SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2000
__________________________________________________
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from TO
___________________ _____________________________
Commission file number 1-12708
_________________________________________________________
FRANKLIN SELECT REALTY TRUST
________________________________________________________________________________
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-3095938
________________________________________________________________________________
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
P. O. BOX 7777, SAN MATEO, CALIFORNIA 94403-7777
________________________________________________________________________________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (650) 312-2000
______________________________
N/A
________________________________________________________________________________
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Common Stock Shares Outstanding as of March 31, 2000, Series A: 13,875,368
Common Stock Shares Outstanding as of March 31, 2000, Series B: 745,584
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FRANKLIN SELECT REALTY TRUST
UNAUDITED BALANCE SHEET AS OF MARCH 31, 2000 AND
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1999
MARCH 31, December
(In thousands, except per share amounts) 2000 31, 1999
- --------------------------------------------------------------------- ------------- ----------
LIQUIDATION Going
BASIS concern
basis
ASSETS
Real Estate
Property held-for-sale, net of accumulated depreciation of $ -
and $24,709, as of March 31, 2000 and December 31, 1999, respectively $ - $110,520
Cash and cash equivalents 17,545 14,316
Mortgage-backed securities, available-for-sale 277 286
Deferred rent receivable - 1,692
Other assets 3,583 4,232
============= ==========
Total assets $21,405 $131,046
============= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Debt $ - $26,312
Reserve for litigation 2,100 2,100
Distributions payable 259 1,793
Other liabilities 2,223 2,477
-------------- ----------
Total liabilities 4,582 32,682
-------------- ----------
Minority interest - 9,096
-------------- ----------
Commitments and contingencies (Notes 1- 7) - -
Stockholders' equity:
Common stock, Series A, without par value; stated value $10 per
share; 50,000 shares authorized; 13,875 and 12,250 issued 121,439 103,161
and outstanding at March 31, 2000 and December 31, 1999,
respectively
Common stock, Series B, without par value; stated value $10 per
share; 1,000 shares authorized; 746 issued and outstanding - 6,294
Accumulated other comprehensive loss (34) (33)
Accumulated distributions in excess of net income (104,582) (20,154)
-------------- ----------
Total stockholders' equity 16,823 89,268
============== ==========
Total liabilities and stockholders' equity $21,405 $131,046
============== ==========
The accompanying notes are an integral part of these financial statements.
FRANKLIN SELECT REALTY TRUST
STATEMENT OF INCOME AND COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND
CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31,1999
(Unaudited)
(in thousands, except per share amounts) 2000 1999
- ----------------------------------------------------------------------------------------
LIQUIDATION Going
BASIS concern
basis
REVENUE:
Rent $1,990 $3,869
Interest, dividends and other 1,388 253
---------------------
Total revenue 3,378 4,122
---------------------
EXPENSES:
Property operating 427 806
Interest 180 593
Related party 238 313
Depreciation and amortization 338 925
General and administrative 2,063 541
---------------------
Total expenses 3,246 3,178
---------------------
Operating income before gain on sale of 132 944
property and minority interest
Gain on sale of property 14,093 -
---------------------
Operating income before minority interest 14,225 944
Minority interest - 177
=====================
NET INCOME 14,225 $767
=====================
Unrealized (loss) gain on
mortgage-backed securities (1) 95
=====================
Comprehensive income $14,224 $862
=====================
Net income per share, based on the weighted
average shares outstanding of Series A
common stock of 13,161 and 12,250 for the
three-month periods ended March 31, 2000 $1.08 $.06
and 1999, respectively
=====================
Distributions per share, based on the
actual shares outstanding of Series A
common stock of 13,875 and 12,250 on the
distribution dates in the quarter ended $ 7.22 $.12
March 31, 2000 and March 31, 1999,
respectively
=====================
The accompanying notes are an integral part of these financial statements.
FRANKLIN SELECT REALTY TRUST
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,1999
(Unaudited)
(In thousands) 2000 1999
- -------------------------------------------------------------------- --------- --------
LIQUIDATION Going
BASIS concern
basis
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $14,225 $767
--------- --------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 338 957
Gain on sale of property (14,093) -
Minority interest - 177
Decrease in deferred rent receivable - 10
Decrease in other assets 533 41
Increase in tenant deposits, accounts payable
and other liabilities 797 483
--------- --------
(12,425) 1,668
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,800 2,435
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of real estate 104,540 -
Improvements to real estate (83) (76)
Cash in escrow (2,630) -
Collection of notes receivable - 7,700
Net sale (purchase) of mortgage-backed securities 8 (6,179)
Leasing commissions paid and other (3) (124)
-------- ---------
NET CASH PROVIDED BY INVESTING ACTIVITIES 101,832 1,321
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes and bonds payable - (99)
Payment of loan costs - (31)
Distributions paid to limited partners (216) (77)
Distributions paid to stockholders (100,187) (1,427)
-------- ---------
NET CASH USED IN FINANCING ACTIVITIES (100,403) (1,634)
--------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 3,229 2,122
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 14,316 1,256
--------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $17,545 $3,378
========= ========
SUPPLEMENTAL NON-CASH ACTIVITY
Debt assumed by Value Enhancement in connection with the Asset Sale
described in Note 1 $26,312 $ -
The accompanying notes are an integral part of these financial statements.
FRANKLIN SELECT REALTY TRUST
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
Unaudited
NOTE 1 - DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements of
Franklin Select Realty Trust (the "Company") included herein have been
prepared in accordance with the instructions to Form 10-Q pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, all appropriate adjustments
necessary to a fair presentation of the results of operations have been made
for the periods shown.
On February 10, 2000, Franklin Select Realty Trust closed the sale of all of
its real estate assets (the "Asset Sale") to Value Enhancement Fund III, LLC
("Value Enhancement"), a private real estate fund formed by Lend Lease Real
Estate Investments to purchase properties.
Pursuant to the plan of liquidation approved by the shareholders, the Board
of Directors declared an initial liquidating distribution of $7.11 per share
to shareholders of record holding Series A common stock on February 29,
2000. The initial distribution was paid on March 10, 2000. Under applicable
AMEX regulations, the AMEX suspended trading in the Company's shares
beginning on March 1, 2000, and de-listed the Company's shares effective
March 13, 2000.
The Company will continue to wind up its affairs pursuant to the plan of
liquidation. It is expected that shareholders of record holding Series A
common stock will also receive a final liquidating distribution before the
end of 2000, subject to final court approval of settlements of pending
litigation and the release of certain amounts held in escrow to secure
limited representations and warranties made by the Company to Value
Enhancement in connection with the Asset Sale. See Note 4 and the Risk
Factors Relating to the Asset sale and Dissolution Plan in Management's
Discussion and Analysis of Financial Condition and Results of Operations
below. It is not expected that the shareholders of record of the Series B
common stock will receive a distribution.
The financial statements for the period ended March 31, 2000 have been
prepared on a liquidation basis. No adjustment has been made to the prior
period financial statements, which were prepared on a going concern basis, as
was appropriate at the time that they were presented. The going concern basis
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. Liquidation basis accounting requires
management to estimate and record the value of all transactions anticipated
up until the date of liquidation, including any adjustments relating to the
recoverability and classification of assets and liabilities. The liquidation
basis of accounting is only used when it is reasonably certain that a
business will terminate.
These financial statements should be read in conjunction with the Company's
audited financial statements as of and for the year ended December 31, 1999.
NOTE 2 - REAL ESTATE SALES
The Asset Sale to Value Enhancement closed on February 10, 2000. The Asset
Sale included all real estate directly owned by the Company together with the
interests of the Company in FSRT, L.P. The aggregate base purchase price for
properties with a net book value of $110,317,000 was $131,500,000, reduced by
$26,312,000 for existing debt, which was assumed by Value Enhancement. A gain
of $14,093,000 was recorded on the Asset Sale. The net proceeds of
approximately $104,540,000 were paid to the Company in cash.
NOTE 3 - OTHER ASSETS
Included in Other assets as of March 31, 2000 is $2,630,000 related to
amounts deposited in escrow to secure certain limited representations and
warranties made by the Company to Value Enhancement with respect to the Asset
Sale. No claims have yet been made against these funds and although no
assurance can be given, management expects the full amount to be released
from escrow in November, 2000.
NOTE 4 - LITIGATION
The Company has been involved in shareholder litigation that it has
previously reported: the "Hodge Lawsuit" and the "Vigneau Lawsuit. " In the
Hodge Lawsuit, Herbert S. Hodge, Jr. on behalf of certain shareholders of
Franklin Real Estate Income Fund (a predecessor of the Company, "FREIF"),
filed a purported class action complaint on June 3, 1997 in the California
Superior Court for San Mateo County against the Company, certain of its then
current and former directors, Franklin Properties, Inc. (the "Advisor"),
Franklin Resources, Inc. ("Franklin Resources") and Bear Stearns Co., Inc.
The complaint alleges, among other things, that the defendants breached their
fiduciary duties to the plaintiffs in connection with the merger of FREIF
into the Company in May 1996.
In the Vigneau Lawsuit, the Company is defending the former directors of
Franklin Advantage Real Estate Income Fund (a predecessor of the Company,
"Advantage"), who include the current directors of the Company, against a
purported class action. This action on behalf of certain shareholders of
Advantage was filed on December 2, 1996 in the California Superior Court for
San Mateo County. Other defendants currently include the Advisor and Franklin
Resources, Inc. The complaint alleges, among other things, that the
defendants breached their fiduciary duties to the plaintiffs and other
minority shareholders in connection with the purchase of an interest in
Advantage by Franklin Resources in August 1994 and in connection with the
merger of Advantage into the Company in May 1996.
The plaintiffs in each lawsuit sought damages in an unspecified amount and
certain equitable relief. The defendants in each lawsuit have denied any
wrongdoing and vigorously defended the lawsuits.
The Company and the defendants have agreed in principle with the
representative plaintiffs and their counsel in both cases to settle the cases
on a class-wide basis. The successful conclusion of each of these settlement
efforts would require that the court certify a class for settlement purposes
and approve the mailing of notice to the class, that the court determine that
the settlement is fair, reasonable and adequate after a hearing at which
class members may appear and be heard, and that certain other conditions are
met, a process that is expected to take many months to complete. In the
Hodge Lawsuit, the court has approved the mailing of the notice and it has
been sent to the class members. In the Vigneau Lawsuit the court has
certified the class for settlement purposes, but notice has not yet been sent
to the class members. If consummated according to the agreements, future
legal expenses and the costs of settlement of the Hodge Lawsuit and the
Vigneau Lawsuit will be funded by insurance coverage, contributions from
certain other defendants, and contributions from the Company. No assurance
can be given as to the outcome of the settlement efforts. If the settlement
efforts are not successful, the Company will continue to pursue its vigorous
defense of the litigation. Based on management's assessment of potential
liability with respect to the shareholder litigation, the Company has
maintained a reserve related to the shareholder litigation of $2,100,000
which was initially recorded in the year ended December 31, 1999.
NOTE 5 - RELATED PARTY AGREEMENTS
The property management agreement with a related party has been terminated as
a result of the closing of the Asset Sale. Effective January 1, 2000, the
Company amended its advisory agreement with the Advisor to replace the asset
management fee with a fixed quarterly fee of $50,000 for the quarter ended
March 31, 2000 and $35,000 per quarter thereafter. Estimated future
quarterly advisory fees through December 31, 2000 of $155,000 have been
accrued as of March 31, 2000. Supplemental fees of $168,000 have also been
accrued by the Company to be paid to the Advisor in connection with certain
liquidation costs. Of these supplemental fees, $160,000 were accrued as of
December 31, 1999.
NOTE 6 - DISTRIBUTIONS PAYABLE
Distributions payable at March 31, 2000 represented amounts accrued based on
cumulative distributions declared to date on shares of the Company's Series A
common stock that remain unconverted by stockholders of FREIF and Advantage
with respect to the Company's merger with FRIEF and Advantage in May 1996.
NOTE 7 - LIQUIDATION ACCOUNTING ADJUSTMENTS
In accordance with the liquidation basis of accounting, certain adjustments
were made to the financial statements. These adjustments represent
management's estimate of the expenses that will be incurred up to the date of
the expected liquidation of the Company. No assurance can be given that the
final costs will be in accordance with these estimates. Included in Other
assets as of March 31, 2000, is $748,000 relating to accrued interest income
from the Company's Cash and cash equivalents and Mortgage-backed securities
through December 2000. The following is a summary of the accruals included
within Other liabilities relating to liquidation events outstanding as of
March 31, 2000:
MARCH
31, 2000
Liquidation adjustments
Insurance $991,000
Legal 650,000
Related party 338,000
Property related 101,000
Accounting fees 53,000
Other 90,000
==========
Total liquidation expense 2,223,000
adjustments ==========
NOTE 8 - MINORITY INTEREST IN FSRT, L.P.
In connection with the formation of FSRT, L.P., the limited partners of FSRT,
L.P. were granted rights to convert their limited partner interests into
shares of the Company's Series A common stock. On February 10, 2000, the
limited partner converted its limited partner interests into 1,625,000 shares
of Series A common stock. Following this conversion, FSRT, L.P is
wholly-owned by the Company.
FRANKLIN SELECT REALTY TRUST
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
The following discussion should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in the Company's 1999 Form 10-K.
As described in Note 2 to the financial statements, the Company sold its real
estate properties on February 10, 2000, in accordance with a vote of
stockholders held on January 25, 2000. The Company is now expected to be
liquidated by the end of fiscal 2000. As a result, the Company has adopted
the liquidation basis of accounting, which requires the accrual of all
expected costs and revenues to the date of the liquidation.
When used in the following discussion, the words "believes," "intends,"
"expects," "anticipates" and similar expressions are intended to identify
forward-looking statements. Such statements are subject to certain risks and
uncertainties which could cause actual results to differ materially from those
projected, including, but not limited to, those set forth in the section
entitled "Risk Factors Relating to the Asset Sale and the Dissolution Plan,"
below. Readers are cautioned not to place undue reliance on these
forward-looking statements that speak only as of the date hereof. The Company
undertakes no obligation to publicly release any revisions to these
forward-looking statements that may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE-MONTH PERIODS ENDED MARCH 31, 2000 AND 1999
The financial statements for the three-month period ended March 31, 2000 were
prepared using the liquidation basis of accounting which differs from the going
concern basis of accounting used to prepare the financial statements for the
three-month period ended March 31, 1999. See Note 1 to the accompanying
financial statements. Total revenue for the three-month period ended March 31,
2000 decreased $744,000, or 18%, compared to the same period a year ago. Rental
revenue in the quarter ended March 31, 2000 was earned in the period between
January 1, 2000 and February 10, 2000, the date of the Asset Sale. Investment
income in the current quarter represents anticipated revenues to the date of the
expected final liquidation of the Company in December 2000.
Total expenses for the three-month period ended March 31, 2000 increased
$68,000, or 2%, when compared to the same period a year ago. Property operating,
Interest and Depreciation costs in the quarter ended March 31, 2000 were
incurred during the period from January 1, 2000 to February 10, 2000. Related
party and General and administrative expenses includes the amounts that the
Company is expected to incur during the liquidation phase.
General and administrative expenses for the three-month period ended March 31,
2000 increased $1,522,000, or 281%, when compared to the same period a year ago.
This increase was primarily due to legal, insurance and other costs incurred
with respect to the Company's anticipated liquidation, as discussed in Note 7 to
the financial statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents increased to $17,545,000 at March 31,
2000 as compared to $14,316,000 at December 31, 1999. Substantially all of these
funds were invested in mortgage-backed and U.S. Treasury securities with
original maturities of 90 days or less.
During the three months ended March 31, 2000, the Company received net proceeds
from the Asset Sale of $104,540,000 and paid distributions to stockholders of
$100,187,000, including the initial distribution of $98,653,895 or $7.11 per
share of Series A common stock outstanding. It is expected that stockholders of
record holding Series A common stock will also receive a final liquidating
distribution before the end of the calendar year. This final distribution is
subject to final court approval of settlements of pending litigation and
expiration of the limited representations and warranties described in Risk
Factors Relating to the Asset Sale and the Dissolution Plan, below. It is not
expected that any interim or quarterly distribution will be declared or paid
before the final liquidating distribution.
RISK FACTORS RELATING TO THE ASSET SALE AND THE DISSOLUTION PLAN
LIQUIDATION OF THE COMPANY
The Company has sold all of its remaining properties and is now in its
liquidation phase. Hereafter, the Company will continue to wind up its affairs
pursuant to the Plan of Liquidation, as approved by shareholders on January 25,
2000. During this phase, the Company will continue to incur general and
administrative expenses for legal, accounting, and other professional fees,
directors and officers insurance coverage, advisory and directors fees, and
other costs of operating the Company and winding up its affairs. Those revenues
and expenses have been estimated and accrued in these financial statements, but
there can be no assurance that the final costs will be in accordance with those
estimates.
LITIGATION
The Company is currently involved in shareholder litigation as described in Note
4 to the accompanying financial statements. The Company and the defendants have
agreed in principal with the representative plaintiffs and their counsel in both
cases to settle them on a class-wide basis. The successful conclusion of each of
these settlement efforts would require the court certify a class for settlement
purposes and approve the mailing of notice to the class; that the court
determine that the settlement is fair, reasonable and adequate after a hearing
at which class members may appear and be heard; and that certain other
conditions are met, a process that is expected to take many months to complete.
In the Hodge Lawsuit, the court has approved the mailing of the notice and it
has been sent to the class members. In the Vigneau Lawsuit, the court has
certified the class for settlement purposes, but notice has not yet been sent to
the class members. If consummated according to the agreements, future legal
expenses and the costs of settlement of the Hodge Lawsuit and the Vigneau
Lawsuit will be funded by insurance coverage, contributions from certain other
defendants, and contributions from the Company. No assurance can be given as to
the outcome of the settlement efforts. If the settlement efforts are not
successful, the Company will continue to pursue its vigorous defense of the
litigation. Based on management's assessment of potential liability with respect
to the shareholder litigation, the Company recorded a reserve related to the
shareholder litigation of $2,100,000 in the year ended December 31, 1999. If the
settlement efforts are not successful in the year ending December 31, 2000,
costs of litigation and possible settlement could be substantially more than has
been recorded in the financial statements as of March 31, 2000.
REPRESENTATIONS AND WARRANTIES RELATED TO THE ASSET SALE
As required by the Purchase Agreement, the Company has placed $2,630,000 of
the Asset Sale proceeds in an escrow account to secure certain limited
representations and warranties made by the Company to Value Enhancement with
respect to the Asset Sale. Provided that Value Enhancement does not make a
claim against the Company that is covered by the escrowed funds, the funds
will be released to the Company from escrow on November 10, 2000, including
interest income. To date, Value Enhancement has not made a claim against the
Company. However, no assurances can be given that Value Enhancement will not
make a claim during the liquidation phase.
YEAR 2000 READINESS DISCLOSURE
As of the date of this filing, all of the Company's mission-critical systems
and important non-mission-critical systems have successfully transitioned to
the Year 2000 and are operating in production. Management continued to
monitor system compliance through February 29, 2000, which is a non-standard
leap year that potentially could have caused Year 2000-related problems. The
Company did not experience any material system problems in connection with
the leap year date.
The costs of the Company's efforts to identify and correct any potential Year
2000 problems have not been material and are not expected to have a material
effect in the future on the Company's results of operations, financial
position or cash flow.
FRANKLIN SELECT REALTY TRUST
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has been involved in shareholder litigation that it has
previously reported: the "Hodge Lawsuit" and the "Vigneau Lawsuit. " In the
Hodge Lawsuit, Herbert S. Hodge, Jr. on behalf of certain shareholders of
Franklin Real Estate Income Fund (a predecessor of the Company, "FREIF"),
filed a purported class action complaint on June 3, 1997 in the California
Superior Court for San Mateo County against the Company, certain of its then
current and former directors, Franklin Properties, Inc. (the "Advisor"),
Franklin Resources, Inc. ("Franklin Resources") and Bear Stearns Co., Inc.
The complaint alleges, among other things, that the defendants breached their
fiduciary duties to the plaintiffs in connection with the merger of FREIF
into the Company in May 1996.
In the Vigneau Lawsuit, the Company is defending the former directors of
Franklin Advantage Real Estate Income Fund (a predecessor of the Company,
"Advantage"), who include the current directors of the Company, against a
purported class action. This action on behalf of certain shareholders of
Advantage was filed on December 2, 1996 in the California Superior Court for
San Mateo County. Other defendants currently include the Advisor and Franklin
Resources, Inc. The complaint alleges, among other things, that the
defendants breached their fiduciary duties to the plaintiffs and other
minority shareholders in connection with the purchase of an interest in
Advantage by Franklin Resources in August 1994 and in connection with the
merger of Advantage into the Company in May 1996.
The plaintiffs in each lawsuit sought damages in an unspecified amount and
certain equitable relief. The defendants in each lawsuit have denied any
wrongdoing and vigorously defended the lawsuits.
The Company and the defendants have agreed in principle with the
representative plaintiffs and their counsel in both cases to settle the cases
on a class-wide basis. The successful conclusion of each of these settlement
efforts would require that the court certify a class for settlement purposes
and approve the mailing of notice to the class, that the court determine that
the settlement is fair, reasonable and adequate after a hearing at which
class members may appear and be heard, and that certain other conditions are
met, a process that is expected to take many months to complete. In the
Hodge Lawsuit, the court has approved the mailing of the notice and it has
been sent to the class members. In the Vigneau Lawsuit, the court has
certified the class for settlement purposes, but notice has not yet been sent
to the class members. If consummated according to the agreements, future
legal expenses and the costs of settlement of the Hodge Lawsuit and the
Vigneau Lawsuit will be funded by insurance coverage, contributions from
certain other defendants, and contributions from the Company. No assurance
can be given as to the outcome of the settlement efforts. If the settlement
efforts are not successful, the Company will continue to pursue its vigorous
defense of the litigation. Based on management's assessment of potential
liability with respect to the shareholder litigation, the Company has
recorded a reserve related to the shareholder litigation of $2,100,000 in the
year ended December 31, 1999.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On October 12, 1999 the Board of Directors of the Company authorized the
execution of agreements pertaining to the Asset Sale and the filing of a
Proxy Statement with the Securities and Exchange Commission in connection
with a Special Meeting of Shareholders held on January 25, 2000 to solicit
shareholder approval for the Asset Sale and to authorize the Board of
Directors to liquidate, wind up and dissolve the Company. The Proxy
Statement was filed and mailed to the shareholders on December 14, 1999.
At a Special Meeting of Shareholders held on January 25, 2000, the proposed
Asset Sale and liquidation were approved. Among other requirements, approval
of the Asset Sale required the affirmative vote of a majority of the
outstanding shares of the Company. The actual tabulation of the vote was as
follows:
FOR AGAINST ABSTAIN
Proposal 1: To approve the Asset Sale 8,529,915 101,657 139,977
65.63% .78% 1.08%
Proposal 2: To authorize the board of 8,239,037 94,591 137,178
directors to liquidate, 63.40% .73% 1.06%
wind up and dissolve the Company
There were no other matters submitted to a vote of security holders during
the quarter covered by this report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit
NO. LIST OF EXHIBITS FOOTNOTE
------- ---------------- --------
3.1 Amended and Restated Articles of Incorporation (1)
3.2 Second Amended and Restated Bylaws of Franklin Select Realty Trust (2)
10.2 Property Management Agreement (3)
10.3 Agreement of Limited Partnership of FSRT, L.P. between the Company and (4)
Northport Associates No. 18, a California limited liability company, dated as
October 30, 1996.
10.4 Contribution Agreement, dated as of October 30, 1996, between FSRT, L.P., (4)
the Company, Northport Associates No. 18, a California limited liability company,
and the members of Northport Associates No. 18.
10.5 Exchange Rights Agreement, dated as of October 30, 1996, among the Company, (6)
FSRT L.P., and Northport Associates No. 18, a California limited liability company.
10.6 Registration Rights Agreement, dated as of October 30, 1996, among the (6)
Company and Northport Associates No. 18, a California limited liability company.
10.7 Secured line of credit loan agreement, dated December 10, 1996, by and
between the Company and Bank of America. (5)
10.8 Lease agreement dated July 9, 1999, by and between the Company and Sybron
Laboratory Products Corporation (6)
10.9 Purchase Agreement dated as of October 12, 1999, by and among the Company,
FSRT, L.P., the limited partners of FSRT L.P., and Value Enhancement Fund III,
LLC. (7)
10.10 Purchase of Conversion Rights Agreement dated as of October 12, 1999 between
the Company and the limited partners of FSRT, L.P. (7)
10.11* Amended and Restated Advisory Agreement
27.1* Financial data schedule
* Filed herewith.
FOOTNOTES
(1) Documents were filed in the Company's Form 10-Q for the quarter ended March 31, 1999 and are
incorporated herein by reference.
(2) Documents were filed in the Company's Form S-4 Registration Statement, dated November 13, 1995,
(Registration No. 033-64131), and are incorporated herein by reference.
(3) Documents were filed in the Company's Form 10-K for the year ended December 31, 1994, and are
incorporated herein by reference.
(4) Documents were filed in the Company's Form 8-K, dated October 31, 1996, and are incorporated herein by
reference.
(5) Documents were filed in the Company's Form 10-K, for the year ended December 31, 1996, and are
incorporated herein by reference.
(6) Documents were filed in the Company's Form 10-Q for the quarter June 30, 1999 and are incorporated
herein by reference.
(7) Documents were filed in the Company's Form 8-K dated October 12, 1999, and are incorporated herein by
reference.
(b) Reports filed on Form 8-K
During the quarter ended March 31, 2000, the Company filed reports on Form 8-K as follows:
(i) On January 13, 2000, the Company filed a report dated January 13, 2000 (date of earliest event
reported). This report contained information on the preliminary agreements in principle reached
on two pending shareholder lawsuits.
(ii) On January 28, the Company filed a report dated January 28, 2000 (date of earliest event reported).
This report contained information relating the shareholders' approval of the Asset Sale and the
plan of liquidation of the Company.
(iii) On February 24, 2000 the Company filed a report dated February 10, 2000 (date of earliest event
reported). This report contained information confirming the sale of assets to Value Enhancement
Fund III, LLC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FRANKLIN SELECT REALTY TRUST
By: /S/ DAVID P. GOSS
David P. Goss
Chief Executive Officer
Date: MAY 12, 2000