SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2000
__________________________________________________
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from TO
___________________ _____________________________
Commission file number 1-12708
_________________________________________________________
FRANKLIN SELECT REALTY TRUST
________________________________________________________________________________
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-3095938
________________________________________________________________________________
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
P. O. BOX 7777, SAN MATEO, CALIFORNIA 94403-7777
________________________________________________________________________________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (650) 312-2000
______________________________
N/A
________________________________________________________________________________
Former name, former address and former fiscal year, if changed since last report
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 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
Common Stock Shares Outstanding as of March 31, 2000, Series A: 13,875,368
Common Stock Shares Outstanding as of March 31, 2000, Series B: 745,584
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FRANKLIN SELECT REALTY TRUST
UNAUDITED BALANCE SHEET AS OF MARCH 31, 2000 AND
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1999
MARCH 31, December
(In thousands, except per share amounts) 2000 31, 1999
- --------------------------------------------------------------------- ------------- ----------
LIQUIDATION Going
BASIS concern
basis
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ASSETS
Real Estate
Property held-for-sale, net of accumulated depreciation of $ -
and $24,709, as of March 31, 2000 and December 31, 1999, respectively $ - $110,520
Cash and cash equivalents 17,545 14,316
Mortgage-backed securities, available-for-sale 277 286
Deferred rent receivable - 1,692
Other assets 3,583 4,232
============= ==========
Total assets $21,405 $131,046
============= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Debt $ - $26,312
Reserve for litigation 2,100 2,100
Distributions payable 259 1,793
Other liabilities 2,223 2,477
-------------- ----------
Total liabilities 4,582 32,682
-------------- ----------
Minority interest - 9,096
-------------- ----------
Commitments and contingencies (Notes 1- 7) - -
Stockholders' equity:
Common stock, Series A, without par value; stated value $10 per
share; 50,000 shares authorized; 13,875 and 12,250 issued 121,439 103,161
and outstanding at March 31, 2000 and December 31, 1999,
respectively
Common stock, Series B, without par value; stated value $10 per
share; 1,000 shares authorized; 746 issued and outstanding - 6,294
Accumulated other comprehensive loss (34) (33)
Accumulated distributions in excess of net income (104,582) (20,154)
-------------- ----------
Total stockholders' equity 16,823 89,268
============== ==========
Total liabilities and stockholders' equity $21,405 $131,046
============== ==========
The accompanying notes are an integral part of these financial statements.
FRANKLIN SELECT REALTY TRUST
STATEMENT OF INCOME AND COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND
CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31,1999
(Unaudited)
(in thousands, except per share amounts) 2000 1999
- ----------------------------------------------------------------------------------------
LIQUIDATION Going
BASIS concern
basis
REVENUE:
Rent $1,990 $3,869
Interest, dividends and other 1,388 253
---------------------
Total revenue 3,378 4,122
---------------------
EXPENSES:
Property operating 427 806
Interest 180 593
Related party 238 313
Depreciation and amortization 338 925
General and administrative 2,063 541
---------------------
Total expenses 3,246 3,178
---------------------
Operating income before gain on sale of 132 944
property and minority interest
Gain on sale of property 14,093 -
---------------------
Operating income before minority interest 14,225 944
Minority interest - 177
=====================
NET INCOME 14,225 $767
=====================
Unrealized (loss) gain on
mortgage-backed securities (1) 95
=====================
Comprehensive income $14,224 $862
=====================
Net income per share, based on the weighted
average shares outstanding of Series A
common stock of 13,161 and 12,250 for the
three-month periods ended March 31, 2000 $1.08 $.06
and 1999, respectively
=====================
Distributions per share, based on the
actual shares outstanding of Series A
common stock of 13,875 and 12,250 on the
distribution dates in the quarter ended $ 7.22 $.12
March 31, 2000 and March 31, 1999,
respectively
=====================
The accompanying notes are an integral part of these financial statements.
FRANKLIN SELECT REALTY TRUST
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,1999
(Unaudited)
(In thousands) 2000 1999
- -------------------------------------------------------------------- --------- --------
LIQUIDATION Going
BASIS concern
basis
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $14,225 $767
--------- --------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 338 957
Gain on sale of property (14,093) -
Minority interest - 177
Decrease in deferred rent receivable - 10
Decrease in other assets 533 41
Increase in tenant deposits, accounts payable
and other liabilities 797 483
--------- --------
(12,425) 1,668
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,800 2,435
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of real estate 104,540 -
Improvements to real estate (83) (76)
Cash in escrow (2,630) -
Collection of notes receivable - 7,700
Net sale (purchase) of mortgage-backed securities 8 (6,179)
Leasing commissions paid and other (3) (124)
-------- ---------
NET CASH PROVIDED BY INVESTING ACTIVITIES 101,832 1,321
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes and bonds payable - (99)
Payment of loan costs - (31)
Distributions paid to limited partners (216) (77)
Distributions paid to stockholders (100,187) (1,427)
-------- ---------
NET CASH USED IN FINANCING ACTIVITIES (100,403) (1,634)
--------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 3,229 2,122
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 14,316 1,256
--------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $17,545 $3,378
========= ========
SUPPLEMENTAL NON-CASH ACTIVITY
Debt assumed by Value Enhancement in connection with the Asset Sale
described in Note 1 $26,312 $ -
The accompanying notes are an integral part of these financial statements.
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FRANKLIN SELECT REALTY TRUST
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
Unaudited
NOTE 1 - DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements of
Franklin Select Realty Trust (the "Company") included herein have been
prepared in accordance with the instructions to Form 10-Q pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, all appropriate adjustments
necessary to a fair presentation of the results of operations have been made
for the periods shown.
On February 10, 2000, Franklin Select Realty Trust closed the sale of all of
its real estate assets (the "Asset Sale") to Value Enhancement Fund III, LLC
("Value Enhancement"), a private real estate fund formed by Lend Lease Real
Estate Investments to purchase properties.
Pursuant to the plan of liquidation approved by the shareholders, the Board
of Directors declared an initial liquidating distribution of $7.11 per share
to shareholders of record holding Series A common stock on February 29,
2000. The initial distribution was paid on March 10, 2000. Under applicable
AMEX regulations, the AMEX suspended trading in the Company's shares
beginning on March 1, 2000, and de-listed the Company's shares effective
March 13, 2000.
The Company will continue to wind up its affairs pursuant to the plan of
liquidation. It is expected that shareholders of record holding Series A
common stock will also receive a final liquidating distribution before the
end of 2000, subject to final court approval of settlements of pending
litigation and the release of certain amounts held in escrow to secure
limited representations and warranties made by the Company to Value
Enhancement in connection with the Asset Sale. See Note 4 and the Risk
Factors Relating to the Asset sale and Dissolution Plan in Management's
Discussion and Analysis of Financial Condition and Results of Operations
below. It is not expected that the shareholders of record of the Series B
common stock will receive a distribution.
The financial statements for the period ended March 31, 2000 have been
prepared on a liquidation basis. No adjustment has been made to the prior
period financial statements, which were prepared on a going concern basis, as
was appropriate at the time that they were presented. The going concern basis
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. Liquidation basis accounting requires
management to estimate and record the value of all transactions anticipated
up until the date of liquidation, including any adjustments relating to the
recoverability and classification of assets and liabilities. The liquidation
basis of accounting is only used when it is reasonably certain that a
business will terminate.
These financial statements should be read in conjunction with the Company's
audited financial statements as of and for the year ended December 31, 1999.
NOTE 2 - REAL ESTATE SALES
The Asset Sale to Value Enhancement closed on February 10, 2000. The Asset
Sale included all real estate directly owned by the Company together with the
interests of the Company in FSRT, L.P. The aggregate base purchase price for
properties with a net book value of $110,317,000 was $131,500,000, reduced by
$26,312,000 for existing debt, which was assumed by Value Enhancement. A gain
of $14,093,000 was recorded on the Asset Sale. The net proceeds of
approximately $104,540,000 were paid to the Company in cash.
NOTE 3 - OTHER ASSETS
Included in Other assets as of March 31, 2000 is $2,630,000 related to
amounts deposited in escrow to secure certain limited representations and
warranties made by the Company to Value Enhancement with respect to the Asset
Sale. No claims have yet been made against these funds and although no
assurance can be given, management expects the full amount to be released
from escrow in November, 2000.
NOTE 4 - LITIGATION
The Company has been involved in shareholder litigation that it has
previously reported: the "Hodge Lawsuit" and the "Vigneau Lawsuit. " In the
Hodge Lawsuit, Herbert S. Hodge, Jr. on behalf of certain shareholders of
Franklin Real Estate Income Fund (a predecessor of the Company, "FREIF"),
filed a purported class action complaint on June 3, 1997 in the California
Superior Court for San Mateo County against the Company, certain of its then
current and former directors, Franklin Properties, Inc. (the "Advisor"),
Franklin Resources, Inc. ("Franklin Resources") and Bear Stearns Co., Inc.
The complaint alleges, among other things, that the defendants breached their
fiduciary duties to the plaintiffs in connection with the merger of FREIF
into the Company in May 1996.
In the Vigneau Lawsuit, the Company is defending the former directors of
Franklin Advantage Real Estate Income Fund (a predecessor of the Company,
"Advantage"), who include the current directors of the Company, against a
purported class action. This action on behalf of certain shareholders of
Advantage was filed on December 2, 1996 in the California Superior Court for
San Mateo County. Other defendants currently include the Advisor and Franklin
Resources, Inc. The complaint alleges, among other things, that the
defendants breached their fiduciary duties to the plaintiffs and other
minority shareholders in connection with the purchase of an interest in
Advantage by Franklin Resources in August 1994 and in connection with the
merger of Advantage into the Company in May 1996.
The plaintiffs in each lawsuit sought damages in an unspecified amount and
certain equitable relief. The defendants in each lawsuit have denied any
wrongdoing and vigorously defended the lawsuits.
The Company and the defendants have agreed in principle with the
representative plaintiffs and their counsel in both cases to settle the cases
on a class-wide basis. The successful conclusion of each of these settlement
efforts would require that the court certify a class for settlement purposes
and approve the mailing of notice to the class, that the court determine that
the settlement is fair, reasonable and adequate after a hearing at which
class members may appear and be heard, and that certain other conditions are
met, a process that is expected to take many months to complete. In the
Hodge Lawsuit, the court has approved the mailing of the notice and it has
been sent to the class members. In the Vigneau Lawsuit the court has
certified the class for settlement purposes, but notice has not yet been sent
to the class members. If consummated according to the agreements, future
legal expenses and the costs of settlement of the Hodge Lawsuit and the
Vigneau Lawsuit will be funded by insurance coverage, contributions from
certain other defendants, and contributions from the Company. No assurance
can be given as to the outcome of the settlement efforts. If the settlement
efforts are not successful, the Company will continue to pursue its vigorous
defense of the litigation. Based on management's assessment of potential
liability with respect to the shareholder litigation, the Company has
maintained a reserve related to the shareholder litigation of $2,100,000
which was initially recorded in the year ended December 31, 1999.
NOTE 5 - RELATED PARTY AGREEMENTS
The property management agreement with a related party has been terminated as
a result of the closing of the Asset Sale. Effective January 1, 2000, the
Company amended its advisory agreement with the Advisor to replace the asset
management fee with a fixed quarterly fee of $50,000 for the quarter ended
March 31, 2000 and $35,000 per quarter thereafter. Estimated future
quarterly advisory fees through December 31, 2000 of $155,000 have been
accrued as of March 31, 2000. Supplemental fees of $168,000 have also been
accrued by the Company to be paid to the Advisor in connection with certain
liquidation costs. Of these supplemental fees, $160,000 were accrued as of
December 31, 1999.
NOTE 6 - DISTRIBUTIONS PAYABLE
Distributions payable at March 31, 2000 represented amounts accrued based on
cumulative distributions declared to date on shares of the Company's Series A
common stock that remain unconverted by stockholders of FREIF and Advantage
with respect to the Company's merger with FRIEF and Advantage in May 1996.
NOTE 7 - LIQUIDATION ACCOUNTING ADJUSTMENTS
In accordance with the liquidation basis of accounting, certain adjustments
were made to the financial statements. These adjustments represent
management's estimate of the expenses that will be incurred up to the date of
the expected liquidation of the Company. No assurance can be given that the
final costs will be in accordance with these estimates. Included in Other
assets as of March 31, 2000, is $748,000 relating to accrued interest income
from the Company's Cash and cash equivalents and Mortgage-backed securities
through December 2000. The following is a summary of the accruals included
within Other liabilities relating to liquidation events outstanding as of
March 31, 2000:
MARCH
31, 2000
Liquidation adjustments
Insurance $991,000
Legal 650,000
Related party 338,000
Property related 101,000
Accounting fees 53,000
Other 90,000
==========
Total liquidation expense 2,223,000
adjustments ==========
NOTE 8 - MINORITY INTEREST IN FSRT, L.P.
In connection with the formation of FSRT, L.P., the limited partners of FSRT,
L.P. were granted rights to convert their limited partner interests into
shares of the Company's Series A common stock. On February 10, 2000, the
limited partner converted its limited partner interests into 1,625,000 shares
of Series A common stock. Following this conversion, FSRT, L.P is
wholly-owned by the Company.
FRANKLIN SELECT REALTY TRUST
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
The following discussion should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in the Company's 1999 Form 10-K.
As described in Note 2 to the financial statements, the Company sold its real
estate properties on February 10, 2000, in accordance with a vote of
stockholders held on January 25, 2000. The Company is now expected to be
liquidated by the end of fiscal 2000. As a result, the Company has adopted
the liquidation basis of accounting, which requires the accrual of all
expected costs and revenues to the date of the liquidation.
When used in the following discussion, the words "believes," "intends,"
"expects," "anticipates" and similar expressions are intended to identify
forward-looking statements. Such statements are subject to certain risks and
uncertainties which could cause actual results to differ materially from those
projected, including, but not limited to, those set forth in the section
entitled "Risk Factors Relating to the Asset Sale and the Dissolution Plan,"
below. Readers are cautioned not to place undue reliance on these
forward-looking statements that speak only as of the date hereof. The Company
undertakes no obligation to publicly release any revisions to these
forward-looking statements that may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE-MONTH PERIODS ENDED MARCH 31, 2000 AND 1999
The financial statements for the three-month period ended March 31, 2000 were
prepared using the liquidation basis of accounting which differs from the going
concern basis of accounting used to prepare the financial statements for the
three-month period ended March 31, 1999. See Note 1 to the accompanying
financial statements. Total revenue for the three-month period ended March 31,
2000 decreased $744,000, or 18%, compared to the same period a year ago. Rental
revenue in the quarter ended March 31, 2000 was earned in the period between
January 1, 2000 and February 10, 2000, the date of the Asset Sale. Investment
income in the current quarter represents anticipated revenues to the date of the
expected final liquidation of the Company in December 2000.
Total expenses for the three-month period ended March 31, 2000 increased
$68,000, or 2%, when compared to the same period a year ago. Property operating,
Interest and Depreciation costs in the quarter ended March 31, 2000 were
incurred during the period from January 1, 2000 to February 10, 2000. Related
party and General and administrative expenses includes the amounts that the
Company is expected to incur during the liquidation phase.
General and administrative expenses for the three-month period ended March 31,
2000 increased $1,522,000, or 281%, when compared to the same period a year ago.
This increase was primarily due to legal, insurance and other costs incurred
with respect to the Company's anticipated liquidation, as discussed in Note 7 to
the financial statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents increased to $17,545,000 at March 31,
2000 as compared to $14,316,000 at December 31, 1999. Substantially all of these
funds were invested in mortgage-backed and U.S. Treasury securities with
original maturities of 90 days or less.
During the three months ended March 31, 2000, the Company received net proceeds
from the Asset Sale of $104,540,000 and paid distributions to stockholders of
$100,187,000, including the initial distribution of $98,653,895 or $7.11 per
share of Series A common stock outstanding. It is expected that stockholders of
record holding Series A common stock will also receive a final liquidating
distribution before the end of the calendar year. This final distribution is
subject to final court approval of settlements of pending litigation and
expiration of the limited representations and warranties described in Risk
Factors Relating to the Asset Sale and the Dissolution Plan, below. It is not
expected that any interim or quarterly distribution will be declared or paid
before the final liquidating distribution.
RISK FACTORS RELATING TO THE ASSET SALE AND THE DISSOLUTION PLAN
LIQUIDATION OF THE COMPANY
The Company has sold all of its remaining properties and is now in its
liquidation phase. Hereafter, the Company will continue to wind up its affairs
pursuant to the Plan of Liquidation, as approved by shareholders on January 25,
2000. During this phase, the Company will continue to incur general and
administrative expenses for legal, accounting, and other professional fees,
directors and officers insurance coverage, advisory and directors fees, and
other costs of operating the Company and winding up its affairs. Those revenues
and expenses have been estimated and accrued in these financial statements, but
there can be no assurance that the final costs will be in accordance with those
estimates.
LITIGATION
The Company is currently involved in shareholder litigation as described in Note
4 to the accompanying financial statements. The Company and the defendants have
agreed in principal with the representative plaintiffs and their counsel in both
cases to settle them on a class-wide basis. The successful conclusion of each of
these settlement efforts would require the court certify a class for settlement
purposes and approve the mailing of notice to the class; that the court
determine that the settlement is fair, reasonable and adequate after a hearing
at which class members may appear and be heard; and that certain other
conditions are met, a process that is expected to take many months to complete.
In the Hodge Lawsuit, the court has approved the mailing of the notice and it
has been sent to the class members. In the Vigneau Lawsuit, the court has
certified the class for settlement purposes, but notice has not yet been sent to
the class members. If consummated according to the agreements, future legal
expenses and the costs of settlement of the Hodge Lawsuit and the Vigneau
Lawsuit will be funded by insurance coverage, contributions from certain other
defendants, and contributions from the Company. No assurance can be given as to
the outcome of the settlement efforts. If the settlement efforts are not
successful, the Company will continue to pursue its vigorous defense of the
litigation. Based on management's assessment of potential liability with respect
to the shareholder litigation, the Company recorded a reserve related to the
shareholder litigation of $2,100,000 in the year ended December 31, 1999. If the
settlement efforts are not successful in the year ending December 31, 2000,
costs of litigation and possible settlement could be substantially more than has
been recorded in the financial statements as of March 31, 2000.
REPRESENTATIONS AND WARRANTIES RELATED TO THE ASSET SALE
As required by the Purchase Agreement, the Company has placed $2,630,000 of
the Asset Sale proceeds in an escrow account to secure certain limited
representations and warranties made by the Company to Value Enhancement with
respect to the Asset Sale. Provided that Value Enhancement does not make a
claim against the Company that is covered by the escrowed funds, the funds
will be released to the Company from escrow on November 10, 2000, including
interest income. To date, Value Enhancement has not made a claim against the
Company. However, no assurances can be given that Value Enhancement will not
make a claim during the liquidation phase.
YEAR 2000 READINESS DISCLOSURE
As of the date of this filing, all of the Company's mission-critical systems
and important non-mission-critical systems have successfully transitioned to
the Year 2000 and are operating in production. Management continued to
monitor system compliance through February 29, 2000, which is a non-standard
leap year that potentially could have caused Year 2000-related problems. The
Company did not experience any material system problems in connection with
the leap year date.
The costs of the Company's efforts to identify and correct any potential Year
2000 problems have not been material and are not expected to have a material
effect in the future on the Company's results of operations, financial
position or cash flow.
FRANKLIN SELECT REALTY TRUST
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has been involved in shareholder litigation that it has
previously reported: the "Hodge Lawsuit" and the "Vigneau Lawsuit. " In the
Hodge Lawsuit, Herbert S. Hodge, Jr. on behalf of certain shareholders of
Franklin Real Estate Income Fund (a predecessor of the Company, "FREIF"),
filed a purported class action complaint on June 3, 1997 in the California
Superior Court for San Mateo County against the Company, certain of its then
current and former directors, Franklin Properties, Inc. (the "Advisor"),
Franklin Resources, Inc. ("Franklin Resources") and Bear Stearns Co., Inc.
The complaint alleges, among other things, that the defendants breached their
fiduciary duties to the plaintiffs in connection with the merger of FREIF
into the Company in May 1996.
In the Vigneau Lawsuit, the Company is defending the former directors of
Franklin Advantage Real Estate Income Fund (a predecessor of the Company,
"Advantage"), who include the current directors of the Company, against a
purported class action. This action on behalf of certain shareholders of
Advantage was filed on December 2, 1996 in the California Superior Court for
San Mateo County. Other defendants currently include the Advisor and Franklin
Resources, Inc. The complaint alleges, among other things, that the
defendants breached their fiduciary duties to the plaintiffs and other
minority shareholders in connection with the purchase of an interest in
Advantage by Franklin Resources in August 1994 and in connection with the
merger of Advantage into the Company in May 1996.
The plaintiffs in each lawsuit sought damages in an unspecified amount and
certain equitable relief. The defendants in each lawsuit have denied any
wrongdoing and vigorously defended the lawsuits.
The Company and the defendants have agreed in principle with the
representative plaintiffs and their counsel in both cases to settle the cases
on a class-wide basis. The successful conclusion of each of these settlement
efforts would require that the court certify a class for settlement purposes
and approve the mailing of notice to the class, that the court determine that
the settlement is fair, reasonable and adequate after a hearing at which
class members may appear and be heard, and that certain other conditions are
met, a process that is expected to take many months to complete. In the
Hodge Lawsuit, the court has approved the mailing of the notice and it has
been sent to the class members. In the Vigneau Lawsuit, the court has
certified the class for settlement purposes, but notice has not yet been sent
to the class members. If consummated according to the agreements, future
legal expenses and the costs of settlement of the Hodge Lawsuit and the
Vigneau Lawsuit will be funded by insurance coverage, contributions from
certain other defendants, and contributions from the Company. No assurance
can be given as to the outcome of the settlement efforts. If the settlement
efforts are not successful, the Company will continue to pursue its vigorous
defense of the litigation. Based on management's assessment of potential
liability with respect to the shareholder litigation, the Company has
recorded a reserve related to the shareholder litigation of $2,100,000 in the
year ended December 31, 1999.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On October 12, 1999 the Board of Directors of the Company authorized the
execution of agreements pertaining to the Asset Sale and the filing of a
Proxy Statement with the Securities and Exchange Commission in connection
with a Special Meeting of Shareholders held on January 25, 2000 to solicit
shareholder approval for the Asset Sale and to authorize the Board of
Directors to liquidate, wind up and dissolve the Company. The Proxy
Statement was filed and mailed to the shareholders on December 14, 1999.
At a Special Meeting of Shareholders held on January 25, 2000, the proposed
Asset Sale and liquidation were approved. Among other requirements, approval
of the Asset Sale required the affirmative vote of a majority of the
outstanding shares of the Company. The actual tabulation of the vote was as
follows:
FOR AGAINST ABSTAIN
Proposal 1: To approve the Asset Sale 8,529,915 101,657 139,977
65.63% .78% 1.08%
Proposal 2: To authorize the board of 8,239,037 94,591 137,178
directors to liquidate, 63.40% .73% 1.06%
wind up and dissolve the Company
There were no other matters submitted to a vote of security holders during
the quarter covered by this report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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(a) Exhibits:
Exhibit
NO. LIST OF EXHIBITS FOOTNOTE
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3.1 Amended and Restated Articles of Incorporation (1)
3.2 Second Amended and Restated Bylaws of Franklin Select Realty Trust (2)
10.2 Property Management Agreement (3)
10.3 Agreement of Limited Partnership of FSRT, L.P. between the Company and (4)
Northport Associates No. 18, a California limited liability company, dated as
October 30, 1996.
10.4 Contribution Agreement, dated as of October 30, 1996, between FSRT, L.P., (4)
the Company, Northport Associates No. 18, a California limited liability company,
and the members of Northport Associates No. 18.
10.5 Exchange Rights Agreement, dated as of October 30, 1996, among the Company, (6)
FSRT L.P., and Northport Associates No. 18, a California limited liability company.
10.6 Registration Rights Agreement, dated as of October 30, 1996, among the (6)
Company and Northport Associates No. 18, a California limited liability company.
10.7 Secured line of credit loan agreement, dated December 10, 1996, by and
between the Company and Bank of America. (5)
10.8 Lease agreement dated July 9, 1999, by and between the Company and Sybron
Laboratory Products Corporation (6)
10.9 Purchase Agreement dated as of October 12, 1999, by and among the Company,
FSRT, L.P., the limited partners of FSRT L.P., and Value Enhancement Fund III,
LLC. (7)
10.10 Purchase of Conversion Rights Agreement dated as of October 12, 1999 between
the Company and the limited partners of FSRT, L.P. (7)
10.11* Amended and Restated Advisory Agreement
27.1* Financial data schedule
* Filed herewith.
FOOTNOTES
(1) Documents were filed in the Company's Form 10-Q for the quarter ended March 31, 1999 and are
incorporated herein by reference.
(2) Documents were filed in the Company's Form S-4 Registration Statement, dated November 13, 1995,
(Registration No. 033-64131), and are incorporated herein by reference.
(3) Documents were filed in the Company's Form 10-K for the year ended December 31, 1994, and are
incorporated herein by reference.
(4) Documents were filed in the Company's Form 8-K, dated October 31, 1996, and are incorporated herein by
reference.
(5) Documents were filed in the Company's Form 10-K, for the year ended December 31, 1996, and are
incorporated herein by reference.
(6) Documents were filed in the Company's Form 10-Q for the quarter June 30, 1999 and are incorporated
herein by reference.
(7) Documents were filed in the Company's Form 8-K dated October 12, 1999, and are incorporated herein by
reference.
(b) Reports filed on Form 8-K
During the quarter ended March 31, 2000, the Company filed reports on Form 8-K as follows:
(i) On January 13, 2000, the Company filed a report dated January 13, 2000 (date of earliest event
reported). This report contained information on the preliminary agreements in principle reached
on two pending shareholder lawsuits.
(ii) On January 28, the Company filed a report dated January 28, 2000 (date of earliest event reported).
This report contained information relating the shareholders' approval of the Asset Sale and the
plan of liquidation of the Company.
(iii) On February 24, 2000 the Company filed a report dated February 10, 2000 (date of earliest event
reported). This report contained information confirming the sale of assets to Value Enhancement
Fund III, LLC.
</TABLE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FRANKLIN SELECT REALTY TRUST
By: /S/ DAVID P. GOSS
David P. Goss
Chief Executive Officer
Date: MAY 12, 2000
AMENDED AND RESTATED
ADVISORY AGREEMENT
between
FRANKLIN SELECT REALTY TRUST
and
FRANKLIN PROPERTIES, INC.
THIS AMENDED AND RESTATED ADVISORY AGREEMENT ("Agreement") is dated
as of January 1, 2000, between FRANKLIN SELECT REALTY TRUST, a California
corporation (the "Company"), and FRANKLIN PROPERTIES, INC., a California
corporation (the "Advisor").
WHEREAS, the Company and the Advisor entered into a certain
agreement (the "Old Agreement") captioned "Advisory Agreement between
Franklin Select Real Estate Income Fund and Franklin Properties, Inc.," dated
as of March 1, 1989.
WHEREAS, the Company and the Advisor entered into a certain
agreement captioned "First Amendment to Advisory Agreement between Franklin
Select Real Estate Income Fund and Franklin Properties Inc.," dated as of
October 1, 1994, pursuant to which the Agreement was amended to reflect
certain changes in the compensation paid to the Advisor as approved by the
shareholders.
WHEREAS, the Company and the Advisor entered into a certain agreement
captioned "Amended and Restated Advisory Agreement between Franklin Select
Real Estate Income Fund and Franklin Properties Inc.," dated as of January
1,1999, pursuant to which the Agreement was amended to reflect certain
changes in the terms of the Advisory Agreement..
Whereas, at a special meeting on January 25, 2000, the shareholders
of the Company approved a sale of all of the Company's real estate assets and
a Plan of liquidation and dissolution and the Directors of the Company
subsequently adopted the Plan of liquidation and dissolution.
Whereas, the Company and the Advisor desire to renew and continue
the Advisory Agreement dated January 1, 1999 as amended below to reflect the
operating circumstances arising from the liquidation of the Company.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants in the Old Agreement and this Agreement, the parties agree as
follows:
1. Duties of Advisor. The Advisor agrees to use its best efforts to
present to the Company (a) a continuing and suitable investment program
consistent with the investment policies and objectives of the Company and the
Plan of liquidation and dissolution. and (b) investment opportunities of a
character consistent with the investment program as the Directors may adopt
from time to time. In performance of this undertaking, subject to the
supervision of the Directors and upon their direction, and consistent with
the provisions of the Articles of Incorporation and Bylaws of the Company,
the Advisor shall:
(a) furnish or obtain and supervise the day-to-day
operations of the Company;
(b) serve as the Company's investment and financial advisor
and provide research, economic and statistical data in connection with the
Company's investments and investment and financial policies;
(c) on behalf of the Company, investigate, select and
conduct relationships with consultants, investment banks, lenders,
mortgagors, brokers, investors, shareholders, transfer agents, builders,
developers and others;
(d) consult with the Directors and furnish the Directors
with advice and recommendations with respect to making, acquiring (by
purchase, investment, exchange or otherwise), holding and disposing (through
sale, exchange or otherwise) of investments consistent with the policies and
provisions of the Company;
(e) on behalf of the Company, investigate, select and commit
to purchase (subject to board approval) investments consistent with the
policies and provisions of the Company and in accordance with the policies
and guidelines established by the Directors, provided that actual investments
shall be made only with the prior approval of a majority of a quorum of the
Directors or by written consent of all Directors;
(f) obtain for the Directors such services as may be
required in acquiring and disposing of investments, disbursing and collecting
the funds of the Company, paying the debts and fulfilling the obligations of
the Company and handling, prosecuting and settling any claims of the Company;
(g) obtain for the Company such services as may be required
for property management, including property management services rendered by
an affiliate of the Advisor, and other activities relating to the investment
portfolio of the Company;
(h) advise in connection with and conduct negotiations by or
on behalf of the Company with investment banking firms, securities brokers or
dealers and other institutions or investors for public or private sales of
Shares or other securities of the Company, or obtain loans for the Company,
but in no event in such a way that the Advisor could be deemed to be acting
as a broker-dealer or underwriter;
(i) provide, at the Company's expense, office space, office
furnishings, personnel and other overhead items necessary and incidental to
the Company's business and operations;
(j) from time to time or at any time requested by the
Directors, make reports to the Directors of its performance of services under
this Agreement;
(k) obtain appraisal reports, where appropriate, on
investments or contemplated investments of the Company;
(l) provide, at the Company's expense and at the direction of
the Board of Directors, accounting and related services necessary to the
preparation of the Company's financial statements, regulatory filings, and
tax returns; and
(m) do all things necessary to assure its ability to render
the services described in this Agreement.
2. NO PARTNERSHIP OR JOINT VENTURE. The Company and the
Advisor are not partners or joint venturers with each other and nothing in
this Agreement shall be construed to make the parties partners or joint
venturers or impose any liability as a partner or joint venturer on either of
them.
3. RECORDS. At all times, the Advisor shall keep proper
books of account and records relating to services performed under this
Agreement, which shall be accessible for inspection by the Company at any
time during ordinary business hours.
4. REIT QUALIFICATIONS. Notwithstanding anything else in
this Agreement, the Advisor shall refrain from any action (including, without
limitation, performing services for tenants of property or managing or
operating real property) which, in its sole judgment made in good faith or in
the judgment of the Directors of which the Advisor has written notice, would
adversely affect the status of the Company as a real estate investment trust
as defined and limited in the Code, which would violate any law, rule,
regulation or statement of policy of any governmental body or agency having
jurisdiction over the Company or over its securities, or which would
otherwise not be permitted by the Company's Bylaws.
5. BANK ACCOUNTS. The Advisor, at the expense of the
Company, may establish and maintain one or more bank accounts in its own
name, and may collect and deposit into any one or more accounts, and disburse
from any account or accounts, any money on behalf of the Company, on the
terms and conditions as the Directors may approve, provided that no funds
shall be commingled with funds of the Advisor; and the Advisor shall from
time to time give an appropriate accounting of collections and payments to
the Directors and to the auditors of the Company.
6. BOND. The Advisor, if and to the extent that the
Directors require, shall maintain a fidelity bond with a responsible surety
company in such amount as the Directors may require from time to time,
covering all directors, officers, employees and agents of the Advisor
handling funds of the Company and any investment documents or records
pertaining to investments of the Company. The bond shall inure to the
benefit of the Company in respect of losses of any property from acts of the
directors, officers, employees and agents of the Advisor through theft,
embezzlement, fraud, negligence, error or omission or otherwise. The premium
for the bond shall be an expense of the Company.
7. INFORMATION FURNISHED ADVISOR. The Directors shall at
all times keep the Advisor fully informed with regard to the investment
policy of the Company, the capitalization policy of the Company and,
generally, their current intentions as to the future of the Company. In
particular, the Directors shall notify the Advisor promptly of their
intention to sell or otherwise dispose of any of the Company's investments or
to make any new investment. The Company shall furnish the Advisor with a
certified copy of all financial statements, a signed copy of each report
prepared by independent certified public accountants and all other
information with regard to the Company's affairs as the Advisor may
reasonably request.
8. CONSULTATION AND ADVICE. In addition to the services
described elsewhere in this Agreement, the Advisor shall consult with the
Directors, and shall, at the request of the Directors or the officers of the
Company, give advice and recommendations with respect to other aspects of the
business and affairs of the Company. In general, the Advisor shall inform
the Directors of any factors, which come to its attention which the Advisor
believes would influence the policies of the Company, except to the extent
that giving that information would involve a breach of fiduciary duty.
9. DEFINITIONS. As used in this Agreement, the following
terms shall have the meanings indicated:
(a) "Affiliate" means as to any Person (i) any other Person
directly or indirectly controlling, controlled by or under common control
with such Person, (ii) any other person owning or controlling 10% or more of
the outstanding voting securities or beneficial interest of such Person,
(iii) any officer, director, trustee or general partner of such Person and
(iv) if such other Person is an officer, director, trustee or partner of
another entity, then the entity for which that Person acts in any such
capacity.
(b) "Average Invested Assets" means for any period the
average of the aggregate book value of the assets of the Company invested,
directly or indirectly, in equity interests in and loans secured by real
estate, before reserves for depreciation or bad debts or other similar
non-cash reserves computed by taking the average of such values at the end of
each month during such period.
(c) "Fiscal Year" means any period for which an income tax
return is submitted to the Internal Revenue Service and which is treated by
the Internal Revenue Service as a reporting period for the Company.
(d) "Mortgage Investment" means the assets of the Company
invested in any mortgage loans, mortgage-backed securities, notes, bonds or
other evidences of indebtedness or obligations which are secured or
collateralized by interests in real estate.
(e) "Net Income" means the total revenues of the Company for
any period, computed on the basis of its results of operations for that
period, after deduction of all expenses, excluding, however, any additions to
reserves for depreciation or bad debts or other similar non-cash reserves.
(f) "Person" means an individual, corporation, partnership,
joint venture, association, company, trust, bank or other entity, or
government and any agency and political subdivision of a government.
(g) "Real Estate Assets" means for any calendar quarter, the
aggregate book value of the assets of the Company on the last day of the
quarter, invested directly or indirectly in interests in real estate, before
reserves for depreciation, bad debts, or other similar non-cash reserves, as
set forth in the Company's financial statements (which may be unaudited
except as elsewhere provided in this Agreement), prepared quarterly on an
accrual basis in accordance with generally accepted accounting principles.
Real Estate Assets do not include Mortgage Investments.
10. ADVISOR COMPENSATION(a) At the end of each calendar quarter
or such other interval as the parties shall agree, the Company shall pay to
the Advisor as compensation for the advisory services rendered to the Company
hereunder a quarterly fee equal to $50,000 for the first calendar quarter of
the year and thereafter a quarterly fee equal to $35,000 .
(b) The Board has commenced a review of various strategic
alternatives available to Franklin Select Realty Trust (the "Company") which
may lead to a merger or sale of the REIT and/or its assets. However, it is
difficult to forecast how long this process may take or whether such a
transaction will occur. The Board recognizes that under these circumstances
it may be difficult for the Adviser to retain key employees necessary to the
operation of the Company. Moreover, the Board acknowledges that the Company
will derive substantial benefit in the execution of its strategic objectives
if certain key employees are retained until the strategic review is
complete. Therefore, the Board, on behalf of the company, may determine to
establish a fund for the purpose of creating an incentive to certain key
employees of the Advisor who might otherwise depart before the completion of
the Board's strategic review. The fund will be disbursed at the discretion
of the Board with the advice of the Advisor. Any such funds will be paid to
Advisor and paid to employees.
11. STATEMENTS. The Advisor shall furnish to the Company at
least quarterly, beginning with the second calendar quarter of the term of
this Agreement, a statement showing the computation of the fee payable in
respect of the preceding calendar quarter under Section 10, even after the
termination of this Agreement. The final settlement of any fees for each
Fiscal Year shall be subject to adjustment in accordance with, and upon
completion of, the annual audit of the Company's financial statement; any
payment by the Company or repayment by the Advisor indicated as a result of
the audit shall be made promptly after the completion of the audit and shall
be reflected in the audited statements to be published by the Company.
12. COMPENSATION FOR ADDITIONAL SERVICES.
(a) Where appropriate in the sole judgment of the Directors
or the Advisor, an Affiliate of the Advisor may be retained to perform
property management services for the Company.
(b) If and to the extent that the Company shall request the
Advisor, or any director, officer, partner or employee of the Advisor, to
perform services for the Company other than those required under this
Agreement, the additional services, if performed, will be compensated
separately on terms to be agreed between that party and the Company.
13. EXPENSES OF THE ADVISOR. Without regard to the amount of
compensation received under this Agreement by the Advisor, the Advisor shall
bear the following expenses:
(a) employment expenses of the officers and directors of the
Advisor;
(b) telephone, utilities, office furniture and furnishings
and other office expenses of the Advisor; and
(c) miscellaneous administrative and other expenses of the
Advisor not relating to the performance by the Advisor of its functions
hereunder.
14. EXPENSES OF THE COMPANY. Except as expressly otherwise
provided in this Agreement, the Company shall pay all its expenses not
expressly assumed by the Advisor, and without limiting the generality of the
foregoing it is specifically agreed that the following expenses of the
Company shall be paid by the Company and shall not be paid by the Advisor:
(a) the cost of money borrowed by the Company;
(b) taxes on income and taxes and assessments on real
property and all other taxes applicable to the Company;
(c) real estate brokerage and sales commissions with respect
to the purchase or sale of real estate assets of the Company payable to real
estate brokers who cooperate with the Advisor in such transactions, and
brokerage and sales commissions with respect to the purchase or sale of
Mortgage Investments payable to mortgage brokers who cooperate with the
Advisor in such transactions;
(d) legal, accounting, underwriting commissions and fees and
any other fees and costs, including due diligence, qualification of
securities for sale in various states, listing of securities on a securities
exchange, printing, engraving and other expenses and taxes incurred in
connection with the issuance, distribution, transfer, registration, marketing
and listing of the Company's securities, including compensation of employees
of the Advisor and direct expenses of officers and employees of the Advisor
and affiliates while directly engaged in such activities on behalf of the
Company;
(e) fees, salaries and other employment costs, taxes and
expenses paid to Directors, officers and employees of the Company, including
persons who may be employees of the Advisor, other than officers of the
Advisor, or of any company which controls, is controlled by or is under
common control with the Advisor, incurred with respect to and allocable to
the prudent operation and business of the Company, other than as provided
under Section 13(a) above.
(f) fees and expenses paid to independent contractors,
appraisers, consultants, managers and other agents retained by or on behalf
of the Company and expenses (including expenses for Persons who may also be
officers or employees of the Advisor) connected with the acquisition,
financing, refinancing, disposition and ownership of real estate interests or
other property, including insurance premiums, legal services, brokerage and
sales commissions, maintenance, repair and improvement of property;
(g) expenses of maintaining and managing real estate
interests;
(h) insurance as required by the Directors (including
Directors' liability insurance);
(i) the expenses of organizing, revising, amending,
converting, modifying or terminating the Company;
(j) expenses connected with payments of dividends or interest
or distributions in cash or any other form made or caused to be made by the
Directors to holders of securities of the Company;
(k) all expenses connected with communications to holders of
securities of the Company and the other bookkeeping and clerical work
necessary in maintaining relations with holders of securities, including the
cost of printing and mailing certificates for securities, proxy solicitation
materials and reports to holders of the Company's securities;
(1) the cost of any accounting, statistical or bookkeeping
equipment necessary for the maintenance of the books and records of the
Company;
(m) transfer agent's, registrar's, dividend disbursing
agent's, dividend reinvestment plan agent's and indenture trustee's fees and
charges;
(n) legal, accounting and auditing fees and expenses not
included in (d) and (f) of this Section 14; and
(o) other ordinary and necessary expenses of the business and
affairs of the Company, other than those allocable to the Advisor under
Section 13 above.
The Company shall reimburse the Advisor or its affiliates for the
cost of rent, goods or materials furnished or advanced by them for the
benefit of the Company, and for services rendered for the benefit of the
Company. The Company's costs for services and goods provided by the Advisor
to the Company shall be based upon the cost to the Advisor and an allocable
portion of the actual compensation (including employment taxes and benefits)
of Persons involved plus an appropriate share of overhead allocable to each
Person who rendered services for the benefit of and on the business affairs
of the Company. The amounts charged to the Company by the Advisor and its
Affiliates shall not exceed those which the Company would be required to pay
to independent parties for comparable rent, materials, goods or services.
15. REFUND BY ADVISOR. In addition to the provisions of
Section 10 hereof, within 60 days after the end of any calendar year which
begins following the date the Company first commences operations after
reaching its minimum capital subscription amount, the Advisor will refund to
the Company the amount, if any, by which the Operating Expenses (as defined
in this Section 15) of the Company during such Calendar Year exceeded the
greater of (a) 2% of the Average Invested Assets or (b) 25% of Net Income
unless the Independent Directors of the Company shall have affirmatively
determined that due to unusual and non-recurring factors, such higher level
of Operating Expenses is justified for such year. For the purposes of this
Section 15, "Operating Expenses" during the Calendar Year means the aggregate
annual expenses of every character regarded as Operating Expenses in
accordance with generally accepted accounting principles, as determined by
independent accountants selected by the Directors, including regular
compensation payable to the Advisor, excluding, however, the following: (i)
the cost of money borrowed by the Company; (ii) taxes on income and taxes and
assessments on real property and all other taxes applicable to the Company;
(iii) expenses of acquiring, financing, refinancing, disposing of,
maintaining, managing and owning real estate equity interests or other
property (including the costs of legal services, brokerage and sales
commissions, maintenance, repair and improvement of property); (iv) insurance
as required by the Directors (including any Directors' liability insurance);
(v) expenses of organizing, revising, amending, converting, or terminating
the Company; (vi) expenses connected with payments of dividends or interest
or distributions in cash or any other form made or caused to be made by the
Directors to holders of securities of the Company; (vii) all expenses
connected with communications to holders of securities of the Company and the
other bookkeeping and clerical work necessary in maintaining relations with
holders of securities of the Company, including the cost of printing and
mailing certificates for securities and proxy solicitation materials and
reports to holders of securities of the Company; (viii) transfer agent's,
registrar's, dividend disbursing agent's, warrant agent's, dividend
reinvestment plan agent's and indenture trustee's fees and charges, (ix)
other legal, accounting and auditing fees and expenses; and (x) non-cash
expenditures (including depreciation, amortization and bad debt reserve).
16. OTHER ACTIVITIES. Nothing in this Agreement shall
prevent the Advisor or any of its officers, directors or employees or any of
its affiliates from engaging in other business activities related to real
estate investments, from making investments permitted to the Company by the
Company's Bylaws or from acting as advisor to any other person or entity even
though having investment policies similar to the Company (including another
real estate investment trust). The Advisor and its officers, directors or
employees and any of its Affiliates shall be free from any obligation to
present to the Company any particular investment opportunity which comes to
the Advisor or such persons, regardless of whether such opportunity is within
the Company's investment policies, provided, that the Advisor will give due
consideration to the investment objectives and financial capabilities of the
Company in determining whether to present an investment opportunity to the
Company or to another entity for which the Advisor provides similar services.
17. TERM: TERMINATION OF AGREEMENT. This Agreement shall
continue in force through December 31, 1999, and thereafter it may be renewed
annually, subject to the approval thereof by a majority of the Independent
Directors. Notice of renewal shall be given in writing by the Directors to
the Advisor not less than 60 days before the expiration of this Agreement or
of any extension of this Agreement. Notwithstanding any other provision to
the contrary, this Agreement may be terminated for any reason upon 60 days'
written notice by the Company to the Advisor or 180 days' written notice by
the Advisor to the Company, in the former case by the action of the
Directors, the Independent Directors or a majority of the shareholders of the
Company.
18. AMENDMENTS. This Agreement shall not be changed,
modified, terminated or discharged in whole or in part except by an
instrument in writing signed by both parties, or their respective successors
or assigns, or otherwise as provided in this Agreement.
19. ASSIGNMENT. This Agreement shall not be assignable by
the Advisor without the consent of the Company, except an assignment to an
Affiliate of the Advisor, or to a corporation, association, trust or other
successor organization which may take over the property and carry on the
affairs of the Advisor. A proper assignment or any other assignment of this
Agreement by the Advisor shall bind the assignee under this Agreement and by
the terms of the assignment in the same manner as the Advisor is bound. This
Agreement shall not be assignable by the Company without the consent of the
Advisor, except in the case of assignment by the Company to a corporation,
association, trust or other organization which is a successor to the
Company. The successor shall be bound under this Agreement and by the terms
of said assignment in the same manner as the Company is bound.
20. DEFAULT, BANKRUPTCY, ETC. At the option solely of the
Directors, this Agreement shall be and become terminated immediately upon
written notice of termination from the Directors to the Advisor if any of the
following events shall occur:
(a) If the Advisor shall violate any provision of this
Agreement, and after notice of the violation shall not have cured the default
within thirty (30) days or begun action within thirty (30) days to cure the
default which shall be completed with reasonable diligence; or
(b) If the Advisor shall be adjudged bankrupt or insolvent by
a court of competent jurisdiction, or an order shall be made by a court of
competent jurisdiction for the appointment of a receiver, liquidator or
trustee of the Advisor or of all or substantially all of its property by
reason of the foregoing, or approving any petition filed against the Advisor
for its reorganization, and the adjudication or order shall remain in force
or unstayed for a period of thirty (30) days; or
(c) If the Advisor shall institute proceedings for voluntary
bankruptcy or shall file a petition seeking reorganization under the federal
bankruptcy laws, or for relief under any law for the relief of debtors, or
shall consent to the appointment of a receiver for itself or for all or
substantially all its property, or shall make a general assignment for the
benefit of its creditors, or shall admit in writing its inability to pay its
debts generally as they become due.
The Advisor agrees that if any of the events specified in
subsections (b) and (c) of this Section 20 shall occur, it will give written
notice of the event to the Directors within seven (7) days after the
occurrence of the event.
21. ACTION UPON TERMINATION. From and after the effective
date of termination of this Agreement, pursuant to Sections 17, 19 or 20
herein, the Advisor shall not be entitled to compensation for further
services performed after the date of termination, but shall be paid all
compensation accruing to the date of termination, including compensation
which may have been earned but deferred.
The Advisor shall promptly upon termination:
(a) pay over to the Company all moneys collected and held for
the account of the Company pursuant to this Agreement, after deducting any
accrued compensation and reimbursement for its expenses to which it is then
entitled;
(b) deliver to the Directors a full accounting, including a
statement showing all payments collected by it and a statement of all moneys
held by it, covering the period following the date of the last accounting
furnished to the Directors;
(c) deliver to the Directors all property and documents of
the Company then in the custody of the Advisor except for copies of
documents, which the Advisor may keep; and
(d) cooperate with the Directors to provide an orderly
management transition.
The parties to this agreement acknowledge that the Company has adopted or is
soon expected to adopt a Plan of Liquidation pursuant to which the real
estate assets of the Company are to be sold and the proceeds of the sale and
the other assets, net of liabilities and reserves, are to be distributed to
the shareholders of the Company. The Term of this Agreement will expire on
December 31, 2000 subject to earlier termination as provided Section 17
(Term: Termination of Agreement). Accordingly, notwithstanding the foregoing
provisions of this Section 21 (Action Upon Termination), the parties agree
that if the Company has on or before the expiration of the term of this
Agreement distributed in liquidation substantially all of its assets that (i)
Advisor will, without further cost or expense to the Company, maintain the
records of the Company in accordance with the Advisor's customary record
retention policies, and for a period of time no less than four years from the
expiration of this Agreement.
22. CHANGE OF NAME. Upon termination of this Agreement by
either party, the Directors shall forthwith cause the name of the Company to
be changed to a name not containing the name "Franklin" or any approximations
or abbreviations of that name and sufficiently dissimilar to that name as to
be unlikely to cause confusion with that name.
23. INDEMNIFICATION. The Advisor, its officers, directors,
shareholders, employees, agents, subsidiaries and assigns shall be
indemnified by the Company against any liability to the Company or its
shareholders resulting from errors in judgment or other acts or omissions,
whether or not disclosed, unless a court of competent jurisdiction determines
that the liabilities or losses resulted from fraud, negligence, misconduct or
other breach of fiduciary duty by that Person.
24. MISCELLANEOUS. The Advisor assumes no responsibility
under this Agreement other than to perform the services called for in good
faith, and shall not be responsible for any action of the Directors in
following or declining to follow any advice or recommendations of the
Advisor. Neither the Advisor nor its shareholders, directors, officers or
employees shall be liable to the Company, the Directors, the holders of
securities of the Company or to any successor or assigns of the Company
except by reason of acts constituting the negligent performance of their
duties.
25. NOTICES. Any notice, report or other communication
required or permitted to be given hereunder shall be in writing unless some
other method of giving such notice, report or other communication is accepted
by the party to whom it is given, and shall be given by being delivered at
the following addresses:
The Directors and/or the Company:
Franklin Select Realty Trust
777 Mariners Island Boulevard
San Mateo, California 94403-7777
The Advisor:
Franklin Properties, Inc.
777 Mariners Island Boulevard
San Mateo, California 94403-7777
Either party may at any time give notice in writing to the other party of a
change of its address for the purpose of this Section 25.
26. HEADINGS. The section headings have been inserted for
convenience of reference only and shall not be construed to affect the
meaning, construction or effect of this Agreement.
27. GOVERNING LAW. The provisions of this Agreement shall be
construed and interpreted in accordance with the laws of the State of
California as they apply to agreements solely among California residents to
be executed and performed entirely in California.
28. EXECUTION. This instrument is executed and made on
behalf of the Company by an officer who is a Director of the Company, not
individually but solely as an officer pursuant to the Company's Bylaws and
the obligations under this Agreement are not binding upon, nor shall resort
be had to the private property of, any of the Directors, shareholders,
officers, employees or agents of the Company personally, but bind only the
Company.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the day and year first above written.
COMPANY:
FRANKLIN SELECT REALTY TRUST
By
E. Samuel Wheeler, Chairman of the Special Committee
ADVISOR:
FRANKLIN PROPERTIES, INC.
By
President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM REGISTRANT'S
FINANCIAL STATEMENTS FOR THE QUARTER ENDED MARCH 31, 2000 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 17,545
<SECURITIES> 277
<RECEIVABLES> 3,583
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 21,405
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 21,405
<CURRENT-LIABILITIES> 4,582
<BONDS> 0
0
0
<COMMON> 212,439
<OTHER-SE> (104,616)
<TOTAL-LIABILITY-AND-EQUITY> 21,405
<SALES> 0
<TOTAL-REVENUES> 3,378
<CGS> 0
<TOTAL-COSTS> 3,066
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 180
<INCOME-PRETAX> 14,225
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,225
<EPS-BASIC> 1.08
<EPS-DILUTED> 1.08
</TABLE>
