SCHEDULE 14A INFORMATION
PROXY STATEMENT
PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement |_| Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
FRANKLIN STREET PARTNERS LIMITED PARTNERSHIP
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
|_| No fee required.
|X| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
Units of Limited Partnership Interest
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
In accordance with Rule 0-11(c), the fee was calculated to be
one-fiftieth of one percent of the value of the securities to be
transferred to the security holders in the transaction, based upon
the book value, as of September 26, 2001, of $8.08 per unit of
limited partnership interest of the registrant.
(4) Proposed maximum aggregate value of transaction:
$198,732,000
(5) Total fee paid:
$39,746.40
|_| Fee paid previously with preliminary materials:
|X| Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date
of its filing.
(1) Amount Previously Paid: $35,079.60
(2) Form, Schedule or Registration Statement No.: Preliminary Proxy
Statement on Schedule 14A
(3) Filing Party: Franklin Street Partners Limited Partnership
(4) Date Filed: October 4, 2001
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FRANKLIN STREET PARTNERS LIMITED PARTNERSHIP
401 EDGEWATER PLACE
SUITE 200
WAKEFIELD, MASSACHUSETTS 01880
December 11, 2001
Dear Limited Partners:
The general partner (the "General Partner") of Franklin Street Partners
Limited Partnership (the "Partnership") is seeking your approval to convert the
Partnership to a real estate investment trust (the "Conversion"). The Conversion
would be accomplished by merging the Partnership with and into Franklin Street
Properties Corp., a newly-formed Maryland corporation and wholly-owned
subsidiary of the Partnership (the "REIT"), with the REIT as the surviving
entity in the merger. Because the Conversion is changing only the form in which
the entity's business is conducted, we are using the term "Franklin Street" to
refer to the business conducted before the Conversion by the Partnership and
after the Conversion by the REIT. The Conversion would be effected pursuant to
the Agreement and Plan of Merger, dated as of October 10, 2001 (the "Merger
Agreement"), by and between the REIT and the Partnership. The approval of the
holders of a majority in interest of the units of limited partnership (the
"Units") in the Partnership is necessary to effect the Conversion.
The principal benefit of the Conversion is that, as stockholders of the
REIT, the Partnership's limited partners (the "Limited Partners") will not be
required to file state income tax returns (other than in their state of
residence) as a result of their interest in the REIT. In addition, certain
Limited Partners who are tax-exempt and that are currently allocated unrelated
business taxable income ("UBTI") as a result of their ownership of Units should
not be allocated UBTI as stockholders of a REIT.
QUESTIONS AND ANSWERS ABOUT THE CONVERSION
The following questions and answers are intended to help clarify the key issues
involved in the Conversion.
Q: Is the business of Franklin Street changing?
A: No. The business and assets of Franklin Street immediately before the
Conversion will be the same as the business and assets of Franklin Street
immediately after the Conversion. What is changing is the form in which
the business is conducted: Franklin Street will be a real estate
investment trust rather than a partnership. See "Business" in the Consent
Solicitation/Confidential Offering Memorandum.
Q: Will my proportional interest in Franklin Street change?
A: No. You will receive one share of stock in the REIT for each Unit of
partnership interest you hold. Your proportional interest in Franklin
Street will remain exactly the same. See
"The Merger Agreement" in the Consent Solicitation/Confidential Offering
Memorandum.
Q: Will the General Partner's interest in Franklin Street change?
A: No. The General Partner will be treated exactly the same as the Limited
Partners and will receive one share of common stock in the REIT for each
unit of general partnership interest it holds. The General Partner will
not receive any preferred stock or promoted interest of any kind. The
proportional interest of the General Partner in Franklin Street will not
change. See "The Merger Agreement" in the Consent
Solicitation/Confidential Offering Memorandum.
Q: Will the General Partner, management or their affiliates receive any fees,
commissions or other compensation in connection with the Conversion?
A: No.
Q: Will the investment objectives and policies of Franklin Street change?
A: No, except that the REIT will have the additional policy of qualifying as
a real estate investment trust for federal income tax purposes. See
"Policies With Respect to Certain Activities" in the Consent
Solicitation/Confidential Offering Memorandum.
Q: Will I lose any substantial rights as a result of the Conversion?
A: No. In fact, your rights will be enhanced in two important ways:
o As a Limited Partner, you have no right to elect or remove the
General Partner. As a stockholder, you will have the right to vote
for the election of directors and to vote to remove directors.
o As a Limited Partner, you may not transfer any interest in Franklin
Street without the consent of the General Partner. Giving such
consent is within the sole discretion of the General Partner. As a
stockholder, you will be free to transfer your shares without the
consent of the directors, except that transfers that would threaten
Franklin Street's status as a real estate investment trust will be
prohibited by the REIT's charter. Of course, there is no market for
Franklin Street's partnership interests, and there will be no market
for its stock immediately following the Conversion, the shares of
stock you receive will not be registered under the Securities Act
and any transfer must comply with applicable securities laws.
The Partnership is a Massachusetts limited partnership and the REIT is a
Maryland corporation. Because the Partnership and the REIT are different
kinds of entities and are governed by the laws of different jurisdictions,
there are differences in the rights of the Limited Partners and the
holders of common stock in the REIT. The Partnership and the REIT have
carefully reviewed these differences. Because the rights that the Limited
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Partners currently have are limited, the Partnership and the REIT have
concluded that the Conversion will not result in the loss of any
substantial rights for the Limited Partners.
See "Comparison of Rights of Limited Partners and Stockholders; Certain
Provisions of Maryland Law" in the Consent Solicitation/Confidential
Offering Memorandum.
Q: What are the reasons for the Conversion?
A: As stockholders of the REIT, the investors in Franklin Street will not be
required to file state income tax returns (other than in their state of
residence) as a result of their investment in Franklin Street. In
addition, investors that are tax-exempt and that are currently allocated
unrelated business taxable income ("UBTI") should not be allocated UBTI as
stockholders of a real estate investment trust. See "Background of, and
Reasons for, the Conversion" in the Consent Solicitation/Confidential
Offering Memorandum.
Q: What are the disadvantages of the Conversion?
A: There are several actual or potential disadvantages and adverse
consequences of the Conversion:
o The REIT might not qualify as a real estate investment trust and,
consequently, would be taxed as a corporation. See "Risk Factors -
Tax Risks" in the Consent Solicitation/Confidential Offering
Memorandum.
o The Partnership does not recognize any taxable income, but FSP
Investments LLC, Franklin Street's wholly-owned subsidiary,
following the Conversion will be treated as a taxable real estate
investment trust subsidiary and will likely recognize taxable
income. See "Pro Forma Consolidated Financial Data" and "Risk
Factors - Tax Risks" in the Consent Solicitation/Confidential
Offering Memorandum.
o The Conversion will result in the commencement of a new holding
period for purposes of Rule 144 under the Securities Act for the
interests in Franklin Street held by the Limited Partners.
Accordingly, a Limited Partner will need to hold the shares of stock
in the REIT issued in the Conversion for at least one year following
the effective date of the Merger in order to benefit from Rule 144.
Because immediately after the Conversion there will be no public
market for the interests in Franklin Street, even when Rule 144
becomes available, the Limited Partners may not be able to sell
their shares of stock in the REIT. See "Risk Factors - No Public
Trading Market for Common Stock" in the Consent
Solicitation/Confidential Offering Memorandum.
o The REIT's governing documents contain provisions that may have the
effect of discouraging a third party from making an acquisition
proposal for the REIT and may thereby inhibit a change of control of
the REIT under circumstances that could give the holders of shares
in the REIT the opportunity to realize a premium over the
then-prevailing market prices. See "Risk Factors - Charter and
Bylaws Provisions
iii
May Limit a Change in Control" in the Consent
Solicitation/Confidential Offering Memorandum.
Q: If this is a conversion, why is a merger involved?
A: A merger is the mechanism that state law provides to convert a partnership
into a corporation. Accordingly, the Partnership is merging into its
wholly-owned subsidiary corporation, with the corporation as the successor
to the business of the Partnership. See "The Merger Agreement" in the
Consent Solicitation/Confidential Offering Memorandum.
Q: If this is just a conversion, why is this document a confidential offering
memorandum?
A: Because state law requires that the Conversion be in the form of a merger,
the federal securities laws view the transaction as the issuance of stock
to the Limited Partners by the Partnership's wholly-owned subsidiary.
Accordingly, although the substance of the transaction is the change of
form of Franklin Street from a partnership into a real estate investment
trust, we are conducting the transaction as a private placement of the
REIT's stock.
Q: To whom is the offering being made?
A: The offering is made only to the Limited Partners, each of whom has a
pre-existing relationship with the Partnership and its broker/dealer
subsidiary, FSP Investments LLC. The Conversion will be consummated only
if the REIT reasonably believes that no more than 35 Limited Partners are
not accredited investors and each such non-accredited investor is
qualified. The REIT currently has such a belief. See "Limited Partners
Eligible to Receive Common Stock" in the Consent Solicitation/Confidential
Offering Memorandum.
Q: What is Franklin Street Properties Corp.?
A: Franklin Street Properties Corp. is the newly-formed, wholly-owned
subsidiary of the Partnership. Franklin Street Properties Corp. will be
the successor to the Partnership in the Conversion and will operate as a
real estate investment trust. Franklin Street Properties Corp. currently
has no assets and no operating history. If the Conversion occurs, Franklin
Street Properties Corp. will have all the assets that were owned by the
Partnership immediately before the Conversion. See "Business" in the
Consent Solicitation/Confidential Offering Memorandum.
Q: Will Franklin Street continue to file reports under the Securities
Exchange Act?
A: Yes. See "Available Information" in the Consent Solicitation/Confidential
Offering Memorandum.
Q: What are the tax consequences of the Conversion?
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A: The exchange of partnership interests for common stock in the Conversion
should be treated as a tax-free transaction for federal income tax
purposes. See "Federal Income Tax Considerations" in the Consent
Solicitation/Confidential Offering Memorandum.
Q: Is a meeting of Limited Partners being held?
A: No. We are soliciting written consents to approve the Conversion. See
"Consent Solicitation" in the Consent Solicitation/Confidential Offering
Memorandum.
Q: What do I need to do now?
A: After carefully reviewing this Consent Solicitation/Confidential Offering
Memorandum, please complete, date and sign your consent and then mail it
and a completed, signed offeree questionnaire in the enclosed postage-paid
envelope as soon as possible. See "Consent Solicitation" in the Consent
Solicitation/Confidential Offering Memorandum.
Q: When will the Conversion be effective?
A: Holders of a majority of the units of limited partnership interest must
approve the Conversion. The General Partner anticipates that if such
approval is received prior to December 28, 2001, the Conversion will be
effective January 1, 2002.
After careful consideration, the General Partner of the Partnership
strongly recommends that Limited Partners vote for approval of the Conversion.
If the Conversion is consummated, each Limited Partner will receive a
number of shares of common stock in the REIT equal to the number of Units he or
she owned before the Conversion.
Limited Partners should carefully review the accompanying Consent
Solicitation/Confidential Offering Memorandum, which more fully describes the
terms of the Conversion and related transactions, and the documents delivered
therewith. The full text of the Merger Agreement is attached as Appendix A to
the Consent Solicitation/Confidential Offering Memorandum.
Very truly yours,
George J. Carter
Managing Member and President of FSP General Partner
LLC, the General Partner of Franklin Street Partners
Limited Partnership
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FRANKLIN STREET PARTNERS LIMITED PARTNERSHIP
CONSENT SOLICITATION
FRANKLIN STREET PROPERTIES CORP.
CONFIDENTIAL OFFERING MEMORANDUM
RELATING TO 24,586,249 SHARES OF ITS COMMON STOCK
This Consent Solicitation is furnished in connection with the solicitation
by the general partner (the "General Partner") of Franklin Street Partners
Limited Partnership, a Massachusetts limited partnership (the "Partnership"), of
written consents from the Partnership's limited partners (the "Limited
Partners") in the form set forth as Appendix E hereto (the "Consents"). The
General Partner is soliciting Consents in connection with the conversion of the
Partnership into a corporation that will elect to be treated for federal income
tax purposes as a real estate investment trust (the "Conversion"). The
Conversion will be effected through the merger (the "Merger") of the Partnership
with and into Franklin Street Properties Corp., a Maryland corporation and
wholly-owned subsidiary of the Partnership (the "REIT"). In soliciting the
Consents, the General Partner is seeking the consent and approval of the Limited
Partners to the Merger Agreement and the transactions contemplated thereby,
including the Conversion. Because the Conversion is changing only the form in
which the entity's business is conducted, we use the term "Franklin Street" to
refer to the business conducted before the Conversion by the Partnership and
after the Conversion by the REIT.
If the Merger is approved and the other conditions to closing are met,
each unit of partnership interest (both general and limited) in the Partnership
will be converted into one share of common stock, $.0001 par value per share
(the "Common Stock"), of the REIT. This document constitutes the Confidential
Offering Memorandum of the REIT with respect to the offering of Common Stock to
the Limited Partners pursuant to an exemption from registration under Section
4(2) of the Securities Act of 1933, as amended (the "Securities Act"), and Rule
506 of Regulation D promulgated thereunder.
The Conversion has been structured in a manner intended to be tax-free to
the Limited Partners.
The Partnership has decided to pursue the Conversion based upon its belief
that, as stockholders of a REIT, the investors in Franklin Street will not be
required to file state income tax returns (other than in their state of
residence) as a result of their investment in Franklin Street. In addition,
investors that are tax-exempt and that are currently allocated unrelated
business taxable income ("UBTI") should not be allocated UBTI as stockholders of
a REIT.
As a result of the Conversion, at the effective time of the Merger (the
"Effective Time"), (i) the Partnership will cease to exist and (ii) each of the
23,637,750 outstanding units of limited partnership interest ("Units") and the
948,499 outstanding units of general partnership interest will be converted into
one share of Common Stock.
The Conversion requires the approval of at least a majority of the
outstanding Units. Failure to forward a Consent will have the same effect as a
vote against the Conversion. Because the pro rata ownership of each Limited
Partner will be the same before and after the Conversion and because the General
Partner or its affiliates will not receive any fees, commissions or other
compensation or any preferred stock or promoted interest in connection with the
Conversion, the General Partner has determined that the Conversion is fair, from
a financial point of view, to the Limited Partners and recommends that Limited
Partners vote in favor of the Conversion.
This Consent Solicitation/Confidential Offering Memorandum is first being
mailed on or about December 17, 2001 to the Limited Partners of record at the
close of business on the date of this Consent Solicitation/Confidential Offering
Memorandum.
Limited Partners should consider each of the factors described under "Risk
Factors," starting on page 12 when deciding how to vote on the Conversion. Such
factors include the following:
o A majority vote will bind all Limited Partners;
o There are no dissenters' rights;
o If the REIT fails to qualify as a real estate investment trust, the
REIT may be taxed as a corporation and distributions to its
stockholders would not be deductible by the REIT;
o Stockholders in the REIT will be subject to ownership limitations
and restrictions on transfer; and
o There is no public trading market for the Common Stock.
The securities to be issued in the conversion have not been approved or
disapproved by the Securities and Exchange Commission or any state securities
commission nor has the Securities and Exchange Commission or any state
securities commission passed upon the accuracy or adequacy of this Consent
Solicitation/Confidential Offering Memorandum. Any representation to the
contrary is a criminal offense.
Consummation of the Conversion is subject to certain conditions and will
not occur unless, among other things, the REIT reasonably believes that there
are no more than 35 Limited Partners who are not "accredited" and that all such
non-accredited persons are "qualified" for purposes of Regulation D promulgated
under the Securities Act.
A copy of the Merger Agreement is set forth as Appendix A to this Consent
Solicitation/Confidential Offering Memorandum. If consummated, the Conversion is
expected to be effective January 1, 2002.
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The Common Stock may not be transferred or resold except as permitted
under the Securities Act and applicable state securities laws, pursuant to
registration or exemption therefrom. Limited Partners should be aware that they
will be required to bear the financial risks of holding the Common Stock for an
indefinite period of time.
The date of this Consent Solicitation/Confidential Offering Memorandum is
December 11, 2001.
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TABLE OF CONTENTS
PAGE
DOCUMENTS DELIVERED HEREWITH...................................................5
AVAILABLE INFORMATION..........................................................5
LIMITED PARTNERS ELIGIBLE TO RECEIVE COMMON STOCK..............................6
FORWARD-LOOKING STATEMENTS.....................................................7
SUMMARY........................................................................8
RISK FACTORS..................................................................12
CONSENT SOLICITATION..........................................................16
BACKGROUND OF, AND REASONS FOR, THE CONVERSION................................16
THE MERGER AGREEMENT..........................................................18
BUSINESS......................................................................19
DESCRIPTION OF REAL ESTATE....................................................21
SELECTED FINANCIAL INFORMATION OF THE PARTNERSHIP.............................21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.........................................................23
PRO FORMA CONSOLIDATED FINANCIAL DATA.........................................23
COMPARATIVE PER UNIT/SHARE DATA...............................................29
THE GENERAL PARTNER...........................................................30
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE......................................................30
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....................30
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES...................................31
DIRECTORS AND EXECUTIVE OFFICERS..............................................31
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS..............................32
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................32
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................32
NO DISSENTERS' APPRAISAL RIGHTS...............................................34
DESCRIPTION OF STOCK..........................................................34
COMPARISON OF RIGHTS OF LIMITED PARTNERS AND STOCKHOLDERS;
CERTAIN PROVISIONS OF MARYLAND LAW............................................38
INTEREST OF CERTAIN PERSONS IN OR OPPOSITION TO MATTERS TO BE
ACTED UPON....................................................................45
FEDERAL INCOME TAX CONSIDERATIONS.............................................45
LEGAL MATTERS.................................................................61
LIST OF APPENDICES
Appendix A Merger Agreement
Appendix B Articles of Incorporation
Appendix C Bylaws
Appendix D Offeree Questionnaire
Appendix E Form of Consent
DOCUMENTS DELIVERED HEREWITH
The Partnership is delivering the following documents to the Limited
Partners concurrently with this Consent Solicitation/Confidential Offering
Memorandum:
1. Registration Statement on Form 10, as amended (the "Form 10");
2. Quarterly Reports on Form 10-Q/A for the quarter ended June 30, 2001
and on Form 10-Q for the quarter ended September 30, 2001; and
3. Current Report on Form 8-K relating to change of the Partnership's
independent accountants (the "Form 8-K").
You should read these documents in conjunction with this Consent
Solicitation/Confidential Offering Memorandum. Any statement contained therein
is deemed to be modified or superseded to the extent applicable by statements
herein.
AVAILABLE INFORMATION
The Partnership is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports and other information with the Securities
and Exchange Commission (the "Commission"). The reports and other information so
filed by the Partnership can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549. Copies of such material can be obtained by mail from the Public
Reference Section of the Commission at 450 West Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. Such reports and other information may also be
obtained from the web site that the Commission maintains at HTTP://WWW.SEC.GOV.
Reports and other information concerning the Partnership may also be
obtained electronically through a variety of databases, including, among others,
the Commission's Electronic Data Gathering and Retrieval ("EDGAR") program,
Knight-Ridder Information Inc., Federal Filing/Dow Jones and Lexis/Nexis.
Limited Partners and their professional advisors are invited to request
any further information they may desire from the General Partner. The General
Partner and the REIT will afford each Limited Partner the opportunity to ask
questions and receive answers concerning the terms and conditions of the
Conversion and to obtain any additional information which the General Partner
and the REIT possess or can acquire without unreasonable effort or expense that
is necessary to verify the accuracy of information provided herein. The
Partnership and the REIT undertake to provide upon request copies of any
documents that would be required to be filed as exhibits if this offering had
been registered on Form S-4, including without limitation the opinions to be
rendered by Hale and Dorr LLP. See "Legal Matters".
No person has been authorized to give any information or to make any
representation other than those contained in this Consent Solicitation/
Confidential Offering Memorandum in connection with the solicitation of Consents
or the offering of securities made hereby and, if given or made, such
information or representation must not be relied upon as having been
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authorized by the REIT or the Partnership. Neither the delivery of this Consent
Solicitation/Confidential Offering Memorandum nor any distribution of the Common
Stock offered hereby shall under any circumstances create an implication that
there has been no change in the affairs of the Partnership or the REIT since the
date hereof or that the information set forth herein is correct as of any time
subsequent to its date. However, if any material change occurs prior to the
approval of the Conversion, this Consent Solicitation/Confidential Offering
Memorandum will be amended or supplemented accordingly. This Consent
Solicitation/Confidential Offering Memorandum does not constitute an offer to
sell, or a solicitation of an offer to purchase, any securities, or the
solicitation of a proxy, in any jurisdiction in which, or to any person to whom,
it is unlawful to make such offer or solicitation of an offer or proxy
solicitation.
LIMITED PARTNERS ELIGIBLE TO RECEIVE COMMON STOCK
Common Stock is being offered hereby without registration under the
Securities Act of 1933, as amended (the "Securities Act"), by reason of the
exemptions from the registration requirements of the Securities Act set forth in
Section 4(2) thereof and in Rule 506 of Regulation D promulgated thereunder
("Rule 506"). Rule 506 sets forth certain restrictions as to the number and
nature of the purchasers of securities offered pursuant thereto. In order for
the offering to qualify as an exempt Rule 506 offering, Common Stock will be
issued only to Limited Partners who the REIT reasonably believes are accredited
investors as that term is defined in Rule 501(a) of Regulation D ("Accredited
Investors") and to no more than 35 Limited Partners who are not Accredited
Investors ("Non-Accredited Investors").
An "Accredited Investor" is defined in Regulation D as an investor who
meets at least one of the following standards:
(a) The investor is a natural person and had individual income in excess
of $200,000 in each of the two preceding years, or joint income with
that person's spouse in excess of $300,000 in each of those years,
and reasonable expects to have the same income level in the current
year; or
(b) The investor is a natural person whose net worth (i.e., excess of
total assets over liabilities), whether individually or jointly with
his or her spouse, exceeds $1,000,000; or
(c) The investor is a bank as defined in Section 3(a)(2) of the 1933 Act
or any savings and loan association or other institution as defined
in Section 3(a)(5)(A) of the 1933 Act, whether acting in its
individual or fiduciary capacity; any broker or dealer registered
pursuant to Section 15 of the Securities Exchange Act of 1934; any
insurance company as defined in Section 2(13) of the 1933 Act; any
investment company registered under the Investment Company Act of
1940 or a business development company as defined in Section
2(a)(48) of that Act; a small business investment company licensed
by the U.S. Small Business Administration under Section 301(c) or
(d) of the Small Business Investment Act of 1958; any plan
established and maintained by a state, its political subdivisions,
or any agency or instrumentality of a state or its political
subdivisions, for the benefit or
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its employees, if such plan has total assets in excess of
$5,000,000; any employee benefit plan within the meaning of the
Employee Retirement Income Security Act of 1974 if the investment
decision is made by a plan fiduciary, as defined in Section 3(21) of
such Act, which is either a bank, savings and loan association,
insurance company, or registered investment adviser, or if the
employee benefit plan has total assets in excess of $5,000,000 or,
if a self-directed plan, with investment decisions made solely by
persons that are Accredited Investors; or
(d) The investor is a private business development company as defined in
Section 202(a)(22) of the Investment Advisers Act of 1940; or
(e) The investor is any organization described in Section 501(c)(3) of
the Internal Revenue Code of 1986, as amended (the "Code"),
corporation, Massachusetts or similar business trust, limited
liability company or partnership, not formed for the specific
purpose of acquiring the securities offered, with total assets in
access of $5,000,000; or
(f) The investor is any director, executive officer or general partner
of the issuer of the securities being offered or sold, or any
director, executive officer or general partner of a general partner
of that issuer; or
(g) The investor is any trust, with total assets in excess of
$5,000,000, not formed for the specific purpose of acquiring the
securities offered, whose purchase is directed by a sophisticated
person as described in Rule 506(b)(2)(ii) of Regulation D; or
(h) The investor is a corporation, partnership, trust or other entity in
which all of the equity owners would qualify as Accredited
Investors.
In order to assure adherence to the requirements described above, the REIT
is requesting that Limited Partners complete an Offeree Questionnaire in the
form of Appendix D hereto and reserves the right to conduct such further
inquiries as it may deem necessary or appropriate to confirm the information
provided therein. The Offeree Questionnaire is designed to allow each Limited
Partner to substantiate his/her/its status as (i) an Accredited Investor or (ii)
a Non-Accredited Investor who, either alone or with his/her/its purchaser
representative(s), has such knowledge and experience in financial and business
matters that he/she/it is capable of evaluating the merits and risks of the REIT
(a "Qualified Non-Accredited Investor"). If the REIT does not reasonably believe
that there are no more than 35 Limited Partners who are Non-Accredited Investors
and that each of such Non-Accredited Investors is a Qualified Non-Accredited
Investor, the REIT reserves the right to terminate the Merger Agreement and not
to consummate the Conversion.
FORWARD-LOOKING STATEMENTS
This Consent Solicitation/Confidential Offering Memorandum contains
forward-looking statements. In some case you can identify these statements by
forward-looking words such as "anticipate," "believe," "could," "estimate,"
"expect," "intend," "may," "should," "will," and "would" or similar words. You
should read statements that contain these words carefully because they discuss
future expectations, contain projections of future results of operations or of
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financial position or state other "forward-looking" information. Forward-looking
statements are inherently subject to risks and uncertainties, many of which
cannot be predicted with accuracy and some of which might not even be
anticipated. Future events and actual results, financial and otherwise, may
differ materially from the expectations discussed in the forward-looking
statements. Important factors that might cause such a difference include, but
are not limited to, those discussed under the caption "Risk Factors" starting on
page 12 and those factors discussed under the caption "Risk Factors" in Item 2
"Financial Information" in the Partnership's Form 10 delivered herewith.
Accordingly, there can be no assurance that the actual results will conform to
the forward-looking statements contained in this Consent
Solicitation/Confidential Offering Memorandum. You should be aware that the
occurrence of the events described in these risk factors and elsewhere in this
Consent Solicitation/Confidential Offering Memorandum could have an adverse
effect on the business, results of operations and financial condition of
Franklin Street.
Any forward-looking statements in this Consent Solicitation/Confidential
Offering Memorandum are not guarantees of future performance, and actual
results, developments and business decisions may differ from those envisaged by
such forward-looking statements, possibly materially. The Partnership and the
REIT disclaim any duty to update any forward-looking statements, all of which
are expressly qualified by the statements in this section.
SUMMARY
The following summary is qualified in its entirety by the detailed
information appearing elsewhere in this Consent Solicitation/Confidential
Offering Memorandum, including the appendices. Limited Partners are urged to
carefully read this Consent Solicitation/Confidential Offering Memorandum and
its appendices, as well as the Partnership's Form 10 and its Quarterly Reports
on Form 10-Q/A for the quarter ended June 30, 2001 and on Form 10-Q for the
quarter ended September 30, 2001, each of which is being delivered herewith, in
their entirety before voting on the matters discussed herein.
The REIT
Franklin Street Properties Corp. (the "REIT") is a newly-formed Maryland
corporation to be operated in a manner intended to qualify as a real estate
investment trust. The REIT is a wholly-owned subsidiary of the Partnership. Its
principal executive offices are located at 401 Edgewater Place, Suite 200,
Wakefield, Massachusetts 01880 and its telephone number is (800) 950-6288.
If the Conversion is effected, the REIT as successor to the Partnership
will be subject to the reporting requirements of the Exchange Act and the Common
Stock will be registered under the Exchange Act. The REIT will carry on the
business of the Partnership.
The Partnership
The Partnership is a limited partnership formed under the laws of the
Commonwealth of Massachusetts. The Partnership has two principal sources of
revenue: investment banking income consisting of brokerage commissions, property
acquisition, loan origination and other
8
fees in connection with the organization and offering of interests in entities
organized to own real property; and rental income from real property. See
"Business - The Partnership." Its principal executive offices are located at 401
Edgewater Place, Suite 200, Wakefield, Massachusetts 01880 and its telephone
number is (800) 950-6288.
Consent Solicitation
The consent of the holders of a majority in interest of the Units in the
Partnership is required to effectuate the Conversion. The consent being
solicited hereby seeks the approval of the Merger Agreement and the transactions
contemplated thereby.
Limited Partners as of December 11, 2001 are entitled to receive this
Consent Solicitation/Confidential Offering Memorandum and are entitled to
execute a Consent in connection with the approval of the Merger Agreement and
the transactions contemplated thereby. As of the date of this Consent
Solicitation/Confidential Offering Memorandum, there were 23,637,750 Units
outstanding in the Partnership held by 738 owners of record.
The Conversion
Following the satisfaction or waiver of the conditions to closing, on the
effective date of the Conversion (the "Effective Date"), which is expected to be
January 1, 2002, the Partnership will be merged with and into the REIT. After
giving effect to the Conversion, the Units will be converted into an equal
number of shares of common stock, $.0001 par value per share, in the REIT (the
"Common Stock"). Each Limited Partner and the General Partner will receive a
number of shares of Common Stock equal to the number of units of partnership he,
she or it owned immediately prior to the Conversion. Accordingly, the pro rata
ownership interests in Franklin Street will not change. After giving effect to
the Conversion, there will be 24,586,249 shares of Common Stock outstanding.
The following table summarizes the ownership of Franklin Street before and
after the Conversion:
Percentage Interest in
Prior to the Conversion Distributions
---------------------------------------- ----------------------
Units of limited partnership interest 23,637,750 96.14%
Units of general partnership interest 948,499 3.86%
Total Units 24,586,249 100%
9
After the Conversion
----------------------------------------
Shares of Common Stock held by
former Limited Partners 23,637,750 96.14%
Shares of Common Stock held by
former General Partner 948,499 3.86%
Total Shares of Common Stock 24,586,249 100%
Recommendation of the General Partner; Reasons for the Conversion
The General Partner of the Partnership strongly recommends that Limited
Partners vote for approval of the Merger Agreement and the transactions
contemplated thereby. This recommendation is based upon the General Partner's
belief that
o as stockholders of the REIT, the Limited Partners will not be
required to file state income tax returns (other than in their state
of residence) as a result of their interest in the REIT;
o investors that are tax-exempt and that are currently allocated
unrelated business taxable income ("UBTI") should not be allocated
UBTI as stockholders of the REIT; and
o a real estate investment trust has the benefit of a favorable tax
regime that will generally maintain the advantages of single-layer
taxation enjoyed by the Partnership.
Because the pro rata ownership of each Limited Partner will be the same before
and after the Conversion and because the General Partner or its affiliates will
not receive any fees, commissions or other compensation or any preferred stock
or promoted interest in connection with the Conversion, the General Partner has
determined that the Conversion is fair, from a financial point of view, to the
Limited Partners.
Risk Factors
The Conversion and the ongoing business of Franklin Street involve certain
risks. Before voting on the Conversion, the Limited Partners should carefully
review the risks set forth under "Risk Factors" and in Item 2 of the
Partnership's Form 10.
Conflicts of Interest
The Partnership and the REIT believe that the Conversion poses no
conflicts of interest between the General Partner and the Limited Partners. The
General Partner and the Limited Partners will each receive one share of Common
Stock for each unit of partnership interest owned. Neither the General Partner
nor its affiliates will receive any fees, commissions, preferred stock, promoted
interest or other compensation in connection with the Conversion.
10
Dissenters' Rights of Unitholders
No Limited Partner will be entitled to dissenters' rights in connection
with the Conversion.
Consequences if the Conversion is not Approved
If the Limited Partners do not approve the Conversion or if it is not
consummated for any other reason, the Partnership anticipates continuing to
operate its ongoing business in its current form. No other transaction is
currently being considered by the Partnership as an alternative to the
Conversion.
Comparison of Units and Common Stock
There are differences between the rights of Limited Partners and the
rights of holders of Common Stock. For a discussion of these differences, see
"Comparison of Rights of Limited Partners and Stockholders; Certain Provisions
of Maryland Law".
Federal Income Tax Considerations
The Conversion involves numerous federal income tax considerations to the
Limited Partners. See "Federal Income Tax Considerations." These federal income
tax considerations include:
o The Conversion is intended to qualify as a tax-free transaction
under Sections 351 and 731 of the Internal Revenue Code (the
"Code"). As a result, a Limited Partner generally will not recognize
gain or loss for United States federal income tax purposes solely as
a result of the exchange of his or her interest in the Partnership
for common stock of the REIT;
o If the REIT were to fail to qualify as a real estate investment
trust and no relief provisions applied, the REIT could be
disqualified from treatment as a real estate investment trust in the
year in which such failure occurred and for the next four taxable
years and, consequently, would be taxed as a regular corporation
during such years. In calculating the REIT's taxable income in a
year in which it did not qualify as a real estate investment trust,
the REIT would not be able to deduct amounts distributed to its
stockholders. The REIT, however, would not be required to distribute
any amounts to its stockholders in such taxable year;
o Currently, all of the income of the Partnership (including its share
of income from FSP Investments LLC) passes through and is taxed
directly to the Limited Partners and the General Partner. Following
the Conversion, the REIT generally will be taxable only on its
undistributed income, and its stockholders generally will be taxable
on the income distributed to them. However, because the operations
of the Partnership's wholly-owned broker/dealer, FSP Investments
LLC, are of a nature and scope that would cause the REIT to fail to
qualify as a real estate investment
11
trust under the Code, its operations will be held in a taxable REIT
subsidiary. As a result, FSP Investments LLC will be directly taxed
on its income, so that only its after-tax income will be available
for distribution to the REIT's stockholders. In general, any of the
after-tax income distributed to the REIT's stockholders will be
includable in the stockholders' taxable income and will be subject
to a second level of tax; and
o The provisions of the Internal Revenue Code (the "Code") governing
the taxation of real estate investment trusts are very technical and
complex and, although the REIT expects that it will be organized and
will operate in a manner that will enable it to meet such
requirements, no assurance can be given that it will succeed in
doing so during the entire life of the REIT.
Accounting Treatment
For financial accounting purposes, the Conversion is merely a change in
legal organization and will be treated as an exchange of securities of entities
under common control, with assets and liabilities recorded at their historical
costs. The costs to the Partnership of the Conversion are being expensed as
incurred.
Regulatory Approvals
There are no federal or state regulatory requirements other than the
filing of certificates of merger that must be complied with nor are there any
regulatory approvals that must be obtained for the consummation of the Merger or
the Conversion.
Solicitation of Consents
This solicitation is being made by the Partnership. The Partnership will
pay the costs of soliciting Consents. Representatives of the Partnership may
contact Limited Partners by telephone or in person to discuss the Conversion.
Such representatives will receive no additional compensation for such services.
RISK FACTORS
In evaluating the Conversion, Limited Partners should carefully consider
the factors set forth below, in addition to other matters set forth elsewhere in
this Consent Solicitation/Confidential Offering Memorandum, concerning risks
associated with the Conversion and with the REIT's status as a real estate
investment trust. Because the ongoing business of Franklin Street will not
change in any material way as a result of the Conversion, Limited Partners
should also carefully consider the factors contained under the caption "Risk
Factors" in Item 2 of the Partnership's Form 10 that is being delivered
herewith.
12
Majority Vote Will Bind All Limited Partners
If Limited Partners holding a majority of the outstanding Units in the
Partnership approve the Merger Agreement and the transactions contemplated
thereby and the other conditions to closing are met, the Conversion will be
consummated and all the Limited Partners will participate in the Conversion.
No Availability of Dissenters' Rights
Under applicable law and the Partnership's partnership agreement no
Limited Partner will be entitled to dissenters' rights in connection with the
Conversion. Accordingly, because there is no public market for the Units or the
Common Stock, Limited Partners who do not wish to own Common Stock in the REIT
will likely not be able to sell their Units prior to the consummation of the
Conversion or sell their Common Stock subsequent thereto.
Tax Risks
The Conversion is expected generally to be tax-free to the Partnership and
the Limited Partners under Section 351 of the Code except to the extent (if any)
that the Partnership's aggregate tax basis in its assets is less than the
liabilities assumed and taken subject to by the REIT in the Conversion. It is
expected that the Partnership's aggregate tax basis in its assets will exceed
the sum of such liabilities, so that the Partnership itself should not recognize
gain upon the Conversion. Gain recognized by the Partnership, if any, would be
allocated among the Limited Partners in accordance with the Partnership
Agreement. However, Limited Partners whose adjusted basis in their Units or in
partnership property is less than their share of the Partnership's indebtedness
(i.e., who have negative tax capital accounts) will recognize gain to the extent
of such difference. The qualification of the Conversion under Section 351 of the
Code will also depend upon certain acts (or failures to act) of the REIT and/or
its shareholders following the Conversion and no assurance can be given that the
requisite acts (or failures to act) will occur.
If the Conversion should fail to qualify as tax-free under Section 351,
each Limited Partner could be required to recognize gain or loss equal to the
excess, if any, of the sum of the value of the Common Stock received by the
Limited Partner plus the Limited Partner's share of partnership liabilities over
the Limited Partner's share of the Partnership's tax basis in its assets at the
time of the Conversion. Limited Partners should consult their own tax advisors
to determine whether they will recognize gain in the Conversion. See "Federal
Income Tax Considerations."
The REIT intends to qualify as a real estate investment trust for federal
income tax purposes commencing with its first taxable year. If in any taxable
year the REIT does not qualify as a real estate investment trust, it would be
taxed as a corporation and distributions to stockholders would not be deductible
by the REIT in computing its taxable income. In addition, if the REIT were to
fail to qualify as a real estate investment trust, the REIT could be
disqualified from treatment as a real estate investment trust in the year in
which such failure occurred and for the next four taxable years and,
consequently, would be taxed as a corporation
13
during such years. Failure to qualify for even one taxable year could result in
a significant reduction of the REIT's cash available for distributions to
stockholders or could require the REIT to incur indebtedness or liquidate
investments in order to generate sufficient funds to pay the resulting federal
income tax liabilities. In addition, timing differences between the receipt of
income and payment of expenses and the inclusion and deduction of such amounts
in arriving at taxable income of the REIT could make it necessary for the REIT
to borrow in order to make certain distributions to stockholders in satisfaction
of the 90% distribution requirement applicable to real estate investment trusts.
The provisions of the Code governing the taxation of real estate investment
trusts are very technical and complex, and although the REIT expects that it
will be organized and will operate in a manner that will enable it to meet such
requirements, no assurance can be given that it will succeed in doing so during
the entire life of the REIT. See "Federal Income Tax Considerations."
While conducting business as a real estate investment trust will provide
Franklin Street with certain advantages, it will also result in certain tax
disadvantages to Franklin Street. Unlike the Partnership, a real estate
investment trust is not able to pass through losses to its stockholders. In
addition, the REIT will be subject to various restrictions (e.g., with respect
to its assets and income), which are not applicable to the Partnership. As a
result, certain business activities performed by FSP Investments LLC, Franklin
Street's wholly-owned subsidiary, will generate income that will be subject to
entity-level federal income tax, whereas now it is not.
Charter and Bylaws Provisions May Limit a Change in Control
The REIT's Articles of Incorporation (the "Articles") and Bylaws (the
"Bylaws") contain provisions, described below, which may have the effect of
discouraging a third party from making an acquisition proposal for the REIT and
may thereby inhibit a change of control of the REIT under circumstances that
could give the holders of shares of Common Stock the opportunity to realize a
premium over the then-prevailing market prices.
Ownership Limits. In order for the REIT to maintain its qualification as a
real estate investment trust, the holders of Common Stock will be limited to
owning, either directly or under applicable attribution rules of the Code, no
more than 9.8% of the lesser of the value or the number of equity shares of the
REIT, and no holder of Common Stock will be able to acquire or transfer shares
that would result in the REIT's being beneficially owned by fewer than 100
persons. Such ownership limit may have the effect of preventing an acquisition
of control of the REIT without the approval of the Board of Directors of the
REIT. Moreover, the REIT will have the right to redeem any shares of Common
Stock that are acquired or transferred in violation of these provisions at the
market price. In addition, the Articles give the Board of Directors the right to
refuse to give effect to the acquisition or transfer of shares by a stockholder
in violation of these provisions.
Staggered Board. The Board of Directors of the REIT will be divided into
three classes. The initial terms of these classes will expire in 2002, 2003 and
2004, respectively. Directors of each class will be elected for a three-year
term upon the expiration of the initial term of each class. The staggered terms
for directors may affect the stockholders' ability to effect a change in control
of the REIT even if a change in control were in the stockholders' best
interests.
14
Preferred Stock. The Articles authorize the Board of Directors of the REIT
to issue up to 20,000,000 shares of preferred stock, par value $.0001 per share
(the "Preferred Stock") and to establish the preferences and rights of any such
shares issued. The issuance of Preferred Stock could have the effect of delaying
or preventing a change in control of the REIT even if a change in control were
in the stockholders' best interest. Upon the Conversion, the Limited Partners
and the General Partner will each be receiving Common Stock. No shares of
Preferred Stock will be issued or outstanding upon consummation of the
Conversion.
Increase of Authorized Stock. The Board of Directors of the REIT, without
any vote or consent of the stockholders, may increase the number of authorized
shares of any class or series of stock or the aggregate number of authorized
shares the REIT has authority to issue. The ability to increase the number of
authorized shares and issue such shares could have the effect of delaying or
preventing a change in control of the REIT even if a change in control were in
the stockholders' best interest.
Amendment of Bylaws. The Board of Directors of the REIT has the sole power
to amend the Bylaws. This power could have the effect of delaying or preventing
a change in control of the REIT even if a change in control were in the
stockholders' best interests.
Stockholder Meetings. The Bylaws require advance notice for stockholder
proposals to be considered at annual meetings of stockholders and for
stockholder nominations for election of directors at special meetings of
stockholders. The Bylaws also provide that stockholders entitled to cast more
than 50% of all the votes entitled to be cast at a meeting must join in a
request by stockholders to call a special meeting of stockholders. These
provisions could have the effect of delaying or preventing a change in control
of the REIT even if a change in control were in the best interests of the
stockholders.
Supermajority Votes Required. The Charter requires the affirmative vote of
the holders of no less than 80% of the shares of capital stock outstanding and
entitled to vote in order (i) to amend the Charter provisions relating to the
classification of directors, removal of directors, limitation of liability of
officers and directors or indemnification of officers and directors or (ii) to
amend the Charter to impose cumulative voting in the election of directors.
These provisions could have the effect of delaying or preventing a change in
control of the REIT even if a change in control were in the stockholders' best
interest.
No Public Trading Market for the Common Stock
There is no current public trading market for the Common Stock. If the
Conversion is effected, the REIT may seek to list the shares of Common Stock on
a national securities exchange or quotation system. However, the REIT has no
obligation to do so and no present intention to do so, and thus, there may not
be any liquid market for shares of the Common Stock. The shares of Common Stock
will be "restricted securities" within the meaning of Rule 144 promulgated under
the Securities Act. Rule 144 provides a safe harbor from registration under the
Securities Act for resales of restricted securities if the conditions set forth
in Rule 144 are met. Among these conditions is a minimum holding period of one
year. A new holding period for purposes of Rule 144 will commence upon the
Effective Date. Accordingly, Limited
15
Partners who receive shares of Common Stock in the Conversion must hold such
shares for at least one year after the Effective Date in order to avail
themselves of the protections of Rule 144.
CONSENT SOLICITATION
The vote of the Limited Partners with respect to the Conversion will be
tabulated as Consents are received. The Conversion is being submitted for
approval to those persons holding Units as of December 11, 2001 (the "Record
Date").
Each Limited Partner is entitled to one vote for each Unit held.
Accordingly, the number of Units entitled to vote with respect to the Conversion
is equivalent to the number of Units held of record as of December 11, 2001, or
23,637,750 Units.
Limited Partners who wish to vote "YES" for approval of the Merger
Agreement and the transactions contemplated thereby should complete, sign and
return the Consent which accompanies this Consent Solicitation/Confidential
Offering Memorandum. Consents must be delivered by mail or other delivery
service to:
Franklin Street Partners Limited Partnership
401 Edgewater Place
Suite 200
Wakefield, Massachusetts 01880
Approval of the Conversion requires the vote of Limited Partners holding a
majority of the outstanding Units as of the Record Date, which equals 11,818,876
Units. The failure to return a Consent will have the effect of a vote against
the Conversion. A Limited Partner who signs and returns the Consent without
indicating a vote will be deemed to have voted "YES" in favor of the Conversion
and the approval of the Merger Agreement and the transactions contemplated
thereby. The date on which Consents are received from Limited Partners owning a
majority of the Units approving the Conversion is referred to as the "Approval
Date".
All questions as to the form of all documents and the validity (including
time of receipt) of all approvals and elections will be determined by the
General Partner, and such determination will be final and binding. The General
Partner reserves the absolute right to waive any defects or irregularities in
any approval of the Conversion or preparation of the form of Consent. The
interpretation by the General Partner of the terms and conditions of the
Conversion will be final and binding. The General Partner will be under no duty
to give notification of any defects or irregularities in any approval of the
Conversion or preparation of the form of Consent and will not bear any liability
for failure to give such notification.
Limited Partners may withhold or revoke their Consent at any time prior to
the Approval Date. To be effective, a written notice of revocation or withdrawal
of the Consent must be received by the General Partner no later than the
Approval Date addressed as set forth above.
BACKGROUND OF, AND REASONS FOR, THE CONVERSION
In the summer of 2001, the General Partner began to consider whether an
alternative structure of Franklin Street might relieve the Limited Partners from
the administrative burden
16
associated with the receipt of a Schedule K-1 and the obligation to file
numerous state income tax returns as a result of the receipt of distributions
from the Partnership. After consulting with Hale and Dorr LLP, the General
Partner concluded that converting the Partnership into a real estate investment
trust would achieve these goals. The General Partner also concluded that
converting to a real estate investment trust would result in tax-exempt
investors not being allocated UBTI as a result of Franklin Street's operations.
Finally, the General Partner concluded that conducting operations as a real
estate investment trust would continue to offer a tax-efficient structure for
investors in Franklin Street. The General Partner did not consider any
alternatives to the Conversion because the General Partner could find no
alternatives that achieved the General Partner's goals.
On October 9, 2001, the Partnership caused the REIT to be incorporated in
the State of Maryland. On October 10, 2001, the Partnership and the REIT
executed the Merger Agreement. Because the Partnership owns all of the
outstanding stock of the REIT, the provisions of the Merger Agreement were not
the subject of arms'-length negotiations.
The General Partner has structured the Conversion in a way that does not
create any conflicts of interest between the General Partner and the Limited
Partners. As a result of the Conversion, the General Partner will not receive
any fees, commissions or other compensation, any preferred stock or any promoted
interest. The General Partner's units of general partnership interest in the
Partnership, which under the Partnership Agreement entitle the General Partner
to the same economic benefits as an equal number of Units of limited partnership
interest, will be treated in the Conversion exactly the same as the Units.
Accordingly, the General Partner's proportional interest in Franklin Street will
not change. Because the pro rata ownership of each Limited Partner will be the
same before and after the Conversion and because neither the General Partner nor
its affiliates will receive any fees, commissions or other compensation or any
preferred stock or promoted interest in connection with the Conversion, the
General Partner has determined that the Conversion is fair, from a financial
point of view, to the Limited Partners. Because the Conversion creates no
conflicts of interest between the General Partner and the Limited Partners, the
General Partner did not obtain a fairness opinion.
The General Partner considered these negative factors related to the
Conversion:
o FSP Investments LLC will be operated as taxable real estate
investment trust subsidiary. The General Partner estimates that if
FSP Investments had been operated as taxable entity for the 21
months ended September 30, 2001, it would have incurred income tax
of $1,666,000 for the year ended December 31, 2000 and $1,780,000
for the nine months ended September 30, 2001. See "Pro Forma
Consolidated Financial Data".
o There is a risk that the REIT may be taxed as a corporation. See
"Risk Factors - Tax Risks".
o The General Partner estimates that the transaction costs incurred in
connection with the Conversion will be approximately $500,000.
17
o The Conversion will result in the Limited Partners' having a new
holding period for their interests in Franklin Street for purposes
of Rule 144.
The General Partner determined that the benefits of the Conversion
outweighed the negative factors.
THE MERGER AGREEMENT
The following is a summary of certain provisions of the Merger Agreement,
a copy of which is set forth as Appendix A to this Consent
Solicitation/Confidential Offering Memorandum and is incorporated herein by
reference. This summary does not purport to be complete and is qualified in its
entirety by reference to the full text of the Merger Agreement.
The Conversion
Subject to the terms and conditions of the Merger Agreement, at the
effective time of the Conversion (the "Effective Date"), the Partnership will be
merged with and into the REIT. On the Effective Date, the separate existence of
the Partnership will cease, and the REIT will continue as the surviving entity
of the Conversion. The General Partner expects that the Effective Date will be
January 1, 2002.
On the Effective Date, the Units will be converted into an equal number of
shares of Common Stock, and the units of general partnership interest will be
converted into an equal number of shares of Common Stock.
Conditions Precedent to the Conversion
The respective obligations of each party to effect the Conversion are
subject to the fulfillment on or before the date on which certificates of merger
are filed with the State Department of Assessments and Taxation of the State of
Maryland and the Secretary of State of the Commonwealth of Massachusetts (the
"Closing Date") of the following conditions:
(a) a majority in interest of the Limited Partners must approve the
Conversion;
(b) the REIT must reasonably believe that the number of Limited Partners
who are Non-Accredited Investors does not exceed 35 and that all such
Non-Accredited Investors are Qualified Non-Accredited Investors;
(c) the parties must receive all necessary consents, waivers, approvals,
authorizations or orders required to be obtained and must make all filings
required to be made by any of them for the authorization, execution and delivery
of the Merger Agreement and the consummation of the transactions contemplated
thereby on or before (and remaining in effect at) the Closing Date;
(d) the General Partner of the Partnership shall have received, on or
prior to the Closing Date, an opinion from Hale and Dorr LLP that the Conversion
should be treated for federal income tax purposes as a tax-free transaction and
that in all material respects, as of the
18
Closing Date, the discussion set forth under "Federal Income Tax
Considerations," to the extent it involves matters of law, is accurate; and
(e) there having been no statute, rule, order, or regulation enacted or
issued by the United States or any state thereof, or by a court, which prohibits
the consummation of the Conversion.
Termination
The Merger Agreement may be terminated, and the Conversion may be
abandoned, at any time before the Closing Date, notwithstanding approval of the
Conversion, by the mutual written consent of the Partnership and the REIT.
Fees and Expenses
All fees and expenses incurred in connection with the Conversion will be
paid by Franklin Street and are estimated to be $500,000.
BUSINESS
The Partnership
The Partnership was formed as a Massachusetts general partnership in
January 1997 as the successor to a Massachusetts general partnership, that was
formed in 1981 and known as Franklin Street Partners, and subsequently formed as
a Massachusetts limited partnership in February 1997. The Partnership holds,
directly or indirectly, a 100% interest in FSP Investments LLC, a Massachusetts
limited liability company ("FSP Investments"), FSP Property Management LLC, a
Massachusetts limited liability company ("FSP Property Management"), and FSP
Holdings LLC, a Delaware limited liability company ("FSP Holdings").
FSP Investments acts as a real estate investment firm and broker/dealer
with respect to (a) the organization of investment vehicles which are typically
syndicated through private placements exempt from registration under the
Securities Act ("Sponsored Entities"), some of which are limited partnerships
(the "Sponsored Partnerships") and some of which are corporations intended to
qualify for tax purposes as real estate investment trusts (the "Sponsored
REITs"), (b) the acquisition of real estate by the Sponsored Entities and (c)
the sale of equity interests in the Sponsored Entities. FSP Investments derives
revenue from commissions received in connection with the sale of equity
interests in the Sponsored Entities. FSP Investments also derives revenue from
acquisition fees paid by the Sponsored Entities for the services of FSP
Investments in identifying, inspecting and negotiating to purchase real
properties on behalf of the Sponsored Entities. FSP Investments is a registered
broker/dealer with the Securities and Exchange Commission and is a member of the
National Association of Securities Dealers, Inc.
Between June 1997 and June 2000, FSP Investments completed the offerings
of limited partnership interests in 14 Sponsored Partnerships. The sole general
partner of each of the Sponsored Partnerships is FSP Holdings. On April 1, 1997,
FSP Holdings acquired the general
19
partnership interest in four additional Sponsored Partnerships (the "Prior
Entities"), each of which had been organized by the executive officers of the
General Partner of the Partnership prior to the formation of the Partnership
while they were employed by another entity. The members of the General Partner
and their respective ownership interests therein are George J. Carter (33.94%),
R. Scott MacPhee (30.66%), Richard R. Norris (21.40%), William W. Gribbell
(11.36%), Barbara J. Corinha (1.60%), Melissa G. Mucciaccio (0.67%), Janet P.
Notopoulos (0.26%) and Patricia A McMullen (0.11%). The General Partner has no
other business other than acting as general partner of the Partnership. The
executive officers of the General Partner devote all of their business
activities to the Partnership and its subsidiaries.
Between June 2000 and June 30, 2001, FSP Investments completed the
offerings of preferred stock in six Sponsored REITs. The Partnership expects
that future Sponsored Entities will be Sponsored REITs. Effective January 1,
2001, one of the Sponsored Partnerships converted from a Sponsored Partnership
to a Sponsored REIT. Accordingly, as of June 30, 2001, there were 24 Sponsored
Entities, of which 17 were Sponsored Partnerships and seven were Sponsored
REITs.
Each Sponsored Entity sold its equity interests only to "accredited
investors'" within the meaning of Regulation D under the Securities Act. The
Sponsored Entities (other than a Prior Entity that conducted its offering
pursuant to a registration statement on Form S-11) conducted their offerings
pursuant to exemptions from registration under Rule 506 of Regulation D and
Section 4(2) of the Securities Act. The Sponsored Entities issued equity
interests for aggregate gross cash proceeds of $374,950,000. Each Sponsored
Entity holds a single real property. FSP Property Management provides property
management services to each Sponsored Entity.
Pursuant to mergers effective January 1, 1999, January 1, 2000 and October
1, 2000, respectively, the Partnership acquired 17 Sponsored Partnerships. In
connection with these mergers, the Partnership issued Units to the limited
partners of the Sponsored Partnerships. The mergers that were effective January
1, 1999 were approved by a vote of limited partners of the Partnership. Neither
the Partnership's governing documents nor applicable state law required the
approval of the limited partners of the Partnership for the mergers that were
effective January 1, 2000 and October 1, 2000. Each merger was approved by a
vote of the limited partners of the applicable Sponsored Partnerships. Pursuant
to the mergers, limited partners in the Sponsored Partnerships exchanged an
interest in a finite-life entity for an interest in an infinite-life entity. As
a result of the mergers, FSP Holdings is the sole general partner of each
Sponsored Partnership that was acquired and the Partnership is the sole limited
partner of each such Sponsored Partnership. Accordingly, the Partnership owns,
directly and indirectly, 100% of the interest in the 17 Sponsored Partnerships,
each of which owns real property. The seven Sponsored REITs have not been
acquired by the Partnership and continue to operate as independent entities.
FSP Property Management provides property management services to each
Sponsored Entity and receives fee income from those Sponsored Entities that have
not been acquired by the Partnership. FSP Property Management does not receive
any rental income.
FSP Holdings acts as the general partner of each Sponsored Partnership.
20
The Partnership has two principal sources of revenue:
o Investment banking income consisting of brokerage commissions,
property acquisition, loan origination and other fees in connection
with the organization and offering of Sponsored Entities.
o Rental income from the real properties it owns.
Limited Partners should also read the information in Item 1 "Business" of
the Partnership's Form 10 that is being delivered with this Consent
Solicitation/Confidential Offering Memorandum for additional information
concerning the business and operations of Franklin Street.
The REIT
The REIT is a newly-formed Maryland corporation, all of the stock of which
is currently owned by the Partnership. The REIT was created for the purpose of
effecting the Conversion. Prior to the Conversion, the REIT will have no
substantial assets or operations. The REIT has not engaged in any activities
other than in connection with its organization and the Conversion. Upon
consummation of the Merger, the REIT will continue the business and operations
of Franklin Street substantially as they are currently being conducted by the
Partnership.
The initial Board of Directors of the REIT is composed of persons who are
currently executive officers of the General Partner. The executive officers of
the REIT will be the same as the executive officers of the General Partner.
Legal Proceedings
There are no material legal proceedings to which the Partnership is
currently a party. Franklin Street from time to time may be involved in suits
relating to the real properties it owns for liability for slips and falls,
damage to automobiles in parking garages, minor theft or similar matters. Most
of these suits are covered by insurance. In addition, in the ordinary course of
business, Franklin Street may become involved in litigation to collect rents or
other income due to it from tenants.
DESCRIPTION OF REAL ESTATE
For a description of the real estate owned by Franklin Street, please see
Item 3 "Properties" of the Partnership's Form 10 that is being delivered
herewith.
SELECTED FINANCIAL INFORMATION OF THE PARTNERSHIP
The following selected consolidated financial information is derived from
the historical consolidated financial statements of the Partnership. Selected
unaudited consolidated financial data for the nine months ended September 30,
2001 include all adjustments (consisting only of normal recurring accruals) that
the Partnership considers necessary for a fair presentation of consolidated
operating results for such interim periods. Results for the interim periods are
not necessarily indicative of results for the full year. The consolidated
financial information set forth
21
below should be read in conjunction with the Partnership's consolidated
financial statements, related notes and other consolidated financial information
set forth in the Partnership's Form 10 and Quarterly Reports on Form 10-Q/A for
the quarter ended June 30, 2001 and on Form 10-Q for the quarter ended September
30, 2001, each of which is being delivered herewith.
FRANKLIN STREET PARTNERS LIMITED PARTNERSHIP
(dollars in thousands, except per partnership unit data)
Nine Months Ended
September 30 Year Ended December 31,
-------------------------- ------------------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------------------------- ------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)
OPERATING DATA:
Total revenues.............$ 37,585 $ 23,933 $ 34,793 $ 18,048 $ 11,555 $ 7,203 $ 3
Net income (loss).......... 16,001 4,095 8,914 1,139 (1,675) 272 (15)
Basic and diluted
net income per
limited and general
partnership unit........... $0.65 $0.24 $0.47 $0.09 $(1.75) $0.04 N/A(a)
22
As of December 31,
As of September 30, ------------------------------------------------------------------------
2001 2000 1999 1998 1997 1996
-------------------------- ------------------------------------------------------------------------
BALANCE SHEET DATA
(AT PERIOD END):
Total assets............... $ 218,976 $219,923 $190,496 $ 95,886 $ 66,117 $ 71
Total liabilities.......... 20,244 19,280 28,821 1,294 1,639 --
Total partners' capital.... 198,732 200,580 83,585 4,999 64,478 71
(a) The Partnership was owned 100% by three general partners in 1996. No units
were issued until 1997.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Limited Partners should read the information under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" (1) in Item 2 "Financial Information" of the Partnership's Form 10
that is being delivered with this Consent Solicitation/Confidential Offering
Memorandum for a discussion of the results of operations of the Partnership and
a comparison of the years ended December 31, 1998, 1999 and 2000 and for the
quarters ended March 31, 2000 and 2001 and (2) in the Partnership's Quarterly
Reports on Form 10-Q/A for the quarter ended June 30, 2001 and on Form 10-Q for
the quarter ended September 30, 2001 that are being delivered with this Consent
Solicitation/Confidential Offering Memorandum.
PRO FORMA CONSOLIDATED FINANCIAL DATA
The following pro forma financial information has been prepared based upon
certain pro forma adjustments to the historical consolidated financial
statements of the Partnership. The pro forma balance sheets of the REIT has been
prepared as if the Conversion occurred as of September 30, 2001, and the pro
forma statements of operations for the nine months ended September 30, 2001 and
for the year ended December 31, 2000 are presented as if the Conversion occurred
at the beginning of the period presented. The Conversion is merely a change in
legal organization and will be accounted for as an exchange of securities of
companies under common control, pursuant to which the Partnership's assets and
liabilities will be carried over to the REIT at historical book values.
The pro forma consolidated financial statement data are not necessarily
indicative of what the REIT's actual financial position or results of operations
would have been as of the date or for the periods indicated, nor do they purport
to represent the REIT's financial position or results of operations as of or for
any future period. The pro forma consolidated financial statement data should be
read in conjunction with all financial statements and pro forma financial
statements included elsewhere herein or delivered herewith.
23
Franklin Street Properties Corp.
and
Franklin Street Partners
Limited Partnership and Subsidiaries
Pro Forma Consolidated Balance Sheets
September 30, 2001
(Unaudited)
Post Merger
Historical Adjustments Pro Forma
(in thousands) (The Partnership) (The REIT) (The REIT)
======================================================================================================================
Assets:
Real estate investments, at cost:
Land $ 39,577 $ -- $ 39,577
Buildings and improvements 152,934 -- 152,934
Fixtures and equipment 1,164 -- 1,164
----------------------------------------------------------------------------------------------------------------------
193,655 -- 193,655
Less accumulated depreciation 16,279 -- 16,279
----------------------------------------------------------------------------------------------------------------------
Real estate investments, net 177,376 -- 177,376
Cash and cash equivalents 21,775 (500) 21,275
Restricted cash 507 -- 507
Marketable securities 1,095 -- 1,095
Due from related parties 15,799 -- 15,799
Tenant rent receivables, net of allowance for 938 -- 938
doubtful accounts of $210
Prepaid expenses and other assets 1,063 -- 1,063
Office computers and furniture, net of accumulated 423 -- 423
depreciation of $174
----------------------------------------------------------------------------------------------------------------------
Total assets $ 218,976 $ (500) 218,476
======================================================================================================================
Liabilities and Owners' Capital
Liabilities:
Bank note payable $ 15,682 $ $ 15,682
Accounts payable and accrued expenses 4,055 4,055
Tenant security deposits 507 -- 507
----------------------------------------------------------------------------------------------------------------------
Total liabilities 20,244 -- 20,244
----------------------------------------------------------------------------------------------------------------------
Owners' capital (deficit):
Limited partners, 23,637,750 units issued 197,398 (197,398) --
and outstanding
General partner, 948,499 units issued and (1,334) 1,334 --
outstanding
Preferred Stock, $.0001 par value, 20,000,000 shares -- -- --
authorized, none issued or outstanding
Common Stock, $.0001 par value, 180,000,000 shares -- 2,459 2,459
authorized, 24,586,249 shares issued and outstanding
Additional paid in capital -- 195,773 195,773
Total owners' capital 198,732 (500) 198,232
----------------------------------------------------------------------------------------------------------------------
Total liabilities and owners' capital $ 218,976 $ (500) $ 218,476
======================================================================================================================
See accompanying notes to consolidated pro forma financial statements
24
Franklin Street Properties Corp.
and
Franklin Street Partners
Limited Partnership and Subsidiaries
Pro Forma Consolidated Statements of Operations
(Unaudited)
For the nine months
ended
September 30, 2001
-------------------------------------------------------
(in thousands, except Partnership per unit amounts and REIT Post Merger
per share amounts) Historical Adjustments Pro Forma
(The Partnership) (The REIT) (The REIT)
======================================================================================================================
Revenues:
Rental income $ 20,252 $ -- 20,252
Investment services income 16,172 -- 16,172
Interest and other income 1,160 1,160
----------------------------------------------------------------------------------------------------------------------
Total revenues 37,584 -- 37,584
----------------------------------------------------------------------------------------------------------------------
Expenses:
Selling, general and administrative 9,624 -- 9,624
Other real estate operating expenses 5,373 -- 5,373
Depreciation and amortization 3,570 -- 3,570
Real estate taxes and insurance 2,335 -- 2,335
Interest expense 641 -- 641
Minority interests 40 -- 40
----------------------------------------------------------------------------------------------------------------------
Total expenses 21,583 -- 21,583
----------------------------------------------------------------------------------------------------------------------
Net income before taxes 16,001 -- 16,001
Taxes on income -- (1,780) (1,780)
----------------------------------------------------------------------------------------------------------------------
Net income $16,001 $ (1,780) $ 14,221
======================================================================================================================
Basic and diluted net income per unit / share $ .65 $ (.07) $ .58
======================================================================================================================
See accompanying notes to consolidated pro forma financial statements
25
Franklin Street Properties Corp.
and
Franklin Street Partners
Limited Partnership and Subsidiaries
Pro Forma Consolidated Statements of Operations
(Unaudited)
For the year ended
December 31, 2000
-------------------------------------------------------
(in thousands, except Partnership per unit amounts Post Merger
and REIT per share amounts) Historical Adjustments Pro Forma
(The Partnership) (The REIT) (The REIT)
=============================================================================================================
Revenues:
Rental income $ 25,434 $ -- 25,434
Investment services income 7,574 -- 7,574
Interest and other income 1,785 1,785
-------------------------------------------------------------------------------------------------------------
Total revenues 34,793 -- 34,793
-------------------------------------------------------------------------------------------------------------
Expenses:
Selling, general and administrative 8,795 -- 8,795
Other real estate operating expenses 6,489 -- 6,489
Depreciation and amortization 4,613 -- 4,613
Real estate taxes and insurance 2,473 -- 2,473
Interest expense 860 -- 860
Minority interests 2,649 -- 2,649
-------------------------------------------------------------------------------------------------------------
Total expenses 25,879 -- 25,879
-------------------------------------------------------------------------------------------------------------
Net income before taxes 8,914 -- 8,914
Taxes on income -- (1,666) (1,666)
-------------------------------------------------------------------------------------------------------------
Net income $ 8,914 $ (1,666) $ 7,248
=============================================================================================================
Basic and diluted net income per unit / share $ .47 $ (.09) $ .38
=============================================================================================================
See accompanying notes to consolidated pro forma financial statements
26
Franklin Street Properties Corp.
and
Franklin Street Partners Limited Partnership
Notes to Consolidated Pro Forma Financial Statements
(Unaudited)
Organization and Operations
Franklin Street Properties Corp. (the "REIT") is a newly-formed Maryland
corporation to be operated in a manner intended to qualify as a real estate
investment trust. The REIT is a wholly-owned subsidiary of the Partnership. If
the approval to convert the Partnership to a real estate investment trust (the
"Conversion") is effected, the REIT as successor to the Partnership will be
subject to the reporting requirements of the Exchange Act and the Common Stock
will be registered under the Exchange Act. The REIT will carry on the business
of the Partnership.
Franklin Street Partners Limited Partnership (the "Partnership") is a limited
partnership formed under the laws of the Commonwealth of Massachusetts. The
Partnership has two principal sources of revenue: investment banking income
consisting of brokerage commissions, property acquisition, loan origination and
other fees in connection with the organization and offering of interests in
entities organized to own real property; and rental income from real property.
Consent Solicitation
The consent of the holders of a majority in interest of the Units in the
Partnership is required to effectuate the Conversion. The consent being
solicited seeks the approval of the Merger Agreement and the transactions
contemplated thereby. Limited Partners as of December 11, 2001 are entitled to
receive the Consent Solicitation/Confidential Offering Memorandum and are
entitled to execute a Consent in connection with the approval of the Merger
Agreement and the transactions contemplated thereby. As of the date of this
Consent Solicitation/Confidential Offering Memorandum, there were 23,637,750
Units outstanding in the Partnership held by 738 owners of record.
The Conversion
Following the satisfaction or waiver of the conditions to closing, on the
effective date of the Conversion (the "Effective Date"), which is expected to be
January 1, 2002, the Partnership will be merged with and into the REIT. After
giving effect to the Conversion, the Units will be converted into an equal
number of shares of common stock, $.0001 par value per share, in the REIT (the
"Common Stock"). Each Limited Partner and the General Partner will receive a
number of shares of Common Stock equal to the number of units of partnership he,
she or it owned immediately prior to the Conversion. Accordingly, the pro rata
ownership interests in Franklin Street will not change. After giving effect to
the Conversion, there will be 24,586,249 shares of Common Stock outstanding.
27
The following table summarizes the ownership of Franklin Street before and after
the Conversion:
Percentage Interest in
Prior to the Conversion Distributions
----------------------------------------- ----------------------
Units of limited partnership interest 23,637,750 96.14%
Units of general partnership interest 948,499 3.86%
------- -----
Total Units 24,586,249 100%
========== ====
After the Conversion
-----------------------------------------
Shares of Common Stock held by
former Limited Partners 23,637,750 96.14%
Shares of Common Stock held by
former General Partner 948,499 3.86%
------- -----
Total Shares of Common Stock 24,586,249 100%
========== ====
For financial accounting purposes, the Conversion will be treated as an exchange
of securities of companies under common control, pursuant to which the
Partnership's assets and liabilities will be carried over to the REIT at
historical book values.
Basis of Presentation
The accompanying pro forma financial information has been prepared based upon
certain pro forma adjustments to the historical consolidated financial
statements of the Partnership. The pro forma balance sheet of the REIT has been
prepared as if the Conversion occurred as of September 30, 2001, and the pro
forma statements of operations for the nine months ended September 30, 2001 and
for the year ended December 31, 2000 are presented as if the Conversion occurred
at the beginning of the period presented.
The unaudited pro forma information is not necessarily indicative of what the
actual financial position would have been at September 30, 2001 or what the
actual results of operations would have been for the nine months ended September
30, 2001 or for the year ended December 31, 2000 had the Conversion been
completed on January 1, 2000, nor do they purport to present the future
financial position or results of operations of the REIT. The pro forma financial
information should be read in conjunction with the historical consolidated
financial statements and notes thereto of the Partnership.
Assumptions
Certain assumptions regarding the operations of the REIT have been made in
connection with the preparation of the pro forma financial information. These
assumptions are as follows:
28
(a) The REIT has elected to be, and qualified as, a real estate
investment trust for federal income tax purposes and has distributed
at least 95% in 2000 or 90% in 2001 of its taxable income;
therefore, the REIT incurred no federal income tax liabilities on
its real estate operations.
(b) The REIT has a subsidiary which is not in the business of real
estate operations. That subsidiary has elected to be a taxable real
estate investment trust subsidiary and is subject to federal income
taxes at regular tax rates. The taxes on income shown in the pro
forma statements of operations in the amounts of $1,666,000 for the
year ended December 31, 2000 and $1,780,000 for the nine months
ended September 30, 2001 are the estimated taxes that would be due
for the taxable real estate investment trust subsidiary. There are
no material items that would cause a deferred tax asset or a
deferred tax liability.
(c) Partnership Units are converted to REIT shares on a one-to-one
basis. Pro forma net income per share has been calculated using the
weighted average number of Units/shares outstanding during the pro
forma periods. The weighted average number of Units/shares
outstanding are 24,487,244 and 18,974,000 for the period and year
ended September 30, 2001 and December 31, 2000, respectively.
(d) Conversion costs are estimated at $500,000 and are reflected as paid
in the nine months ended September 30, 2001.
COMPARATIVE PER UNIT/SHARE DATA
We have summarized below the per Unit/share information for the
Partnership on an historical basis and for the REIT on a pro forma basis. The
pro forma information gives effect to the Conversion as a reorganization of
entities under common control, with assets and liabilities recorded at their
historical costs. You should read this information in conjunction with the
Partnership's historical financial statements delivered with this Consent
Solicitation/Confidential Offering Memorandum and the pro forma financial
information included in the section titled "Pro Forma Consolidated Financial
Data."
Year Ended Nine Months Ended
December 31, 2000 September 30, 2001
----------------- ------------------
Historical Pro forma Historical Pro forma
---------- --------- ---------- ---------
Per Unit/Share:
Net Income(1) $ 0.47 $ 0.38 $ 0.65 $ 0.58
Distributions Paid(1) $ 0.86 $ 0.86 $ 0.55 $ 0.55
Book Value(2) $ 8.21 $ 8.19 $ 8.08 $ 8.06
----------
(1) The pro forma net income per share and distributions paid per share data
for Franklin Street Properties Corp. for the year ended December 31, 2000
and the nine-month period ended September 30, 2001 have been prepared as
if the Conversion had occurred on January 1, 2000. The weighted average
shares are 18,974,000 for the year ended December 31, 2000 and 24,487,244
for the nine-month period ended September 30, 2001. The weighted
29
average shares outstanding are the same as the previously reported
weighted average units of general and limited partnership interest
outstanding for the Partnership.
(2) Book value per share of Common Stock was calculated by using the
shareholders' equity as reflected in the historical and pro forma
financial statements divided by the number of shares of Common Stock
outstanding at the end of the period. The total units/shares issued and
outstanding are 24,434,595 and 24,586,249 as of December 31, 2000 and
September 30, 2001, respectively.
THE GENERAL PARTNER
The Partnership has not included an audited balance sheet of the General
Partner in this Consent Solicitation/Confidential Offering Memorandum because
the Partnership does not believe the information that would be set forth in such
a balance sheet is material to a Limited Partner's decision with respect to the
Conversion for the following reasons:
o The General Partner has no assets other than its interest in the
Partnership.
o The only financial activity of the General Partner is the receipt of
cash distributions from the Partnership and their distribution to
the General Partner's members.
o The General Partner has no commitment, intent or reasonable
probability of funding cash flow deficits or furnishing other direct
or indirect financial assistance to the Partnership.
o The Partnership pays no fees or other compensation to the General
Partner.
Limited Partners should see Note 8 to the financial statements in the
Partnership's Form 10 for additional information on the General Partner's
activities and the Partnership's relationship with the General Partner.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
On October 11, 2001, the Partnership dismissed BDO Seidman, LLP as its
independent certified public accountants and retained PricewaterhouseCoopers LLP
as its independent certified public accountants. Limited Partners should also
read the Partnership's Form 8-K that is being delivered with this Consent
Solicitation/Confidential Offering Memorandum for additional information
regarding the change of accountants.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership is not a party to derivative commodity investments. The
Partnership's only financial instruments (as defined by Financial Accounting
Standards Board Statement No. 107) are its cash and cash equivalents for which
cost approximates market value.
The Partnership's only indebtedness consists of draws from time to time
upon its $53 million line of credit from Citizens Bank. These borrowings bear
interest at a variable rate. The Partnership uses the funds it draws on its line
of credit only for the purpose of making interim mortgage loans to Sponsored
Entities. These mortgage loans bear interest at the same variable
30
rate payable by the Partnership under its line of credit. Therefore, the
Partnership believes that it has mitigated its interest rate risk with respect
to its borrowings.
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
The Partnership's investment objectives and policies are set forth in Item
1 "Business" of the Partnership's Form 10 that is being delivered herewith. The
REIT's investment objectives and policies, in addition to those currently being
pursued by the Partnership, will include acting in a manner to preserve the
REIT's status as a real estate investment trust for federal income tax purposes.
The Partnership's policies with respect to these activities have been
established by management and may be amended or revised from time to time
following the Conversion at the discretion of the Board of Directors of the REIT
without a vote of the stockholders of the REIT. No assurance can be given that
Franklin Street's objectives will be attained.
DIRECTORS AND EXECUTIVE OFFICERS
The Partnership has no individual directors or executive officers. The
general partner of the Partnership is FSP General Partner LLC (the "General
Partner"). For a list of the executive officers of the General Partner and
information regarding each of them, Limited Partners should see Item 5
"Directors and Officers" of the Partnership's Form 10 that is being delivered
herewith.
The Board of Directors of the REIT is divided into three classes as nearly
equal in number as possible, with the term of office of one class expiring in
each year. The directors will be responsible for electing the REIT's executive
officers, who will serve at the discretion of the Board of Directors. The
directors of the REIT and the year in which their initial term in office ends
are set forth below:
George J. Carter 2002
Richard R. Norris 2002
Barbara J. Corinha 2003
William W. Gribbell 2003
Janet P. Notopoulos 2004
R. Scott MacPhee 2004
The executive officers of the REIT and the offices held by them are set
forth below:
George J. Carter President and Chief Executive Officer
Barbara J. Corinha Vice President, Chief Operating Officer,
Treasurer and Secretary
R. Scott MacPhee Executive Vice President
Richard R. Norris Executive Vice President
William W. Gribbell Executive Vice President
Janet P. Notopoulos Vice President
31
Limited Partners should see Item 5 "Directors and Officers'" of the
Partnership's Form 10 that is being delivered herewith for information regarding
the directors and officers of the REIT.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
For a discussion of the compensation arrangements with the Partnership's
executive directors and officers, who will also be the executive officers and
directors of the Company, Limited Partners should see Item 6 "Executive
Compensation" of the Partnership's Form 10. These compensation arrangements will
not change as a result of the Conversion.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On July 1, 2001, the Partnership issued Units as compensation to the
persons set forth below, each of whom will be an executive officer and director
of the REIT:
Number of Units
Name Issued
------------------------------------ -----------------------
George J. Carter 69,565
Richard R. Norris 37,593
R. Scott MacPhee 19,339
William W. Gribbell 12,633
Barbara J. Corinha 5,217
Janet P. Notopoulos 4,782
For additional information on transactions with such persons, Limited
Partners should see Items 6 "Executive Compensation" and 7 "Certain
Relationships and Related Transactions" of the Partnership's Form 10.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of partnership interests in the Partnership as of October 1, 2001 of:
(1) each person known by us to own beneficially five percent or more of the
outstanding Units; (2) each of the Partnership's directors and executive
officers; and (3) all of the Partnership's directors and executive officers as a
group. The Partnership is managed by the General Partner, whose managing member
is George J. Carter. Accordingly, the General Partner and Mr. Carter are treated
as directors of the Partnership, and the executive officers of the General
Partner are treated as executive officers of the Partnership. Unless otherwise
indicated in the footnotes to the table, the beneficial owners named have, to
our knowledge, sole voting and investment power with respect to the Units
beneficially owned, subject to community property laws where applicable.
32
Units of Limited Partnership
Interest Beneficially Owned
or Into Which Securities are
Convertible(1)
---------------------------------
Name of Holder Number Percent
George J. Carter 453,284 1.92%
Richard R. Norris(3) 58,909 *
R. Scott MacPhee 37,375 *
William W. Gribbell 21,701 *
Barbara J. Corinha 10,217 *
Janet P. Notopoulos 9,783 *
All Executive Officers as a Group 591,269 2.50%
(consisting of 6 persons) ============= ===========
Units of General
Partnership Interest Beneficially
Owned or Into Which
Securities are Convertible (1)(2)
---------------------------------
Name of Holder Number Percent
George J. Carter 321,955 33.94%
Richard R. Norris 202,999 21.40%
R. Scott MacPhee 290,786 30.66%
William W. Gribbell 107,769 11.36%
Barbara J. Corinha 15,159 1.60%
Janet P. Notopoulos 2,500 *
All Executive Officers as a Group 941,168 99.23%
(consisting of 6 persons) ============= ===========
----------------------------
* Less than one percent.
(1) There are no securities convertible into Units of limited partnership
interest or units of general partnership interest.
(2) FSP General Partners LLC owns 948,499.2 units of general partnership
interest in the Partnership, which equals a 3.86% interest in the cash
distributions, profits and losses of the Partnership. Mr. Carter, who may
be deemed to be a director of the Partnership, is the managing member of
the General Partner and each of the other executive officers of the
Partnership is a member of the General Partner.
33
(3) Includes 48,251 Units owned by the Richard R. Norris Living Trust, and
10,658 Units owned by the Karen C. Norris Living Trust which Mr. Norris
may be deemed to beneficially own. Excludes 5,664 Units owned by Gretchen
D. Norris as to which Mr. Norris has power of attorney but as to which Mr.
Norris disclaims beneficial ownership.
NO DISSENTERS' APPRAISAL RIGHTS
Limited Partners who object to the Conversion will have no dissenters'
appraisal rights (i.e., the right to seek judicial determination of the "fair
value" of their Units of limited partnership interest and to receive cash in
that amount rather than to receive Common Stock) under state law or under the
Partnership's Third Amended and Restated Partnership Agreement, as amended (the
"Partnership Agreement"), nor will such rights be voluntarily accorded to the
Limited Partners. Thus, approval of the Conversion by the holders of a majority
of all Units outstanding on the Record Date will bind all Limited Partners, and
objecting Limited Partners will have no alternative to receiving Common Stock
other than by selling their Units. However, there is no liquid market for the
sale of the Units. If the Conversion is effected, the Company may list the
Common Stock on a national securities exchange, but it has no obligation and no
present intention to do so.
DESCRIPTION OF STOCK
The following summary description of the capital stock of the REIT is
qualified in its entirety by reference to the Articles and the Bylaws of the
REIT attached hereto as Appendices B and C, respectively.
General
The authorized capital stock of the REIT consists of 180,000,000 shares of
Common Stock and 20,000,000 shares of Preferred Stock. Upon the consummation of
the Conversion, 24,586,249 shares of Common Stock will be issued and
outstanding, and no shares of Preferred Stock will be issued and outstanding.
Common Stock
All shares of Common Stock issued in the Conversion will be duly
authorized, fully paid and nonassessable. Subject to the preferential rights of
any shares of Preferred Stock hereinafter designated by the Board of Directors
of the REIT, holders of shares of Common Stock will be entitled to receive
dividends on the stock if, as and when authorized and declared by the Board of
Directors of the REIT out of assets legally available therefor and to share
ratably in the assets of the REIT legally available for distribution to its
stockholders in the event of its liquidation, dissolution or winding-up after
payment of, or adequate provision for payment of, all known debts and
liabilities of the REIT. The REIT intends to pay regular quarterly dividends.
Each outstanding share of Common Stock entitles the holder thereof to one
vote on all matters submitted to a vote of stockholders, including the election
of directors and, except as otherwise required by law or except as provided with
respect to any other class or series of stock,
34
the holders of shares of Common Stock will possess the exclusive voting power.
There is no cumulative voting in the election of directors, which means that the
holders of a majority of the outstanding shares of Common Stock can elect all of
the directors then standing for election and the holders of the remaining shares
will not be able to elect any directors. Holders of shares of Common Stock have
no conversion, sinking fund or preemptive rights to subscribe for any securities
of the REIT.
Shares of Common Stock will have equal dividend, distribution, liquidation
and other rights and will have no preference or exchange rights.
Pursuant to the Maryland General Corporation Law (the "MGCL"), a
corporation generally cannot dissolve, amend its charter, merge, sell all or
substantially all of its assets, engage in a share exchange or consolidate
unless approved by the holders of at least two-thirds of the shares of stock
entitled to vote on the matter unless a lesser percentage (but not less than a
majority of all of the votes to be cast on the matter) is set forth in the
corporation's charter. The Articles provide that the REIT may amend the
Articles, merge, sell all or substantially all of its assets, engage in a share
exchange or consolidate, with the approval of the holders of a majority of the
shares of stock entitled to vote on the matter.
Preferred Stock
The Board of Directors of the REIT may authorize from time to time,
without further action by the stockholders, the issuance from time to time of
shares of Preferred Stock in one or more separately designated classes. The
Board of Directors of the REIT may set the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends or other
distributions, qualifications and terms and conditions of redemption of the
shares of each class of Preferred Stock. The Board of Directors of the REIT
could authorize the issuance of shares of Preferred Stock with terms and
conditions which could have the effect of discouraging a takeover or other
transaction in which holders of some, or a majority of, shares of Common Stock
might receive a premium for their shares of Common Stock over the
then-prevailing market price of those shares of Common Stock.
Upon consummation of the Merger, there will be no outstanding shares of
Preferred Stock, and the REIT has no present plans to issue any Preferred Stock.
Ownership Limits
In order for the REIT to maintain its qualification as a real estate
investment trust, among other things, not more than 50% in value of the REIT's
outstanding shares of Common Stock and Preferred Stock (the "Equity Securities")
may be owned, directly or indirectly, by five or fewer individuals (as defined
in the Code to include certain entities). To ensure this standard, the Articles
of the REIT provide that holders of Equity Securities cannot beneficially or
constructively own (as defined in the Articles) more than 9.8% of the number of
shares or value of the outstanding Equity Securities of the REIT (the "Ownership
Limit") and that no stockholder will be able to transfer or acquire shares that
would result in the outstanding equity shares of the REIT being beneficially
owned by fewer than 100 persons.
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Any transfer of shares of Equity Securities that would (i) cause any
person to beneficially or constructively own shares of Equity Securities in
excess of the Ownership Limit, (ii) result in the shares of Equity Securities
being owned by fewer than 100 persons, (iii) result in the REIT being "closely
held' within the meaning of section 856(h) of the Code, or (iv) otherwise cause
the REIT to fail to qualify as a real estate investment trust, shall be null and
void, and the intended transferee will acquire no rights to the shares of Equity
Securities.
The restriction on transferability and ownership described in (i) above
will not apply if the Board of Directors of the REIT, in its sole and absolute
discretion, waives the application of the Ownership Limit to a person subject to
such limit, provided that (A) the Board of Directors of the REIT obtains such
representations and undertakings from such person and any other person as the
Board of Directors may deem appropriate and (B) such person agrees in writing
that any violation or attempted violation of such representations or
undertakings or any other action which is contrary to the restrictions imposed
by the Articles will result in the treatment, to the extent necessary to cure
such violation or action, of the Equity Shares owned by such person as Excess
Shares (as defined below).
If any purported transfer of Equity Securities or other event resulting in
an increase in any holder's percentage interest in Equity Securities would cause
a purported transferee or holder to be in violation of the Ownership Limit or
would cause the REIT to be disqualified as a real estate investment trust, then
the purported transferee or holder (the "Prohibited Owner") shall not acquire or
shall cease to own, as the case may be, such number of shares in excess of the
Ownership Limit (the "Excess Shares"). Any Excess Shares will be transferred
automatically to a trust, the beneficiary of which will be one or more qualified
charitable organizations selected by the REIT. Such automatic transfer shall be
deemed to be effective as of the close of business on the business day prior to
the date of such violative transfer or event.
The REIT will appoint the trustee of the trust (who will be unaffiliated
with the REIT and any Prohibited Owner). The trustee will be required to
designate one or more persons who could own such Excess Shares without violating
the Ownership Limit or causing the REIT to be disqualified as a REIT ("Permitted
Transferees") and to use best efforts to sell such Excess Shares to such
Permitted Transferees.
Excess Shares held in the trust shall be deemed to have been offered for
sale to the REIT, or its designee, at a price per share equal to the lesser of
(i) in the case of Excess Shares resulting from a purchase, the price per share
in the transaction that resulted in such purchase or, in the case of Excess
Shares resulting from any event other than a purchase, the market price on the
date of such event or (ii) the market price on the date the REIT, or its
designee, accepts such offer. The REIT will have the right to accept such offer
for a period ending upon the sale by the trustee to one or more Permitted
Transferees.
All certificates representing shares of Equity Securities will bear a
legend referring to the restrictions described above.
The REIT is required to keep such records as will disclose the actual
ownership of its outstanding shares of Equity Securities. Accordingly, to enable
the REIT to comply with such record keeping requirements, each record and
beneficial owner of Equity Securities will, upon
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demand, be required to disclose to the REIT in writing such information as the
REIT may request in order to determine the REIT's status as a real estate
investment trust, to comply with the requirements of any taxing authority or
governmental agency and to ensure compliance with the Ownership Limit.
The ownership limitations described above could have the effect of
delaying, deferring or preventing a change of control of the REIT in which
holders of Common Stock might receive a premium for their shares over the then
prevailing market price.
Unregistered Shares
The shares of Common Stock have not been registered under the Securities
Act, and the REIT has no present plan to effect such registration. Accordingly,
the shares of Common Stock must be held indefinitely unless they are
subsequently registered under the Securities Act or unless an exemption from
such registration is available pursuant to the rules of the Securities and
Exchange Commission. A new holding period for purposes of Rule 144 under the
Securities Act will commence upon the Effective Date.
Redemption
The Articles provide that on an annual basis the REIT will use its best
efforts to redeem any shares of Common Stock from holders desiring to sell them.
Any holder wishing to take advantage of this opportunity must so request no
later than July 1 of any year for a redemption that would be effective the
following January 1. The purchase price paid by the REIT will be 90% of the fair
market value of the shares purchased, as determined by the Board of Directors in
its sole and absolute discretion after consultation with an adviser selected by
the Board of Directors.
The REIT will not redeem any shares of Common Stock if:
o The REIT is insolvent or the redemption would render the REIT
insolvent;
o The redemption would impair the capital or operations of the REIT;
o The redemption would contravene any provision of federal or state
securities laws;
o The redemption would result in the REIT's failing to qualify as a
real estate investment trust; or
o The Board of Directors determines that the redemption would
otherwise not be in the best interests of the REIT.
If the REIT is unable to purchase any shares of Common Stock offered for
redemption, the REIT will use its best efforts to arrange for a purchase by a
third party or parties, each of whom must be an Accredited Investor within the
meaning of Regulation D and must have a pre-existing relationship with the REIT.
In addition, the REIT will have the right to satisfy its
37
obligation to effect redemption by arranging for a purchase by such a third
party or parties at the redemption price.
The REIT has no obligations to redeem shares of Common Stock during any
period that the Common Stock is listed for trading on a national securities
exchange or the NASDAQ National Market System.
Classification of the Board of Directors
The Bylaws provide that the number of directors of the REIT shall be as
set forth in the Articles or as may be established by the Board of Directors of
the REIT but may not be fewer than one. Any vacancy will be filled, at any
regular meeting or at any special meeting called for that purpose, by a majority
of the directors then in office. The stockholders may elect a director to fill a
vacancy on the Board of Directors which results from the removal of a director.
Pursuant to the terms of the Articles, the directors are divided into three
classes. One class will hold office initially for a term expiring at the annual
meeting of stockholders to be held in 2002, another class will hold office
initially for a term expiring at the annual meeting of stockholders to be held
in 2003 and another class will hold office initially for a term expiring at the
annual meeting of stockholders to be held in 2004. As the term of each class
expires, directors in that class will be elected for a term of three years. The
REIT believes that classification of the Board of Directors will help to assure
the continuity and stability of the REIT's business strategies and policies as
determined by the Board of Directors.
The classified director provision could have the effect of making the
removal of incumbent directors more time-consuming and difficult, which could
discourage a third party from making a tender offer or otherwise attempting to
obtain control of the REIT, even though such an attempt might be beneficial to
the REIT and its stockholders. At least two annual meetings of stockholders,
instead of one, will generally be required to effect a change in a majority of
the Board of Directors. Thus, the classified board provision could increase the
likelihood that incumbent directors will retain their positions. Further,
holders of shares of Common Stock will have no right to cumulative voting for
the election of directors. Consequently, at each annual meeting of stockholders,
the holders of a majority of shares of Common Stock will be able to elect all of
the successors of the class of directors whose term expires at that meeting.
COMPARISON OF RIGHTS OF LIMITED PARTNERS AND
STOCKHOLDERS; CERTAIN PROVISIONS OF MARYLAND LAW
General
The Partnership is organized as a Massachusetts limited partnership, and
the REIT is organized as a corporation under the laws of the State of Maryland.
As a Massachusetts limited partnership, the Partnership is subject to the
Massachusetts Uniform Limited Partnership Act (the "MULPA"). As a Maryland
corporation, the REIT is subject to the MGCL.
The discussion of the comparative rights of the Limited Partners of the
Partnership and stockholders of the REIT sets forth the material differences
between such comparative rights.
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This discussion does not purport to include non-material differences and, to the
extent of non-material differences, is subject to and qualified in its entirety
by reference to the MULPA and the MGCL and also to the Third Amended and
Restated Limited Partnership Agreement, as amended by the First Amendment and
the Second Amendment thereto (collectively, the "Partnership Agreement"), the
Articles and the Bylaws of the REIT. Copies of the Articles and Bylaws are
attached hereto as Appendices B and C, respectively.
The REIT has been organized under the MGCL pursuant to Articles filed on
October 9, 2001.
Management
The Partnership Agreement provides that the General Partner has exclusive
discretion to manage and control the business of the Partnership. A general
partner may be removed, with or without cause, upon the affirmative vote of a
majority in interest of the general partners of record. Currently, however, FSP
General Partner LLC is the only general partner. The Limited Partners have no
right to elect or to remove any general partner.
Pursuant to the MGCL, the business and affairs of a corporation are
managed by or under the direction of its board of directors. The MGCL further
provides that the board of directors may be divided into classes. In accordance
with this authority, the Articles provide for three classes of directors. The
Articles provide that the number of directors of the REIT initially shall be
six, which number may be increased or decreased pursuant to the Bylaws of the
REIT but in no event shall be less than one, the minimum number required by the
MGCL. Under the Articles, the directors are divided in three classes, as nearly
equal in number as possible, with the term of one class expiring at each annual
meeting of stockholders. At each annual meeting of stockholders, one class of
directors will be elected for a term of three years, and the directors in the
other two classes will continue in office. Under the Articles, a director may be
removed only for cause based on a material breach of his duties or obligations
to the Company, and then only by the affirmative vote of the holders of at least
two-thirds of the votes entitled to be cast in the election of directors. Any
vacancy (whether arising through death, retirement, resignation or removal)
other than through an increase in the number of authorized directors will be
filled by the affirmative vote of a majority of the remaining directors. A
vacancy on the Board of Directors resulting from an increase in the number of
directors will be filled by the affirmative vote of a majority of the entire
Board of Directors. A director so elected to fill a vacancy will serve for the
remainder of the term of the class to which such director was elected.
Voting Rights
Under the Partnership Agreement, Limited Partners may affirmatively vote
by a majority in interest of the Limited Partners and with the consent of the
General Partner, to amend the Partnership Agreement, provided that, among other
things, such amendment does not allow the Limited Partners to take part in the
control of the Partnership's business or otherwise modify their limited
liability, alter the rights, powers or duties of the General Partner or the
capital contribution or interest of the General Partner, or alter any Limited
Partner's share of profits,
39
losses or distributions. Under the MULPA, the affirmative vote of a majority in
interest of the Limited Partners is required for the merger of the Partnership.
Subject to any preferential rights that may be granted to one or more
classes of Preferred Stock, the Articles provide each holder of Common Stock has
one vote in respect of each share of Common Stock held of record on all matters
to be voted upon by the stockholders. Generally, matters submitted o the
stockholders require the affirmative vote of stockholders holding a majority of
the then outstanding capital stock present in person or by proxy entitled to
vote thereon at a duly convened meeting of stockholders. Certain amendments to
the Articles require the approval of a specified super-majority (80%) of the
shares of capital stock of the Company issued and outstanding and entitled to
vote on the matter. See "Amendments to the Partnership Agreement and the
Articles of Incorporation."
The Bylaws of the REIT require notice of at least 90 days and not more
than 120 days before the anniversary of the mailing date of the notice of the
preceding year's annual meeting of stockholders in order for a stockholder (a)
to nominate a director or (b) to propose other business. The Bylaws contain a
similar notice requirement in connection with the nomination of directors at a
special meeting of stockholders called for the purpose of electing one or more
directors. Accordingly, failure to act in compliance with the notice provisions
will make stockholders unable to nominate directors or propose new business.
Special Meetings
Meetings of the Limited Partners for the purpose of acting upon any matter
upon which the Limited Partners are entitled to vote may be called by the
General Partner at any time and shall be called by the General Partner no more
than 15 days after receipt of a written request signed by Limited Partners
owning at least 25% of the outstanding units.
Under the REIT's Bylaws, the President, Chief Executive Officer or a
majority of the Board of Directors may call special meetings of stockholders.
Special meetings of stockholders may also be called by the Secretary upon the
written request of stockholders who are entitled to cast more than 50% of all
the votes entitled to be cast at such meeting. Such request must state the
purpose or purposes of such meeting and the matters proposed to be acted upon at
such meeting.
Amendment to the Partnership Agreement, the Articles of Incorporation and the
Bylaws
The Partnership Agreement provides that it may be amended by the General
Partner, without the consent or approval of the Limited Partner, to: (i) add to
the duties or obligations of the General Partner or surrender any right or power
of the General Partner; (ii) cure any ambiguity or correct any inconsistency in
the any other provision of the Partnership Agreement; or (iii) take any action
it deems necessary in its sole discretion to establish a public market for the
Units. In addition, the General Partner may amend the Partnership Agreement
without the consent of the Limited Partners if it is advised by its legal
counsel that the allocations of profits and losses are unlikely to be respected
for federal income tax purposes. Finally, the General Partner may, without the
consent or approval of the Limited Partners, amend the Partnership Agreement
from time to time, including amending and restating it, in any manner as it, in
its sole
40
discretion, deems necessary or appropriate in connection with establishing, or
taking steps to establish, a public market for the Units; provided, however,
that no such amendment may (i) increase the amount of capital contributions
required to be made by any Limited Partner, (ii) increase the liability for any
Limited Partner or (iii) affect the method of allocation of cash distributions
among Limited Partners. The Limited Partners also have rights to amend the
Partnership Agreement with the consent of the General Partner. See "--Voting
Rights."
The Board of Directors of the REIT has the right to amend the Articles,
without any vote or consent of the stockholders, to increase or decrease the
aggregate number of shares of stock or the number of shares of stock of any
class that the REIT has authority to issue. Any other amendment to the Articles
requires the recommendation of the Board of Directors of the REIT and the
affirmative vote of the holders of a majority of the outstanding capital stock
entitled to vote. Notwithstanding the foregoing, any amendment (i) that would
cause the REIT not to qualify as a real estate investment trust (unless the
Board determines that such qualification is no longer in the best interest of
the Company), (ii) relating to the classification of directors, removal of
directors, limitation of liability of officers and directors or indemnification
of officers and directors, or (iii) imposing cumulative voting in the election
of directors, requires the affirmative vote of the holders of no less than 80%
of the shares of capital stock outstanding and entitled to vote.
The Board of Directors of the REIT has the power to adopt, alter or repeal
any provisions of the Bylaws and to make new Bylaws. The stockholders of the
REIT have no powers with respect to adoption, alterations or repeal of the
Bylaws.
Dissolution of the Partnership and the REIT and Termination of REIT Status
Under the terms of the Partnership Agreement, the Partnership has infinite
life, but it will be dissolved upon a date designated by the General Partner and
upon the occurrence of an event of withdrawal (as defined in the MULPA) with
respect to a general partner unless there is at least one general partner that
continues to serve as a general partner, or if there is no general partner, a
majority in interest of the Limited Partners elect, within 90 days after such
occurrence, to continue the Partnership and the Partnership business.
The MGCL permits the voluntary dissolution of the REIT by the affirmative
vote of the holders of not less than two-thirds of the outstanding capital stock
at a meeting of stockholders called for that purpose. Under the Articles, a
merger, consolidation, share exchange or sale of all or substantially all of the
assets must be approved by the affirmative vote of the holders of not less than
a majority of the outstanding shares of capital stock at a meeting of
stockholders called for that purpose.
The Articles permit the Board of Directors of the REIT to terminate the
status of the Company as a real estate investment trust under the Code at any
time if the Board of Directors concludes that it is no longer in the best
interest of the REIT to continue to qualify as a real estate investment trust.
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Liquidation Rights
In the event of liquidation of the Partnership, the proceeds of such
liquidation would be applied, first, in accordance with the provisions of the
Partnership Agreement and applicable law to the payment of creditors of the
Partnership in order of priority provided by law, second, to the creation of a
reserve for contingent liabilities in any amount determined by the liquidator or
the General Partner and, thereafter, any remaining proceeds (or assets in kind)
would be distributed to the Limited Partners in proportion to and satisfaction
of the positive balances in their capital accounts.
In the event of liquidation of the REIT, the holders of the Common Stock
would be entitled to share ratably in proportion to the number of shares of
Common Stock held by them in any assets remaining after satisfaction of
obligations to creditors and any liquidation preferences on any series of
Preferred Stock that may then be outstanding.
Limitations of Liability of General Partner and Directors and Officers
The Partnership Agreement provides that the General Partner shall not be
liable in damages or otherwise to the Partnership or the Limited Partners for
any act or omission performed or omitted by it in good faith and in a manner
reasonably believed by the General Partner to be within the scope of authority
granted by the Partnership Agreement if the General Partner shall not have been
guilty of gross negligence or willful misconduct with respect to such acts or
omissions.
The Articles contain a provision eliminating the personal liability of a
director or officer to the REIT or its stockholders for monetary damages to the
fullest extent permitted by Maryland statutory or decisional law, as amended or
interpreted. The MGCL currently permits the liability of directors and officers
to a corporation or its stockholders for money damages to be limited, except (i)
to the extent that a judgment or other final adjudication is entered adverse to
the director or officer in a proceeding based on a finding that the director's
or officer's action, or failure to act, was the result of active and deliberate
dishonesty and was material to the cause of action adjudicated in the proceeding
or (ii) to the extent it is proved that the director or officer actually
received an improper benefit or profit in money, property or services. This
provision does not limit the ability of the REIT or its stockholders to obtain
other relief, such as an injunction or rescission.
Indemnification
The Partnership Agreement provides that the Partnership will, to the
fullest extent permitted by law, indemnify and hold harmless the General Partner
including employees, agents, partners, officers and directors of the General
Partner against any cost, expense (including attorneys' fees), loss, damage,
judgment or liability reasonably incurred by or imposed upon him or in
connection with any action, claim, suit or proceeding provided that the
indemnitee acted in good faith and in a manner it believed to be in, or not
opposed to, the interests of the Partnership.
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The Articles require the REIT to indemnify its directors, officers,
employees, agents and other persons acting on behalf of or at the request of the
REIT to the fullest extent permitted from time to time by Maryland law. The MGCL
permits a corporation to indemnify its directors, officers and certain other
parties against judgments, penalties, fines, settlements and reasonable
expenses, including attorneys' fees, actually incurred by them in connection
with any proceeding to which they may be made a party by reason of their
services to or at the request of the corporation, unless it is established that
(i) the act or omission of the indemnified party was material to the matter
giving rise to the proceeding and was committed in bad faith or was the result
of active and deliberate dishonesty, (ii) the indemnified party actually
received an improper personal benefit, or (iii) in the case of any criminal
proceeding, the indemnified party had reasonable cause to believe that the act
or omission was unlawful. Indemnification may be made against judgments,
penalties, fines, settlements and reasonable expenses actually incurred by the
director or officer in connection with the proceeding; provided, however, that
if the proceeding is one by or in the right of the corporation, indemnification
may not be made with respect to any proceeding in which the director or officer
has been adjudged to be liable to the corporation. In addition, a director or
officer may not be indemnified with respect to any proceeding charging improper
personal benefit to the director or officer in which the director or officer was
adjudged to be liable on the basis that personal benefit was improperly
received. It is the position of the Securities and Exchange Commission that
indemnification of directors and officers for liabilities arising under the
Securities Act is against public policy and is unenforceable pursuant to Section
14 of the Securities Act.
Derivative Actions
Under the MULPA, a Limited Partner may bring an action in the right of the
Partnership if the General Partner has refused to bring such an action or if an
effort to cause the General Partner to bring such an action is not likely to
succeed.
Under the MGCL, a stockholder may bring an action on behalf of the REIT to
recover a judgment in its favor (a derivative action) where the directors have
improperly refused to institute the action after demand by the stockholder or
when such demand would be futile.
Transferability of Equity Interests
Under the Partnership Agreement, until such time as the Units are listed
for trading on a national stock exchange, transferability of the Units is
limited and is subject to the written approval of the General Partner, the
granting or denying of which is in the General Partner's absolute discretion.
Any assignment must be executed by the assignor and assignee on a form
satisfactory to the General Partner and its terms must not contravene those set
forth in the Partnership Agreement. The assignee of any Unit has certain rights
of ownership but may become a substitute Limited Partner only upon meeting
certain conditions, including the execution of an agreement to be bound by the
Partnership Agreement and a power of attorney authorizing the General Partner to
act on his behalf in connection with certain affairs of the Partnership. The
Articles do not impose any restrictions on transfer other than those described
under "Description of Stock - Ownership Limits." Transfers of Units or Common
Stock would
43
be subject to compliance with applicable securities laws. See "Description of
Stock - Unregistered Shares."
The Partnership Agreement provides that on an annual basis the Partnership
will use its best efforts to repurchase any Units from Limited Partners desiring
to sell them. Any Limited Partner wishing to take advantage of this opportunity
must so request no later than July 1 of any year for a purchase which would be
effective the following January 1. The purchase price paid by the Partnership
will be 90% of the fair market value, as determined by the General Partner, of
the Units purchased. The Partnership may satisfy these obligations by arranging
for a purchase by a third party. The Articles of the REIT contain corresponding
provisions. See "Description of Stock - Redemption".
Inspection of Books and Records
The Partnership Agreement provides that all partners, and their duly
authorized representatives, shall at all reasonable times have access to the
books and records kept by the General Partner.
Under the MGCL, a stockholder has the right to inspect and copy during
normal business hours the Bylaws, minutes of the proceedings of stockholders,
the REIT's annual statement of affairs and any voting trust agreements on file
at the REIT's principal office. A stockholder or stockholders who individually
or together have been stockholders or record of at least 5% of any class of
stock for at least six months may (i) on written request, inspect and copy
during regular business hours the REIT's books of account and stock ledger, (ii)
require the REIT to produce a verified statement of affairs and (iii) require
the REIT to produce a verified list of its stockholders.
Distributions and Dividends
Pursuant to the Partnership Agreement, cash available for distribution to
partners of the Partnership is distributed, subject to the prior payment of fees
and obligations of the Partnership as they come due, pro rata to the Limited
Partners in proportion to the number of Units held by each of them.
Dividends on the Common Stock of the Company may be paid after any
preferential dividends on the then outstanding Preferred Stock and then only if,
as and when declared by the Board of Directors of the REIT in its discretion.
Issuances of New Classes of Securities
The Board of Directors of the REIT may authorize from time to time,
without further action by the stockholders, the issuance of shares of Preferred
Stock in one or more separately designated classes with such rights, powers and
other terms and conditions as the Board of Directors may determine.
44
The General Partner may from time to time, without the consent of the
Limited Partners, admit new Limited Partners or limited partners holding a new
class of limited partnership interests.
Business Combinations
Under the MGCL, certain "business combinations" (including a merger,
consolidation, share exchange, or, in certain circumstances, an asset transfer
or issuance or reclassification of equity securities) between a Maryland
corporation and any person who, after the date on which the corporation had 100
or more beneficial owners, directly or indirectly beneficially owns 10% or more
of the voting power of a corporation's shares or an affiliate of the corporation
who, at any time within the two-year period prior to the date in question and
after the date on which the corporation had 100 or more beneficial owners, was
the beneficial owner of 10% or more of the voting power of the then outstanding
voting stock of the corporation (the "Interested Stockholder") or an affiliate
thereof are prohibited for five years after the most recent date on which the
Interested Stockholder became an Interested Stockholder. Thereafter any such
business combination must be recommended by the Board of Directors of such
corporation and approved by the affirmative vote of at least (i) 80% of the
votes entitled to be cast by holders of outstanding voting shares of the
corporation and (ii) two-thirds of the votes entitled to be cast by holders of
outstanding voting shares of the corporation other than shares held by the
Interested Stockholder with whom the business combination is to be effected,
unless, among other things, the corporation's stockholders receive a minimum
price (as defined in the MGCL) for their shares and the consideration is
received in cash or in the same form as previously paid by the Interested
Stockholder for its shares. These provisions of Maryland law do not apply,
however, to business combinations that are approved or exempted by the Board of
Directors of the corporation prior to the time that the Interested Stockholder
becomes an Interested Stockholder.
INTEREST OF CERTAIN PERSONS IN OR OPPOSITION TO MATTERS TO BE ACTED UPON
No director or officer of the Partnership or the REIT nor any associate of
such persons has any substantial interest, direct or indirect, in any matter to
be acted upon pursuant to this Consent Solicitation/Confidential Offering
Memorandum except through the ownership of equity interests in the Partnership.
No director of the Partnership or the REIT has any intention to oppose any
action to be taken pursuant to this Consent Solicitation/Confidential Offering
Memorandum.
FEDERAL INCOME TAX CONSIDERATIONS
General
The following is a discussion of all of the material United States federal
income tax considerations associated with the Conversion and with the ownership
of the Common Stock. The following discussion is not exhaustive of all possible
tax considerations. Moreover, the discussion contained herein does not address
all aspects of taxation that may be relevant to particular Limited Partners in
light of their personal tax circumstances, or to certain types of Limited
Partners subject to special treatment under federal income tax laws, including
insurance
45
companies, tax-exempt organizations (except to the extent discussed under the
heading "Taxation of Tax-Exempt Shareholders"), financial institutions,
broker-dealers, and foreign corporations and persons who are not citizens or
residents of the United States (except to the extent discussed under the heading
"Taxation of Non-U.S. Shareholders").
The statements in this discussion are based upon, and qualified in their
entirety by, current provisions of the Code, existing, temporary, and
currently-proposed Treasury Regulations promulgated under the Code, existing
administrative rulings and practices of the Internal Revenue Service, and
judicial decisions. No assurances can be given that future legislative,
administrative, or judicial actions or decisions, which may be retroactive in
effect, will not affect the accuracy of any of the statements in this Consent
Solicitation.
EACH LIMITED PARTNER IS URGED TO CONSULT HIS, HER, OR ITS OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO THE LIMITED PARTNER OF THE CONVERSION
AND OF THE OWNERSHIP AND SALE OF STOCK IN AN ENTITY ELECTING TO BE TAXED AS A
REAL ESTATE INVESTMENT TRUST, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND
OTHER TAX CONSEQUENCES OF SUCH CONVERSION, OWNERSHIP AND SALE, AS WELL AS
POTENTIAL CHANGES IN THE APPLICABLE TAX LAWS.
Opinion of Counsel
Upon, and as a condition to the consummation of the Conversion, Hale and
Dorr LLP ("Counsel") will deliver to the General Partner an opinion to the
effect that subject to the qualifications set forth in the opinion and discussed
below (see "Tax Consequences of the Conversion"), (i) the Conversion will be
treated for federal income tax purposes as a tax-free transaction under Sections
351 and 731 of the Code, (ii) the summary of the federal income tax consequences
to the Limited Partners set forth in this section addresses all material federal
income tax consequences of the Conversion, and (iii) to the extent that such
summary involves matters of law, it is accurate in all material respects under
the Code, Treasury Regulations and existing interpretations thereof and
represents Counsel's opinion as to how such matters would be resolved by a court
if presented with the issues discussed herein. No legal opinion has been
obtained regarding any other tax issues and it is not anticipated that such an
opinion will be obtained. In addition, an opinion of counsel is not binding on
the Internal Revenue Service (the "IRS") or the courts. Accordingly, there can
be no assurance that some of the conclusions set forth in this section will not
be challenged by the IRS and that any such challenge will not be sustained by
the courts.
Tax Consequences of the Conversion
Assuming no material changes in the applicable federal income tax laws
prior to the Effective Date, Counsel will issue its opinion to the General
Partner based upon certain factual representations made by the REIT and certain
assumptions set forth in the opinion that the Conversion will be treated as a
tax-free transaction under Sections 351 and 731 of the Code and to the extent
that the summary of tax matters contained in this section titled "Federal Income
Tax Considerations" involves matters of law, such description is accurate in all
material respects under the relevant authorities and represents Counsel's
opinion as to how such matters would be
46
resolved by a court if presented with such matters. Based on current authority,
the Conversion will be treated as a contribution by the Partnership of its
assets (the "Contributed Assets") to the REIT in exchange for the Common Stock
and the assumption by the REIT of the Partnership's liabilities followed by a
distribution of the Common Stock to the Partners in liquidation of the
Partnership.
As a result of the Conversion being treated as described above, the
following collateral federal income tax consequences will result:
1. Each Limited Partner will have an adjusted basis in the Common Stock
equal to the basis that the Limited Partner had in his or her interest in the
Partnership immediately prior to the Conversion, decreased by the Limited
Partner's share of any liabilities of the Partnership assumed by the REIT;
2. The holding period of the Common Stock received by each Limited Partner
will include the holding period that the Partnership had in the Contributed
Assets (other than any Contributed Assets that were not held as capital assets
or as depreciable assets);
3. The basis of the Contributed Assets in the hands of the REIT following
the Conversion will equal the basis that the Partnership had in the Contributed
Assets immediately prior to the Conversion; and
4. The REIT's holding period for the Contributed Assets received in the
Conversion will include the Partnership's holding period for the Contributed
Assets prior to the Conversion.
This summary does not address all tax considerations that may be relevant
to the Conversion. Moreover, certain transactions undertaken by the REIT or by
the Shareholders (as defined below) following the Conversion may prevent the
Conversion from being tax free. This summary and the opinion of Counsel are
based on the facts and law relating to the Conversion as of the date of this
Consent Solicitation/Confidential Offering Memorandum and do not address or
cover the tax consequences of any transaction undertaken by the REIT or the
Shareholders following the Conversion or the effect, if any, that such
subsequent transactions may have on the tax consequences described above.
Accordingly, each Limited Partner is urged to consult his or her tax advisor
regarding all of the tax consequences of the Conversion that may be relevant to
the Limited Partner in light of his or her particular circumstances, including
the state, local and foreign tax consequences of the Conversion, as well as the
effect that any subsequent transaction may have on the tax consequences set
forth above.
Currently, all of the income of the Partnership (including its share of
income from FSP Investments LLC) passes through and is taxed directly to the
Limited Partners and the General Partner. Following the Conversion, the REIT
generally will be taxable only on its undistributed income, and the REIT's
stockholders generally will be taxable on the income distributed to them.
However, because the operations of FSP Investments LLC are of a nature and scope
that would cause the REIT to fail to qualify as a real estate investment trust
under the Code, its operations will be held in a taxable REIT subsidiary. As a
result, FSP Investments LLC will be directly taxed on its income, so that only
its after-tax income will be available for distribution to the
47
REIT's stockholders. In general, any of the after-tax income distributed to the
REIT's stockholders will be includable in the REIT's stockholders' taxable
income and will be subject to a second level of tax. See "Federal Income Tax
Considerations -Taxation of REIT - Requirements for Qualification as a Real
Estate Investment Trust - Introduction."
Tax Consequences of REIT Election
Introduction
The REIT plans to make an election to be taxed as a real estate investment
trust under Section 856 of the Code, commencing with its taxable year beginning
January 1, 2002. Following the Conversion, the Limited Partners will be treated
as shareholders of the REIT (the "Shareholders"). The sections of the Code and
Treasury Regulations applicable to qualification and operation as a real estate
investment trust are highly technical and complex. Although the REIT believes
that it will be organized and will operate in a manner necessary to satisfy the
requirements for taxation as a real estate investment trust under the Code, many
of which are discussed below, no assurances can be given that the REIT will be
able to so operate for all periods following the Conversion. In arriving at the
belief that the REIT will be organized and operated in a manner that will
satisfy these requirements, the Partnership has considered its assets and
operations over the twelve months ended October 31, 2001.
Taxation of the REIT
General.
If the REIT qualifies as a real estate investment trust, it generally will
not be subject to federal corporate income taxes on its net income to the extent
that the income is currently distributed to stockholders. The benefit of this
tax treatment is that it substantially eliminates the "double taxation"
resulting from the taxation at both the corporate and stockholder levels that
generally results from owning stock in a corporation. Accordingly, income
generated by the REIT generally will be subject to taxation solely at the
stockholder level upon distribution from the REIT. The REIT will, however, be
required to pay certain federal income taxes, including in the following
circumstances:
o The REIT will be subject to federal income tax at regular corporate
rates on taxable income, including net capital gain, that it does
not distribute to stockholders during, or within a specified time
period after, the calendar year in which such income is earned.
o The REIT will be subject to the "alternative minimum tax" on its
undistributed items of tax preference.
o The REIT will be subject to a 100% tax on net income from certain
sales or other dispositions of property that it holds primarily for
sale to customers in the ordinary course of business ("prohibited
transactions").
o If the REIT fails to satisfy the 75% gross income test or the 95%
gross income test, both described below, but nevertheless qualifies
as a real estate investment trust, the REIT will be subject to a
100% tax on an amount equal to (i) the gross income attributable to
the
48
greater of the amount by which the REIT fails the 75% or 95% gross
income test multiplied by (ii) a fraction intended to reflect the
REIT's profitability.
o If the REIT fails to distribute during the calendar year at least
the sum of (i) 85% of its real estate investment trust ordinary
income for such year, (ii) 95% of its real estate investment trust
capital gain net income for such year, and (iii) any undistributed
taxable income from prior periods, the REIT will pay a 4% excise tax
on the excess of such required distribution over the amount actually
distributed to stockholders.
o The REIT may elect to retain and pay income tax on some or all of
its long-term capital gain, as described below.
o The REIT may be subject to a 100% excise tax on transactions with
its taxable REIT subsidiary that are not conducted on an
arm's-length basis.
Requirements for Qualification as a Real Estate Investment Trust.
Introduction.
In order to qualify as a real estate investment trust for federal income
tax purposes the REIT must elect to be so treated and must satisfy certain
statutory tests relating to, among other things, (i) the sources of its income,
(ii) the nature of its assets, (iii) the amount of its distributions, and (iv)
the ownership of stock in the REIT.
A corporation that is a "qualified REIT subsidiary" is not treated as a
corporation separate from its parent real estate investment trust for federal
income tax purposes. All assets, liabilities, and items of income, deduction,
and credit of a qualified REIT subsidiary are treated as the assets,
liabilities, and items of income, deduction and credit of the real estate
investment trust. A qualified REIT subsidiary is a corporation, all of the
capital stock of which is owned by a real estate investment trust and for which
no election has been made to treat it as a "taxable REIT subsidiary" (as
discussed below). Thus, in applying the requirements described herein, any
qualified REIT subsidiary that the REIT may own in the future will be ignored
and all assets, liabilities and items of income, deduction and credit of such
subsidiary will be treated as the assets, liabilities, and items of income
deduction and credit of the REIT.
In the event that the REIT becomes a partner in a partnership, the REIT
will be deemed to own its proportionate share (based upon its share of the
capital of the partnership) of the assets of the partnership and will be deemed
to be entitled to the income of the partnership attributable to such share. In
addition, the assets and income of the partnership attributed to the REIT shall
retain their same character as in the hands of the partnership for purposes of
determining whether the REIT satisfied the income and asset tests described
below.
A real estate investment trust may own up to 100% of the stock of one or
more taxable REIT subsidiaries. A taxable REIT subsidiary may earn income that
would not be qualifying income, as described below, if earned directly by the
parent real estate investment trust. Both the subsidiary and the real estate
investment trust must jointly elect to treat the subsidiary as a taxable REIT
subsidiary. Overall, not more than 20% of the value of the real estate
investment
49
trust's assets may consist of securities of one or more taxable REIT
subsidiaries. A taxable REIT subsidiary will pay tax at regular corporate rates
on any income that it earns. There is a 100% excise tax imposed on transactions
involving a taxable REIT subsidiary and its parent real estate investment trust
that are not conducted on an arm's-length basis. FSP Investments LLC will be a
wholly-owned subsidiary of the REIT and FSP Investments LLC and the REIT will
make a taxable REIT subsidiary election with respect to FSP Investments LLC. FSP
Investments LLC will pay corporate income tax on its taxable income and its
after-tax net income will be available for distribution to the REIT.
Income Tests.
General. The REIT must satisfy annually two tests regarding the sources of
its gross income in order to maintain its real estate investment trust status.
First, at least 75% of the REIT's gross income, excluding gross income from
certain "dealer" sales, for each taxable year generally must consist of defined
types of income that the REIT derives, directly or indirectly, from investments
relating to real property or mortgages on real property or temporary investment
income (the "75% Gross Income Test"). Qualifying income for purposes of the 75%
Gross Income Test generally includes:
o "rents from real property" (as defined below);
o interest from debt secured by mortgages on real property or on
interests in real property;
o dividends or other distributions on, and gain from the sale of,
shares in other real estate investment trusts;
o gain from the sale or other disposition of real property; and
o amounts (other than amounts the determination of which depends in
whole or in part on the income or profits of any person) received as
consideration for entering into agreements to make loans secured by
mortgages on real property or on interests in real property or
agreements to purchase or lease real property.
Second, at least 95% of the REIT's gross income, excluding gross income
from certain "dealer" sales, for each taxable year generally must consist of
income that is qualifying income for purposes of the 75% gross income test, as
well as dividends, other types of interest, and gain from the sale or
disposition of stock or securities (the "95% Gross Income Test").
Rents from Real Property. Rent that the REIT receives from real property
that it owns and leases to tenants will qualify as "rents from real property" if
the following conditions are satisfied:
o First, the rent must not be based, in whole or in part, on the
income or profits of any person. An amount will not fail to qualify
as rent from real property solely by reason of being based on a
fixed percentage (or percentages) of sales and receipts.
50
o Second, neither the REIT nor any direct or indirect owner of 10% or
more of its stock may own, actually or constructively, 10% or more
of the tenant from which the REIT collects the rent.
o Third, all of the rent received under a lease will not qualify as
rents from real property unless the rent attributable to the
personal property leased in connection with the real property
constitutes no more than 15% of the total rent received under the
lease.
o Finally, the REIT generally must not operate or manage its real
property or furnish or render services to its tenants, other than
through an "independent contractor" who is adequately compensated
and from whom the REIT does not derive revenue. The REIT may provide
services directly, however, if the services are "usually or
customarily rendered" in connection with the rental of space for
occupancy only and are not otherwise considered rendered "primarily
for the occupant's convenience." In addition, the REIT may render,
other than through an independent contractor, a de minimis amount of
"non-customary" services to the tenants of a property as long as the
REIT's income from such services does not exceed 1% of its gross
income from the property.
Although no assurances can be given that either of the income tests will
be satisfied in any given year, the REIT anticipates that its operations will
allow it to meet each of the 75% Gross Income Test and the 95% Gross Income
Test. Such belief is premised in large part on the REIT's expectation that
substantially all of the amounts received by the REIT with respect to the
Property will qualify as "rents from real property." Shareholders should be
aware, however, that there are a variety of circumstances, as described above,
in which rent received from a tenant will not be treated as rents from real
property.
Failure to Satisfy Income Tests. If the REIT fails to satisfy either or
both of the 75% or 95% Gross Income Tests for any taxable year, the REIT may
nevertheless qualify as a real estate investment trust for that year if it is
eligible for relief under certain provisions of the federal income tax laws.
Those relief provisions generally will be available if:
o the REIT's failure to meet the gross income test was due to
reasonable cause and not due to willful neglect;
o the REIT attaches a schedule of the sources of its income to its
federal income tax return; and
o any incorrect information on the schedule is not due to fraud with
intent to evade tax.
It is not possible to state whether, in all circumstances, the REIT would
be entitled to the benefit of the above relief provisions. Furthermore, as
discussed above under the heading "Taxation of the REIT - General," even if the
relief provisions apply, the REIT would incur a 100% tax on the gross income
attributable to the greater of the amounts by which it fails the 75% and 95%
Gross Income Tests, multiplied by a fraction that reflects the REIT's
profitability.
51
Asset Tests.
The REIT also must satisfy the following four tests relating to the nature
of its assets at the close of each quarter of its taxable year.
o First, at least 75% of the value of the REIT's total assets must
consist of cash or cash items, including receivables, government
securities, "real estate assets," or qualifying temporary
investments (the "75% Asset Test");
o Second, no more than 25% of the value of the REIT's total assets may
be represented by securities other than those that are qualifying
assets for purposes of the 75% Asset Test (the "25% Asset Test");
o Third, of the investments included in the 25% Asset Test, the value
of the securities of any one issuer (other than a "taxable REIT
subsidiary") that the REIT owns may not exceed 5% of the value of
the REIT's total assets, and the REIT may not own 10% or more of the
total combined voting power or 10% or more of the total value of the
securities of any issuer (other than a "taxable REIT subsidiary");
and
o Fourth, while the REIT may own up to 100% of the stock of a
corporation that elects to be treated as a "taxable REIT subsidiary"
for federal income tax purposes, at no time may the total value of
the Company's stock in one or more taxable REIT subsidiaries exceed
20% of the value of the REIT's gross assets.
The REIT intends to operate so that it will not acquire any assets that
would cause it to violate any of the asset tests. If, however, the REIT should
fail to satisfy any of the asset tests at the end of a calendar quarter, it
would not lose its real estate investment trust status if (i) the REIT satisfied
the asset tests at the end of the close of the preceding calendar quarter, and
(ii) the discrepancy between the value of the REIT's assets and the asset test
requirements arose from changes in the market values of the REIT's assets and
was not wholly or partly caused by the acquisition of one or more nonqualifying
assets. If the REIT did not satisfy the condition described in clause (ii) of
the preceding sentence, it could still avoid disqualification as a real estate
investment trust by eliminating any discrepancy within 30 days after the close
of the calendar quarter in which the discrepancy arose.
Distribution Requirements.
Each taxable year, the REIT must distribute dividends to its stockholders
in an amount at least equal to:
o 90% of the REIT's "real estate investment trust taxable income,"
computed without regard to the dividends paid deduction and the
REIT's net capital gain or loss; and
o certain items of noncash income.
The REIT must make such distributions in the taxable year to which they
relate, or in the following taxable year if the REIT declares the distribution
before it timely files its federal income tax return for such year and pays the
distribution on or before the first regular
52
distribution date after such declaration. Further, if the REIT fails to meet the
90% distribution requirement as a result of an adjustment to its tax returns by
the Internal Revenue Service, the REIT may, if the deficiency is not due to
fraud with intent to evade tax or a willful failure to file a timely tax return,
and if certain other conditions are met, retroactively cure the failure by
paying a deficiency dividend (plus interest) to its stockholders.
The REIT will be subject to federal income tax on its taxable income,
including net capital gain that it did not distribute to its stockholders.
Furthermore, if the REIT fails to distribute during a calendar year, or, in the
case of distributions with declaration and record dates falling within the last
three months of the calendar year, by the end of the January following such
calendar year, at least the sum of:
o 85% of the REIT's real estate investment trust ordinary income for
such year;
o 95% of the REIT's real estate investment trust capital gain income
for such year; and
o any of the REIT's undistributed taxable income from prior periods,
the REIT will be subject to a 4% nondeductible excise tax on the excess of such
required distribution over the amount actually distributed. If the REIT elects
to retain and pay income tax on the net capital gain that it receives in a
taxable year, the REIT will be deemed to have distributed any such amount for
the purposes of the 4% excise tax described in the preceding sentence.
The REIT intends to make distributions to its holders of Common Stock in a
manner that will allow it to satisfy the distribution requirements described
above. It is possible that, from time to time, the REIT's pre-distribution
taxable income may exceed its cash flow and the REIT may have difficulty
satisfying the distribution requirements. The REIT intends to monitor closely
the relationship between its pre-distribution taxable income and its cash flow
and intends to borrow funds or liquidate assets in order to overcome any cash
flow shortfalls if necessary to satisfy the distribution requirements imposed by
the Code. It is possible, although unlikely, that the REIT may decide to
terminate its real estate investment trust status as a result of any such cash
shortfall. Such a termination would have adverse consequences to the
stockholders. See "Federal Income Tax Considerations - Taxation of the REIT -
General."
Recordkeeping Requirements.
The REIT must maintain records of information specified in applicable
Treasury Regulations in order to maintain its qualification as a real estate
investment trust. In addition, in order to avoid a monetary penalty, the REIT
must request on an annual basis certain information from its stockholders
designed to disclose the actual ownership of the REIT's outstanding stock. The
REIT intends to comply with these recordkeeping requirements.
Ownership Requirements.
For the REIT to qualify as a real estate investment trust, shares of the
REIT must be held by a minimum of 100 persons for at least 335 days in each
taxable year after the REIT's first taxable year. Further, at no time during the
second half of any taxable year after the REIT's first
53
taxable year may more than 50% of the REIT's shares be owned, actually or
constructively, by five or fewer "individuals" (which term is defined for this
purpose to include certain tax-exempt entities including pension trusts). The
Common Stock will be held by 100 or more persons. The REIT intends to continue
to comply with these ownership requirements. Also, the REIT's Charter contains
ownership and transfer restrictions designed to prevent violation of these
requirements. The provisions of the REIT's Charter restricting the ownership and
transfer of Common Stock are described in "Description of Stock -Unregistered
Shares."
Failure to Qualify.
If the REIT failed to qualify as a real estate investment trust in any
taxable year, and no relief provisions applied, the REIT would be subject to
federal income tax, including any applicable alternative minimum tax, on its
taxable income at regular corporate rates. In calculating the REIT's taxable
income in a year in which it did not qualify as a real estate investment trust,
the REIT would not be able to deduct amounts paid out to its stockholders. In
fact, the REIT would not be required to distribute any amounts to its
stockholders in such taxable year. In such event, to the extent of the REIT's
current and accumulated earnings and profits, all distributions to stockholders
would be taxable as ordinary income. Moreover, subject to certain limitations
under the Code, corporate stockholders might be eligible for the dividends
received deduction. Unless the REIT qualified for relief under specific
statutory provisions, the REIT would be disqualified from taxation as a real
estate investment trust for the four taxable years following the year in which
it ceased to qualify as a real estate investment trust. The REIT cannot predict
whether, in all circumstances, it would qualify for such statutory relief.
Taxation of Taxable U.S. Shareholders
As used herein, the term "Taxable U.S. Shareholder" means a holder of
Common Stock that, for United States federal income tax purposes, is:
o a citizen or resident of the United States;
o a corporation, partnership, or other entity created or organized in
or under the laws of the United States or any state or political
subdivision thereof;
o an estate the income of which from sources without the United States
is includible in gross income for United States federal income tax
purposes regardless of its connection with the conduct of a trade or
business within the United States; or
o any trust with respect to which (i) a United States court is able to
exercise primary supervision over the administration of such trust,
and (ii) one or more United States persons have the authority to
control all substantial decisions of the trust.
For any taxable year in which the REIT qualifies as a real estate
investment trust, amounts distributed to Taxable U.S. Shareholders will be taxed
as follows.
54
Distributions Generally.
Distributions made to the REIT's Taxable U.S. Shareholders out of current
or accumulated earnings and profits (and not designated as a capital gain
dividend) will be taken into account by such Shareholder as ordinary income and
will not, in the case of a corporate Shareholder, be eligible for the dividends
received deduction. To the extent that the REIT makes a distribution with
respect to the Common Stock that is in excess of its current or accumulated
earnings and profits, the distribution will be treated by a Taxable U.S.
Shareholder first as a tax-free return of capital, reducing the Shareholder's
tax basis in the Common Stock, and any portion of the distribution in excess of
the Shareholder's tax basis in the Common Stock will then be treated as gain
from the sale of such Common Stock. Dividends declared by the REIT in October,
November, or December of any year payable to a Shareholder of record on a
specified date in any such month shall be treated as both paid by the REIT and
received by Shareholders on December 31 of such year, provided that the dividend
is actually paid by the REIT during January of the following calendar year.
Taxable U.S. Shareholders may not include on their federal income tax returns
any of the REIT's tax losses.
Capital Gain Dividends.
Dividends to Taxable U.S. Shareholders that properly are designated by the
REIT as capital gain dividends will be treated by such Shareholders as long-term
capital gain, to the extent that such dividends do not exceed the REIT's actual
net capital gain, without regard to the period for which the Shareholders have
held the Common Stock. Taxable U.S. Shareholders that are corporations may be
required, however, to treat up to 20% of particular capital gain dividends as
ordinary income. Capital gain dividends, like regular dividends from a real
estate investment trust, are not eligible for the dividends received deduction
for corporations.
Retained Capital Gains.
A real estate investment trust may elect to retain, rather than
distribute, its net long-term capital gain received during the tax year. To the
extent designated in a notice from the REIT to its stockholders, the REIT will
pay the income tax on such gains and Taxable U.S. Shareholders must include
their proportionate share of the undistributed net long-term capital gain so
designated in their income for the tax year. Each Taxable U.S. Shareholder will
be deemed to have paid its share of the tax paid by the REIT, which tax will be
credited or refunded to such Shareholder.
Passive Activity Loss and Investment Interest Limitations.
Distributions, including deemed distributions of undistributed net
long-term capital gain, from the REIT and gain from the disposition of Common
Stock will not be treated as passive activity income, and, therefore, Taxable
U.S. Shareholders who are subject to the passive loss limitation rules of the
Code will not be able to apply any passive activity losses against such income.
Distributions from the REIT, to the extent they do not constitute a return of
capital, generally will be treated as investment income for purposes of the
investment income limitation on deductibility of investment interest. However,
net capital gain from the disposition of
55
Common Stock or capital gain dividends, including deemed distributions of
undistributed net long-term capital gains, generally will be excluded from
investment income.
Sale of Common Stock.
Upon the sale of Common Stock, a Taxable U.S. Shareholder generally will
recognize gain or loss equal to the difference between the amount realized on
such sale and the holder's tax basis in the Common Stock sold. To the extent
that the Common Stock is held as a capital asset by the Taxable U.S.
Shareholder, the gain or loss will be a long-term capital gain or loss if the
Common Stock has been held for more than a year, and will be a short-term
capital gain or loss if the Common Stock has been held for a shorter period. In
general, however, any loss upon a sale of the Common Stock by a Taxable U.S.
Shareholder who has held such Common Stock for six months or less (after
applying certain holding period rules) will be treated as a long-term capital
loss to the extent that distributions from the REIT were required to be treated
as long-term capital gain by that holder.
Taxation of Tax-Exempt Shareholders
Tax-exempt entities, including qualified employee pension and profit
sharing trusts and individual retirement accounts (collectively, "Exempt
Organizations"), generally are exempt from federal income taxation. Exempt
Organizations are subject to tax, however, on their unrelated business taxable
income ("UBTI"). UBTI is defined as the gross income derived by an Exempt
Organization from an unrelated trade or business, less the deductions directly
connected with that trade or business, subject to certain exceptions. While many
investments in real estate generate UBTI, the Internal Revenue Service has
issued a ruling that dividend distributions from a real estate investment trust
to an exempt employee pension trust do not constitute UBTI, provided that the
shares of the real estate investment trust are not otherwise used in an
unrelated trade or business of the exempt employee pension trust. Based on that
ruling, amounts distributed to Exempt Organizations generally should not
constitute UBTI. However, if an Exempt Organization finances its acquisition of
Common Stock with debt, a portion of its income from the REIT will constitute
UBTI pursuant to the "debt-financed property" rules.
In addition, in certain circumstances, a pension trust that owns more than
10% of the stock of the REIT will be required to treat a percentage of the
dividends paid by the REIT as UBTI based upon the percentage of the REIT's
income that would constitute UBTI to the Shareholder if received directly by it.
This rule applies to a pension trust holding more than 10% (by value) of the
Common Stock only if (i) the percentage of the income from the REIT that is UBTI
(determined as if the REIT were a pension trust) is at least 5% and (ii) the
REIT is treated as a "pension-held REIT." The REIT does not expect to receive
significant amounts of income that would be considered UBTI if received directly
by a pension trust and does not expect to qualify as a "pension-held REIT."
Taxation of Non-U.S. Shareholders
General.
The rules governing United States federal income taxation of nonresident
alien individuals, foreign corporations, foreign partnerships, foreign trusts
and certain other foreign
56
stockholders (collectively, "Non-U.S. Shareholders") are complex and no attempt
is made herein to provide more than a general summary of such rules. This
discussion does not consider the tax rules applicable to all Non-U.S.
Shareholders and, in particular, does not consider the special rules applicable
to U.S. branches of foreign banks or insurance companies or certain
intermediaries. NON-U.S. SHAREHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS
TO DETERMINE THE IMPACT OF FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS WITH
REGARD TO THE CONVERSION AND THE OWNERSHIP OF THE PREFERRED STOCK, INCLUDING ANY
REPORTING AND WITHHOLDING REQUIREMENTS.
Ordinary Dividends.
General.
Distributions to Non-U.S. Shareholders that are not attributable to gain
from sales or exchanges by the REIT of United States real property interests and
are not designated by the REIT as capital gain dividends (or deemed
distributions of retained capital gains) will be treated as ordinary dividends
to the extent that they are made out of current or accumulated earnings and
profits of the REIT. Any portion of a distribution in excess of current and
accumulated earnings and profits of the REIT will not be taxable to a Non-U.S.
Shareholder to the extent that such distribution does not exceed the adjusted
basis of the Shareholder in the Common Stock, but rather will reduce the
adjusted basis of such Common Stock. To the extent that the portion of the
distribution in excess of current and accumulated earnings and profits exceeds
the adjusted basis of a Non-U.S. Shareholder for the Common Stock, such excess
generally will be treated as gain from the sale or disposition of the Common
Stock and will be taxed as described below.
Withholding.
Dividends paid to Non-U.S. Shareholders may be subject to U.S. withholding
tax. If an income tax treaty does not apply and the Non-U.S. Shareholder's
investment in the Common Stock is not effectively connected with a trade or
business conducted by the Non-U.S. Shareholder in the United States (or if a tax
treaty does apply and the investment in the Common Stock is not attributable to
a United States permanent establishment maintained by the Non-U.S. Shareholder),
ordinary dividends (i.e., distributions out of current and accumulated earnings
and profits) will be subject to a U.S. withholding tax at a 30% rate, or, if an
income tax treaty applies, at a lower treaty rate. Because the REIT generally
cannot determine at the time that a distribution is made whether or not it will
be in excess of earnings and profits, the REIT intends to withhold on the gross
amount of each distribution at the 30% rate (or lower treaty rate) (other than
distributions subject to the 35% FIRPTA withholding rules described below). To
receive a reduced treaty rate, a Non-U.S. Shareholder must furnish the REIT or
its paying agent with a duly completed Form 1001 or Form W-8BEN (or authorized
substitute form) certifying such holder's qualification for the reduced rate.
Generally, a Non-U.S. Shareholder will be entitled to a refund from the Internal
Revenue Service to the extent the amount withheld by the REIT from a
distribution exceeds the amount of United States tax owed by such Shareholder.
In the case of a Non-U.S. Shareholder that is a partnership or a trust,
the withholding rules for a distribution to such a partnership or trust will be
dependent on numerous factors,
57
including (1) the classification of the type of partnership or trust, (2) the
status of the partner or beneficiary, and (3) the activities of the partnership
or trust. Non-U.S. Shareholders that are partnerships or trusts are urged to
consult their tax advisors regarding the withholding rules applicable to them
based on their particular circumstances.
If an income tax treaty does not apply, ordinary dividends that are
effectively connected with the conduct of a trade or business within the U.S. by
a Non-U.S. Shareholder (and, if a tax treaty applies, ordinary dividends that
are attributable to a United States permanent establishment maintained by the
Non-U.S. Shareholder) are exempt from U.S. withholding tax. In order to claim
such exemption, a Non-U.S. Shareholder must provide the REIT or its paying agent
with a duly completed Form 4224 or Form W-8ECI (or authorized substitute form)
certifying such holder's exemption. However, ordinary dividends exempt from U.S.
withholding tax because they are effectively connected or are attributable to a
United States permanent establishment maintained by the Non-U.S. Shareholder
generally are subject to U.S. federal income tax on a net income basis at
regular graduated rates. In the case of Non-U.S. Shareholders that are
corporations, any effectively connected ordinary dividends or ordinary dividends
attributable to a United States permanent establishment maintained by the
Non-U.S. Shareholder may, in certain circumstances, be subject to an additional
branch profits tax at a 30% rate, or lower rate specified by an applicable
income tax treaty.
Capital Gain Dividends.
General.
For any year in which the REIT qualifies as a real estate investment
trust, distributions that are attributable to gain from sales or exchanges by
the REIT of United States real property interests will be taxed to a Non-U.S.
Shareholder under the provisions of the Foreign Investment in Real Property Tax
Act of 1980 ("FIRPTA"). Under FIRPTA, distributions attributable to gain from
sales of United States real property are taxed to a Non-U.S. Shareholder as if
such gain were effectively connected with a United States trade or business.
Non-U.S. Shareholders thus would be taxed at the regular capital gain rates
applicable to Taxable U.S. Shareholders (subject to the applicable alternative
minimum tax and a special alternative minimum tax in the case of nonresident
alien individuals). Distributions subject to FIRPTA also may be subject to a 30%
branch profits tax in the hands of a corporate Non-U.S. Shareholder not
otherwise entitled to treaty relief or exemption.
Withholding.
Under FIRPTA, the REIT is required to withhold 35% of any distribution
that is designated as a capital gain dividend or which could be designated as a
capital gain dividend. Moreover, if the REIT designates previously made
distributions as capital gain dividends, subsequent distributions (up to the
amount of the prior distributions so designated) will be treated as capital gain
dividends for purposes of FIRPTA withholding.
Sale of Common Stock.
A Non-U.S Shareholder generally will not be subject to United States
federal income tax under FIRPTA with respect to gain recognized upon a sale of
Common Stock, provided that the
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REIT is a "domestically-controlled REIT." A domestically-controlled REIT
generally is defined as a real estate investment trust in which at all times
during a specified testing period less than 50% in value of the stock was held
directly or indirectly by non-U.S. persons. Although currently it is anticipated
that the REIT will be a domestically-controlled REIT, and, therefore, that the
sale of Common Stock will not be subject to taxation under FIRPTA, there can be
no assurance that the REIT will, at all relevant times, be a
domestically-controlled REIT. If the gain on the sale of Common Stock were
subject to taxation under FIRPTA, a Non-U.S. Shareholder would be subject to the
same treatment as Taxable U.S. Shareholders with respect to such gain (subject
to the applicable alternative minimum tax and a special alternative minimum tax
in the case of nonresident alien individuals). In addition, a purchaser of
Common Stock from a Non-U.S. Shareholder subject to taxation under FIRPTA
generally would be required to deduct and withhold a tax equal to 10% of the
amount realized by a Non-U.S. Shareholder on the disposition. Any amount
withheld would be creditable against the Non-U.S. Shareholder's FIRPTA tax
liability.
Even if gain recognized by a Non-U.S. Shareholder upon the sale of Common
Stock is not subject to FIRPTA, such gain generally will be taxable to such
Shareholder if:
o an income tax treaty does not apply and the gain is effectively
connected with a trade or business conducted by the Non-U.S.
Shareholder in the United States (or, if an income tax treaty
applies and the gain is attributable to a United States permanent
establishment maintained by the Non-U.S. Shareholder), in which
case, unless an applicable treaty provides otherwise, a Non-U.S.
Shareholder will be taxed on his or her net gain from the sale at
regular graduated U.S. federal income tax rates. In the case of a
Non-U.S. Shareholder that is a corporation, such Shareholder may be
subject to an additional branch profits tax at a 30% rate, unless an
applicable income tax treaty provides for a lower rate and the
Shareholder demonstrates its qualification for such rate; or
o the Non-U.S. Shareholder is a nonresident alien individual who holds
the Common Stock as a capital asset and was present in the United
States for 183 days or more during the taxable year and certain
other conditions apply, in which case the Non-U.S. Shareholder will
be subject to a 30% tax on capital gains.
Estate Tax Considerations.
The value of Common Stock owned, or treated as owned, by a Non-U.S.
Shareholder who is a nonresident alien individual at the time of his or her
death will be included in the individual's gross estate for United States
federal estate tax purposes, unless otherwise provided in an applicable estate
tax treaty.
Information Reporting and Backup Withholding
The REIT is required to report to its Shareholders and to the Internal
Revenue Service the amount of distributions paid during each tax year, and the
amount of tax withheld, if any. These requirements apply even if withholding was
not required with respect to payments made to a Shareholder. In the case of
Non-U.S. Shareholders, the information reported may also be made
59
available to the tax authorities of the Non-U.S. Shareholder's country of
residence, if an applicable income tax treaty so provides.
Backup withholding generally may be imposed at the rate of 30.5% on
certain payments to Shareholders unless the Shareholder (i) furnishes certain
information, or (ii) is otherwise exempt from backup withholding.
A Shareholder who does not provide the REIT with his or her correct
taxpayer identification number also may be subject to penalties imposed by the
IRS. In addition, the REIT may be required to withhold a portion of capital gain
distributions to any Shareholders who fail to certify their non-foreign status
to the REIT.
Shareholders should consult their own tax advisors regarding their
qualification for an exemption from backup withholding and the procedure for
obtaining an exemption. Backup withholding is not an additional tax. Rather, the
amount of any backup withholding with respect to a distribution to a Shareholder
will be allowed as a credit against such holder's United States federal income
tax liability and may entitle the Taxable U.S. Shareholder to a refund, provided
that the required information is furnished to the Internal Revenue Service.
In general, backup withholding and information reporting will not apply to
a payment of the proceeds of the sale of Common Stock by a Non-U.S. Shareholder
by or through a foreign office of a foreign broker effected outside of the
United States; provided, however, that foreign brokers having certain
connections with the United States may be obligated to comply with the backup
withholding and information reporting rules. Information reporting (but not
backup withholding) will apply, however, to a payment of the proceeds of a sale
of Common Stock by foreign offices of certain brokers, including foreign offices
of a broker that:
o is a United States person;
o derives 50% or more of its gross income for certain periods from the
conduct of a trade or business in the United States; or
o is a "controlled foreign corporation" for United States tax
purposes.
Information reporting will not apply in the above cases if the broker has
documentary evidence in its records that the holder is a Non-U.S. Shareholder
and certain conditions are met, or the Non-U.S. Shareholder otherwise
establishes an exemption.
Payment to or through a United States office of a broker of the proceeds
of a sale of Common Stock is subject to both backup withholding and information
reporting unless the Shareholder certifies in the manner required that he or she
is a Non-U.S. Shareholder and satisfies certain other qualifications under
penalties of perjury or otherwise establishes an exemption.
State and Local Tax
The discussion herein concerns only the United States federal income tax
treatment likely to be accorded to the REIT and its Shareholders. No
consideration has been given to the state
60
and local tax treatment of such parties. The state and local tax treatment may
not conform to the federal treatment described above. As a result, a Limited
Partner should consult his or her own tax advisor regarding the specific state
and local tax consequences of the Conversion and ownership and sale of Common
Stock in the REIT.
LEGAL MATTERS
Hale and Dorr LLP, Boston, Massachusetts, will deliver opinions to the
effect that (i) upon consummation of the Merger, the Common Stock offered hereby
will be validly issued, fully paid and nonassessable and (ii) the Conversion
should be treated for federal income tax purposes as a tax-free transaction and
the discussion under "Federal Income Tax Considerations," to the extent it
involves matters of law, is accurate in all material respects.
61
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
FRANKLIN STREET PROPERTIES CORP.
(THE "COMPANY")
AND
FRANKLIN STREET PARTNERS LIMITED PARTNERSHIP
October 10, 2001
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and
entered into as of October 10, 2001 by and between Franklin Street Properties
Corp. (the "Company"), a Maryland corporation, and Franklin Street Partners
Limited Partnership, a Massachusetts limited partnership (the "Partnership").
RECITALS
WHEREAS, the Partnership is the owner of certain real properties
listed on Exhibit A hereto (each such property, including any buildings,
structures or other improvements situated thereon, a "Property" and,
collectively, the "Properties");
WHEREAS, the general partner of the Partnership (the "General
Partner") and the Board of Directors of the Company (the "Board") believe that
it is in the best interests of the Company and the Partnership, respectively,
and the Partnership's limited partners to consummate, and have approved, the
business combination transaction provided for herein, pursuant to which the
Partnership will be merged with and into the Company, with the Company
continuing as the surviving entity (the "Merger");
WHEREAS, the General Partner and the Board have agreed to effect the
transactions provided for herein upon the terms and subject to the conditions
set forth herein;
WHEREAS, the Company and the Partnership desire to make certain
representations, warranties and agreements in connection with the Merger.
NOW, THEREFORE, in consideration of the foregoing and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE 1
THE MERGERS
1.1 The Mergers. Subject to the terms and conditions of this Agreement, at
the Effective Time (as hereinafter defined), the Partnership will be merged with
and into the Company in accordance with the applicable provisions of the
Massachusetts Uniform Limited Partnership Act (the "MULPA") and the Maryland
General Corporation Law (the "MGCL"), and the separate existence of the
Partnership shall thereupon cease. The Company shall continue as the surviving
entity of the Merger.
1.2 The Closing. Subject to the terms and conditions of this Agreement,
the closing of the Merger (the "Closing") shall take place at the offices of
Hale and Dorr LLP, 60 State Street, Boston, Massachusetts at 9:00 a.m., local
time, on December 28, 2001 or at such other time and date following the day on
which the last of the conditions set forth in Article 6 shall be fulfilled or
waived in accordance herewith as the parties hereto may agree. The holders of
units of limited partnership interest in the Partnership ("Partnership Units")
are hereinafter referred to
as the "Unitholders." The date on which the Closing occurs is hereinafter
referred to as the "Closing Date."
1.3 Effective Time. If all of the conditions to the Merger set forth in
Article 6 shall have been fulfilled or waived in accordance herewith with
respect to the Company and the Partnership, and this Agreement shall not have
been terminated as provided in Article 7, the parties hereto shall promptly
cause to be properly executed, verified and delivered for filing on the Closing
Date a certificate of merger satisfying the requirements of the MULPA (a
"Certificate of Merger") and the articles of merger satisfying the requirements
of the MGCL (the "Articles of Merger", and together with the Certificate of
Merger, the "Merger Documents") for the Merger. The Merger shall become
effective upon the acceptance for record of the Merger Documents by (i) the
Secretary of the Commonwealth of the Commonwealth of Massachusetts in accordance
with the MULPA and (ii) the State Department of Assessments and Taxation of the
State of Maryland in accordance with the MGCL or at such later time upon which
the parties hereto shall have agreed and designated in such filing in accordance
with applicable law as the effective time of the Merger (the "Effective Time").
ARTICLE 2
MERGER CONSIDERATION
2.1 Cancellation of Units.
As a result of the Merger and without any action on the part of the
holders thereof, all Partnership Units in the Partnership shall cease to be
outstanding, shall be canceled and retired and shall cease to exist, and each
holder of such Partnership Units shall thereafter cease to have any rights with
respect to such Partnership Units.
2.2 Merger Consideration.
At the Effective Time, by virtue of the Merger and without any further
action by the Board or any general partner or limited partner of the
Partnership, (I) each Unitholder in the Partnership shall receive for each
Partnership Unit such Unitholder holds of record, one share of Common Stock, par
value $.0001 per share, of the Company (the "Common Stock"), (ii) the General
Partner shall receive for each unit of general partnership interest the General
Partner holds of record, one share of Common Stock, and (iii) the one share of
Common Stock held as of the date hereof by the Partnership shall be canceled.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Partnership that the
statements contained in this Article 3 are true and correct, except as set forth
in the disclosure schedule delivered at or prior to the execution hereof to the
Partnership (the "Company Disclosure Schedule"). The Company Disclosure Schedule
shall be arranged in paragraphs corresponding
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to the numbered and letter paragraphs contained in this Article 3, and the
disclosures in any paragraph of the Company Disclosure Schedule shall also be
deemed to qualify all other paragraphs in this Article 3.
3.1 Due Organization; Authority.
(a) The Company is a corporation duly organized and validly existing
under the laws of the State of Maryland. The Company (i) has the authority to
conduct its business as currently conducted and to own and operate the
properties that it now owns and operates, and (ii) is duly licensed or qualified
to do business in, and is in good standing under the laws of, all jurisdictions
in which the transaction of its business makes such qualification necessary,
except where the failure to be so licensed or qualified would not reasonably be
expected to have a material adverse effect on the business, assets, prospects,
results of operations or financial condition of the Company (a "Company Material
Adverse Effect").
(b) The Company has provided the Partnership with a true and
complete copy of its articles of incorporation, together with all amendments
thereto.
3.2 Authorization; Validity; Effect of Agreement. The Company has all
requisite power, authority and legal right to enter into this Agreement and to
consummate the Merger. The execution and delivery of this Agreement by the
Company and, subject to the approval of this Agreement by the stockholder of the
Company, the consummation by the Company of the Merger have been duly authorized
by all necessary corporate action on the part of the Company, and this Agreement
is a legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms.
3.3 Capitalization. The authorized capital stock of the Company consists
of (a) 20,000,000 shares of preferred stock, par value $.0001 per share, none of
which are issued and outstanding as of the date of this Agreement and (b)
180,000,000 shares of Common Stock, of which one share is issued and outstanding
as of the date of this Agreement. The issued and outstanding share of Common
Stock is owned by the Partnership.
3.4 No Violation.
(a) Neither the execution and delivery by the Company of this
Agreement, nor the consummation by the Company of the Merger and compliance by
the Company with the provisions hereof, will: (i) conflict with or violate any
provision of the Company's articles of incorporation or bylaws; (ii) require on
the part of the Company or any Subsidiary (as defined below) any consent,
approval or authorization of, or declaration, filing or registration with, any
federal governmental or regulatory authority, except (x) the filing of the
Merger Documents or (y) where the failure to obtain any such consent, approval
or authorization of, or declaration, filing or registration with, any
governmental or regulatory authority would not reasonably be expected to have a
Company Material Adverse Effect and would not adversely affect the consummation
of the transactions contemplated hereby; (iii) conflict with, result in a breach
of, constitute (with or without due notice or lapse of time or both) a default
under, result in the acceleration of obligations under, create in any party the
right to terminate, modify or cancel, or
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require any notice, consent or waiver under, any contract or instrument to which
the Company or any Subsidiary is a party or by which the Company or any
Subsidiary is bound or to which any of their assets is subject, except for (A)
any conflict, breach, default, acceleration, termination, modification or
cancellation which would not have a Company Material Adverse Effect and would
not adversely affect the consummation of the transactions contemplated hereby or
(B) any notice, consent or waiver the absence of which would not have a Company
Material Adverse Effect and would not adversely affect the consummation of the
transactions contemplated hereby; (iv) result in the imposition of any mortgage,
pledge, security interest, encumbrance, charge or other lien (whether arising by
contract or by operation of law) upon any property or assets of the Company or
any Subsidiary; or (v) violate any order, writ, injunction, decree, statute,
rule or regulation applicable to the Company or any Subsidiary or any of their
properties or assets. A "Subsidiary" is each corporation, partnership, joint
venture or other entity in which an entity has, directly or indirectly, an
equity interest representing 50% or more of the capital stock thereof or other
equity interests therein (individually, a "Subsidiary" and, collectively, the
"Subsidiaries").
(b) Except as expressly contemplated by this Agreement, no other
action is required to be taken by the Company to permit the execution, delivery
and performance of (I) this Agreement, (ii) all other documents and certificates
expressly contemplated hereby, and (iii) the Merger, and no consent or approval
of any third party or governmental authority is or was required or appropriate
in connection with the execution of this Agreement, or to consummate the
transactions expressly contemplated hereunder, except such as have been obtained
or will be obtained prior to the Closing.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE PARTNERSHIP
The Partnership represents and warrants to the Company that the statements
contained in this Article 4 are true and correct, except as set forth in the
disclosure schedules delivered at or prior to the execution hereof by the
Partnership to the Company (the "Partnership Disclosure Schedule"). The
Partnership Disclosure Schedule shall be arranged in paragraphs corresponding to
the numbered and letter paragraphs contained in this Article 4, and the
disclosures in any paragraph of the Partnership Disclosure Schedule shall also
be deemed to qualify all other paragraphs in this Article 4.
4.1 Due Organization; Authority.
(a) The Partnership is a limited partnership duly organized and
validly existing under the laws of the Commonwealth of Massachusetts. The
Partnership (i) has the authority to conduct its business as currently conducted
and to own and operate the properties that it now owns and operates, and (ii) is
duly licensed or qualified to do business in, and is in good standing under the
laws of, all jurisdictions in which the transaction of its business makes such
qualification necessary, except where the failure to be so licensed or qualified
would not reasonably be expected to have a material adverse effect on the
business, assets, prospects, results of operations or financial condition of the
Partnership (a "Partnership Material Adverse Effect").
A-4
(b) The Partnership has provided the Company with a true and
complete copy of its Amended and Restated Partnership Agreement together with
all amendments thereto (the "Partnership Agreement").
4.2 Authorization; Validity; Effect of Agreement.
(a) The Partnership has all requisite power, authority and legal
right to enter into this Agreement and to consummate the Merger. The execution
and delivery of this Agreement by the Partnership and, subject to the approval
of this Agreement by the limited partners of the Partnership, the consummation
by the Partnership of the Merger have been duly authorized by all necessary
partnership action on the part of the Partnership, and this Agreement is a
legal, valid and binding obligation of the Partnership, enforceable against the
Partnership in accordance with its terms.
4.3 No Violation.
(a) Neither the execution and delivery by the Partnership of this
Agreement, nor the consummation by the Partnership of the Merger and compliance
by the Partnership with the provisions hereof, will: (i) conflict with or
violate any provision of the Partnership Agreement; (ii) require on the part of
the Partnership or any Subsidiary any consent, approval or authorization of, or
declaration, filing or registration with, any federal governmental or regulatory
authority, except (x) the filing of the Merger Documents or (y) where the
failure to obtain any such consent, approval or authorization of, or
declaration, filing or registration with, any governmental or regulatory
authority would not reasonably be expected to have a Partnership Material
Adverse Effect and would not adversely affect the consummation of the
transactions contemplated hereby; (iii) conflict with, result in a breach of,
constitute (with or without due notice or lapse of time or both) a default
under, result in the acceleration of obligations under, create in any party the
right to terminate, modify or cancel, or require any notice, consent or waiver
under, any contract or instrument to which the Partnership or any Subsidiary is
a party or by which the Partnership or any Subsidiary is bound or to which any
of its assets is subject, except for (A) any conflict, breach, default,
acceleration, termination, modification or cancellation which would not have a
Partnership Material Adverse Effect and would not adversely affect the
consummation of the transactions contemplated hereby or (B) any notice, consent
or waiver the absence of which would not have a Partnership Material Adverse
Effect and would not adversely affect the consummation of the transactions
contemplated hereby; (iv) result in the imposition of any mortgage, pledge,
security interest, encumbrance, charge or other lien (whether arising by
contract or by operation of law) upon any property or assets of the Partnership
or any Subsidiary; or (v) violate any order, write, injunction, decree, statute,
rule or regulation applicable to the Partnership or any Subsidiary or any of
their properties or assets.
(b) Except as expressly contemplated by this Agreement, no other
action is required to be taken by the Partnership to permit the execution,
delivery and performance of (I) this Agreement, (ii) all other documents and
certificates expressly contemplated hereby, and (iii) the Merger, and no consent
or approval of any third party or governmental authority is or was required or
appropriate in connection with the execution of this Agreement, or to consummate
A-5
the transactions expressly contemplated hereunder, except such as have been
obtained or will be obtained prior to the Closing.
ARTICLE 5
COVENANTS
5.1 Conduct of Business. Prior to the Effective Time, or the earlier
termination of this Agreement, each of the Company and the Partnership shall (i)
carry on its business in the ordinary course in substantially the same manner as
previously conducted, (ii) use its reasonable efforts to preserve intact its
present business organization and goodwill, (iii) maintain permits, licenses and
authorizations and (iv) preserve its relationships with third parties.
5.2 Other Actions. Neither the Company nor the Partnership shall take or
omit to take any action that would result in any of the representations and
warranties of the Company or the Partnership, respectively, made in or pursuant
to this Agreement becoming untrue or incomplete, in any of the covenants and
agreements of the Company or the Partnership, respectively, being breached, or
in any of the conditions to the Closing not being satisfied; provided, however,
that nothing in this Agreement shall be construed to prohibit or restrict the
ability of the Partnership to declare and pay to its Unitholders distributions
in respect of third quarter 2001 operations (collectively, the "Distributions"),
in accordance with the terms of the Partnership Agreement.
5.3 Approval of Unitholders. Promptly following the execution of this
Agreement, the Company and the Partnership shall distribute a Consent
Solicitation/Confidential Offering Memorandum to the Unitholders asking the
Unitholders to vote upon the adoption of this Agreement and the Merger. The
Consent Solicitation/Confidential Offering Memorandum shall contain the
recommendation of the General Partner that the Unitholders approve the adoption
of this Agreement and the Merger. The General Partner of the Partnership,
subject to and in accordance with applicable law, shall use its reasonable best
efforts to obtain such approval described in this Section 5.3, including without
limitation, by timely mailing the Consent Solicitation/Confidential Offering
Memorandum to the Unitholders of the Partnership.
5.4 Consents and Approvals. The Company and the Partnership shall each use
all reasonable efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all other things necessary, proper or advisable to consummate
and make effective as promptly as practicable the transactions contemplated by
this Agreement, to obtain in a timely manner all necessary consents, waivers,
approvals, authorizations and orders and to make all necessary registrations and
filings, and otherwise to satisfy or cause to be satisfied all conditions
precedent to its obligations under this Agreement.
ARTICLE 6
CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE MERGERS
The respective obligations of the parties hereto to consummate the
Merger pursuant to the terms of this Agreement are subject to satisfaction of
the following conditions
A-6
precedent on or prior to the Closing Date. In the event that one or more of
these conditions are not satisfied on or prior to the Closing Date, the party or
parties whose obligations hereunder are subject to the satisfaction of such
condition or conditions may either elect to terminate this Agreement or waive
the satisfaction of such condition. The conditions are:
(a) this Agreement and the Merger shall have been approved by a
majority in interest of the Partnership Unitholders;
(b) the Company shall reasonably believe that (i) the number of
Unitholders who are not Accredited Investors (as defined in Rule 501(a) of
Regulation D of the Securities Act of 1933, as amended) does not exceed 35 and
(ii) that each of such Unitholders who is not an Accredited Investor, either
alone or with his/her/its purchaser representative(s), has such knowledge and
experience in financial and business matters that he/she/it is capable of
evaluating the merits and risks of the Merger;
(c) all necessary consents, waivers, approvals, authorizations or
orders required to be obtained and the making of all filings required to be made
by any of the parties for the authorization, execution and delivery of this
Agreement and the consummation of the transactions contemplated thereby shall
have been obtained or made, as the case may be, on or prior to (and remaining in
effect at) the Closing Date;
(d) the Company shall have received, on or prior to the Closing
Date, an opinion from Hale and Dorr LLP to the effect that (1) the Merger should
be treated for federal income tax purposes as a tax-free transaction and (2) in
all material respects, as of the Closing Date, the discussion set forth under
"Federal Income Tax Considerations" in the Consent Solicitation/Confidential
Offering Memorandum, including any opinions expressed therein, is accurate; and
(e) there shall have been no statute, rule, order or regulation
enacted or issued by the United States or any State thereof, or by a court, that
prohibits the consummation of the Merger.
If any event shall occur or any matter shall be brought to the
attention of the Company that, in its sole judgment, materially affects, whether
adversely or otherwise, the Company, the Partnership, or one or more of the
Properties, subject to the terms of this Agreement, the Company reserves the
right to modify or amend the terms of the Merger to take such event or matter
into account, or to take any other actions as may be appropriate, including,
without limitation, canceling the Merger. Any determination of the Company
concerning the events and matters set forth above will be final and binding on
all parties to this Agreement. The conditions described in clauses (b), (c), (d)
and (f), above, may be waived by the Company in whole or in part if, in the
opinion of the Company, such waiver does not materially affect the terms of the
transaction.
A-7
ARTICLE 7
TERMINATION AND WAIVER
7.1 Termination. This Agreement may be terminated, and the Merger may be
abandoned, at any time before the Closing Date, notwithstanding approval of the
Merger by the Unitholders by the mutual written consent of the Company and the
General Partner;
7.2 Effect of Termination. In the event of termination of this Agreement
as provided in Section 7.1 hereof, this Agreement shall become void and there
shall be no liability or obligation on the part of any party hereto or its
respective affiliates, partners or officers, except to the extent that such
termination results from the willful breach of a party hereto of any of its
representations, warranties, covenants or agreements made in or pursuant to this
Agreement.
7.3 Extension; Waiver. At any time prior to the Closing Date, the parties
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties of the other
parties hereto contained herein or made in connection herewith, and (iii) waive
compliance with any of the agreements of the other parties hereto contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party.
7.4 No Survival of Representations and Warranties. None of the
representations and warranties contained in this Agreement shall survive the
Closing Date.
ARTICLE 8
MISCELLANEOUS
8.1 Assignment. The Company may not assign its rights under this Agreement
without the consent of the Partnership. The Partnership may assign its rights
under this Agreement.
8.2 Entire Agreement; Modifications; Amendments.
(a) This Agreement embodies and constitutes the entire understanding
between the parties with respect to the transactions contemplated herein, and
all prior or contemporaneous agreements, understandings, representations and
statements, oral or written, are merged into this Agreement. Except as expressly
otherwise provided herein, neither this Agreement nor any provision hereof may
be waived, modified, amended, discharged or terminated except by an instrument
in writing signed by the party against which the enforcement of such waiver,
modification, amendment, discharge or termination is sought, and then only to
the extent set forth in such instrument.
(b) Subject to applicable law, this Agreement may be amended by the
Company and the Partnership at any time prior to the filing of the Merger
Documents with the
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State Department of Assessments and Taxation of the State of Maryland and the
Secretary of the Commonwealth of the Commonwealth of Massachusetts; provided,
however, that after approval by Unitholders holding a majority of the
Partnership Units of the Partnership, without further approval of the
Unitholders of the Partnership, no amendment may be made that alters or changes
(i) the number of shares of Common Stock which the Unitholders in the
Partnership shall be entitled to receive, (ii) the articles of incorporation of
the Company or (iii) the terms and conditions of this Agreement, if such
alteration or change would have a material adverse effect on the Unitholders.
8.3 Notices. All notices, demands or other writings in this Agreement
provided to be given or made or sent, or which may be given or made or sent, by
either party hereto to the other may be given personally or may be delivered by
depositing the same in the U.S. mail, certified, return receipt requested,
postage prepaid or by delivering the same to an air courier service, postage
prepaid, properly addressed and sent to the address of such party as set forth
below, or such other address as either party may from time to time designate by
written notice to the other. Notice given by mail shall be considered effective
upon the expiration of five business days after deposit. Notice given in any
other manner shall be effective only if and when received by the addressee.
If to the Company:
Franklin Street Properties Corp.
c/o Franklin Street Partners Limited Partnership
401 Edgewater Place, Suite 200
Wakefield, Massachusetts 01880
Attention: George J. Carter
Fax: (800) 950-6288
with a copy to:
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Attention: Kenneth A. Hoxsie, Esq.
Fax: (617) 526-5000
If to the Partnership:
c/o FSP General Partner, LLC
401 Edgewater Place, Suite 200
Wakefield, Massachusetts 01880
Attention: George J. Carter, President
Fax: (800) 950-6288
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with a copy to:
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Attention: Kenneth A. Hoxsie, Esq.
Fax: (617) 526-5000
8.4 Interpretation. Words of any gender used in this Agreement shall be
held and construed to include any other gender, and words of a singular number
shall be held to include the plural and vice versa, unless the context requires
otherwise.
8.5 Captions. The captions used in this Agreement are for convenience only
and shall not be deemed to construe or to limit the meaning of the language of
this Agreement.
8.6 Counterparts. This Agreement may be executed in any number of
identical counterparts. If so executed, each of such counterparts is to be
deemed an original for all purposes, and all such counterparts shall
collectively constitute one agreement, but in making proof of this Agreement it
shall not be necessary to produce or account for more than one such counterpart.
8.7 Binding Effect. Subject to the restrictions on assignment contained in
Section 8.1 hereof, this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, legal representatives,
successors and assigns.
8.8 Attorneys' Fees. Should any party hereto employ an attorney or
attorneys to enforce any of the provisions hereof or to protect its interest in
any manner arising under this Agreement, or to recover damages for the breach
hereof, the nonprevailing party or parties in any action pursued in courts of
competent jurisdiction (the finality of which action is not legally contested)
agrees to pay to the prevailing party or parties all reasonable costs, damages
and expenses, including attorneys' fees, expended or incurred in connection
therewith; provided, however, that if more than one item is disputed and the
final decision is against each party as to one or more of the disputed items,
then such costs, expenses and attorneys' fees shall be apportioned in accordance
with the monetary values of the items decided against each party.
8.9 No Waiver; Severability. The failure of any party hereto to enforce at
any time any of the provisions of this Agreement shall in no way be construed to
be a waiver of any such provision, and shall in no way affect the validity of
this Agreement or any part hereof or the right of any party thereafter to
enforce each and every such provision. No waiver of any breach of this Agreement
shall be held to be a waiver of any other or subsequent breach. If any provision
of this Agreement, or the application thereof to any person or circumstances
shall, for any reason and to any extent, be invalid or unenforceable, but the
extent of the invalidity or unenforceability does not destroy the basis of the
bargain between the parties as contained herein, the remainder of this Agreement
and the application of such provision to other persons or circumstances shall
not be affected thereby but rather shall be enforced to the greatest extent
permitted by law.
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8.10 Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Maryland.
IN WITNESS WHEREOF, this Agreement has been executed by each of the
parties as of the date first set forth above.
COMPANY:
FRANKLIN STREET PROPERTIES CORP.
By:
---------------------------------------------
Name: George J. Carter
Title: President
PARTNERSHIP:
FRANKLIN STREET PARTNERS LIMITED PARTNERSHIP
By: FSP General Partner LLC
Its General Partner
By:
---------------------------------------------
Name: George J. Carter
Title: President
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APPENDIX B
FRANKLIN STREET PROPERTIES CORP.
ARTICLES OF INCORPORATION
ARTICLE I
INCORPORATOR
The undersigned, Kenneth A. Hoxsie, whose address is c/o Hale and Dorr
LLP, 60 State Street, Boston, Massachusetts 02109, being at least eighteen years
of age, acting as incorporator, does hereby form a corporation under the General
Laws of the State of Maryland.
ARTICLE II
NAME
The name of the corporation (hereinafter, the "Corporation") is
FRANKLIN STREET PROPERTIES CORP.
ARTICLE III
PURPOSES
The purposes for which and any of which the Corporation is formed and the
business and objects to be carried on and promoted by it are:
(1) To engage in business as a real estate investment trust, qualifying as
such under Sections 856 through 860 of the Internal Revenue Code of 1986, as
amended, or any successor statute (the "Code" and any references herein to
provisions of the Code shall include the successors to such provisions) and to
perform any and all activities and functions in connection therewith or related
thereto.
(2) To engage in and perform any other activities or functions which may
lawfully be performed by a business corporation organized under the General Laws
of the State of Maryland.
The foregoing enumerated purposes and objects shall be in no way limited
or restricted by reference to, or inference from, the terms of any other clause
of this or any other Article of the Charter of the Corporation, and each shall
be regarded as independent; and they are intended to be and shall be construed
as powers as well as purposes and objects of the Corporation and shall be in
addition to and not in limitation of the general powers of corporations under
the General Laws of the State of Maryland.
ARTICLE IV
PRINCIPAL OFFICE IN MARYLAND
The present address of the principal office of the Corporation in the
State of Maryland is c/o The Corporation Trust Incorporated, 32 South Street,
Baltimore, Maryland 21202. The Corporation may have such other offices or places
of business within or without the State of Maryland as the Board of Directors of
the Corporation may determine.
ARTICLE V
RESIDENT AGENT
The name and address of the resident agent of the Corporation is The
Corporation Trust Incorporated, 32 South Street, Baltimore, Maryland 21201. Said
resident agent is a Maryland corporation.
ARTICLE VI
SHARES OF CAPITAL STOCK
Section 1. Authorized Shares of Capital Stock
(a) Authorized Shares. The total number of shares of capital stock of all
classes that the Corporation has authority to issue is 200,000,000 shares,
consisting of
(i) 20,000,000 shares of Preferred Stock, par value $.0001 per share
(the "Preferred Shares"), which may be issued in one or more classes as
described in Section 3 of this Article VI; and
(ii) 180,000,000 shares of Common Stock, par value $.0001 per share
(the "Common Shares").
Each class of the Preferred Shares and the Common Shares shall each
constitute a separate class of capital stock of the Corporation.
(b) Terminology and Aggregate Par Value. The Common Shares and the
Preferred Shares are collectively referred to herein as the "Equity Shares." The
aggregate par value of all of the Corporation's authorized shares having par
value is $20,000.
(c) Increase or Decrease in Authorized Shares. The Board of Directors of
the Corporation may amend these Articles of Incorporation, without any vote or
consent of the stockholders, to increase or decrease the aggregate number of
Equity Shares or the number of Equity Shares of any class that the Corporation
has authority to issue.
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Section 2. REIT-Related Restrictions and Limitations on the Equity Shares.
(a) Definitions. As used in this Article VI, the following terms shall
have the indicated meanings:
"Acquire" shall mean the acquisition of Beneficial Ownership
or Constructive Ownership of Equity Shares by any means, including
without limitation a Transfer or the exercise of or right to
exercise any rights under any option, warrant, convertible security,
pledge or other security interest or similar right to acquire Equity
Shares, but shall not include the acquisition of any such rights
unless, as a result, the acquiror would be considered a Beneficial
Owner or Constructive Owner, as defined below. The term
"Acquisition" shall have the correlative meaning.
"Beneficial Ownership" shall mean ownership of Equity Shares
by a Person who is or would be treated as an owner of such Equity
Shares under Section 542(a)(2) of the Code either actually or
constructively through the application of Section 544 of the Code,
as modified by Section 856(h)(1)(B) of the Code. The terms
"Beneficially Own," "Beneficially Owned" and "Beneficial Owner"
shall have the correlative meanings.
"Board" shall mean the Board of Directors of the Corporation.
"Business Day" shall mean any day, other than a Saturday or
Sunday, that is neither a legal holiday nor a day on which banking
institutions in Boston, Massachusetts are authorized or required by
law, regulation or executive order to close.
"Charitable Beneficiary" shall mean one or more beneficiaries
of the Trust as determined pursuant to Section 2(e)(vi) of this
Article VI.
"Constructive Ownership" shall mean ownership of Equity Shares
or any other interest in an entity by a Person who is or would be
treated as an owner thereof either actually or constructively
through the application of Section 318 of the Code, as modified by
Section 856(d)(5) of the Code. The terms "Constructively Own,"
"Constructively Owned" and "Constructive Owner" shall have the
correlative meanings.
"Market Price" shall mean the last reported sales price of the
Common Shares or Preferred Shares, as the case may be, on the
trading day immediately preceding the relevant date as reported on
the principal exchange or quotation system over or through which the
Common Shares or Preferred Shares, as the case may be, may be
traded, or if not then traded over or through any exchange or
quotation system, then the fair market value of the Common Shares or
Preferred Shares, as the case may be, on the relevant date as
determined in good faith by the Board.
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"Merger Date" shall mean the effective date of the merger of
Franklin Street Partners Limited Partnership with and into the
Corporation.
"Ownership Limit" shall mean 9.8% of the number of shares or
value (whichever is more restrictive) of the outstanding Equity
Shares. The number and value of Equity Shares of the Corporation
shall be determined by the Board in good faith, which determination
shall be conclusive for all purposes hereof.
"Person" shall mean an individual, corporation, partnership,
limited liability company, association, estate, trust (including a
trust qualified under Section 401(a) or 501(c)(17) of the Code), a
portion of a trust permanently set aside for or to be used
exclusively for the purposes described in Section 642(c) of the
Code, association, private foundation within the meaning of Section
509(a) of the Code, joint stock company or other entity.
"Purported Beneficial Owner" shall mean, with respect to any
Acquisition or Transfer, the Person who would Beneficially Own or
Constructively Own Equity Shares but for the limitations set forth
in Section 2(b)(i) of this Article VI applicable to such Acquisition
or Transfer. The Purported Beneficial Owner and the Purported Record
Owner may be the same Person.
"Purported Record Owner" shall mean, with respect to any
Acquisition or Transfer, the Person who would have been the record
holder of the Equity Shares if such Acquisition or Transfer had not
violated the provisions of Section 2(b)(i) of this Article VI. The
Purported Beneficial Owner and the Purported Record Owner may be the
same Person.
"Restriction Termination Date" shall mean the effective date,
as specified in a resolution of the Board, that it is no longer in
the best interests of the Corporation to attempt to, or continue to,
qualify as a REIT or that the restrictions and limitations on
Beneficial Ownership, Constructive Ownership or Transfer of Equity
Shares set forth in this Section 2 are no longer required in order
for the Corporation to qualify as a REIT. If no such effective date
is specified in such resolution, the Restriction Termination Date
shall be the date on which such resolution is adopted by the Board.
"Transfer" shall mean any issuance, sale, transfer, gift,
assignment, devise or other disposition of, or any other event that
would cause a Person to Acquire Equity Shares or the right to vote
or receive dividends on Equity Shares, including (i) the granting of
any option or entering into any agreement for the sale, transfer or
other disposition of Equity Shares or the right to vote or receive
dividends on Equity Shares, or (ii) the sale, transfer, assignment
or other disposition of any securities or rights convertible into or
exchangeable for Equity Shares, in each case whether voluntary or
involuntary, whether of record or Beneficially Owned or
Constructively Owned, and whether by operation of law or otherwise.
A Transfer also includes any transfer of interests in other
entities,
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any change in the capital structure of the Corporation and any
change in the relationship between two or more Persons, that results
in a change in Beneficial Ownership or Constructive Ownership of
Equity Shares, whether by operation of law or otherwise. The terms
"Transfers" and "Transferred" shall have the correlative meanings.
"Trust" shall mean the trust created pursuant to Section
2(e)(i) of this Article VI.
"Trustee" shall mean the Person that is appointed by the
Corporation pursuant to Section 2(e)(i) of this Article VI to serve
as trustee of the Trust, and any successor thereto.
(b) Ownership Limitation and Transfer Restrictions with Respect to Equity
Shares.
(i) Except as provided in Section 2(f) of this Article VI, after the
Merger Date and prior to the Restriction Termination Date:
(A) no Person shall Beneficially Own or Constructively Own
Equity Shares in excess of the Ownership Limit;
(B) no Person shall Acquire or Transfer Equity Shares to the
extent that such Acquisition or Transfer, if effective, would result in
the outstanding Equity Shares being beneficially owned by fewer than 100
Persons (determined without reference to any rules of attribution); and
(C) no Person shall Acquire or Beneficially Own or
Constructively Own Equity Shares to the extent such Acquisition,
Beneficial Ownership or Constructive Ownership, if effective, would result
in the Corporation being "closely held" within the meaning of Section
856(h) of the Code (without regard to whether the ownership interest is
held during the last half of a taxable year), or would otherwise result in
the Corporation failing to quality as a REIT (including without limitation
Constructive Ownership that would result in the Corporation owning,
actually or constructively, an interest in a tenant that is described in
Section 856(d)(2)(B) of the Code if the income derived by the Corporation
from such tenant would cause the Corporation to fail to satisfy any of the
gross income requirements of Section 856(c) of the Code, but not including
beneficial ownership of Equity Shares by fewer than 100 Persons, which
shall be governed by Section 2(b)(i)(B) above).
(ii) If, after the Merger Date and prior to the Restriction
Termination Date:
(A) any Transfer or Acquisition (other than an event described
in Section 2(b)(ii)(B) of this Article VI) (whether or not such Transfer
or Acquisition is the result of a transaction entered into through the
facilities of any national securities exchange or automated inter-dealer
quotation system) occurs which, if effective, would result in any Person
Beneficially Owning or Constructively Owning Equity Shares in violation of
Sections 2(b)(i)(A) or 2(b)(i)(C) of this Article VI, then (1) that number
of
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Equity Shares being Transferred or Acquired that otherwise would cause
such Person to violate Sections 2(b)(i)(A) or 2(b)(i)(C) of this Article
VI (rounded up to the nearest whole share) shall be automatically
transferred to a Trust for the benefit of a Charitable Beneficiary, as
described in Section 2(e)(i) of this Article VI, effective as of the close
of business on the Business Day prior to the date of such Transfer or
Acquisition, and the Purported Beneficial Owner and Purported Record Owner
of such Equity Shares shall acquire no rights in such Equity Shares, or
(2) if the transfer to the Trust described in clause (1) of this sentence
would not be effective for any reason to prevent such Person from
Beneficially Owning or Constructively Owning Equity Shares in violation of
Sections 2(b)(i)(A) or 2(b)(i)(C) of this Article VI, then the Acquisition
or Transfer of that number of Equity Shares that otherwise would cause
such Person to violate Sections 2(b)(i)(A) or 2(b)(i)(C) of this Article
VI (rounded up to the nearest whole share) shall be void ab initio and the
Purported Beneficial Owner and Purported Record Owner shall acquire no
rights in such Equity Shares. The transfer of Equity Shares to the Trust
pursuant to clause (1) of the preceding sentence shall occur automatically
and without further action of the Corporation, the Trustee or any other
Person; or
(B) any Transfer or Acquisition (whether or not such Transfer
or Acquisition is the result of a transaction entered into through the
facilities of any national securities exchange or automated inter-dealer
quotation system) occurs which, if effective, would result in any Person
beneficially owning Equity Shares in violation of Section 2(b)(i)(B) of
this Article VI, then such Transfer or Acquisition shall be void ab
initio, and the Purported Beneficial Owner and the Purported Record Owner
of the Equity Shares purportedly subject to such Acquisition or Transfer
shall acquire no rights in such Equity Shares.
(c) The Corporation's Right to Redeem Shares. Except with respect to
Equity Shares whose transfer to a Trust has been effected in accordance with
Section 2(b)(ii)(A) of this Article VI (which Equity Shares shall be subject to
Section 2(e) of this Article VI following such transfer), the Corporation shall
have the right, but not the obligation, to redeem any Equity Shares that are
Acquired or Transferred, or are attempted to be Acquired or Transferred, in
violation of Section 2(b) of this Article VI, at a price per share equal to the
lesser of (i) the Market Price per share of the class of Equity Shares that
created such violation or attempted violation on the date of such violation or
attempted violation (or, in the case of a devise or gift, the Market Price at
the time of such devise or gift) and (ii) the Market Price per share of the
class of Equity Shares to which such Equity Shares relate on the date the
Corporation, or its designee, gives notice of such redemption. The Corporation
shall have the right to redeem any Equity Shares described in this Section 2(c)
for a period of 90 days after the later of (i) the date of the Acquisition or
Transfer or attempted Acquisition or Transfer and (ii) the date the Board
determines in good faith that an Acquisition or Transfer or attempted
Acquisition or Transfer has occurred, if the Corporation does not receive a
notice of such Transfer pursuant to Section 2(d) of this Article VI.
(d) Notice Requirements and General Authority of the Board of Directors to
Implement REIT-Related Restrictions and Limitations.
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(i) Notice Requirements. After the Merger Date and prior to the
Restriction Termination Date:
(A) Any Person who Acquires or Transfers, or attempts or intends to
Acquire or Transfer, Equity Shares in violation of Section 2(b)(i) of this
Article VI, and any Person who is a Purported Record Owner or a Purported
Beneficial Owner of Equity Shares, shall immediately give written notice
or, in the event of a proposed, intended or attempted Acquisition or
Transfer or other event that would give rise to Beneficial Ownership or
Constructive Ownership in violation of Section 2(b)(i) of this Article VI,
give at least 15 days' prior written notice to the Corporation of such
event, and shall provide to the Corporation such other information as the
Corporation may request in order to determine the effect, if any, of such
Acquisition or Transfer on the Corporation's status as a REIT;
(B) Every Beneficial Owner or Constructive Owner of Equity Shares
and each Person (including the stockholder of record) who is holding
Equity Shares for a Beneficial Owner or Constructive Owner shall, on
demand, provide the Corporation in writing the information regarding their
ownership of such Equity Shares that the Corporation may be required to
obtain pursuant to regulations (as in effect from time to time) issued by
the United States Department of the Treasury under the Code. Each
Beneficial Owner or Constructive Owner of Equity Shares and each Person
(including the stockholder of record) who is holding Equity Shares for a
Beneficial Owner or Constructive Owner shall provide to the Corporation
such additional information that the Corporation may request in order to
determine the effect, if any, of such Beneficial Ownership or Constructive
Ownership on the Corporation's status as a REIT, including compliance with
the Ownership Limit; and
(C) Each Person who is a Beneficial Owner or Constructive Owner of
Equity Shares and each Person (including the shareholder of record) who is
holding Equity Shares for a Beneficial Owner or Constructive Owner shall,
on demand, provide the Corporation in writing such information that the
Corporation may request in order to determine the Corporation's status as
a REIT, to comply with the requirements of any taxing authority or
governmental agency, or to determine any such compliance.
(ii) Board Authority to Prevent Violation of Section 2(b)(i)
If the Board or any duly authorized committee thereof shall at any time
determine in good faith that a Transfer or other event has taken place that
results in a violation of Section 2(b)(i) of this Article VI or that a Person
intends to Acquire, has attempted to Acquire or may Acquire Beneficial Ownership
or Constructive Ownership of any Equity Shares in violation of Section 2(b)(i)
of this Article VI (whether or not such violation is intended), the Board or a
committee thereof shall take such action as it deems advisable to refuse to give
effect to or to prevent such Acquisition, Transfer or other event, including,
but not limited to, causing the Corporation to redeem Equity Shares, refusing to
give effect to such Acquisition, Transfer or other
B-7
event on the books of the Corporation, or instituting proceedings to enjoin such
Acquisition, Transfer or other event; provided, however, that any Transfers or
attempted Transfers (or, in the case of an event other than a Transfer,
Beneficial Ownership or Constructive Ownership) in violation of Section 2(b)(i)
of this Article VI shall automatically result in the transfer to the Trust
described above where the conditions to such transfer have been satisfied, and,
where applicable, such Transfer (or other event) shall be void ab initio as
provided above in Sections 2(b)(ii)(A) and 2(b)(ii)(B) irrespective of any
action (or nonaction) by the Board or a committee thereof.
(iii) Each certificate for Equity Shares shall bear substantially
the following legends:
"The Corporation is authorized to issue capital stock of more than
one class, consisting of Common Shares and one or more classes of
Preferred Shares. The Board of Directors is authorized to determine the
preferences, limitations and relative rights of any class of Preferred
Shares before the issuance of any such Preferred Shares, or any class
thereof. The Corporation will furnish, without charge, to any shareholder
making a written request therefor, a written statement of the
designations, relative rights, preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications
and terms and conditions of redemption applicable to each class of shares.
Requests for such written statement may be directed to the Secretary of
the Corporation at the principal office of the Corporation."
"The shares represented by this certificate are subject to
restrictions on Beneficial Ownership, Constructive Ownership and Transfer
for the purpose of the Corporation's maintenance of its status as a "real
estate investment trust" (a "REIT") under the Internal Revenue Code of
1986, as amended, or any successor statute (the "Code"). Subject to
certain further restrictions, and except as expressly provided in the
Corporation's Charter, (i) no Person may Beneficially Own or
Constructively Own shares of the Corporation's Common Shares or Preferred
Shares in excess of 9.8% in value or number of shares (whichever is more
restrictive) of the outstanding Common Shares or Preferred Shares,
respectively, of the Corporation, (ii) no Person may Transfer or Acquire
Equity Shares if such Transfer or Acquisition would result in the
Corporation being owned by fewer than 100 Persons and (iii) no Person may
Beneficially Own or Constructively Own Equity Shares that would result in
the Corporation being "closely held" under Section 856(h) of the Code or
otherwise cause the Corporation to fail to qualify as a REIT. Any Person
who Beneficially Owns or Constructively Owns or attempts to Beneficially
or Constructively Own Equity Shares which causes or will cause a Person to
Beneficially Own or Constructively Own Equity Shares in violation of the
above restrictions must immediately notify the Corporation. If some or all
of the restrictions on transfer or ownership set forth in clauses (i) or
(iii) are violated by a purported Transfer of the Equity Shares
represented hereby, the Equity Shares represented hereby will be
automatically transferred to a Trustee of a Trust for the benefit of one
or more Charitable Beneficiaries. In addition, the Corporation may redeem
Equity Shares represented hereby if a purported Transfer violates the
restrictions described above. Furthermore, attempted Transfers in
violation of the restrictions described above may be void ab initio. A
Person who attempts to Beneficially or
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Constructively Own Equity Shares in violation of the restrictions
described above shall have no claim, cause of action or any recourse
whatsoever against a transferor of such Equity Shares. All capitalized
terms in this legend have the meanings defined in the Charter of the
Corporation, as the same may be amended from time to time, a copy of
which, including the restrictions on transfer and ownership, will be
furnished, without charge, to each holder of Equity Shares who directs a
request to the Secretary of the Corporation at the principal office of the
Corporation."
(iv) Absent a decision to the contrary by the Board (which the Board
may make in its sole and absolute discretion), the Equity Shares to be affected
by the remedies set forth in Sections 2(b)(ii) and 2(c) shall be as follows: (1)
if a Purported Beneficial Owner would have (but for the remedies set forth in
Sections 2(b)(ii) or 2(c), as applicable) Beneficially Owned or Constructively
Owned Equity Shares in violation of Section 2(b)(i) as a result of an
Acquisition of Equity Shares by such Purported Beneficial Owner, such remedies
(as applicable) shall apply first to the Equity Shares that, but for such
remedies, would have caused such violation and would have been directly owned by
such Purported Beneficial Owner, second to Equity Shares that, but for such
remedies, would have caused such violation but which would not have been
directly owned by such Purported Beneficial Owner, pro rata among the Persons
who actually attempted to Acquire such Equity Shares based upon the relative
value of what would have been the Purported Beneficial Owner's Beneficial
Ownership or Constructive Ownership interest in the Equity Shares such Person
attempted to acquire, third to other Equity Shares that are directly owned by
such Purported Beneficial Owner, and fourth to other Equity Shares that are
actually owned by such other Persons whose ownership of shares is attributed to
the Purported Beneficial Owner, pro rata among such Persons based upon the
relative value of the Purported Beneficial Owner's Beneficial Ownership or
Constructive Ownership interest in the Equity Shares so owned; and (2) if a
Purported Beneficial Owner would be in violation of Section 2(b)(i) as a result
of an event other than an Acquisition of Equity Shares by such Purported
Beneficial Owner, the remedies set forth in Sections 2(b)(ii) and 2(c) (as
applicable) shall apply first to Equity Shares that are directly owned by such
Purported Beneficial Owner and second to Equity Shares that are Beneficially or
Constructively Owned (but not directly owned) by such Person, pro rata among the
Persons who actually own such Equity Shares based upon the relative value of the
Purported Beneficial Owner's Beneficial Ownership or Constructive Ownership
interest in the Equity Shares so owned.
(v) Subject to subparagraph f(iii) below, nothing contained in this
Article VI shall limit the authority of the Board to take such other action as
it deems necessary or advisable to protect the Corporation and the interests of
its stockholders by preserving the Corporation's status as a RETT.
(e) Transfers of Equity Shares in Trust
(i) Ownership in Trust. Upon any purported Transfer or Acquisition
described in Section 2(b)(ii) of this Article VI that causes Equity Shares to be
transferred to a Trust, such Equity Shares shall be deemed to have been
transferred to the Trustee in his or her capacity as trustee of a Trust for the
exclusive benefit of one or more Charitable Beneficiaries. Such transfer to the
Trustee shall be deemed to be effective as of the close of business on the
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Business Day prior to the purported Transfer or Acquisition that results in a
transfer to the Trust pursuant to Section 2(b)(ii) of this Article VI. The
Trustee shall be appointed by the Corporation, and shall be a Person
unaffiliated with the Corporation, any Purported Beneficial Owner or any
Purported Record Owner. Each Charitable Beneficiary shall be designated by the
Corporation as provided in Section 2(e)(vi) of this Article VI. The Corporation
shall notify the Trustee of a transfer of Equity Shares to the Trust as soon as
practicable following discovery by the Corporation of such transfer.
(ii) Status of Equity Shares Held by the Trustee. Equity Shares held
by the Trustee shall be issued and outstanding shares of capital stock of the
Corporation. The Purported Beneficial Owner and Purported Record Owner shall
have no rights in the Equity Shares held by the Trustee. The Purported
Beneficial Owner and Purported Record Owner shall not benefit economically from
ownership of any Equity Shares held in trust by the Trust, shall have no rights
to dividends or other distributions and shall not possess any rights to vote or
other rights attributable to the Equity Shares held in the Trust. The Purported
Record Owner and the Purported Beneficial Owner shall surrender to the Trustee
any and all certificates representing Equity Shares that have been transferred
to the Trust, duly endorsed for transfer to the Trustee.
(iii) Dividend and Voting Rights. The Trustee shall have all voting
rights and rights to dividends with respect to Equity Shares held in the Trust,
which rights shall be exercised for the exclusive benefit of the Charitable
Beneficiary. Any dividend or distribution with respect to such Equity Shares
paid to a Purported Beneficial Owner or Purported Record Owner prior to the
discovery by the Corporation that the Equity Shares have been transferred to the
Trustee shall be deemed to be held by the recipient thereof as agent for the
Trustee, and shall be paid to the Trustee upon demand, and any dividend or
distribution declared after the date of transfer to the Trustee but unpaid shall
be paid when due to the Trustee. Any dividends or distributions so paid to the
Trustee shall be held in trust for the Charitable Beneficiary. The Purported
Record Owner and Purported Beneficial Owner shall have no voting rights with
respect to Equity Shares held in the Trust and, subject to Maryland law,
effective as of the date the Equity Shares have been transferred to the Trustee,
the Trustee shall have the authority (at the Trustee's sole discretion) (1) to
rescind as void any vote cast by a Purported Record Owner or Purported
Beneficial Owner with respect to such Equity Shares prior to the discovery by
the Corporation that the Equity Shares have been transferred to the Trustee and
(2) to recast such vote in accordance with the desires of the Trustee acting for
the benefit of the Charitable Beneficiary; provided, however, that if the
Corporation has already taken irreversible corporate action, then the Trustee
shall not have the authority to rescind and recast such vote. Notwithstanding
the provisions of this Article VI, until the Corporation has received
notification that Equity Shares have been transferred into a Trust, the
Corporation shall be entitled to rely on its share transfer and other
stockholder records for purposes of preparing lists of stockholders entitled to
vote at meetings, determining the validity and authority of proxies and
otherwise conducting votes of stockholders.
(iv) Sale of Shares by Trustee. Within 20 days of receiving notice
from the Corporation that Equity Shares have been transferred to the Trust, the
Trustee of the Trust shall use best efforts to sell the Equity Shares held in
the Trust to a person, designated by the Trustee, whose ownership of the Equity
Shares will not violate the ownership limitations set forth in
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Section 2(b)(i) of this Article VI. Upon such sale, the interest of the
Charitable Beneficiary in the Equity Shares sold shall terminate and the Trustee
shall distribute the net proceeds of the sale to the Purported Record Owner and
to the Charitable Beneficiary as provided in this Section 2(e)(iv). The
Purported Record Owner shall receive the lesser of (1) the price paid by the
Purported Record Owner for the Equity Shares or, if the Purported Record Owner
did not give value for the Equity Shares (through a gift, devise or other
transaction), the Market Price of the Equity Shares on the day of the event
causing the Equity Shares to be held in the Trust and (2) the price per share
received by the Trustee from the sale or other disposition of the Equity Shares
held in the Trust (net of any commissions and other expenses of sale). Any net
sales proceeds in excess of the amount payable to the Purported Record Owner
shall be immediately paid to the Charitable Beneficiary, together with any
dividends or other distributions thereon. If, prior to the discovery by the
Corporation that Equity Shares have been transferred to the Trustee, such Equity
Shares are sold by a Purported Record Owner then (X) such Equity Shares shall be
deemed to have been sold on behalf of the Trust, (Y) the proceeds of such sale
shall be deemed to be held by such Purported Record Owner or Purported
Beneficial Owner as a agent for the Trustee and (Z) to the extent that the
Purported Record Owner received an amount for such Equity Shares that exceeds
the amount that such Purported Record Owner was entitled to receive pursuant to
this Section 2(e)(iv), such excess shall be paid to the Trustee upon demand.
(v) Purchase Right in Stock Transferred to the Trustee. Equity
Shares transferred to the Trustee shall be deemed to have been offered for sale
to the Corporation, or its designee, at a price per share equal to the lesser of
(1) the price paid by the Purported Record Owner for the Equity Shares in the
transaction that resulted in such transfer to the Trust (or, if the event which
resulted in the transfer to the Trust did not involve a purchase of such Equity
Shares, the Market Price of such Equity Shares on the day of the event which
resulted in the transfer of such Equity Shares to the Trust) and (2) the Market
Price on the date the Corporation, or its designee, accepts such offer. The
Corporation shall have the right to accept such offer until the Trustee has sold
the Equity Shares held in the Trust pursuant to Section 2(e)(iv) of this Article
VI. Upon such a sale to the Corporation, the interest of the Charitable
Beneficiary in the Equity Shares sold shall terminate and the Trustee shall
distribute the net proceeds of the sale to the Purported Record Owner (minus any
dividend or distribution paid to the Purported Record Owner that the Purported
Record Owner was obligated to pay to the Trustee but has not paid to the Trustee
at the time of the distribution of the proceeds) and any dividends or other
distributions held by the Trustee with respect to such Equity Shares, together
with any amounts described in the preceding parenthetical of this sentence, to
the Charitable Beneficiary.
(vi) Designation of Charitable Beneficiaries. By written notice to
the Trustee, the Corporation shall designate one or more nonprofit organizations
to be the Charitable Beneficiary(ies) of the interest in the Trust such that (1)
the Equity Shares held in the Trust would not violate the restrictions set forth
in Section 2(b)(i) of this Article VI in the hands of such Charitable
Beneficiary and (2) each Charitable Beneficiary is an organization described in
Sections 170(b)(1)(A), 170(c)(2) and 501(c)(3) of the Code.
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(f) Exemptions.
(i) The Board, in its sole and absolute discretion, may exempt a
Person from the limit set forth in Section 2(b)(i)(A) (but not from Sections
2(b)(i)(B) or (C)) of this Article VI, if the Board obtains such representations
and undertakings from such Person and any other Person as the Board may deem
appropriate; and such Person agrees in writing that any violation or attempted
violation of such representations or undertakings (or other action which is
contrary to the restrictions contained in Section 2(b) of this Article VI) will
result in the application of the remedies set forth in Sections 2(b)(ii) and
2(c) of this Article VI, to the extent necessary to prevent or cure such
violation or action, to the Equity Shares Beneficially or Constructively Owned
by such Person.
(ii) Nothing in Section 2(f)(i) of this Article VI shall be deemed
to require the Board to consider a request for exemption from the restrictions
in Section 2(b)(i)(A) of this Article VI. Prior to granting any exemption
pursuant to Section 2(f)(i) of this Article VI, the Board may require a ruling
from the Internal Revenue Service, an opinion of counsel, or both, in any case
in form and substance satisfactory to the Board in its sole and absolute
discretion, as it may deem necessary or advisable in order to determine or
ensure the Corporation's status as a REIT. Notwithstanding the receipt of any
ruling or opinion, the Board may impose such conditions or restrictions as it
deems appropriate in connection with granting such exemption. If a member of the
Board requests that the Board grant an exemption pursuant to Section 2(f)(i) of
this Article VI with respect to such member or to any other Person if such Board
member would be considered to be the Beneficial or Constructive Owner of Equity
Shares owned by such Person, such member of the Board shall not participate in
the decision of the Board as to whether to grant such exemption.
(iii) Nothing in this Article VI shall preclude the settlement of a
transaction entered into through the facilities of any stock exchange on which
Equity Shares are listed for trading. The fact that the settlement of any
transaction is permitted shall not negate the effect of any other provision of
this Article VI, and any transferee in such a transaction shall be subject to
all of the provisions and limitations set forth in this Article VI.
(iv) Section 2(b)(i)(A) of this Article VI shall not apply to the
Acquisition of Equity Shares or rights, options or warrants for, or securities
convertible into, Equity Shares by an underwriter in a public offering, provided
that such underwriter makes a timely distribution of such Equity Shares or
rights, options or warrants for, or securities convertible into, Equity Shares.
Section 3. Preferred Shares.
(a) Authority to Designate and Fix Rights and Restrictions of Preferred
Shares. The Board of Directors may authorize the issuance from time to time of
the Preferred Shares in one or more separately designated classes (hereinafter a
"class"). Prior to issuance of any shares of a class of Preferred Shares, by
resolution the Board of Directors shall
(i) designate such class in order to distinguish it from all other
then outstanding classes of Preferred Shares;
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(ii) set the number of Preferred Shares to be included in such
class; and
(iii) subject to the provisions of Sections 2 and 5 of this Article
VI, and to the express limitations, if any, of any other classes of which shares
are outstanding at the time, set the preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends or other distributions,
qualifications and terms and conditions of the redemption of the shares of such
class, provided that all shares of any class shall be alike in every particular,
except that shares of such class issued at different times may accumulate
dividends from different dates.
(b) Amendment of Terms. Subject to the provisions of Sections 2 and 5 of
this Article VI and to the express limitations, if any, of any class of
Preferred Shares of which shares are outstanding at the time, by resolution the
Board of Directors may
(i) increase or decrease (but not below the number of Preferred
Shares of such class then outstanding) the number of Preferred Shares of any
class; and
(ii) alter the designation of, or classify or reclassify, any
unissued Preferred Shares of any class from time to time by setting or changing
the preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications or terms or
conditions of redemption of such class.
Section 4. Common Shares.
Subject to the provisions of Sections 2 and 5 of this Article VI, the
Common Shares shall have the following preferences, rights, powers,
restrictions, limitations and qualifications and such others as may be afforded
by law:
(a) Voting Rights. Except as may otherwise by required by law, and subject
to action, if any, by the Board of Directors, pursuant to Section 3 of this
Article VI, granting to the holders of one or more classes of Preferred Shares
exclusive voting powers with respect to specified matters, each holder of Common
Shares shall have one vote in respect of each Common Share held of record on all
matters to be voted upon by the stockholders.
(b) Dividend Rights. After provision(s) with respect to preferential
dividends on any then outstanding classes of Preferred Shares, if any, fixed by
the Board of Directors pursuant to Section 3 of this Article VI, shall have been
satisfied, and after satisfaction of any other requirements, if any, including
with respect to redemption rights and preferences, in any such classes of
Preferred Shares, then and thereafter the holders of Common Shares shall be
entitled to receive, ratably in proportion to the number of Common Shares held
by them, such dividends as may be declared from time to time by the Board of
Directors out of funds legally available therefor. All distributions paid with
respect to the Common Shares shall be paid pro rata, with no preference to any
Common Share as compared with other Common Shares.
(c) Liquidation Rights. In the event of the voluntary or involuntary
liquidation, dissolution or winding-up of the Corporation, after distribution in
full of the preferential amounts, if any, fixed pursuant to Section 3 of this
Article VI, to be distributed to the holders of any
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then outstanding Preferred Shares, and subject to the right, if any, of the
holders of any outstanding Preferred Shares to participate further in any
liquidating distributions, all of the assets of the Corporation, if any,
remaining, of whatever kind available for distribution to stockholders after the
foregoing distributions have been made shall be distributed to the holders of
the Common Shares, ratably in proportion to the number of Common Shares held by
them.
(d) Purchase of Interests of Common Shares.
(i) The Corporation shall use its best efforts to redeem Common
Shares on an annual basis from holders of Common Shares desiring to have such
Common Shares redeemed upon the terms and conditions set forth below.
(ii) A holder of Common Shares wishing to have some or all of his or
her Common Shares redeemed by the Corporation must mail or deliver a written
request to the Corporation indicating his or her desire to have such Common
Shares redeemed for cash. Any such request must be received by the Corporation
on or before July 1 immediately preceding the January 1 date on which the
redemption is to be effective. The Corporation shall send the purchase price for
any Common Shares redeemed to the holder thereof no later than two Business Days
following such effective date. Any such request to have Common Shares redeemed
shall constitute an offer by the holder thereof to sell such Common Shares and
shall be irrevocable. If the Corporation does not have sufficient funds to
purchase all of the Common Shares so offered or is otherwise prohibited from
purchasing all of the Common Shares so offered, the Corporation will redeem
Common Shares in the order in which effective offers are received from offerors
to the extent that the Corporation has funds available therefor and is not
prohibited from redeeming Common Shares.
(iii) The purchase price for any Common Shares redeemed by the
Corporation will equal 90% of the Fair Market Value of the Common Shares. "Fair
Market Value" of a Common Share shall mean the fair market value as determined
by the Board of Directors in its sole and absolute discretion, after
consultation with an adviser selected by the Board of Directors. Any redemption
of Common Shares by the Corporation shall be effective as of January 1 of the
year following the year in which the corresponding offer was timely made
pursuant to Section 3(d)(ii). Any holder whose Common Shares are to be redeemed
shall execute and deliver such transfer and other documents and instruments as
the Corporation may reasonably request. Any Common Shares redeemed by the
Corporation shall be cancelled and shall be held in the treasury of the
Corporation.
(iv) In fulfilling the Corporation's obligation to use best efforts
to redeem Common Shares for which offers have been timely made pursuant to
Section 3(d)(ii), the Board of Directors shall be authorized to take such steps
as it deems appropriate, in its sole discretion, including without limitation
the disposition of assets of the Corporation and incurring indebtedness on
behalf of the Corporation.
(v) Notwithstanding anything herein to the contrary, no Common
Shares shall be redeemed by the Corporation pursuant to this Section 3(d) if:
(A) The Corporation is insolvent or such redemption would
render the Corporation insolvent;
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(B) Such redemption would impair the capital or operations of
the Corporation;
(C) Such redemption would contravene any provision of federal
or state securities laws;
(D) Such redemption would result in the Corporation's failing
to qualify as a REIT; or
(E) The Board of Directors determines such redemption would
otherwise not be in the best interests of the Corporation.
(vi) If the Corporation is unable to redeem some or all of the
Common Shares offered for redemption, the Corporation shall use its best efforts
to arrange for a purchase of such Common Shares by a third party or parties,
each of whom shall be an "accredited investor" within the meaning of Rule 501(a)
of Regulation D promulgated under the Securities Act of 1933, as amended, and
shall have a pre-existing relationship with the Corporation (an "Accredited
Investor"); provided, however, that no such purchase shall be effected if it
would not be permitted under the terms of Section 3(d)(v). In addition, the
Corporation shall have the right to satisfy its obligations under Section
3(d)(i) by arranging for the purchase of Common Shares by any such Accredited
Investor or Investors for the price set forth in Section 3(d)(iii).
(vii) Any request for redemption of Common Shares by a holder
thereof pursuant to Section 3(d)(ii) shall be binding on such holder's
successors, heirs and assigns.
(viii) The Corporation shall not be obligated to effect any
redemptions pursuant to this Section 3(d) during any period that the Common
Shares are listed for trading on a national securities exchange or the NASDAQ
National Market System.
Section 5. General Provisions.
(a) Interpretation and Ambiguities. In addition to the other powers set
forth in this Article VI, the Board shall have the power to interpret and to
construe the provisions of this Article VI, and in the case of an ambiguity in
the application of any of the provisions of this Article VI, including any
definition contained in Section 1, the Board shall have the power to determine
the application of the provisions of this Article VI with respect to any
situation based on the facts known to it, and any such interpretation,
construction and determination shall be final and binding on all interested
parties, including the stockholders.
(b) Severability. If any provision of this Article VI or any application
of any such provision is determined to be void, invalid or unenforceable by any
court having jurisdiction over the issue, the validity and enforceability of the
remaining provisions shall not be affected and other applications of such
provision shall be affected only to the extent necessary to comply with the
determination of such court.
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ARTICLE VII
BOARD OF DIRECTORS
The business and affairs of the Corporation shall be managed by a Board of
Directors which may exercise all of the powers of the Corporation except those
conferred on, or reserved to, the stockholders by law.
Section 1. Authorized Number and Initial Directors.
The number of directors of the Corporation initially shall be six (6),
which number may be increased or decreased pursuant to the By-Laws of the
Corporation but in no event shall be less than the minimum number required by
the General Laws of the State of Maryland. Each director shall hold office until
the next annual meeting of the stockholders of the Corporation and until his or
her successor shall have been elected and qualified or until his or her earlier
death, resignation, retirement or removal. The names and the respective Classes
(as defined in Section 2 below) of the directors who will serve until the first
annual meeting of stockholders of the Corporation and until their successors are
elected and qualified are as follows:
Janet P. Notopoulos Class I
R. Scott MacPhee Class I
Barbara J. Corinha Class II
William W. Gribbell Class II
George J. Carter Class III
Richard R. Norris Class III
Section 2. Classified Board.
The directors of the Corporation shall be and are hereby divided into
three Classes, designated "Class I," "Class II" and "Class III," respectively.
The number of directors in each Class shall be as nearly equal in number as
possible. Each director shall be elected by the stockholders and shall serve for
a term ending on the date of the third Annual Meeting of Stockholders following
the Annual Meeting at which such director was elected; provided, however, that
each initial director in Class I shall serve for a term ending on the date of
the Annual Meeting held in 2004; each initial director in Class II shall serve
for a term ending on the date of the Annual Meeting held in 2003; and each
initial director in Class III shall serve for a term ending on the date of the
Annual Meeting held in 2002.
Section 3. Effect of Increases and Decreases in the Authorized Number of
Directors.
In the event of any increase or decrease in the authorized number of
directors:
(a) Each director then serving shall nevertheless continue as a
director of the Class of which such director is a member until the expiration of
such director's term or such director's prior death, retirement, resignation or
removal; and
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(b) The newly created or eliminated directorships resulting from any
increase or decrease shall be apportioned by the Board of Directors among the
three Classes so as to keep the number of directors in each Class as nearly
equal as possible.
Section 4. Removal of Directors.
A director may be removed from office only for cause based on a material
breach of his duties or obligations to the Corporation, and then only by the
affirmative vote of the holders of at least two-thirds of the votes entitled to
be cast in the election of directors.
Section 5. Filling Vacancies.
Should a vacancy on the Board of Directors occur or be created (whether
arising through death, retirement, resignation or removal) other than through an
increase in the number of authorized directors, such vacancy shall be filled by
the affirmative vote of a majority of the remaining directors, even though less
than a quorum of the Board of Directors. A vacancy on the Board of Directors
resulting from an increase in the number of directors shall be filled by the
affirmative vote of a majority of the entire Board of Directors. A director so
elected to fill a vacancy shall serve for the remainder of the term of the Class
to which such director was elected.
ARTICLE VIII
PROVISIONS FOR DEFINING, LIMITING AND REGULATING
CERTAIN POWERS OF THE CORPORATION AND OF
THE SHAREHOLDERS AND DIRECTORS
The following provisions are hereby adopted for the purposes of defining,
limiting and regulating the powers of the Corporation and of the directors and
stockholders:
Section 1. Powers of Board of Directors.
The Board of Directors shall have the power from time to time and in its
sole discretion (a) to determine in accordance with sound accounting practice
what constitutes annual or other net profits, earnings, surplus or net assets in
excess of capital; (b) to fix and vary from time to time the amount to be
reserved as working capital, or determine that retained earnings or surplus
shall remain in the hands of the Corporation; (c) to set apart out of any funds
of the Corporation such reserve or reserves in such amount or amounts and for
such proper purposes as it shall determine and to abolish or redesignate any
such reserve or any part thereof; (d) to borrow or raise money upon any terms
for any corporate purposes; (e) to distribute and pay distributions or dividends
in stock, cash or other securities or property, out of surplus or any other
funds or amounts legally available therefor, at such times and to the
stockholders of record on such dates as it may, from time to time, determine;
and (f) to determine whether and to what extent and at what times and places and
under what conditions and regulations the books, accounts and documents of the
Corporation shall be open to the inspection of stockholders, except as otherwise
provided by statute or by the By-Laws of the Corporation, and, except as so
provided, no stockholder shall have the right to inspect any book, account or
document of the Corporation unless authorized so to do by resolution of the
Board of Directors.
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Section 2. Limitation of Liability.
The liability of the directors and officers of the Corporation to the
Corporation or its stockholders for money damages shall be limited to the
fullest extent permitted under the General Laws of the State of Maryland now or
hereafter in force, including, but not limited to, Section 5-349 of the Courts
and Judicial Proceedings Article of the Annotated Code of Maryland, or any
successor provision of law of similar import, and the directors and officers of
the Corporation shall have no liability whatsoever to the Corporation or its
stockholders for money damages except to the extent which such liability cannot
be limited or restricted under the General Laws of the State of Maryland now or
hereafter in force. Neither the amendment nor repeal of the foregoing sentence
of this Section 2 of Article VIII nor the adoption nor amendment of any other
provision of the Charter or By-Laws of the Corporation inconsistent with the
foregoing sentence shall apply to or affect in any manner the applicability of
the foregoing sentence with respect to any act or omission of any director or
officer occurring prior to any such amendment, repeal or adoption.
Section 3. Indemnification.
A. Actions, Suits and Proceedings. The Corporation shall indemnify each
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative, investigative or otherwise, whether or not by or in
the right of the Corporation, by reason of the fact that he is or was, or has
agreed to become, a director or officer of the Corporation, or is or was
serving, or has agreed to serve, at the request of the Corporation, as a
director, officer, partner, trustee, employee or agent of, or in a similar
capacity with, another corporation, partnership, joint venture, trust or other
enterprise (including any employee benefit plan) (all such persons being
referred to hereafter as an "Indemnitee"), or by reason of any action alleged to
have been taken or omitted in such capacity, against all expenses (including
attorneys' fees), judgments, penalties, fines and amounts paid in settlement
actually and reasonably incurred by him or on his behalf in connection with such
action, suit or proceeding and any appeal therefrom, unless (I) (a) the act or
omission of the Indemnitee was material to the matter giving rise to the
proceeding and (b)(i) was committed in bad faith or (ii) was the result of
active and deliberate dishonesty or (II) the Indemnitee actually received an
improper personal benefit in money, property or services or (III) with respect
to any criminal proceeding, the Indemnitee had reasonable cause to believe that
the act or omission was unlawful; provided, however, that if the action, suit or
proceeding was one by or in the right of the Corporation, no indemnification
shall be made in respect of any such action, suit or proceeding in which the
Indemnitee shall have been adjudged liable to the Corporation. The termination
of any action, suit or proceeding by judgment, order or settlement shall not, of
itself, create a presumption that the person did not meet the requisite standard
of conduct set forth in this Subsection A. The termination of any proceeding by
conviction, or a plea of nolo contendere or its equivalent, or an entry of an
order of probation prior to judgment creates a rebuttable presumption that the
Indemnitee did not meet the requisite standard of conduct. Notwithstanding the
foregoing, the Corporation shall not indemnify an Indemnitee in respect of any
action, suit or proceeding charging improper personal benefit to the Indemnitee,
whether or not involving action in the Indemnitee's official capacity, in which
the Indemnitee was adjudged to be liable on the basis that personal benefit was
improperly received. Notwithstanding
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anything to the contrary in this Section, except as set forth in Subsection F
below, the Corporation shall not indemnify an Indemnitee seeking indemnification
in connection with a proceeding (or part thereof) initiated by the Indemnitee
unless the initiation thereof was approved by the Board of Directors of the
Corporation. Notwithstanding anything to the contrary in this Section, the
Corporation shall not indemnify an Indemnitee to the extent such Indemnitee is
reimbursed from the proceeds of insurance, and in the event the Corporation
makes any indemnification payments to an Indemnitee and such Indemnitee is
subsequently reimbursed from the proceeds of insurance, such Indemnitee shall
promptly refund such indemnification payments to the Corporation to the extent
of such insurance reimbursement.
B. Indemnification for Expenses of Successful Party. Notwithstanding the
other provisions of this Section, to the extent that an Indemnitee has been
successful, on the merits or otherwise, in defense of any action, suit or
proceeding referred to in Subsection A of this Section, or in defense of any
claim, issue or matter therein, or on appeal from any such action, suit or
proceeding, he shall be indemnified against all expenses (including attorneys'
fees) actually and reasonably incurred by him or on his behalf in connection
therewith. Without limiting the foregoing, if any action, suit or proceeding is
disposed of, on the merits or otherwise (including a disposition without
prejudice), without (i) the disposition being adverse to the Indemnitee, (ii) an
adjudication that the Indemnitee was liable to the Corporation, (iii) a plea of
guilty or nolo contendere by, or the entry of an order of probation prior to
judgment with respect to, the Indemnitee, (iv) an adjudication that the
Indemnitee acted in bad faith or that his action was the result of active and
deliberate dishonesty, an adjudication that the Indemnitee received an improper
personal benefit in money, property or services, and (vi) with respect to any
criminal proceeding, an adjudication that the Indemnitee had reasonable cause to
believe his conduct was unlawful, the Indemnitee shall be considered for the
purposes hereof to have been wholly successful with respect thereto.
C. Notification and Defense of Claim. As a condition precedent to his
right to be indemnified, the Indemnitee must notify the Corporation in writing
as soon as practicable of any action, suit, proceeding or investigation
involving him for which indemnity will or could be sought. With respect to any
action, suit, proceeding or investigation of which the Corporation is so
notified, the Corporation will be entitled to participate therein at its own
expense and/or to assume the defense thereof at its own expense, with legal
counsel reasonably acceptable to the Indemnitee. After notice from the
Corporation to the Indemnitee of its election so to assume such defense, the
Corporation shall not be liable to the Indemnitee for any legal or other
expenses subsequently incurred by the Indemnitee in connection with such claim,
other than as provided below in this Subsection C. The Indemnitee shall have the
right to employ his own counsel in connection with such claim, but the fees and
expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of the Indemnitee
unless (i) the employment of counsel by the Indemnitee has been authorized by
the Corporation, (ii) counsel to the Indemnitee shall have reasonably concluded
that there may be a conflict of interest or position on any significant issue
between the Corporation and the Indemnitee in the conduct of the defense of such
action or (iii) the Corporation shall not in fact have employed counsel to
assume the defense of such action, in each of which cases the fees and expenses
of counsel for the Indemnitee shall be at the expense of the Corporation, except
as otherwise expressly provided by this Section 3. The Corporation shall not be
entitled, without
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the consent of the Indemnitee, to assume the defense of any claim brought by or
in the right of the Corporation or as to which counsel for the Indemnitee shall
have reasonably made the conclusion provided for in clause (ii) above.
D. Advance of Expenses. Subject to the provisions of Subsection E below,
in the event that the Corporation does not assume the defense pursuant to
Subsection C of this Section of any action, suit, proceeding or investigation of
which the Corporation receives notice under this Section, any expenses
(including attorneys' fees) incurred by an Indemnitee in defending a civil or
criminal action, suit, proceeding or investigation or any appeal therefrom shall
be paid by the Corporation in advance of the final disposition of such matter;
provided, however, that the payment of such expenses incurred by an Indemnitee
in advance of the final disposition of such matter shall be made only upon
receipt of (i) a written affirmation by the Indemnitee of the Indemnitee's good
faith belief that the standard of conduct necessary for indemnification has been
met and (ii) an undertaking by or on behalf of the Indemnitee to repay all
amounts so advanced in the event that it shall ultimately be determined that the
Indemnitee is not entitled to be indemnified by the Corporation as authorized in
this Section. Such undertaking need not be secured and shall be accepted without
reference to the financial ability of the Indemnitee to make such repayment.
E. Procedure for Indemnification. In order to obtain indemnification or
advancement of expenses pursuant to Subsections A, B or D of this Section, the
Indemnitee shall submit to the Corporation a written request, including in such
request such documentation and information as is reasonably available to the
Indemnitee and is reasonably necessary to determine whether and to what extent
the Indemnitee is entitled to indemnification or advancement of expenses. Any
such indemnification or advancement of expenses shall be made promptly, and in
any event within 60 days after receipt by the Corporation of the written request
of the Indemnitee, unless with respect to requests under Subsections A or D the
Corporation determines within such 60-day period that the Indemnitee did not
meet the applicable standard of conduct set forth in Subsection A. Such
determination shall be made in each instance by (a) a majority vote of a quorum
of the Board of Directors of the Corporation, consisting of directors, not, at
the time, parties to the proceeding ("disinterested directors"), or, if such a
quorum cannot be obtained, then by a majority vote of a committee of the
directors, consisting solely of two or more disinterested directors, who are
duly designated to act in the matter by a majority vote of the full Board of
Directors, in which the directors who are parties may participate, (b) a
majority vote of a quorum of the outstanding shares of stock of all classes
entitled to vote for directors, voting as a single class, which quorum shall
consist of stockholders who are not at that time parties to the action, suit or
proceeding in question, (c) special legal counsel (who may, to the extent
permitted by law, be regular legal counsel to the Corporation) selected by a
majority vote of a quorum of the directors consisting of disinterested
directors, or by a majority vote of a committee consisting of two or more
disinterested directors, who are duly designated to act in the matter by a
majority vote of the full Board of Directors, in which the directors who are
parties may participate, or, if the requisite quorum of the full Board of
Directors cannot be obtained therefor and the committee cannot be established,
by a majority vote of the full Board of Directors, in which directors who are
parties may participate, or (d) a court of competent jurisdiction.
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F. Remedies. The right to indemnification or advances as granted by this
Section shall be enforceable by the Indemnitee in any court of competent
jurisdiction if the Corporation denies such request, in whole or in part, or if
no disposition thereof is made within the 60-day period referred to above in
Subsection E. Unless otherwise required by law, the burden of proving that the
Indemnitee is not entitled to indemnification or advancement of expenses under
this Section shall be on the Corporation. Neither the failure of the Corporation
to have made a determination prior to the commencement of such action that
indemnification is proper in the circumstances because the Indemnitee has met
the applicable standard of conduct, nor an actual determination by the
Corporation pursuant to Subsection E that the Indemnitee has not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that the Indemnitee has not met the applicable standard of conduct.
The Indemnitee's expenses (including attorneys' fees) incurred in connection
with successfully establishing his right to indemnification, in whole or in
part, in any such proceeding shall also be indemnified by the Corporation.
G. Subsequent Amendment. No amendment, termination or repeal of this
Section or of the relevant provisions of the General Corporation Law of Maryland
or any other applicable laws shall affect or diminish in any way the rights of
any Indemnitee to indemnification under the provisions hereof with respect to
any action, suit, proceeding or investigation arising out of or relating to any
actions, transactions or facts occurring prior to the final adoption of such
amendment, termination or repeal.
H. Other Rights. The indemnification and advancement of expenses provided
by this Section shall not be deemed exclusive of any other rights to which an
Indemnitee seeking indemnification or advancement of expenses may be entitled
under any law (common or statutory), agreement or vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in any other capacity while holding office for the Corporation,
and shall continue as to an Indemnitee who has ceased to be a director or
officer, and shall inure to the benefit of the estate, heirs, executors and
administrators of the Indemnitee. Nothing contained in this Section shall be
deemed to prohibit, and the Corporation is specifically authorized to enter
into, agreements with officers and directors providing indemnification rights
and procedures different from those set forth in this Section. In addition, the
Corporation may, to the extent authorized from time to time by its Board of
Directors, grant indemnification rights to other employees or agents of the
Corporation or other persons serving the Corporation and such rights may be
equivalent to, or greater or less than, those set forth in this Section.
I. Partial Indemnification. If an Indemnitee is entitled under any
provision of this Section to indemnification by the Corporation for some or a
portion of the expenses (including attorneys' fees), judgments, fines or amounts
paid in settlement actually and reasonably incurred by him or on his behalf in
connection with any action, suit, proceeding or investigation and any appeal
therefrom but not, however, for the total amount thereof, the Corporation shall
nevertheless indemnify the Indemnitee for the portion of such expenses
(including attorneys' fees), judgments, fines or amounts paid in settlement to
which the Indemnitee is entitled.
J. Insurance. The Corporation may purchase and maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or any such
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person who, while a director, officer, employee or agent of the Corporation, is
or was serving at the request of the Corporation as a director, officer,
partner, trustee, employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise (including any employee
benefit plan) against any expense, liability or loss asserted against and
incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify such person
against such expense, liability or loss under the General Corporation Law of
Maryland.
K. Merger or Consolidation. If the Corporation is merged into or
consolidated with another corporation and the Corporation is not the surviving
corporation, the surviving corporation shall assume the obligations of the
Corporation under this Section with respect to any action, suit, proceeding or
investigation arising out of or relating to any actions, transactions or facts
occurring prior to the date of such merger or consolidation.
L. Savings Clause. If this Section or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Indemnitee as to any expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with any action, suit, proceeding or investigation, whether civil,
criminal or administrative, including an action by or in the right of the
Corporation, to the fullest extent permitted by any applicable portion of this
Section that shall not have been invalidated and to the fullest extent permitted
by applicable law.
M. Definitions. Terms used herein and defined in Section 2-418(a) of the
General Corporation Law of Maryland shall have the respective meanings assigned
to such terms in such Section 2-418(a).
N. Subsequent Legislation. If the General Corporation Law of Maryland is
amended after adoption of this Section to expand further the indemnification
permitted to Indemnitees, then the Corporation shall indemnify such persons to
the fullest extent permitted by the General Corporation Law of Maryland, as so
amended.
Section 4. Board Authorization of Share Issuance.
The Board of Directors of the Corporation shall have the power in its sole
discretion and without limitation, to authorize the issuance at any time and
from time to time of shares of stock of the Corporation, with or without par
value, of any class now or hereafter authorized and of securities convertible
into or exchangeable for shares of the stock of the Corporation, with or without
par value, of any class now or hereafter authorized, for such consideration
(irrespective of the value or amount of such consideration) and in such manner
and by such means as said Board of Directors may deem advisable.
Section 5. Classification or Reclassification of Shares.
The Board of Directors shall have the power in its sole discretion and
without limitation to classify or reclassify, by articles supplementary, any
unissued shares of stock, whether now or hereafter authorized, by setting,
altering or eliminating in any one or more respects, from time to time before
the issuance of such shares, any feature of such shares, including but not
limited to
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the designation, preferences, conversion or other rights, voting powers,
qualifications and terms and conditions of redemption of, and limitations as to
dividends and any restrictions on, such shares.
Section 6. Voting Requirements.
Notwithstanding any provision of law to the contrary, except as provided
in Article IX, the affirmative vote of the holders of a majority of the shares
of capital stock issued and outstanding and entitled to vote on any proposed
amendment of the Charter of the Corporation shall be sufficient, valid and
effective, after due authorization, approval and advice by the Board of
Directors, to approve and authorize such amendment. Notwithstanding any
provision of the law to the contrary, the affirmative vote of the holders of a
majority of the shares of capital stock issued and outstanding and entitled to
vote on any transaction for which approval of the stockholders is required by
Section 3-105 of the General Corporation Law of Maryland, or any successor
provision of law of similar import, in addition to any vote of the holders of
Preferred Shares required by the terms of then outstanding Preferred Shares,
shall be sufficient to give the approval required by Section 3-105 or such
successor provision.
Section 7. REIT Qualification.
The Board of Directors shall use its reasonable best efforts to cause the
Corporation and its shareholders to qualify for U.S. federal income tax
treatment in accordance with the provisions of the Code applicable to a REIT. In
furtherance of the foregoing, the Board of Directors shall use its reasonable
best efforts to take such actions as are necessary, and may take such actions as
in its sole judgment and discretion are desirable, to preserve the status of the
Corporation as a REIT, provided, however, that if the Board of Directors
determines in its discretion that it is no longer in the best interests of the
Corporation to continue to have the Corporation qualify as a REIT, the Board of
Directors may revoke or otherwise terminate the Corporation's REIT election
pursuant to Section 856(g) of the Code.
The enumeration and definition of particular powers of the Board of
Directors included in this Article VIII shall in no way be limited or restricted
by reference to or inference from the terms of any other clause of this or any
other Article of the Charter of the Corporation, or construed as or deemed by
inference or otherwise in any manner to exclude or limit any powers conferred
upon the Board of Directors under the General Laws of the State of Maryland now
or hereafter in force.
ARTICLE IX
AMENDMENTS
(a) Right to Amend Articles. Subject to the provisions hereof, the
Corporation reserves the right at any time, and from time to time, to amend,
alter, repeal, or rescind any provision contained herein, including but not
limited to the provisions setting forth the contract and other rights of the
issued and outstanding stock of the Corporation of any class, in the manner now
or hereafter
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prescribed by law, and other provisions authorized by the laws of the State of
Maryland at the time in force may be added or inserted, in the manner now or
hereafter prescribed by law; and all contract or other rights, preferences and
privileges of whatsoever nature conferred upon shareholders, directors,
officers, employees or any other persons whomsoever by and pursuant to these
Articles of Incorporation, in its present form or as hereafter amended, are
granted subject to this reservation.
(b) Certain Amendments Requiring Special Shareholder Vote. Any provision
of law, these Articles of Incorporation, including, without limitation, Article
VIII, Section 7, or the By-Laws of the Corporation to the contrary
notwithstanding:
(i) no term or provision of these Articles of Incorporation may be
added, amended or repealed in any respect that would, in the determination of
the Board of Directors, cause the Corporation not to qualify as a REIT under the
Code unless the Board of Directors shall have determined in accordance with
Section 8 of Article VIII that it is no longer in the best interests of the
Corporation to continue to have the Corporation qualify as a REIT;
(ii) Article VII, Section 2 (classification of directors) and
Section 5 (removal of directors); Article VII, Section 2 (limitation of
liability of officers and directors) and Section 3 (indemnification of officers
and directors); and this Article IX shall not be amended or repealed nor shall
any provision be adopted which is inconsistent with any of the foregoing; and
(iii) no provisions imposing cumulative voting in the election of
directors may be added to these Articles of Incorporation;
unless in each such case, in addition to any vote of the holders of Preferred
Shares required by the terms of then outstanding Preferred Shares, such action
is approved by the affirmative vote of the holders of not less than eighty
percent (80%) of the shares of capital stock of the Corporation issued and
outstanding and entitled to vote on the matter.
IN WITNESS WHEREOF, I have signed these Articles of Incorporation,
acknowledging the same to be my act on this 4th day of October, 2001.
----------------------------------
Kenneth A. Hoxsie
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APPENDIX C
FRANKLIN STREET PROPERTIES CORP.
BYLAWS
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE.
The principal office of Franklin Street Properties Corp. (the
"Corporation") shall be located at such place as the Board of Directors may from
time to time designate.
Section 2. ADDITIONAL OFFICES.
The Corporation may have additional offices at such places as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. PLACE.
All meetings of stockholders shall be held in the City of Boston,
Commonwealth of Massachusetts or at such other place within the United States as
shall be stated in the notice of the meeting.
Section 2. ANNUAL MEETING.
An annual meeting of the stockholders for the election of directors to
succeed directors whose terms in office are expiring and the transaction of any
business within the powers of the Corporation shall be held on a date (which
date shall not be a legal holiday in the place where the meeting is to be held)
and at the time set by the Board of Directors during the month of May in each
year. If no annual meeting is held in accordance with the foregoing provisions,
the Board of Directors shall cause the meeting to be held as soon thereafter as
convenient.
Section 3. SPECIAL MEETING.
The President, Chief Executive Officer or a majority of the Board of
Directors may call special meetings of the stockholders. Special meetings of
stockholders shall also be called by the Secretary upon the written request of
the holders of shares entitled to cast more than fifty percent of all the votes
entitled to be cast at such meeting. Such request shall state the purpose of
such meeting and the matters proposed to be acted on at such meeting. The
Secretary shall inform such stockholders of the reasonably estimated cost of
preparing and mailing notice of the meeting (including all proxy materials that
may be required in connection therewith) and, upon such stockholders' payment to
the Corporation of such costs, the Secretary shall, within thirty
days of such payment, or such longer period as may be necessitated by compliance
with any applicable statutory or regulatory requirements, give notice to each
stockholder entitled to notice of the meeting.
Section 4. NOTICE.
Not less than ten nor more than 90 days before each meeting of
stockholders, the secretary shall give to each stockholder entitled to vote at
such meeting and to each stockholder not entitled to vote who is entitled to
notice of the meeting written or printed notice stating the time and place of
the meeting and, in the case of a special meeting or as otherwise may be
required by statute, the purpose for which the meeting is called, either by mail
or by presenting it to such stockholder personally or by leaving it at his
residence or usual place of business. If mailed, such notice shall be deemed to
be given when deposited in the United States mail addressed to the stockholder
at his post office address as it appears on the records of the Corporation, with
postage thereon prepaid.
Section 5. SCOPE OF NOTICE.
Any business of the Corporation may be transacted at an annual meeting of
stockholders without being specifically designated in the notice, except such
business as is required by statute to be stated in such notice. No business
shall be transacted at a special meeting of stockholders except as specifically
designated in the notice.
Section 6. QUORUM.
Except as otherwise provided by any statute or the Articles of
Incorporation of the Corporation, as amended from time to time (the "Articles"),
at any meeting of stockholders, the presence in person or by proxy of
stockholders entitled to cast a majority of all the votes entitled to be cast at
such meeting shall constitute a quorum; but this section shall not affect any
requirement under any statute or the Articles for the vote necessary for the
adoption of any measure.
Section 7. ADJOURNMENTS.
Any meeting of stockholders may be adjourned to any other time and any
other place at which a meeting of stockholders may be held under these Bylaws by
the stockholders present or represented at the meeting and entitled to vote,
although less than a quorum, or, if no stockholder is present, by any officer
entitled to preside at or to act as secretary of such meeting. It shall not be
necessary to notify any stockholder of any adjournment to a date not more than
120 days after the original record date without notice other than announcement
at the meeting, unless after the adjournment a new record date is fixed for the
adjourned meeting. At such adjourned meeting at which a quorum shall be present,
any business may be transacted which might have been transacted at the meeting
as originally notified.
Section 8. VOTING.
A plurality of all the votes cast at a meeting of stockholders duly called
and at which a quorum is present shall be sufficient to elect a director. Each
share may be voted for as many
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individuals as there are directors to be elected and for whose election the
share is entitled to be voted. A majority of the votes cast at a meeting of
stockholders duly called and at which a quorum is present shall be sufficient to
approve any other matter which may properly come before the meeting, unless more
than a majority of the votes cast is required by statute or by the Articles of
the Corporation. Unless otherwise provided in the Articles, each outstanding
share, regardless of class, shall be entitled to one vote on each matter
submitted to a vote at a meeting of stockholders. Shares of stock of the
Corporation directly or indirectly owned by it shall not be voted at any meeting
and shall not be counted in determining the total number of outstanding shares
entitled to be voted at any given time, unless they are held by it in a
fiduciary capacity, in which case they may be voted and shall be counted in
determining the total number of outstanding shares at any given time.
Section 9. PROXIES.
Each stockholder of record entitled to vote at a meeting of stockholders
or to express consent or dissent to corporate action in writing without a
meeting, may vote or express such consent or dissent in person or may authorize
another person or persons to vote or act for him by a proxy executed in writing
by the stockholder or by his duly authorized attorney in fact. Such proxy shall
be filed with the Secretary of the Corporation before or at the time of the
meeting. No proxy shall be valid after eleven months from the date of its
execution, unless otherwise provided in the proxy.
Section 10. CONDUCT OF MEETINGS.
The Chairman of the Board or, in the absence of the Chairman, the
President or a Vice President, or, in the absence of the Chairman and the
President and Vice Presidents, a presiding officer elected at the meeting, shall
preside over the meetings of the stockholders (the "Presiding Officer"). The
Secretary of the Corporation, or, in the absence of the Secretary and Assistant
Secretaries, the person appointed by the Presiding Officer of the meeting shall
act as secretary of such meeting.
Section 11. TABULATION OF VOTES.
At any annual or special meeting of stockholders, the Presiding Officer
shall be authorized to appoint one or more persons as inspectors for such
meeting. An inspector may, but need not, be an officer, employee or agent of the
Corporation. The inspectors shall be responsible for tabulating or causing to be
tabulated shares voted at the meeting and reviewing or causing to be reviewed
all proxies. In tabulating votes, the inspectors shall be entitled to rely in
whole or in part on tabulations and analyses made by personnel of the
Corporation, its counsel, its transfer agent, its registrar or such other
organizations that are customarily employed to provide such services. The
inspectors shall be authorized to determine the legality and sufficiency of all
votes cast and proxies delivered under both the Articles and these Bylaws and
applicable law. The Presiding Officer may review all determinations made by the
inspectors hereunder, and in doing so the Presiding Officer shall be entitled to
exercise his or her sole judgment and discretion and he or she shall not be
bound by any determinations made by the inspectors.
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Section 12. NOMINATIONS AND STOCKHOLDER BUSINESS.
(a) Annual Meetings of Stockholders.
(1) Nominations of persons for election to the Board of
Directors and the proposal of business to be considered by the
stockholders may be made at an annual meeting of stockholders (i)
pursuant to the Corporation's notice of meeting; (ii) by or at the
direction of the Board of Directors or (iii) by any stockholder of
the Corporation who was a stockholder of record at the time of
giving of notice provided for in this Section 12(a), who is entitled
to vote at the meeting and who complied with the notice procedures
set forth in this Section 12(a).
(2) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (iii)
of paragraph (a)(1) of this Section 12, the stockholder must have
given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice shall be delivered
to the Secretary at the principal executive offices of the
Corporation not less than 90 days nor more than 120 days prior to
the first anniversary of the mailing date of the notice of the
preceding year's annual meeting. Such stockholder's notice shall set
forth (i) as to each person whom the stockholder proposes to
nominate for election or reelection as a director all information
relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")
(including such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected);
(ii) as to any other business that the stockholder proposes to bring
before the meeting, a brief description of the business desired to
be brought before the meeting, the reasons for conducting such
business at the meeting and any material interest in such business
of such stockholder and of the beneficial owner, if any, on whose
behalf the proposal is made; and (iii) as to the stockholder giving
the notice and the beneficial owner, if any, on whose behalf the
nomination or proposal is made, (x) the name and address of such
stockholder, as they appear on the Corporation's books, and of such
beneficial owner and (y) the class and number of shares of stock of
the Corporation which are owned beneficially and of record by such
stockholder and such beneficial owner.
(b) Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought
before the meeting pursuant to the Corporation's notice of meeting.
Nominations of persons for election to the Board of Directors may be made
at a special meeting of stockholders at which directors are to be elected
(i) pursuant to the Corporation's notice of meeting, (ii) by or at the
direction of the Board of Directors or (iii) provided that the Board of
Directors has determined that directors shall be elected at such special
meeting, by any stockholder of the Corporation who is a stockholder of
record at the time of giving of notice provided for in this Section 12(b),
who is entitled to vote at the meeting and who complied with the
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notice procedures set forth in this Section 12(b). In the event the
Corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such
stockholder may nominate a person or persons (as the case may be) for
election to such position as specified in the Corporation's notice of
meeting, if the stockholder's notice required by paragraph (a)(2) of this
Section 12(b) shall be delivered to the Secretary at the principal
executive offices of the Corporation not earlier than the 120th day prior
to such special meeting and not later than the close of business on the
later of the 90th day prior to such special meeting or the tenth day
following the day on which public announcement is first made of the date
of the special meeting and of the nominees proposed by the Board of
Directors to be elected at such meeting.
(c) General.
(1) Only such persons who are nominated in accordance with the
procedures set forth in this Section 12 shall be eligible to serve
as directors and only such business shall be conducted at a meeting
of stockholders as shall have been brought before the meeting in
accordance with the procedures set forth in this Section 12. The
Presiding Officer of the meeting shall have the power and duty to
determine whether a nomination or any business proposed to be
brought before the meeting was made in accordance with the
procedures set forth in this Section 12 and, if any proposed
nomination or business is not in compliance with this Section 12, to
declare that such defective nomination or proposal be disregarded.
(2) For purposes of this Section 12, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones
News Service, Associated Press or comparable news service or in a
document publicly filed by the Corporation with the Securities and
Exchange Commission pursuant to Sections 13, 14 or 15(d) of the
Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section
12, a stockholder shall also comply with all applicable requirements
of state law and, if the Corporation has a class of securities
registered under the Exchange Act, of the Exchange Act and the rules
and regulations thereunder with respect to the matters set forth in
this Section 12. If the Corporation has a class of securities
registered under the Exchange Act, nothing in this Section 12 shall
be deemed to affect any rights of stockholders to request inclusion
of proposals in, nor any rights of the Corporation to omit a
proposal from, the Corporation's proxy statement pursuant to Rule
14a-8 under the Exchange Act.
Section 13. INFORMAL ACTION BY STOCKHOLDERS.
Any action required or permitted to be taken at a meeting of stockholders
may be taken without a meeting if a consent in writing, setting forth such
action, is signed by each stockholder entitled to vote on the matter and each
stockholder who would be entitled to notice of a meeting of stockholders called
to vote on such action (but not to vote thereat) has waived in writing any right
to dissent from such action, and such consent and waiver are filed with the
minutes of
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proceedings of the stockholders. Such consents and waivers may be signed by
different stockholders in counterparts.
Section 14. VOTING BY BALLOT.
Voting on any question or in any election may be viva voce unless the
Presiding Officer shall order or any stockholder shall demand that voting be by
ballot.
Section 15. VOTING OF STOCK BY CERTAIN HOLDERS.
Notwithstanding any provision of the Articles of the Corporation or these
Bylaws to the contrary, Subtitle 7 of Title 3 of the Maryland General
Corporation Law (as the same may be amended from time to time), and any
successor statute, shall not apply to any acquisition by any person of shares of
stock of the Corporation. This section may be repealed, in whole or in part, at
any time, whether before or after an acquisition of control shares and, upon
such repeal, may, to the extent provided by any successor Bylaw, apply to any
prior or subsequent control share acquisition.
ARTICLE III
DIRECTORS
Section 1. GENERAL POWERS; QUALIFICATIONS.
The business and affairs of the Corporation shall be managed under the
direction of its Board of Directors. Directors need not be stockholders of the
Corporation.
Section 2. NUMBER, TENURE AND QUALIFICATIONS.
At any regular meeting or at any special meeting called for that purpose,
a majority of the entire Board of Directors may establish, increase or decrease
the number of directors, provided that the number thereof shall never be less
than the minimum number required by the Maryland General Corporation Law, and
further provided that the tenure of office of a director shall not be affected
by any decrease in the number of directors. Pursuant to the Articles of the
Corporation, the directors have been divided into classes with terms of three
years, with the term of office of one class expiring at the annual meeting of
stockholders in each year. Each director shall hold office for the term for
which he is elected and until his successor is elected and qualified, or until
his earlier resignation, removal (in accordance with the Articles and these
Bylaws) or death. Any director may resign by delivering his written resignation
to the Corporation at its principal office or to the President or Secretary.
Such resignation shall be effective upon receipt unless it is specified to be
effective at some other time or upon the happening of some other event.
Section 3. ANNUAL AND REGULAR MEETINGS.
An annual meeting of the Board of Directors shall be held immediately
after and at the same place as the annual meeting of stockholders, no notice
other than this Bylaw being necessary. The Board of Directors may provide, by
resolution, the time and place, either within or without the State of Maryland,
for the holding of regular meetings of the Board of Directors
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without other notice than such resolution; provided that any director who is
absent when such resolution is adopted shall be given notice of the resolution.
Section 4. SPECIAL MEETINGS.
Special meetings of the Board of Directors may be called by or at the
request of the Chairman of the Board (or any co-Chairman of the Board if more
than one), President or by a majority of the directors then in office. The
person or persons authorized to call special meetings of the Board of Directors
may fix any place, either within or without the State of Maryland, as the place
for holding any special meeting of the Board of Directors called by them.
Section 5. NOTICE.
Notice of any special meeting of directors shall be given to each director
by the Secretary or by the officer or one of the directors calling the meeting.
Notice shall be duly given to each director (i) by giving notice to such
director in person or by telephone at least 24 hours in advance of the meeting,
(ii) by sending a telegram, facsimile or electronic mail, or delivering written
notice by hand, to the address or electronic mail address, as applicable,
provided by the director as his address for the time when the notice is given,
or if no such address has been provided, to his last known business or home
address or electronic mail address, as applicable, at least 48 hours in advance
of the meeting, or (iii) by mailing written notice to the address provided by
the director for the time when the notice is given, or if no such address has
been provided, to his last known business or home address, at least 72 hours in
advance of the meeting. Notices given pursuant to clause (i) above need not be
in writing. Unless specifically required by statute, a notice or waiver of
notice of a meeting of the Board of Directors need not specify the purposes of
the meeting or the business to be transacted at such meeting.
Section 6. QUORUM.
A majority of the total number of the directors shall constitute a quorum
for transaction of business at any meeting of the Board of Directors, provided
that, if less than a majority of such directors are present at said meeting, a
majority of the directors present may adjourn the meeting from time to time
without further notice, and provided further that if, pursuant to the Articles
of the Corporation or these Bylaws, the vote of a majority of a particular group
of directors is required for action, a quorum must also include a majority of
such group. In the event one or more of the directors shall be disqualified to
vote at any meeting, then the required quorum shall be reduced by one for each
such director so disqualified; provided, however, that in no case (i) shall less
than one-third (1/3) of the number so fixed constitute a quorum and (ii) if
there are two or three directors, shall fewer than two directors constitute a
quorum.
Section 7. VOTING.
The action of the majority of the directors present at a meeting at which
a quorum is present shall be the action of the Board of Directors, unless the
concurrence of a greater or lesser proportion is required for such action by the
Articles, these Bylaws or applicable statute.
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Section 8. TELEPHONE MEETINGS.
Directors may participate in a meeting by means of a conference telephone
or similar communications equipment if all persons participating in the meeting
can hear each other at the same time. Participation in a meeting by these means
shall constitute presence in person at the meeting.
Section 9. ACTION BY DIRECTORS WITHOUT A MEETING.
Any action required or permitted to be taken at any meeting of the Board
of Directors may be taken without a meeting, if a consent in writing to such
action is signed by each director and such written consent is filed with the
minutes of proceedings of the Board of Directors. Consents may be signed by
different directors on separate counterparts.
Section 10. VACANCIES.
If for any reason any or all the directors cease to be directors, such
event shall not terminate the Corporation or affect these Bylaws or the powers
of the remaining directors hereunder (even if fewer than the minimum number
required by the Maryland General Corporation Law). Any vacancy on the Board of
Directors for any cause, other than an increase in the number of directors, may
be filled by a majority of the remaining directors, although such majority is
less than a quorum. Any vacancy in the number of directors created by an
increase in the number of directors may be filled by a majority vote of the
entire Board of Directors. In addition, by the vote required to elect a
director, the stockholders may fill any vacancy on the Board of Directors
resulting from the removal of a director. Any individual elected as director to
fill a vacancy shall hold office for the unexpired term of the director he or
she is replacing.
Section 11. COMPENSATION.
Directors may be paid such compensation for their services and such
reimbursement for expenses of attendance at meetings as the Board of Directors
may from time to time determine. No such payment shall preclude any director
from serving the corporation or any of its parent or subsidiary corporations in
any other capacity and receiving compensation for such service.
Section 12. REMOVAL OF DIRECTORS.
Directors may be removed from office only in the manner provided in the
Articles of the Corporation.
SECTION IV
COMMITTEES
Section 1. NUMBER, TENURE AND QUALIFICATIONS.
The Board of Directors may appoint from among its members an Executive
Committee, an Audit Committee, a Compensation Committee and other committees,
composed of two or more directors, to serve at the pleasure of the Board of
Directors.
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Section 2. POWERS.
The Board of Directors may delegate to committees appointed under Section
1 of this Article any of the powers of the Board of Directors, except as
prohibited by law.
Section 3. MEETINGS.
In the absence of any member of any such committee, the members thereof
present at any meeting, whether or not they constitute a quorum, may appoint
another director to act in the place of such absent member.
Section 4. TELEPHONE MEETINGS.
Members of a committee of the Board of Directors may participate in a
meeting by means of a conference telephone or similar communications equipment
if all persons participating in the meeting can hear each other at the same
time. Participation in a meeting by these means shall constitute presence in
person at the meeting.
Section 5. ACTION BY COMMITTEES WITHOUT A MEETING.
Any action required or permitted to be taken at any meeting of a committee
of the Board of Directors may be taken without a meeting if a consent in writing
to such action is signed by each member of the committee and such written
consent is filled with the minutes of proceedings of such committee.
ARTICLE V
OFFICERS
Section 1. GENERAL PROVISIONS.
The officers of the Corporation shall include a Chairman of the Board (or
one or more Chairmen of the Board), a Chief Executive Officer, a President, a
Secretary and a Treasurer and may include one or more Vice Presidents,
(including Executive Vice Presidents and Senior Vice Presidents), a Chief
Operating Officer, a Chief Financial Officer, one or more Assistant Secretaries
and one or more Assistant Treasurers. In addition, the Board of Directors may
from time to time appoint such other officers with such powers and duties as
they shall deem necessary or desirable. The officers of the Corporation shall be
elected annually by the Board of Directors at the first meeting of the Board of
Directors held after each annual meeting of stockholders, except that the Chief
Executive Officer or, if there is no Chief Executive Officer, the President may
appoint one or more Vice Presidents (including Executive Vice Presidents and
Senior Vice Presidents), Assistant Secretaries and Assistant Treasurers. If the
election of officers shall not be held at such meeting, such election shall be
held as soon thereafter as may be convenient. Each officer shall hold office
until his successor is elected and qualified or until his death, resignation or
removal in the manner hereinafter provided. Any two or more offices may be held
by the same person except that the office of President and Vice President may
not be held by the same person. In its discretion, the Board of Directors may
leave unfilled any office except that of President, Treasurer and Secretary.
Election of an officer or agent shall not
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of itself create contract rights between the Corporation and such officer or
agent. No officer need be a stockholder.
Section 2. REMOVAL AND RESIGNATION.
Any officer or agent of the Corporation may be removed by the Board of
Directors if in its judgment the best interests of the Corporation would be
served thereby. Any officer of the Corporation may resign at any time by giving
written notice of his resignation to the Board of Directors, the Chairman of the
Board (or any co-Chairman of the Board if more than one), the Chief Executive
Officer, the President or the Secretary. Any resignation shall take effect at
any time subsequent to the time specified therein or, if the time when it shall
become effective is not specified therein, immediately upon its receipt. The
acceptance of a resignation shall not be necessary to make it effective unless
otherwise stated in the resignation. Except as the Board of Directors may
otherwise determine, no officer who resigns or is removed shall have any right
to any compensation as an officer for any period following his resignation or
removal, or any right to damages on account of such removal, whether his
compensation be by the month or by the year or otherwise, unless such
compensation is expressly provided in a duly authorized written agreement with
the Corporation.
Section 3. VACANCIES.
A vacancy in any office may be filled by the Board of Directors for the
balance of the term.
Section 4. CHAIRMAN OF THE BOARD.
The Board of Directors shall designate a Chairman of the Board (or one or
more co-Chairmen of the Board). The Chairman of the Board shall preside over the
meetings of the Board of Directors and of the stockholders at which he shall be
present. If there be more than one, the co-Chairmen designated by the Board of
Directors will perform such duties. The Chairman of the Board shall perform such
other duties as may be assigned to him or them by the Board of Directors.
Section 5. CHIEF EXECUTIVE OFFICER.
The Board of Directors shall designate a Chief Executive Officer. In the
absence of such designation, the Chairman of the Board (or, if more than one,
the co-Chairmen of the Board in the order designated at the time of their
election or, in the absence of any designation, then in the order of their
election) shall be the Chief Executive Officer of the Corporation. The Chief
Executive Officer shall have general responsibility for implementation of the
policies of the Corporation, as determined by the Board of Directors, and for
the management of the business and affairs of the Corporation.
Section 6. CHIEF OPERATING OFFICER.
The Board of Directors may designate a Chief Operating Officer. The Chief
Operating Officer shall have the responsibilities and duties as set forth by the
Board of Directors or the Chief Executive Officer.
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Section 7. CHIEF FINANCIAL OFFICER.
The Board of Directors may designate a Chief Financial Officer. The Chief
Financial officer shall have the responsibilities and duties as set forth by the
Board of Directors or the Chief Executive Officer.
Section 8. PRESIDENT.
The President shall perform all duties incident to the office of President
and such other duties as may be prescribed by the Board of Directors from time
to time.
Section 9. VICE PRESIDENT.
In the absence of the President or in the event of a vacancy in such
office, any Executive Vice President or Senior Vice President, or in the absence
of any Executive Vice President or Senior Vice President, any Vice President (or
in the event there be more than one Vice President, the Vice Presidents in the
order designated at the time of their election or, in the absence of any
designation, then in the order of their election) shall perform the duties of
the President and when so acting shall have all the powers of and be subject to
all the restrictions upon the President; and shall perform such other duties as
from time to time may be assigned to him by the President or by the Board of
Directors. The Board of Directors may designate one or more Vice Presidents as
Executive Vice President, Senior Vice President or as Vice President for
particular areas of responsibility.
Section 10. SECRETARY.
The Secretary shall (a) keep the minutes of the proceedings of the
stockholders, the Board of Directors and committees of the Board of Directors in
one or more books provided for that purpose; (b) see that all notices are duly
given in accordance with the provisions of these Bylaws or as required by law;
(c) be custodian of the records and of the seal of the Corporation; (d) keep a
register of the post office address of each stockholder which shall be furnished
to the Secretary by such stockholder; (e) have general charge of the share
transfer books of the Corporation; and (f) in general perform such other duties
as are incident to the office of Secretary and as from time to time may be
assigned to him or her by the Chief Executive Officer, the President or the
Board of Directors.
Section 11. TREASURER.
The Treasurer shall perform such duties and shall have such powers as may
from time to time be assigned to him or her by the Board of Directors or the
President. In addition, the Treasurer shall perform such duties and have such
powers as are incident to the office of Treasurer, including without limitation
the duty and power to keep and be responsible for all funds and securities of
the Corporation, to deposit funds of the Corporation in depositories selected in
accordance with these Bylaws, to disburse such funds as ordered by the Board of
Directors, to make proper accounts of such funds, and to render as required by
the Board of Directors statements of all such transactions and of the financial
condition of the Corporation. In the absence of a designation of Chief Financial
Officer by the Board of Directors, the Treasurer shall be the Chief Financial
Officer of the Corporation.
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Section 12. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS.
The Assistant Secretaries and Assistant Treasurers, in general, shall
perform such duties as shall be assigned to them by the Secretary or Treasurer,
respectively, or by the Chief Executive Officer, the President or the Board of
Directors.
Section 13. SUBORDINATE OFFICERS.
The Corporation shall have such subordinate officers as the Board of
Directors may from time to time elect. Each such officer shall hold office for
such period and perform such duties as the Board of Directors, the Chief
Executive Officer, the President or any designated committee or officer may
prescribe.
ARTICLE VI
CONTRACTS, CHECKS AND BOOKS AND RECORDS
Section 1. CONTRACTS.
The Board of Directors may authorize any officer or agent to enter into
any contract or to execute and deliver any instruments in the name of and on
behalf of the Corporation and such authority may be general or confined to
specific instances. Any agreement, deed, mortgage, lease or other document
executed by one or more of the directors or by an authorized person shall be
valid and binding upon the Board of Directors and upon the Corporation when
authorized or ratified by action of the Board of Directors. A person who holds
more than one office of the Corporation may not act in more than one capacity to
execute, acknowledge or verify an instrument required by law to be executed,
acknowledged or verified by more than one officer.
Section 2. CHECKS AND DRAFTS.
All checks, drafts or other orders for the payment of money, notes or
other evidences of indebtedness issued in the name of the Corporation shall be
signed by such officer or officers, agent or agents of the Corporation and in
such manner as shall from time to time be determined by the Board of Directors.
Section 3. BOOKS AND RECORDS.
The Corporation shall keep correct and complete books and records of its
accounts and transactions and minutes of the proceedings of its stockholders and
Board of Directors and of each committee exercising any of the power or
authority of the Board of Directors. The books and records of the Corporation
may be in written form or in any other form that can be converted within a
reasonable time into written form for visual inspection. Minutes shall be
recorded in written form, but may be maintained in the form of a reproduction.
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ARTICLE VII
STOCK
Section 1. CERTIFICATES.
Each stockholder shall be entitled to a certificate or certificates which
shall represent and certify the number of shares of each class of stock held by
him in the Corporation. Each certificate shall be signed by the Chairman of the
Board, the President or a Vice President and countersigned by the Secretary or
an Assistant Secretary or the Treasurer or an Assistant Treasurer and may be
sealed with the seal, if any, of the Corporation. The signatures may be either
manual or facsimile. Certificates shall be consecutively numbered; and if the
Corporation shall, from time to time, issue several classes of stock, each class
may have its own number series. A certificate is valid and may be issued whether
or not an officer who signed it is still an officer when it is issued. Each
certificate representing shares which are restricted as to their transferability
or voting powers, which are preferred or limited as to their dividends or as to
their allocable portion of the assets upon liquidation or which are redeemable
at the option of the Corporation, shall have a statement of such restriction,
limitation, preference or redemption provision, or a summary thereof, plainly
stated on the certificate. If the Corporation has authority to issue shares of
more than one class, the certificate shall contain on the face or back a full
statement or summary of the designations and any preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends and other
distributions, qualifications and terms and conditions of redemption of each
class of shares and, if the Corporation is authorized to issue any preferred or
special class in series, the differences in the relative rights and preferences
between the shares of each series to the extent they have been set and the
authority of the Board of Directors to set the relative rights and preferences
of subsequent series. In lieu of such statement or summary, the Corporation may
set forth upon the face or back of the certificate a statement that the
Corporation will furnish to any stockholder, upon request and without charge, a
full statement of such information. If any class of shares is restricted by the
Corporation as to transferability, the certificate shall contain a full
statement of the restriction or state that the Corporation will furnish
information about the restrictions to the stockholder on request and without
charge. Without limiting the generality of the foregoing, each Certificate
representing shares of the Corporation shall bear substantially the legend set
forth in Article VI, Section 2(d)(iii) of the Articles of the Corporation.
Section 2. TRANSFERS.
Upon surrender to the Corporation or its transfer agent of a certificate
representing shares of the Corporation properly endorsed or accompanied by a
written assignment or power of attorney properly executed, and with such proof
of authority or the authenticity of signature as the Corporation or its transfer
agent may reasonably require, the Corporation shall issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books. Except as may otherwise be required by law, by the
Articles of the Corporation or by these Bylaws, the Corporation shall be
entitled to treat the record holder of stock as shown on its books as the owner
of such stock for all purposes, including the payment of dividends and the right
to vote with respect to such stock, regardless of any transfer, pledge or other
disposition of
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such stock until the shares have been transferred on the books of the
Corporation in accordance with the requirements of these Bylaws.
Notwithstanding the foregoing, transfers of shares of any class of stock
will be subject in all respects to the Articles of the Corporation and all of
the terms and conditions contained therein.
Section 3. LOST CERTIFICATE.
The Board of Directors (or any officer designated by it) may direct a new
certificate to be issued in place of any certificate previously issued by the
Corporation alleged to have been lost, stolen or destroyed upon the making of an
affidavit of that fact by the person claiming the certificate to be lost, stolen
or destroyed. When authorizing the issuance of a new certificate, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, prescribe such conditions as it deems appropriate, including the
presentation of reasonable evidence of such loss, theft or destruction and/or
the posting of bond, with sufficient surety, to the Corporation to indemnify it
against any loss or claim which may arise as a result of the issuance of a new
certificate.
Section 4. FIXING OF RECORD DATE.
The Board of Directors may set, in advance, a record date for the purpose
of determining stockholders entitled to notice of or to vote at any meeting of
stockholders, or stockholders entitled to receive payment of any dividend or the
allotment of any other rights, or in order to make a determination of
stockholders for any other proper purpose. Such date, in any case, shall not be
prior to the close of business on the day the record date is fixed and shall be
not more than 90 days and, in the case of a meeting of stockholders, not less
than ten days, before the date on which the meeting or particular action
requiring such determination of stockholders is to be held or taken.
If no record date is fixed, (a) the record date for the determination of
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day on which the notice of meeting is mailed
or the 30th day before the meeting, whichever is the closer date to the meeting;
and (b) the record date for the determination of stockholders entitled to
receive payment of a dividend or an allotment of any other rights shall be the
close of business on the day on which the resolution of the directors, declaring
the dividend or allotment of rights, is adopted, but the payment or allotment
may not be made more than 60 days following the date on which the resolution is
adopted.
When a determination of stockholders entitled to vote at any meeting of
stockholders has been made as provided in this section, such determination shall
apply to any adjournment thereof; provided, however, that the Board of Directors
may fix a new record date for the adjourned meeting and shall fix a new record
date if the date to which the meeting is adjourned is more than 120 days after
the original record date.
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Section 5. STOCK LEDGER.
The Corporation shall maintain at its principal office or at the office of
its counsel, accountants or transfer agent, an original or duplicate stock
ledger containing the name and address of each stockholder and the number of
shares of each class of stock held by such stockholder.
Section 6. FRACTIONAL STOCK; ISSUANCE OF UNITS.
The Board of Directors may issue fractional stock or provide for the
issuance of scrip, all on such terms and under such conditions as they may
determine. Notwithstanding any other provision of the Articles or these Bylaws,
the Board of Directors may issue units consisting of different securities of the
Corporation. Any security issued in a unit shall have the same characteristics
as any identical securities issued by the Corporation, except that the Board of
Directors may provide that for a specified period securities of the Corporation
issued in such unit may be transferred on the books of the Corporation only in
such unit.
ARTICLE VIII
ACCOUNTING YEAR
The Board of Directors shall have the power, from time to time, to fix the
fiscal year of the Corporation by a duly adopted resolution.
ARTICLE IX
DIVIDENDS
Section 1. DECLARATION.
Dividends upon the stock of the Corporation may be authorized and declared
by the Board of Directors, subject to the provisions of law and the Articles of
the Corporation. Dividends may be paid in cash, property or stock of the
Corporation, subject to the provisions of law and the Articles.
Section 2. CONTINGENCIES.
Before payment of any dividends or other distributions, there may be set
aside out of any funds of the Corporation available for dividends or other
distributions such sum or sums as the Board of Directors may from time to time,
in its absolute discretion, think proper as a reserve fund for contingencies,
for equalizing dividends, for repairing or maintaining any property of the
Corporation or for such other purpose as the Board of Directors shall determine
to be in the best interest of the Corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
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ARTICLE X
INVESTMENT POLICIES
The Board of Directors may from time to time adopt, amend, revise or
terminate any policy or policies with respect to investments by the Corporation
as it shall deem appropriate in its sole discretion.
ARTICLE XI
GENERAL PROVISIONS
Section 1. SEAL.
The Board of Directors may authorize the adoption of a seal by the
Corporation. The seal shall have inscribed thereon the name of the Corporation
and the year of its organization. The Board of Directors may authorize one or
more duplicate seals and provide for the custody thereof.
Section 2. AFFIXING SEAL.
Whenever the Corporation is required to place its seal to a document, it
shall be sufficient to meet the requirements of any law, rule or regulation
relating to a seal to place the word "(SEAL)" adjacent to the signature of the
person authorized to execute the document on behalf of the Corporation.
Section 3. VOTING OF SECURITIES.
Except as the directors may otherwise designate, the Chief Executive
Officer, President or any Vice President may waive notice of, and act as, or
appoint any person or persons to act as, proxy or attorney-in-fact for this
Corporation (with or without power of substitution) at, any meeting of
stockholders or shareholders of any other corporation or organization, the
securities of which may be held by this Corporation.
Section 4. EVIDENCE OF AUTHORITY.
A certificate by the Secretary, or an Assistant Secretary, or a temporary
Secretary, as to any action taken by the stockholders, directors, a committee or
any officer or representative of the Corporation shall as to all persons who
rely on the certificate in good faith be conclusive evidence of such action.
ARTICLE XII
INDEMNIFICATION
(a) Indemnification of Agents. The Corporation shall indemnify, in the
manner and to the fullest extent permitted by law, any person (or the estate of
any person) who is or was a party to, or is threatened to be made a party to,
any threatened, pending or completed action, suit
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or proceeding, whether or not by or in the right of the Corporation, and whether
civil, criminal, administrative, investigative or otherwise, by reason of the
fact that such person is or was a director or officer of the Corporation, or is
or was serving at the request of the Corporation as a director, officer,
trustee, partner, member, agent or employee of another corporation, partnership,
limited liability company, association, joint venture, trust or other
enterprise. To the fullest extent permitted by law, the indemnification provided
herein shall include expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement and any such expenses may be paid by the Corporation
in advance of the final disposition of such action, suit or proceeding.
(b) The Corporation may, with the approval of its Board of Directors,
provide such indemnification and advancement of expenses as set forth in the
preceding paragraph (a) of this Article XII to a person who served a predecessor
of the Corporation in any of the capacities described in the preceding paragraph
(a) of Article XII and to agents and employees of the Corporation and any
predecessor to the Corporation.
(c) Any repeal or modification of this Article XII shall be prospective
only, and shall not adversely affect any right to indemnification or advancement
of expenses hereunder existing at the time of such repeal or modification.
ARTICLE XIII
WAIVER OF NOTICE
Whenever any notice is required to be given pursuant to the Articles of
the Corporation or these Bylaws or pursuant to applicable law, a waiver thereof
in writing, signed by the person or persons entitled to such notice, whether
before or after the time stated herein, shall be deemed equivalent to the giving
of such notice. Neither the business to be transacted at nor the purpose of any
meeting need to be set forth in the waiver of notice, unless specifically
required by statute. The attendance of any person at any meeting shall
constitute a waiver of notice of such meeting, except where such person attends
a meeting for the express purpose of objecting to the transaction of any
business on the ground that the meeting is not lawfully called or convened.
ARTICLE XIV
AMENDMENT OF BYLAWS
The Board of Directors shall have the power to adopt, alter or repeal any
provision of these Bylaws and to make new Bylaws.
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APPENDIX D
FRANKLIN STREET PROPERTIES CORP.
Instructions for Completing Documents
The attached legal documents will be used in connection with the
transactions described in the Agreement and Plan of Merger, dated as of October
10, 2001, by and between Franklin Street Properties Corp. and Franklin Street
Partners Limited Partnership. It is absolutely essential that they be completed
accurately and completely. In executing them we request that you pay particular
attention to the following points:
1. The Offeree Questionnaire must be completed and executed on page 7
by individuals or page 8 by entities.
2. If the Investor is a corporation or other entity, additional
documents may be required, including financial statements and
officers' certificates. Forms of these documents will be provided.
3. Each Investor who checks "No" in each box in Section 1.3 or Section
2.4, as applicable, must also complete Part III of this
Questionnaire on page 5.
4. In order to ensure the return of documents, we have enclosed a
self-addressed stamped envelope for your convenience.
Documents should be returned as soon as possible, but not later than
December 28, 2001.
5. Contact your Investment Executive with any questions and/or
comments.
Telephone 1-800-950-6288
FRANKLIN STREET PROPERTIES CORP.
OFFEREE QUESTIONNAIRE
Franklin Street Properties Corp.
401 Edgewater Place - Suite 200
Wakefield, Massachusetts 01880
Gentlemen/Ladies:
The information contained in this Questionnaire is being furnished to you
in order for you to determine whether the undersigned (the "Investor") is an
Accredited Investor pursuant to Section 4(2) of the Securities Act of 1933, as
amended (the "Act"), and Regulation D promulgated thereunder ("Regulation D").
This information is being sought in connection with the transactions described
in the Consent Solicitation/Confidential Offering Memorandum, dated as of
December 11, 2001 (the "Confidential Memorandum"), being furnished to the
holders of units of limited partnership interest in Franklin Street Partners
Limited Partnership (the "Partnership"), pursuant to which, among other things,
the Investor will receive Common Stock (the "Common Stock") in Franklin Street
Properties Corp. (the "Company") following the merger of the Partnership into
the Company. The Investor understands that you will rely upon the information
for purposes of such determination, and that the Common Stock will not be
registered under the Act in reliance upon the exemption from registration
provided in Section 4(2) of the Act and Regulation D. Capitalized terms used
herein and not otherwise defined shall have the respective meanings ascribed to
them in the Confidential Memorandum.
ALL INFORMATION CONTAINED IN THIS QUESTIONNAIRE WILL BE TREATED
CONFIDENTIALLY. However, the Investor understands that you may present the
Questionnaire to such parties as you deem appropriate if called upon to
establish that the proposed issuance of the Common Stock to the Investor is
exempt from registration under the Act or meets the requirements of applicable
state securities laws or blue sky laws.
I. INFORMATION FOR INDIVIDUAL INVESTORS
1.1 General Information Regarding Investor
(a) Name of Investor:
---------------------------------------------------
Name of Co Investor,
if any:
---------------------------------------------------
(b) Occupation:
---------------------------------------------------
(c) Date of Birth
Investor:
---------------------------------------------------
Co-Investor:
---------------------------------------------------
1.2 Financial Information
(a) The Investor's net worth is not less than $
---------------------------
(b) The Investor's annual income is not less than $
-----------------------
1.3 Method of Investment Qualification
The Company will issue Common Stock only to individuals who are either (i)
"Accredited Investors" pursuant to Rule 501(a) of Regulation D promulgated by
the Securities and Exchange Commission or (ii) "Qualified Non-Accredited
Investors." In order to confirm that you qualify as an "Accredited Investor" or
a "Qualified Non-Accredited Investor," please provide the information requested
below. See "Limited Partners Eligible to Receive Common Stock" in the
Confidential Memorandum.
CHECK BOX YES OR NO (CHECK ALL ITEMS)
-------------------
|_| Yes |_| No No The Investor is a natural person (an individual) whose own
net worth, or joint net worth together with that of the
Investor's spouse, is not less than $1,000,000. Net worth for
this purpose means total assets (including all residences,
personal property and other assets) in excess of total
liabilities.
|_| Yes |_| No No The Investor is a natural person (an individual) who had an
individual gross income not less than $200,000 (excluding any
income of the Investor's spouse) in each of the two most
recent years and who reasonably expects a gross income not
less than $200,000 during the current year, or had joint gross
income with the Investor's spouse in excess of $300,000 in
each of the two most recent years and reasonably expects to
have joint gross income in excess of $300,000 for the current
year.
|_| Yes |_| No The Investor is a director or an executive officer of the
Company.
D-2
II. INFORMATION FOR CORPORATE PARTNERSHIP OR OTHER NON-
INDIVIDUAL INVESTORS
2.1 General Information Regarding Investor
(a) Name of Investor:
----------------------------------------------------
----------------------------------------------------
----------------------------------------------------
(b) Nature of Business:
--------------------------------------------------
(c) Number of
Equity Holders:
------------------------------------------------------
2.2 Information Regarding Corporate Officer or Authorized Person Executing
this Questionnaire on Behalf of the Investor (if applicable)
(a) Name:
----------------------------------------------------------------
(b) Current Position or
Title:
---------------------------------------------------------------
2.3 Financial Information
(a) The Investor's net worth is not less than $
--------------------------
(b) The Investor's annual income is not less than $
----------------------
2.4 Method of Investment Qualification
The Company will issue Common Stock only to individuals who are either (i)
"Accredited Investors" pursuant to Rule 501(a) of Regulation D promulgated by
the Securities and Exchange Commission or (ii) "Qualified Non-Accredited
Investors." In order to confirm that you qualify as an "Accredited Investor" or
a "Qualified Non-Accredited Investor," please provide the information requested
below. See "Limited Partners Eligible to Receive Common Stock" in the
Confidential Memorandum.
D-3
CHECK BOX YES OR NO (CHECK ALL ITEMS)
-------------------
|_| Yes |_| No The Investor is a bank as defined in Section 3(a)(2) of the
Act, or any savings and loan association or other institution
as defined in Section 3(a)(5)(A) of the Act whether acting in
its individual or fiduciary capacity; a broker or dealer
registered pursuant to Section 15 of the Securities Exchange
Act of 1934; an insurance company as defined in Section 2(13)
of the Act; an investment company registered under the
Investment Company Act of 1940 or a business development
company as defined in Section 2(a)(48) of the Act; a Small
Business Investment Company licensed by the U.S. Small
Business Administration under Section 301(c) or (d) of the
Small Business Investment Act of 1958; a plan established and
maintained by a state, its political subdivisions or any
agency or instrumentality of a state or its political
subdivisions, for the benefit of its employees, which plan has
total assets in excess of $5,000,000; an employee benefit plan
within the meaning of the Employee Retirement Income Security
Act of 1974, if the investment decision is made by a plan
fiduciary, as defined in Section 3(21) of such Act, which is
either a bank, savings and loan association, insurance company
or registered investment adviser, or if the employee benefit
plan has total assets in excess of $5,000,000 or, if a
self-directed plan, with investment decisions made solely by
person that are Accredited Investors.
|_| Yes |_| No The Investor is a private business development company as
defined in Section 202(a)(22) of the Investment Advisers Act
of 1940.
|_| Yes |_| No No The Investor is an organization described in Section
501(c)(3) of the Internal Revenue Code of 1986, as amended
(the "Code"), a corporation, a Massachusetts or similar
business trust, a partnership or a limited liability company,
not formed for the specific purpose of acquiring the
securities offered, with total assets in excess of $5,000,000.
|_| Yes |_| No No The Investor is a trust, with total assets in excess of
$5,000,000, not formed for the specific purpose of acquiring
the securities offered, whose purchase is directed by a
sophisticated person as described in Rule 506(b)(2)(ii) of
Regulation D under the Securities Act.
|_| Yes |_| No The Investor is an entity all of whose equity owners are
Accredited Investors.
D-4
III. INFORMATION FOR NON-ACCREDITED INVESTORS
This section of the Questionnaire must be completed by any Investor who
checked "No" in each box in Section 1.3 or Section 2.4, as applicable
("Non-Accredited Investor"). All other Investors may proceed to the appropriate
signature page (page 10 for individuals and page 11 for entities).
Each Non-Accredited Investor is required to retain the services of an
advisor (a "Purchaser Representative") when such Investor does not have
sufficient knowledge and experience in financial and business matters to be
capable of evaluating the merits and risks of acquiring Common Stock. Please
indicate below if you have such knowledge and experience or, alternatively,
require the services of an advisor.
3.1 The Investor has such knowledge and experience in financial matters that
he is capable of evaluating the merits and risks of an investment in the
Common Stock, and will not require the services of a Purchaser
Representative. The Investor offers as evidence of such knowledge and
experience in these matters the information contained in the tables below.
Yes No
--- ---
The Investor has invested in restricted securities (including stock of
private companies) within the last three years.
Yes No
--- ---
Name of Investment Amount of Investment
----------------------------------- ------------------------------------
----------------------------------- ------------------------------------
The Investor has invested in real estate investments within the last three
years.
Yes No
--- ---
Name of Investment Type of Investment Amount of Investment
------------------- --------------------- --------------------------
------------------- --------------------- --------------------------
D-5
3.2 The Investor has retained the services of a Purchaser Representative. The
Investor acknowledges the following named person(s) to be his Purchaser
Representative in connection with evaluating the merits and risks of an
investment in the Common Stock.
Yes No
--- ---
--------------------------------------------------------------------------
--------------------------------------------------------------------------
The above-named Purchaser Representative has furnished to the Investor a
completed Purchaser Representative Questionnaire, a copy of which is delivered
to you herewith. The Investor and the above-named Purchaser Representative
together have such knowledge and experience in financial and business matters
that we are capable of evaluating the merits and risks of an investment in the
Common Stock.
Yes No
--- ---
IF THE INVESTOR HAS CHECKED "YES" UNDER 3.2 ABOVE, THIS OFFEREE QUESTIONNAIRE
MUST BE ACCOMPANIED BY A COMPLETED AND SIGNED PURCHASER REPRESENTATIVE
QUESTIONNAIRE
The Investor understands that the Company will rely upon the
accuracy and completeness of his responses to the foregoing questions and
the Investor represents and warrants to the Company as follows:
(i) The answers to the above questions are complete and
correct as may be relied upon the Company in determining whether the
offering in which the Investor proposes to participate is exempt
from registration under the Securities Act of 1933, as amended,
pursuant to Section 4(2) thereof and Rule 506 promulgated
thereunder;
(ii) The Investor will immediately notify the Company of any
material change in any statement made herein occurring prior to the
Closing;
(iii) The Investor is a person who is able to bear the
economic risk of an investment in the Common Stock of the size
contemplated. In making this statement, consideration has been given
to whether the Investor can afford to hold the investment for an
indefinite period of time and whether the Investor can afford a
complete loss of the Investor's investment. The Investor offers as
evidence of the Investor's ability to bear the economic risk the
information contained in the Questionnaire; and
(iv) The acquisition of the Common Stock will be solely for
the Investor's account, and not for the account of any other person
or with a view toward resale, assignment, fractionalization or
distribution thereof.
D-6
OFFEREE QUESTIONNAIRE SIGNATURE PAGE
FOR INDIVIDUALS
The undersigned represent(s) and warrant(s) to you that (a) the
information contained herein is true, complete and accurate and may be relied
upon by you; and (b) the undersigned will notify you immediately of any material
adverse change in such information occurring prior to the Closing Date.
IN WITNESS WHEREOF, the undersigned has/have executed this Offeree
Questionnaire or caused the same to be signed on his/her/their behalf under the
pains and penalties of perjury this day of , 2001.
---------- --------------
SIGNATURE(S)
x
-------------------------------- --------------------------------------
Signature (type or print name)
-------------------------------- --------------------------------------
Signature (type or print name)
D-7
OFFEREE QUESTIONNAIRE SIGNATURE PAGE
FOR ENTITIES
The undersigned represent(s) and warrant(s) to you that (a) the
information contained herein is true, complete and accurate and may be relied
upon by you; and (b) the undersigned will notify you immediately of any material
adverse change in such information occurring prior to the Closing Date.
IN WITNESS WHEREOF, the undersigned has/have executed this Offeree
Questionnaire or caused the same to be signed on his/her/their behalf under the
pains and penalties of perjury this day of , 2001.
------ ----------------
SIGNATURE(S)
-----------------------------------------------------
Type or Print Name of Entity
X
----------------------------------------------------
Signature of Officer or Authorized Person
Its duly Authorized:
---------------------------------
------------------------------------------------------
Type or Print Name of Officer or
Authorized Person
FRANKLIN STREET PROPERTIES CORP.
PURCHASER REPRESENTATIVE QUESTIONNAIRE
Franklin Street Properties Corp.
401 Edgewater Place - Suite 200
Wakefield, Massachusetts 01880
Gentlemen/Ladies:
The information contained herein is being furnished to you in order for
you to determine whether an acquisition of Common Stock (the "Common Stock") of
Franklin Street Properties Corp., a Maryland corporation ("the Company"),
following the merger of Franklin Street Partners Limited Partnership, a
Massachusetts limited partnership (the "Partnership"), into the Company, may be
made by the following prospective Investor:
-----------------------------------------------------------------------
(Insert Name of Prospective Investor)
in light of the requirements of Section 4(2) of the Securities Act of 1933, as
amended (the "Act"), and Rule 506 of Regulation D promulgated thereunder ("Rule
506"). The undersigned understands that (a) you will rely upon the information
contained herein for purposes of such determination, (b) the Common Stock will
not be registered under the Act in reliance upon the exemption from registration
afforded by Section 4(2) of the Act as explained in Rule 506 and (c) this
Questionnaire is not an offer to sell the Common Stock or any other securities
to the undersigned Purchaser Representative.
I note that you have provided the above-named Investor a Consent
Solicitation/Confidential Offering Memorandum, dated as of December 11, 2001,
prepared by the Company in connection with the placement of the Common Stock
(the "Confidential Memorandum"). It should be noted by you that nothing herein
shall be construed as a representation by me that I have attempted to verify the
information set forth in the Confidential Memorandum; RATHER, TO THE CONTRARY,
THE SCOPE OF MY ENGAGEMENT BY, AND MY DISCUSSION WITH, THE ABOVE-NAMED INVESTOR
HAVE BEEN LIMITED TO A DETERMINATION OF THE SUITABILITY OF THE ACQUISITION OF
THE COMMON STOCK BY THE ABOVE-NAMED INVESTOR IN LIGHT OF SUCH INVESTOR'S PRESENT
INVESTMENT CIRCUMSTANCES AS SUCH CIRCUMSTANCES HAVE BEEN PRESENTED TO ME. FOR
THIS PURPOSE I HAVE ASSUMED, BUT DO NOT IN ANY WAY REPRESENT OR WARRANT, EITHER
TO YOU OR TO THE ABOVE-NAMED INVESTOR, THAT THE INFORMATION SET FORTH IN THE
CONFIDENTIAL MEMORANDUM IS ACCURATE AND COMPLETE IN ALL MATERIAL RESPECTS. EACH
AND EVERY STATEMENT MADE BY ME IN THE FOLLOWING PARAGRAPHS IS QUALIFIED BY
REFERENCE TO THE FOREGOING.
With the above in mind, I herewith furnish you with the following
information:
D-9
I. GENERAL INFORMATION
1. Name:
---------------------------------------------------------------------
2. Profession:
---------------------------------------------------------------
3. Name of Business or Firm:
-------------------------------------------------
4. Position or Title:
--------------------------------------------------------
5. Description of Responsibilities:
------------------------------------------
6. Business Address:
---------------------------------------------------------
7. Business Telephone Number:
------------------------------------------------
II. I have discussed the Confidential Memorandum with the above-named Investor
with a view to determining whether the acquisition of the Common Stock by
such Investor is not inappropriate in light of such Investor's financial
circumstances, as such circumstances have been disclosed to me by such
Investor.
III. The undersigned is not an affiliate or a director, officer or other
employee of the Company or a beneficial owner of 10% or more of the equity
interest in the Company except as follows:
(State "No Exceptions" or set forth exceptions and details. The only
exceptions permitted by Regulation D are those recited in the note at the
end of this Questionnaire).
--------------------------------------------------------------------------
--------------------------------------------------------------------------
IV. The undersigned has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of an
acquisition of Common Stock of the Company. The undersigned offers as
evidence thereof the following additional information (e.g., investment
experience, business experience, profession, education):
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
D-10
V. There is no material relationship between me or my affiliates and the
Company or its affiliates which now exists or is mutually understood to be
contemplated or which has existed at any time during the previous two
years, and no compensation has been nor will be will be received as a
result of any such relationship, except as follows:
(State "No Exceptions" or set forth exceptions and give details.)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
If any exceptions exist and are described above, please confirm that such
exceptions were disclosed to the above-named Investor in writing prior to the
date hereof by attaching hereto a copy of such disclosure statement.
The undersigned agrees to notify you promptly of any changes to the
information described in the Questionnaire which may occur prior to the
completion of the transaction.
Very truly yours,
Dated: , 2001
---------------
----------------------------------------
Print or Type Name
----------------------------------------
Signature
----------------------------------------
Street Address
----------------------------------------
City and State
----------------------------------------
Telephone
D-11
NOTE:
Under Rule 501(h) of Regulation D, a Purchaser Representative may not be an
affiliate, director, officer or employee of the Company, or the beneficial owner
of 10% or more of any class of the equity securities or 10% or more of the
equity interest in the Company, except where the offeree is:
(a) Related to the Purchaser Representative by blood, marriage or
adoption, but no more remotely than as first cousin;
(b) Any trust or estate in which the Purchaser Representative or any
persons related thereto as specified in subdivision (a) or (c)
collectively have 100% of the beneficial interest (excluding
contingent interests) or of which any such person serves as trustee,
executor or in any similar capacity; or
(c) Any corporation or other organization in which the Purchaser
Representative or any persons related thereto as specified in
subdivision (a) or (b) collectively are the beneficial owners of
100% of the equity securities (excluding directors' qualifying
shares) or equity interest.
D-12
APPENDIX E
[Logo for Franklin Street Partners]
CONSENT
----------------------------
Name of Investor
----------------------------
Number of Units
The above named person(s), being the holder of unit(s) of limited partnership
interest in Franklin Street Partners Limited Partnership, hereby consents to and
approves the Merger Agreement and the transactions contemplated thereby,
including the Conversion. All capitalized terms herein and not otherwise defined
have the respective meanings ascribed to them in the Consent
Solicitation/Confidential Offering Memorandum dated December 11, 2001.
This Consent is solicited by the General Partner.
Any signed Consent that does not include a marking of one of the boxes below
will be deemed to have voted "YES".
Yes |_| No |_| Abstain |_|
Signatures:
----------------------------
----------------------------
Date:
-------------