-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MvdeqtXLnVUWfUL7/vdGTn5Fp/hKHlfWKo9dMTFk9HKgr9o+HIoXzi5/0/ht1Ya2 QYEikVbdGhidQTUXLuXRdg== 0000845613-00-000005.txt : 20000516 0000845613-00-000005.hdr.sgml : 20000516 ACCESSION NUMBER: 0000845613-00-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRANKLIN SELECT REALTY TRUST CENTRAL INDEX KEY: 0000845613 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 943095938 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12708 FILM NUMBER: 634305 BUSINESS ADDRESS: STREET 1: 2000 ALAMEDA DE LAS PULGAS CITY: SAN MATEO STATE: CA ZIP: 94404 BUSINESS PHONE: 6503123000 MAIL ADDRESS: STREET 1: P O BOX 7777 CITY: SAN MATEO STATE: CA ZIP: 94403-7777 FORMER COMPANY: FORMER CONFORMED NAME: FRANKLIN SELECT REAL ESTATE INCOME FUND DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: FRANKLIN CALIFORNIA REAL ESTATE FUND DATE OF NAME CHANGE: 19890307 10-Q 1 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
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 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.
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
(a) Exhibits: Exhibit NO. LIST OF EXHIBITS FOOTNOTE ------- ---------------- -------- 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.
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 EX-10.11 2 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 EX-27 3
5 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. 1,000 3-MOS DEC-31-2000 MAR-31-2000 17,545 277 3,583 0 0 21,405 0 0 21,405 4,582 0 0 0 212,439 (104,616) 21,405 0 3,378 0 3,066 0 0 180 14,225 0 0 0 0 0 14,225 1.08 1.08
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