be changed at any time by the Board of Directors of the Company.
Competition
With respect to its investment banking and brokerage business, the Company faces competition for the investment dollars of potential purchasers of the Sponsored Entities from every other kind of investment, including stocks, bonds, mutual funds and other real-estate related investments, including other REITs. Some of the Company's competitors have significantly more resources than the Company and are able to advertise their investment products. Because the offerings of the Sponsored Entities are made pursuant to an exemption from registration under the Securities Act, FSP Investments may not advertise the Sponsored Entities or otherwise engage in any general solicitation of investors to purchase interests in the Sponsored Entities.
With respect to its real estate investments, the Company faces competition in each of the markets where the properties are located. See "Management's Analysis and Discussion of Financial Condition and Results of Operations -- Trends and Uncertainties" in Item 7 hereof. As of December 31, 2001, 13 of the Company's 17 properties had an occupancy level in excess of 95%; one property had an occupancy rate of 60% (100% as of March 1, 2002); and three properties had occupancy rates ranging from 70-80%. See "Properties" in Item 2 hereof.
Employees
Prior to the Conversion, the general partner of the Partnership was FSP General Partner LLC, a Massachusetts limited liability company (the "General Partner"). The members of the General Partner and their respective ownership interests therein were George J. Carter (33.94%), R. Scott MacPhee (30.66%), Richard R.
Norris (21.40%), William W. Gribbell (11.36%), Barbara J. Corinha (1.60%), Melissa G. Mucciaccio (0.67%), Janet P. Notopoulos (0.26%) and Patricia A McMullen (0.11%). The General Partner had no other business other than acting as general partner of the Partnership. Prior to the Conversion, the executive officers of the General Partner devoted all of their business activities to the Partnership and its subsidiaries. The former executive officers of the General Partner are now the current executive officers of the Company and they devote all of their business activities to the Company and its subsidiaries.
The Company had 29 employees as of December 31, 2001.
Item 1A. Risk Factors
In addition to the other information in this Annual Report on Form 10-K, the following factors should be considered in evaluating the Company and its business:
The Company would incur adverse tax consequences if it failed to qualify as a
REIT.
The Company intends to qualify as a real estate investment trust for federal income tax purposes commencing with its first taxable year. If in any taxable year the Company does not qualify as a real estate investment trust, it would be taxed as a corporation and distributions to stockholders would not be deductible by the Company in computing its taxable income. In addition, if the Company were to fail to qualify as a real estate investment trust, the Company could be disqualified from treatment as a real estate investment trust in the year in which such failure occurred and for the next four taxable years and, consequently, would be taxed as a corporation during such years. Failure to qualify for even one taxable year could result in a significant reduction of the Company's cash available for distributions to stockholders or could require the Company to incur indebtedness or liquidate investments in order to generate sufficient funds to pay the resulting federal income tax liabilities. In addition, timing differences between the receipt of income and payment of expenses and the inclusion and deduction of such amounts in arriving at taxable income of the Company could make it necessary for the Company to borrow in order to make certain distributions to stockholders in satisfaction of the 90% distribution requirement applicable to real estate investment trusts. The provisions of the Internal Revenue Code governing the taxation of real estate investment trusts are very technical and complex, and although the Company expects that it will be organized and will operate in a manner that will enable it to meet such requirements, no assurance can be given that it will succeed in doing so during the entire life of the Company.
The Company faces risks in continuing to attract investors for the Sponsored Entities.
The Company's investment banking business depends upon its ability to attract purchasers of equity interests in Sponsored Entities. The Company's success in this area will depend on the propensity and ability of investors who have previously invested in Sponsored Entities to continue to invest in future Sponsored Entities and on the Company's ability to expand the investor pool for the Sponsored Entities by identifying new potential investors.
The Company's level of dividends may fluctuate.
Because the Company's investment banking business is transactional in nature, there is no predictable recurring level of revenue from such activities. As a result of this, the amount of cash available for distribution may fluctuate, which may result in the Company's not being able to maintain growth in dividend levels in the future.
The Company faces risks in owning and operating real property.
An investment in the Company is subject to the risks incident to the ownership and operation of real estate-related assets. These risks include the fact that real estate investments are generally illiquid, which may impact the Company's ability to vary its portfolio in response to changes in economic and other conditions, as well as the risks normally associated with:
o changes in general and local economic conditions;
o the supply or demand for particular types of properties in particular markets;
o changes in market rental rates;
o the impact of environmental protection laws; and
o changes in tax, real estate and zoning laws.
Certain significant costs, such as real estate taxes, utilities, insurance and maintenance costs, generally are not reduced even when a property's rental income is reduced. In addition, environmental and tax laws, interest rate levels, the availability of financing and other factors may affect real estate values and property income. Furthermore, the supply of commercial and multi-family residential space fluctuates with market conditions.
The Company faces risks from tenant defaults or bankruptcies.
If any of the Company's tenants defaults on its lease, the Company may experience delays in enforcing its rights as a landlord and may incur substantial costs in protecting its investment. In addition, at any time, a tenant of one of the Company's properties may seek the protection of bankruptcy laws, which could result in the rejection and termination such tenant's lease and thereby cause a reduction in cash available for distribution to the Company's stockholders.
The Company may encounter significant delays in reletting vacant space, resulting in losses of income.
When leases expire, the Company will incur expenses and may not be able to re-lease the space on the same terms. Certain leases provide tenants the right to terminate early if they pay a fee. If the Company is unable to re-lease space promptly, if the terms are significantly less favorable than anticipated or if the costs are higher, the Company may have to reduce its distributions to its stockholders.
The Company faces risks from geographic concentration.
A large percentage of real properties included in the Company's portfolio are concentrated in Texas and Massachusetts, with each area constituting approximately 20% of the aggregate square footage owned by the Company. The Company also owns properties in California, Maryland, Louisiana, Michigan, North Carolina and South Carolina. The Company is likely to face risks to the extent that any of these areas suffer deteriorating economic conditions.
The Company competes with national, regional and local real estate operators and developers, which could adversely affect the Company's cash flow.
Competition exists in every market in which the Company's properties are located. The Company competes with, among others, national, regional and numerous local real estate operators and developers. Such competition may adversely affect the occupancy levels and the rental revenues of the Company's properties, which could adversely affect the Company's cash flow from operations and its ability to make expected distributions to stockholders. Some of the Company's competitors may have more resources than the Company or other competitive advantages. Competition may be accelerated by any increase in availability of funds for investment in real estate. For example, decreases in interest rates tend to increase the availability of funds and therefore can increase competition. The extent to which the Company is affected by competition will depend in significant part on local market conditions.
There is limited potential for occupancy gains in the Company's properties.
The Company anticipates that future increases in revenue from the Company's properties will be primarily the result of rental rate increases as leases expire. Most of the Company's properties had a rate of occupancy in excess of 95% as of December 31, 2001. Those properties with higher rates of vacancy are located in soft economic markets so that it may be difficult to realize increases in revenue when vacant space is re-leased. To the extent that the existing properties continue to operate profitably, this will likely stimulate new development of competing properties and result in greater competition between the newly developed properties and the Company's properties.
The Company is subject to possible liability relating to environmental matters, and the Company cannot assure you that it has identified all possible liabilities.
Under various federal, state and local laws, ordinances and regulations, an owner or operator of real property may become liable for the costs of removal or remediation of certain hazardous substances released on or in its property. Such laws may impose liability without regard to whether the owner or operator knew of, or caused, the release of such hazardous substances. The presence of hazardous substances on a property may adversely affect the owner's ability to sell such property or to borrow using such property as collateral, and it may cause the owner of the property to incur substantial remediation costs. In addition to claims for cleanup costs, the presence of hazardous substances on a property could result in the owner incurring substantial liabilities as a result of a claim by a private party for personal injury or a claim by an adjacent property owner for property damage. The Company cannot assure you that any environmental assessments it has undertaken have revealed all potential environmental liabilities, that any prior owner or operator of the properties did not create any material environmental condition not known to the Company, or that an environmental condition does not otherwise exist as to any one or more of the properties that could have a material adverse effect on the Company's financial condition or results of operations. In addition, the Company cannot assure you that:
o future laws, ordinances or regulations will not impose any material environmental liability,
o the current environmental conditions of the Company's properties will not be affected by the condition of properties in the vicinity of such properties (such as the presence of leaking underground storage tanks) or by third parties unrelated to the Company,
o the current environmental conditions of the Company's properties will not be affected by mold or other environmental pollutants that could affect indoor air quality
o tenants will not violate their leases by introducing hazardous or toxic substances into the Company's properties that could expose the Company to liability under federal or state environmental laws; or
o environmental conditions, such as the growth of bacteria and toxic mold in heating and ventilation systems or on walls, will not occur at the Company's properties and pose a threat to human health.
The Company is subject to compliance with the Americans With Disabilities Act and fire and safety regulations which could require the Company to make significant capital expenditures.
All of the Company's properties are required to comply with the Americans With Disabilities Act, and the regulations, rules and orders that may be issued thereunder (the "ADA"). The ADA has separate compliance requirements for "public accommodations" and "commercial facilities," but generally requires that buildings be made accessible to persons with disabilities. Compliance with ADA requirements might require, among other things, removal of access barriers and noncompliance could result in the imposition of fines by the U.S. government, or an award of damages to private litigants. In addition, the Company will be required to operate its properties in compliance with fire and safety regulations, building codes and other land use regulations, as they may be adopted by governmental agencies and bodies and become applicable to the Company's properties. Compliance with such requirements may require the Company to make substantial capital expenditures, which expenditures would reduce cash otherwise available for distribution to stockholders.
The Company may become subject to loss in profit or in its capital investment in the event of the occurrence of an uninsured event.
The Company or its tenants carry comprehensive liability, fire and extended coverage with respect to each of the properties owned by the Company, with policy specification and insured limits customarily carried for similar properties. There are, however, certain types of losses, such as from wars, terrorism, pollution or earthquakes, that may be either uninsurable or not economically insurable (although the properties located in California all have earthquake insurance). Should an uninsured material loss occur, the Company could lose both its capital invested in the property and anticipated profits.
Provisions in our organizational documents may prevent changes in control.
The Company's Articles of Incorporation (the "Articles") and Bylaws (the "Bylaws") contain provisions, described below, which may have the effect of discouraging a third party from making an acquisition proposal for the Company and may thereby inhibit a change of control of the Company under circumstances that could give the holders of shares of Common Stock the opportunity to realize a premium over the then-prevailing market prices.
Ownership Limits. In order for the Company to maintain its qualification as a real estate investment trust, the holders of Common Stock will be limited to owning, either directly or under applicable attribution rules of the Internal Revenue Code, no more than 9.8% of the lesser of the value or the number of equity shares of the Company, and no holder of Common Stock will be able to acquire or transfer shares that would result in the Company's being beneficially owned by fewer than 100 persons. Such ownership limit may have the effect of preventing an acquisition of control of the Company without the approval of the Board of Directors of the Company. Moreover, the Company will have the right to redeem any shares of Common Stock that are acquired or transferred in violation of these provisions at the market price. In addition, the Articles give the Board of Directors the right to refuse to give effect to the acquisition or transfer of shares by a stockholder in violation of these provisions.
Staggered Board. The Board of Directors of the Company is divided into three classes. The initial terms of these classes will expire in 2002, 2003 and 2004, respectively. Directors of each class are elected for a three-year term upon the expiration of the initial term of each class. The staggered terms for directors may affect the stockholders' ability to effect a change in control of the Company even if a change in control were in the stockholders' best interests.
Preferred Stock. The Articles authorize the Board of Directors of the Company to issue up to 20,000,000 shares of preferred stock, par value $.0001 per share (the "Preferred Stock") and to establish the preferences and rights of any such shares issued. The issuance of Preferred Stock could have the effect of delaying or preventing a change in control of the Company even if a change in control were in the stockholders' best interest.
Increase of Authorized Stock. The Board of Directors of the Company, without any vote or consent of the stockholders, may increase the number of authorized shares of any class or series of stock or the aggregate number of authorized shares the Company has authority to issue. The ability to increase the number of authorized shares and issue such shares could have the effect of delaying or preventing a change in control of the Company even if a change in control were in the stockholders' best interest.
Amendment of Bylaws. The Board of Directors of the Company has the sole power to amend the Bylaws. This power could have the effect of delaying or preventing a change in control of the Company even if a change in control were in the stockholders' best interests.
Stockholder Meetings. The Bylaws require advance notice for stockholder proposals to be considered at annual meetings of stockholders and for stockholder nominations for election of directors at special meetings of stockholders. The Bylaws also provide that stockholders entitled to cast more than 50% of all the votes entitled to be cast at a meeting must join in a request by stockholders to call a special meeting of stockholders. These provisions could have the effect of delaying or preventing a change in control of the Company even if a change in control were in the best interests of the stockholders.
Supermajority Votes Required. The Articles require the affirmative vote of the holders of no less than 80% of the shares of capital stock outstanding and entitled to vote in order (i) to amend the provisions of the Articles relating to the classification of directors, removal of directors, limitation of liability of officers and directors or indemnification of officers and directors or (ii) to amend the Articles to impose cumulative voting in the election of directors. These provisions could have the effect of delaying or preventing a change in control of the Company even if a change in control were in the stockholders' best interest.
There is no public trading market for our securities.
There is no public trading market for the Company's Common Stock. The Company cannot assure you that any market will develop or that there will be any liquidity in a market for the Company's Common Stock.
Item 2. Properties.
Set forth below is information regarding our properties as of December 31, 2001:
Sponsored Sponsored Approx.
Partnership's Partnersh Number Approx. Number
Purchase Date of of Square Occupancy of Major
Property Location Price Purchase Units Feet 12/31/01 Tenants Tenant(s)(1)
----------------- ----- -------- ----- ---- -------- ------- ------------
Apartments
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3919 Essex Lane $ 10,100,000 6/30/93 135 118,800 over 95% 135 None - Apts.
Houston, TX (3)
3231 Allen Parkway $ 10,700,000 8/11/94 159 129,000 over 95% 159 None - Apts.
Houston, TX (3)
4041 Weslayan & Law $ 4,200,000 4/29/97 84 70,500 over 95% 84 None - Apts.
Houston, TX (3)
7250 Perkins Road $ 18,000,000 10/16/98 264 223,800 over 95% 264 None - Apts.
Baton Rouge, LA (4)
------------ --- -------
Total Apartments $ 43,000,000 642 542,100
------------ --- -------
Office
------
451 Andover Street $ 8,000,000 6/1/96 92,000 over 95% 40 Pentucket
North Andover, MA (3) Medical
1515 Mockingbird Lane $ 6,850,000 7/1/97 110,600 75% 80 Primary
Charlotte, NC (3) Physicians Care
33 & 37 Villa Road $ 10,550,000 3/1/98 143,800 70% 40 Home Gold
Greenville, SC (3)
4995 Patrick Henry Dr. $ 6,800,000 12/1/97 40,300 100% 1 Agere
Santa Clara, CA (3)
678-686 Hillview Drive $ 4,862,500 3/9/99 36,300 100% 1 Headway
Milpitas, CA (4) Technologies
5751-5771 Copley Drive $ 15,400,000 3/12/99 101,700 60% 3 XO, Nextel &
San Diego, CA (4) Allegiance (2)
81 Blue Ravine $ 5,700,000 9/27/99 47,000 100% 1 Cardinal Health
Folsom, CA (5)
18000 W. Nine Mile Rd. $ 14,950,000 9/30/99 212,500 80% 6 IBM
Southfield, Michigan (5)
11211 Taylor Draper $ 10,000,000 12/29/99 68,600 100% 6 Columbia
Lane, Austin, Texas (5) Universal Life
Insurance Co.
7130-7150 Columbia $ 19,850,000 12/20/99 188,800 100% 8 Columbia
Gateway Dr. National
Columbia, MD (5)
10 Lyberty Way $ 9,100,000 5/23/00 104,700 100% 1 Lucent
Westford, MA (5) ------------ ------- Technologies
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Sponsored Sponsored Approx.
Partnership's Partnersh Number Approx. Number
Purchase Date of of Square Occupancy of Major
Property Location Price Purchase Units Feet 12/31/01 Tenants Tenant(s)(1)
----------------- ----- -------- ----- ---- -------- ------- ------------
Total Office $112,062,500 1,146,300
------------ ---------
Industrial
One Technology Dr. $ 9,175,000 12/1/95 188,000 100% 1 Alliant
Peabody, MA (3) Foodservice
8730 Bollman Place $ 5,600,000 12/14/99 99,000 100% 1 Alliant
Savage (Jessup), MD (5) ------------ ------
Foodservice
Total Industrial $ 14,775,000 287,000
============ === =========
Grand Total $169,837,500 642 1,975,400
============ === =========
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(1) Major tenants are tenants who occupy 10% or more of the space in an
individual property.
(2) As of March 1, 2002, the building was 100% occupied with five tenants. The
new tenants are AON Service Corporation and MD3, Inc.
(3) Merged into the Company on January 1, 1999.
(4) Merged into the Company on January 1, 2000.
(5) Merged into the Company on October 1, 2000.
All of the properties listed above are owned by the Company. None of our properties are subject to any mortgage loans. We have no material undeveloped or unimproved properties, and we have no proposed programs for the renovation, improvement or development of any of our properties. We believe that our properties are adequately covered by insurance as of December 31, 2001.
Item 3. Legal Proceedings.
From time to time, the Company is subject to legal proceedings and claims that arise in the ordinary course of its business. Although occasional adverse decisions (or settlements) may occur, the Company believes that the final disposition of such matters will not have a material adverse effect on the Company's financial position, cash flows or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders.
On December 18, 2001, the Partnership mailed a Consent Solicitation/Confidential Offering Memorandum to its security holders seeking their approval of the Conversion. The Conversion was approved by at least a majority of the outstanding limited partnership interests and the Conversion was effected on January 1, 2002. Following is a summary of the votes cast "for" and "against" the Conversion, and votes withheld, including the percentage such votes constituted of the total number of votes entitled to be cast:
Votes For Votes Against Withheld --------- ------------- -------- 21,319,672 123,695 10,561 (90%) (0.5%) (0.04%) |
Item 4A. Executive Officers of the Company.
The following table sets forth the names, ages and positions of all executive officers of the Company.
Name Age Position
---- --- --------
George J. Carter 53 President and Chief Executive Officer
Barbara J. Corinha 46 Vice President, Chief Operating Officer,
Treasurer and Secretary
R. Scott MacPhee 44 Executive Vice President
Richard R. Norris 58 Executive Vice President
William W. Gribbell 42 Executive Vice President
Janet Prier Notopoulos 54 Vice President
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George J. Carter, age 53, is President and Chief Executive Officer of the Company and is responsible for all aspects of the business of the Company and its affiliates, with special emphasis on the evaluation, acquisition and structuring of real estate investments. Prior to the Conversion, he was President of the General Partner and was responsible for all aspects of the business of the Partnership and its affiliates. From 1992 through 1996 he was President of Boston Financial Securities, Inc. ("Boston Financial"). Prior to joining Boston Financial, Mr. Carter was owner and developer of Gloucester Dry Dock, a commercial shipyard in Gloucester, Massachusetts. From 1979 to 1988, Mr. Carter served as Managing Director in charge of marketing of First Winthrop Corporation, a national real estate and investment banking firm headquartered in Boston, Massachusetts. Prior to that, he held a number of positions in the brokerage industry including those with Merrill Lynch & Co. and Loeb Rhodes & Co. Mr. Carter is a graduate of the University of Miami (B.S.). Mr. Carter is a NASD General Securities Principal (Series 24) and holds a NASD Series 7 general securities license.
Barbara J. Corinha, age 46, is the Vice President, Chief Operating Officer, Treasurer and Secretary of the Company. In addition, Ms. Corinha has as her primary responsibility, together with Mr. Carter, the management of all operating business affairs of the Company and its affiliates. Prior to the Conversion, Ms. Corinha was the Vice President, Chief Operating Officer, Treasurer and Secretary of the General Partner. From 1993 through 1996, she was Director of Operations for the private placement division of Boston Financial. Prior to joining Boston Financial, Ms. Corinha served as Director of Operations for Schuparra Securities Corp. and as the Sales Administrator for Weston Financial Group. From 1979 through 1986, Ms. Corinha worked at First Winthrop Corporation in administrative and management capacities; including Office Manager, Securities Operations and Partnership Administration. Ms. Corinha attended Northeastern University and the New York Institute of Finance. Ms. Corinha is a NASD General Securities Principal (Series 24). She also holds other NASD supervisory licenses including Series 4 and Series 53, and a NASD Series 7 general securities license.
R. Scott MacPhee, age 44, is an Executive Vice President of the Company and has as his primary responsibility the direct equity placement of the Sponsored Entities. Prior to the Conversion, Mr. MacPhee was an Executive Vice President of the General Partner. From 1993 through 1996 he was an executive officer of Boston Financial. From 1985 to 1993 Mr. MacPhee worked at Winthrop Financial Associates. Mr. MacPhee attended American International College. Mr. MacPhee holds a NASD Series 7 general securities license and is a registered investment adviser.
Richard R. Norris, age 58, is an Executive Vice President of the Company and has as his primary responsibility the direct equity placement of the Sponsored Entities. Prior to the Conversion, Mr. Norris was an Executive Vice President of the General Partner. From 1993 through 1996 he was an executive officer of Boston Financial. From 1983 to 1993 Mr. Norris worked at Winthrop Financial Associates. Prior to that, he worked at Arthur Young & Company (subsequently named Ernst & Young through a merger). Mr. Norris is a graduate of Bowdoin College (B.A.) and Northeastern University (M.S.). Mr. Norris holds a NASD Series 7 general securities license and is a registered investment adviser.
William W. Gribbell, age 42, is an Executive Vice President of the Company and has as his primary responsibility the direct equity placement of the Sponsored Entities. Prior to the Conversion, Mr. Gribbell was an Executive Vice President of the General Partner. From 1993 through 1996 he was an executive officer of Boston Financial. From 1989 to 1993 Mr. Gribbell worked at Winthrop Financial Associates. Mr. Gribbell is a graduate of Boston University (B.A.). Mr. Gribbell holds a NASD Series 7 general securities license and is a registered investment adviser.
Janet Prier Notopoulos, age 54, is a Vice President of the Company and President of FSP Property Management LLC and has as her primary responsibility the oversight of the management of the real estate assets of the Company and its affiliates. Prior to the Conversion, Ms. Notopoulos was a Vice President of the General Partner. Prior to joining Franklin Street Partners in 1997, Ms. Notopoulos was a real estate and marketing consultant for various clients. From 1975 to 1983, she was Vice President of North Coast Properties, Inc., a Boston real estate investment company. Between 1969 and 1973, she was a real estate paralegal at Goodwin, Procter & Hoar. Ms. Notopoulos is a graduate of Wellesley College (B.A.) and the Harvard School of Business Administration (M.B.A).
Each of the above persons other than Ms. Notopoulos began working for the Partnership at its inception in 1997. Ms. Notopoulos was employed as a consultant by the Partnership commencing in March 1997 and became a full-time employee on January 1, 1998.
There are no family relationships among any of the executive officers.
Item 5. Market For Registrant's Common Equity and Related Stockholder Matters.
There is no established public trading market for the Company's Common Stock.
As of March 21, 2002, there were 741 holders of record of the Company's Common Stock. This computation is based upon the number of record holders reflected in our corporate records.
The Company has declared a dividend of $.30 per share of Common Stock payable to stockholders of record as of February 8, 2002. The Company has also declared a dividend of $.01 per share of Common Stock payable to stockholders of record as of February 15, 2002. Set forth below are the distributions per Unit of limited partnership interest that the Partnership made in each quarter in the last two fiscal years of the Partnership.
Amount Per Limited and
Quarter Ended General Partner Unit
------------- --------------------
3/31/00 $0.23
6/30/00 $0.24
9/30/00 $0.25
12/31/00 $0.26
3/31/01 $0.27
6/30/01 $0.28
9/30/01 $0.29
12/31/01 $0.30
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While not guaranteed, the Company expects that cash dividends on the Company's Common Stock comparable to the Partnership's most recent quarterly distribution will continue to be paid in the future.
On July 1, 2001, January 1, 2001 and April 1, 2000, the Partnership issued 149,131 Units, 2,522 Units and 230,000 Units of limited partnership interest, respectively, as compensation to its executive officers and certain other employees pursuant to an exemption from registration under Section 4(2) of the Securities Act. Effective October 1, 2000, the Partnership acquired six Sponsored Partnerships through merger. In connection with these mergers, the Partnership issued 7,204,716 Units of limited partnership interest to the limited partners of those Sponsored Partnerships. Effective January 1, 2000, the Partnership acquired three Sponsored Partnerships through merger. In connection with these mergers, the Partnership issued 4,999,972 Units of limited partnership interest to the limited partners of those Sponsored Partnerships. Effective January 1, 1999, the Partnership acquired eight Sponsored Partnerships through merger. In connection with these mergers, the Partnership issued 11,999,907 Units
of limited partnership interest to the limited partners of those Sponsored Partnerships. The Partnership issued the Units in each of these mergers pursuant to exemptions from registration under Rule 506 of Regulation D and Section 4(2) of the Securities Act. The Partnership based its belief that such transactions had the benefit of these exemptions on the fact that no general solicitation was conducted and on information furnished in investor questionnaires, and representations made, by the limited partners of each acquired Sponsored Partnership as to their status as accredited investors.
On January 1, 2002, in connection with the Conversion, the Company issued an aggregate of 24,586,249 shares of Common Stock to the general and limited partners of the Partnership pursuant to an exemption from registration under Rule 506 of Regulation D and Section 4(2) of the Securities Act. The Company bases its belief that such transaction had the benefit of these exemptions on the fact that no general solicitation was conducted and on information furnished in investor questionnaires and representations made by the limited partners of the Partnership as to their status as accredited investors.
Item 6. Selected Financial and Other Data.
The following selected financial information is derived from the historical consolidated financial statements of the Partnership. This information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 hereof and with the Partnership's consolidated financial statements and related notes thereto included in Item 8 of this report.
Year Ended December 31,
-------------------------------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
(unaudited)
(In thousands, except per Unit amounts)
Operating Data:
Total revenues .................... $ 54,447 $ 34,793 $ 18,048 $11,555 $ 7,203
Net income (loss) ................. 25,368 8,914 1,139 (1,675) 272
Basic and diluted net income (loss)
per limited and general
partnership unit .............. 1.03 0.47 0.09 (0.88) 0.14
Distributions declared per Unit
outstanding(1) ................ 1.18 1.02 0.86 1.05 0.79
As of December 31,
-------------------------------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Balance Sheet Data (at period end):
Total assets ...................... $204,117 $219,923 $190,486 $95,886 $66,117
Total liabilities ................. 4,354 19,280 28,821 1,294 1,639
Minority interests in consolidated -- 63 78,090 89,593 56,304
entities
Total partners' capital ........... 199,763 200,580 83,575 4,999 8,174
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(1) As a result of the Conversion, each Unit was converted into one share of Common Stock.
The 2000 and 1999 financial statements reflect the merger of 17 Sponsored Partnerships. Prior to the applicable merger, the Partnership owned a controlling general partner interest in the 17 Sponsored Partnerships--See Note 4 to the consolidated financial statements of the Partnership and "Financial Information--Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 hereof.
Item 7. Management's Discussion And Analysis Of Financial Condition And Results Of Operations.
The following discussion should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report. Historical results and percentage relationships set forth in the Consolidated Financial Statements contained in the financial statements, including trends which might appear, should not be taken as necessarily indicative of future operations. The following discussion and other parts of this Annual Report may also contain forward-looking statements based on current judgments and current knowledge of management, which are subject to certain risks, trends and uncertainties that could cause actual results to differ materially from those indicated in such forward-looking statements. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements. Investors are cautioned that the Company's forward-looking statements involve risks
and uncertainty, including without limitation, changes in economic conditions in the markets in which the Company owns properties, changes in the demand by investors for investment in Sponsored REITs, the impact of the events of September 11, 2001, risks of a lessening of demand for the types of real estate owned by the Company, changes in government regulations, and expenditures that cannot be anticipated such as utility rate and usage increases, unanticipated repairs, additional staffing, insurance increases and real estate tax valuation reassessments. See "Risk Factors" in Item 1A. Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We will not update any of the forward-looking statements after the date this annual report is filed to conform them to actual results or to changes in our expectations that occur after such date, other than as required by law.
Overview
The Company operates in two business segments: investment banking services and rental operations. FSP Investments provides real estate investment and broker/dealer services that include: (a) the organization of Sponsored REITs in 2001 and 2000 and Sponsored Partnerships in 2000 and prior years, which were syndicated through private placements; (b) the acquisition of real estate on behalf of the Sponsored Entities; and (c) the sale of preferred stock in Sponsored REITs or limited partnership interests in the Sponsored Partnerships. The following table summarizes property owned by the Partnership and the Sponsored Partnerships for the three years ended December 31, 2001, 2000 and 1999.
December 31,
---------------------------------------
2001 2000 1999
---- ---- ----
Residential
Number of Properties.......... 4 4 4
Number of Apartment Units..... 642 642 642
Commercial
Number of Properties.......... 13 13 12
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Square Footage................ 1,433,300 1,433,300 1,328,500
As described in Note 4 to Financial Statements, the Partnership consummated three series of mergers. As described above, the Company operates in two segments, real estate operations and broker/dealer and real estate investment services. Prior to the consummation of the first series of mergers, the Partnership operated in the segment of broker/dealer and real estate investment services. The first series of mergers added the real estate operations of certain Sponsored Partnerships to the Partnership's business. The nature of the Partnership's business was not changed by the second and third series of mergers.
The mergers were accounted for as a purchase, whereby the assets and liabilities of the Sponsored Partnerships were recorded at their fair values and transaction costs were capitalized. In each merger the Partnership acquired the minority interests in the Sponsored Partnerships. None of the merged Sponsored Partnerships was subject to debt financing and no debt was assumed or created at the time of the merger. The investors of the merged entities exchanged their interests for an interest in the Partnership. There were no cash payments and no contingent payments.
The acquisitions have affected the Company in two ways: the real estate portfolio is more diverse, both geographically and with respect to property type; and the Company has a larger borrowing capacity.
The following table sets forth the identity of each merged Sponsored Partnership, the date of its merger and the estimated value ascribed to that Partnership.
Estimated Value
at Merger Date (in
Merged Partnership Merger Date thousands)
------------------ ----------- ----------
Essex Lane January 1, 1999 $11,339
FSP Apartment Properties January 1, 1999 12,691
One Technology January 1, 1999 11,989
FSP North Andover January 1, 1999 9,919
FSP Weslayan Oaks January 1, 1999 5,760
FSP Park Seneca January 1, 1999 10,126
FSP Santa Clara January 1, 1999 7,938
FSP Piedmont January 1, 1999 12,435
FSP Silverside January 1, 2000 19,063
FSP Hillview January 1, 2000 5,328
FSP Telecom January 1, 2000 16,814
FSP Southfield Centre October 1, 2000 16,412
FSP Blue Ravine October 1, 2000 6,475
FSP Bollman Place October 1, 2000 6,035
FSP Austin N.W. October 1, 2000 11,403
FSP Gateway Crossing October 1, 2000 20,870
FSP Lyberty Way October 1, 2000 10,612
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During 2001 and 2000, the Partnership retained 100% of the common stock in six and three Sponsored REITs, respectively, for nominal consideration in connection with the organization and syndication of such Sponsored REITs. Additionally, the Partnership's general partner interest in one Sponsored Partnership was exchanged for the common stock in a newly formed Sponsored REIT, in connection with this Sponsored Partnership's reorganization from a limited partnership to a REIT on January 1, 2001. The Partnership's cost of its investment in the Sponsored REITs approximates its share of the underlying equity in the net assets of the REITs. The Partnership's share of the Sponsored REITs' earnings, after deducting preferred stock dividends paid or accrued, was not material for the years ended December 31, 2001 and 2000. There were no Sponsored REITs in 1999.
The Sponsored REITs issued both common stock and preferred stock. The common stock is owned solely by the Company and the preferred stock is owned by unaffiliated investors. Each Sponsored REIT was organized to acquire a single real estate property using the proceeds raised through a private offering of its preferred stock. The Sponsored REITs do not contemplate having any long-term financing. Following consummation of the offerings, the preferred shareholders in each of the Sponsored REITs are entitled to 100% of the Sponsored REIT's cash distributions. As a common shareholder, the Company has no rights to the Sponsored REIT's regular cash distributions. However, upon liquidation of the Sponsored REITs, the Company will be entitled to its percentage interest in any proceeds after the preferred shareholders have recovered their investment. The Company's percentage interest in each Sponsored REIT is less than 0.1%. The affirmative vote of the holders of a majority of the Sponsored REIT's preferred stockholders is required for any actions involving merger, sale of property, amendment to charter or issuance of additional capital stock. In addition, all of the Sponsored REITs allow the holders of more than 50% of the outstanding preferred shares to remove, without cause, and replace one or more members of the REIT's Board of Directors.
Critical Accounting Policies.
Basis of Presentation. The consolidated financial statements of the Partnership include the accounts of the Partnership, 17 Sponsored Partnerships and wholly and majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Prior to the mergers, FSP Holdings was the general partner and owned a 5% interest in each of the Sponsored Partnerships. As the general partner, FSP Holdings had the exclusive rights and powers to manage and control the business of each Sponsored Partnership without the consent or approval of the limited partners. The limited partners in the Sponsored Partnerships could not elect to
replace the general partner, except for cause. Accordingly, prior to the mergers, the accounts of the Sponsored Partnerships have been consolidated into the Partnership's financial statements under the principles of accounting applicable to investments in subsidiaries in accordance with SOP 78-9.
Real Estate and Depreciation.
Real estate assets are stated at the lower of cost or fair value, as appropriate, less accumulated depreciation.
Costs related to property acquisition and improvements are capitalized. Typical capital items include new roofs, site improvements, various exterior building improvements and major interior renovations. Funding for capital improvements typically is provided by cash set aside at the time the property was purchased.
Routine replacements and ordinary maintenance and repairs that do not extend the life of the asset are expensed as incurred. Typical expense items include interior painting, landscaping, minor carpet replacements and residential appliances. Funding for repairs and maintenance items typically is provided by cash flows from operating activities. Depreciation is computed using the straight line method over the assets' estimated useful lives as follows:
Category Years -------- ----- Buildings: Residential 27 Commercial 39 Building Improvements 15-39 Furniture and equipment 5-7 |
The Partnership evaluates its assets used in operations by identifying indicators of impairment and by comparing the sum of the estimated undiscounted future cash flows for each asset to the asset's carrying value. When indicators of impairment are present and the sum of the undiscounted future cash flows is less than the carrying value of such asset, an impairment loss is recorded equal to the difference between the asset's current carrying value and its fair value based on discounting its estimated future cash flows. At December 31, 2001, no such indicators of impairment were identified.
Revenue Recognition.
Rental income for Commercial Properties -- The Partnership has retained substantially all of the risks and benefits of ownership of the Partnership's commercial properties and accounts for its leases as operating leases. Rental income from leases, which include scheduled increases in rental rates during the lease term, is recognized on a straight-line basis. The Partnership does not have any percentage rent arrangements with its commercial property tenants. Reimbursable common area maintenance charges are included in rental income in the period earned.
Rental income for Residential Apartments -- The Partnership's residential property leases are generally for terms of one year or less. Rental income from tenants of residential apartment properties is recognized in the period earned. Rent concessions, including free rent and leasing commissions are charged as a reduction of rental revenue.
Investment Banking Services -- Syndication fees ranging from 6% to 8% of the gross offering proceeds from the sale of securities in Sponsored Entities are generally recognized upon an investor closing; at that time the Partnership has provided all required services, the fee is fixed and collected, and no further contingencies exist. Commission expense ranging from 3% to 4% of the gross offering proceeds is recorded in the period the related syndication fee is earned.
Investment Banking Services -- Transaction fees are generally recognized upon the final investor closing of a Sponsored Entity. The final investor closing is the last admittance of investors into a Sponsored Entity; at that time, required funds have been received from the investors, charges relating to the syndication have been paid or accrued, continuing investment and continuing involvement criteria have been met, and legal and economic rights have been transferred. Third party transaction-related costs are deferred and later expensed to match revenue
recognition. Internal expenses are expensed as incurred. The Partnership follows the requirements for profit recognition as set forth by Statement of Financial Accounting Standards No. 66 "Accounting for Sales of Real Estate" and Statement of Position 92-1 "Accounting for Real Estate Syndication Income."
Recent Accounting Standards
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statements of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities" as amended by SFAS No. 137 and No. 138. The provisions of this statement require that derivative instruments be carried at fair value on the balance sheet. The statement continues to allow derivative instruments to be used to hedge various risks and sets forth specific criteria to be used to determine when hedge accounting can be used. For derivative instruments not accounted for as hedges, changes in fair value are required to be recognized in earnings. The provisions of this statement became effective January 1, 2001. The Partnership has not historically had derivative instruments, and this standard has had no impact on its financial position, results of operations and cash flows.
In June 2001, the FASB approved SFAS No. 141 "Business Combinations" ("SFAS 141") and No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142"), effective July 1, 2001 and January 1, 2002, respectively, for the Partnership. SFAS 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. The Partnership has adopted SFAS 141; no combinations by the Partnership occurred after June 30, 2001 to which this would apply. Under SFAS 142, amortization of goodwill, including goodwill recorded in past business combinations, will discontinue upon adoption of this standard. All goodwill and intangible assets will be tested for impairment in accordance with the provisions of the Statement. The Partnership has reviewed the provisions of SFAS 142 and believes that the impact of adoption will not be material to its financial position, results of operations and cash flows.
In August 2001, the FASB issued SFAS No. 143 "Accounting for Asset Retirement Obligations" ("SFAS 143") which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of the fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. SFAS 143 will be effective at the beginning of 2003. The Partnership has reviewed the provisions of SFAS 143 and believes that the impact of adoption will not be material to its financial position, results of operations and cash flows.
In October 2001, the FASB issued SFAS No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144 supersedes
SFAS No. 121 and requires that long-lived assets that are to be disposed of by
sale be measured at the lower of book value or fair value less costs to sell.
SFAS 144 retains the fundamental provisions of SFAS No. 121 for (a) recognition
and measurement of the impairment of long-lived assets to be held and used, and
(b) measurement of long-lived assets to be disposed of by sale, but broadens the
definition of what constitutes a discontinued operation and how the results of a
discontinued operation are to be measured and presented. SFAS 144 will be
effective at the beginning of 2002. With the exception of reclassifying the
operations of real estate assets considered "held for sale" to "Discontinued
operations, net of tax" in the consolidated statement of income, the impact of
adoption will not have a material impact on the Partnership's financial position
and cash flows. The Partnership does not have any real estate assets that it
considers "held for sale".
Financing and Other Commitments
The Partnership has a revolving line of credit agreement (the "Loan Agreement") with a bank providing for borrowings at the Partnership's election up to $50 million. Borrowings under the Loan Agreement bear interest at either the bank's base rate or a variable LIBOR rate, as defined. There were no outstanding borrowings by the Partnership under the Loan Agreement at December 31, 2001. The Partnership is in compliance with all bank covenants required by this line of credit. The Loan Agreement matures on February 23, 2003. It is the Company's intention to renew the line of credit when it matures.
The Partnership has arranged for Citizens Bank to provide a line of credit for the Partnership's senior officers in the maximum aggregate amount of $3 million. The borrowings under this line of credit are for the purpose of paying income taxes on equity interests in the Company issued to such senior officers as compensation. Loans under this line of credit have a term of one year and bear interest at the bank's prime rate plus 50 basis points. Loans of $1,625,000 in the aggregate were outstanding to senior officers at December 31, 2001. Each borrower has secured the loan by pledging shares of the Company's Common Stock having an aggregate fair market value at the time of the loan of no less than twice the principal amount of the loan. The Partnership has agreed to purchase from Citizens Bank any loan on which the borrower defaults. Following the purchase of the loan, the Partnership would have the same rights as Citizens Bank, including the right to foreclose on the pledged stock.
The Partnership's commercial rental operations include the leasing of office buildings and industrial properties subject to leases with terms greater than one year. The leases thereon expire at various dates through 2012. Approximate future minimum rental income on non-cancelable operating leases as of December 31, 2001 are (in thousands): 2002 - $15,415; 2003 - $13,307; 2004 - $9,957; 2005 - $5,898; 2006 - $3,336; and $12,207 thereafter.
The Partnership leases its corporate office space under a six-year operating lease that commenced in June 1999. The lease includes a base annual rent and additional rent for the Partnership's share of taxes and operating costs. Approximate future minimum lease payments at December 31, 2001 are (in thousands): 2002 - $199; 2003 - $203; 2004 - $209; and 2005 - $97.
In connection with the purchase of a property by a Sponsored REIT in May 2001, the Partnership obligated itself to purchase an additional parcel of real property within a certain amount of time if the owner offered such property for sale to the Partnership. The Company satisfied this obligation by causing FSP Timberlake East Corp., a newly-organized Sponsored REIT, to purchase this parcel on March 4, 2002.
Off-Balance Sheet Investments
The Partnership typically retains a minimal common stock ownership interest in Sponsored REITs that it has organized. These ownership interests have virtually no economic benefit or risk. At December 31, 2001 and 2000, the Partnership had ownership interests in ten and four Sponsored REITs, respectively. During 1999 and 2000, the Partnership acquired 100% of the non-owned interests of certain Sponsored Partnerships (through a series of mergers) that it had previously organized.
Summarized financial information for the Sponsored REITs are as follows:
(unaudited) December 31,
------------
2001 2000
---- ----
(in thousands)
Balance Sheet Data:
Real estate, net $222,232 $56,565
Other assets 19,048 5,058
Total liabilities 6,755 1,950
Shareholders equity 234,525 59,673
Operating Data:
Rental revenues $ 19,816 $ 2,778
Other revenues 354 117
Operating and maintenance expenses 5,973 948
Depreciation and amortization 3,191 574
Interest expense 9,916 2,298
Net income (loss) 1,090 (925)
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There were no Sponsored REITS in 1999.
Results of Operations
The following table shows the Partnership's financial data as a percentage of total revenues for the three years ended December 31, 2001, 2000 and 1999 and the variance in dollars between the years ended December 31, 2001 and 2000 and the years ended December 31, 2000 and 1999.
Financial Data as a Percentage
of Total Revenues Variance in Dollars
------------------------------- --------------------
For the Year Ended December 31, For the Year Ended
------------------------------- --------------------
December 31,
--------------------
2001 and 2000 and
2001 2000 1999 2000 1999
-------- -------- -------- -------- --------
(in thousands)
Revenue
Rental Revenue
Rental............................. 49.2% 73.1% 90.1% $ 1,331 $9,119
Interest and other................. 3.4% 4.8% 5.3% 184 771
Investment Services Revenue
Syndication fees................... 23.9% 11.6% 2.5% 8,964 3,592
Transaction fees................... 23.3% 10.2% 1.9% 9,163 3,193
Interest........................... 0.2% 0.3% 0.2% 12 70
----- ----- ----- ------- -------
TOTAL REVENUE...................... 100.0% 100.0% 100.0% 19,654 16,745
----- ----- ----- ------- -------
Expenses
Rental Expenses
Selling, general and administrative 3.7% 2.1% 10.4% 1,302 (1,137)
Rental operating expenses.......... 12.3% 18.7% 24.5% 537 2,060
Depreciation and amortization...... 8.7% 13.0% 17.6% 196 1,350
Real estate taxes and insurance.... 5.3% 7.1% 8.0% 427 1,025
Interest........................... 0.8% 2.5% 1.7% (42) 561
Investment Services Expenses
Selling, general and administrative 7.1% 6.7% 7.0% 854 1,621
Commissions........................ 12.0% 9.8% 14.6% 3,103 788
Partnership units issued as
compensation....................... 3.2% 6.6% 0.0% (556) 2,300
Depreciation and amortization...... 0.1% 0.2% 0.3% (12) 32
----- ----- ----- ------- -------
TOTAL EXPENSES..................... 53.3% 66.8% 84.1% 5,809 8,600
----- ----- ----- ------- -------
Minority interests..................... 0.1% 7.6% 12.6% (2,609) 370
Net income............................. 46.7% 33.2% 15.9% $16,454 $7,775
===== ===== ===== ======= ======
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Comparison of The Year Ended December 31, 2001 To The Year Ended December 31, 2000
Revenue
Total revenues increased $19.6 million, or 56%, to $54.4 million for the year ended December 31, 2001, as compared to $34.8 million for the year ended December 31, 2000. Income from rental operations was $26.7 million for the year ended December 31, 2001.
The increase in rental income of $1.3 million, or 5.2%, compared to the year ended December 31, 2000, is attributable to:
o the acquisition of one commercial property in 2000, which contributed revenue for a full year in 2001, as compared with a partial year in 2000, resulting in $0.5 million in incremental revenues;
o increased revenues of approximately $0.8 million as a result of rent increases on existing properties.
The increase in investment services income (Syndication and Transaction fees) of $18.1 million, or 239%, compared to the year ended December 31, 2000, is attributable to the syndication of six Sponsored REITs (with aggregate gross proceeds of $203.1 million) in 2001 compared to the syndication of three Sponsored REITs (with aggregate gross proceeds of $60.2 million) in 2000. The revenue associated with the syndication of three Sponsored
Partnerships in 2000 with aggregate gross proceeds of $47.4 million has been eliminated in the Consolidated Statements of Income.
The increase in interest and other income of $0.2 million, or 11%, compared to the year ended December 31, 2000 is attributable to interest earned on higher cash balances, cash equivalents and marketable securities in 2001 compared to 2000.
Expenses
Total expenses increased $5.8 million, or 25%, to $29.0 million for the year ended December 31, 2001, as compared to $23.2 million for the year ended December 31, 2000.
The increase in selling, general and administrative expenses of $2.2 million, or 70%, compared to the year ended December 31, 2000, is attributable to the extra costs associated with the syndication of six Sponsored REITS in 2001 (with aggregate gross proceeds of $203.1 million) compared to the syndication of six Sponsored Entities in 2000 (with aggregate gross proceeds of $107.6 million) as follows:
o increased payroll and related expenses of $1.5 million;
o increased consulting and professional fees of approximately $0.6 million;
o increased other costs of approximately $0.1 million.
The increase in commission expense of $3.1, million or 91%, compared to the year ended December 31, 2000 is attributable to the increase of syndication proceeds of approximately $95 million in 2001 as described above.
The increase in rental expenses of $0.5 million, or 8.3%, compared to the year ended December 31, 2000, is primarily attributable to the acquisition of one commercial property in 2000, which incurred costs for a full year in 2001, as compared with a partial year in 2000.
The increase in depreciation and amortization expenses of $0.2 million, or 4%, compared to the year ended December 31, 2000, is primarily attributable to the acquisition of one commercial property in 2000, which incurred a full year of depreciation and amortization expense in 2001, as compared with a partial year in 2000.
The increase in real estate taxes and insurance expenses of $0.4 million, or 17%, compared to the year ended December 31, 2000, is primarily attributable to:
o the acquisition of one commercial property in 2000, which incurred costs for a full year in 2001, as compared with a partial year in 2000, resulting in approximately $0.1 million in incremental expenses;
o tax rate increases on the existing properties of approximately $0.3 million.
The decrease in interest expense of $42 thousand, or 5%, compared to the year ended December 31, 2000, is primarily attributable to lower interest rates in 2001.
The decrease in minority interest expense of $2.6 million for the year ended December 31, 2001 compared to the minority interest for the year ended December 31, 2000 is a result of the mergers completed during the year ended December 31, 2000, as described in Note 4 to the Financial Statements.
Comparison Of The Year Ended December 31, 2000 To The Year Ended December 31, 1999
Revenue
Total revenues increased $16.8 million, or 92.8%, to $34.8 million for the year ended December 31, 2000, as compared to $18.0 million for the year ended December 31, 1999. Income from rental operations was $25.4 million for the year ended December 31, 2000.
The increase in rental income of $9.1 million, or 55.9%, compared to the year ended December 31, 1999, is attributable to:
o the acquisition of seven commercial properties in 1999, which contributed revenue for a full year in 2000, as compared with a partial year in 1999, resulting in $8.0 million in incremental revenues;
o the acquisition of one commercial property in 2000, which contributed revenue for a partial year in 2000, as compared with no revenue in 1999, resulting in approximately $0.6 million in incremental revenues;
o increased revenue of approximately $0.5 million as a result of rent increases and other miscellaneous fees on existing properties.
The increase in investment services income (Syndication and Transaction fees) of $6.8 million, or 859%, compared to the year ended December 31, 1999, is attributable to the syndication of three REITs in 2000 (with aggregate gross proceeds of $60.2 million) compared to the syndication of one Sponsored Entity in 1999 (with aggregate gross proceeds of $7.8 million).
The increase in interest and other income of $0.8 million, or 89.1%, compared to the year ended December 31, 1999 is attributable to interest earned on higher cash balances, cash equivalents and marketable securities and higher average yields in 2000 compared to 1999.
Expenses
Total expenses increased $8.6 million, or 53.0%, to $23.2 million for the year ended December 31, 2000, as compared to $14.6 million for the year ended December 31, 1999.
The increase in selling, general and administrative expenses of $0.5 million, or 24%, compared to the year ended December 31, 1999, is attributable to the extra costs associated with the syndication of six Sponsored Entities (with aggregate gross proceeds of $107.6 million) in 2000 compared with the syndication of six Sponsored Entities (with aggregate gross proceeds of $64.9 million) in 1999 as follows:
o increased payroll and related expenses of $0.7 million;
o offset by decreased other costs of approximately $0.2 million.
The increase in other real estate operating expenses of $2.1 million, or 46.5%, compared to the year ended December 31, 1999, is primarily attributable to the acquisition of seven commercial properties in 1999, which incurred costs for a full year in 2000, as compared with a partial year in 1999.
The increase in commission expense of $0.8 million, or 19%, compared to the year ended December 31, 1999 is attributable to the syndication of six Sponsored Entities (with aggregate gross proceeds of $107.6 million) in 2000 compared with the syndication of six Sponsored Entities (with aggregate gross proceeds of $64.9 million) in 1999 as follows:
The increase in depreciation and amortization expenses of $1.3 million or 44.8%, compared to the year ended December 31, 1999, is primarily attributable to:
o the acquisition of seven commercial properties in 1999, which incurred depreciation and amortization expenses for a full year in 2000, as compared with a partial year in 1999, resulting in $1.2 million in incremental expenses;
o the acquisition of one commercial property in 2000, which incurred depreciation and amortization expenses for a partial year in 2000, as compared with no costs in 1999, resulting in approximately $0.1 million in incremental costs;
The increase in real estate taxes and insurance expenses of $1.0 million or 70.8%, compared to the year ended December 31, 1999, is primarily attributable to:
o the acquisition of seven commercial properties in 1999, which incurred costs for a full year in 2000, as compared with a partial year in 1999, resulting in approximately $0.8 million in incremental expenses;
o tax rate increases on the existing properties of approximately $0.2 million.
The increase in interest expense of $0.6 million, or 187.6%, compared to the year ended December 31, 1999, is primarily attributable to the syndication of three REITs in 2000 compared to the syndication of one unconsolidated Sponsored Partnership in 1999.
The increase in minority interest expense of $0.4 million for the year ended December 31, 2000 compared to the minority interest for the year ended December 31, 1999 is a result of the mergers completed during the year ended December 31, 2000.
Trends and Uncertainties
Rental Operations
In 2001, the Company saw a reversal of some of the trends in 2000. Absorption of new rental units and higher oil prices benefited the Houston apartment properties for most of 2001 until the Enron bankruptcy at the end of the year. The Enron bankruptcy and general economic conditions in Houston have increased vacancy and rent concessions throughout Houston, but had not had a material effect on the Company's apartments as of the end of the year. Vacancies at the Company's apartments are expected to increase in 2002 as an immediate result of the Enron bankruptcy on the downtown area, but it is not known how long or how serious that impact will be, since Houston has a large and diversified economic base beyond Enron.
Office vacancy rates in most markets increased during 2001, making it harder to increase rents or lease vacancies as they occurred throughout the year. Unless there is a turnaround in the general economy in 2002, these conditions are likely to remain and vacancies may increase along with increased costs to lease the vacant space, such as concessions, free rent and other incentives. When the economy does recover, it is likely to recover unevenly with certain industry segments and geographic areas improving before others. Because of the diversity of the Company's portfolio and the long term nature of its office leases, the financial impact of any recovery or further deterioration may be slow to materialize and is difficult to predict.
During 2001, the Company had mixed success in leasing vacancies that occurred due to normal lease expirations and as a result of unexpected vacancies that arose because of tenant bankruptcies. In some markets, such as Greenville and Charlotte, where vacancies arose during the year, only a portion of the space has been relet. In others, such as San Diego and Austin, the entire space was relet quickly, and the buildings are now 100% leased.
There are no material lease expirations until a lease for 99,000 square feet expires on November 30, 2002. The tenant under that lease has announced its intention to vacate the premises, and the Company began actively marketing the space to potential users at the beginning of 2002. The only year in which more than 10% of the Company's square footage has leases expiring is 2004, during which leases with respect to more than 20% of the Company's square footage will expire. Some of these leases contain options to extend, and discussions have taken place regarding early renewals for some of the leases. The Company cannot now predict which leases will not be extended in 2004.
Other tenants may fail in 2002, as they did in 2001, and present the same challenges in 2002. One longstanding, privately held tenant in South Carolina is significantly behind in its rent and may not be able to pay its arrearage or future rent. The future of other publicly traded companies, such as XO and Lucent, have been subjects of public speculation, but both tenants are currently occupying the space and paying rent. Lucent has notified the Company that it is considering subletting its space, but Lucent is and would still be liable for the rent under any subletting or assignment of the lease.
Real estate taxes are expected to increase in 2002 as municipalities try to compensate for lost revenue by raising tax rates or by taxing commercial real estate more heavily. Where possible, the Company intends to protest and file for tax abatements, particularly for buildings that had vacancies in 2001. However, it is not certain that those efforts will be successful or that the refunds will be made in 2002.
Due to the events of September 11, insurance costs are expected to increase when the Company's policy is scheduled for renewal in April 2002, but the amount of the increase and change in limits are not known at this time. Individual states are debating and voting on whether or not to allow insurance companies to deny coverage for terrorism, and the Company will not know until the time of its renewal whether it will be able to obtain terrorism coverage for all of its buildings at a reasonable price. In addition, coverage for damage from toxic mold is expected to be excluded from the renewal policy, and such coverage, if available, will need to be bought back at an additional premium cost which may be prohibitively expensive. The Company intends to try to maintain appropriate insurance coverage with reasonable deductibles at reasonable rates but may have trouble doing so in the current insurance market. There has not been a material increase in the cost of security to date, but if there are additional acts of terrorism, the Company may be forced to add security at properties where the costs cannot be passed on to the tenants.
In addition to real estate taxes, security and insurance costs, other costs may increase in 2002 as a result of inflation. Most of the Company's office leases pass increased operating costs on to the tenants. However, two of the Company's office buildings, constituting 13% of the total square footage, have leases with fixed annual rent increases of between 4% and 5% instead of operating cost escalation clauses or direct reimbursements. The leases for the apartment units do not allow for recovery of increases in operating expenses; however, the apartment tenants pay for most of the utility costs for their units.
In the course of owning and operating real estate, the potential exists for the Company to dispose of one or more properties in its portfolio. Market conditions in specific geographic locations could present the Company with the opportunity to realize significant capital appreciation in an asset's value. The Company maintains close attention to market conditions in all geographic locations where its properties are located.
Investment Services
Unlike the Company's real estate business, which provides a rental revenue stream which is ongoing and recurring in nature, the Company's investment banking business is transactional in nature. While trends in 2001 were quite positive in terms of the quantity, both in the number of transactions and equity raised, of Sponsored REITs completed, future business in this area is unpredictable.
As 2002 begins, the Company's acquisition executives are reporting some of the largest spreads between bid and ask prices for properties that they have seen in the Company's history. Differing views of the strength and timing of a national economic recovery as well as low interest rate carrying costs on debt-financed properties are probably contributing to this situation. Without the ability to acquire properties at attractive prices, the Company's investment banking activities may suffer.
Further, the Company continues to rely solely on its in-house investment executives to access interested investors who have capital they can afford to place in an illiquid position for an indefinite period of time. While the Company continues to expand its in-house sales force, uncertainties always exist as to whether it is capable, either through the Company's existing client base or through new prospective clients, of providing the amount of investment capital to achieve future performance objectives. Further setbacks in the stock market or the general economy could have negative effects, and while the tragic events of September 11, 2001 did not disrupt the Company's transactional business unit significantly, further terrorist attacks, if they occur, may have a chilling effect on the willingness of investors to purchase interests in future Sponsored Entities.
Liquidity and Capital Resources as of December 31, 2001
Cash and cash equivalents were $24.4 million and $13.7 million at December 31, 2001 and December 31, 2000, respectively. This 78% increase of $10.6 million is attributable to $33.4 million generated by operating activities and $21.8 million generated by investing activities, partially offset by $44.5 million used by financing activities.
Operating Activities
The Partnership's cash provided by operating activities of $33.4 million is primarily attributable to $32.0 million from operations, after addback of $6.6 million from non-cash expenses of which $4.8 million relates to depreciation and amortization and $1.7 million relates to equity based compensation, and to $1.5 million from the increase in accounts payable and accrued expenses, partially offset by a net change in other operating assets and liabilities of $0.1 million.
Investing Activities
The Partnership's cash provided by investing activities of $21.8 million is attributable to the decrease in investment of $16.7 million as a result of repayment of a mortgage loan by a Sponsored REIT and $5.3 million as a result of the redemption of marketable securities plus proceeds of $0.4 million received on the sale of land, offset by the purchase of $0.7 million of property and equipment.
Financing Activities
The Partnership's cash used by financing activities of $44.5 million is attributable to repayments of the line of credit of $16.5 million and cash distributions to partners of $27.9 million.
Liquidity and Capital Resources as of December 31, 2000
Cash and cash equivalents were $13.7 million and $18.5 million at December 31, 2000 and 1999, respectively. This 25.9% decrease of $4.8 million is attributable to $31.1 million used in investing activities partially offset by $14.5 million provided by operating activities and $11.7 million provided by financing activities.
Investing Activities
The Partnership's cash used in investing activities of $31.1 million is primarily attributable to:
o $16.7 million relating to advances to a Sponsored REIT which were subsequently repaid in February 2001;
o $9.9 million for the purchase of property and equipment, partially offset by proceeds of $0.9 million from the sale of land; and
o $5.3 million for the purchase of marketable securities.
Operating Activities
The Partnership's cash provided by operating activities of $14.5 million is primarily attributable to $18.5 million from operations, after addback of $9.5 million from non-cash expenses of which $4.6 million relates to depreciation and amortization, $2.3 million relates to equity based compensation, and $2.5 million relates to minority interests.
The cash provided by operating activities is partially offset by $2.5 million from the decrease in accounts payable and accrued expenses and by $1.5 million from an aggregate net decrease in other operating assets and liabilities.
Financing Activities
The Partnership's cash provided by financing activities of $11.7 million is attributable to capital contributions of $39.8 million from the issuance of partnership units in connection with the acquisition by merger of three of the merged entities and borrowings under the line of credit of $16.5 million;
The cash provided by financing activities is partially offset by repayments of the line of credit of $23.5 million and cash distributions to partners of $21.0 million.
Sources and Uses of Funds
Our principal demands for liquidity are cash for operations, distributions to equity holders, debt repayments and expense associated with indebtedness. As of December 31, 2001 we had $4.4 million in liabilities. The Company has no permanent, long-term debt. In the near term, liquidity is generated from funds from ongoing real estate operations and fees and commissions received from the sale of shares in new Sponsored REITs.
The Company maintains an unsecured line of credit through Citizens Bank. The Company has entered into a Master Promissory Note and Loan Agreement which provides for a revolving line of credit of up to $50 million. Borrowings under the loan bear interest at the Company's election of either the bank's base rate or a variable LIBOR rate. We use the unsecured line of credit to provide each newly-formed Sponsored Entity with the funds to purchase its property. The Company lends the purchase price of the property, at an interest rate equivalent to the rate which the Company is paying to the bank, and takes back a mortgage. The Company collects a loan fee from the Sponsored Entity. The loan is paid back in full from the capital contributions of each Sponsored Entity's investors. The Company's loan agreement with the bank includes customary restrictions on property liens and requires compliance with various financial covenants. Financial covenants include maintaining minimum cash balances in operating accounts, tangible net worth of at least $140 million and compliance with other various debt and income ratios. The Partnership was in compliance with all covenants as of December 31, 2001. Borrowings under the loan agreement mature on February 23, 2003.
The Partnership did not have any borrowings outstanding as of December 31, 2001. However, the Company intends to utilize, and subsequent to December 31, 2001 has utilized, its line of credit for interim financing in connection with the acquisition of real estate by newly-formed Sponsored REITs.
The Company's real properties generate rental income to cover the ordinary, annual operating expenses of the properties and to fund distributions to equity holders. As of December 31, 2001, the rental income covered the expenses for each of the Company's real properties. In addition to rental income, the Company maintains cash reserves that may be used to fund extraordinary expenses or major capital expenses. The cash reserves were set aside when the Sponsored Partnerships that the Partnership acquired were originally syndicated. The cash reserves as of December 31, 2001 are in excess of the known needs for extraordinary expenses or capital improvements for the real properties within the next few years. There are no external restrictions on these reserves, and they may be used for any Company purpose.
Although there is no guarantee we will be able to obtain the funds necessary for our future growth, we anticipate generating funds from continuing real estate operations and from fees and commissions from the sale of shares in newly-formed Sponsored REITs. With adequate reserves in place to cover extraordinary expenses or capital improvements, the Company believes that it has adequate funds for future needs. The Company's ability to maintain or increase its level of distributions to stockholders, however, depends upon the level of interest on the part of investors in purchasing shares of Sponsored REITs and the level of rental income from the Company's real properties. See "Risk Factors" in Item 1A.
Related Party Transactions
The Partnership typically retains a non-controlling common stock ownership interest in Sponsored REITs that it has organized. These ownership interests have virtually no economic benefit or risk. At December 31, 2001 and 2000, the Partnership had ownership interests in ten and four Sponsored REITs, respectively. During 1999 and 2000, the Company acquired 100% of the non-owned interests of certain Sponsored Partnerships (through a series of
mergers) that it had previously organized. Neither the Company nor any other related entity has an obligation to acquire the non-owned interests in any previously syndicated Sponsored REIT.
At the request of the Company, officers and directors of the Company serve as officers and directors of Sponsored REITs. All of the Company's revenue from investment banking services derives from transactions involving the Sponsored REITs. The terms of the commissions and fees paid by the Sponsored REITs to the Company and the terms of the mortgage loans made by the Company to the Sponsored REITs accordingly were not the product of arms-length negotiations. The Company, however, believes that such terms are no less favorable to the Company than it could have obtained from third parties in arms-length negotiations.
The Company has an arrangement for Citizens Bank to provide loans to the Company's senior officers for the purpose of paying income taxes on the issuance to them of shares of Common Stock as compensation. Each borrower has secured the loan by pledging shares of the Company's Common Stock having an aggregate fair market value at the time of the loan of no less than twice the principal amount of the loan. The Company has agreed to purchase from Citizens Bank any such loan on which the borrower defaults. Following the purchase of the loan, the Partnership would have the same rights as Citizens Bank, including the right to foreclose on the pledged stock. As of December 31, 2001, aggregate loans to senior officers in the amount of $1,625,000 were outstanding.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Partnership was not a party to derivative financial instruments at or during the year ended December 31, 2001.
The Company borrows from time to time upon its line of credit. These borrowings bear interest at a variable rate. The Company uses the funds it draws on its line of credit only for the purpose of making interim mortgage loans to Sponsored REITs. These mortgage loans bear interest at the same variable rate payable by the Company under its line of credit. Therefore, the Company believes that it has mitigated its interest rate risk with respect to its borrowings.
Item 8. Financial Statements and Supplementary Data.
The financial statements of the Partnership at December 31, 2001 and December 30, 2000 and for the years ended December 31, 2001, 2000 and 1999, and the reports of PricewaterhouseCoopers LLP and BDO Seidman, LLP thereon, are included elsewhere herein. Reference is made to the Index to Consolidated Financial Statements in Item 14 hereof.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
The information required by this item has been previously reported by the Registrant on a Current Report on Form 8-K filed with the Securities and Exchange Commission on October 17, 2001.
PART II
Item 10. Directors and Executive Officers of the Registrant.
The response to this item is contained in part under the caption "Executive Officers of the Company" in Part I of this Annual Report on Form 10-K, and in part in the Company's Proxy Statement for the Annual Meeting of Stockholders to be held on May 20, 2002 (the "2002 Proxy Statement") in the sections titled "Election of Directors -- Members of the Board of Directors" and "Other Matters -- Section 16(a) Beneficial Ownership Reporting Compliance", which sections are incorporated herein by reference.
Item 11. Executive Compensation.
The response to this item is contained in the 2002 Proxy Statement in the sections titled "Election of Directors -- Compensation of Directors" and "Executive Compensation", which sections are incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners And Management.
The response to this item is contained in the 2002 Proxy Statement in the section titled "Beneficial Ownership of Voting Stock", which section is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
The response to this item is item is contained in the 2002 Proxy Statement in the section titled "Certain Relationships and Related Transactions," which is incorporated herein by reference.
PART III
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
1. Financial Statements:
The Financial Statements listed in the accompanying Index to Financial Statements are filed as part of this Annual Report on Form 10-K.
2. Financial Statement Schedules:
The Financial Statement Schedule listed on the accompanying Index to Financial Statements is filed as part of this Annual Report on Form 10-K.
3. Exhibits:
The Exhibits listed in the Exhibit Index are filed as part of this Annual Report on Form 10-K.
(b) Reports on Form 8-K.
The Company filed a Current Report on Form 8-K on October 17, 2001 to report under Item 4 that it had dismissed its independent certified accountant and retained a new independent certified accountant.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf as of March 28, 2002 by the undersigned, thereunto duly authorized.
FRANKLIN STREET PROPERTIES CORP.
By: /s/ George J. Carter
-----------------------------
George J. Carter
Chief Executive Officer
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ George J. Carter Chief Executive Officer and -------------------------- Director (Principal Executive March 28, 2002 George J. Carter Officer) /s/ Lloyd S. Dow Controller March 28, 2002 -------------------------- (Principal Accounting Officer) Lloyd S. Dow /s/ Richard R. Norris Director March 28, 2002 -------------------------- Richard R. Norris /s/ Barbara J. Corinha Director March 28, 2002 -------------------------- Barbara J. Corinha /s/ William W. Gribbell Director March 29, 2002 -------------------------- William W. Gribbell /s/ Janet P. Notopoulos Director March 28, 2002 -------------------------- Janet P. Notopoulos /s/ R. Scott MacPhee Director March 28, 2002 -------------------------- R. Scott MacPhee |
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
2.1(1) Agreement and Plan of Merger, dated October 10, 2001, by and
between Franklin Street Properties Corp. and Franklin Street
Partners Limited Partnership.
3.1(2) Articles of Organization.
3.2(3) By-laws.
10.1+* Franklin Street Properties Corp. 2002 Stock Incentive Plan.
10.2* Loan Agreement dated as of February 23, 1999 by and among
Citizens Bank of Massachusetts, the Company and certain
affiliates of the Company, as amended.
21.1(4) Subsidiaries of the Registrant.
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(1) Incorporated by reference to Appendix A of Franklin Street Partners
Limited Partnership's Definitive Proxy Statement on Schedule 14A,
filed on December 18, 2001.
(2) Incorporated by reference to Appendix B of Franklin Street Partners
Limited Partnership's Definitive Proxy Statement on Schedule 14A,
filed on December 18, 2001.
(3) Incorporated by reference to Appendix C of Franklin Street Partners
Limited Partnership's Definitive Proxy Statement on Schedule 14A,
filed on December 18, 2001.
(4) Incorporated by reference to Franklin Street Partners Limited
Partnership's Form 10-12G/A, filed on December 18, 2001.
(+) Management contract or compensatory plan or arrangement filed as an
Exhibit to this Form 10-K pursuant to Items 14(a) and 14(c) of Form
10-K.
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* Filed herewith
Franklin Street Partners
Limited Partnership and Subsidiaries
Index to Consolidated Financial Statements
Reports of independent certified public accountants F-2 - F-9
Consolidated financial statements:
Consolidated Balance sheets as of December 31, 2001 and 2000 F-10 - F-11
Consolidated Statements of income for the years ended F-12
December 31, 2001, 2000 and 1999
Consolidated Statements of partners' capital for the years F-13
ended December 31, 2001, 2000 and 1999
Consolidated Statements of cash flows for the years ended F-14
December 31, 2001, 2000 and 1999
Notes to consolidated financial statements F-15 - F-31
Financial Statement Schedule - Schedule III F-32 - F-33
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All other schedules for which a provision is made in the applicable accounting resolutions 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 Partners of
Franklin Street Partners Limited Partnership:
In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of income, partners' capital and cash flows present fairly, in all material respects, the financial position of Franklin Street Partners Limited Partnership and Subsidiaries (the "Partnership") at December 31, 2001, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Partnership's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audit. We conducted our audit 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 are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 4, 2002
Report of Independent Certified Public Accountants
To the Partners of
Franklin Street Partners Limited Partnership
Wakefield, Massachusetts
We have audited the accompanying consolidated balance sheet of Franklin Street Partners Limited Partnership and subsidiaries as of December 31, 2000, and the related consolidated statements of income, partners' capital and cash flows for the years ended December 31, 2000 and 1999. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of certain real estate partnerships, which statements reflect total revenues of $4,794,000 for the year ended December 31, 1999. Those statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for such real estate partnerships, is based solely on the reports of the other auditors.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of the other auditors for 1999 provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors for 1999, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Franklin Street Partners Limited Partnership and subsidiaries at December 31, 2000, and the results of their operations and their cash flows for the years ended December 31, 2000 and 1999, in conformity with accounting principles generally accepted in the United States of America.
BDO Seidman, LLP
Boston, Massachusetts
February 27, 2001, except Note 4
which is as of December 13, 2001
INDEPENDENT AUDITORS' REPORT
To the Partners
FSP Blue Ravine Limited Partnership
(a Massachusetts Limited Partnership)
Wakefield, Massachusetts
We have audited the accompanying balance sheet of FSP Blue Ravine Limited Partnership (A Massachusetts Limited Partnership), as of December 31, 1999, and the related statements of operations, changes in partners' equity and cash flows for the period August 13, 1999 (date of inception) to December 31, 1999. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of FSP Blue Ravine Limited Partnership (a Massachusetts Limited Partnership) as of December 31, 1999, and the results of its operations, and its cash flows for the period August 13, 1999 (date of inception) to December 31, 1999, in conformity with generally accepted accounting principles.
Roy & Stevens, P.C.
Boston, Massachusetts
January 28, 2000
INDEPENDENT AUDITORS' REPORT
To the Partners
FSP Bollman Place Limited Partnership
(a Massachusetts Limited Partnership)
Wakefield, Massachusetts
We have audited the accompanying balance sheet of FSP Bollman Place Limited Partnership (A Massachusetts Limited Partnership), as of December 31, 1999, and the related statements of operations, changes in partners' equity and cash flows for the period September 28, 1999 (date of inception) to December 31, 1999. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of FSP Bollman Place Limited Partnership (a Massachusetts Limited Partnership) as of December 31, 1999, and the results of its operations, and its cash flows for the period September 28, 1999 (date of inception) to December 31, 1999, in conformity with generally accepted accounting principles.
Roy & Stevens, P.C.
Boston, Massachusetts
January 28, 2000
INDEPENDENT AUDITORS' REPORT
To the Partners
FSP Hillview Center Limited Partnership
(a Massachusetts Limited Partnership)
Wakefield, Massachusetts
We have audited the accompanying balance sheet of FSP Hillview Center Limited Partnership (A Massachusetts Limited Partnership), as of December 31, 1999, and the related statements of operations, changes in partners' equity and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of FSP Hillview Center Limited Partnership (a Massachusetts Limited Partnership) as of December 31, 1999, and the results of its operations and cash flows for the year ended December 31, 1999, in conformity with generally accepted accounting principles.
Roy & Stevens, P.C.
Boston, Massachusetts
February 15, 2000
INDEPENDENT AUDITORS' REPORT
To the Partners
FSP Telecom Business Center Limited Partnership
(a Massachusetts Limited Partnership)
Wakefield, Massachusetts
We have audited the accompanying balance sheet of FSP Telecom Business Center Limited Partnership (A Massachusetts Limited Partnership), as of December 31, 1999, and the related statements of operations, changes in partners' equity and cash flow for the period February 1, 1999 (date of inception) to December 31, 1999. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of FSP Telecom Business Limited Partnership (a Massachusetts Limited Partnership) as of December 31, 1999, and the results of its operations, and its cash flows for the period February 1, 1999 (date of inception) to December 31, 1999, in conformity with generally accepted accounting principles.
Roy & Stevens, P.C.
Boston, Massachusetts
January 28, 2000
INDEPENDENT AUDITORS' REPORT
To the Partners
FSP Silverside Plantation Limited Partnership
We have audited the accompanying balance sheet of FSP SILVERSIDE PLANTATION LIMITED PARTNERSHIP as of December 31, 1999 and the related statements of income, changes in partners' equity, and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of FSP SILVERSIDE PLANTATION LIMITED PARTNERSHIP as of December 31, 1999 and the results of its operations, changes in partners' equity, and cash flows for the year then ended in conformity with generally accepted accounting principles.
Habif, Arogeti & Wynne, LLP
Atlanta, Georgia
January 24, 2000
INDEPENDENT AUDITORS' REPORT
To the Partners
FSP Silverside Plantation Limited Partnership
We have audited the accompanying balance sheet of FSP SILVERSIDE PLANTATION LIMITED PARTNERSHIP as of December 31, 1998 and the related statements of income, changes in partners' equity, and cash flows for the period October 16, 1998 [Date of Inception] to December 31, 1998. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of FSP SILVERSIDE PLANTATION
LIMITED PARTNERSHIP as of December 31, 1998 and the results of its operations,
changes in partners' equity, and cash flows for the period October 16, 1998
[Date of Inception] to December 31, 1998 in conformity with generally accepted
accounting principles.
Habif, Arogeti & Wynne, LLP
Atlanta, Georgia
January 15, 1999
Franklin Street Partners Limited Partnership and Subsidiaries
Consolidated Balance Sheets
December 31,
----------------------------
2001 2000
===============================================================================================
(in thousands,
except unit amounts)
Assets:
Real estate assets:
Land $ 39,560 $ 39,994
Buildings and improvements 153,632 152,999
Fixtures and equipment 920 995
-----------------------------------------------------------------------------------------------
194,112 193,988
Less accumulated depreciation 17,419 12,917
-----------------------------------------------------------------------------------------------
Real estate assets, net 176,693 181,071
Cash and cash equivalents 24,357 13,718
Restricted cash 495 499
Marketable securities -- 5,322
Investment in affiliated Sponsored Entity -- 16,734
Tenant rent receivables, less allowance for doubtful accounts
of $210 and $10, respectively 1,434 1,238
Office computers and furniture, net of accumulated
depreciation of $215 and $142, respectively 397 303
Prepaid expenses and other assets, net 741 1,038
-----------------------------------------------------------------------------------------------
Total assets $ 204,117 $ 219,923
===============================================================================================
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The accompanying notes are an integral part of these consolidated financial statements.
Franklin Street Partners Limited Partnership and Subsidiaries
Consolidated Balance Sheets
December 31,
-----------------------------
2001 2000
================================================================================================
(in thousands,
except unit amounts)
Liabilities and Partners' Capital:
Liabilities:
Bank note payable $ -- $ 16,500
Accounts payable and accrued expenses 2,112 1,575
Accrued compensation 1,747 706
Tenant security deposits 495 499
------------------------------------------------------------------------------------------------
Total liabilities 4,354 19,280
------------------------------------------------------------------------------------------------
Minority interests in consolidated entities -- 63
------------------------------------------------------------------------------------------------
Commitments and contingencies
Partners' capital (deficit):
Limited partners, 23,637,750 and 23,486,096
units issued and outstanding, respectively 203,348 204,067
General partner, 948,499 units issued and outstanding (3,585) (3,487)
------------------------------------------------------------------------------------------------
Total partners' capital 199,763 200,580
------------------------------------------------------------------------------------------------
Total liabilities and partners' capital $ 204,117 $ 219,923
================================================================================================
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The accompanying notes are an integral part of these consolidated financial statements.
Franklin Street Partners Limited Partnership and Subsidiaries
Consolidated Statements of Income
For the Year Ended
December 31,
----------------------------------------
2001 2000 1999
==================================================================================================
(in thousands, except unit and per
partnership unit amounts)
Revenue:
Rental $ 26,765 $ 25,434 $ 16,315
Syndication fees 13,000 4,036 444
Transaction fees 12,701 3,538 345
Interest and other 1,981 1,785 944
---------------------------------------------------------------------------------------------------
Total revenue 54,447 34,793 18,048
---------------------------------------------------------------------------------------------------
Expenses:
Selling, general and administrative 5,229 3,073 2,589
Commissions 6,525 3,422 2,634
Partnership units issued as compensation 1,744 2,300 --
Rental operating expenses 7,026 6,489 4,429
Depreciation and amortization 4,797 4,613 3,231
Real estate taxes and insurance 2,900 2,473 1,448
Interest 818 860 299
---------------------------------------------------------------------------------------------------
Total expenses 29,039 23,230 14,630
---------------------------------------------------------------------------------------------------
Income before minority interests 25,408 11,563 3,418
Income applicable to minority interests 40 2,649 2,279
---------------------------------------------------------------------------------------------------
Net income $ 25,368 $ 8,914 $ 1,139
===================================================================================================
Allocation of net income to:
Limited Partners $ 24,386 $ 8,539 $ 1,049
General Partner 982 375 90
---------------------------------------------------------------------------------------------------
$ 25,368 $ 8,914 $ 1,139
===================================================================================================
Weighted average number of units outstanding, basic
and diluted 24,511,578 18,973,558 11,999,907
===================================================================================================
Basic and diluted net income per limited and
general partnership unit $ 1.03 $ .47 $ .09
===================================================================================================
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The accompanying notes are an integral part of these consolidated financial statements.
Franklin Street Partners Limited Partnership and Subsidiaries
Consolidated Statements of Partners' Capital
Total Partners
Limited Partners General Partner Capital
----------------------- ------------------- -----------------------
Units Amount Units Amount Units Amount
=========================================================================================================================
(in thousands, except unit amounts)
Balance, December 31, 1998 952,301 $ 6,425 948,499 $ (1,426) 1,900,800 $ 4,999
Units issued in January 1, 1999
merger transaction 10,099,107 88,413 -- -- 10,099,107 88,413
Net income -- 1,049 -- 90 -- 1,139
Distributions -- (9,380) -- (1,596) -- (10,976)
-------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 11,051,408 86,507 948,499 (2,932) 11,999,907 83,575
Units issued in January 1, 2000
merger transaction 4,999,972 45,269 -- -- 4,999,972 45,269
Units issued in October 1, 2000
merger transaction 7,204,716 77,080 -- -- 7,204,716 77,080
Units issued for compensation 230,000 2,300 -- -- 230,000 2,300
Net income -- 8,539 -- 375 -- 8,914
Distributions -- (15,628) -- (930) -- (16,558)
-------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000 23,486,096 204,067 948,499 (3,487) 24,434,595 200,580
Net income -- 24,386 -- 982 -- 25,368
Distributions -- (26,849) -- (1,080) -- (27,929)
Units issued for compensation 151,654 1,744 -- -- 151,654 1,744
-------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2001 23,637,750 $ 203,348 948,499 $ (3,585) 24,586,249 $ 199,763
=========================================================================================================================
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The accompanying notes are an integral part of these consolidated financial statements
Franklin Street Partners Limited Partnership and Subsidiaries
Consolidated Statements of Cash Flows
For the Year Ended December 31,
--------------------------------
2001 2000 1999
===========================================================================================
(in thousands)
Cash flows from operating activities:
Net income $ 25,368 $ 8,914 $ 1,139
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,797 4,613 3,231
Partnership units issued for compensation 1,744 2,300 --
Minority interests 40 2,649 2,279
Changes in operating assets and liabilities:
Restricted cash 4 (10) (406)
Tenant rent receivables (196) (665) (389)
Prepaid expenses and other assets, net 75 (745) (260)
Accounts payable and accrued expenses 537 (2,865) 3,777
Accrued compensation 1,041 336 (142)
Tenant security deposits (4) 10 406
-------------------------------------------------------------------------------------------
Net cash provided by operating 33,406 14,537 9,635
activities
-------------------------------------------------------------------------------------------
Cash flows from investing activities:
Distributions from (investment in) affiliated 16,734 (16,734) --
Sponsored Entity
Purchase of real estate assets and office computer (733) (9,952) (77,255)
and furniture
Proceeds received on sales of land 442 927 --
Proceeds from (purchase of) marketable securities 5,322 (5,322) --
-------------------------------------------------------------------------------------------
Net cash provided by (used for) 21,765 (31,081) (77,255)
investing activities
-------------------------------------------------------------------------------------------
Cash flows from financing activities:
Distributions to partners (27,929) (16,558) (10,976)
Distributions to minority interests in consolidated (103) (4,506) (2,375)
entities
Borrowings under bank note payable -- 16,500 23,522
Repayments of bank note payable (16,500) (23,522) --
Capital contributions from minority interest holders -- 39,829 63,316
-------------------------------------------------------------------------------------------
Net cash provided by (used for) (44,532) 11,743 73,487
financing activities
-------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 10,639 (4,801) 5,867
Cash and cash equivalents, beginning of year 13,718 18,519 12,652
-------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 24,357 $ 13,718 $ 18,519
===========================================================================================
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $ 818 $ 860 $ 299
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Non-cash investing and financing activities:
In connection with the Conversion transactions described in Note 4, the Partnership issued limited partnership units in exchange for the limited partner minority interests in Sponsored Partnerships resulting in a non-cash fair value step-up in the Partnership's real estate properties totaling approximately $6,581 and $14,390 during the years ended December 31, 2000 and 1999, respectively.
The accompanying notes are an integral part of these consolidated financial statements.
1. Organization Franklin Street Partners Limited Partnership (Franklin
Street Properties Corp. effective January 1, 2002) (the
"Partnership" or the "Company") was formed as a
Massachusetts limited partnership on February 4, 1997.
Prior to July 1, 2001 the Partnership owned a 99%
interest in FSP Investments LLC ("FSP Investments"), a
99% interest in FSP Property Management LLC ("FSP
Property Management") and 100% of FSP Holdings LLC ("FSP
Holdings"). Effective July 1, 2001, FSP Holdings
purchased the remaining 1% interest of both entities for
approximately $30,000. The Partnership also has a
non-controlling common stock interest in ten
corporations organized to operate as Real Estate
Investment Trusts ("REITs").
The Partnership operates in two business segments:
rental operations and investment services. FSP
Investments provides real estate investment and
broker/dealer services. FSP Investments' services
include: (i) the organization of REIT entities in 2000
and 2001 (the "Sponsored REITs") and limited
partnerships in and prior to 2000 (the "Sponsored
Partnerships" and, together with the Sponsored REITs,
the "Sponsored Entities"), which are syndicated through
private placements; (ii) the acquisition of real estate
on behalf of the Sponsored Entities; and (iii) the sale
of preferred stock in Sponsored REITs or limited
partnership interests in the Sponsored Partnerships. FSP
Property Management provides asset management and
property management services for the Sponsored Entities.
During 1999 and 2000, a total of 17 Sponsored
Partnerships were merged into the Partnership. Prior to
the merger transactions, FSP Holdings owned a 5%
controlling general partner interest in each of the
merged Sponsored Partnerships. Following the
consummation of the merger transactions, the Partnership
held, directly and indirectly, 100% of the partnership
interests in each of the 17 Sponsored Partnerships.
In December 2001 the limited partners of the Partnership
approved the conversion of the Partnership from a
partnership into a corporation and the subsequent
election to be taxed as a real estate investment trust
("REIT"). As a REIT, the Company is entitled to a tax
deduction for dividends paid to its shareholders,
thereby effectively subjecting the distributed net
income of the Company to taxation at the shareholder
level only, provided it annually distributes at least
90% of its taxable income and meets certain other
qualifications. The conversion, which was effective
January 1, 2002, was accomplished, as a tax-free
reorganization, by merging the Partnership with and into
a wholly owned subsidiary, Franklin Street Properties
Corp., with the subsidiary as the surviving entity. As
part of the conversion into a REIT, FSP Investments will
elect to be a taxable REIT subsidiary and will incur
income taxes at normal tax rates.
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The REIT will be taxed under Sections 856 through 860 of
the Internal Revenue Code of 1986, as amended,
commencing with its taxable year ending December 31,
2002. REITs are subject to a number of organizational
and operational requirements including a requirement
that 90.0% of the taxable income be distributed to
shareholders. Provided that the REIT continues to
qualify as a real estate investment trust, it will
generally not be subject to federal income tax on
taxable income distributed to its shareholders. However,
certain of the REIT's subsidiaries may be subject to
federal income tax.
On December 17, 1999, as part of a larger bill, the
President signed into law the REIT Modernization Act
("RMA"). Effective beginning January 1, 2001, the RMA
has amended the tax rules relating to the composition of
a REIT's assets. Under prior law, a REIT was precluded
from owning more than 10.0% of the outstanding voting
securities of any one issuer, other than a wholly owned
subsidiary or another REIT. Beginning in 2001, a REIT
will also be precluded from owning more than 10.0% of
the value of all securities of any one issuer.
One exception to these restrictions is that a REIT will
be allowed to own up to 100% of the securities of a
Taxable REIT Subsidiary ("TRS") that can provide certain
non-customary services to REIT tenants and others
without disqualifying the rents that a REIT receives
from its tenants. However, no more than 20.0% of the
value of a REIT's total assets can be represented by
securities of one or more TRS's. The amount of interest
and other expenses from a TRS to a REIT will be limited
to ensure that a TRS is subject to an appropriate level
of corporate tax. The new 10.0% asset test will not
apply to certain arrangements (including third party
subsidiaries) in place on July 12, 1999, provided that a
subsidiary does not engage in a "substantial new line of
business" or acquire any "substantial asset", and a REIT
does not acquire any new securities in the subsidiary.
Under the RMA, a subsidiary will be able to convert tax
free into a TRS. The REIT anticipates electing TRS
status for certain of its subsidiaries beginning with
its taxable year ending December 31, 2002.
2. Significant
Accounting
Policies
Basis of The accompanying consolidated financial statements
Presentation include all of the accounts of the Partnership, 17
Sponsored Partnerships and majority-owned subsidiaries.
All significant intercompany accounts and transactions
have been eliminated in consolidation.
Prior to the mergers in 1999 and 2000, FSP Holdings was
the general partner and owned a 5% controlling general
partner interest in each of the Sponsored Partnerships.
FSP Holdings had the exclusive rights and powers to
manage and control the business of each Sponsored
Partnership without the consent or approval of the
limited partners. The limited partners in the Sponsored
Partnerships could not elect to replace the general
partner, except for cause. Accordingly, the Sponsored
Partnerships were accounted for under the principles of
accounting applicable to investments in subsidiaries in
accordance with SOP 78-9 and consolidated these entities
into the Partnership's financial statements.
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Business Segments The Partnership follows Statement of Financial
Accounting Standards ("SFAS") No. 131 "Disclosures about
Segments of an Enterprise and Related Information,"
which established standards for the way that public
business enterprises report information about operating
segments in annual financial statements and requires
that those enterprises report selected information about
operating segments in interim financial reports issued
to shareholders.
Minority Interests Minority interests in consolidated entities ("minority
in Consolidated interests") represents the 95% limited partner interests
Entities in Sponsored Partnerships prior to the dates of merger
and, prior to July 1, 2001, the 1% interest in FSP
Investments and FSP Property Management, which was held
by an officer and member of the general partner of the
Partnership. Minority interests included in the
Partnership's consolidated statements of income
represents the minority interest holders' share of the
income of the consolidated entities. The minority
interests in the Partnership's consolidated balance
sheets reflects the original investment made by the
minority interest holders in the consolidated entities
along with their proportional share of the earnings less
cash distributions. Cash distributions paid to minority
interest holders were approximately $103,000,
$4,506,000, and $2,375,000 for the years ended December
31, 2001, 2000, and 1999, respectively.
Estimates and The Company prepares its financial statements and
Assumptions related notes in conformity with accounting principles
generally accepted in the United States of America.
These principles require 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. Actual results
could differ from those estimates.
Reclassifications Certain balances in the 2000 and 1999 financial
statements have been reclassified to conform to the 2001
presentation.
Investments in Common stock investments in Sponsored REITs are
REITs accounted for using the equity method, as the
Partnership exercises significant influence, but does
not control these entities. Under the equity method of
accounting, the Partnership's cost is subsequently
adjusted by its share of the Sponsored REITs' earnings,
after deducting the Sponsored REITs' preferred stock
dividends paid or accrued. Equity in the losses of
Sponsored REITs is not recognized to the extent that the
investment balance would become negative. Dividends are
recognized as income after the investment balance is
reduced to zero.
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There were no dividends received or income recognized,
from the Sponsored REITs for the years ended December
31, 2001 or 2000.
Real Estate and Depreciation Real estate assets are stated at
the lower of cost or fair value, as appropriate, less
accumulated depreciation.
Costs related to property acquisition and improvements
are capitalized. Typical capital items include new
roofs, site improvements, various exterior building
improvements and major interior renovations. Funding for
capital improvements typically is provided by cash set
aside at the time the property was purchased.
Routine replacements and ordinary maintenance and
repairs that do not extend the life of the asset are
expensed as incurred. Typical expense items include
interior painting, landscaping, minor carpet
replacements and residential appliances. Funding for
repairs and maintenance items typically is provided by
cash flows from operating activities. Depreciation is
computed using the straight line method over the assets'
estimated useful lives as follows:
Category Years
-------- -----
Buildings:
Residential 27
Commercial 39
Building Improvements 15-39
Furniture and equipment 5-7
The Partnership evaluates its assets used in operations
by identifying indicators of impairment and by comparing
the sum of the estimated undiscounted future cash flows
for each asset to the asset's carrying value. When
indicators of impairment are present and the sum of the
undiscounted future cash flows is less than the carrying
value of such asset, an impairment loss is recorded
equal to the difference between the asset's current
carrying value and its fair value based on discounting
its estimated future cash flows. At December 31, 2001,
no such indicators of impairment were identified.
Cash and Cash The Partnership considers all highly liquid debt
Equivalents instruments purchased with a maturity of three months or
less to be cash equivalents.
Restricted Cash Restricted cash consists of tenant security deposits.
Tenant security deposits are refunded when tenants
vacate provided that the tenant has not damaged the
property.
Marketable The Partnership accounts for investments in debt
Securities securities under the provisions of SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity
Securities". The Partnership classified its debt
securities as available-for-sale.
There were no investments in marketable securities at
December 31, 2001.
Investments in marketable securities at December 31,
2000 of $5,322,000 mature within one year. These
securities are stated at cost, which approximates fair
market value.
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Concentration of Cash, cash equivalents and short-term investments are
Credit Risks financial instruments that potentially subject the
Partnership to a concentration of credit risk. The
Partnership maintains its cash balances and short term
investments principally in one bank which the
Partnership believes to be creditworthy. The Partnership
periodically assesses the financial condition of the
bank and believes that the risk of loss is minimal. Cash
balances held with various financial institutions
frequently exceed the insurance limit of $100,000
provided by the Federal Deposit Insurance Corporation.
Financial Instruments The Partnership estimates that the carrying
value of cash and cash equivalents, restricted cash,
marketable securities and the bank note payable
approximate their fair values based on their short-term
maturity and prevailing interest rates.
Prepaid Expenses Included in Prepaid expenses and other assets, net at
December 31, 2001 and 2000 is $922,000 and $932,000,
respectively, which represents external leasing and
tenant improvement costs incurred in the leasing of
commercial space. These costs are amortized on a
straight-line basis over the terms of the related lease
agreements. Amortization expense was approximately
$222,000, $146,000 and $116,000 for the years ended
December 31, 2001, 2000 and 1999, respectively.
Revenue Commercial Properties -- The Partnership has retained
Recognition substantially all of the risks and benefits of ownership
of the Partnership's commercial properties and accounts
for its leases as operating leases. Rental income from
leases, which include scheduled increases in rental
rates during the lease term, is recognized on a
straight-line basis. The Partnership does not have any
percentage rent arrangements with its commercial
property tenants. Reimbursable common area maintenance
charges are included in rental income in the period
earned.
Residential Apartments -- The Partnership's residential
property leases are generally for terms of one year or
less. Rental income from tenants of residential
apartment properties is recognized in the period earned.
Rent concessions, including free rent and leasing
commissions incurred in connection with residential
property, leases are expensed as incurred.
Investment Banking Services -- Syndication fees ranging
from 6% to 8% of the gross offering proceeds from the
sale of securities in Sponsored Entities are generally
recognized upon an investor closing; at that time the
Partnership has provided all required services, the fee
is fixed and collected, and no further contingencies
exist. Commission expense ranging from 3% to 4% of the
gross offering proceeds is recorded in the period the
related syndication fee is earned.
Investment Banking Services -- Transaction fees are
generally recognized upon the final investor closing of
a Sponsored Entity. The final investor closing is the
last admittance of investors into a Sponsored Entity; at
that time, required funds have been received from the
investors, charges relating to the syndication have been
paid or accrued, continuing investment and continuing
involvement criteria have been met, and legal and
economic rights have been transferred. Third party
transaction-related costs are deferred and later
expensed to match revenue recognition. Internal costs
are expensed as incurred.
Property and Asset Property and asset management fees, interest income and
Management Fees other income are recognized when the related services
are performed and the earnings process is complete.
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The Company follows the requirements for profit
recognition as set forth by Statement of Financial
Accounting Standards No. 66 "Accounting for Sales of
Real Estate" and Statement of Position 92-1 "Accounting
for Real Estate Syndication Income".
Income Taxes No provision has been made for Federal or state
income taxes in the consolidated financial statements of
the Partnership. Partners are required to report on
their individual tax returns their allocable share of
income, gains, losses, deductions and credits of the
Partnership.
Net Income Per The Partnership follows Statement of Financial
Partnership Unit Accounting Standards No. 128 "Earnings per Share", which
specifies the computation, presentation and disclosure
requirements for the Partnership's net income per
partnership unit. Basic net income per unit is computed
by dividing net income by the weighted average number of
partnership units outstanding during period. Diluted net
income per share reflects the potential dilution that
could occur if securities or other contracts to issue
units were exercised or converted into units. There were
no potential dilutive units outstanding at December 31,
2001, 2000, and 1999. The denominator used for
calculating basic and diluted net income per unit is as
follows:
Year Ended December 31,
----------------------------------
2001 2000 1999
=======================================================
Weighted average
number of units
outstanding
Limited partners 23,563,079 18,025,059 11,051,408
General partner 948,499 948,499 948,499
-------------------------------------------------------
24,511,578 18,973,558 11,999,907
=======================================================
Recent Accounting In June 1998, the Financial Accounting Standards Board
Standards ("FASB") issued Statements of Financial Accounting
Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities" as amended by SFAS
No. 137 and No. 138. The provisions of this statement
require that derivative instruments be carried at fair
value on the balance sheet. The statement continues to
allow derivative instruments to be used to hedge various
risks and sets forth specific criteria to be used to
determine when hedge accounting can be used. For
derivative instruments not accounted for as hedges,
changes in fair value are required to be recognized in
earnings. The provisions of this statement became
effective January 1, 2001. The Partnership has not
historically had derivative instruments, and this
standard has had no impact on its financial position,
results of operations and cash flows.
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In June 2001, the FASB approved SFAS No. 141 "Business Combinations" ("SFAS 141") and No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142"), effective July 1, 2001 and January 1, 2002, respectively, for the Partnership. SFAS 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. The Partnership has adopted SFAS 141; however, no combinations by the Partnership occurred after June 30, 2001 to which this would apply. Under SFAS 142, amortization of goodwill, including goodwill recorded in past business combinations, will discontinue upon adoption of this standard. All goodwill and intangible assets will be tested for impairment in accordance with the provisions of the Statement. The Partnership has reviewed the provisions of SFAS 142 and believes that the impact of adoption will not be material to its financial position, results of operations and cash flows.
In August 2001, the FASB issued SFAS No. 143 "Accounting for Asset Retirement Obligations" ("SFAS 143") which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This Statement requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of the fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. SFAS 143 will be effective at the beginning of 2003. The Partnership has reviewed the provisions of SFAS 143 and believes that the impact of adoption will not be material to its financial position, results of operations and cash flows.
In October 2001, the FASB issued SFAS No. 144
"Accounting for the Impairment or Disposal of Long-Lived
Assets" ("SFAS 144"). SFAS 144 supersedes SFAS No. 121
and requires that long-lived assets that are to be
disposed of by sale be measured at the lower of book
value or fair value less costs to sell. SFAS 144 retains
the fundamental provisions of SFAS No. 121 for (a)
recognition and measurement of the impairment of
long-lived assets to be held and used, and (b)
measurement of long-lived assets to be disposed of by
sale, but broadens the definition of what constitutes a
discontinued operation and how the results of a
discontinued operation are to be measured and presented.
SFAS 144 will be effective at the beginning of 2002.
With the exception of reclassifiying, the operations of
real estate assets considered "held for sale" to
"Discontinued operations, net of tax" in the
consolidated statement of income, the impact of adoption
of SFAS 144 will not have a material impact on the
Partnership's financial position and cash flows. The
Partnership does not have any real estate assets that it
considers "held for sale."
3. Business Segments The Partnership operates in two business segments:
rental operations and investment services (including
real estate acquisition, financing and broker/dealer
services). The Partnership has identified these segments
because this discrete information is the basis upon
which management makes decisions regarding resource
allocation and performance assessment. The accounting
policies of the reportable segments are the same as
those described in the "Significant Accounting
Policies". The Partnership's segments are located in the
United States of America. The Partnership previously
evaluated the performance of its reportable segments
based on Funds from Operations ("FFO"); however,
effective October 1, 2001 management changed its
evaluation performance measure to Cash Available for
Distribution ("CAD") as management believes that CAD
represents a more accurate measure of the reportable
segment's activity and is the basis for distributions
paid to equity holders. The Partnership defines CAD as:
net income as computed in accordance with accounting
principles generally accepted in the United States of
America ("GAAP"); plus non-cash items included in the
computation of net income (depreciation and
amortization, non-cash compensation expenses and
straight line rent adjustments);plus Investment Services
Proceeds received from controlled partnerships; plus the
net proceeds from the sale of land; less purchases of
property and equipment from operating cash. Purchases of
real estate assets from cash reserves established at the
acquisition date of the property are not reflected in
the computation of CAD. CAD should not be considered an
alternative to net income (determined in accordance with
GAAP), as an indicator of the Company's financial
performance, cash flows from operating activities
(determined in accordance with GAAP), nor as a measure
of the Company's liquidity, nor is it necessarily
indicative of sufficient cash flow to fund all of the
Company's needs. Other real estate companies may define
CAD in a different manner.
|
CAD by business segment is as follows (in thousands):
Rental Investment Intercompany Total
Operations Services Total Elimination Consolidated
============================================================
Year ended December 31, 2001:
Net Income $ 21,381 $ 3,987 $25,368 $ -- $ 25,368
Depreciation and amortization 4,900 71 4,971 (174) 4,797
Non-cash compensation expenses -- 1,744 1,744 -- 1,744
Straight line rent (797) -- (797) -- (797)
Proceeds from sale of surplus land 449 -- 449 -- 449
Purchase of fixed assets from operating (79) (167) (246) -- (246)
cash
---------------------------------------------------------------------------------------------------------
Cash Available for Distribution $ 25,854 $ 5,635 $31,489 $ (174) $ 31,315
=========================================================================================================
Year ended December 31, 2000:
Net Income $ 11,351 $ 2,789 $14,140 $(5,226) $ 8,914
Investment services proceeds received from
controlled partnerships (1) -- -- -- 5,226 5,226
Depreciation and amortization 4,679 83 4,762 (149) 4,613
Non cash compensation expenses -- 2,300 2,300 -- 2,300
Straight line rent (185) -- (185) -- (185)
Proceeds from sale of land 1,068 -- 1,068 -- 1,068
Purchase of fixed assets from operating (512) (135) (647) -- (647)
cash
---------------------------------------------------------------------------------------------------------
Cash Available for Distribution $ 16,401 $ 5,037 $21,438 $ (149) $21,289
=========================================================================================================
Year ended December 31, 1999:
Net Income $ 3,665 $ 5,089 $ 8,754 $(7,615) $ 1,139
Investment services proceeds received from
controlled partnerships -- -- -- 7,615 7,615
Depreciation and amortization 3,272 68 3,340 (109) 3,231
Straight line rent (102) -- (102) -- (102)
Purchase of fixed assets from operating (187) (186) (373) -- (373)
cash
---------------------------------------------------------------------------------------------------------
Cash Available for Distribution $ 6,648 $ 4,971 $11,619 $ (109) $ 11,510
=========================================================================================================
|
(1) The Partnership received various investment services income from the syndication of Sponsored Partnerships. Although this income was eliminated in the calculation of consolidated net income in accordance with GAAP, the cash received from the Sponsored Partnerships was available for distribution to the members of the Partnership.
The Partnership's cash distributions from operations for the years ended December 31, 2001, 2000 and 1999 are summarized as follows:
Distribution Per Total Cash
Quarter paid Partnership Unit Distributions
========================================================
(in thousands)
Second quarter of 2001 $.28 $ 6,842
Third quarter of 2001 .29 7,087
Fourth quarter of 2001 .30 7,376
First quarter of 2002 (A) .31 7,622
--------------------------------------------------------
$1.18 $28,927
========================================================
Second quarter of 2000 $.24 $ 4,080
Third quarter of 2000 .25 4,308
Fourth quarter of 2000 .26 4,480
First quarter of 2001 .27 6,597
--------------------------------------------------------
$1.02 $19,465
========================================================
Second quarter of 1999 $.20 $ 2,400
Third quarter of 1999 .21 2,520
Fourth quarter of 1999 .22 2,640
First quarter of 2000 .23 2,760
--------------------------------------------------------
$.86 $10,320
========================================================
|
(A) Represents dividends declared and paid by the Company in the first quarter of 2002.
Cash distributions per partnership unit is based on the total outstanding units at the end of each calendar quarter. Cash available for distribution, as determined at the sole discretion of the general partner, is required to be distributed to unit holders within 90 days following the end of each calendar quarter. The cash distribution of approximately $7,622,000 for the fourth quarter of 2001 was declared and paid in 2002. The cash distribution of approximately $6,597,000 for the fourth quarter of 2000 was declared and paid in the first quarter of 2001. The cash distribution of approximately $2,670,000 for the fourth quarter of 1999 was declared and paid in 2000.
The following table is a summary of other financial information by business segment:
Rental Investment
Operations Services Total
========================================================
(in thousands)
December 31, 2001:
Revenue $ 26,765 $ 25,701 $ 52,466
Interest Income 1,870 111 1,981
Interest Expense 818 0 818
Capital expenditures 566 167 733
Identifiable assets 199,140 4,977 204,117
December 31, 2000:
Revenue $ 25,434 $ 7,574 $ 33,008
Interest Income 1,686 99 1,785
Interest Expense 860 -- 860
Capital expenditures 9,825 127 9,952
Identifiable assets 194,328 25,595 219,923
December 31, 1999:
Revenue $ 16,315 $ 789 $ 17,104
Interest Income 915 29 944
Interest Expense 299 0 299
Capital expenditures 77,060 195 77,255
Identifiable assets 159,324 31,162 190,486
4. Merger Transactions The merger transactions involved the exchange of the
Partnership's limited partner units for the minority
interest holder's limited partnership units in 17
Sponsored Partnerships. The Partnership has recorded the
minority interest acquisitions based on the fair value
of assets and liabilities acquired. Additionally,
transaction costs incurred in connection with the 2000
and 1999 mergers totaling approximately $453,000 and
$736,000, respectively, have been reflected as a cost of
the minority interest acquisitions. The fair market
value of the merged entities' real estate was determined
based on independent appraisals.
Effective October 1, 2000, the Partnership and six
Sponsored Partnerships consummated a series of mergers
pursuant to an Agreement and Plan of Merger (the
"October 2000 Merger"). Under the terms of the October
2000 Merger, all limited partnership interests in the
six Sponsored Partnerships outstanding on October 1,
2000 were exchanged for 7,204,716 new limited
partnership units in the Partnership. The operations of
the six merged Sponsored Partnerships consist of six
commercial rental properties.
Effective January 1, 2000, the Partnership and three
Sponsored Partnerships consummated a series of mergers
pursuant to an Agreement and Plan of Merger (the
"January 2000 Merger"). Under the terms of the January
2000 Merger, all limited partnership interests in the
three Sponsored Partnerships outstanding on January 1,
2000 were exchanged for 4,999,972 new limited
partnership units in the Partnership. The operations of
the three merged Sponsored Partnerships consist of a
residential apartment property and two commercial real
estate properties.
|
Effective January 1, 1999, the Partnership and eight Sponsored Partnerships consummated a series of mergers pursuant to an Agreement and Plan of Merger (the "1999 Merger"). Under the terms of the 1999 Merger, all limited partnership interests in the eight Sponsored Partnerships outstanding on January 1, 1999 were exchanged for 10,099,107 new limited partnership units in the Partnership. Additionally, the partnership interests held by the Partnership's existing general partner and limited partners were exchanged for 948,499 new general partnership units and 952,301 new limited partnership units, respectively. The operations of the merged Sponsored Partnerships consist of five commercial rental properties and three residential real estate properties.
Following the consummation of the mergers described above, the Partnership owned, directly and indirectly, 100% of the interests in each merged Sponsored Partnership. The merger transactions were structured as exchanges of partnership units and no cash was involved. The Partnership's consolidated financial statements include the full results of operations of the merged Sponsored Partnerships from the date of merger.
The following pro forma consolidated results of operations are presented as if the merger transactions had occurred at the beginning of the periods presented:
Year ended December 31, 2000 1999
========================================================
(unaudited) (in thousands,
except per unit amounts)
Revenue $34,793 $18,048
Net income 10,987 3,121
Basic and diluted net income
per limited and general
partnership unit $ 0.47 $ 0.19
5. Related Party
Transactions
Investment in The Partnership typically retains a non-controlling
Affiliated common stock ownership interest in Sponsored REITs that
Sponsored REITs it has organized. These ownership interests have
virtually no economic benefit or risk. At December 31,
2001 and 2000, the Partnership had ownership interests
in ten and four Sponsored REITs, respectively. During
1999 and 2000, the Company acquired 100% of the
non-owned interests of certain Sponsored Partnerships
(through a series of mergers) that it had previously
organized. Neither the Company nor any other related
entity has an obligation to acquire the non-owned
interests in any previously syndicated Sponsored REIT.
Summarized financial information for the Sponsored REITs
is as follows:
(unaudited)
2001 2000
---- ----
(in thousands)
Balance Sheet Data:
-------------------
Real estate, net $222,232 $56,565
Other assets 19,048 5,058
Total liabilities 6,755 1,950
Shareholders equity 234,525 59,673
|
2001 2000
---- ----
(in thousands)
Operating Data:
---------------
Rental revenues $19,816 $2,778
Other revenues 354 117
Operating and maintenance expenses 5,973 948
Depreciation and amortization 3,191 574
Interest expense 9,916 2,298
Net income (loss) 1,090 (925)
The Partnership's proportionate share of income prior to
syndication from these Sponsored REITs was $255,000, $0
and $0 for the years ended December 31, 2001, 2000 and
1999, respectively.
In addition to management services, the Partnership is
typically entitled to a return on funds advanced to
syndicated REITs. The Partnership recognized income of
$552,000, $402,000 and $0 for the years ended December
31, 2001, 2000 and 1999, respectively, relating to these
investments.
Sponsored Entity The Partnership has provided syndication and real estate
Fees acquisition advisory services for the Sponsored REITs in
2001 and 2000 and Sponsored Partnerships prior to July
2000. Syndication and transaction fees from
non-consolidated related entities amounted to
approximately $25,701,000, $7,574,000 and $789,000 for
the years ended December 31, 2001, 2000 and 1999,
respectively.
Management Fees Management fees charged to the Sponsored Partnerships
prior to the respective mergers have been eliminated in
the accompanying consolidated statements of income due
to the Partnership's controlling interest in a Sponsored
Partnership. Total property management fee income from
non-consolidated entities amounted to approximately
$412,000, $178,000 and $16,000 for the years ended
December 31, 2001, 2000 and 1999, respectively, and is
included in "Interest and other income" in the
Consolidated Statements of Income. Property management
fees range from 1% to 5% of collected rents and the
applicable contracts are cancelable with 30 days'
notice.
6. Bank Note Payable The Partnership has a revolving line of credit agreement
(the "Loan Agreement") with a bank providing for
borrowings at the Partnership's election up to
$50,000,000. Borrowings under the Loan Agreement bear
interest at either the bank's base rate or a variable
LIBOR rate, as defined. Borrowings outstanding under the
Loan Agreement consist of the following:
December 31, 2001 2000
========================================================
(in thousands)
Note payable, bearing interest at
the bank's base rate
|
(9.5% at December 31, 2000). $-- $16,500
The Loan Agreement includes restrictions on property liens and requires compliance with various financial covenants. Financial covenants include the maintenance of at least $1,500,000 in operating cash accounts, a minimum tangible net worth of $140,000,000 and compliance with various debt and operating income ratios, as defined in the Loan Agreement. The Partnership was in compliance with the Loan Agreement's financial covenants as of December 31, 2001 and 2000. The Loan Agreement matures on February 23, 2003.
The Partnership has arranged for Citizens Bank to provide a line of credit for the Partnership's senior officers in the maximum aggregate amount of $3 million. The borrowings under this line of credit are for the purpose of paying income taxes on equity interests in the Company issued to such senior officers as compensation. Loans under this line of credit have a term of one year and bear interest at the bank's prime rate plus 50 basis points. Each borrower has secured the loan by pledging shares of the Company's Common Stock having an aggregate fair market value at the time of the loan of no less than twice the principal amount of the loan. Borrowings of $1,625,000 and $800,000 were outstanding to senior officers of the Partnership at December 31, 2001 and 2000 respectively. The Partnership has agreed to purchase from Citizens Bank any such loan on which the borrower defaults. Following the purchase of the loan, the Partnership would have the same rights as Citizens Bank, including the right to foreclose on the pledged. stock.
7. Partners' Capital
General The Partnership's general partner has the exclusive
right to manage the business of the Partnership and make
certain amendments to the Partnership Agreement, without
the consent or approval of the limited partners. The
Partnership's limited partners do not take part in
management and do not have any voting rights regarding
the Partnership's operations. A majority in interest of
the limited partners, with the consent of the general
partner, may amend the Partnership Agreement, subject to
certain limitations as defined in the Partnership
Agreement. Except as provided for under certain Federal
tax provisions described in the Partnership Agreement,
net income or net losses from operations are allocated
to all partners based on their percentage interest in
the Partnership. Net profits or losses arising from a
sale or other disposition of all or any portion of the
Partnership's property or upon liquidation of the
Partnership are allocated as follows:
Net Profit -- The Partnership's net profits are
allocated first to the extent of any partner's negative
capital account balance, and thereafter in proportion
with their percentage interest in the Partnership.
Net Losses -- First to the extent of any partner's
positive capital account balance, and thereafter in
proportion with their percentage interest in the
Partnership.
The Partnership's cash distributions are allocated to
the limited partners and the general partner based on
each partner's percentage interest in the Partnership.
|
Equity-Based In April 2000, January 2001 and July 2001, the
Compensation Partnership issued 230,000 Units, 2,522 Units and
149,131 Units, respectively, with a fair value of
approximately $2,300,000, $29,000 and $1,715,000,
respectively, to certain officers and employees of the
Partnership in lieu of cash compensation. These
partnership units were fully vested on the date of
issuance. Equity-based compensation charges of
$1,744,000 and $2,300,000 are reported in the
accompanying consolidated statement of income for the
year ended December 31, 2001 and 2000, respectively.
General Partner On December 30, 1999, FSP General Partner LLC (the
"General Partner") was organized solely to hold the
Partnership's general partner units, which were
previously held by eight individuals. The General
Partner's financial activities consist of receiving cash
distributions from the Partnership and paying such
amounts to its members. The members of the General
Partner function as officers and/or directors of the
Partnership. The Partnership pays no fees or other
compensation to the General Partner. The General Partner
has no commitment or intent to furnish direct or
indirect financial assistance to the Partnership.
8. Federal Income Tax The difference between Partners' capital for financial
Reporting reporting purposes and for income tax purposes is
approximately as follows (in thousands):
2001 2000
---- ----
Partnership capital - financial $199,763 $200,580
reporting purposes,
Partnership's cumulative tax
reporting differences, primarily
relating to non-deductible
expenses, depreciation and other
temporary differences and the
effects of mergers (17,217) (19,090)
--------------------------------------------------------
Partners' capital -- income tax
purposes $182,546 $181,490
========================================================
The merger transactions described in Note 4 were treated
as tax-free reorganizations for income tax reporting
purposes.
9. Commitments The Partnership's commercial rental operations include
Rentals Under the leasing of office buildings and industrial
Operating Leases properties subject to leases with terms greater than one
year. The leases thereon expire at various dates through
2012. The following is a schedule of approximate future
minimum rental income on non-cancelable operating leases
|
as of December 31, 2001:
(in thousands)
2002 $15,415
2003 13,307
2004 9,957
2005 5,898
2006 3,336
Thereafter 12,207
--------------------------------------------------------
$60,120
========================================================
|
Certain leases provide for fixed step rent increases.
Rental revenue is recognized on the straight-line basis
over the related lease term while billings by the
Company are based on required minimum rentals in
accordance with the lease agreements. Cumulative revenue
recognized in excess of amounts billed by the Company is
$1,382,000 and $585,000 at December 31, 2001 and 2000,
respectively, and is included in tenant rent
receivables.
Office Lease The Partnership leases its corporate office space under
a six-year operating lease that commenced in June 1999.
The lease includes a base annual rent and additional
rent for the Partnership's share of taxes and operating
costs.
Future minimum lease payments are approximately as
follows (in thousands):
Year ended December 31,
========================================================
2002 $199
2003 203
2004 209
2005 97
--------------------------------------------------------
$708
========================================================
Rent expense was approximately $196,000, $184,000 and
$126,000 for the years ended December 31, 2001, 2000 and
1999, respectively, and is included in selling, general
and administration expenses in the Consolidated
Statement of Income.
Retirement Plan During 1999, the Partnership formed a retirement savings
plan for eligible employees. Under the plan, the
Partnership matches participant contributions up to
$6,500 ($6,000 in 2000) annually per participant. The
Partnership's total contribution under the plan amounted
to approximately $76,000, $53,000 and $13,000 for the
years ended December 31, 2001, 2000 and 1999,
respectively.
10. Subsequent Events
Property Purchase In connection with the purchase of a property by a
Sponsored REIT in May 2001, the Partnership obligated
itself to purchase an additional parcel of real property
within a certain amount of time if the owner offered
such property for sale to the Partnership. The Company
satisfied this obligation by causing FSP Timberlake East
Corp., a newly-organized Sponsored REIT, to purchase
this parcel on March 4, 2002.
Dividends On February 8, 2002, the Company declared a dividend of
$.30 per share of Common Stock payable to stockholders
of record as of February 8, 2002. On February 15, 2002,
the Company also declared a dividend of $.01 per share
of Common Stock payable to stockholders of record as of
February 15, 2002.
|
11. Quarterly Financial Information (unaudited)
2000
-----------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- -------- --------- ---------
(in thousands, except per unit data)
Revenue $ 6,404 $ 6,760 $ 10,769 $ 10,860
Income before minority interests 238 589 5,612 5,124
Income applicable to minority interests 412 1,111 1,107 19
Net income (net loss) (174) (522) 4,505 5,105
Allocation of net income (net loss) to Limited
Partners (164) (493) 4,257 4,939
Allocation of net income (net loss) to General
Partner (10) (29) 248 166
Basic and diluted net income (net loss) per
limited and general partnership unit (0.01) (0.03) 0.26 0.21
Weighted average number of units outstanding 17,000 17,230 17,230 24,436
|
2001
-----------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- -------- --------- ---------
(in thousands, except per unit data)
Revenue $12,787 $13,496 $11,302 $16,862
Income before minority interests 6,023 5,935 4,083 9,367
Income applicable to minority interests 21 19 0 0
Net income 6,002 5,916 4,083 9,367
Allocation of net income to Limited Partners 5,769 5,686 3,925 9,006
Allocation of net income to General Partner 233 230 158 361
Basic and diluted net income per limited and
general partnership unit 0.25 0.24 0.17 0.38
Weighted average number of units outstanding 24,436 24,437 24,586 24,586
|
SCHEDULE III
FRANKLIN STREET PARTNERS LIMITED PARTNERSHIP AND SUBSIDIARIES
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2001
Initial Cost
-----------------------------------
Costs
Capitalized
Encumbrances (Disposals)
Buildings & Subsequent to
Description (1) Land Improvement Acquisition
------------ ---- ----------- -------------
Residential Apartments:
Essex House, Houston, TX -- $ 2,920 $ 9,367 $ 648
Reata, Houston, TX -- 3,399 9,657 597
Weslayan Oaks, Houston, TX -- 1,658 3,990 71
Silverside Plantation, Baton Rouge, LA -- 2,000 17,082 119
Commercial Properties:
North Andover
Office Park, No. Andover, MA -- 1,311 8,136 902
Park Seneca, Charlotte, NC -- 1,915 7,817 26
Piedmont Center, Greenville, SC -- 1,449 9,839 809
4995 Patrick Henry, Santa Clara, CA -- 3,274 4,130 58
One Technology Drive, Peabody, MA -- 1,658 10,246 (450)
Hillview Center, Milpitas, CA -- 2,203 2,813 7
Telecom Business Center, San Diego, CA -- 5,035 11,363 79
Southfield Centre, Southfield, MI -- 4,344 11,455 143
Blue Ravine, Folsom, CA -- 846 5,450 22
Bollman Place, Savage, MD -- 1,585 4,121 46
Austin N.W., Austin, TX -- 708 10,494 170
10 Lyberty Way, Westford, MA -- 1,315 8,862 162
Gateway Crossing 95, Columbia, MD -- 4,453 15,931 (123)
-------- -------- -------- --------
-- $ 40,073 $150,753 $ 3,286
======== ======== ======== ========
|
Historical Costs
-------------------------------------------------------------
Total Costs,
Net of Depreciable Date of
Buildings & Accumulated Accumulated Life Acquisition
Description Land Improvements Total(2) Depreciation Depreciation Years (3)
----------- -------- ------------ -------- ------------ ------------ ----------- -----------
(in thousands)
Residential Apartments:
Essex House, Houston, TX $ 2,920 $ 10,015 $ 12,935 $ 2,887 $ 10,048 5-27 1993
Reata, Houston, TX 3,399 10,254 13,653 2,386 11,267 5-27 1994
Weslayan Oaks, Houston, TX 1,658 4,061 5,719 717 5,002 5-27 1997
Silverside Plantation, Baton Rouge, LA 2,021 17,180 19,201 2,010 17,191 5-27 1998
Commercial Properties:
North Andover
Office Park, No. Andover, MA 1,311 9,038 10,349 1,766 8,583 5-39 1996
Park Seneca, Charlotte, NC 1,815 7,943 9,758 781 8,977 5-39 1997
Piedmont Center, Greenville, SC 1,449 10,648 12,097 1,126 10,971 5-39 1998
4995 Patrick Henry, Santa Clara, CA 3,274 4,188 7,462 436 7,026 5-39 1997
One Technology Drive, Peabody, MA 1,658 9,796 11,454 1,383 10,071 5-39 1995
Hillview Center, Milpitas, CA 2,203 2,820 5,023 206 4,817 5-39 1999
Telecom Business Center, San Diego, CA 5,035 11,442 16,477 832 15,645 5-39 1999
Southfield Centre, Southfield, MI 4,344 11,598 15,942 673 15,269 5-39 1999
Blue Ravine, Folsom, CA 846 5,472 6,318 300 6,018 5-39 1999
Bollman Place, Savage, MD 1,585 4,167 5,752 224 5,528 5-39 1999
Austin N.W., Austin, TX 708 10,664 11,372 511 10,861 5-39 1999
10 Lyberty Way, Westford, MA 1,315 9,024 10,339 352 9,987 5-39 2000
Gateway Crossing 95, Columbia, MD 4,019 16,242 20,261 829 19,432 5-39 1999
-------- -------- -------- -------- --------
$ 39,560 $154,552 $194,112 $ 17,419 $176,693
======== ======== ======== ======== ========
|
(1) There are no encumbrances on the above properties.
(2) The aggregate cost for Federal Income Tax purposes is $181,606.
(3) Original date of acquisition by Sponsored Partnership.
The following table summarizes the changes in the Partnership's real estate investments and accumulated
depreciation:
December 31,
-----------------------------
2001 2000 1999
========================================================
(in thousands)
Real estate investments,
at cost:
Balance, beginning of $193,988 $178,294 $ 86,835
period
Acquisitions -- 15,982 91,271
Improvements 566 639 188
Dispositions (442) (927) --
--------------------------------------------------------
Balance, end of period $194,112 $193,988 $178,294
========================================================
Accumulated depreciation:
Balance, beginning of $ 12,917 $ 8,526 $ 5,447
period
Depreciation 4,502 4,391 3,079
Dispositions -- -- --
--------------------------------------------------------
Balance, end of period $ 17,419 $ 12,917 $ 8,526
========================================================
|
FRANKLIN STREET PROPERTIES CORP.
2002 STOCK INCENTIVE PLAN
1. Purpose
The purpose of this 2002 Stock Incentive Plan (the "Plan") of Franklin Street Properties Corp., a Maryland corporation (the "Company"), is to advance the interests of the Company's stockholders by enhancing the Company's ability to attract, retain and motivate persons who make (or are expected to make) important contributions to the Company by providing such persons with equity ownership opportunities and performance-based incentives and thereby better aligning the interests of such persons with those of the Company's stockholders. Except where the context otherwise requires, the term "Company" shall include any of the Company's present or future parent or subsidiary corporations as defined in Sections 424(e) or (f) of the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder (the "Code") and any other business venture (including, without limitation, joint ventures, limited partnerships or limited liability companies) in which the Company has a controlling interest, as determined by the Board of Directors of the Company (the "Board").
2. Eligibility
All of the Company's employees, officers, directors, consultants and advisors are eligible to be granted awards (each, an "Award") consisting of shares of common stock, $.0001 par value per share of the Company (the "Common Stock"), under the Plan. Each person who has been granted an Award under the Plan shall be deemed a "Participant".
3. Administration and Delegation
(a) Administration by Board of Directors. The Plan will be administered by the Board. The Board shall have authority to grant Awards and to adopt, amend and repeal such administrative rules, guidelines and practices relating to the Plan as it shall deem advisable. The Board may correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award in the manner and to the extent it shall deem expedient to carry the Plan into effect and it shall be the sole and final judge of such expediency. All decisions by the Board shall be made in the Board's sole discretion and shall be final and binding on all persons having or claiming any interest in the Plan or in any Award. No director or person acting pursuant to the authority delegated by the Board shall be liable for any action or determination relating to or under the Plan made in good faith.
(b) Appointment of Committees. To the extent permitted by applicable law, the Board may delegate any or all of its powers under the Plan to one or more committees or subcommittees of the Board (a "Committee"). All references in the Plan to the "Board" shall mean the Board or a Committee of the Board to the extent that the Board's powers or authority under the Plan have been delegated to such Committee.
4. Stock Available for Awards
Subject to adjustment under Section 6, Awards may be made under the Plan for up to 2,000,000 shares of Common Stock. The maximum number of shares of Common Stock with respect to which Awards may be granted to any Participant under the Plan during any calendar year shall be the number of shares authorized for issuance under the Plan pursuant to this Section 4. Shares issued under the Plan may consist in whole or in part of authorized but unissued shares or treasury shares.
5. Terms and Conditions of Awards
The Board shall determine the terms and conditions of any Awards at the time of grant, including the issue price, if any.
6. Adjustments for Changes in Capitalization
In the event of any stock split, reverse stock split, stock dividend, recapitalization, combination of shares, reclassification of shares, spin-off or other similar change in capitalization or event, or any distribution to holders of Common Stock other than a normal cash dividend, the number and class of securities available under this Plan shall be appropriately adjusted by the Company to the extent the Board shall determine, in good faith, that such an adjustment is necessary and appropriate.
7. General Provisions Applicable to Awards
(a) Documentation. Each Award shall be evidenced in such form (written, electronic or otherwise) as the Board shall determine. Each Award may contain terms and conditions in addition to those set forth in the Plan.
(b) Board Discretion. Except as otherwise provided by the Plan, each Award may be made alone or in addition or in relation to any other Award. The terms of each Award need not be identical, and the Board need not treat Participants uniformly.
(c) Withholding. Each Participant shall pay to the Company, or make provision satisfactory to the Board for payment of, any taxes required by law to be withheld in connection with Awards to such Participant no later than the date of the event creating the tax liability. Except as the Board may otherwise provide in an Award, when the Common Stock is registered under the Securities Exchange Act of 1934, as amended, Participants may satisfy such tax obligations in whole or in part by delivery of shares of Common Stock, including shares retained from the Award creating the tax obligation, valued at their fair market value as determined by (or in a manner approved by) the Board in good faith; provided, however, that the total tax withholding where stock is being used to satisfy such tax obligations cannot exceed the Company's minimum statutory withholding obligations (based on minimum statutory withholding rates for federal and state tax purposes, including payroll taxes, that are applicable to such supplemental taxable income). The Company may, to the extent permitted by law, deduct any such tax obligations from any payment of any kind otherwise due to a Participant.
(d) Conditions on Delivery of Stock. The Company will not be obligated to deliver any shares of Common Stock pursuant to the Plan until (i) all conditions of the Award have been met or removed to the satisfaction of the Company, (ii) in the opinion of the Company's counsel, all other legal matters in connection with the issuance and delivery of such shares have been satisfied, including any applicable securities laws and any applicable stock exchange or stock market rules and regulations, and (iii) the Participant has executed and delivered to the Company such representations or agreements as the Company may consider appropriate to satisfy the requirements of any applicable laws, rules or regulations.
8. Miscellaneous
(a) No Right To Employment or Other Status. No person shall have any claim or right to be granted an Award, and the grant of an Award shall not be construed as giving a Participant the right to continued employment or any other relationship with the Company. The Company expressly reserves the right at any time to dismiss or otherwise terminate its relationship with a Participant free from any liability or claim under the Plan, except as expressly provided in the applicable Award.
(b) No Rights As Stockholder. Subject to the provisions of the applicable Award, no Participant shall have any rights as a stockholder with respect to any shares of Common Stock to be distributed with respect to an Award until becoming the record holder of such shares.
(c) Effective Date and Term of Plan. The Plan shall become effective on the date on which it is adopted by the Board.
(d) Amendment of Plan. The Board may amend, suspend or terminate the Plan or any portion thereof at any time.
(e) Authorization of Sub-Plans. The Board may from time to time establish one or more sub-plans under the Plan for purposes of satisfying applicable blue sky, securities or tax laws of various jurisdictions. The Board shall establish such sub-plans by adopting supplements to this Plan containing (i) such limitations on the Board's discretion under the Plan as the Board deems necessary or desirable or (ii) such additional terms and conditions not otherwise inconsistent with the Plan as the Board shall deem necessary or desirable. All supplements adopted by the Board shall be deemed to be part of the Plan, but each supplement shall apply only to Participants within the affected jurisdiction and the Company shall not be required to provide copies of any supplement to Participants in any jurisdiction which is not the subject of such supplement.
(f) Governing Law. The provisions of the Plan and all Awards made hereunder shall be governed by and interpreted in accordance with the laws of the State of Maryland, without regard to any applicable conflicts of law.
Adopted by the Board of Directors on February 8, 2002
Adopted by the stockholders on __________, 2002
LOAN AGREEMENT
among
FRANKLIN STREET PARTNERS LIMITED PARTNERSHIP
FSP WESLAYAN OAKS LIMITED PARTNERSHIP
ESSEX LANE ASSOCIATES LIMITED PARTNERSHIP
FSP APARTMENT PROPERTIES LIMITED PARTNERSHIP
FSP PARK SENECA LIMITED PARTNERSHIP
FSP SANTA CLARA LIMITED PARTNERSHIP
FSP PIEDMONT CENTER LIMITED PARTNERSHIP
ONE TECHNOLOGY DRIVE LIMITED PARTNERSHIP
FSP NORTH ANDOVER OFFICE PARK LIMITED PARTNERSHIP
and
OTHER BORROWERS WHICH MAY BECOME
PARTIES TO THIS AGREEMENT
and
CITIZENS BANK OF MASSACHUSETTS
February 23, 1999
TABLE OF CONTENTS
Section
1. BACKGROUND..............................................................1
1.1 Definitions....................................................1
1.2 Borrower.......................................................1
1.3 Use of Proceeds................................................1
1.4 Facility.......................................................1
2. AGREEMENT TO MAKE LOAN..................................................1
2.1 Agreement to Make Loan.........................................1
2.2 Commitment to Borrow...........................................2
2.3 Purpose of Loan................................................2
2.4 Requests for Advances..........................................2
2.5 The Loan Account...............................................4
2.6 Establishment of Letter of Credits.............................5
2.7 Effect of Honor of L/C's.......................................5
2.8 Additional Provisions Relating to L/C's........................5
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3. THE NOTE 7
4. FEES ...............................................................8
5. JOINDER DOCUMENTS.......................................................8
6. CONDITIONS TO CLOSING...................................................8
6.1 Loan Documents.................................................8 6.2 Certified Copies of Organization Documents.....................9 6.3 Resolutions....................................................9 6.4 Incumbency Certificate; Authorized Signers.....................9 6.5 Deliveries.....................................................9 6.6 Legal Opinions................................................10 6.7 Appraisal.....................................................10 6.8 Closing Fee...................................................10 6.9 Operating Accounts............................................10 6.10 Performance; No Default.......................................10 6.11 Representations and Warranties................................10 6.12 Proceedings and Documents.....................................10 |
6.13 Waiver........................................................10
7. CONDITIONS TO ALL BORROWINGS...........................................11
7.1 Representations True; No Event of Default.....................11
7.2 No Legal Impediment...........................................11
7.3 Governmental Regulation.......................................11
7.4 Proceedings and Documents.....................................11
8. REPRESENTATIONS, WARRANTIES AND COVENANTS..............................11
8.1 Organization; Authority, Etc..................................11
8.2 Title to Asset................................................12
8.3 Financial Statements..........................................13
8.4 No Material Changes, Etc......................................13
8.5 Franchises, Patents, Copyrights, Etc..........................13
8.6 Litigation....................................................13
8.7 No Materially Adverse Contracts, Etc..........................13
8.8 Compliance With Other Instruments, Laws, Etc..................14
8.9 Tax Status....................................................14
8.10 No Event of Default...........................................14
8.11 Setoff, Etc...................................................14
8.12 Certain Transactions..........................................14
8.13 Subsidiaries..................................................14
8.14 General Partners..............................................14
8.15 ERISA Plan....................................................15
8.16 Solvency......................................................15
8.17 The Project...................................................15
8.18 Year 2000.....................................................18
8.19 No Broker or Finder...........................................18
8.20 General.......................................................18
8.21 Representations and Warranties with Respect to the Project....18
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9. AFFIRMATIVE COVENANTS OF THE BORROWER..................................19
9.1 Punctual Payment..............................................19
9.2 Financial Statements, Certificates and Information............19
9.3 Insurance.................................................................................20
9.4 Liens and Other Charges...................................................................20
9.5 Inspection of Project and Books, Appraisals...............................................20
9.6 Compliance with Laws, Contracts, Licenses, and Permits....................................21
9.7 Use of Proceeds...........................................................................21
9.8 Publicity.................................................................................21
9.9 Further Assurances........................................................................21
9.10 Notices...................................................................................22
9.11 Other Affirmative Covenants...............................................................22
9.12 Ownership of Borrower.....................................................................22
9.13 Wholly Owned Subsidiary...................................................................22
9.14 Maintenance of Borrower's Properties......................................................22
9.15 Acquisitions, Dispositions and Syndication of Borrower's assets...........................23
9.16 Syndication Event.........................................................................23
9.17 Business Activities.......................................................................23
9.18 Post-Closing Delivery Items...............................................................23
10. NEGATIVE COVENANTS OF THE BORROWER.................................................................23
10.1 No Amendments, Terminations or Waivers....................................................23
10.2 Restrictions on Indebtedness..............................................................24
10.3 Restrictions on Liens, Etc...................................................................24
10.4 Restrictions on Loans and Investments.....................................................24
10.5 Merger, Consolidation, Conversion, Business Operations, and Ownership and Disposition
of Assets.................................................................................25
10.6 Sale and Leaseback........................................................................26
10.7 Distributions.............................................................................26
10.8 Financial Covenants.......................................................................26
10.9 Other Negative Covenants..................................................................27
11. EVENTS OF DEFAULT AND REMEDIES.....................................................................27
11.1 Events of Default.........................................................................27
11.2 Termination of Advances and Acceleration..................................................30
11.3 Other Remedies............................................................................30
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11.4 Distribution of Collateral Proceeds...........................31
11.5 Power of Attorney.............................................31
11.6 Waivers.......................................................32
12. SETOFF 32
13. EXPENSES 32
14. INDEMNIFICATION........................................................33
15. LIABILITY OF THE LENDER................................................33
16. RIGHTS OF THIRD PARTIES................................................34
17. SURVIVAL OF COVENANTS, ETC.............................................34
18. ASSIGNMENT AND PARTICIPATION...........................................34
18.1 Conditions to Assignment by Lender............................34
18.2 New Notes, Agreement..........................................35
18.3 Participations................................................35
18.4 Pledge by the Lender..........................................35
18.5 No Assignment by the Borrower.................................36
19. RELATIONSHIP...........................................................36
20. NOTICES 36
21. GOVERNING LAW..........................................................37
22. CONSENT TO JURISDICTION; WAIVERS.......................................37
23. PREFERENCES............................................................38
24. RULES OF INTERPRETATION................................................38
25. HEADINGS 39
26. COUNTERPARTS...........................................................39
27. ENTIRE AGREEMENT, ETC..................................................39
28. CONSENTS, AMENDMENTS, WAIVERS, ETC.....................................39
29. TIME OF THE ESSENCE...........................................40
30. SEVERABILITY...........................................................40
31. LIMITED RECOURSE.......................................................40
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Exhibits
Exhibit A - Joinder Agreement
SCHEDULES
Schedule 1 - Definitions
Schedule 2 - List of Borrowers; General Partner of each Borrower
Schedule 3 - [Intentionally Deleted]
Schedule 4 - Loan Request
Schedule 5 - Subsidiaries
Schedule 6 - Environmental Reports
Schedule 7 - Title Insurance Companies
Schedule 8- Mortgages, Liens and Security Interests
LOAN AGREEMENT
This Loan Agreement is made as of the ___ day of February, 1999, by and among FRANKLIN STREET PARTNERS LIMITED PARTNERSHIP ("FSP") and the additional entities which are Wholly Owned Subsidiaries which are listed on Part A of Schedule 2 attached hereto (which Schedule 2 may be amended from time to time) (collectively, the "Borrower"), limited partnerships organized under the laws of the Commonwealth of Massachusetts, with a principal place of business at 401 Edgewater Place, Suite 110, Wakefield, Massachusetts 01880-6210 and CITIZENS BANK OF MASSACHUSETTS ("Lender"), with a principal place of business at 28 State Street, Boston, Massachusetts 02109.
1. BACKGROUND
1.1 Definitions. This Agreement and other Loan Documents utilize various defined terms which shall have the meanings set forth in Schedule 1 attached to this Agreement or, if separately defined elsewhere herein or in any other Loan Documents, as set forth in such separate definitions. Unless otherwise specified in the Loan Documents, the definitions contained in this Agreement shall supercede any inconsistent definitions contained in the Note, the Security Deed(s) or any other Loan Document and in the event of any inconsistencies between this Agreement, the Note, the Security Deeds, or any other Loan Document, this Agreement shall control.
1.2 Borrower. Each entity comprising the Borrower is a limited partnership organized under the laws of the Commonwealth of Massachusetts. As of the date hereof, the general partners of each Borrower entity listed on Schedule 2 is set forth on Schedule 2 attached hereto.
1.3 Use of Proceeds. Borrower has applied to Lender to establish a revolving line of credit facility in the maximum amount of $25,000,000.00, the proceeds of which are to be used for general corporate purposes, including property acquisitions , renovations, expansions, tenant improvement costs and equity investments associated with institutional grade income-producing properties and to pay costs and expenses incidental to closing the Loan.
1.4 Facility. Subject to all of the terms, conditions and provisions of this Loan Agreement, and of the agreements and instruments referred to herein, Lender agrees to establish the Loan and Borrower agrees to accept and repay proceeds outstanding under the Loan.
2. AGREEMENT TO MAKE LOAN.
2.1 Agreement to Make Loan. Subject to the terms and conditions of this Agreement and relying upon the representations and warranties contained in this Agreement and the other Loan Documents, the Lender agrees to lend to the Borrower and the Borrower may borrow, repay and reborrow from time to time between the
Closing Date and the Termination Date such sums as are requested by Borrower up to a maximum aggregate principal amount at any one time equal to the Loan Amount. Each request for an Advance of the Loan hereunder shall constitute a representation and warranty by the Borrower that the conditions set forth in ss.ss.6, 7, and 8 have been satisfied on the date of such request unless, and only to the extent that, any such representation and warranty relates specifically and only to an earlier date in time.
2.2 Commitment to Borrow. So long as the Loan is outstanding, the Borrower agrees that the Loan shall be its exclusive source of third Person debt financing. Further, the Borrower agrees that prior to placing any permanent loans on any of the properties included in the Project or refinancing any loan with respect to any such properties, the Borrower shall provide the Lender with notice and an opportunity (but not the obligation) to place such loan or loans provided that the Borrower and the Lender agree upon terms that are mutually acceptable to the Lender and the Borrower.
2.3 Purpose of Loan. The Loan shall be used by the Borrower for the following purpose: general corporate purposes of the Borrower, including property acquisitions, renovations, expansions, tenant improvement costs and equity investments associated with institutional grade income-producing properties and to pay the costs and expenses incidental to closing the Loan.
2.4 Requests for Advances. (a) The Borrower shall give to the Lender written notice in the form of Schedule 4 hereto (or telephonic notice confirmed in writing in the form of Schedule 4 hereto) of each Advance requested hereunder (a "Loan Request") in accordance with the interest rate selection requirements set forth in the Note. Each such Loan Request shall specify (i) the principal amount of the Advance requested, (ii) the intended use of the proceeds of such Advance; and (iii) the proposed Drawdown Date of such Advance. The Borrower agrees to accept the Advance requested from the Lender on the proposed Drawdown Date. Each Advance shall be a minimum aggregate amount of $1,000,000.00 or an integral multiple of $100,000 in excess thereof.
(b) In the event that the Borrower shall receive Advance(s) in excess of the Loan Amount the Borrower shall immediately repay the Loan by an amount sufficient to reduce the outstanding principal balance to equal or less than the Loan Amount.
(c) The Lender may rely on any request for an Advance or financial accommodation which the Lender, reasonably and in good faith, believes to have been made by a person duly authorized to act on behalf of the Borrower and may decline to make any such requested Advance or to provide any such financial accommodation pending the Lender's being furnished with such documentation concerning that person's authority to act as may be satisfactory to the Lender.
(d) A request by the Borrower for any Advance or of the issuance of an L/C shall be irrevocable and shall constitute certification by the Borrower that as of the date of such request, each of the following is true and correct:
(i) There has been no material adverse change in the Borrower's financial condition from the most recent financial information furnished the Lender pursuant to this Agreement;
(ii) The Borrower is in compliance with, and has not breached any of, its covenants contained in this Agreement;
(iii) Each representation which is made herein or in any of the Loan Documents is then true and complete as of and as if made on the date of such request unless such representation relates specifically and only to an earlier date in time; and
(iv) No event has occurred nor failed to occur which occurrence or failure is, or with the passage of time or giving of notice (or both, would constitute an Event of Default (as described herein), whether or not the Lender has exercised any of its rights upon such occurrence or failure.
(e) The Borrower shall immediately become indebted to the Lender for the amount of each Advance when such Advance is made for or on behalf of the Borrower.
(f) (i) The Borrower may request that the Lender issue L/C's for the account of the Borrower subject to and in accordance with ss.ss.2.6, 2.7 and 2.8 of this Agreement and the other provisions of this clause (f). Each such request shall be in such manner as may from time to time be acceptable to the Lender, in writing.
(ii) The Lender, shall issue any L/C so requested by the Borrower, provided that the aggregate Stated Amount, following the requested issuance thereof, would not when aggregated with all outstanding L/C's and Advances exceed the lesser of (A) the L/C Limit, or (B) Availability, and provided that the L/C is in form satisfactory to the Lender.
(iii) The Borrower shall execute such documentation to apply for and support the issuance of a L/C as may be required by the Lender.
(g) The Lender, without the request of the Borrower, may make an Advance equal to the amount which the Borrower is obligated to pay to the Lender or for which the Borrower or the Lender becomes obligated on account of, or in respect to, any L/C. Such Advance shall be made and even if such
Advance would result in Loan Amount being exceeded. Such action on the part of the Lender shall not constitute a waiver of the Lender's rights under Section 2.4(b) above.
2.5 The Loan Account. (a) An account (the "Loan Account") shall be opened on the books of the Lender, in which Loan Account ---------------- a record may be kept of all Advances made by the Lender to the Borrower under or pursuant to this Agreement and of all payments thereon.
(b) The Lender may also keep a record (either in the Loan Account or elsewhere, as the Lender may from time to time elect) of all interest, fees, service charges, costs, expenses, and other debits owed the Lender on account of the Obligations and of all credits against such amounts so owed.
(c) All credits against the Obligations shall be conditional upon final payment to the Lender of the items giving rise to such credits. The amount of any item credited against the Obligations which is charged back against the Lender for any reason or is not so paid shall be an Obligation and shall be added to the Loan Account, whether or not the item so charged back or not so paid is returned.
(d) Except as otherwise provided herein, all fees, service charges, costs, and expenses for which the Borrower is obligated hereunder are payable thirty (30) days after the invoice date. The Lender, without the request of the Borrower, may make an Advance of any interest, fee, service charge, or other payment to which the Lender is entitled from the Borrower pursuant hereto and may charge the same to the Loan Account notwithstanding that such amount so advanced may result in Availability's being exceeded. Such action on the part of the Lender shall not constitute a waiver of the Lender's rights under Section 2.4(b), above. Any amount which is added to the principal balance of the Loan Account as provided in this subsection shall bear interest at the interest rate applicable from time to time to the unpaid principal balance of the Loan Account.
(e) Any statement rendered by the Lender to the Borrower concerning the Obligations shall be considered correct and accepted by the Borrower and shall be conclusively binding upon the Borrower unless the Borrower provides the Lender with written objection thereto within thirty (30) days from the mailing of such statement, which written objection shall indicate, with particularity, the reason for such objection. The Loan Account and the Lender's books and records concerning the loan arrangement contemplated herein and the Obligations shall be prima facie evidence of the items described therein.
2.6 Establishment of Letter of Credits. (a) Upon the written request of the Borrower, the Lender agrees to cause the issuance of L/C's on behalf of a Borrower as provided herein. The Borrower may request issuance of L/C's in such manner as may from time to time be reasonably acceptable to the Lender. The Borrower shall execute and deliver to the Lender such further documents and instruments in connection with any L/C, as the Lender, in accordance with the Lender's then customary practices with respect to similar facilities, may reasonably request including, without limitation, the Lender's standard letter of credit agreements (the "L/C Agreement"). In the event of any inconsistency between the terms of the L/C Agreement and this Agreement the terms and conditions of the L/C Agreement shall control.
(b) No L/C shall have an expiry date which is later than thirty
(30) days prior to the Maturity Date.
2.7 Effect of Honor of L/C's . The Borrower shall reimburse the Lender for the amount of any honored L/C. Any such honoring which is not so reimbursed on the Business Day when so honored shall constitute an Advance.
2.8. Additional Provisions Relating to L/C's. (a) The obligations of the Borrower with respect to L/C's shall be absolute and unconditional. The obligations of the Borrower with respect to L/C's shall rank pari passu with the obligations of the Borrower to repay all other Obligations. The Lender's rights, powers, privileges and immunities specified in or arising under this Agreement are in addition to any hereafter created or arising, whether by statute or rule of law or contract.
(b) The Borrower will
(i) promptly examine the copy of any L/C (and any amendments thereof) sent to it by the Lender;
(ii) promptly examine all instruments and documents delivered to it from time to time by the Lender; and
(iii) within two (2) Business Days of receipt thereof, provide the Lender with written notice of any irregularity or claim of non-compliance with the instructions of such person or entity.
The Borrower is conclusively deemed to have waived any such claim against the Lender and its correspondents unless such notice is so timely given.
(c) None of the Lender, the Lender's correspondents or any advising, negotiating, or paying bank with respect to any L/C, shall be responsible in any way for:
(i) performance by any beneficiary under any L/C or payee under any L/C of that beneficiary's or payee's obligations to the Borrower; or
(ii) the form, sufficiency, correctness, genuineness, authority of any person signing; falsification; or the legal effect of; any documents called for under any L/C if (with respect to the foregoing) such documents on their face are conforming.
(d) The Lender may honor, as complying with the terms of any L/C and of any drawing thereunder, any drafts or other documents otherwise in order, but signed or issued by an administrator, executor, conservator, trustee in bankruptcy, debtor in possession, assignee for the benefit of creditors, liquidator, receiver, or other legal representative of the Person authorized under such L/C to draw or issue such drafts or other documents.
(e) Unless otherwise agreed to, in the particular instance, the Borrower
hereby authorizes the Lender to (i) select an advising bank, if any;
(ii) select a paying bank, if any; and (iii) select a negotiating
bank.
(f) The Lender shall have discharged its obligations under any L/C which, or the drawing under which, includes payment instructions, by the initiation of the method of payment called for in, and in accordance with, such instructions (or by any other commercially reasonable and comparable method). The Lender does not assume any responsibility for any inaccuracy, interruption, error, or delay in transmission or delivery by post, telegraph or cable, or for any inaccuracy of translation.
(g) The Lender's rights, powers, privileges and immunities specified in or arising under this Agreement are in addition to any hereafter created or arising, whether by statute or rule of law or contract.
(h) Except to the extent otherwise expressly provided hereunder or agreed to in writing by the Lender, and the Borrower, the L/C will be governed by the Uniform Customs and Practice for Documentary Credits, International Chamber of Commerce, Publication No. 500, and any subsequent revisions thereof.
(i) If any change in any law, executive order or regulation, or any directive of any administrative or governmental authority (whether or not having the force of law), or in the interpretation thereof by any court or administrative or governmental authority charged with the administration thereof, shall either:
(i) impose, modify or deem applicable any reserve, special deposit or similar requirements against L/C's hereafter
caused to be issued by the Lender or with respect to which the Lender has an obligation to lend to fund drawings thereunder; or
(ii) impose on any Lender any other condition or requirements relating to any such L/C's;
and the result of any event referred to in clause (i) or (ii), above, shall be to increase the cost to the Lender of issuing or maintaining any L/C, then, upon demand by the Lender made within six (6) months of the occurrence of any event referred to in clause (i) or (ii) above, and delivery by the Lender to the Borrower of a certificate of an officer of the Lender describing such change in law, executive order, regulation, directive, or interpretation thereof, its effect on the Lender, and the basis for determining such increased costs and their allocation, the Borrower within five (5) days after receipt of such notice shall pay to the Lender, from time to time as specified by the Lender, such amounts as shall be sufficient to compensate the Lender for such increased cost. The Lender's determination of costs incurred under clause (i) or (ii) above, shall be conclusive and binding on the Borrower in the absence of manifest error.
(j) The obligations of the Borrower under the within Agreement with respect to L/C's are absolute, unconditional, and irrevocable and shall be performed strictly in accordance with the terms hereof under all circumstances, whatsoever including, without limitation, the following:
(i) Any lack of validity or enforceability or restriction, restraint, or stay in the enforcement of the within Agreement, any L/C or any other agreement or instrument relating thereto.
(ii) Any amendment or waiver of, or consent to the departure from, all or any of the above.
(iii) The existence of any claim, set-off, defense, or other right which the Borrower may have at any time against the beneficiary of the L/C.
(iv) Any honoring of a drawing under any L/C, which drawing was nonconforming on account of minor nonsubstantive variances from the requirements of the subject L/C.
3. THE NOTE. The obligation of the Borrower to pay the Loan Amount or, if less, the aggregate unpaid principal amount of all Advances made by the Lender hereunder plus accrued interest thereon, shall be evidenced by Note and payable in accordance therewith. In the event the Note is lost, destroyed or mutilated at any time prior to payment in full of the indebtedness evidenced thereby, the Borrower shall execute and deliver to Lender a new note substantially in the form of the Note and
Lender shall execute and deliver to Borrower an affidavit and indemnification reasonably acceptable to Borrower with respect to such lost Note.
4. FEES. a) The Borrower agrees to pay to the Lender on the Closing Date a closing fee in the amount of $12,500.00 (the ----- "Closing Fee").
(b) On the earlier of (i) each anniversary date of the Closing Date, or
(ii) the Termination Date, the Borrower shall pay the Lender an
annual fee equal to ten (10) basis points of the Loan Amount, or a
pro rated amount if the Loan is paid in full prior to the next
anniversary date of the Closing Date (the "Annual Fee"). The Annual
Fee shall be payable in arrears with the first such payment due on
the first anniversary of the Closing Date. The Annual Fee shall be
reduced by the Closing Fee and any Transaction Fee paid during such
preceding twelve (12) month period.
(c) At the time of each Advance made (including any Advance made on account of a draw under a L/C) under the Loan the Borrower shall pay to the Lender a transaction fee equal to twenty five (25) basis points of the subject Advance made under the Loan (the "Transaction Fee").
(d) At the time of the issuance of any L/C, the Borrower shall pay an annual letter of credit fee equal to 1.25% of the Stated Amount of such L/C, or pro rated if the L/C is issued for a period of less than twelve (12) months (the "L/C Fee").
5. JOINDER DOCUMENTS. At the time of a Roll-Up, such Wholly Owned Subsidiary, which has become a Wholly Owned Subsidiary in connection with such Roll-Up, shall execute the Joinder Documents so as to become a Borrower under this Agreement and shall be added as a maker under the Note. From and after the date of the execution of such Joinder Documents, such entities shall be considered a "Borrower" and subject to all of the terms and conditions hereof, provided, however, that such Wholly Owned Subsidiary shall not be required to execute any Security Documents.
6. CONDITIONS TO CLOSING . The obligation of the Lender to make the initial Loan shall be subject to the satisfaction of the following conditions precedent:
6.1 Loan Documents. Each of the Loan Documents shall have been duly executed and delivered by the respective parties thereto. Each of the Loan Documents, other than the Security Documents, shall be in full force and effect and shall be in form and substance satisfactory to the Lender. With respect to the Security Documents, the Lender hereby agrees to hold the Security Documents in escrow and shall not attempt to record or file such Security Documents until the occurrence and continuation of an Event of Default beyond any applicable grace period. Further, Lender agrees and acknowledges that the Security Documents shall have no force or effect unless and until
the occurrence and continuation of an Event of Default beyond any applicable grace periods. After the Termination Date and payment in full by the Borrower of any and all obligations to the Lender, Lender shall, upon Borrower's request, return all original Security Documents to the Borrower.
6.2 Certified Copies of Organization Documents. The Lender shall have received from each of the Borrower and FSP Holdings LLC a certified copy of its Organization Documents as in effect on such date of certification, such Organizational Documents to be in form and substance satisfactory to the Lender.
6.3 Resolutions. All action necessary for the valid execution, delivery and performance by each of the Borrower and FSP Holdings LLC of this Agreement and the other Loan Documents to which it is or is to become a party shall have been duly and effectively taken, and evidence thereof satisfactory to the Lender shall have been provided to the Lender. The Lender shall have received from each such Person true copies of the resolutions authorizing the transactions described herein, each certified as of a recent date to be true and complete.
6.4 Incumbency Certificate; Authorized Signers. The Lender shall have received from each of the Borrower and FSP Holdings LLC an incumbency certificate, dated as of the Closing Date, giving the name and bearing a specimen signature of each individual who shall be authorized: (a) to sign, in the name and on behalf of such Person each of the Loan Documents to which such Person is or is to become a Person; and (b) to give notices and to take other action on its behalf under the Loan Documents.
6.5 Deliveries. The following items or documents shall have been delivered to the Lender by the Borrower and shall be in form and substance satisfactory to the Lender:
(a) Title Policy. An existing Title Policy or Title Policies.
(b) Other Insurance. Duplicate originals or certified copies of all policies and certificates of insurance maintained by the Borrower which shall be at least equal to insurance customarily obtained by owners of similar properties.
(c) Environmental Report. An existing environmental site assessment report or reports of one or more qualified environmental engineering or similar inspection firms approved by the Lender, which report or reports shall indicate the condition of the properties comprising the Project and any existing improvements thereon in compliance with all material Requirements and in all respects satisfactory to the Lender in its sole discretion.
(d) Survey and Taxes. An existing Survey of each of the properties comprising the Project (and any existing improvements thereon) and evidence of payment of all real estate taxes and municipal charges on
each of the properties comprising the Project (and any existing improvements thereon) which were due and payable prior to the Closing Date.
6.6 Legal Opinions. The Lender shall have received a favorable opinion or opinions in form and substance satisfactory to the Lender and the Lender's counsel, addressed to the Lender and dated as of the Closing Date, from counsel to the Borrower and FSP Holdings LLC acceptable to the Lender, as to such matters as the Lender shall request, including, without limitation, the due execution and authorization of all Loan Documents and the enforceability of this Agreement, the Guaranty, the Indemnity Agreement and the Note.
6.7 Appraisal. The Lender shall have received Appraisals, in form and substance satisfactory to the Lender, for each of the properties comprising the Project.
6.8 Closing Fee. The Borrower shall have paid to the Lender the Closing Fee pursuant toss.4.
6.9 Operating Accounts. The Borrower shall have established and will maintain with the Lender operating accounts for those Borrowers owning properties which are part of the Project and are located within the Commonwealth of Massachusetts (collectively, the "Operating Accounts") The term Operating Accounts shall specifically exclude any trust accounts in the name of such Borrowers.
6.10 Performance; No Default. The Borrower shall have performed and complied with all terms and conditions herein required to be performed or complied with by it or there shall exist no Default or Event of Default.
6.11 Representations and Warranties. Without limiting the provisions set forth in Sections 6.1 and 8.12, the representations of warranties made by the Borrower in the Loan Documents or otherwise made by or on behalf of the Borrower in connection therewith or after the date thereof shall have been true and correct in all respects when made and shall be true and correct in all respects on the Closing Date unless such representations and warranties relate specifically and only to an earlier date in time.
6.12 Proceedings and Documents. All proceedings accounts in the name of such Borrower entities in connection with the transactions contemplated by this Agreement and the other Loan Documents shall be satisfactory to the Lender and the Lender's counsel in form and substance, and the Lender shall have received all information and such counterpart originals or certified copies of such documents and such other certificates, opinions or documents as the Lender and the Lender's counsel may reasonably require.
6.13 Waiver. Any waiver by the Lender of any of the conditions precedent contained herein for the closing of the Loan shall not be deemed to be a waiver by the Lender of any other obligation of the Lender hereunder.
7. CONDITIONS TO ALL BORROWINGS. The obligations of the Lender to make the Loan or any Advance, whether on or after the Closing Date, shall also be subject to the satisfaction of the following conditions precedent:
7.1 Representations True; No Event of Default. Subject to Sections 6.1 and 8.21, each of the representations and warranties of the Borrower contained in this Agreement, the other Loan Documents or in any document or instrument delivered pursuant to or in connection with this Agreement shall be true as of the date as of which they were made and shall also be true at and as of the time of the making of such Loan, with the same effect as if made at and as of that time (except to the extent of changes resulting from transactions contemplated or permitted by this Agreement and the other Loan Documents and changes occurring in the ordinary course of business that singly or in the aggregate are not materially adverse, and except to the extent that such representations and warranties relate expressly to an earlier date) and no Default or Event of Default shall have occurred and be continuing. The Lender shall have received a certificate of the Borrower signed by an authorized officer of the Borrower to such effect.
7.2 No Legal Impediment. No change shall have occurred in any law or regulations thereunder or interpretations thereof that in the reasonable opinion of the Lender would make it illegal for the Lender to make such Loan.
7.3 Governmental Regulation. With respect to any LIBOR Advance (as defined in the Note), the Lender shall have received such statements in substance and form reasonably satisfactory to the Lender as the Lender shall require for the purpose of compliance with any applicable regulations of the Comptroller of the Currency or the Board of Governors of the Federal Reserve System.
7.4 Proceedings and Documents. All proceedings in connection with the transactions contemplated by this Agreement, the other Loan Documents and all other documents incident thereto shall be reasonably satisfactory in substance and in form to the Lender and its counsel, and the Lender and such counsel shall have received all information and such counterpart originals or certified or other copies of such documents as the Lender may reasonably request.
8. REPRESENTATIONS, WARRANTIES AND COVENANTS. The Borrower represents, warrants, and covenants to the Lender as follows:
8.1 Organization; Authority, Etc.
(a) Organization; Good Standing. Each of the entities comprising the Borrower and FSP Holdings LLC is a limited partnership, limited liability company, or corporation, as the case may be, duly organized under the laws of its state of organization pursuant to each Person's respective Organizational Documents, and is, and will at all times be, validly existing and in good standing under the laws of such State.
Each of the Borrower and FSP Holdings LLC is, and will at all times be, duly organized and is, and will at all times be, validly existing, in good standing, and qualified to do business in each jurisdiction where required except where failure to so qualify would not have a material adverse affect on the Project. Each of the entities comprising the Borrower and FSP Holdings LLC has, and will at all times have, all requisite power to own its property and conduct its business as now conducted and as presently contemplated.
(b) Authorization. The execution, delivery and performance of this Agreement and the other Loan Documents to which Borrower or FSP Holdings LLC is or is to become a Person and the transactions contemplated hereby and thereby (i) are within the authority of such Person, (ii) have been duly authorized by all necessary proceedings on the part of such Person, (iii) do not conflict with or result in any breach or contravention of any provision of any other agreement binding upon such Person or any provision of law, statute, rule or regulation to which such Person is subject or any judgment, order, writ, injunction, license or permit applicable to such Person, (iv) do not conflict with any provision of the Organizational Documents of such Person, and (v) do not require the approval or consent of, or filing with creditors, trustees for creditors or shareholders of, or other holders, directly or indirectly, of interests in, such Person or the approval or consent or filing (except for the Security Documents which will only be filed after the occurrence of an Event of Default continuing beyond any applicable grace periods) with any governmental agency or authority other than those approvals or consents already obtained.
(c) Enforceability. The execution and delivery of this Agreement and the other Loan Documents (except for the Security Documents, which shall not be effective until there is an Event of Default), to which each Borrower is or is to become a Person will result in valid and legally binding obligations of such Borrower enforceable against it in accordance with the respective terms and provisions hereof and thereof, except as enforceability is limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting generally the enforcement of creditors' rights and except to the extent that availability of the remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding therefor may be brought.
8.2 Title to Asset. The Borrower owns all of the assets reflected in the financial statements of the Borrower as at the Balance Sheet Date or acquired since that date free from all encumbrances except for Permitted Liens (except property and assets sold or otherwise disposed of in the ordinary course of business since that date).
8.3 Financial Statements. There has been furnished to the Lender a financial statement for the Borrower as set forth in the October 15, 1998 offering memorandum, audited financial statements for the year ended December 31, 1997 for all Borrowers (except for FSP Piedmont Center Limited Partnership); and projections on a pro forma basis as of December 31, 1998 for the Borrower and related entities and as of December 31, 1998 unadjusted financial statements for the Borrower. Such statements have been prepared in accordance with generally accepted accounting principles and fairly present the financial condition of the Borrower as at the close of business on the date thereof and the results of operations for the fiscal year then ended. As of the date of this Agreement, there are no liabilities or contingent liabilities of the Borrower known to the officers, partners, or trustees of the Borrower which are not disclosed in said financial statements and the related notes thereto other than the Obligations.
8.4 No Material Changes, Etc. Since the Balance Sheet Date, there has occurred no materially adverse change in the financial condition or business of the Borrower other than changes described in the offering memorandum dated as of October 15, 1998, and changes in the ordinary course of business that have not had any material adverse effect either individually or in the aggregate on the business or financial condition of such Borrower.
8.5 Franchises, Patents, Copyrights, Etc. The Borrower possesses, and will at all times possess, all franchises, patents, copyrights, trademarks, trade names, licenses and permits, and rights in respect of the foregoing, adequate for the conduct of its business substantially as now conducted or as it is intended to be conducted with respect to the Project, without known conflict with any rights of others.
8.6 Litigation. There are no actions, suits, proceedings or investigations of any kind pending or threatened against the Borrower before any court, tribunal or administrative agency or board or any mediator or arbitrator that, if adversely determined, might, either in any case or in the aggregate, adversely affect the business, assets or financial condition of such Person, or result in any material liability not adequately covered by insurance, or for which adequate reserves are not maintained on the balance sheet of such Person, or which question the validity of this Agreement or any of the other Loan Documents, any action taken or to be taken pursuant hereto or thereto, or any lien or security interest created or intended to be created pursuant hereto or thereto, or which will materially and adversely affect the ability of the Borrower to use and occupy any of the properties comprising the Project or to pay and perform the Obligations in the manner contemplated by this Agreement and the other Loan Documents.
8.7 No Materially Adverse Contracts, Etc. The Borrower is not subject to any charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation that has or is reasonably expected in the future to have a materially adverse effect on the business, assets or financial condition of such Person. Each Borrower is not, and will not be, a party to any contract or agreement that has or is expected to have any materially adverse effect on the business of such Person.
8.8 Compliance With Other Instruments, Laws, Etc. The Borrower is not, and will not at any time be, in violation of any provision of its Organizational Documents or any agreement or instrument to which it may be subject or by which it or any of its properties may be bound or any decree, order, judgment, statute, license, rule or regulation, in any of the foregoing cases in a manner that would be likely to materially and adversely affect the financial condition, properties or business of such Person.
8.9 Tax Status. FSP Holdings LLC and each of the entities comprising the Borrower (a) has made or filed, and will make or file in a timely fashion, all federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject, (b) has paid, and will pay when due, all taxes and other governmental assessments and charges shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and by appropriate proceedings, (c) if a partnership, limited partnership, limited liability partnership, or limited liability company, has, and will maintain, partnership tax classification under the Code, and (d) has set aside, and will at all times set aside, on its books provisions reasonably adequate for the payment of all taxes for periods subsequent to the period to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers, partners or trustees of the Borrower know of no basis for any such claim. The Borrower has filed, and will continue to file, all of such tax returns, reports, and declarations either (i) separately from any parent or affiliate or (ii) if part of a consolidated filing, as a separate member of any such consolidated group.
8.10 No Event of Default. No Default or Event of Default has occurred and is continuing.
8.11 Setoff, Etc. The Lender's rights with respect to the repayment of the Obligations are not subject to any setoff, claims, withholdings or other defenses.
8.12 Certain Transactions. None of (a) the officers, trustees, directors, general partners, managers, members, stockholders, beneficiaries, or employees of any Borrower or Subsidiary thereof or (b) to the knowledge of the Borrower, any corporation, partnership, trust or other entity in which any such officer, trustee, director, general partner, manager, member, stockholder, beneficiary, or employee has a substantial interest or is an officer, director, trustee, manager or general partner, is presently a party to any transaction with the Borrower (other than for services as employees, officers, trustees, managers and directors).
8.13 Subsidiaries. As of the date hereof, the Borrower's Subsidiaries are as set forth on Schedule 5.
8.14 General Partners. As of the date hereof, except as set forth in Schedule 2, the Borrower has no other general partners.
8.15 ERISA Plan. The Borrower does not, and will not, maintain or contribute to an ERISA Plan.
8.16 Solvency. Borrower (a) is not insolvent nor will be rendered insolvent by the Indebtedness incurred in connection with the Loan, (b) does not have unreasonably small capital with which to engage in its business, or (c) has not incurred Indebtedness beyond its ability to pay such Indebtedness as it matures. The Borrower, on a consolidated basis, has assets having a value in excess of amounts required to pay any Indebtedness.
8.17 The Project. The Borrower makes the following representations and warranties, to the best of its knowledge, with respect to each individual property included in the Project:
(a) Availability of Utilities. All utility services necessary and sufficient for the use and operation of each property comprising the Project are presently, and will at all times be, available to the boundaries of each of the properties comprising the Project through dedicated public rights of way or through perpetual private easements, with respect to which the Security Deeds create a valid and enforceable first lien. The Owner has obtained all utility installations and connections required for the operation and servicing of each of the properties comprising the Project for its intended purposes.
(b) Access. The rights of way for all roads necessary for the full utilization of each of the properties comprising the Project for its intended purposes have either been acquired by the appropriate Governmental Authority or have been dedicated to public use and accepted by such Governmental Authority. All such roads have been completed and the right to use all such roads, or suitable substitute rights of way approved by the Lender, have been obtained and shall be maintained at all times for each of the properties comprising the Project. All curb cuts, driveways and traffic signals required for the operation and use of each of the properties comprising the Project are existing and shall be maintained at all times.
(c) Condition of Project. Neither the Project nor any material part thereof is now damaged or injured as result of any fire, explosion, accident, flood or other casualty or has been the subject of any Taking, no Taking is pending or contemplated.
(d) Compliance with Requirements/Historic Status/Flood Area. The Project complies with, and will at times comply with, all material Requirements. The Borrower will give all such notices to, and take all such other actions with respect to, such Governmental Authority as may be required under applicable Requirements to use, occupy and operate the properties comprising the Project. Borrower has received no notice alleging any
material non-compliance by any of the properties comprising the Project with any Requirements or indicating that any of the properties comprising the Project is located within any historic district or has, or may be, designated as any kind of historic or landmark site under applicable Requirements. None of the properties comprising the Project, except for 3231 Allen Parkway, Houston, Texas, is located in any special flood hazard area as defined under applicable Requirements.
(e) Other Contracts.
(i) The Borrower has not made, and will not make any, material contract or arrangement of any kind or type whatsoever (whether oral or written, formal or informal), the performance of which by the other party thereto could give rise to a lien or encumbrance on any of the properties comprising the Project other than a Permitted Encumbrance.
(ii) The Borrower has not made, and will not make, any material contract or arrangement of any kind or type whatsoever, with any affiliate of the Borrower, except for management agreements with FSP Property Management LLC which shall be deemed approved by Lender, unless such contract or arrangement is (i) approved in writing in advance by the Lender, (ii) on the same terms as would be generally available to the Borrower in an arm's length contract or arrangement with a third party, and (iii) evidenced by a written agreement.
(f) Violations. The Borrower has received no notices of, or has any knowledge of, any violation of any applicable material Requirements with respect to any of the properties comprising the Project.
(g) Environmental Matters. The Borrower has caused an investigation to be made of the past and present condition and usage of each individual property included in the Project and the operations conducted thereon and, based upon such diligent investigation, except as disclosed in the Environmental Report makes the following representations and warranties:
(i) With respect to the Project, neither the Borrower nor any operator of any of the properties comprising the Project or any operations thereon is in violation of any Environmental Law or any judgment, decree or order related thereto which violation would have a material
adverse effect on the environment or the business, assets or financial condition of the Borrower.
(ii) The Borrower has not received notice from any third Person including, without limitation, any federal, state or local governmental authority, asserting (i) that it has been identified by the United States Environmental Protection Agency ("EPA) as a potentially responsible Person with respect to a site listed on the National Priorities List, 40 C.F.R. Part 300 Appendix B (1986); (ii) that any Hazardous Substances which it has generated, transported or disposed of have been found at any site at which a federal, state or local agency or other third Person has conducted or has ordered that the Borrower conduct a remedial investigation, removal or other response action pursuant to any Environmental Law; or (iii) that it is or shall be a named Person to any claim, action, cause of action, complaint, or legal or administrative proceeding (in each case, contingent or otherwise) arising out of any third Person's incurrence of costs, expenses, losses or damages of any kind whatsoever in connection with the release of Hazardous Substances.
(iii) With respect to the Project: (i) no portion of the Project has been used for the handling, processing, storage or disposal of Hazardous Substances except for use incidental to the primary use of the Property which use has been in accordance with applicable Environmental Laws; and no underground tank or other underground storage receptacle for Hazardous Substances is located on any portion of the Project; (ii) in the course of any activities conducted by the Borrower or the operators of its properties, no Hazardous Substances have been generated or are being used on the Project except in accordance with applicable Environmental Laws; (iii) there has been no release, i.e. any past or present releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, disposing or dumping (a "Release") or threatened Release of Hazardous Substances on, upon, into or from the Project, which Release would have a material adverse effect on the value of the Project or adjacent properties or the environment; (iv) there have been no Releases on, upon, from or into any real property in the vicinity of any of the Project which, through soil or groundwater contamination, has come to be located on, and which has
a material adverse effect on the value of the Project; and (v) any Hazardous Substances that have been generated by Borrower on any of the Project have been transported off-site only by carriers having an identification number issued by the EPA, treated or disposed of only by treatment or disposal facilities maintaining valid permits as required under applicable Environmental Laws, which transporters and facilities have been and are operating in compliance with such permits and applicable Environmental Laws.
(iv) Neither the Borrower nor any property comprising the Project is subject to any applicable Environmental Law requiring the performance of Hazardous Substances site assessments, or the removal or remediation of Hazardous Substances, or the giving of notice to any governmental agency or the recording or delivery to other Persons of an environmental disclosure document or statement by virtue of the transactions set forth herein and contemplated hereby, or as a condition to the recording of the Security Deed or to the effectiveness of any other transactions contemplated hereby.
8.18 Year 2000. Borrower represents and warrants to the Lender (which representation and warranty shall survive the making of the Loan) that the Borrower has taken or is taking and shall complete by June 30, 1999 all necessary action to assess, evaluate and correct all of the hardware, software, embedded microchips and other processing capabilities it uses, directly or indirectly, to ensure that it will be able to function accurately and without interruption or ambiguity using date information before, during and after January 1, 2000.
8.19 No Broker or Finder. Neither Borrower, nor anyone on behalf thereof, has dealt with any broker, finder or other person or entity who or which may be entitled to a broker's or finder's fee, or other compensation, payable by Lender in connection with establishing of the Loan.
8.20 General. Each Borrower has disclosed any material fact or condition which is necessary to make the representations and warranties set forth herein or in any other Loan Document not materially misleading.
8.21 Representations, Warranties, Covenants and Agreements with Respect to the Project. The representations, warranties, covenants and agreements contained herein with respect to the Project, or any of the properties comprising the Project, shall be made as of the date hereof. In accordance with Section 6.1 of this Agreement, any representations, warranties, covenants and agreements contained in the Security
Documents shall not be effective or enforceable until the occurrence of an Event of Default continuing beyond any applicable grace periods.
9. AFFIRMATIVE COVENANTS OF THE BORROWER. The Borrower covenants and agrees that, so long as the Loan is outstanding:
9.1 Punctual Payment. The Borrower will duly and punctually pay or cause to be paid the principal and interest on the Loan and all other amounts provided for in the Note, this Agreement and the other Loan Documents to which the Borrower is a Person, all in accordance with the terms of the Note, this Agreement and such other Loan Documents.
9.2 Financial Statements, Certificates and Information. The Borrower will deliver, or cause to be delivered, to the Lender:
(a) as soon as practicable, but in any event not later than ninety (90) days after the end of each fiscal year of the Borrower, on a consolidated basis the audited balance sheet of the Borrower at the end of such year, and the related audited statement of income, statement of retained earnings, changes in capital, operating statements, and statement of cash flows for such year, each setting forth in comparative form the figures for the previous fiscal year and all such statements to be in reasonable detail, prepared in accordance with generally accepted accounting principles, and accompanied by an auditor's report prepared without qualification by BDO Seidman LLP or by another independent certified public accountant reasonably acceptable to the Lender, together with a written statement from the chief financial officer of the company stating that they have read a copy of this Agreement, and that, in making the examination necessary to said certification, they have obtained no knowledge of any Default or Event of Default under this Agreement, or, if such officer shall have obtained knowledge of any then existing Default or Event of Default he or she shall disclose in such statement any such Default or Event of Default;
(b) as soon as practicable, but in any event not later than forty-five
(45) days after the end of each fiscal quarter of the Borrower,
copies of the unaudited balance sheet of the Borrower as at the end
of such quarter, and the related unaudited statement of income,
statement of retained earnings, changes in capital, and statement of
cash flows for the portion of the Borrower's fiscal year then
elapsed, all in reasonable detail and prepared in accordance with
generally accepted accounting principles, together with a
certification by the principal financial or accounting officer,
partner or trustee of the Borrower that the information contained in
such financial statements fairly presents the financial position of
the Borrower on the date thereof (subject to year-end adjustments)
and that, in making the examination necessary to said certification,
such Person
has obtained no knowledge of any Default or Event of Default under this Agreement;
(c) contemporaneously with the delivery of the financial statements referred to in clause (a) above, a statement of all contingent liabilities of the Borrower which are not reflected in such financial statements or referred to in the notes thereto, and annual budget and cash flow forecasts for the Borrower and Project all in reasonable detail and certified by the principal financial or accounting officer of the Borrower;
(d) simultaneously with the delivery of the financial statements referred to in clauses (a) and (b) above, a covenant compliance certificate signed by the principal financial or accounting officer of the Borrower and setting forth in reasonable detail computations evidencing compliance with the covenants contained in ss.10.8;
(e) Simultaneously with the filing thereof a copy of the Borrower's tax return together with all schedules thereof; and
(f) from time to time such other financial data and information (including accountants' management letters) as the Lender may reasonably request.
9.3 Insurance. (a) The Borrower will provide evidence of insurance with respect to each of the properties comprising the --------- Project and the operations of the Owners.
(b) The Borrower will provide the Lender with certificates evidencing such insurance upon the request of the Lender.
9.4 Liens and Other Charges. The Borrower will duly pay and discharge, or cause to be paid and discharged, before the same shall become overdue all claims for labor, materials, or supplies that if unpaid might by law become a lien or charge upon any of its property or any of the properties comprising the Project.
9.5 Inspection of Project and Books, Appraisals. (a) The Borrower shall permit
the Lender at the Borrower's expense, to visit and inspect any of the properties
comprising the Project and will cooperate with the Lender during such
inspections provided that this provision shall not be deemed to impose on the
Lender any obligation to undertake such inspections; provided that so long as no
Default or Event of Default shall have occurred and be continuing, the Borrower
shall only be obligated to pay the reasonable expenses associated with one (1)
such investigation of the books of account of the Borrower during any twelve
(12) month period commencing with the first anniversary of this Agreement. Any
such inspections are to be conducted during normal business hours and prior to
the occurrence and continuation of an Event of Default, Lender shall provide
Borrower with forty-eight (48) hours advance notice.
(b) The Borrower shall permit the Lender at the Borrower's reasonable expense to discuss the affairs, finances and accounts of the Borrower with, and to be advised as to the same by, its officers, partners, or trustees, all at such reasonable times and intervals as the Lender may reasonably request.
(c) After the occurrence and during the continuation of an Event of Default, the Lender shall have the right to obtain from time to time, at the Borrower's reasonable cost and expense, updated Appraisals of each of the properties comprising the Project and an updated or new Environmental Report for each of the properties comprising the Project.
(d) The reasonable costs and expenses incurred by the Lender in obtaining such Appraisals or performing such inspections shall be paid by the Borrower within thirty (30) days of the invoice date.
9.6 Compliance with Laws, Contracts, Licenses, and Permits. The Borrower will comply with (a) the applicable laws and regulations wherever its business is conducted, including all Environmental Laws and, in the case of the Borrower, all Requirements, (b) the provisions of its Organizational Documents and all Loan Documents to which Borrower or Subsidiary are signatories, (c) all agreements and instruments by which it or any of its properties may be bound, including, all restrictions, covenants and easements affecting the Property, (d) all applicable decrees, orders and judgments, and (e) all licenses and permits required by applicable laws and regulations for the conduct of its business or the ownership, use or operation of its properties.
9.7 Use of Proceeds. The Borrower will use the proceeds of the Loan solely for the purposes described herein. No portion of the Loan shall be used directly or indirectly, and whether immediately, incidentally or ultimately (i) to purchase or carry any margin stock, or to extend credit to others for the purpose thereof, or to repay or refund indebtedness previously incurred for such purpose, or (ii) for any purpose which would violate or is inconsistent with the provisions of regulations of the Board of Governors of the Federal Reserve System including, without limitation, Regulations G, U and X thereof.
9.8 Publicity. The Borrower will permit the Lender to obtain publicity in connection with the financing through press releases.
9.9 Further Assurances. (a) Regarding Preservation of Collateral. The Borrower will execute and deliver to the Lender such further documents, instruments, assignments and other writings, and will do such other acts necessary or desirable, to preserve and protect the Collateral at any time securing or intended to secure the Obligations, as the Lender may reasonably require.
(b) Regarding this Agreement. The Borrower will cooperate with, and will do such further acts and execute such further instruments and documents
as the Lender shall reasonably request to carry out to its satisfaction the transactions contemplated by this Agreement and the other Loan Documents.
9.10 Notices. The Borrower will promptly notify the Lender in writing of (i) the occurrence of any Default or Event of Default; (ii) the occurrence of any other event which is likely to have a materially adverse effect on any of the properties comprising the Project or the business or financial condition of the Borrower; or (iii) the receipt by the Borrower of any notice of default or notice of termination with respect to any contract or agreement relating to the ownership, operation, or use of any of the properties comprising the Project which is likely to have a materially adverse effect. Without limiting the foregoing, Borrower agrees to promptly notify Lender in writing of the occurrence of any event which is inconsistent with the environmental representations under ss.8.17(g), the litigation responsibilities in ss.8.6, or the solvency representation in ss.8.16.
9.11 Other Affirmative Covenants. The Borrower will:
(a) Remain solvent and pay all of its Indebtedness from its assets as the same become due;
(b) At all times hold itself out to the public as a legal entity, separate and distinct from any other Person, including any Obligor, Subsidiary of the Borrower, or any parent or affiliate of the Borrower;
(c) Maintain adequate capital for the normal obligations reasonably foreseeable for a business of its size and character and in light of its contemplated business operations; and
(d) Maintain the Operating Accounts with the Lender.
9.12 Ownership of Borrower. Borrower agrees that George J. Carter, or a replacement officer which is approved by Lender in its sole discretion, shall, at all times, maintain control of the day to day operations of the Borrower.
9.13 Wholly Owned Subsidiary. The Borrower shall provide Lender with written notice of the establishment of a Wholly Owned Subsidiary. The Borrower shall cause such Wholly Owned Subsidiary to execute the Joinder Documents and become a Borrower under this Agreement.
9.14 Maintenance of Borrower's Properties. Borrower will protect and maintain, or cause to be maintained, in a manner consistent with Borrower's current maintenance standards at all times, the buildings and structures now standing or hereafter erected on the Borrower's properties, and any additions and improvements thereto, and all personal property now or hereafter situated therein, and the utility services, the parking areas and access roads, and all building fixtures and equipment and articles of personal property
now or hereafter acquired and used in connection with the operation of the Borrower's properties.
9.15 Acquisitions, Dispositions and Syndication of Borrower's Assets. Borrower shall provide Lender with written notice of all dispositions or acquisitions of individual properties by a Wholly Owned Subsidiary within fifteen (15) days prior to the disposition or acquisition. With respect to any acquisitions, the notice shall include a summary of the key business terms for such acquisition. With respect to any disposition, the notice shall include a certification from the chief financial officer of FSP stating that such disposition shall not cause a violation of any covenant contained herein, including, without limitation, any breach of ss.10.8, both before and after such disposition, and that no Default or Event of Default exists hereunder. Borrower shall provide Lender with written notice of all Syndication Events within fifteen (15) days prior to the scheduled closing thereof. With respect to any Syndication Event, the notice shall include, at Lender's request, a summary of the key business terms.
9.16 Syndication Event. The Borrower shall use any net proceeds (after payment of costs, fees and expenses) received by Borrower from a Syndication Event to repay, to the extent outstanding, the Loan. Such proceeds may be reborrowed by the Borrower subject to the terms herein and any such repayment shall be made in accordance with and subject to the terms of paragraph 2 of Section 4.2 of the Note.
9.17 Business Activities. The Borrower shall limit its business activities to the ownership, construction, operation and maintenance of income producing properties and investment banking activities related thereto and all matters incidental or accessory thereto.
9.18 Post-Closing Delivery Items. The Borrower, within thirty (30) days after the date of this Agreement, shall obtain and record or file, as the case may be, discharges, terminations or releases, as applicable, for all of the mortgages, liens and security interests listed on Schedule 8 attached hereto and incorporated herein, and deliver copies of the same to Lender within such time period. In addition, with respect to the properties located at 3919 Essex Lane, Houston, Texas and 3231 Allen Parkway, Houston, Texas, the Borrower shall, within the same thirty (30) day time period, provide Lender with evidence that real estate taxes are current through the date of this Agreement.
10. NEGATIVE COVENANTS OF THE BORROWER. The Borrower covenants and agrees that, so long as the Loan is outstanding or the Lender has any obligation to make any Advances:
10.1 No Amendments, Terminations or Waivers. The Borrower will not, directly or indirectly, amend, or allow the amendment of, any of the Organizational Documents of the Borrower in any material respect.
10.2 Restrictions on Indebtedness. The Borrower will not create, incur, assume, guaranty or be or remain liable, contingently or otherwise, with respect to any Indebtedness other than:
(a) Indebtedness to the Lender arising under any of the Loan Documents; and
(b) current liabilities of the Borrower incurred in the ordinary course
of business but not incurred through (i) the borrowing of money, or
(ii) the obtaining of credit except for credit on an open account
basis customarily extended and in fact extended in connection with
normal purchases of goods and services.
10.3 Restrictions on Liens, Etc. With the exception of Permitted Liens, the Borrower will not (a) create or incur or suffer to be created or incurred or to exist any lien, encumbrance, mortgage, pledge, charge, restriction or other security interest of any kind upon any of its property or assets of any character whether now owned or hereafter acquired, or upon the income or profits therefrom or, directly or indirectly, upon any of the beneficial or legal interests in Borrower; (b) transfer any of its property or assets or the income or profits therefrom for the purpose of subjecting the same to the payment of Indebtedness or performance of any other obligation in priority to payment of its general creditors; (c) acquire, or agree or have an option to acquire, any property or assets upon conditional sale or other title retention or purchase money security agreement, device or arrangement; (d) suffer to exist for a period of more than thirty (30) days after the same shall have been incurred any Indebtedness or claim or demand against it that if unpaid would likely by law or upon bankruptcy or insolvency, or otherwise, be given any priority whatsoever over its general creditors; or (e) sell, assign, pledge or otherwise transfer any accounts, contract rights, general intangibles, chattel paper or instruments, with or without recourse; provided that the Borrower may create or incur or suffer to be created or incurred or to exist liens in favor of the Lender under the Loan Documents. Notwithstanding the foregoing, the Borrower may sell any of its real property, whether now owned or hereafter acquired, provided that prior to and after any such sale (i) the Borrower is in compliance with all of its covenants herein, including, without limitation, the financial covenants contained in ss.10.8, and (ii) No Default or Event of Default has occurred and is continuing hereunder. Upon such permitted sale the Lender shall return any escrowed Security Documents relating to such real property.
10.4 Restrictions on Loans and Investments. The Borrower will not make or permit to exist or to remain outstanding any loan by the Borrower to any Person or any Investment except Investments in:
(a) marketable direct or guaranteed obligations of the United States of America that mature within one (1) year from the date of purchase by the Borrower;
(b) demand deposits and bankers L/Cs of United States banks having total assets in excess of $1,000,000,000;
(c) certificates of deposit and time deposits of United States banks having total assets in excess of $1,000,000,000 that mature within one (1) year from the date of purchase by the Borrower;
(d) securities commonly known as "commercial paper" issued by a corporation organized and existing under the laws of the United States of America or any state thereof that at the time of purchase have been rated and the ratings for which are not less than "P 1" if rated by Moody's Investors Services, Inc., and not less than "A 1" if rated by Standard and Poor's;
(e) Subsidiaries;
(f) mutual funds managed by Lender;
(g) mutual or closed-end funds substantially all of whose assets are comprised or securities of the types described in clauses (a) through (d) above;
(h) Investments in an aggregate amount not to exceed $2,000,000.00;
(i) Investments consisting of loans and advances to employees for reasonable travel, relocation and business expenses in the ordinary course of business, extensions of trade credit in the ordinary course of business and prepaid expenses in the ordinary course of business; and
(j) Investments in connection with Syndication Events and Roll-Ups.
10.5 Merger, Consolidation, Conversion, Business Operations, and Ownership and Disposition of Assets.
(a) The Borrower shall not own any assets other than income-producing properties, other assets incidental to the ownership or operation of such property, investment banking services and property management companies.
(b) After the date of this Agreement, the Borrower will not become a party to any merger or consolidation, or agree to or effect any asset acquisition or stock acquisition except in connection with (i) a Syndication Event, or (ii) a Roll-Up.
(c) The Borrower will not convert into any other type of entity, including, without limitation, a limited liability partnership or a limited liability company.
(d) The Borrower will not engage in any business operations other than those necessary for the ownership, construction, management, or operation of income-producing property and investment banking services.
10.6 Sale and Leaseback. The Borrower will not enter into any arrangement, directly or indirectly, whereby the Borrower shall sell or transfer any property owned by it in order then or thereafter to lease such property or lease other property that the Borrower intends to use for substantially the same purpose as the property being sold or transferred.
10.7 Distributions. After the occurrence and during the continuation of a Default or an Event of Default (unless and until cured within any applicable cure period), the Borrower will not make any Distributions. The Borrower will also not make any Distributions which would cause a Default or Event of Default
10.8 Financial Covenants. The Borrower covenants and agrees that, so long as the Loan is outstanding,
(a) Loan to Value. The ratio ("Loan to Value Ratio") obtained by dividing the outstanding principal balance of the Loan by the Value of the Project, expressed as a percentage, shall not be greater than forty percent (40%). This covenant shall be tested at the end of each fiscal quarter of the Borrower. In testing compliance with this covenant the Value of the Project attributed to any one property may not exceed 25% of the aggregate Value of the Project for all properties.
(b) Ratio of Net Operating Income to Debt Service Charges. The Borrower will not permit the ratio of Net Operating Income to Debt Service Charges to be less than 2.5 to 1.0. This covenant shall be tested at the end of each fiscal quarter of the Borrower.
(c) Consolidated Indebtedness. The Borrower will not permit Consolidated Indebtedness to exceed 33% of the aggregate of (i) the Value of the Project plus (ii) the book value of all tangible assets of the Borrower (other than real estate and after eliminating any duplication). This covenant shall be tested at the end of each fiscal quarter of the Borrower.
(d) Unencumbered Liquidity. The Borrower shall maintain minimum unencumbered cash and other liquid investments in the form of the Investments described in Section 10.4 (a) through (d) and (f), and in the form of Operating Accounts in an amount of not less than of $4,000,000.
This covenant shall be tested at the end of each fiscal quarter of the Borrower.
(e) Account Balances. The Borrower, any Wholly Owned Subsidiaries and affiliated companies, shall, at all times, maintain with the Lender minimum Operating Accounts checking account and savings account (exclusive of trust accounts) collected balances of $1,500,000.00. This covenant shall be tested at the end of each fiscal quarter of the Borrower.
(f) Net Worth. The Borrower shall, at the end of any fiscal year, maintain a minimum Tangible Net Worth of $70,000,000. This covenant shall be tested at the end of each fiscal quarter of the Borrower.
10.9 Other Negative Covenants. The Borrower will not:
(a) Seek the dissolution or winding up, in whole or in part, of the Borrower or voluntarily file, or consent to the filing of, a petition for bankruptcy, reorganization, assignment for the benefit of creditors or similar proceedings; and
(b) Commingle any of its accounts with accounts of any other Person, including, any Obligor, Subsidiary of the Borrower, or parent or affiliate of the Borrower.
11. EVENTS OF DEFAULT AND REMEDIES.
11.1 Events of Default. The occurrence of any one or more of the following conditions or events shall constitute an "Event of Default":
(a) any failure by the Borrower to pay, within five (5) days of the due date, any interest on or principal of or other sum payable under the Note; or
(b) any failure by the Borrower to pay as and when due and payable any
other sums to be paid by the Borrower to the Lender under this
Agreement and the continuance of such failure for a period of five
(5) days after notice thereof from the Lender; or
(c) with the exception of a Permitted Lien, title to the Collateral is or becomes reasonably unsatisfactory to the Lender by reason of any lien, charge, encumbrance, title condition or exception and such matter causing title to be or become unsatisfactory is not cured to Lender's reasonable satisfaction or removed within twenty (20) days after notice thereof from the Lender to the Borrower; or
(d) the Project or any material part thereof is subject to a Taking; or
(e) any failure by the Borrower to duly observe or perform any term, covenant, condition or agreement contained in ss.9.3, ss.9.13, ss.10.1, ss.10.2, ss.10.4, ss.10.8 or ss.10.9 hereof; or
(f) any representation or warranty made or deemed to be made by or on behalf of the Borrower in this Agreement or in any of the other Loan Documents, or in any report, certificate, financial statement, document or other instrument delivered pursuant to or in connection with this Agreement, any Advance or any of the other Loan Documents, shall prove to have been false or incorrect in any material respect upon the date when made or deemed to be made or repeated; or
(g) any dissolution, termination, partial or complete liquidation, merger or consolidation of the Borrower, or any sale, transfer or other disposition of all or substantially all of the assets of the Borrower, other than as permitted under the terms of this Agreement; or
(h) any suit or proceeding shall be filed against the Borrower or any of the properties comprising the Project which, if adversely determined, would have a materially adverse affect on the ability of the Borrower to perform their respective material obligations under and by virtue of the Loan Documents; or
(i) unless otherwise approved by Lender in its sole discretion, George J. Carter fails to retain control of the day to day management of the Borrower; or
(j) any failure by the Borrower to pay at maturity, or within any applicable period of grace, any material obligation for borrowed money or credit received, including, without limitation, any Obligations, or in respect of any capitalized material lease, or any failure to observe or perform any material term, covenant or agreement contained in any material agreement by which it is bound, evidencing or securing borrowed money or credit received, or in respect of any capitalized lease, for such period of time as would permit (assuming the giving of appropriate notice and the lapse of applicable grace periods if required) the holder or holders thereof or of any obligations issued thereunder to accelerate the maturity thereof; or
(k) Borrower shall file a voluntary petition in bankruptcy under Title 11 of the United States Code, or an order for relief shall be issued against any such Person in any involuntary petition in bankruptcy under Title 11 of the United States Code, or any such Person shall file any petition or answer seeking or acquiescing in any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief for itself under any present or future federal, state or other law or regulation
relating to bankruptcy, insolvency or other relief of debtors, or such Person shall seek or consent to or acquiesce in the appointment of any custodian, trustee, receiver, conservator or liquidator of such Person, or of all or any substantial part of its respective property, or such Person shall make an assignment for the benefit of creditors, or such Person shall give notice to any governmental authority or body of insolvency or pending insolvency or suspension of operation; or
(l) an involuntary petition in bankruptcy under Title 11 of the United States Code shall be filed against the Borrower and such petition shall not be dismissed within sixty (60) days of the filing thereof; or
(m) a court of competent jurisdiction shall enter any order, judgment or decree approving a petition filed against the Borrower seeking any reorganization, arrangement, composition, readjustment, liquidation or similar relief under any present or future federal, state or other law or regulation relating to bankruptcy, insolvency or other relief for debtors, or appointing any custodian, trustee, receiver, conservator or liquidator of all or any substantial part of its property; or
(n) any uninsured final judgment in excess of $250,000 shall be rendered against the Borrower and shall remain in force, undischarged, unsatisfied and unstayed, for more than thirty (30) days, whether or not consecutive; or
(o) any of the Loan Documents shall be canceled, terminated, revoked or rescinded otherwise than in accordance with the terms thereof or with the express prior approval of the Lender, or any action at law, suit in equity or other legal proceeding to cancel, revoke or rescind any of the Loan Documents shall be commenced by or on behalf of the Borrower which is a Person thereto or any of their respective stockholders, partners or beneficiaries, or any court or any other governmental or regulatory authority or agency of competent jurisdiction shall make a determination that, or issue a judgment, order, decree or ruling to the effect that, any one or more of the Loan Documents is illegal, invalid or unenforceable in accordance with the terms thereof; or
(p) any Borrower or any Subsidiary thereof shall be indicted for a federal or state crime, a punishment for which could include the forfeiture of any of its assets; or
(q) any failure by the Borrower to duly observe or perform any other term, covenant, condition or agreement under this Agreement and continuance of such failure for a period of thirty (30) days after notice thereof from the Lender; or
(r) any "Event of Default", as defined or otherwise set forth in any of the other Loan Documents, shall occur.
Notwithstanding the foregoing, in no event shall a default under any of the Security Documents constitute an Event of Default hereunder unless and until such Security Document or Documents become effective in accordance with Section 6.1 and Section 8.21.
11.2 Termination of Advances and Acceleration. Upon the occurrence of any Default or Event of Default, Lender shall have the right to suspend the making of any Advances or issuance of any L/C hereunder, and after the occurrence of an Event of Default and the expiration of any applicable grace periods the terms and obligations of Borrower with respect to the Security Documents shall immediately become effective and Lender may immediately record and file the Security Documents and obtain a first priority lien on all of the properties comprising the Project. Further, if any one or more Events of Default shall occur and be continuing, the Lender may by notice to the Borrower declare its obligations to make Advances hereunder to be terminated, whereupon the same shall terminate and the Lender shall be relieved of all obligations to make Advances to the Borrower, and/or declare all unpaid principal of and accrued interest on the Note, together with all other amounts owing under the Loan Documents, to be immediately due and payable, whereupon same shall become and be immediately due and payable, anything in the Loan Documents to the contrary notwithstanding, without presentment, protest, demand or other notice of any kind, all of which are hereby expressly waived by the Borrower and, to the extent Lender holds in an account any unapplied proceeds from a Syndication Event, Lender may immediately apply such funds in satisfaction of any unpaid principal of and accruing interest on the Note; provided that if any one or more of the Events of Default specified in ss.11.1 (k), ss.11.1 (l), or ss.11.1 (m), above, shall occur with respect to any Borrower, the Lender's obligations to make Advances hereunder automatically shall so terminate and all unpaid principal of and accrued interest on the Note, together with all other amounts owing under the Loan Documents, automatically shall become and be immediately so due and payable, without any declaration or other act on the part of the Lender.
11.3 Other Remedies. If any one or more of the Events of Default shall have occurred and continued beyond any applicable grace periods, and whether or not the Lender shall have terminated its obligations to make Advances or accelerated the maturity of the Loan pursuant to ss.11.2 or obtained a first priority lien on all of the properties comprising the Project, the Lender may proceed to protect and enforce its rights and remedies under this Agreement, the Note or any of the other Loan Documents, including, by foreclosure, exercise of set-off or pledge rights and/or by suit in equity, action at law or other appropriate proceeding, whether for the specific performance of any covenant or agreement contained in this Agreement and the other Loan Documents or any instrument pursuant to which the Obligations are evidenced, including as permitted by applicable law the obtaining of the ex parte appointment of a receiver, and, if any amount owed to the Lender shall have become due, by declaration or otherwise, proceed to enforce the payment thereof or any other legal or equitable
right of the Lender. No remedy conferred upon the Lender or the holder of the Note in this Agreement or in any of the other Loan Documents is intended to be exclusive of any other remedy and each and every remedy shall be cumulative and shall be in addition to every other remedy given hereunder or thereunder or now or hereafter existing at law or in equity or by statute or any other provision of law.
11.4 Distribution of Collateral Proceeds. In the event that, following the occurrence and during the continuance of any Default or Event of Default, the Lender receives any monies in connection with the enforcement of any the Security Documents, or otherwise with respect to the realization upon any of the Collateral, such monies shall be distributed for application as follows:
(a) First, to the payment of, or (as the case may be) the reimbursement of the Lender for or in respect of all reasonable costs, expenses, disbursements and losses which shall have been incurred or sustained by the Lender in connection with the collection of such monies by the Lender, for the exercise, protection or enforcement by the Lender of all or any of the rights, remedies, powers and privileges of the Lender under this Agreement or any of the other Loan Documents or in respect of the Collateral or in support of any provision of adequate indemnity to the Lender against any taxes or liens which by law shall have, or may have, priority over the rights of the Lender to such monies;
(b) Second, to all other Obligations in such order or preference as the Lender may determine; provided, however, that the Lender may in its discretion make proper allowance to take into account any Obligations not then due and payable;
(c) Third, upon payment and satisfaction in full or other provisions for payment in full satisfactory to the Lender of all of the Obligations, to the payment of any obligations required to be paid pursuant to ss.9-504(1)(c) of the Uniform Commercial Code of the Commonwealth of Massachusetts; and
(d) Fourth, the excess, if any, shall be returned to the Borrower or to such other Persons as are entitled thereto.
11.5 Power of Attorney. For the purposes of carrying out the provisions and exercising the rights, remedies, powers and privileges granted by or referred to in this Article, after the occurrence of an Event of Default and during the continuation thereof the Borrower hereby irrevocably constitutes and appoints the Lender its true and lawful attorney-in-fact, with full power of substitution, to execute, acknowledge and deliver any instruments and do and perform any acts which are referred to in this Article, in the name and on behalf of the Borrower. The power vested in such attorney-in-fact is, and shall be deemed to be, coupled with an interest and irrevocable.
11.6 Waivers. The Borrower hereby waives to the extent not prohibited by applicable law and to the extent not expressly required hereunder (a) all presentments, demands for performance, notices of nonperformance (except to the extent required by the provisions hereof or of any of the other Loan Documents), protests and notices of dishonor, (b) any requirement of diligence or promptness on the Lender's part in the enforcement of its rights (but not fulfillment of its obligations) under the provisions of this Agreement or any of the other Loan Documents, and (c) any and all notices of every kind and description which may be required to be given by any statute or rule of law and any defense of any kind which the Borrower may now or hereafter have with respect to its liability under this Agreement or under any of the other Loan Documents.
12. SETOFF. After an Event of Default, Borrower hereby grants to Lender a direct and continuing lien, right of set off and security interest, as security for the Obligations, whether now existing or hereafter arising, upon and against all Operating Accounts (excluding all non-Borrower accounts or trust accounts) deposits, credits, collateral and other property, now or hereafter in the possession, custody, safekeeping or control of Lender or any entity related to or affiliated with Lender or in transit to any of them. Regardless of the adequacy of any other collateral, after the occurrence of an Event of Default continuing beyond any applicable grace periods, any such deposits (general or specific, time or demand, provisional or final, regardless of currency, maturity, or the branch of the Lender where such deposits are held) credits, collateral and property may be applied to or set off, without notice or compliance with any other condition precedent (all of which is hereby waived) against the payment of the Obligations and any and all other Obligations in such manner and order as Lender in its sole discretion may determine subject to ss.11.4.
13. EXPENSES. The Borrower agrees to pay (a) the reasonable costs of producing and reproducing this Agreement, the other Loan Documents and the other agreements and instruments mentioned herein, (b) any taxes (including any interest and penalties in respect thereto) payable by the Lender (other than taxes based upon the Lender's net income), including any recording, mortgage or intangibles taxes in connection with the Security Deed, or other taxes payable on or with respect to the transactions contemplated by this Agreement, including any taxes payable by the Lender after the Closing Date (the Borrower hereby agreeing to indemnify the Lender with respect thereto), (c) all title insurance premiums, and the reasonable fees, expenses and disbursements of the Lender's counsel or any local counsel to the Lender incurred in connection with the preparation, administration or interpretation of the Loan and the Loan Documents and other instruments mentioned herein, the making of each Advance hereunder, and amendments, modifications, approvals, consents or waivers hereto or hereunder, (d) the reasonable fees, expenses and disbursements of the Lender incurred in connection with the preparation, administration or interpretation of the Loan and the Loan Documents and other instruments mentioned herein, and the making of each Advance hereunder (including all reasonable Appraisal fees, and surveyor fees subject to the terms of ss.9.5 hereof), (e) all reasonable out-of-pocket expenses (including reasonable attorneys' fees and costs) and the reasonable fees and costs of consultants, accountants, auctioneers, receivers, brokers, property managers, appraisers, investment
bankers or other experts retained by the Lender in connection with (i) the enforcement of or preservation of rights under any of the Loan Documents against the Borrower or any Obligor or the administration thereof after the occurrence and during the continuation of a Default or Event of Default and (ii) any litigation, proceeding or dispute arising hereunder or otherwise, in any way related to the Lender's relationship with the Borrower, (f) all reasonable fees, expenses and disbursements of the Lender incurred in connection with UCC searches, UCC filings, title rundowns, title searches or mortgage recordings in accordance with the terms hereof; and (g) all reasonable costs associated with annual inspections, or at any time after the occurrence and continuation of an Event of Default, all reasonable expenses incurred by Lender for site visits for real property located outside of the Commonwealth of Massachusetts which expenses shall not exceed $1,000.00 per property. The covenants of this Section shall survive payment or satisfaction of payment of all amounts owing with respect to the Note.
14. INDEMNIFICATION. The Borrower agrees to indemnify and hold harmless the Lender from and against any and all claims, actions and suits, whether groundless or otherwise, and from and against any and all liabilities, losses, damages and expenses of every nature and character arising out of this Agreement or any of the other Loan Documents or the transactions contemplated hereby and thereby including, without limitation, (a) any brokerage, leasing, finders or similar fees, (b) any disbursement of the proceeds of any of the Advances, (c) any condition of the properties comprising the Project whether related to the quality of construction or otherwise, (d) any actual or proposed use by the Borrower of the proceeds of any of the Advances, (e) any actual or alleged violation of any Requirements or Project Approvals, (f) any action taken by Lender to enforce its rights and remedies under the Loan Documents, including the rights and remedies set forth in ss.11 hereof, or (g) the Borrower entering into or performing this Agreement or any of the other Loan Documents, in each case including, without limitation, the reasonable fees and disbursements of counsel incurred in connection with any such investigation, litigation or other proceeding. In litigation, or the preparation therefor, the Lender shall be entitled to select its own counsel and, in addition to the foregoing indemnity, the Borrower agrees to pay within thirty (30) days the reasonable fees and expenses of such counsel. The obligations of the Borrower under this Section shall survive the repayment of the Loan and shall continue in full force and effect so long as the possibility of such claim, action or suit exists. If, and to the extent that the obligations of the Borrower under this Section are unenforceable for any reason, the Borrower hereby agrees to make the maximum contribution to the payment in satisfaction of such obligations which is permissible under applicable law.
15. LIABILITY OF THE LENDER. The liability of the Lender to the Borrower for any breach of the terms of this Agreement by the Lender shall not exceed a sum equal to the amount which the Lender shall be determined to have failed to advance in consequence of a breach by the Lender of its obligations under this Agreement, together with interest thereon at the rate payable by the Borrower under the terms of the Note for Advances which the Borrower is to receive hereunder, computed from the date when the Advance should have been made by the Lender to the date when the Advance is, in fact,
made by the Lender, and, upon the making of any such payment by the Lender to the Borrower, the same shall be treated as an Advance under this Agreement, in the same fashion as any other Advance under the terms of this Agreement. In no event shall the Lender be liable to the Borrower, or anyone claiming by, under or through the Borrower, for any special, exemplary, punitive or consequential damages, whatever the nature of the breach of the terms of this Agreement by the Lender, such damages and claims therefor being expressly WAIVED by the Borrower.
Notwithstanding the foregoing, Borrower agrees that no action shall be commenced by Borrower for any claim of any kind against the Lender under or in connection with this Agreement unless written notice specifically setting forth the claim of Borrower shall have been given to the Lender within ninety (90) days after the occurrence of the event which Borrower alleges gives rise to such claims, and failure to give such notice shall constitute a WAIVER of any such claim.
16. RIGHTS OF THIRD PARTIES. All conditions to the performance of the obligations of the Lender under this Agreement, including the obligation to make Advances, are imposed solely and exclusively for the benefit of the Lender and no other Person shall have standing to require satisfaction of such conditions in accordance with their terms or be entitled to assume that the Lender will refuse to make Advances in the absence of strict compliance with any or all thereof and no other Person shall, under any circumstances, be deemed to be a beneficiary of such conditions, any and all of which may be freely waived in whole or in part by the Lender at any time if in its sole discretion it deems it desirable to do so.
17. SURVIVAL OF COVENANTS, ETC. All covenants, agreements, representations and warranties made herein, in the Note, in any of the other Loan Documents or in any documents or other papers delivered by or on behalf of the Borrower pursuant hereto and thereto shall be deemed to have been relied upon by the Lender, notwithstanding any investigation heretofore or hereafter made by it, and shall survive the making by the Lender of the Advances, as herein contemplated, and shall continue in full force and effect either (i) so long as any amount due under this Agreement or the Note or any of the other Loan Documents remains outstanding or the Lender has any obligation to make any Advances or (ii) for such longer period as may be provided for herein or in any other Loan Document. All statements contained in any certificate or other paper delivered to the Lender at any time by or on behalf of any Person or any Subsidiary thereof pursuant hereto or in connection with the transactions contemplated hereby shall constitute representations and warranties by such Person.
18. ASSIGNMENT AND PARTICIPATION.
18.1 Conditions to Assignment by Lender. Except as provided herein, the Lender may assign to one or more banks or other entities (the "Banks") its interests, rights and obligations under this Agreement; provided, however, prior to the occurrence and continuation of an Event of Default: (i) the Lender may only assign up to fifty (50%) percent of its interests, rights, and obligation under this Agreement, (ii) any such assignee
shall be a financial institution with a net worth of not less than $100,000,000; and (iii) Lender shall provide the Borrower with at least thirty (30) days' prior written notice of such intended assignment. From and after the effective date of any such assignment, (i) the assignee thereunder shall be deemed to be a party hereto and, to the extent agreed to by the Lender, have the rights and obligations of a Lender hereunder, and (ii) the Lender shall, to the extent of its interest assigned as provided herein, be released from its obligations under this Agreement.
18.2 New Notes, Agreement. Upon any such assignment by the Lender, the Borrower, at its own expense, shall execute and deliver to the Lender (a) in exchange for the Note, a new Note (or Notes) to the order of each such assignee in an amount equal to the amount assumed by such assignee and, if the Lender has retained some portion of its obligations hereunder, a new Note to the order of the Lender in an amount equal to the amount retained by it hereunder and (b) an amendment to this Agreement and any other Loan Documents, as may be reasonably requested by the Lender, to evidence the assignment, provide for the rights and interest of the assignee, and establish the rights, responsibilities and obligations of the Lender as agent for itself and any such assignee. Such new Note (or Notes) shall be provided as replacements for the surrendered Note (or Notes), shall be in an aggregate principal amount equal to the aggregate principal amount of the surrendered Note (or Notes), shall be dated the effective date of such assignment and shall otherwise be in substantially the form of the assigned Note (or Notes). Within five (5) days of issuance of any new Notes pursuant to this ss.18.2, the Borrower shall deliver an opinion of counsel, addressed to the Lender and the Agent (if any), relating to the due authorization, execution and delivery of such new Notes and the legality, validity and binding effect thereof, in form and substance satisfactory to the Lender. The surrendered Note (or Notes) shall be canceled and returned to the Borrower.
18.3 Participations. The Lender (and any Bank) may sell participations to one or more banks or other entities in all or a portion of the Lender's (or Bank's) rights and obligations under this Agreement and the other Loan Documents; provided that (a) any such sale of participations shall not affect the rights and duties of the Lender (or Bank) hereunder to the Borrower and (b) the only rights granted to the participant pursuant to such participation arrangements with respect to waivers, amendments or modifications of the Loan Documents shall be the right to approve waivers, amendments or modifications that would reduce the principal of or the interest rate on the Loan, extend the term or increase the amount of the Loan or extend any regularly scheduled payment date for principal or interest.
18.4 Pledge by the Lender. The Lender may at any time pledge all or any portion of its interest and rights under this Agreement (including all or any portion of the Note) to any of the twelve Federal Reserve Banks organized under ss.4 of the Federal Reserve Act, 12 U.S.C. ss.341. No such pledge or the enforcement thereof shall release the Lender from its obligations hereunder or under any of the other Loan Documents.
18.5 No Assignment by the Borrower. The Borrower shall not assign or transfer any of its rights or obligations under any of the Loan Documents without the prior approval of the Lender.
19. RELATIONSHIP. The relationship between the Lender and the Borrower is solely that of a lender and borrower, and nothing contained herein or in any of the other Loan Documents shall in any manner be construed as making the parties hereto partners, joint venturers or any other relationship other than lender and borrower.
20. NOTICES. Except as otherwise provided herein or in any other Loan Document, each notice, demand, election or request provided for or permitted to be given pursuant to this Agreement (hereinafter in this Section referred to as "Notice") must be in writing and shall be deemed to have been properly given or served by personal delivery or by sending same by overnight courier, by depositing same in the United States Mail, postpaid and registered or certified, return receipt requested, or by facsimile transmission, and addressed as follows:
If to the Lender:
Citizens Bank of Massachusetts
28 State Street
Boston, Massachusetts 02109
Attention: Mr. Daniel R. Ouellette Vice President Facsimile: (617) 725-5602
with a copy to:
Goulston & Storrs, P.C.
400 Atlantic Avenue
Boston, Massachusetts 02110
Attention: James H. Lerner, Esq.
Facsimile: (617) 574-4112
If to the Borrower:
Franklin Street Partners Limited Partnership
401 Edgewater Place
Suite 110
Wakefield, Massachusetts 01880-6210
Attention: President
Facsimile: (781) 246-2807
with a copy to:
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Attention: Kenneth A. Hoxsie, Esq.
Facsimile: (617) 526-5000
Each Notice shall be effective upon being personally delivered, receipt of facsimile transmission or upon being sent by overnight courier or upon being deposited in the United States Mail as aforesaid. However, (i) the time period in which a response to such Notice must be given or any action taken with respect thereto (if any), and (ii) the commencement of a default period, to the extent notice is required hereunder, shall commence to run from the date of receipt if personally delivered, sent by facsimile transmission, or sent by overnight courier, or if so deposited in the United States Mail, the earlier of three (3) Business Days following such deposit or the date of receipt as disclosed on the return receipt. Rejection or other refusal to accept or the inability to deliver because of changed address for which no Notice was given shall be deemed to be receipt of the Notice sent. By giving at least thirty (30) days' prior Notice thereof, the Borrower or the Lender shall have the right from time to time and at any time during the term of this Agreement to change their respective addresses and each shall have the right to specify as its address any other address within the United States of America.
21. GOVERNING LAW. This Agreement and each of the other Loan Documents, except as otherwise specifically provided therein, are contracts under the laws of the Commonwealth of Massachusetts and shall for all purposes be construed in accordance with and governed by the laws of said Commonwealth (excluding the laws applicable to conflicts or choice of law).
22. CONSENT TO JURISDICTION; WAIVERS. THE BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY (A) SUBMITS TO NONEXCLUSIVE PERSONAL JURISDICTION IN THE COMMONWEALTH OF MASSACHUSETTS OVER ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, AND (B) WAIVES ANY AND ALL PERSONAL RIGHTS UNDER THE LAWS OF ANY STATE (I) TO THE RIGHT, IF ANY, TO TRIAL BY JURY, (II) TO OBJECT TO JURISDICTION WITHIN THE COMMONWEALTH OF MASSACHUSETTS OR VENUE IN ANY PARTICULAR FORUM WITHIN THE COMMONWEALTH OF MASSACHUSETTS, AND (III) TO THE RIGHT, IF ANY, TO CLAIM OR RECOVER ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN ACTUAL DAMAGES. THE BORROWER AGREES THAT, IN ADDITION TO ANY METHODS OF SERVICE OF PROCESS PROVIDED FOR UNDER APPLICABLE LAW, ALL SERVICE OF PROCESS IN ANY SUCH SUIT, ACTION OR PROCEEDING MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED DIRECTED TO THE BORROWER AT THE ADDRESS SET FORTH IN ss.20 ABOVE, AND SERVICE SO MADE SHALL BE COMPLETE FIVE (5) DAYS AFTER THE SAME SHALL BE SO MAILED. NOTHING CONTAINED HEREIN, HOWEVER, SHALL PREVENT THE
LENDER FROM BRINGING ANY SUIT, ACTION OR PROCEEDING OR EXERCISING ANY RIGHTS AGAINST ANY COLLATERAL AND AGAINST THE BORROWER, AND AGAINST ANY PROPERTY OF THE BORROWER, IN ANY OTHER STATE. INITIATING SUCH SUIT, ACTION OR PROCEEDING OR TAKING SUCH ACTION IN ANY STATE SHALL IN NO EVENT CONSTITUTE A WAIVER OF THE AGREEMENT CONTAINED HEREIN THAT THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS SHALL GOVERN THE RIGHTS AND OBLIGATIONS OF THE BORROWER AND THE LENDER HEREUNDER OR THE SUBMISSION HEREIN BY THE BORROWER TO NONEXCLUSIVE PERSONAL JURISDICTION WITHIN THE COMMONWEALTH OF MASSACHUSETTS.
23. PREFERENCES. Lender shall have no obligation to marshal any assets in favor of Borrower or any other party or against or in payment of any or all of the obligations of Borrower pursuant to this Agreement, the Note, the Security Deed or any other Loan Document. Lender shall have the continuing and exclusive right to apply or reverse and reapply any and all payments by Borrower to any portion of such obligations. To the extent Borrower makes a payment or payments to Lender for Borrower's benefit, which payment or proceeds or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other Person under any bankruptcy law, state or federal law, the obligations or part thereof intended to be satisfied shall be revived and continue in full force and effect, as if such payment or proceeds had not been received by Lender.
24. RULES OF INTERPRETATION. The following rules of interpretation shall govern:
(a) A reference to any Loan Document, agreement, budget, document or schedule shall include such agreement, budget, document or schedule as revised, amended, modified or supplemented from time to time in accordance with its terms and the terms of this Agreement.
(b) A reference to any Exhibit hereto shall be deemed to specifically incorporate the terms and provisions of such Exhibit herein.
(c) The singular includes the plural and the plural includes the singular.
(d) A reference to any law includes any amendment or modification to such law.
(e) A reference to any Person includes its permitted successors and permitted assigns.
(f) Accounting terms not otherwise defined herein have the meaning assigned to them by generally accepted accounting principles applied on a consistent basis by the accounting entity to which they refer.
(g) The words "approval" and "approved", as the context so determines, means an approval in writing given to the Person seeking approval after full and fair disclosure to the Person giving approval of all material facts necessary in order to determine whether approval should be granted.
(h) Reference to a particular "ss." refers to that section of this Agreement unless otherwise indicated.
(i) Use of the word "including" shall mean "including, without limitation" unless the context otherwise requires.
25. HEADINGS. The captions in this Agreement are for convenience of reference only and shall not define or limit the provisions hereof.
26. COUNTERPARTS. This Agreement and any amendment hereof may be executed in several counterparts and by each party on a separate counterpart, each of which when so executed and delivered shall be an original, and all of which together shall constitute one instrument. In proving this Agreement it shall not be necessary to produce or account for more than one such counterpart signed by the party against whom enforcement is sought.
27. ENTIRE AGREEMENT. The Loan Documents and any other documents executed in connection herewith or therewith express the entire understanding of the parties with respect to the transactions contemplated hereby. Neither this Agreement nor any term hereof may be changed, waived, discharged or terminated, except as provided inss.28.
28. CONSENTS, AMENDMENTS, WAIVERS, ETC. Except as otherwise expressly set forth in any particular provision of this Agreement, any consent or approval required or permitted by this Agreement to be given by the Lender may be given, and any term of this Agreement or of any other instrument related hereto or mentioned herein may be amended, and the performance or observance by the Borrower of any terms of this Agreement or such other instrument or the continuance of any Default or Event of Default may be waived (either generally or in a particular instance and either retroactively or prospectively) with, but only with, the written consent of the Lender. No waiver shall extend to or affect any obligation not expressly waived or impair any right consequent thereon. No course of dealing or delay or omission on the part of the Lender in exercising any right shall operate as a waiver thereof or otherwise be prejudicial thereto. No Advance made by the Lender hereunder during the continuance of any Default or Event of Default shall constitute a waiver thereof. No notice to or demand upon the Borrower shall entitle the Borrower to other or further notice or demand in similar or other circumstances. Any amendment to this Agreement or any other Loan Document shall be made in writing and signed by the Borrower and the Lender.
29. TIME OF THE ESSENCE. Time is of the essence with respect to each and every covenant, agreement and obligation of the Borrower under this Agreement and the other Loan Documents.
30. SEVERABILITY. The provisions of this Agreement are severable, and if any one clause or provision hereof shall be held invalid or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect only such clause or provision, or part thereof, in such jurisdiction, and shall not in any manner affect such clause or provision in any other jurisdiction, or any other clause or provision of this Agreement in any jurisdiction.
31. LIMITED RECOURSE. No deficiency will be sought or judgment for money damages will be entered against the general partners (the "General Partners") or limited partners of the Borrower (collectively, the "Partners") with respect to any deficiency remaining after foreclosure of any Security Deed and the Partners shall not be personally liable in any action with respect to any deficiency remaining after any such foreclosure or to collect any amount payable under this Agreement, the Note and the other Loan Documents.
Notwithstanding the foregoing, however, nothing contained in this Section 31 shall in any way whatsoever release, affect, impair or derogate from the indebtedness evidenced by this Agreement and other Loan Documents, or the liabilities and obligations of the Borrower under the Loan Documents or in connection therewith, or restrict, impair or preclude the exercise of any of the rights and remedies of the Lender under the Loan Documents, or otherwise available at law or in equity, including, without limitation, any action to foreclose a Security Deed or Deeds, actions against the Borrower that do not seek to impose personal liability on the Partners, or the exercise of the rights and remedies of Lender under this Agreement or any other Loan Document.
Further, it is expressly understood and agreed that the aforesaid limitation on liability shall in no way release or restrict the liability of the General Partners to the Lender under any separate guarantees or indemnities provided in connection with the Loan or for all amounts arising out of or relating to the following (provided however, that in no event shall any of the general partners or limited partners of Franklin Street Partners Limited Partnership have any liability whatsoever to the Lender):
(i) fraud or intentional misrepresentation made in connection with this Note, any Security Deed or Deeds, or any of the other Loan Documents, or any property comprising the Project;
(ii) other than in accordance with the requirements of the Loan Documents, the misappropriation of (a) proceeds of condemnation actions or insurance covering any portion of the Project, or (b) proceeds of the sale or transfer of any portion of any property comprising the Project, or (c) proceeds from any Syndication Event; and
(iii) rental payments received by or on behalf of the Borrower subsequent to the date on which the Lender makes written demand therefor pursuant to the Loan Documents following the occurrence and during the continuation of an Event of Default.
[The remainder of this page is intentionally left blank.]
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as a sealed instrument as of the date first set forth above.
FRANKLIN STREET PARTNERS
LIMITED PARTNERSHIP
By: /s/ Geaorge J. Carter ---------------------- Name: George J. Carter Its: Managing General Partner |
FSP WESLAYAN OAKS LIMITED
PARTNERSHIP
By: FSP Holdings LLC,
its general partner
By: /s/ George J. Carter --------------------- Name: George J. Carter Its: President |
ESSEX LANE ASSOCIATES LIMITED
PARTNERSHIP
By: FSP Holdings LLC,
its general partner
By: /s/ George J. Carter --------------------- Name: George J. Carter Its: President |
FSP APARTMENT PROPERTIES
LIMITED PARTNERSHIP
By: FSP Holdings LLC,
its general partner
By: /s/ George J. Carter --------------------- Name: George J. Carter Its: President |
FSP PARK SENECA LIMITED PARTNERSHIP
By: FSP Holdings LLC,
its general partner
By: /s/ George J. Carter --------------------- Name: George J. Carter Its: President |
FSP SANTA CLARA LIMITED
PARTNERSHIP
By: FSP Holdings LLC,
its general partner
By: /s/ George J. Carter --------------------- Name: George J. Carter Its: President |
FSP PIEDMONT CENTER LIMITED
PARTNERSHIP
By: FSP Holdings LLC,
its general partner
By: /s/ George J. Carter --------------------- Name: George J. Carter Its: President |
ONE TECHNOLOGY DRIVE LIMITED
PARTNERSHIP
By: FSP Holdings LLC,
its general partner
By: /s/ George J. Carter --------------------- Name: George J. Carter Its: President |
FSP NORTH ANDOVER OFFICE PARK
LIMITED PARTNERSHIP
By: FSP Holdings LLC,
its general partner
By: /s/ George J. Carter --------------------- Name: George J. Carter Its: President |
CITIZENS BANK OF MASSACHUSETTS
By: /s/ Daniel R. Ouellette ------------------------ Name: Daniel R. Ouellette Title: Vice President |
Exhibit A
JOINDER AGREEMENT
-----------, -------
Reference is made to the Loan Agreement, dated as of February 23, 1999 (as amended on the date hereof and as from time to time further amended and in effect, the "Loan Agreement"), among Franklin Street Partners Limited Partnership ("FSP"), those other Borrowers listed on Schedule 2 (as amended) of the Loan Agreement and each other Borrower (collectively, the "Borrower") which from time to time is a party to the Loan Agreement, and Citizens Bank of Massachusetts (the "Lender"). Capitalized terms used herein and not otherwise defined shall have the meanings assigned to such terms in the Loan Agreement.
In consideration of and as an inducement to the Lender continuing to provide financing under the Loan Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, ________________________ (the "Additional Borrower"), a Wholly Owned Subsidiary of FSP, hereby acknowledges and agrees to the terms and conditions of the Loan Agreement and the Note, joins in the agreements of the Borrower under the Loan Agreement and the Note and agrees that all Obligations of the Borrower under the Loan Agreement and the Note shall be the obligations, jointly and severally, of the Additional Borrower with the same force and effect as if the Additional Borrower was originally a Borrower under the Loan Agreement and an original signatory to the Loan Agreement and the Note. Furthermore, the Additional Borrower shall have all the liabilities and obligations of a maker under the Note.
The Additional Borrower further agrees that its liability hereunder is direct and primary and may be enforced by the Lender before or after proceeding against any other Borrower or the Guarantor.
Unless waived by the Lender, at least five (5) Business Days prior to this Joinder Agreement becoming effective, the Additional Borrower shall have delivered to the Lender, with respect to such Additional Borrower's property(ies), those documents referred to in Section 6.5 and current and historical financial statements reasonably requested by Lender with respect to the Additional Borrower. Such documents and statements shall not be subject to Lender's approval or satisfaction.
The undersigned hereby represents and warrants to the Lender that it has the complete right, power and authority to execute and deliver this Joinder Agreement and, to perform all of the obligations hereunder and the Obligations under the Loan Agreement and the Note. This Joinder Agreement shall be binding upon the undersigned and its successors and assigns and shall inure to the benefit of the Lender and its successors and assigns.
Executed as a sealed instrument as of the __ day of __________, ______.
By:____________________ Name: ________________ Its: __________________ Acknowledged and Agreed:
Franklin Street Partners Limited Partnership, as agent for each Borrower
By:_____________________, its sole general partner (SEAL)
FSP Holdings LLC, as Guarantor
By:______________________________(SEAL)
Schedule 1 Definitions
Advance. Any disbursement, including a readvance of any amount previously repaid by the Borrower, of the proceeds of the Loan made or to be made by the Lender pursuant to the terms of this Agreement.
Agreement. This Loan Agreement, including the Schedules and Exhibits hereto.
Annual Fee. Seess.4.
Appraisal. With respect to each property included in the Project an appraisal of the "as built" market value of such property, or any property comprising the Project, performed by a qualified independent appraiser approved by the Lender.
Appraised Value. The market value of the any individual property included in the Project, determined by the most recent Appraisal obtained pursuant hereto, as such may be reviewed and adjusted by the Lender.
Availability. The difference between (i) the Loan Amount, and (ii) the aggregate of (x) the aggregate Stated Amount under all outstanding L/Cs, and (y) the unpaid principal balance owed under the Loan.
Balance Sheet Date. December 31, 1998 on a pro forma basis.
Borrower. As defined in the preamble hereto. All definitions, representations, warranties, covenants, rights and remedies provided for herein apply to each entity individually and collectively except as the context otherwise provides. Further, any and all references to Obligations shall mean and refer to the joint Obligations of each entity to the Lender. Any and all Advances hereunder shall be advanced to one of the entities but shall represent an Obligation of all of the entities to the Lender.
Business Day. Any day on which the Lender is open for the transaction of banking business in Boston, Massachusetts.
Closing Date. The first date on which the conditions set forth inss.6 have been satisfied.
Closing Fee. Seess.4.
Code. The Internal Revenue Code of 1986 and the regulations thereunder, all as amended and in effect from time to time.
Collateral. All of the property, rights and interests that are or are intended to be subject to the security interests, assignments, and mortgage liens created by the Security Documents, including, without limitation, all of the properties comprising the Project.
Consolidated Indebtedness. After elimination of duplication, for the Borrower, all obligations, contingent and otherwise, that in accordance with generally accepted accounting principles should be classified upon the obligor's balance sheet as liabilities, or to which reference should be made by footnotes thereto, including in any event and whether or not so classified: (a) all debt and similar monetary obligations, whether direct or indirect; (b) all liabilities secured by any mortgage, pledge, security interest, lien, charge, or other encumbrance existing on property owned or acquired subject thereto, whether or not the liability secured thereby shall have been assumed; (c) all liabilities under capitalized leases; (d) all guaranties, endorsements and other contingent obligations whether direct or indirect in respect of indebtedness of others, including the obligations to reimburse the issuer in respect of any letters of credit, and (e) all unsecured indebtedness.
Debt Service Charges. For any fiscal period of the Borrower, the sum of the expenses of the Borrower for such period for (x) Debt Service On The Loan, and (without duplication) any other principal and interest on Consolidated Indebtedness secured by all or any part of the Project and (y) fees payable under the Loan Documents, or in connection with any other Consolidated Indebtedness secured by all or any part of the Project in each case determined in accordance with generally accepted accounting principles.
Debt Service on the Loan. Shall mean the principal and interest payable under the Loan during the test period based upon the greater of: (i) the actual interest rate in effect under the Loan for the test period plus principal payments based upon a twenty (20) year amortization schedule, or (ii) the greater of (I) the rate for the ten (10) year United States Treasury obligations in amounts approximating the principal balance of the Loan during the test period plus one hundred eighty five (185) basis points, or (II) seven and one-half percent (7.5%) per annum, plus in the case of (I) and (II), principal payments based upon a twenty (20) year amortization schedule.
Default. A condition or event which would, with either the giving of notice or lapse of time or both, constitute an Event of Default.
Default Rate. See the Note.
Distribution. The (i) declaration or payment of any dividend, (ii) distribution of cash or other property, (iii) purchase, redemption, or other retirement (directly or indirectly), (iv) repayment of any loan to any Person directly or indirectly holding an interest in Borrower, or (iv) other distribution, in each case, of, on or in respect of any shares of any class of capital stock, partnership interests, or other beneficial or ownership interests of the Borrower.
Drawdown Date. The date that an Advance is made hereunder.
Environmental Laws. As defined in the Indemnity Agreement.
Environmental Report(s). The environmental site assessment reports listed on Schedule 6 attached hereto.
ERISA Plan. Any employee benefit, employee pension, or multiemployer plan within the meaning of the Employee Retirement Income Security Act of 1974, as amended and in effect from time to time.
Event of Default. Seess.11.
Financing Statements. Uniform Commercial Code Form 1 Financing Statement(s) from the Borrower in favor of the Lender.
FSP. As defined in the Preamble.
Generally accepted accounting principles. Principles that are (a) consistent with the principles promulgated or adopted by the Financial Accounting Standards Board and its predecessors, as in effect from time to time and (b) consistently applied with past financial statements of the Borrower adopting the same principles; provided that a certified public accountant would, insofar as the use of such accounting principles is pertinent, be in a position to deliver an unqualified opinion (other than a qualification regarding changes in generally accepted accounting principles) as to financial statements in which such principles have been properly applied.
Government Authority. The United States of America, the State in which any of the properties comprising the Project is located, the city or town in which the Land is located, and any political subdivision agency, authority, department, commission, board, bureau, or instrumentality of any of them.
Gross Cash Receipts. The sum of cash actually received during any test period of the Borrower and FSP, including, without limitation, cash received with respect to the properties comprising the Project in payment of the following items:
(a) rentals, including minimum or base rent, percentage rent, and rent attributable to recovery of tenant improvement costs received from tenants occupying space in the properties comprising the Project during such period;
(b) cash reimbursements from tenants of operating expenses, insurance premiums, and real estate taxes and the cost of tenant improvements;
(c) parking revenues received in connection with the operation of parking facilities;
(d) receipts from laundries, vending machines, recreational facilities and any and all other operating revenues received from the Project; and
(e) security deposits, to the extent applied by Borrower.
If the Borrower shall receive cash by reason of fire or other casualty insurance proceeds, or a taking by eminent domain, or a loan or advance or a sale of any part of the Project, such amounts shall not be included in Gross Cash Receipts unless such cost to repair is included in the calculation of expenses.
Gross Cash Receipts shall be determined on a cash basis consistent with the basis used in the preparation of the computations of Gross Cash Receipts furnished pursuant to ss.9.2 of this Agreement
Guarantor. FSP Holdings LLC, a Delaware limited liability company.
Hazardous Substances. As defined in the Indemnity Agreement.
Indebtedness. All obligations, contingent and otherwise, that in accordance with generally accepted accounting principles should be classified upon the obligor's balance sheet as liabilities, or to which reference should be made by footnotes thereto, including in any event and whether or not so classified: (a) all debt and similar monetary obligations, whether direct or indirect; (b) all liabilities secured by any mortgage, pledge, security interest, lien, charge, or other encumbrance existing on property owned or acquired subject thereto, whether or not the liability secured thereby shall have been assumed; (c) all liabilities under capitalized leases; (d) all guaranties, endorsements and other contingent obligations whether direct or indirect in respect of indebtedness of others, including the obligations to reimburse the issuer in respect of any letters of credit, and (e) all unsecured indebtedness.
Indemnity Agreement. The Environmental Warranty and Indemnification Agreement dated or to be dated on or prior to the Closing Date, made, jointly and severally, by the Borrower in favor of the Lender, as the same may hereafter be amended with the prior written consent of Lender.
Investment. All expenditures made and all liabilities incurred (continently or otherwise) for the acquisition of stock or Indebtedness of, or for loans, advances, capital contributions or transfers of property to, or in respect to any guaranties (or other commitments as described under Indebtedness), or obligations of, any Person.
Joinder Documents. The one or more joinder agreements to be executed by a Wholly Owned Subsidiary which is to become a Borrower after the Closing Date in the form attached hereto as Exhibit A.
L/C. Any Letter of Credit, the issuance of which is procured by the Lender for the account of the Borrower and any letter of credit made on account of such letter of credit.
L/C Agreement. Seess.2.6(a)
L/C Fee. Seess.4
L/C Limit. The aggregate maximum Stated Amounts of all L/C's issued by the Lender on behalf of the Borrower shall not exceed the lesser of (i) ten (10%) percent of the Loan Amount, or (ii) the Availability.
Loan. The loan or any portion thereof which is the subject of this Agreement.
Loan Amount. An amount equal to $25,000,000.
Loan Documents. This Agreement, the Note, the Guaranty, the Indemnity Agreement, the Joinder Documentation, and the Security Documents, and all other agreements, documents and instruments now or hereafter evidencing, securing or otherwise relating to the Loan, all as the same may hereafter be amended with the prior written consent of Lender.
Maturity Date. February 23, 2001 which date may be extended from time to time upon the mutual written agreement between the Lender and the Borrower.
Loan to Value Ratio. Seess.10.8(a)
Net Operating Income. The amount by which the Gross Cash Receipts of (i) the Borrower from all of the properties comprising the Project and (ii) FSP for any fiscal period exceed the aggregate of the following items for such fiscal period:
(a) all operating costs and expenses incurred by FSP Holdings LLC in its operations or incurred by the Borrower in the operation of the properties comprising the Project, including, without limitation, real estate taxes and betterment assessments, management fees for each of the properties comprising the Project and cash security deposits from tenants returned to tenants in cash to the extent the same were included as a part of Gross Cash Receipts;
(b) the greater of: (i) actual capital expenditures on the Project in such test period or (iii) a capital expenditure reserve of $.50 square feet of space at the Project;
(c) for tenancies of space in the Project, the cost and expense (including brokerage commissions) of leasing space in the Project and performing tenant improvement work; and
(d) funded reserves established for replacement and other purposes for the Project for which funds are set aside in a separate account or accounts,
paid in cash (or, in the case of reserves, set aside in cash) during such period, but there shall not be deducted from Gross Cash Receipts amounts paid from funded reserves theretofore established. Without limitation, charges for income taxes, capital gain taxes, corporate excise taxes and similar taxes, and depreciation, amortization and other non-cash expenses shall not be deducted from Gross Cash Receipts in determining Net Operating Income.
Net Operating Income shall be determined on a cash basis, modified as described above, consistent with the basis used in the preparation of the computations of Net Operating Income furnished pursuant to ss.9.2 of this Agreement.
Note. The Master Promissory Note in the principal face amount of the Loan Amount dated as of the date hereof, made by the Borrower to the order of the Lender, as such Promissory Note may hereafter be extended, renewed, replaced, substituted, or modified with the prior written consent of Borrower and Lender.
Obligations. All indebtedness, obligations and liabilities of the Borrower to the Lender, existing on the date of this Agreement or arising thereafter, direct or indirect, joint or several, absolute or contingent, matured or unmatured, liquidated or unliquidated, secured or unsecured, arising by contract, operation of law or otherwise, or incurred under this Agreement or any of the other Loan Documents or in respect of any of the Advances or the Note.
Operating Accounts. Accounts established and maintained with the Lender for those Borrowers owning properties which are (i) part of the Project and (ii) located within the Commonwealth of Massachusetts. The term Operating Accounts shall specifically exclude any trust accounts in the name of such Borrowers.
Organizational Documents. For any corporation, partnership, trust, limited liability company, limited liability partnership, unincorporated association, business or other legal entity, the documents pursuant to which such entity has been established or organized, as such documents may hereafter be amended with the prior written consent of Lender which shall not be unreasonably withheld or delayed.
Outstanding. With respect to the Advances or the Loan, the aggregate unpaid principal thereof as of any date of determination.
Owner(s). The following entities which each hold fee title to one of the properties comprising the Project: FSP Weslayan Oaks Limited Partnership, Essex Lane Associates Limited Partnership, FSP Apartment Properties Limited Partnership, FSP Park Seneca Limited Partnership, FSP Santa Clara Limited Partnership, FSP Piedmont Center Limited Partnership, One Technology Drive Limited Partnership and
FSP North Andover Office Park Limited Partnership as may be supplemented as provided herein.
Permitted Liens. Liens: (i) permitted by ss.9.4, (ii) for taxes unpaid and
diligently contested in good faith by the Borrower unless payment is required
prior to the contesting of any such taxes and provided no enforcement
proceedings have been commenced with respect to any lien filed in connection
with such dispute and adequate reserves have been established for such taxes,
(iii) for assessments, governmental charges, liens or claims for labor,
materials or supplies which do not materially interfere with the use of the
properties comprising the Project or the operation of the business of the
Borrower and do not exceed in the aggregate at any one time $500,000.00.
Person. Any individual, corporation, partnership, trust, unincorporated association, business, or other legal entity, and any government or any governmental agency or political subdivision thereof.
Personal Property. All materials, furnishings, fixtures, furniture, machinery, equipment and all items of tangible or intangible personal property now or hereafter owned or acquired by the Borrower, in which the Lender has been, or will be granted an interest to secure the Project Obligations.
Project. Collectively, the following properties: 3231 Allen Parkway, Houston, Texas; Weslayan Oaks Apartments, 4041 Drake Street and 4041 Law Street, Houston, Texas; Essex House, 3919 Essex Lane, Houston, Texas; 1515 Mockingbird, Charlotte, North Carolina; 4995 Patrick Henry Drive, Santa Clara, California; 33 and 37 Villa Road, Greenville, South Carolina; One Technology Drive, Peabody, Massachusetts; 451 Andover Street, North Andover and 203 Turnpike Street, Massachusetts, and other properties as may be supplemented as provided herein.
Project Approvals. All approvals, consents, waivers, orders, agreements, acknowledgments, authorizations, permits and licenses required under applicable Requirements or under the terms of any restriction, covenant or easement affecting any of the properties comprising the Project, or otherwise necessary or desirable, for the ownership, acquisition, construction, equipping, use, occupancy and operation of any of the properties comprising the Project, whether obtained from a Governmental Authority or any other Person.
Requirements. Any law, ordinance, code, order, rule or regulation of any Governmental Authority relating in any way to the acquisition, ownership, construction, use, occupancy and operation of the properties comprising the Project.
Roll-Up. The acquisition (by merger, consolidation or otherwise) by FSP, or an affiliate, of limited partnership interests or other similar interests in an owner of real property established or sponsored by FSP, the Borrower, or an affiliate, in connection with such owner of real property becoming a Wholly Owned Subsidiary.
Security Deed(s). Those certain Mortgage, Security Agreements and Assignments and Deeds of Trust, Security Agreements and Assignments, delivered on or before the Closing Date and held in escrow as provided herein.
Security Documents. The Security Deed(s), the Financing Statements and any other agreement, document or instrument now or hereafter securing the Obligations, all as the same may hereafter be amended with the prior written consent of Lender and Borrower.
Stated Amount. The face amount of any L/C.
Subsidiary. Any corporation, partnership, association, trust, or other business entity of which the Borrower shall at any time own directly, or indirectly through a Subsidiary or Subsidiaries, at least a majority of the beneficial or ownership interests therein.
Survey. An ALTA "as built" Survey.
Syndication Event. The sale by the Borrower, or an affiliate, of limited partnership interests or other similar interests in an owner of real property established by the Borrower, or an affiliate in connection with the syndication of such property by the Borrower.
Taking. Any condemnation for public use of, or damage by reason of, the action of any Governmental Authority, or any transfer by private sale in lieu thereof, either temporarily or permanently.
Tangible Net Worth. The excess of Total Assets over Total Liabilities, and less the sum of:
(a) the total book value of all assets of the Borrower properly classified as intangible assets under generally accepted accounting principles, including such items as good will, the purchase price of acquired assets in excess of the fair market value thereof, trademarks, trade names, service marks, brand names, copyrights, patents and licenses, and rights with respect to the foregoing; plus
(b) all amounts representing any write-up in the book value of any assets of the Borrower resulting from a revaluation thereof subsequent to the Balance Sheet Date; plus
(c) to the extent otherwise includable in the computation of Tangible Net Worth, any subscriptions receivable.
Termination Date. The earlier of: (i) the occurrence of an Event of Default and the continuation thereof beyond any applicable grace periods, (ii) the payment in full of
all Obligations and the termination of the Borrower's rights to request Advances, or (iii) the Maturity Date.
Title Insurance Company. The companies listed on Schedule 7 attached hereto.
Title Policy. An ALTA standard form owners title insurance policy issued by the Title Insurance Company.
Total Assets. All assets of the Borrower determined in accordance with generally accepted accounting principles.
Total Liabilities. All liabilities of the Borrower determined in accordance with generally accepted accounting principles and all Indebtedness of the Borrower, whether or not so classified.
Transaction Fee. Seess.4.
Value of the Project. As of the relevant date of determination the aggregate value of all of the properties comprising the Project based upon the next preceding twelve (12) month Net Operating Income divided by a 9.50% capitalization rate.
Wholly Owned Subsidiaries. Any Subsidiary which: FSP or its principals shall own directly or indirectly (through a Subsidiary or Subsidiaries) 100% of the outstanding voting interest and economic interest.
Schedule 2
List of Borrowers; General Partners of Borrowers
Part A
Wholly Owned Subsidiaries
FSP Weslayan Oaks Limited Partnership
Essex Lane Associates Limited Partnership
FSP Apartment Properties Limited Partnership
FSP Park Seneca Limited Partnership
FSP Santa Clara Limited Partnership
FSP Piedmont Center Limited Partnership
One Technology Drive Limited Partnership
FSP North Andover Office Park Limited Partnership
General Partner of the Wholly Owned Subsidiaries Listed in Part A
The sole general partner of each of the above-listed Wholly Owned Subsidiaries is FSP Holdings LLC.
Part B
Wholly Owned Subsidiaries Which Are Not Borrowers Hereunder
FSP Holdings LLC, the sole member of which is Franklin Street Partners Limited Partnership.
Franklin Street Partners Limited Partnership
The General Partners of Franklin Street Partners Limited Partnership are the following:
George J. Carter
R. Scott MacPhee
Richard R., Norris
William W. Gribbell
Schedule 3
[Intentionally Deleted]
Schedule 4
Advance/Loan Request
[Date]
Citizens Bank of Massachusetts
28 State Street
Boston, Massachusetts 02109
Attention: _______________
Loan No. ________________
Dear Gentlemen:
This letter is to request an Advance of the above-referenced loan in the amount of $________________ (the "Advance"). The Advance shall be transferred to Account No. _________________ with Citizens Bank of Massachusetts and received in said Account by _________, ______ at _________ a.m./p.m.
Very truly yours,
FRANKLIN STREET PARTNERS
LIMITED PARTNERSHIP
By:________________________
Name:
Its:
Schedule 5
Subsidiaries
FSP Holdings LLC
FSP Investments LLC
FSP Property Management LLC
FSP Weslayan Oaks Limited Partnership Essex Lane Associates Limited
Partnership FSP Apartment Properties Limited Partnership FSP Park
Seneca Limited Partnership FSP Santa Clara Limited Partnership FSP
Piedmont Center Limited Partnership One Technology Drive Limited
Partnership FSP North Andover Office Park Limited Partnership
Schedule 6
Environmental Reports
1. Environmental Site Assessment of Weslayan Oaks Apartments, 4041 Law Street, Houston, Texas, prepared by Maxim Technologies, Inc., 222 Cavalcade, Houston, Texas 77009, Report No. 1409703208.10.
2. Level I Environmental Site Assessment of 203 Turnpike Street and 451 Andover Street, North Andover, Massachusetts prepared by Rizzo Associates, Inc., 235 West Central Street, Natick, Massachusetts 01760.
3. Phase I Environmental Site Assessment of Piedmont Center, Greenville, South Carolina, prepared by S&ME, Inc., 400 Northeast Drive, Suite A, Columbia, South Carolina, dated February 1998, Project No. 1614-98-005.
4. Phase I Environmental Site Assessment of Park Seneca Office Building, Charlotte, North Carolina, prepared by S&ME, Inc., 400 Northeast Drive, Suite A, Columbia, South Carolina, dated June 1997, Project No. 1614-97-274.
5. Environmental Site Assessment of One Technology Drive, Peabody, Massachusetts, prepared by Hidell-Eyster Technical Services, Inc., 195 Whiting Street, Hingham, Massachusetts, dated October 12, 1995, Project No. 05-95039.
6. Environmental Site Assessment of Allen Parkway, Houston, Texas, prepared by Southwestern Laboratories, Inc., 1225 North Loop West, Suite 1000, P.O. Box 8768, Houston, Texas 77249, Project No. 505193-039.
7. Phase I Real Estate Transfer Assessment of Essex House Apartment Complex, Houston, Texas, prepared by Roy F. Weston, Inc., 5599 San Felipe, Suite 700, Houston, Texas 77056, dated June 28, 1993.
8. Phase I Environmental Site Assessment of 4995 Patrick Henry Drive, Santa Clara, California, prepared by E2C, Inc., Civic Center Tower, 675 North First Street, Fifth Floor, San Jose, California 95112, dated November 11, 1997.
Schedule 7
Title Insurance Companies
1. Park Seneca Office Building 1515 Mockingbird Lane Charlotte, North Carolina
Owner: FSP Park Seneca Limited Partnership
(a Massachusetts limited partnership)
Title Insurance: Chicago Title Insurance Company
Policy No. 34-901-106-9702056
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2. Piedmont Center Office Building 33 and 37 Villa Road Greenville, South Carolina
Owner: FSP Piedmont Center Limited Partnership
(a Massachusetts limited partnership)
Title Insurance: Lawyer's Title Insurance Company
Policy No. 136-00-791341
3. Weslayan Oaks Apartments
Houston, TX
Owner: FSP Weslayan Oaks Limited Partnership
(a Massachusetts limited partnership)
Title Insurance: Chicago Title Insurance Company
Policy No. 44-901-100-000209414
4. Essex House
Houston, TX
Owner: Essex Lane Associates Limited Partnership
(a Massachusetts limited partnership)
Title Insurance: Stewart Title Guaranty Company
Policy No. 0-5841-42283
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5. 3231 Allen Parkway (Reata)
Houston, TX
Owner: FSP Apartment Properties Limited Partnership
(a Massachusetts limited partnership)
Title Insurance: Commonwealth Land Title Insurance Company
Policy No. 175-122691
6. 4995 Patrick Henry Drive
Santa Clara, CA
Owner: FSP Santa Clara Limited Partnership
(a Massachusetts limited partnership)
Title Insurance: Chicago Title Insurance Company
Policy No. 779332
7. One Technology Drive
Peabody, MA
Owner: One Technology Drive Limited Partnership
(a Massachusetts limited partnership)
Title Insurance: First American Title Insurance Company
Policy No. 20236549
8. 451 Andover Street
203 Turnpike Street
Andover, MA
Owner: FSP North Andover Office Park Limited Partnership
(a Massachusetts limited partnership)
Title Insurance: First American Title Insurance Company
Policy No. 20251431
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Schedule 8
Mortgages, Liens and Security Interests
1. 1515 Mockingbird, Charlotte, North Carolina
a. North Carolina Secretary of State filings:
(i) Fixture Filing with California Federal Bank as Secured Party
(ii) Fixture filing with Franklin Street Partners as Secured Party
b. Mecklenburg County Registry of Deeds:
(i) Assignment of Leases, Rents and Profits recorded in Book 5663,
(ii) Absolute Assignment of Rents and of Landlord's Interest in
Leases in favor of California Federal Bank recorded in Book
9184, page 855
(iii) UCC Financing Statement in favor of California Federal Bank
filed as #97-11974, Mecklenburg County Registry, and filed as
#001482865, North Carolina Secretary of State
(iv) Deed of Trust from FSP Park Seneca Limited Partnership to
Joseph J. Christian, trustee for Franklin Street Partners
Limited Partnership recorded in Book 9184, page 867 as
subordinated to the first mortgage by Subordination Agreement
recorded in Book 9184, page 874
(v) UCC Financing Statement in favor of Franklin Street Partners
Limited Partnership filed as #97-11975, Mecklenburg County
Registry, and filed as #001482866, North Carolina Secretary of
State
2. 4995 Patrick Henry Drive, Santa Clara, California
Santa Clara County filings:
(i) Real Estate/Fixture Filing with Franklin Street Partners LP as
Secured Party
(ii) Deed of Trust with Assignment of Rents to Franklin Street
Partners LP
3. Weslayan Oak Apartments, Houston, Texas
a. Texas Secretary of State filing:
Real Estate filing with Franklin Street Partners LP as Secured Party
b. Harris County Registry of Deeds:
(i) Deed of Trust dated April 29, 1997, filed for record on April 29, 1997, under Harris County Clerk's File No. S427043, executed by FSP
Weslayan Oaks Limited Partnership, a Massachusetts limited partnership to Joseph J. Christian, Trustee, to secure the payment of one note of even date therewith in the original principal sum of $2,000,000.00, payable to the order of George J. Carter, R. Scott MacPhee, Richard R. Norris and William W. Gribbell, bearing interest and due and payable as therein provided, and subject to all of the terms, conditions and stipulations contained therein, including but not limited to any future indebtedness also secured by this lien.
(ii) Deed of Trust dated April 29, 1997, filed for record on April 29, 1997, under Harris County Clerk's File No. S427044, executed by FSP Weslayan Oaks Limited Partnership, a Massachusetts limited partnership to Joseph J. Christian, Trustee, to secure the payment of one note of even date therewith in the original principal sum of $2,200,000.00, payable to the order of Franklin Street Partners Limited Partnership bearing interest and due and payable as therein provided, and subject to all of the terms, conditions and stipulations contained therein, including but not limited to any future indebtedness also secured by this lien.
4. Essex House, 3919 Essex Street, Houston, Texas
Harris County Registry of Deeds:
Vendor's Lien retained in Deed dated June 28, 1993, executed by Essex Investors Ltd., a Texas limited partnership to Essex Lane Associates Limited Partnership, a Massachusetts limited partnership securing the payment of one note of even date therewith in the principal sum of $6,900,000.00 payable to the order of The First National Bank of Boston additionally secured by Deed of Trust, Security Agreement, Financing Statement, and Assignment of Rentals of even date therewith to Robert S. Ladd, Trustee, said Deed Of Trust, Security Agreement, Financing Statement, and Assignment of Rentals filed for record in the County Clerk of Harris County, Texas on June 30, 1993, under Clerk's File No. P-309712; together with all indebtedness of whatsoever nature secured or to be secured thereby and the terms, conditions and stipulations contained in such instruments.
5. One Technology Drive, Peabody, Massachusetts
a. Massachusetts Secretary of State filing:
Fixture Filing with BayBank as Secured Party
b. Town of Peabody, MA
Fixture Filing with BayBank as Secured Party
c. Essex South Registry of Deeds and Essex Registry District of the Land Court
Mortgage, Security Agreement, and Assignment from One Technology Drive Limited Partnership to BayBank, N.A. in the original principal amount of $6,050,000.00, dated September 1, 1995 and recorded on December 1, 1995 in Book 13309, Page 115 and filed as Document No. 314174.
6. 451 Andover Street and 203 Turnpike Street, North Andover, Massachusetts
Essex South Registry of Deeds:
Mortgage, Security Agreement and Assignment from BF North Andover Office Park Limited Partnership to BayBank, N.A. in the original principal amount of $5,300,000.00, dated June 13, 1996 and recorded on record on June 13, 1996 as Instrument No. 14846.
FIRST AMENDMENT TO LOAN AGREEMENT
This First Amendment (the "First Amendment") is made as of this 27th day of December, 1999 and hereby amends that certain Loan Agreement dated as of February 23, 1999 (the "Agreement") by and among Franklin Street Partners Limited Partnership, FSP Weslayan Oaks Limited Partnership, Essex Lane Associates Limited Partnership, FSP Apartment Properties Limited Partnership, FSP Parks Seneca Limited Partnership, FSP Santa Clara Limited Partnership, FSP Piedmont Center Limited Partnership, One Technology Drive, Limited Partnership, FSP North Andover Office Park Limited Partnership, other Borrowers which may become parties to the Agreement (individually and collectively the "Borrower") and Citizens Bank of Massachusetts (the "Lender"). Capitalized terms used but not defined herein shall have the meanings attributed thereto in the Agreement, unless otherwise noted herein.
1. The definition of the Loan Amount is hereby amended by deleting the reference to Twenty Five Million ($25,000,000.00) Dollars and replacing with as follows:
"Thirty Five Million ($35,000,000.00) Dollars, subject to reduction to Twenty Five Million ($25,000,000.00) Dollars as provided in Section 2.1(b)."
2. Schedule A of the Loan Agreement is hereby amended by adding the following in alphabetical order thereto:
"Additional Entities": as defined in paragraph 11 below.
"Additional Projects": 5751-5771 Copley Drive, San Diego, California and 7250 Perkins Road, Baton Rouge, Louisiana.
"Permanent Increase Conditions": The granting to the Lender of Security Documents covering the Additional Projects to be held in escrow as provided in the Loan Agreement, the status of title and other due diligence of such Additional Projects shall be in form satisfactory to the Lender and the satisfactory syndication of the Loan and documentation of same by the Lender to a satisfactory financial institution.
3. The reference in Section 1.3 to Twenty Five Million ($25,000,000.00) Dollars shall be deleted and replaced with Thirty Five Million ($35,000,000.00) Dollars, subject, however, to a decrease as provided in Section 2.1(b).
4. The Borrower acknowledges that the Borrower shall be obligated to satisfy all of the conditions of closing in Article 6 as it relates to the delivery of the Additional Projects.
5. The following subsection (b) is added to Section 2.1 of the Agreement as follows:
"(b) If the Permanent Increase Conditions have not been satisfied on or before February 25, 2000, then the Loan Amount shall revert back to Twenty Five Million ($25,000,000.00) Dollars and the Borrower shall repay such sums as are necessary to reduce the outstanding balance owed under the Loan to the then applicable Loan Amount."
6. Section 10.8(a) of the Loan Agreement is hereby amended by deleting the first sentence in its entirety and replacing it with the following:
"The ratio ("Loan to Value Ratio") obtained by dividing the outstanding principal balance of the Loan by the Value of the Project, expressed as a percentage, shall not be greater than fifty (50%) percent until the earlier of: (i) February 25, 2000, or (ii) satisfaction of the Permanent Increase Conditions, after which the Loan to Value Ratio shall automatically be decreased to forty (40%) percent."
7. Section 10.8(f) of the Loan Agreement is hereby amended by deleting the reference of Seventy Million ($70,000,000.00) Dollars and replacing it instead with One Hundred and Five Million ($105,000,000.00) Dollars.
8. Any and all Loan Documents not specifically amended shall be deemed amended to replace the reference to Twenty Five Million ($25,000,000.00) Dollars to Thirty Five Million ($35,000,000.00) Dollars as provided herein.
9. Any and all references to the Note shall mean the Amended and Restated Master Promissory in the principal face amount of the Loan Amount dated as of the date hereof, made by the Borrower to the order of the Lender, as such Promissory Note may hereafter be extended, renewed, replaced, substituted, restated, or modified with the prior written consent of the Borrower and Lender.
10. The Borrower acknowledges and agrees that the Borrower and the Lender are, contemporaneously herewith, revising the existing Security Documents that are presently being held in escrow by the Lender to reflect the increased the Loan Amount as provided in this First Amendment, which revised Security Documents shall continue to be dated as of February 23, 1999 and shall include the Obligations as amended by the First Amendment. The Borrower shall as soon as possible, but in any event before February 25, 2000, provide the Lender with satisfactory title update letters for all existing Projects indicating no intervening liens on such Projects since the issuance of the owners title insurance policies furnished to the Lender by the Borrower.
11. The Borrower has informed the Lender that the Borrower intends to complete a Roll-Up of FSP Silverside Plantation Limited Partnership, FSP Hillview Center Limited Partnership, and FSP Telecom Business Center Limited Partnership (the "Additional Entities") as of January 1, 2000. The Borrower will cause each Additional Entity to execute the Joinder Documents at the time of the Roll-Up and deliver the required items in Section 6.5 of the Loan Agreement as soon as possible, but in any event on or before February 25, 2000.
12. The Borrower shall pay the Lender an additional commitment fee of Thirteen Thousand ($13,000.00) Dollars on or before February 25, 2000, which fee shall be deemed fully earned as of the date hereof.
13. Except as specifically amended herein, all of the terms and conditions of the Agreement shall remain in full force and effect as originally constituted and the Borrower confirms and ratifies all representations, warranties and covenants contained therein.
14. The Borrower represents and warrants that no event has occurred or failed to occur which constitutes, or which solely with the passage of time or the giving of notice (or both) would constitute an Event of Default. The Borrower confirms that as of the date hereof it does not have any offsets, defenses, claims or counterclaims arising out of the Loan Documents and that to the extent the Borrower has any offsets, defenses, claims or counterclaims the Borrower hereby WAIVES and RENOUNCES such offsets, defenses, claims or counterclaims.
15. This First Amendment shall take effect as a sealed instrument under the laws of the Commonwealth of Massachusetts as of the date first above written.
16. This First Amendment may be executed in counterparts each of which shall constitute one single executed document.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered as a sealed instrument at Boston, Massachusetts as of the date first above written.
FRANKLIN STREET PARTNERS
LIMITED PARTNERSHIP
By: /s/ George J. Carter --------------------- Name: George J. Carter Its: Managing General Partner |
FSP WESLAYAN OAKS LIMITED
PARTNERSHIP
By: FSP Holdings LLC,
its general partner
By: /s/ George J. Carter --------------------- Name: George J. Carter Its: President |
ESSEX LANE ASSOCIATES LIMITED
PARTNERSHIP
By: FSP Holdings LLC,
its general partner
By: /s/ George J. Carter --------------------- Name: George J. Carter Its: President |
FSP APARTMENT PROPERTIES
LIMITED PARTNERSHIP
By: FSP Holdings LLC,
its general partner
By: /s/ George J. Carter --------------------- Name: George J. Carter Its: President |
FSP PARK SENECA LIMITED PARTNERSHIP
By: FSP Holdings LLC,
its general partner
By: /s/ George J. Carter --------------------- Name: George J. Carter Its: President |
FSP SANTA CLARA LIMITED
PARTNERSHIP
By: FSP Holdings LLC,
its general partner
By: /s/ George J. Carter --------------------- Name: George J. Carter Its: President |
FSP PIEDMONT CENTER LIMITED
PARTNERSHIP
By: FSP Holdings LLC,
its general partner
By: /s/ George J. Carter --------------------- Name: George J. Carter Its: President |
ONE TECHNOLOGY DRIVE LIMITED
PARTNERSHIP
By: FSP Holdings LLC,
its general partner
By: /s/ George J. Carter --------------------- Name: George J. Carter Its: President |
FSP NORTH ANDOVER OFFICE PARK
LIMITED PARTNERSHIP
By: FSP Holdings LLC,
its general partner
By: /s/ George J. Carter --------------------- Name: George J. Carter Its: President |
CITIZENS BANK OF MASSACHUSETTS
By: /s/ George J. Carter --------------------- Name: Daniel R. Ouellette Title: Vice President |
The undersigned Guarantor of the Obligation joins in the execution of this First Amendment and expressly acknowledges and confirms that although not necessary to bind such person, such person consents to the above First Amendment and acknowledges that Obligations as amended herein shall be guaranteed under their Guaranty.
Witness: FSP HOLDINGS LLC,
a Delaware limited lability company
By: /s/ George J. Carter
------------------------------------ ---------------------
Name: George J. Carter
Its: President
|
SECOND AMENDMENT TO LOAN AGREEMENT
This Second Amendment (the "Second Amendment") is made as of this 14th day of February, 2001 and hereby amends that certain Loan Agreement dated as of February 23, 1999 as amended by a First Amendment to Loan Agreement dated as of December 27, 1999 (the "Agreement") by and among Franklin Street Partners Limited Partnership, FSP Weslayan Oaks Limited Partnership, Essex Lane Associates Limited Partnership, FSP Apartment Properties Limited Partnership, FSP Park Seneca Limited Partnership, FSP Santa Clara Limited Partnership, FSP Piedmont Center Limited Partnership, One Technology Drive Limited Partnership, FSP North Andover Office Park Limited Partnership, FSP Southfield Centre Limited Partnership, FSP Blue Ravine Limited Partnership, FSP Bollman Place Limited Partnership, FSP Austin N.W. Limited Partnership, FSP Gateway Crossing Limited Partnership, FSP Lyberty Way Limited Partnership, FSP Hillview Center Limited Partnership, FSP Silverside Plantation Limited Partnership, FSP Telecom Business Center Limited Partnership, other Borrowers which may become parties to the Agreement (individually and collectively the "Borrower") and Citizens Bank of Massachusetts (the "Lender"). Capitalized terms used but not defined herein shall have the meanings attributed thereto in the Agreement, unless otherwise noted herein.
1. The definition of Collateral is hereby amended by inserting at the end of the definition the following:
"(except for the Additional Properties, which are not intended to be Collateral or the subject of any Security Documents hereunder)."
2. Schedule A of the Loan Agreement is hereby amended by adding the following in alphabetical order thereto:
"Additional Properties. Collectively, the following properties: 678-686 Hillview Drive, Milpitas, California; 81 Blue Ravine, Folsom, California; 18000 W. Nine Mile Road, Southfield, Michigan; 11211 Taylor Draper Lane, Austin, Texas; 7130-7150 Columbia Gateway Drive, Columbia, Maryland; 10 Lyberty Way, Westford, Massachusetts; 8730 Bollman Place, Savage (Jessup), Maryland."
3. The definition of the Loan Amount is hereby amended by deleting the current definition and replacing it with:
"An amount equal to Fifty Million ($50,000,000.00) Dollars."
4. The definition of Maturity Date is hereby amended by deleting the reference to February 23, 2001 and replacing it with:
"February 23, 2003."
5. The definition of Project is hereby deleted in its entirety and replaced with the following:
"Project. Collectively, the Additional Properties plus the following properties: Essex House, 3919 Essex Lane, Houston, Texas; 3231 Allen Parkway, Houston, Texas; Weslayan Oaks Apartments, 4041 Law Street, Houston, Texas; 7250 Perkins Road, Baton Rouge, Louisiana; 451 Andover Street, North Andover, Massachusetts; 1515 Mockingbird Lane, Charlotte, North Carolina; 33 and 37 Villa Road, Greenville, South Carolina; 4995 Patrick Henry Drive, Santa Clara, California; 5751-5771 Copley Drive, San Diego, California; One Technology Drive, Peabody, Massachusetts, and other properties as may be supplemented as provided herein."
6. The first sentence of Section 4(b) is hereby deleted in its entirety and replaced with the following:
"On the earlier of (i) each anniversary date of the Closing Date, or (ii) the Termination Date, the Borrower shall pay the Lender an annual fee of $125,000.00 (first such payment due on February 23, 2002), or a pro rated amount if the Loan is paid in full prior to the next anniversary date of the Closing Date."
7. The reference to 1.25% in Section 4(d) is hereby deleted and replaced with 1.35%.
8. The reference in Section 1.3 to "Thirty Five Million ($35,000,000.00) Dollars, subject, however, to decrease as provided in Section 2.1(b)" shall be deleted and replaced with "Fifty Million ($50,000,000.00) Dollars."
9. Section 10.8 (a) of the Loan Agreement is deleted in its entirety and replaced with the following:
"(a) Loan to Value. (i) The ratio ("Loan to Value Ratio") obtained by dividing the outstanding principal balance of the Loan by the Value of the Project, expressed as a percentage, shall not be greater than forty (40%) percent. This covenant shall be tested at the end of each fiscal quarter of the Borrower. In testing compliance with this covenant the Value of the Project attributed to any one property may not exceed twenty five (25%) percent of the aggregate Value of the Project for all properties.
(ii) The Loan to Value Ratio (excluding the value of the Additional Properties from such calculation) shall not be greater than fifty-five (55%) percent. This covenant shall be tested at the end of each fiscal quarter of the Borrower."
10. Section 10.8(f) of the Loan Agreement is hereby amended by deleting the reference of One Hundred and Five Million ($105,000,000.00) Dollars and replacing it instead with One Hundred and Forty Million ($140,000,000.00) Dollars.
11. Any and all Loan Documents not specifically amended shall be deemed amended to replace the reference to Thirty Five Million ($35,000,000.00) Dollars to Fifty Million ($50,000,000.00) Dollars as provided herein.
12. Any and all references to the Note shall mean the Second Amended and Restated Master Promissory in the principal face amount of the Loan Amount dated as of the date hereof, made by the Borrower to the order of the Lender, as such Promissory Note may hereafter be extended, renewed, replaced, substituted, restated, or modified with the prior written consent of the Borrower and Lender.
13. The Borrower acknowledges and agrees that the Borrower and the Lender are, contemporaneously herewith, revising the existing Security Documents that are presently being held in escrow by the Lender to reflect the increased Loan Amount as provided in this First Amendment, which revised Security Documents shall continue to be dated as of February 23, 1999 and shall include the Obligations as amended by the Second Amendment. The Borrower shall as soon as possible, but in any event before March 14, 2001, provide the Lender with satisfactory title update letters for the Project properties located in the Commonwealth of Massachusetts indicating no intervening liens on such properties since the issuance of the owners title insurance policies furnished to the Lender by the Borrower.
14. The Borrower shall pay the Lender an additional commitment fee of Twenty Five Thousand ($25,000.00) Dollars, which fee shall be deemed fully earned as of the date hereof.
15. Except as specifically amended herein, all of the terms and conditions of the Agreement shall remain in full force and effect as originally constituted and the Borrower confirms and ratifies all representations, warranties and covenants contained therein.
16. The Borrower represents and warrants that no event has occurred or failed to occur which constitutes, or which solely with the passage of time or the giving of notice (or both) would constitute an Event of Default. The Borrower confirms that as of the date hereof it does not have any offsets, defenses, claims or counterclaims arising out of the Loan Documents and that to the extent the Borrower has any offsets, defenses, claims or counterclaims the Borrower hereby WAIVES and RENOUNCES such offsets, defenses, claims or counterclaims.
17. This Second Amendment shall take effect as a sealed instrument under the laws of the Commonwealth of Massachusetts as of the date first above written.
18. This Second Amendment may be executed in counterparts each of which shall constitute one single executed document.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered as a sealed instrument at Boston, Massachusetts as of the date first above written.
FRANKLIN STREET PARTNERS
LIMITED PARTNERSHIP
By: FSP General Partner LLC,
its general partner
By: /s/ George J. Carter --------------------- Name: George J. Carter Its: President |
FSP WESLAYAN OAKS LIMITED
PARTNERSHIP
By: FSP Holdings LLC,
its general partner
By: /s/ George J. Carter --------------------- Name: George J. Carter Its: President |
ESSEX LANE ASSOCIATES LIMITED
PARTNERSHIP
By: FSP Holdings LLC,
its general partner
By: /s/ George J. Carter --------------------- Name: George J. Carter Its: President |
FSP APARTMENT PROPERTIES
LIMITED PARTNERSHIP
By: FSP Holdings LLC,
its general partner
By: /s/ George J. Carter --------------------- Name: George J. Carter Its: President |
FSP PARK SENECA LIMITED
PARTNERSHIP
By: FSP Holdings LLC,
its general partner
By: /s/ George J. Carter --------------------- Name: George J. Carter Its: President |
FSP SANTA CLARA LIMITED
PARTNERSHIP
By: FSP Holdings LLC,
its general partner
By: /s/ George J. Carter --------------------- Name: George J. Carter Its: President |
FSP PIEDMONT CENTER LIMITED
PARTNERSHIP
By: FSP Holdings LLC,
its general partner
By: /s/ George J. Carter --------------------- Name: George J. Carter Its: President |
ONE TECHNOLOGY DRIVE LIMITED
PARTNERSHIP
By: FSP Holdings LLC,
its general partner
By: /s/ George J. Carter --------------------- Name: George J. Carter Its: President |
FSP NORTH ANDOVER OFFICE PARK
LIMITED PARTNERSHIP
By: FSP Holdings LLC,
its general partner
By: /s/ George J. Carter --------------------- Name: George J. Carter Its: President |
FSP SOUTHFIELD CENTRE LIMITED
PARTNERSHIP
By: FSP Holdings LLC,
its general partner
By: /s/ George J. Carter --------------------- Name: George J. Carter Its: President |
FSP BLUE RAVINE LIMITED
PARTNERSHIP
By: FSP Holdings LLC,
its general partner
By: /s/ George J. Carter --------------------- Name: George J. Carter Its: President |
FSP BOLLMAN PLACE LIMITED
PARTNERSHIP
By: FSP Holdings LLC,
its general partner
By: /s/ George J. Carter --------------------- Name: George J. Carter Its: President |
FSP AUSTIN N.W. LIMITED
PARTNERSHIP
By: FSP Holdings LLC,
its general partner
By: /s/ George J. Carter --------------------- Name: George J. Carter Its: President |
FSP GATEWAY CROSSING LIMITED
PARTNERSHIP
By: FSP Holdings LLC,
its general partner
By: /s/ George J. Carter --------------------- Name: George J. Carter Its: President |
FSP LYBERTY WAY LIMITED
PARTNERSHIP
By: FSP Holdings LLC,
its general partner
By: /s/ George J. Carter --------------------- Name: George J. Carter Its: President |
FSP HILLVIEW CENTER LIMITED
PARTNERSHIP
By: FSP Holdings LLC,
its general partner
By: /s/ George J. Carter --------------------- Name: George J. Carter Its: President |
FSP SILVERSIDE PLANTATION
LIMITED PARTNERSHIP
By: FSP Holdings LLC,
its general partner
By: /s/ George J. Carter --------------------- Name: George J. Carter Its: President |
FSP TELECOM BUSINESS CENTER
LIMITED PARTNERSHIP
By: FSP Holdings LLC,
its general partner
By: /s/ George J. Carter --------------------- Name: George J. Carter Its: President |
CITIZENS BANK OF MASSACHUSETTS
By: /s/ Daniel R. Ouellette ------------------------ Name: Daniel R. Ouellette Title: Senior Vice President |
The undersigned Guarantor of the Obligation joins in the execution of this Second Amendment and expressly acknowledges and confirms that although not necessary to bind such person, such person consents to the above Second Amendment and acknowledges that Obligations as amended herein shall be guaranteed under their Guaranty.
Witness: FSP HOLDINGS LLC,
a Delaware limited lability company
By: /s/ George J. Carter
---------------------------- ---------------------
Name: George J. Carter
Its: President
|