-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NTyNDVM3b+29GqHGJZeY33gLNChQ9zGrw7uN7hOb16BfKG4Mc9pLvdGHjHchp1/k HhuEGwwbH2jXa0sWYVSH2w== 0001005477-01-002924.txt : 20010501 0001005477-01-002924.hdr.sgml : 20010501 ACCESSION NUMBER: 0001005477-01-002924 CONFORMED SUBMISSION TYPE: 10-12G PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 20010430 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRANKLIN STREET PARTNERS LP CENTRAL INDEX KEY: 0001031316 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 042724223 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-12G SEC ACT: SEC FILE NUMBER: 000-32615 FILM NUMBER: 1615244 BUSINESS ADDRESS: STREET 1: 401 EDGEWATER PL STREET 2: STE 200 CITY: WAKEFIELD STATE: MA ZIP: 01880 BUSINESS PHONE: 7815571300 MAIL ADDRESS: STREET 1: 401 EDGEWATER PLACE STREET 2: STE 200 CITY: WAKEFIELD STATE: MA ZIP: 01880 10-12G 1 0001.txt FORM 10 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- FORM 10 GENERAL FORM FOR REGISTRATION OF SECURITIES Pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of 1934 ---------------- FRANKLIN STREET PARTNERS LIMITED PARTNERSHIP (Exact Name of Registrant as Specified in its Charter) ---------------- Massachusetts 04-2724223 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 401 Edgewater Place, Suite 200 Wakefield, MA 01880-6210 (Address of principal offices) (781) 557-1300 (Registrant's telephone number, including area code) ---------------- Securities to be registered under Section 12(b) of the Act: None Securities to be registered pursuant to Section 12(g) of the Act: Units of Limited Partnership Interest (Title of class) A list of exhibits is located in Item 15(b). Table of Contents 10-12G Item 1. Business............................................................1 Item 2. Financial Information...............................................2 Item 3. Properties.........................................................14 Item 4. Security Ownership of Certain Beneficial Owners and Management.....16 Item 5. Directors and Executive Officers...................................17 Item 6. Executive Compensation.............................................19 Item 7. Certain Relationships and Related Transactions.....................20 Item 8. Legal Proceedings..................................................20 Item 9. Market Price of and Dividends on the Registrant's Common Equity and Related Stockholder Matters............................20 Item 10. Recent Sales of Unregistered Securities............................21 Item 11. Description of Registrant's Securities to be Registered............21 Item 12. Indemnification of Directors and Officers..........................23 Item 13. Financial Statements and Supplementary Data........................24 Item 14. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...........................................24 Item 15. Financial Statements and Exhibits..................................24 -i- Item 1. Business Franklin Street Partners Limited Partnership (the "Company" or the "Partnership") was formed as a Massachusetts general partnership in January 1997 as the successor to a Massachusetts general partnership formed in 1981 and subsequently formed as a Massachusetts limited partnership in February 1997. The Company holds a 99% interest in FSP Investments LLC, a Massachusetts limited liability company ("FSP Investments"), a 99% interest in FSP Property Management LLC, a Massachusetts limited liability company ("FSP Property Management"), and a 100% interest in 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 of 1933 ("Sponsored Entities"), (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 both investment banking fees received in connection with the acquisition of real property by Sponsored Entities and brokerage commissions received in connection with the syndication of equity interests in 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 Entities that were organized as limited partnerships (the "Sponsored Partnerships"). The sole general partner of each of the Sponsored Partnerships is FSP Holdings. On April 1, 1997, FSP Holdings acquired the general partnership interest in four additional Sponsored Partnerships, each of which had been organized by the executive officers of the general partner of the Company prior to the formation of the Company while they were employed by another entity. Between June 2000 and December 31, 2000, FSP Investments completed the offerings of preferred stock in three Sponsored Entities that were organized as corporations intended to qualify for tax purposes as real estate investment trusts (the "Sponsored REITs"). The Company expects that future Sponsored Entities will be Sponsored REITs. In December 2000 one of the Sponsored Partnerships converted from a Partnership to a Sponsored REIT. Each Sponsored Entity sold its equity interests only to "accredited investors'" within the meaning of Regulation D under the Securities Act. The Sponsored Entities issued an aggregate of $277,100,000 of equity interests. 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 Company acquired 17 Sponsored Partnerships. In connection with these mergers, the Company issued units of its limited partnership interest (the "Units") to the limited partners of the Sponsored Partnerships. As a result of the mergers, FSP Holdings is the sole general partner of each Sponsored Partnership that was acquired and the Company is the sole limited partner of each such Sponsored Partnership. Accordingly, the Company owns, directly and indirectly, 100% of the interest in the 17 Sponsored Partnerships, each of which owns real property. Reference in this registration statement to the Company's properties means the real properties owned by these 17 Sponsored Partnerships. The Company has two principal sources of revenue: o Brokerage commissions, syndication and other fees ("investment banking fees") in connection with the organization and offering of Sponsored Entities. o Rental income from the real properties it owns. With respect to its investment banking and brokerage business, the Company faces competition for the investment dollars of potential purchasers of the Sponsored Entities from every other kind of investment, including stocks, bonds, mutual funds and other real-estate related investments, including REITs. Some of the Company's competitors have significantly more resources than the Company and are able to advertise their investment products. Because the offerings of the Sponsored Entities are made pursuant to an exemption from registration under the Securities Act, FSP Investments may not advertise the Sponsored Entities or otherwise engage in any general solicitation of investors to purchase interests in the Sponsored Entities. With respect to its real estate investments, the Company faces competition in each of the markets where the properties are located. See "Financial Information - Management's Analysis and Discussion of Financial Condition and Results of Operations - Trends and Uncertainties" in Item 2 hereof. As of December 31, 2000, each of the Company's 17 properties had an occupancy level in excess of 90%. The Company had 22 employees as of December 31, 2000. Item 2. Financial Information. Special Note Regarding Forward-Looking Statements This registration statement contains forward-looking financial statements. These statements relate to future events or our future financial performance. In some cases, one can identify forward-looking statements by terminology. For example, "may", "will", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential" or "continue", or the negative of these terms or other comparable terminology, indicate forward-looking statements. These statements are only predictions. Actual events or results may differ materially. In evaluating these statements, an investor should specifically consider various factors set forth under "Management's Discussion and Analysis - Rick Factors". These factors may cause our actual results to differ materially from any forward-looking statement. Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We will not update any of the forward-looking statements after the date of this registration statement to conform them to actual results or to changes in our expectations that occur after the date of this registration statement, other than as required by law. 2 Selected Financial Data The following selected financial information is derived from the historical consolidated financial statements of the Company. This information should be read in conjunction with "Financial Information--Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 2 hereof and with the Company's consolidated financial statements and related notes thereto included in Item 13 hereof. FRANKLIN STREET PARTNERS LIMITED PARTNERSHIP (dollars in thousands, except units and per partnership unit data)
From date of inception February 4, Year Ended December 31, 1997 through ----------------------------------------------- December 31, 2000 1999 1998 1997 ----------------------------------------------------------------------- OPERATING DATA: Total revenue................. $34,793 $18,048 $11,555 $7,203 Net income.................... 11,706 3,455 1,977 272 Basic and diluted net income per partnership unit.......... $0.48 $0.14 $0.08 $0.01 From date of inception February 4, As of December 31, 1997 through ----------------------------------------------- December 31, 2000 1999 1998 1997 ----------------------------------------------------------------------- BALANCE SHEET DATA (AT PERIOD END): Total assets.................. $199,483 $176,199 $95,150 $66,117 Total liabilities............. 19,280 28,821 1,294 1,638 Total partners' capital....... 180,140 147,326 93,856 64,478 OTHER DATA: Funds from Operations (a)..... $18,200 $6,352 $4,081 $1,770 Cash distribution declared per unit of partnership interest...................... $0.90 $0.55 $0.30 $0.15 Weighted average units of partnership interest-basic and diluted................... 24,377,095 24,204,595 24,204,595 24,204,595
(a) Funds from operations (FFO) is defined as net income (computed in accordance with generally accepted accounting principles) plus depreciation and amortization and other non-cash expenses. FFO is not a measure of operating results or cash flows from operating activities as 3 measured by generally accepted accounting principles, and is not necessarily indicative of cash available to fund cash needs and should not be considered an alternative to cash flows as a measure of liquidity or to net income as an indicator of the Partnership's operating performance. The methodology used by the Partnership in calculating FFO may differ from that used by other entities whose business is similar to the Partnership's and, therefore, may not be comparable to such other entities. Management's Discussion and Analysis of Financial Condition and Results of Operations The following information should be read in conjunction with the consolidated financial statements included at Item 13. The Partnership operates in two business segments: rental operations and investment services. FSP Investments provides real estate investment and broker/dealer services that include: (a) the organization of Sponsored REITs in 2000 and Sponsored Partnerships prior to 2000, which were syndicated through private placements; (b) the acquisition of real estate on behalf of the Sponsored Entities; and (c) the sale of preferred stock in Sponsored REITs or limited partnership interests in the Sponsored Partnerships. The following table summarizes property owned by the Partnership for the three years ended December 31, 2000, 1999 and 1998. December 31, ----------------------------------- 2000 1999 1998 --------- --------- ------- Residential Number of Properties............ 4 4 4 Number of Apartment Units....... 642 642 642 Commercial Number of Properties............ 13 12 5 Square Footage.................. 1,433,300 1,328,600 405,500 Results of Operations The following table shows the Partnership's financial data as a percentage of total revenues for the three years ended December 31, 2000, 1999, and 1998 and the variance in dollars between the years ended December 31, 2000 and 1999 and the years ended December 31, 1999 and 1998. See Note 3 Business Segments of the Consolidated Financial Statements and Supplementary Data for financial information about business segments.
Financial Data as a Percentage of Total Revenues for the Year Variance in dollars between Ended December 31, the years ended December 31, ------------------ ---------------------------- 2000 and 1999 and 2000 1999 1998 1999 1998 ---- ---- ---- ---- ---- (in thousands) REVENUES: Rental income.................................... 73.1% 90.4% 94.0% $9,119 $5,456 Syndication and commission income................ 21.8% 4.4% 0.0% 6,785 789 Interest and other income........................ 5.1% 5.2% 6.0% 841 248 ----- ----- ----- ------ ------ Total revenues................................... 100.0% 100.0% 100.0% 16,745 6,493 ----- ----- ----- ------ ------
4
Financial Data as a Percentage of Total Revenues for the Year Variance in dollars between Ended December 31, the years ended December 31, ------------------ ---------------------------- 2000 and 1999 and 2000 1999 1998 1999 1998 ---- ---- ---- ---- ---- (in thousands) EXPENSES: Selling, general and administrative.............. 25.2% 28.9% 22.3% 3,572 2,648 Other real estate operating expenses............. 18.7% 24.5% 26.1% 2,060 1,417 Depreciation and amortization.................... 12.1% 16.1% 18.2% 1,297 793 Real estate taxes and insurance.................. 7.1% 8.0% 9.5% 1,025 347 Interest expense................................. 2.5% 1.7% 0.2% 561 273 Merger costs..................................... 0.6% 1.3% 6.4% (9) (505) Minority interest................................ 0.2% 0.4% 0.2% (12) 42 ----- ----- ----- ------ ------ Total expenses................................... 66.4% 80.9% 82.9% 8,494 5,015 ----- ----- ----- ------ ------ NET INCOME........................................... 33.6% 19.1% 17.1% $8,251 $1,478 ===== ===== ===== ====== ======
Comparison Of The Year Ended December 31, 2000 To The Year Ended December 31, 1999 Revenues Total revenues increased $16.8 million or 92.3%, to $34.8 million for the year ended December 31, 2000, as compared to $18.0 million for the year ended December 31, 1999. The increase in rental income of $9.1 million, or 55.9%, compared to the year ended December 31, 1999, is attributable to: o the acquisition of seven commercial properties in 1999, which contributed revenues for a full year in 2000, as compared with a partial year in 1999, resulting in $8.0 million in incremental revenues; o the acquisition of one commercial property in 2000, which contributed revenues for a partial year in 2000, as compared with no revenue in 1999, resulting in approximately $600 thousand in incremental revenues; o increased revenues of approximately $500 thousand as a result of rent increases and other miscellaneous fees on existing properties. The increase in investment services income of $6.8 million, or 859%, compared to the year ended December 31, 1999, is attributable to the syndication of three REITs in 2000 compared to the syndication of one unconsolidated Sponsored Partnership in 1999. The increase in interest and other income of $841 thousand, or 90.1%, compared to the year ended December 31, 1999 is attributable to interest earned on higher cash balances, cash equivalents and marketable securities and higher average yields in 2000 compared to 1999. Expenses Total expenses increased $8.5 million, or 58.2%, to $23.1 million for the year ended December 31, 2000, as compared to $14.6 million for the year ended December 31, 1999. 5 The increase in selling, general and administrative expenses of $3.6 million, or 68.4%, compared to the year ended December 31, 1999, is attributable to: o increased payroll and related expenses of $3.0 million, of which $2.3 million relates to equity based (non-cash) compensation; o increased broker commissions and related costs of approximately $700 thousand; o offset by decreased other costs of approximately $100 thousand. The increase in other real estate operating expenses of $2.1 million, or 46.5%, compared to the year ended December 31, 1999, is primarily attributable to the acquisition of seven commercial properties in 1999, which incurred costs for a full year in 2000, as compared with a partial year in 1999. The increase in depreciation and amortization expenses of $1.3 million or 44.8%, compared to the year ended December 31, 1999, is primarily attributable to: o the acquisition of seven commercial properties in 1999, which incurred costs for a full year in 2000, as compared with a partial year in 1999, resulting in $1.2 million in incremental expenses; o the acquisition of one commercial property in 2000, which incurred costs for a partial year in 2000, as compared with no costs in 1999, resulting in approximately $100 thousand in incremental costs; The increase in real estate taxes and insurance expenses of $1.0 million or 70.8%, compared to the year ended December 31, 1999, is primarily attributable to: o the acquisition of seven commercial properties in 1999, which incurred costs for a full year in 2000, as compared with a partial year in 1999, resulting in approximately $800 thousand in incremental expenses; o tax increases on the existing properties of approximately $200 thousand. The increase in interest expense of $561 thousand, or 187.6%, compared to the year ended December 31, 1999, is primarily attributable to: o the syndication of three REITs in 2000 compared to the syndication of one unconsolidated Sponsored Partnership in 1999. Merger costs for the year ended December 31, 2000 approximated merger costs for the year ended December 31, 1999. The minority interest for the year ended December 31, 2000 approximated the minority interest for the year ended December 31, 1999. 6 Comparison of the Year Ended December 31, 1999 to the Year Ended December 31, 1998 Revenues Total revenues increased $6.5 million or 56.2%, to $18.0 million for the year ended December 31, 1999, as compared to $11.5 million for the year ended December 31, 1998. The increase in rental income of $5.5 million, or 50.2%, compared to the year ended December 31, 1998, is attributable to: o the acquisition of two properties (one commercial, one residential) in 1998 which contributed revenues for a full year in 1999, as compared with a partial year 1998, resulting in $2.4 million in incremental revenues; o the acquisition of seven commercial properties 1999, which contributed revenues for a partial year in 1999, as compared with no revenue in 1998, resulting in $3.1 million in incremental revenues; The increase in investment services income of $789 thousand, compared to the year ended December 31, 1998, is attributable to the syndication of one unconsolidated Sponsored Partnership in 1999. There was no investment services revenue in 1998. The increase in interest and other income of $248 thousand, or 35.6%, compared to the year ended December 31, 1998 is attributable to interest earned on higher cash balances and cash equivalents. Expenses Total expenses increased $5.0 million, or 52.4%, to $14.6 million for the year ended December 31, 1999, as compared to $9.6 million for the year ended December 31, 1998. The increase in Selling, general and administrative expenses of $2.6 million, or 102.8%, compared to the year ended December 31, 1998, is attributable to: o increased payroll and related expenses of approximately $700 thousand; o increased broker commissions and related costs of $1.4 million; o increased other costs of approximately $400 thousand. The increase in other real estate operating expenses of $1.4 million, or 47.0%, compared to the year ended December 31, 1998, is primarily attributable to: o the acquisition of seven commercial properties in 1999, which incurred costs for a partial year in 1999, as compared with no expenses in 1998, resulting in approximately $400 in incremental costs; 7 o the acquisition of two properties in 1998, which incurred costs for a full year in 1999, as compared with a partial year in 1999, resulting in approximately $900 thousand in incremental costs; o increased costs of approximately $100 thousand on existing properties. The increase in depreciation and amortization expenses of $793 thousand or 37.7%, compared to the year ended December 31, 1998, is primarily attributable to: o the acquisition of seven commercial properties in 1999, which incurred costs for a partial year in 1999, as compared with no expense in 1998, resulting in $417 thousand in incremental expenses; o the acquisition of two properties in 1998, which incurred costs for a full year in 1999 compared with a partial year in 1998, resulting in $376 thousand in incremental costs; The increase in real estate taxes and insurance expenses of $347 thousand or 31.5%, compared to the year ended December 31, 1998, is primarily attributable to: o the acquisition of seven commercial properties in 1999, which incurred costs for a partial year in 1999, as compared with no expense in 1998, resulting in $254 thousand in incremental expenses; o the acquisition of two properties in 1998, which incurred costs for a full year in 1999 compared with a partial year in 1998, resulting in $251 thousand in incremental costs; o offset by decreased costs of $158 thousand on existing properties. The increase in interest expense of $273 thousand, or 1050%, compared to the year ended December 31, 1998, is primarily attributable to the syndication of one unconsolidated Sponsored Partnership in 1999 compared to the syndication of no unconsolidated Sponsored Partnerships in 1998. The decrease in merger costs of $505 thousand or 68.6%, compared to the year ended December 31, 1998, is primarily attributable non-recurring valuation fees of $500 thousand incurred in 1998. The minority interest for the year ended December 31, 1999 approximated the minority interest for the year ended December 31, 1998. Increases in Revenues In June 2000, a vacant parcel of land in Peabody, Massachusetts, which was part of the One Technology Drive property, was removed from the lease with Alliant Foodservice, Inc., subdivided and sold for $1,100,000. Alliant Foodservice, Inc. renewed its lease on the remaining land and building for a higher rent than the prior rent on the unsubdivided land and building. The Company owns two other properties where a subdivision and sale of vacant land is possible in the future. One parcel is currently under contract for sale in 2001, but there are many 8 development contingencies contained in the contract, and the sale may not occur. The sale of either of the two remaining parcels, if effected, would likely produce less proceeds than the One Technology Drive property. Effective October 15, 2000, Lucent Technologies extended the term of its lease on the Company's property located in Santa Clara, California for five more years. The first year's rent in the amount of $1,571,000 for the new lease is approximately $835,000, or 213%, higher than the previous year's rent. Trends and Uncertainties The Company's properties in most locations benefited from the strong economy and stock market in 2000. While rent increases in the Houston apartment market slowed in 2000 as the market worked through a large inventory of new product, office rents in high-demand markets, like Boston, Austin and Silicon Valley increased, as evidenced by the lease renewals with Alliant Foodservice in the Boston area and Lucent Technologies in Silicon Valley. The Charlotte and Greenville office markets were less robust with a significant amount of sublease space available. Although the Company's real estate portfolio is diversified by location, product type and tenancy, it is likely to be affected by deteriorating general economic conditions in 2001. The Company's tenancy generally does not include dot.com tenants as major tenants in any buildings. One tenant, PSINet, which is engaged in e-commerce, occupies approximately 11% (7,586 square feet) of the Company's Austin, Texas property. However, the Company does have a number of tenants in the telecom and high technology sectors and others whose businesses have slowed or whose stock prices have tumbled. Several tenants have asked to sublet or reduce space. It is likely that some tenants will be unable to pay rent and that some of the buildings will suffer larger vacancies or lower rents in 2001 than in 2000 until the general market conditions change. The failure of many dot.com companies has put significant blocks of office space back on the market in some of the Company's market areas. Cutbacks at companies in other industries have led those companies to offer sublease space at below market rents, which has led to a further weakening in rents, larger vacancies and lower prices for competing building space. These factors may affect the Company's ability to retain and attract tenants in 2001 and the future. For example, in the Charlotte, North Carolina market, both The Art Institutes and Primary Physicians Care, which are companies that are growing, have given notice that they will purchase their own buildings to take advantage of the opportunities in the Charlotte market. In Greenville, South Carolina, Day & Zimmermann intends to move to the top floor of a new high-rise building for less rent than they have been paying in the Company's 1980's building. There are no other major tenants with lease expirations in 2001, but there may be other tenants who fail financially or who attempt to break their leases to take advantage of favorable market conditions. In the ordinary course of owning and operating real estate, the potential could exist for the Company to dispose of one or more properties in its portfolio. Market conditions in specific geographic locations could present the Company with the opportunity to realize significant 9 capital appreciation in an asset's value. The Company maintains close attention to market conditions in all geographic locations where its properties are located. Liquidity and Capital Resources Cash and cash equivalents were $13.7 million and $18.5 million at December 31, 2000 and 1999, respectively. This 25.9% decrease of $4.8 million is attributable to $30.7 million used in investing activities partially offset by $14.2 million provided by operating activities and $11.7 million provided by financing activities. Investing Activities The Partnership's cash used in investing activities of $30.7 million is primarily attributable to: o $16.5 million for a loan to a Sponsored REIT which was subsequently repaid in February 2001; o $10.0 million for the purchase of property and equipment; and o $5.3 million for the purchase of marketable securities partially offset by proceeds of $1.1 million on the sale of land. Operating Activities The Partnership's cash provided by operating activities of $14.2 million is primarily attributable to $18.2 million from operations, after addback of $6.5 million from non cash expenses of which $4.2 million relates to depreciation and amortization and $2.3 million relates to equity based compensation. The cash provided by operating activities is partially offset by $2.5 million from the decrease in accounts payable and accrued expenses and $1.5 million decrease from a net change in other operating assets and liabilities. Financing Activities The Partnership's cash provided by financing activities of $11.7 million is attributable to capital contributions of $39.8 million from the sale of partnership units for three of the merged entities and borrowings under the line of credit of $16.5 million; The cash provided by financing activities is partially offset by repayments of the line of credit of $23.5 million and cash distributions to partners of $21.0 million. Our principal demands for liquidity are cash for operations, distributions to partners, debt repayments and expense associated with indebtedness. As of December 31, 2000 we had $19,280,000 in liabilities and debt obligations. The Company has no permanent, long-term debt. 10 In the near term, liquidity is generated from funds from ongoing real estate operations and fees and commissions received from the sale of shares in new Sponsored REITs. The Company maintains an unsecured line of credit through Citizens Bank. The Company has entered into a Master Promissory Note and Loan Agreement which provides for a revolving line of credit of up to $35 million (increased to $53 million in January 2001). Borrowings under the loan bear interest at either the bank's base rate or a variable LIBOR rate. We use the unsecured line of credit to provide each newly-formed Sponsored Entity with the funds to purchase its property. The Company loans the purchase price of the property, at an interest rate equivalent to the rate which the Company is paying to the bank, and takes back a mortgage. The Company collects a commitment fee from the Sponsored Entity. The loan is paid back in full from the capital contributions of each Sponsored Entity's investors. The Company's loan agreement with the bank includes customary restrictions on property liens and requires compliance with various financial covenants. Financial covenants include maintaining minimum cash balances in operating accounts, tangible net worth of at least $105 million (increased to $140 million in January 2001) and compliance with other various debt and income ratios. The Company was in compliance with all covenants as of December 31, 2000. Borrowings under the loan agreement mature on February 23, 2003. The Company had borrowings of $16,500,000 at the bank's base rate of 9.5% as of December 31, 2000. There was a corresponding amount due from related parties at December 31, 2000. As of February 1, 2001, the entire amount of the outstanding loan balance had been repaid in full. The Company's real properties generate rental income to cover the ordinary, annual operating expenses of the properties and to fund distributions to partners. As of December 31, 2000, the rental income covered the expenses for each of the Company's real properties. In addition to rental income, the Company maintains cash reserves that may be used to fund extraordinary expenses or major capital expenses. Extraordinary expenses or major capital expenses are funded out of cash reserves set aside for the purpose when the Sponsored Partnerships that the Company has acquired were originally syndicated. The cash reserves as of December 31, 2000 are in excess of the known needs for extraordinary expenses or capital improvements for the real properties within the next few years. Although there is no guarantee we will be able to obtain the funds necessary for our future growth, we anticipate generating funds from continuing real estate operations and from fees and commissions from the sale of shares in newly-formed Sponsored Entities. With adequate reserves in place to cover extraordinary expenses or capital improvements, the Company believes that it has adequate funds for future needs. 11 Risk Factors The Company faces risks in executing its business plan. The Company has a short operating history. The success of the Company depends significantly on execution of the Company's business plan. Execution of its business plan is subject to several risks including, but not limited to: o relative financial health of the real estate market and the possibility of a real estate recession, o volatility of both domestic and international capital markets and other macroeconomic factors, o propensity and ability of the current investor pool to continue investing in securities similar to those issued by the Sponsored Entities, which may depend in part on such investors' evaluations of the performance of the Company's properties and of properties owned by Sponsored Entities, o ability of the Company to expand the investor pool for Sponsored Entities, o reliance on key employees, and o ability of the Company to maintain its commission structure and profitability. The Company faces risks in owning and operating real property. An investment in the Company is subject to the risks incident to the ownership and operation of real estate-related assets. These risks include the fact that real estate investments are generally illiquid, which may impact the Company's ability to vary its portfolio in response to changes in economic and other conditions, as well as the risks normally associated with: o changes in general and local economic conditions; o the supply or demand for particular types of properties in particular markets; o changes in market rental rates; o the impact of environmental protection laws; and o changes in tax, real estate and zoning laws. The Company competes with national, regional and local real estate operators and developers, which could adversely affect the Company's cash flow. Competition exists in every market in which the Company's properties are located. The Company competes with, among others, national, regional and numerous local real estate operators and developers. Such competition may adversely affect the occupancy levels and the 12 rental revenues of the Company's properties, which could adversely affect the Company's cash flow from operations and its ability to make expected distributions to partners. Some of the Company's competitors may have more resources than the Company or other competitive advantages. Competition may be accelerated by any increase in availability of funds for investment in real estate. For example, decreases in interest rates tend to increase the availability of funds and therefore can increase competition. The extent to which the Company is affected by competition will depend in significant part on local market conditions. There is limited potential for occupancy gains in the Company's properties. The properties owned by the Company had a high rate of occupancy as of December 31, 2000. The General Partner anticipates that future increases in revenue from the Company's properties will be primarily the result of rental rate increases. To the extent that the existing properties continue to operate profitably, this will likely stimulate further development and result in greater competition between the newly developed and existing properties. The Company is subject to possible liability relating to environmental matters, and the Company cannot assure you that it has identified all possible liabilities. Under various federal, state and local laws, ordinances and regulations, an owner or operator of real property may become liable for the costs of removal or remediation of certain hazardous substances released on or in its property. Such laws may impose liability without regard to whether the owner or operator knew of, or caused, the release of such hazardous substances. The presence of hazardous substances on a property may adversely affect the owner's ability to sell such property or to borrow using such property as collateral, and it may cause the owner of the property to incur substantial remediation costs. In addition to claims for cleanup costs, the presence of hazardous substances on a property could result in the owner incurring substantial liabilities as a result of a claim by a private party for personal injury or a claim by an adjacent property owner for property damage. The Company cannot assure you that any environmental assessments it has undertaken have revealed all potential environmental liabilities, that any prior owner or operator of the properties did not create any material environmental condition not known to the Company, or that an environmental condition does not otherwise exist as to any one or more of the properties that could have a material adverse effect on the Company's financial condition or results of operations. In addition, the Company cannot assure you that: o future laws, ordinances or regulations will not impose any material environmental liability, o the current environmental conditions of the Company's properties will not be affected by the condition of properties in the vicinity of such properties (such as the presence of leaking underground storage tanks) or by third parties unrelated to the Company, or o tenants will not violate their leases by introducing hazardous or toxic substances into the Company's properties that could expose the Company to liability under federal or state environmental laws. 13 The Company is subject to compliance with the Americans with Disabilities Act and fire and safety regulations which could require the Company to make significant capital expenditures. All of the Company's properties are required to comply with the Americans With Disabilities Act, and the regulations, rules and orders that may be issued thereunder (the "ADA"). The ADA has separate compliance requirements for "public accommodations" and "commercial facilities," but generally requires that buildings be made accessible to persons with disabilities. Compliance with ADA requirements might require, among other things, removal of access barriers and noncompliance could result in the imposition of fines by the U.S. government, or an award of damages to private litigants. In addition, the Company will be required to operate its properties in compliance with fire and safety regulations, building codes and other land use regulations, as they may be adopted by governmental agencies and bodies and become applicable to the Company's properties. Compliance with such requirements may require the Company to make substantial capital expenditures, which expenditures would reduce cash otherwise available for distribution to partners. The Company may become subject to loss in profit or in its capital investment in the event of the occurrence of an uninsured event. The Company or its tenants carry comprehensive liability, fire and extended coverage with respect to each of the properties owned by the Company, with policy specification and insured limits customarily carried for similar properties. There are, however, certain types of losses, such as from wars, pollution or earthquakes, that may be either uninsurable or not economically insurable (although the properties located in California all have earthquake insurance). Should an uninsured material loss occur, the Company could lose both its capital invested in the property and anticipated profits. There is no public trading market for our securities. There is no public trading market for limited partnership interests in the Company. The Company cannot assure you that any market will develop or that there will be any liquidity in a market for Units in the Company. Quantitative and Qualitative Disclosures About Market Risks The Company was not a party to derivative commodity investments at or during the year ended December 31, 2000. The Company's only other financial instruments (as defined by Financial Accounting Standards Board Statement No. 107) are its cash and cash equivalents for which cost approximates market value. Item 3. Properties. Set forth below is information regarding our properties: 14
Approx. Approx. Purchase Date of Number Square Occupancy Number of Property Location Price Purchase of Units Feet 12/31/00 Tenants Major Tenant(s) - ------------------------------------------------------------------------------------------------------------------------------ APARTMENTS - ------------------------------------------------------------------------------------------------------------------------------ 3919 Essex Lane $10,100,000 6/30/93 135 118,800 over 95% 135 None - Apts. Houston, TX 3231 Allen Parkway $10,700,000 8/11/94 159 129,000 over 95% 159 None - Apts. Houston, TX 4041 Weslayan & Law $4,200,000 4/29/97 84 70,500 over 95% 84 None - Apts. Houston, TX 7250 Perkins Road $18,000,000 10/16/98 264 223,800 over 95% 264 None - Apts. Baton Rouge, LA - ------------------------------------------------------------------------------------------------------------------------------ Total Apartments $43,000,000 642 542,100 - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ OFFICE - ------------------------------------------------------------------------------------------------------------------------------ 451 Andover Street $8,000,000 6/1/96 92,000 over 95% 40 Pentucket North Andover, MA Medical 1515 Mockingbird Lane $6,850,000 7/1/97 110,600 over 95% 80 The Art Charlotte, NC Institutes, Primary Physicians Care 33 & 37 Villa Road $10,550,000 3/1/98 143,800 over 90% 40 Day & Zimmermann Greenville, SC 4995 Patrick Henry Dr. $6,800,000 12/1/97 40,300 100% one Lucent Santa Clara, CA Technologies 678-686 Hillview Drive $4,862,500 3/9/99 36,300 100% one Headway Milpitas, CA Technologies 5751-5771 Copley Drive $15,400,000 3/12/99 101,700 100% three XO, Tiernan, San Diego, CA Nextel & Allegiance 81 Blue Ravine $5,700,000 9/27/99 47,000 100% one Cardinal Health Folsom, CA 18000 W. Nine Mile Rd. $14,950,000 9/30/99 212,500 over 90% four IBM Southfield, Michigan 11211 Taylor Draper Lane $10,000,000 12/29/99 68,600 100% six Columbia Austin, Texas Universal Life Insurance Co. 7130-7150 Columbia $19,850,000 12/20/99 188,800 100% eight Columbia Gateway Dr. National Columbia, MD 10 Lyberty Way $9,100,000 5/23/00 104,700 100% one Lucent Westford, MA Technologies - ------------------------------------------------------------------------------------------------------------------------------ Total Office $112,062,500 1,146,300 - ------------------------------------------------------------------------------------------------------------------------------
15
Approx. Approx. Purchase Date of Number Square Occupancy Number of Property Location Price Purchase of Units Feet 12/31/00 Tenants Major Tenant(s) - ------------------------------------------------------------------------------------------------------------------------------ Industrial - ------------------------------------------------------------------------------------------------------------------------------ One Technology Dr. $9,175,000 12/1/95 188,000 100% one Alliant Peabody, MA Foodservice 8730 Bollman Place $5,600,000 12/14/99 99,000 100% one Alliant Savage (Jessup), MD Foodservice - ------------------------------------------------------------------------------------------------------------------------------ TOTAL INDUSTRIAL $14,775,000 287,000 - ------------------------------------------------------------------------------------------------------------------------------ GRAND TOTAL $169,837,500 642 1,975,400 - ------------------------------------------------------------------------------------------------------------------------------
The Company has no material undeveloped or unimproved properties. In the opinion of the general partner of the Company, the Company's properties are adequately covered by insurance. Item 4. Security Ownership of Certain Beneficial Owners and Management. Principal Equity Owners The general partner of the Company is FSP General Partner LLC, a Massachusetts limited liability company (the "General Partner"). The following table sets forth information regarding the beneficial ownership of our limited partnership interests as of January 1, 2001 of: (1) each person known by us to own beneficially five percent or more of our outstanding limited partnership interests; (2) each of our directors and executive officers; and (3) all of our directors and executive officers as a group. The Company 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 Company, and the executive officers of the General Partner are treated as executive officers of the Company. Mr. Carter holds the 1% interest in FSP Investments and FSP Property Management not held by the Company. 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. 16 Units of Limited Partnership Interest Beneficially Owned or Into Which Securities are Convertible(1) Name of Holder Number Percent - --------------------------------------------------------------------------- George J. Carter(2) 383,719 1.63% Richard R. Norris(2)(3) 27,112 * R. Scott MacPhee(2) 18,036 * William W. Gribbell(2) 9,068 * Barbara J. Corinha(2) 5,000 * Janet P. Notopoulos(2) 5,000 * ------- ---- All Executive Officers as a Group (consisting of 6 persons)(2) 447,935 1.91% ======= ==== * Less than one percent. (1) There are no securities convertible into Units of limited partnership interest. (2) FSP General Partners LLC owns 948,449.2 units of general partnership interest in the Company, which equals a 3.88% interest in the cash distributions, profits and losses of the Company. Mr. Carter, who may be deemed to be a director of the Company, is the managing member of the General Partner and each of the other executive officers of the Company is a member of the General Partner. (3) Includes 13,556 Units owned by the Richard R. Norris Living Trust, and 13,556 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. Item 5. Directors and Executive Officers. Directors and Officers The Company has no individual directors or executive officers. The general partner of the Company is FSP General Partner LLC (the "General Partner"). Information regarding the executive officers of the General Partner is set forth below: George J. Carter, age 52, is President of the General Partner and is responsible for all aspects of the business of the Company and its affiliates, with special emphasis on the evaluation, acquisition and structuring of real estate investments. From 1992 through 1996 he 17 was President of Boston Financial Securities, Inc. ("Boston Financial"). Prior to joining Boston Financial, Mr. Carter was owner and developer of Gloucester Dry Dock, a commercial shipyard in Gloucester, Massachusetts. From 1979 to 1988, Mr. Carter served as Managing Director in charge of marketing of First Winthrop Corporation, a national real estate and investment banking firm headquartered in Boston, Massachusetts. Prior to that, he held a number of positions in the brokerage industry including those with Merrill Lynch & Co. and Loeb Rhodes & Co. Mr. Carter is a graduate of the University of Miami (B.S.). Mr. Carter is a NASD General Securities Principal (Series 24) and holds a NASD Series 7 general securities license. Barbara J. Corinha, age 44, is the Vice President, Chief Operating Officer, Treasurer and Secretary of the General Partner. In addition, Ms. Corinha has as her primary responsibility, together with Mr. Carter, the management of all operating business affairs of the Company and its affiliates. From 1993 through 1996, she was Director of Operations for the private placement division of Boston Financial. Prior to joining Boston Financial, Ms. Corinha served as Director of Operations for Schuparra Securities Corp. and as the Sales Administrator for Weston Financial Group. From 1979 through 1986, Ms. Corinha worked at First Winthrop Corporation in administrative and management capacities; including Office Manager, Securities Operations and Partnership Administration. Ms. Corinha attended Northeastern University and the New York Institute of Finance. Ms. Corinha is a NASD General Securities Principal (Series 24). She also holds other NASD supervisory licenses including Series 4 and Series 53, and a NASD Series 7 general securities license. R. Scott MacPhee, age 43, is an Executive Vice President of the General Partner and has as his primary responsibility the direct equity placement of the Sponsored Entities. From 1993 through 1996 he was an executive officer of Boston Financial. From 1985 to 1993 Mr. MacPhee worked at Winthrop Financial Associates. Mr. MacPhee attended American International College. Mr. MacPhee holds a NASD Series 7 general securities license and is a registered investment adviser. Richard R. Norris, age 57, is an Executive Vice President of the General Partner and has as his primary responsibility the direct equity placement of the Sponsored Entities. From 1993 through 1996 he was an executive officer of Boston Financial. From 1983 to 1993 Mr. Norris worked at Winthrop Financial Associates. Prior to that, he worked at Arthur Young & Company (subsequently named Ernst & Young through a merger). Mr. Norris is a graduate of Bowdoin College (B.A.) and Northeastern University (M.S.). Mr. Norris holds a NASD Series 7 general securities license and is a registered investment adviser. William W. Gribbell, age 41, is an Executive Vice President of the General Partner and has as his primary responsibility the direct equity placement of the Sponsored Entities. From 1993 through 1996 he was an executive officer of Boston Financial. From 1989 to 1993 Mr. Gribbell worked at Winthrop Financial Associates. Mr. Gribbell is a graduate of Boston University (B.A.). Mr. Gribbell holds a NASD Series 7 general securities license and is a registered investment adviser. Janet Prier Notopoulos, age 53, is a Vice President of the General Partner, President of FSP Property Management LLC and has as her primary responsibility the oversight of the management of the real estate assets of the Company and its affiliates. Prior to joining Franklin 18 Street Partners in 1997, Ms. Notopoulos was a real estate and marketing consultant for various clients. From 1975 to 1983, she was Vice President of North Coast Properties, Inc., a Boston real estate investment company. Between 1969 and 1973, she was a real estate paralegal at Goodwin, Procter & Hoar. Ms. Notopoulos is a graduate of Wellesley College (B.A.) and the Harvard School of Business Administration (M.B.A). Item 6. Executive Compensation. The General Partner of the Company is entitled to receive 3.88% of all cash distributions of the Company. The following table sets forth the cash and non-cash compensation for each of the last three fiscal years, awarded or accrued, to the Company's Chief Executive Officer and the other four most highly compensated executive officers.
Annual Other Name and Salary Bonus Commission Compensation (1)(2) Principal Position ($) ($) ($) ($) - ---------------------------- ---------------------------------------------------------------------- George J. Carter 2000 120,000 40,746 1,703,770(3) President and CEO 1999 120,000 80,000 6,000 1998 120,000 30,000 Richard R. Norris 2000 5,453 1,545,750 233,190(4) Executive VP 1999 849,330 6,000 1998 643,240 R. Scott MacPhee 2000 4,329 981,338 186,360(5) Executive VP 1999 849,533 6,000 1998 643,240 William W. Gribbell 2000 2,176 701,358 96,680(6) Executive VP 1999 404,822 6,000 1998 342,287 Barbara J. Corinha 2000 60,000 161,200 56,000(7) Chief Operating Officer 1999 50,000 125,000 6,000 1998 45,000 105,000
(1) Unless otherwise indicated, Company contributions to Simple IRA plan. (2) All executive officers were issued Units, valued at $10 per share, in April 2000 as part of their annual compensation. These Units do not have any restrictions and are eligible to receive distributions. (3) Includes $1,697,770 in Units and a $6,000 Company Contribution to a Simple IRA. (4) Includes $227,190 in Units and a $6,000 Company Contribution to a Simple IRA. (5) Includes $180,360 in Units and a $6,000 Company Contribution to a Simple IRA. (6) Includes $90,680 in Units and a $6,000 Company Contribution to a Simple IRA. (7) Includes $50,000 in Units and a $6,000 Company Contribution to a Simple IRA. 19 Item 7. Certain Relationships and Related Transactions. Messrs. Carter, MacPhee, Norris and Gribbell and Mses. Corinha and Notopoulos, each of whom is an executive officer of the Company, are executive officers and, except for Ms. Notopoulos, directors of each of the Sponsored REITs. Messrs. Carter, MacPhee, Norris and Gribbell serve as executive officers of the general partner of the Sponsored Partnerships. None of such persons received any remuneration from the Sponsored Entities for such service. In the years ended December 31, 2000, December 31, 1999 and December 31, 1998, the Company received payments from such Sponsored Entities in the form of fees, brokerage commissions or interest in the aggregate amount of $14,454,000, $8,863,000 and $2,897,000 respectively. The Company was organized in January 1997 by Messrs. Carter, MacPhee, Norris and Gribbell. In connection with the initial equity funding of the Company, they received general partnership interests in the Company that were entitled in the aggregate to 50% of the Company's cash distributions, profits and losses. Such interest is currently held through their membership interests in the General Partner and aggregates less than 4%. Item 8. Legal Proceedings. There are no material legal proceedings to which the Company is a party. The Company 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, the Company may become involved in litigation to collect rents or other income due to it from tenants. Item 9. Market Price of and Dividends on the Registrant's Common Equity and Related Stockholder Matters. There is no established public trading market for the Company's Units of limited partnership interest. As of December 31, 2000, there were 743 holders of record of Units limited partnership interest in the Company. This computation is based upon the number of record holders reflected in our corporate records. Set forth below are the distributions per Unit that the Company has made in respect of each quarter in the last two fiscal years. Quarter Ended Amount Per Unit 3/31/99 $0.20 6/30/99 $0.21 9/30/99 $0.22 12/31/99 $0.23 3/31/00 $0.24 6/30/00 $0.25 9/30/00 $0.26 12/31/00 $0.27 20 Item 10. Recent Sales of Unregistered Securities. On April 1, 2000, the Company issued 230,000 Units of limited partnership interest as compensation to its executive officers pursuant to an exemption from registration under Section 4(2) of the Securities Act. Effective October 1, 2000, the Company acquired six Sponsored Entities through merger. In connection with these mergers, the Company issued 7,204,716 Units of limited partnership interest to the limited partners of those Sponsored Entities. Effective January 1, 2000, the Company acquired three Sponsored Entities though merger. In connection with these mergers, the Company issued 4,999,972 Units of limited partnership interest to the limited partners of those Sponsored Entities. Effective January 1, 1999, the Company acquired eight Sponsored Entities through mergers. In connection with these mergers, the Company issued 11,999,907 Units of limited partnership interest to the limited partners of those Sponsored Entities. The Company issued the Units in each of these mergers pursuant to exemptions from registration under Rule 506 of Regulation D and Section 4(2) of the Securities Act. The Company believes that, except for 20 limited partners, all of the limited partners who received Units in these mergers were accredited investors within the meaning of Regulation D. The Company bases its belief on information furnished in investor questionnaires, and representations made, by such limited partners. Item 11. Description of Registrant's Securities to be Registered. Distributions of cash from the Company, if any, will be made within 90 days following the end of each fiscal quarter on the basis of the number of Units in the Company held by each partner. As of December 31, 2000, the holders of Units of limited partnership interest in the Company were entitled in the aggregate to receive 96.12% of cash distributions. The net proceeds available for distribution upon liquidation of the Company will be distributed, after adjusting the partners' capital accounts to reflect any gain or loss in connection with the event, to and among the partners having positive balances in their respective capital accounts, in the proportions that such positive capital accounts bear to each other. Net profits and losses will generally be allocated on the basis of the number of Units owned by each partner. Net profits and losses from sale or liquidation of all or any portion of the Company's property or upon liquidation of the Company will be allocated in accordance with Sections 2.04(b) and 2.04(c) of the Company's Third Amended and Restated Limited Partnership Agreement, dated as of January 1, 2000, as amended (the "Partnership Agreement"). The Partnership Agreement also contains a number of special allocation provisions, including provisions relating to any indebtedness the Company may incur. The General Partner has the exclusive right to manage the business of the Company. The holders of Units of limited partnership interest have no right to take part in management, do not have any voice in the operations of the Company and have no right to remove the General Partner or approve the admission of a new General Partner. Each holder of Units of limited partnership interest: o shares in accordance with the Partnership Agreement in all charges, credits and distributions; 21 o has access to books and records at all reasonable times and on reasonable notice at the office of the Company; o has a right to receive from the General Partner income tax information; and o has the right to vote on certain proposed amendments to the Partnership Agreement. The General Partner and a majority in interest of the holders of Units of limited partnership interest may, subject to the various limitations set forth in Sections 4.11 and 8.04 of the Partnership Agreement, at any time amend the Partnership Agreement. The General Partner may also send notice in writing of any proposed amendment to the holders of Units of limited partnership interest not less than 30 days prior to the proposed effective date of such amendment. If the holders of Units of limited partnership interest then owning 20% or more of all of the Units of limited partnership interest give notice in writing to the General Partner prior to such proposed effective date stating that they object to such proposed amendment, then such proposed amendment may not be adopted without the vote or written consent of the holders of a majority of the Units of limited partnership interest. If such notice is not given by the requisite percentage, such proposed amendment will become effective without any further act on the part of the holders of Units of limited partnership interest. The General Partner, without the consent or approval of the holders of Units of limited partnership interest, may make certain amendments to the Partnership Agreement or to add to its duties or surrender any of its rights or powers, or to cure ambiguities or inconsistencies in the Partnership Agreement. In addition, the General Partner, without the consent or approval of the holders of Limited Partnership interest, may amend appropriate provisions of the Partnership Agreement if the Company is advised at any time by its legal counsel that the allocations of profits and loses provided in the Partnership Agreement are unlikely to be respected for federal income tax purposes, either because of the promulgation and adoption of regulations under Section 704 of the Internal Revenue Code or other developments in applicable law. In making any such amendment, the General Partner is required to use its best efforts to effect as little change in the economic tax arrangement among the partners as it shall determine in its sole discretion to be necessary to provide for allocations of profits and losses which it believes will be respected for federal income tax purposes. Finally, the General Partner may, without the consent or approval of the holders of Units of limited partnership interest, amend the Partnership Agreement from time to time, including amending and restating it, in any manner as the General Partner, in its sole discretion, deems necessary or appropriate in connection with establishing, or taking steps to establish, a public market for the Units of limited partnership interest in the Company; provided, however, that no such amendment may: o increase the amount of capital contributions required to be made by any holder of Units of limited partnership interest; o increase the liability for any holder of Units of limited partnership interest; or 22 o affect the method of allocation of cash distributions among holders of Units of limited partnership interest. Until such time as the Units of limited partnership interest 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. In addition, no transfer or assignment of a Unit of limited partnership interest may be made if counsel for the Company shall be of the opinion that such transfer or assignment may not be effected without registration under the Securities Act or would result in a violation of applicable state securities laws. 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 of limited partnership interest 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 in his or her behalf in connection with certain affairs of the Company. The Partnership Agreement provides that on an annual basis the Company will use its best efforts to repurchase any Units of limited partnership interest in the Company from holders desiring to sell them. Any holder of Units of limited partnership interest 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 Company will be 90% of the fair market value of the Units purchased, as determined by the General Partner. Item 12. Indemnification of Directors and Officers Under Massachusetts partnership law, the General Partner of the Company will be accountable to the Company as a fiduciary and must exercise good faith and integrity in handling the Company's affairs. The Company's Partnership Agreement provides that the General Partner will not be liable to the Company or any of its limited partners for any act or omission performed in good faith in a manner reasonably believed by it to be within the scope of authority granted to it by the Partnership Agreement and in the best interests of the Company, provided that the General Partner shall not have been guilty of gross negligence or willful misconduct with respect to such act or omission. As a result, limited partners might have a more limited right of action in certain circumstances than they would have in the absence of such a provision in the Partnership Agreement. The Partnership Agreement also provides that the General Partner and its affiliates performing services on behalf of the Company are indemnified to the fullest extent permitted by law from losses, costs and expenses (including attorneys' fees) incurred by them by reason of being a General Partner or having served at the request of the Company as a director, officer or trustee of another entity. Any claim for indemnification under the Partnership Agreement will be satisfied only out of the assets of the Company and no limited partner will have any personal liability to satisfy an indemnification claim made against the Company. Notwithstanding the foregoing, the above-mentioned persons will not be indemnified by the Company from loss incurred by such person in connection with matters as to which 23 such person shall have been finally adjudicated in any action, suit or proceeding not to have acted in good faith in the reasonable belief that his, her or its action was in or not inconsistent with the best interests of the Company. The Company may also advance funds to a person indemnified under the Partnership Agreement for legal expenses and other costs incurred as a result of legal action brought against such person if such person undertakes to repay the advanced funds to the Company if it is subsequently determined that such person is not entitled to indemnification pursuant to the terms of the Partnership Agreement. The General Partner may cause the Company to purchase and maintain, at the Company's expense, insurance on behalf of the General Partner or its agents which will insure them against any liability asserted against all or any of them in any such capacity or arising out of their status as such. Item 13. Financial Statements and Supplementary Data. See attached financial statements beginning on page F-1. Item 14. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. Item 15. Financial Statements and Exhibits (a) Financial Statements See Index to Financial Statements and Schedules on page F-1. (b) Exhibits 3.1 Certificate of Limited Partnership 3.2 Amendment to Certificate of Limited Partnership 4.1 Third Amended and Restated Limited Partnership Agreement, dated as of January 1, 2000 4.2 First Amendment, dated as of January 1, 2000, to Third Amended and Restated Limited Partnership Agreement, dated as of January 1, 2000 4.3 Second Amendment, dated as of June 26, 2000, to Third Amended and Restated Limited Partnership Agreement, dated as of January 1, 2000 21 Subsidiaries of the Registrant 24 Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized. FRANKLIN STREET PARTNERS LIMITED PARTNERSHIP By: FSP General Partner LLC, its General Partner By: /s/ George J. Carter ---------------------- Member and President 25 Index to Financial Statements and Schedules Franklin Street Partners and Subsidiaries Reports of independent certified public accountants F-2 - F-9 Consolidated financial statements: Balance sheets as of December 31, 2000 and 1999 F-10 - F-11 Statements of operations for the years ended December 31, 2000, 1999 and 1998 F-12 Statements of partners' capital for the years ended December 31, 2000, 1999 and 1998 F-13 Statements of cash flows for the years ended December 31, 2000, 1999 and 1998 F-14 Notes to consolidated financial statements F-15 - F-38 F-1 Report of Independent Certified Public Accountants To the Partners of Franklin Street Partners Limited Partnership Wakefield, Massachusetts We have audited the accompanying consolidated balance sheets of Franklin Street Partners Limited Partnership and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of operations, partners' capital and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of certain real estate partnerships, which statements reflect total assets of $85,859,000 as of December 31, 1999 and total revenues of $4,794,000 and $490,000 for the years ended December 31, 1999 and 1998, respectively. Those statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for such real estate partnerships, is based solely on the reports of the other auditors. We conducted our audits in accordance with generally accepted auditing standards in the United States of America. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of the other auditors for 1999 and 1998 provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of the other auditors for 1999 and 1998, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Franklin Street Partners Limited Partnership and subsidiaries at December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. BDO Seidman, LLP Boston, Massachusetts February 27, 2001, except Note 6 which is as of April 9, 2001 F-2 INDEPENDENT AUDITORS' REPORT To the Partners FSP Austin N.W. Limited Partnership (a Massachusetts Limited Partnership) Wakefield, Massachusetts We have audited the accompanying balance sheet of FSP Austin N.W. Limited Partnership (A Massachusetts Limited Partnership), as of December 31, 1999, and the related statements of operations, changes in partners' equity and cash flows for the period October 13, 1999 (date of inception) to December 31, 1999. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of FSP Austin N.W. Limited Partnership (a Massachusetts Limited Partnership) as of December 31, 1999, and the results of its operations, and its cash flows for the period October 13, 1999 (date of inception) to December 31, 1999, in conformity with generally accepted accounting principles. Roy & Stevens, P.C. Boston, Massachusetts January 28, 2000 F-3 INDEPENDENT AUDITORS' REPORT To the Partners FSP Blue Ravine Limited Partnership (a Massachusetts Limited Partnership) Wakefield, Massachusetts We have audited the accompanying balance sheet of FSP Blue Ravine Limited Partnership (A Massachusetts Limited Partnership), as of December 31, 1999, and the related statements of operations, changes in partners' equity and cash flows for the period August 13, 1999 (date of inception) to December 31, 1999. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of FSP Blue Ravine Limited Partnership (a Massachusetts Limited Partnership) as of December 31, 1999, and the results of its operations, and its cash flows for the period August 13, 1999 (date of inception) to December 31, 1999, in conformity with generally accepted accounting principles. Roy & Stevens, P.C. Boston, Massachusetts January 28, 2000 F-4 INDEPENDENT AUDITORS' REPORT To the Partners FSP Bollman Place Limited Partnership (a Massachusetts Limited Partnership) Wakefield, Massachusetts We have audited the accompanying balance sheet of FSP Bollman Place Limited Partnership (A Massachusetts Limited Partnership), as of December 31, 1999, and the related statements of operations, changes in partners' equity and cash flows for the period September 28, 1999 (date of inception) to December 31, 1999. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of FSP Bollman Place Limited Partnership (a Massachusetts Limited Partnership) as of December 31, 1999, and the results of its operations, and its cash flows for the period September 28, 1999 (date of inception) to December 31, 1999, in conformity with generally accepted accounting principles. Roy & Stevens, P.C. Boston, Massachusetts January 28, 2000 F-5 INDEPENDENT AUDITORS' REPORT To the Partners FSP Hillview Center Limited Partnership (a Massachusetts Limited Partnership) Wakefield, Massachusetts We have audited the accompanying balance sheet of FSP Hillview Center Limited Partnership (A Massachusetts Limited Partnership), as of December 31, 1999, and the related statements of operations, changes in partners' equity and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of FSP Hillview Center Limited Partnership (a Massachusetts Limited Partnership) as of December 31, 1999, and the results of its operations and cash flows for the year ended December 31, 1999, in conformity with generally accepted accounting principles. Roy & Stevens, P.C. Boston, Massachusetts February 15, 2000 F-6 INDEPENDENT AUDITORS' REPORT To the Partners FSP Telecom Business Center Limited Partnership (a Massachusetts Limited Partnership) Wakefield, Massachusetts We have audited the accompanying balance sheet of FSP Telecom Business Center Limited Partnership (A Massachusetts Limited Partnership), as of December 31, 1999, and the related statements of operations, changes in partners' equity and cash flow for the period February 1, 1999 (date of inception) to December 31, 1999. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of FSP Telecom Business Limited Partnership (a Massachusetts Limited Partnership) as of December 31, 1999, and the results of its operations, and its cash flows for the period February 1, 1999 (date of inception) to December 31, 1999, in conformity with generally accepted accounting principles. Roy & Stevens, P.C. Boston, Massachusetts January 28, 2000 F-7 INDEPENDENT AUDITORS' REPORT To the Partners FSP Silverside Plantation Limited Partnership We have audited the accompanying balance sheet of FSP SILVERSIDE PLANTATION LIMITED PARTNERSHIP as of December 31, 1999 and the related statements of income, changes in partners' equity, and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of FSP SILVERSIDE PLANTATION LIMITED PARTNERSHIP as of December 31, 1999 and the results of its operations, changes in partners' equity, and cash flows for the year then ended in conformity with generally accepted accounting principles. Habif, Arogeti & Wynne, LLP Atlanta, Georgia January 24, 2000 F-8 INDEPENDENT AUDITORS' REPORT To the Partners FSP Silverside Plantation Limited Partnership We have audited the accompanying balance sheet of FSP SILVERSIDE PLANTATION LIMITED PARTNERSHIP as of December 31, 1998 and the related statements of income, changes in partners' equity, and cash flows for the period October 16, 1998 [Date of Inception] to December 31, 1998. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of FSP SILVERSIDE PLANTATION LIMITED PARTNERSHIP as of December 31, 1998 and the results of its operations, changes in partners' equity, and cash flows for the period October 16, 1998 [Date of Inception] to December 31, 1998 in conformity with generally accepted accounting principles. Habif, Arogeti & Wynne, LLP Atlanta, Georgia January 15, 1999 F-9 Franklin Street Partners Limited Partnership and Subsidiaries Consolidated Balance Sheets (Note 4) December 31, 2000 1999 ================================================================================ (in thousands) Assets Real estate investments, at cost (Note 5): Land $ 35,524 $ 34,392 Buildings and improvements 136,276 128,616 Fixtures and equipment 995 896 - -------------------------------------------------------------------------------- 172,795 163,904 Less accumulated depreciation 12,164 8,192 - -------------------------------------------------------------------------------- Real estate investments, net 160,631 155,712 Cash and cash equivalents 13,718 18,519 Restricted cash 499 489 Marketable securities 5,322 -- Due from related parties (Note 6) 16,734 -- Tenant rent receivables 1,238 573 Prepaid expenses 535 393 Office computers and furniture, net of accumulated depreciation of $142,000 and $72,000 303 239 Deposits and other assets 503 274 - -------------------------------------------------------------------------------- Total assets $199,483 $176,199 ================================================================================ F-10 Franklin Street Partners Limited Partnership and Subsidiaries Consolidated Balance Sheets (Note 4) December 31, 2000 1999 ================================================================================ (in thousands) Liabilities and Partners' Capital Liabilities: Bank note payable (Note 7) $ 16,500 $ 23,522 Accounts payable and accrued expenses 2,281 4,810 Tenant security deposits 499 489 - -------------------------------------------------------------------------------- Total liabilities 19,280 28,821 - -------------------------------------------------------------------------------- Minority interests in consolidated subsidiaries 63 52 - -------------------------------------------------------------------------------- Commitments and contingencies (Notes 6, 7, 8 and 10) Partners' capital (deficit) (Notes 8 and 9) Limited partners 182,462 149,172 General partner (2,322) (1,846) - -------------------------------------------------------------------------------- Total partners' capital 180,140 147,326 - -------------------------------------------------------------------------------- Total liabilities and partners' capital $199,483 $176,199 ================================================================================ See accompanying notes to consolidated financial statements. F-11 Franklin Street Partners Limited Partnership and Subsidiaries Consolidated Statements of Operations (Notes 3 and 4)
Years ended December 31, 2000 1999 1998 ====================================================================================================================== (in thousands, except per partnership unit amounts) Revenues (Note 6): Rental income $ 25,434 $ 16,315 $ 10,859 Investment services income 7,574 789 -- Interest and other income 1,785 944 696 - ---------------------------------------------------------------------------------------------------------------------- Total revenues 34,793 18,048 11,555 - ---------------------------------------------------------------------------------------------------------------------- Expenses (Note 6): Selling, general and administrative (Notes 8 and 10) 8,795 5,223 2,575 Other real estate operating expenses 6,489 4,429 3,012 Depreciation and amortization (Note 5) 4,194 2,897 2,104 Real estate taxes and insurance 2,473 1,448 1,101 Interest expense 860 299 26 Merger costs (Note 4) 222 231 736 Minority interests 54 66 24 - ---------------------------------------------------------------------------------------------------------------------- Total expenses 23,087 14,593 9,578 - ---------------------------------------------------------------------------------------------------------------------- Net income $ 11,706 $ 3,455 $ 1,977 ====================================================================================================================== Basic and diluted net income per partnership unit $ .48 $ .14 $ .08 ======================================================================================================================
See accompanying notes to consolidated financial statements. F-12 Franklin Street Partners Limited Partnership and Subsidiaries Consolidated Statements of Partners' Capital (Note 4)
Total Partners' Limited Partners General Partner Capital ----------------- --------------- --------------- For the years ended December 31, 2000, 1999 and 1998 Units Amount Units Amount Units Amount =================================================================================================================================== (in thousands, except units) Balance, December 31, 1997 23,256,096 $ 64,376 948,499 $ 103 24,204,595 $ 64,479 Capital contributions -- 34,752 -- -- -- 34,752 Net income -- 1,716 -- 261 -- 1,977 Cash distributions to partners -- (6,603) -- (749) -- (7,352) - ----------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1998 23,256,096 94,241 948,499 (385) 24,204,595 93,856 Capital contributions -- 63,316 -- -- -- 63,316 Net income -- 3,320 -- 135 -- 3,455 Cash distributions to partners -- (11,705) -- (1,596) -- (13,301) - ----------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1999 23,256,096 149,172 948,499 (1,846) 24,204,595 147,326 Capital contributions -- 39,829 -- -- -- 39,829 Issuance of limited partnership units for compensation (Note 8) 230,000 2,300 -- -- 230,000 2,300 Net income -- 11,252 -- 454 -- 11,706 Cash distributions to partners -- (20,091) -- (930) -- (21,021) - ----------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 2000 23,486,096 $ 182,462 948,499 $(2,322) 24,434,595 $ 180,140 ===================================================================================================================================
- ---------- Partnership units issued in connection with the merger transactions in 1999 and 2000 are treated as outstanding for all periods presented (see Note 4). See accompanying notes to consolidated financial statements. F-13 Franklin Street Partners Limited Partnership and Subsidiaries Consolidated Statements of Cash Flows
Years ended December 31, 2000 1999 1998 ====================================================================================================================== (in thousands) Cash flows from operating activities: Net income $ 11,706 $ 3,455 $ 1,977 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,194 2,897 2,104 Partnership units issued for compensation 2,300 -- -- Gain on sale of land (149) -- -- Minority interests 54 66 24 Changes in operating assets and liabilities: Restricted cash (10) (406) 104 Prepaid expenses (142) (335) 146 Tenant rent receivables (665) (389) (101) Due from related parties (234) -- -- Deposits and other assets (381) 306 110 Accounts payable and accrued expenses (2,529) 3,635 (401) Tenant security deposits 10 406 (104) - ---------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 14,154 9,635 3,859 - ---------------------------------------------------------------------------------------------------------------------- Cash flow from investing activities: Loan to related party (16,500) -- -- Purchase of property and equipment (9,952) (77,255) (28,980) Proceeds received on sale of land 1,076 -- -- Purchase of marketable securities (5,322) -- -- - ---------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (30,698) (77,255) (28,980) - ---------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Cash distributions to partners (21,021) (13,301) (7,352) Cash distributions to minority interest holders (43) (50) (4) Borrowings under line of credit 16,500 23,522 -- Repayments of line of credit (23,522) -- -- Capital contributions 39,829 63,316 34,752 - ---------------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 11,743 73,487 27,396 - ---------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (4,801) 5,867 2,275 Cash and cash equivalents, beginning of year 18,519 12,652 10,377 - ---------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of year $ 13,718 $ 18,519 $ 12,652 ====================================================================================================================== Supplemental disclosure of cash flow information: Cash paid for: Interest $ 860 $ 299 $ 26 Income taxes $ -- $ -- $ --
See accompanying notes to consolidated financial statements. F-14 Franklin Street Partners Limited Partnership and Subsidiaries Notes to Consolidated Financial Statements 1. Organization Franklin Street Partners Limited Partnership (the "Partnership") was formed as a Massachusetts limited partnership on February 4, 1997. The Partnership owns a 99% interest in FSP Investments LLC ("FSP Investments") and a 99% interest in FSP Property Management LLC ("FSP Property Management"). The Partnership also has a nominal interest in five corporations organized to operate as Real Estate Investment Trusts ("REITs"), which are accounted for on the equity method. The Partnership operates in two business segments: rental operations and investment services. FSP Investments provides real estate investment and broker/dealer services. FSP Investment's services include: (i) the organization of REIT entities in 2000 (the "Sponsored REITs") and limited partnerships prior to 2000, (the "Sponsored Partnerships"), which are syndicated through private placements; (ii) the acquisition of real estate on behalf of the sponsored entities; and (iii) the sale of preferred stock in REITs or limited partnership interests in the Sponsored Partnerships. FSP Property Management provides property management services for the sponsored entities. During 1999 and 2000, a total of seventeen Sponsored Partnerships were merged into the Partnership (see Note 4). The Partnership previously owned a 5% general partner interest in each of the Sponsored Partnerships. The mergers were tax-free reorganizations accounted for similar to a pooling of interest, whereby the assets and liabilities of the Sponsored Partnerships were recorded at their historic book values and transaction costs were charged to expenses. The Partnership's 1998 and 1999 consolidated financial statements have been restated to include the combined balance sheets and operations of the Partnership and the seventeen merged Sponsored Partnerships. F-15 Franklin Street Partners Limited Partnership and Subsidiaries Notes to Consolidated Financial Statements 2. Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements include the accounts of the Partnership, majority-owned subsidiaries and the seventeen merged Sponsored Partnerships (see Note 4). All significant intercompany accounts and transactions have been eliminated in consolidation. Business Segments The Partnership follows Statement of Financial Accounting Standards ("SFAS") No. 131 "Disclosures about Segments of an Enterprise and Related Information," which established standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders (see Note 3). Minority Interests Minority interests represents the 1% interest in FSP Investments and FSP Property Management, which is held by an officer and member of the general partner of the Partnership. Minority interests cash distributions paid were approximately $43,000, $50,000 and $4,000 for the years ended December 31, 2000, 1999 and 1998, respectively, and are reflected as a reduction to the Partnership's minority interests liability. Estimates and Assumptions The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications Certain balances in the 1999 and 1998 financial statements have been reclassified to conform to the 2000 presentation. F-16 Franklin Street Partners Limited Partnership and Subsidiaries Notes to Consolidated Financial Statements 2. Significant Accounting Policies (Continued) Investment In REITs Investments in REITs are accounted for using the equity method. Under the equity method of accounting, the Partnership's cost is subsequently adjusted by their share of the Sponsored REITs' earnings and cash distributions. Equity in the losses of Sponsored REITs' are not recognized to the extent that the investment balance would become negative. Cash distributions are recognized as income after the investment balance is reduced to zero. There were no cash distributions received from the REITs for the year ended December 31, 2000. Real Estate Investments and Depreciation Real estate investments are carried at cost, net of accumulated depreciation. Betterments, major renovations, and certain costs directly related to the acquisition and improvement of real estate are capitalized. Expenditures for maintenance and repairs are charged to operations as incurred. Depreciation is computed using the straight-line method over the assets' estimated useful lives as follows: Category Years ========================================================================== Buildings: Residential 27 Commercial 39 Building and improvements 15 to 39 Fixtures and equipment 5 to 7 The Partnership evaluates its assets used in operations by identifying indicators of impairment and by comparing the sum of the estimated undiscounted future cash flows for each asset to the asset's carrying value. When indicators of impairment are present and the sum of the undiscounted future cash flows are less than the carrying value of such asset, an impairment loss is recorded equal to the difference between the assets current carrying value and its value based on discounting its estimated future cash flows. At December 31, 2000, 1999 and 1998, no such indicators of impairment were identified. F-17 Franklin Street Partners Limited Partnership and Subsidiaries Notes to Consolidated Financial Statements 2. Significant Accounting Policies (Continued) Cash and Cash Equivalents The Partnership considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. Cash and cash equivalents consists of the following (in thousands): December 31, 2000 1999 ========================================================================== Capital reserve funds held in money market and cash equivalent accounts $ 3,464 $ 8,024 Money market accounts 3,826 -- Operating accounts 6,428 10,495 -------------------------------------------------------------------------- $13,718 $18,519 ========================================================================== Restricted Cash Restricted cash consists of tenant security deposits. Tenant security deposits are refunded when tenants vacate provided that the tenant has not damaged the property. F-18 Franklin Street Partners Limited Partnership and Subsidiaries Notes to Consolidated Financial Statements 2. Significant Accounting Policies (Continued) Marketable Securities The Partnership accounts for investments in debt and equity securities under the provisions of SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". The Partnership classifies its debt and equity securities as available-for-sale securities. Investments in marketable securities mature as follows (in thousands): After 1 Year Within Through December 31, 2001 1 Year 3 Years Total ========================================================================== Government-backed debt securities $3,957 $ -- $3,957 Corporate bonds 968 397 1,365 -------------------------------------------------------------------------- $4,925 $ 397 $5,322 ========================================================================== The above securities are stated at cost, which approximates their fair value at December 31, 2000. Financial Instruments The Partnership estimates that the carrying value of cash and cash equivalents, restricted cash, marketable securities, amounts due from related parties and the bank note payable approximate their fair values based on their short-term maturity and prevailing interest rates. F-19 Franklin Street Partners Limited Partnership and Subsidiaries Notes to Consolidated Financial Statements 2. Significant Accounting Policies (Continued) Revenue Recognition Commercial Properties - The Partnership has retained substantially all of the risks and benefits of ownership of the Partnership's commercial properties and accounts for its leases as operating leases. Rental income from leases, which include scheduled increases in rental rates during the lease term, is recognized on a straight-line basis. Residential Apartments - Rental income from tenants of residential apartment properties is recognized in the period earned. Investment Services Income - The Partnership recognizes property acquisition and syndication fees in the period services are rendered, provided that the fee is fixed and collection is probable. Interim financing fees are recognized in the period earned. Commission income from the sale of partnership units in Sponsored Partnerships or preferred stock in Sponsored REITs is recognized as earned, which generally occurs upon closing. Income Taxes No provision has been made for Federal or state income taxes in the consolidated financial statements of the Partnership. Partners are required to report on their individual tax returns their allocable share of income, gains, losses, deductions and credits of the Partnership. The Partnership files its tax returns on the accrual basis. Net Income Per Partnership Unit The Partnership follows SFAS No. 128 "Earnings per Share", which specifies the computation, presentation and disclosure requirements for the Partnership's net income per partnership unit. Basic net income per unit is computed by dividing net income by the weighted average number of partnership units outstanding during period. Diluted net income per share reflects the potential dilution that could occur if securities or other contracts to issue units were exercised or converted into units. There were no potential dilutive units outstanding at December 31, 2000, 1999 and 1998. The partnership units issued in connection with the merger transactions described in Note 4 have been treated as outstanding for all periods presented. F-20 Franklin Street Partners Limited Partnership and Subsidiaries Notes to Consolidated Financial Statements 2. Significant Accounting Policies (Continued) Net Income Per Partnership Unit The denominator used for calculating basic and diluted net income per unit is as follows: Years ended December 31, 2000 1999 1998 ========================================================================== Weighted average number of units outstanding 24,377,095 24,204,595 24,204,595 Recent Accounting Standards In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 requires companies to recognize all derivative contracts at their fair values, as either assets or liabilities on the balance sheet. If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of gain or loss recognition on the hedging derivative with the recognition of (1) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk, or (2) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized in income in the period of change. SFAS No. 133, as amended by SFAS No. 137 and 138, is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. F-21 Franklin Street Partners Limited Partnership and Subsidiaries Notes to Consolidated Financial Statements 2. Significant Accounting Policies (Continued) Recent Accounting Standards (Continued) Historically, the Partnership has not entered into derivative contracts either to hedge existing risks or for speculative purposes. Accordingly, adoption of the new standard did not affect the Partnership's financial statements. In March 2000, the FASB issued interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions Involving Stock Compensation, an interpretation of APB Opinion No. 25." FIN 44 clarifies the application of APB No. 25 for (a) the definition of an employee for purposes of applying APB No. 25, (b) the criteria for determining whether a plan qualifies as a noncompensatory plan, (c) the accounting consequences of various modifications to the previously fixed stock options or awards, and (d) the accounting for an exchange of stock compensation awards in a business combination. FIN 44 was effective July 1, 2000 but certain conclusions covered specific events that occurred after either December 15, 1998 or January 12, 2000. Adoption of FIN 44 did not have an effect on the Partnership `s financial statements. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 which summarizes certain of the SEC staff's views in applying generally accepted accounting principles to revenue recognition in financial statements. The Staff Accounting bulletin became effective in the fourth quarter of 2000. The adoption of this guidance did not have an impact on the Partnership's results of operations or financial position, however, the guidance may impact the way in which the Partnership will account for future transactions. F-22 Franklin Street Partners Limited Partnership and Subsidiaries Notes to Consolidated Financial Statements 3. Business Segments The Partnership operates in two business segments: rental operations and investment services (including real estate acquisition, financing and broker/dealer services). Segment operating results are measured and assessed based on a performance measure known as Funds From Operations ("FFO"). FFO is defined as net income (computed in accordance with generally accepted accounting principles) plus depreciation and amortization and other non-cash expenses. FFO is not a measure of operating results or cash flows from operating activities as measured by generally accepted accounting principles, and is not necessarily indicative of cash available to fund cash needs and should not be considered an alternative to cash flows as a measure of liquidity. FFO by business segment are as follows (in thousands):
Per Consolidated Rental Investment Intercompany Statements of Operations Services Total Eliminations Operations ===================================================================================================================== Year ended December 31, 2000: Total revenues $ 26,817 $14,152 $ 40,969 $(6,176) $ 34,793 Total expenses (14,332) (9,854) (24,186) 1,099 (23,087) Depreciation and amortization 4,275 68 4,343 (149) 4,194 Non-cash expenses -- 2,300 2,300 -- 2,300 - -------------------------------------------------------------------------------------------------------------------- FFO $ 16,760 $ 6,666 $ 23,426 $(5,226) $ 18,200 ==================================================================================================================== Year ended December 31, 1999: Total revenues $ 17,204 $ 9,143 $ 26,347 $(8,299) $ 18,048 Total expenses (9,945) (5,315) (15,260) 667 (14,593) Depreciation and amortization 2,965 41 3,006 (109) 2,897 - -------------------------------------------------------------------------------------------------------------------- FFO $ 10,224 $ 3,869 $ 14,093 $(7,741) $ 6,352 ==================================================================================================================== Year ended December 31, 1998: Total revenues $ 11,560 $ 6,208 $ 17,768 $(6,213) $ 11,555 Total expenses (6,979) (2,802) (9,781) 203 (9,578) Depreciation and amortization 2,136 33 2,169 (65) 2,104 - -------------------------------------------------------------------------------------------------------------------- FFO $ 6,717 $ 3,439 $ 10,156 $(6,075) $ 4,081 ====================================================================================================================
Non-cash expenses of $2,300,000 for the year ended December 31, 2000 are comprised of equity-based compensation charges (see Note 8). F-23 Franklin Street Partners Limited Partnership and Subsidiaries Notes to Consolidated Financial Statements 3. Business Segments (Continued) The Partnership's FFO before the restatement for the October 1, 2000 Merged Partnerships (see Note 4) is summarized as follows (in thousands): Year ended December 31, 2000 ========================================================================== Total FFO before intercompany eliminations $23,426 Less amounts for October 1, 2000 Merged Partnerships for the period prior to date of merger: Total revenues (6,880) Total expenses 4,184 Depreciation and amortization (1,003) -------------------------------------------------------------------------- Total FFO, excluding pre-merger operations $19,727 ========================================================================== The Partnership's cash distributions from operations for the year ended December 31, 2000 (excluding $3,953,000 of cash distributions related to the October 1, 2000 Merged Partnerships for the period prior to the date of merger) are summarized as follows: Distribution Total Per Partnership Cash Quarter paid Unit Distributions ========================================================================== (in thousands) Second quarter of 2000 $.24 $ 4,080 Third quarter of 2000 .25 4,308 Fourth quarter of 2000 .26 4,480 First quarter of 2001 .27 6,597 -------------------------------------------------------------------------- $19,465 ========================================================================== Cash distributions per partnership unit is based on the total outstanding units at the end of each calendar quarter. Cash available for distribution, as determined at the sole discretion of the general partner, is required to be distributed to unit holders within 90 days following the end of each calendar quarter. The cash distribution of approximately $6,597,000 for the fourth quarter of 2000 was declared and paid in 2001. The cash distribution of approximately $4,200,000 for the fourth quarter of 1999 was declared and paid in the first quarter of 2000. F-24 Franklin Street Partners Limited Partnership and Subsidiaries Notes to Consolidated Financial Statements 3. Business Segments (Continued) The following table is a summary of other financial information by business segment (in thousands): Rental Investment Operations Services Total ========================================================================== December 31, 2000: Capital expenditures $ 9,825 $ 127 $ 9,952 Identifiable assets $173,888 $25,595 $199,483 December 31, 1999: Capital expenditures $ 77,060 $ 195 $ 77,255 Identifiable assets $145,037 $31,162 $176,199 December 31, 1998: Capital expenditures $ 28,973 $ 7 $ 28,980 4. Merger Transactions Effective October 1, 2000, the Partnership and six Sponsored Partnerships consummated a series of mergers pursuant to an Agreement and Plan of Merger (the "October 2000 Merger"). Under the terms of the October 2000 Merger, all limited partnership interests in the six Sponsored Partnerships outstanding on October 1, 2000 were exchanged for 7,204,716 new limited partnership units in the Partnership. The operations of the six merged Sponsored Partnerships consist of six commercial rental properties (see Note 5). Effective January 1, 2000, the Partnership and three Sponsored Partnerships consummated a series of mergers pursuant to an Agreement and Plan of Merger (the "January 2000 Merger"). Under the terms of the January 2000 Merger, all limited partnership interests in the three Sponsored Partnerships outstanding on January 1, 2000 were exchanged for 4,999,972 new limited partnership units in the Partnership. The operations of the three merged Sponsored Partnerships consist of a residential apartment property and two commercial real estate properties (see Note 5). F-25 Franklin Street Partners Limited Partnership and Subsidiaries Notes to Consolidated Financial Statements 4. Merger Transactions (Continued) Effective January 1, 1999, the Partnership and eight Sponsored Partnerships consummated a series of mergers pursuant to an Agreement and Plan of Merger (the "1999 Merger"). Under the terms of the 1999 Merger, all partnership units in the Partnership and all limited partnership interests in the eight Sponsored Partnerships outstanding on January 1, 1999 were exchanged for 11,999,907 new partnership units in the combined Partnership. The operations of the merged Sponsored Partnerships consist of five commercial rental properties and three residential real estate properties (see Note 5). The Partnership's allocation of partnership units between the existing partners and the new partners were based upon the estimated relative value of each partners' contribution into the combined Partnership. Such allocation was based, in part, on independent real estate appraisals and third party valuation services. Following the consummation of a merger described above, the Partnership held, directly or indirectly, 100% of the interests in each Sponsored Partnership involved in the merger. The merger transactions were solely an exchange of partnership units and no cash was involved. The mergers were tax-free reorganizations accounted for similar to a pooling of interest. The assets and liabilities of the Sponsored Partnerships were recorded at their historic book values and total merger costs of approximately $222,000, $231,000 and $736,000 were expensed in the accompanying consolidated statements of operations for the years ended December 31, 2000, 1999 and 1998, respectively. The Partnership's consolidated financial statements have been restated for all periods to include the results of operations, financial positions and cash flows of the Sponsored Partnerships. Partnership units issued in connection with the mergers are treated as outstanding for all periods presented. F-26 Franklin Street Partners Limited Partnership and Subsidiaries Notes to Consolidated Financial Statements 4. Merger Transactions (Continued) The Partnership's December 31, 1999 and 1998 consolidated total partners' capital has been restated as follows (in thousands): December 31, 1999 1998 ========================================================================== Franklin Street Partners Limited Partnership and Subsidiaries total partners' capital, as previously reported $ 72,887 $ 75,134 Total partners' capital of the merged Sponsored Partnerships 78,302 19,793 Elimination of intercompany balances and transactions (3,863) (1,071) -------------------------------------------------------------------------- Combined total partners' capital, as restated $ 147,326 $ 93,856 ========================================================================== F-27 Franklin Street Partners Limited Partnership and Subsidiaries Notes to Consolidated Financial Statements 4. Merger Transactions (Continued) The separate total revenues and net income of the Partnership and the various Sponsored Partnerships prior to the mergers were as follows (in thousands): Year ended December 31, 1999 1998 ========================================================================== Total revenues: Franklin Street Partners Limited Partnership and Subsidiaries, as previously reported $20,519 $13,961 Merged Sponsored Partnerships 5,641 490 Elimination of intercompany balances and transactions (8,112) (2,896) -------------------------------------------------------------------------- $18,048 $11,555 ========================================================================== Net income: Franklin Street Partners Limited Partnership and Subsidiaries, as previously reported $ 8,729 $ 4,613 Merged Sponsored Partnerships 2,341 233 Elimination of intercompany balances and transactions (7,615) (2,869) -------------------------------------------------------------------------- $ 3,455 $ 1,977 ========================================================================== F-28 Franklin Street Partners Limited Partnership and Subsidiaries Notes to Consolidated Financial Statements 5. Real Estate Investments In connection with the various merger transactions described at Note 4, the Partnership acquired seventeen real estate properties during 2000 and 1999. The following is a summary of the more significant elements of the Partnership's real estate investments (dollar amounts in thousands):
Date Approximate Acquired by Date of Square Date Sponsored Description Merger Units Footage Constructed Partnership ======================================================================================================================== Residential Apartments: Essex House, Houston, TX January 1999 135 118,800 1993 1993 Reata, Houston, TX January 1999 159 129,000 1994 1994 Weslayan Oaks, Houston, TX January 1999 84 70,500 1995 1997 Silverside Plantation, Baton Rouge, LA January 2000 264 223,800 1998 1998 Commercial Properties: North Andover Office Park, No. Andover, MA January 1999 -- 92,000 1972-1978 1996 Park Seneca, Charlotte, NC January 1999 -- 110,600 1969 1997 Piedmont Center, Greenville, SC January 1999 -- 143,800 1973 1998 4995 P. Henry Drive, Santa Clara, CA January 1999 -- 40,300 1978 1997 One Technology Drive, Peabody, MA January 1999 -- 188,000 1982 1995 Hillview Center, Milpitas, CA January 2000 -- 36,300 1984 1999 Telecom Business Center, San Diego, CA January 2000 -- 101,700 1997 1999 Southfield Center, Southfield, MI October 2000 -- 212,500 1977 1999 Blue Ravine, Folsom, CA October 2000 -- 47,000 1984 1999 Bollman Place, Savage, MD October 2000 -- 99,000 1984 1999 Austin N.W., Austin, TX October 2000 -- 68,600 1998 1999 10 Lyberty Way, Westford, MA October 2000 -- 104,700 1984 2000 Gateway Crossing 95, Columbia, MD October 2000 -- 188,800 1988-1994 1999 - ------------------------------------------------------------------------------------------------------------------------ ======================================================================================================================== Total Cost at Original Cost Cost December 31, 2000 -------------------------- Capitalized -------------------------- Buildings, (Disposals) Buildings, Improvements Subsequent to Improvements Description Land and Fixtures Acquisition Land and Fixtures ================================================================================================================================== Residential Apartments: Essex House, Houston, TX $ 2,426 $ 7,674 $ 648 $ 2,426 $ 8,322 Reata, Houston, TX 2,811 7,889 567 2,811 8,456 Weslayan Oaks, Houston, TX 1,236 2,964 70 1,236 3,034 Silverside Plantation, Baton Rouge, LA 2,000 16,000 (205) 1,885 15,910 Commercial Properties: North Andover Office Park, No. Andover, MA 1,056 6,944 895 1,056 7,839 Park Seneca, Charlotte, NC 1,370 5,480 (42) 1,270 5,538 Piedmont Center, Greenville, SC 1,356 9,194 596 1,356 9,790 4995 P. Henry Drive, Santa Clara, CA 3,009 3,791 58 3,009 3,849 One Technology Drive, Peabody, MA 1,033 8,142 (450) 1,033 7,692 Hillview Center, Milpitas, CA 2,135 2,728 7 2,135 2,735 Telecom Business Center, San Diego, CA 4,730 10,670 78 4,730 10,748 Southfield Center, Southfield, MI 4,112 10,838 138 4,112 10,976 Blue Ravine, Folsom, CA 766 4,934 22 766 4,956 Bollman Place, Savage, MD 1,556 4,044 45 1,556 4,089 Austin N.W., Austin, TX 631 9,369 161 631 9,530 10 Lyberty Way, Westford, MA 1,173 7,927 78 1,173 8,005 Gateway Crossing 95, Columbia, MD 4,339 15,511 291 4,339 15,802 - ---------------------------------------------------------------------------------------------------------------------------------- $ 35,739 $ 134,099 $ 2,957 $ 35,524 $ 137,271 ================================================================================================================================== Total Accumulated Depreciation at December 31, Description Total 2000 ================================================================================== Residential Apartments: Essex House, Houston, TX $ 10,748 $ 2,473 Reata, Houston, TX 11,267 1,951 Weslayan Oaks, Houston, TX 4,270 490 Silverside Plantation, Baton Rouge, LA 17,795 1,268 Commercial Properties: North Andover Office Park, No. Andover, MA 8,895 1,398 Park Seneca, Charlotte, NC 6,808 466 Piedmont Center, Greenville, SC 11,146 763 4995 P. Henry Drive, Santa Clara, CA 6,858 277 One Technology Drive, Peabody, MA 8,725 1,066 Hillview Center, Milpitas, CA 4,870 124 Telecom Business Center, San Diego, CA 15,478 497 Southfield Center, Southfield, MI 15,088 344 Blue Ravine, Folsom, CA 5,722 151 Bollman Place, Savage, MD 5,645 98 Austin N.W., Austin, TX 10,161 257 10 Lyberty Way, Westford, MA 9,178 129 Gateway Crossing 95, Columbia, MD 20,141 412 - ---------------------------------------------------------------------------------- $ 172,795 $ 12,164 ==================================================================================
- ---------- There were no encumbrances on the above properties. Depreciable lives at December 31, 2000 are summarized at Note 2. F-29 Franklin Street Partners Limited Partnership and Subsidiaries Notes to Consolidated Financial Statements 5. Real Estate Investments (Continued) The following table summarizes the changes in the Partnership's real estate investments and accumulated depreciation (in thousands):
December 31, 2000 1999 1998 ====================================================================================== Real estate investments, at cost: Balance, beginning of year $163,904 $ 86,835 $58,080 Acquisitions 9,179 76,881 28,634 Improvements 639 188 121 Dispositions (927) -- -- -------------------------------------------------------------------------------------- Balance, end of year $172,795 $163,904 $86,835 ====================================================================================== Accumulated depreciation: Balance, beginning of year: $ 8,192 $ 5,447 $ 3,617 Depreciation 3,972 2,745 1,830 Dispositions -- -- -- -------------------------------------------------------------------------------------- Balance, end of year $ 12,164 $ 8,192 $ 5,447 ======================================================================================
6. Related Party Transactions Investment in Sponsored REITs During 2000, the Partnership acquired 100% of the common stock in four Sponsored REITs for nominal consideration. Additionally, the Partnership's 5% general partner interest in one Sponsored Partnership was exchanged for the common stock in a newly formed REIT, in connection with this Sponsored Partnership's reorganization from a limited partnership to a REIT on January 1, 2001. F-30 Franklin Street Partners Limited Partnership and Subsidiaries Notes to Consolidated Financial Statements 6. Related Party Transactions (Continued) Investment in Sponsored REITs (Continued) The Sponsored REITs were formed as corporations under the laws of Delaware and operate in a manner intended to qualify as REITs for Federal income tax purposes. To qualify as a REIT, each entity must comply with certain operating activity requirements and must generally distribute 95% (90% commencing January 1, 2001) of its taxable income to its shareholders. The REITs have issued both common stock and preferred stock. The common stock is owned solely by the Partnership and the preferred stock is owned by outside individual investors. Each REIT was organized to acquire a single real estate property using the proceeds raised through private offerings of its preferred stock. The REIT's do not contemplate having any long-term financing. The preferred shareholders' in each of the REITs are entitled to 100% of the REITs cash distributions. As a common shareholder, the Partnership has no rights to the REIT's regular cash distributions. However, upon liquidation of the REITs the Partnership will be entitled to its percentage interest in any proceeds after the preferred shareholders have recovered their investment. The Partnership's percentage interest in each REIT is less than 1%. The affirmative vote of the holders of a majority of the REIT's preferred stockholders is required for any actions involving merger, sale of property, amendment to charter or issuance of additional capital stock. In addition, all of the REIT's amended their certificates of incorporation in April 2001 to allow the holders of more than fifty percent of the outstanding preferred shares to remove, without cause, and replace one or more members of the REIT's Board of Directors. F-31 Franklin Street Partners Limited Partnership and Subsidiaries Notes to Consolidated Financial Statements 6. Related Party Transactions (Continued) Sponsored Entity Fees FSP Investments has provided syndication and real estate acquisition advisory services for the Sponsored REITs in 2000 and Sponsored Partnerships prior to 2000. Transactions with merged Sponsored Partnerships have been eliminated in the accompanying consolidated financial statements. Fees from non-consolidated related entities for property acquisition services amounted to approximately $1,581,000 and $346,000 for the years ended December 31, 2000 and 1999, respectively. Sales commissions earned for the sale of Sponsored REIT preferred shares in 2000 and partnership units in one Sponsored Partnership in 1999 amounted to approximately $4,036,000 and $443,000 for the years ended December 31, 2000 and 1999, respectively. The Partnership has also provided interim financing for the purchase of certain REIT properties prior to completion of the REIT's private equity offerings. Financing commitment fees earned by the Partnership from the REITs totaled approximately $1,957,000 for the year ended December 31, 2000. Interest income charged to the REITs amounted to approximately $457,000 for the year ended December 31, 2000. Management Fees Management fees charged to the merged Sponsored Partnerships have been eliminated in the accompanying consolidated statements of operations. Total property management fee income from non-consolidated entities amounted to approximately $112,000 and $16,000 for the years ended December 31, 2000 and 1999, respectively. There were no related entity management fees for the year ended December 31, 1998. Property management fees range from 1% to 5% of collected rents. F-32 Franklin Street Partners Limited Partnership and Subsidiaries Notes to Consolidated Financial Statements 6. Related Party Transactions (Continued) Due From Related Parties Amounts due from related parties consist of the following (in thousands): December 31, 2000 1999 ========================================================================== Interim financing note receivable due $ 16,500 -- from Sponsored REIT, bearing interest at the bank's base rate (9.5% at December 31, 2000), collateralized by the REIT's real estate and the assignment of its rents; paid in full upon closing of REIT's private equity offering in February 2001. Interest receivable from Sponsored REITs, paid upon closing of private equity offering in February 2001. 144 -- Non-interest bearing cash advances due on demand from Sponsored REITs. 90 -- -------------------------------------------------------------------------- $ 16,734 $ -- ========================================================================== F-33 Franklin Street Partners Limited Partnership and Subsidiaries Notes to Consolidated Financial Statements 7. Bank Note Payable The Partnership has a revolving line of credit agreement (the "Loan Agreement") with a bank providing for borrowings up to $35 million (increased to $53 million in February 2001). Borrowings under the Loan Agreement bear interest at either the bank's base rate or a variable LIBOR rate, as defined. Borrowings outstanding under the Loan Agreement consist of the following (in thousands): December 31, 2000 1999 ========================================================================== Note payable, bearing interest at the bank's base rate (9.5% at December 31, 2000). $16,500 $ 3,672 Note payable, bearing interest at LIBOR plus 1.25% per annum (7.75% at December 31, 1999). -- 19,850 -------------------------------------------------------------------------- $16,500 $23,522 ========================================================================== The Loan Agreement includes restrictions on property liens and requires compliance with various financial covenants. Financial covenants include the maintenance of at least $1,500,000 in operating cash accounts, a minimum tangible net worth of $140,000,000 and compliance with various debt and operating income ratios, as defined in the Loan Agreement. The Partnership was in compliance with the Loan Agreement's financial covenants as of December 31, 2000. Outstanding borrowings of $16,500,000 at December 31, 2000 were repaid in February 2001. The Loan Agreement matures on February 23, 2003. The Loan Agreement also provides for personal borrowings of up to $3,000,000 by the members of the Partnership's general partner for the purpose of acquiring partnership units or paying income taxes thereon. Borrowings of $800,000 were outstanding with members of the general partner at December 31, 2000, which are guaranteed by the Partnership. F-34 Franklin Street Partners Limited Partnership and Subsidiaries Notes to Consolidated Financial Statements 8. Partners' Capital General The Partnership's general partner has the exclusive right to manage the business of the Partnership and make certain amendments to the Partnership Agreement, without the consent or approval of the limited partners. The Partnership's limited partners do not take part in management and do not have any voting rights regarding the Partnership's operations. A majority in interest of the limited partners, with the consent of the general partners, may amend the Partnership Agreement, subject to certain limitations as defined in the Partnership Agreement. Except as provided for under certain Federal tax provisions described in the Partnership Agreement, net income or net losses from operations shall be allocated to all partners based on their percentage interest in the Partnership. Net profits or losses arising from a sale or other disposition of all or any portion of the Partnership's property or upon liquidation of the Partnership shall be allocated as follows: Net Profit - The Partnership's net profits are allocated first to the extent of any partner's negative capital account balance, and thereafter in proportion with their percentage interest in the Partnership. Net Losses - First to the extent of any partner's positive capital account balance, and thereafter in proportion with their percentage interest in the Partnership. The Partnership's cash distributions are allocated to the limited partners and the general partner based on each partner's percentage interest in the Partnership. Equity-Based Compensation In April 2000, the Partnership issued 230,000 partnership units with a fair value of $2,300,000 to certain officers of the Partnership in lieu of cash compensation. The 230,000 partnership units were fully vested on the date of issuance. This equity-based compensation charge of $2,300,000 is included in selling, general and administrative expenses in the accompanying statement of operations for the year ended December 31, 2000. Cash distributions paid to the holders of the 230,000 units amounted to approximately $117,000 for the year ended December 31, 2000. F-35 Franklin Street Partners Limited Partnership and Subsidiaries Notes to Consolidated Financial Statements 8. Partners' Capital (Continued) General Partner Interests The Partnership's general partner interests are held by an entity, which is owned by certain persons who may be deemed to function as officers or directors of the Partnership. Total cash distributions paid to the general partner were approximately $930,000, $1,596,000 and $749,000 for the years ended December 31, 2000, 1999 and 1998, respectively. 9. Federal Income Tax Reporting The difference between Partners' capital for financial reporting purposes and for income tax purposes is approximately as follows (in thousands): Partners' capital - financial reporting purposes, December 31, 2000 $180,140 Partnership's cumulative tax reporting differences, primarily relating to non-deductible expenses, depreciation and other temporary differences 1,350 ------------------------------------------------------------------------- Partners' capital - income tax purposes, December 31, 2000 $181,490 ========================================================================= F-36 Franklin Street Partners Limited Partnership and Subsidiaries Notes to Consolidated Financial Statements 10. Commitments Rentals Under Operating Leases The Partnership's commercial rental operations include the leasing of office buildings and industrial properties subject to leases with terms greater than one year. The leases thereon expire at various dates through 2012. The following is a schedule of approximate future minimum rental income on non-cancelable operating leases as of December 31, 2000 (in thousands): Year ended December 31, ========================================================================= 2001 $26,719 2002 14,759 2003 12,179 2004 8,444 2005 3,936 Thereafter 12,358 ------------------------------------------------------------------------- $78,395 ========================================================================= Office Lease The Partnership leases its corporate office space under a six year operating lease that commenced in June 1999. The lease includes a base annual rent and additional rent for the Partnership's share of taxes and operating costs. Future minimum lease payments are approximately as follows (in thousands): Year ended December 31, ========================================================================= 2001 $190 2002 199 2003 203 2004 209 2005 97 ------------------------------------------------------------------------- $898 ========================================================================= F-37 Franklin Street Partners Limited Partnership and Subsidiaries Notes to Consolidated Financial Statements Rent expense was approximately $184,000, $126,000 and $52,000 for the years ended December 31, 2000, 1999 and 1998, respectively. 10. Commitments (Continued) Retirement Plan During 1999, the Partnership formed a retirement savings plan for eligible employees. Under the plan, the Partnership matches participant contributions up to $6,000 annually per participant. The Partnership's total contribution under the plan amounted to approximately $53,000 and $46,000 for the years ended December 31, 2000 and 1999, respectively. F-38 Exhibit Index Exhibits Dexcription - -------- ----------- 3.1 Certificate of Limited Partnership 3.2 Amendment to Certificate of Limited Partnership 4.1 Third Amended and Restated Limited Partnership Agreement, dated as of January 1, 2000 4.2 First Amendment, dated as of January 1, 2000, to Third Amended and Restated Limited Partnership Agreement, dated as of January 1, 2000 4.3 Second Amendment, dated as of June 26, 2000, to Third Amended and Restated Limited Partnership Agreement, dated as of January 1, 2000 21 Subsidiaries of the Registrant EX-3.1 2 0002.txt CERTIFICATE OF LIMITED PARTNERSHIP Exhibit 3.1 CERTIFICATE OF LIMITED PARTNERSHIP OF FRANKLIN STREET PARTNERS LIMITED PARTNERSHIP Pursuant to the provisions of the Massachusetts Uniform Limited Partnership Act (the "Act"), the undersigned hereby agrees, certifies and swears to this Certificate of Limited Partnership creating a limited partnership to be known as "Franklin Street Partners Limited Partnership": 1. Name of Partnership. The name of the Partnership is Franklin Street Partners Limited Partnership (the "Partnership"). 2. Business of Partnership. The character of the business of the Partnership and its purpose are to own an interest in FSP Investments LLC, a Massachusetts limited liability company, to own an interest in FSP Property Management LLC, a Massachusetts limited liability company, and to engage in any and all activities permitted under the Act. 3. Office of the Partnership; Agent for Service of Process. The office of the Partnership for purposes of Section 4(1) of the Act (and the office at which its records are maintained for purposes of Section 5(a) of the Act) is c/o FSP Investments LLC, 401 Edgewater Place, Suite 110, Wakefield, Massachusetts 01880. The name and address of the Partnership's agent for service of process in Massachusetts is George J. Carter, 5 Megans Way, Gloucester, Massachusetts 01930. 4. General Partners' Name and Business Address. The names and business address of the general partners of the Partnership are as follows: George J. Carter R. Scott MacPhee Richard R. Norris William W. Gribbell 401 Edgewater Place, Suite 110 Wakefield, Massachusetts 01880 5. Date of Dissolution of the Partnership. The latest date on which the Partnership is to dissolve is December 31, 2086. 2 IN WITNESS WHEREOF, the undersigned, being all the general partners of the Partnership, have signed and sworn to this Certificate of Limited Partnership under the penalties of perjury as of this 24th day of January, 1997. GENERAL PARTNERS /s/ George J. Carter -------------------------------- George J. Carter /s/ R. Scott MacPhee -------------------------------- R. Scott MacPhee /s/ Richard R. Norris -------------------------------- Richard R. Norris /s/ William W. Gribbell -------------------------------- William W. Gribbell 3 EX-3.2 3 0003.txt AMENDMENT TO THE CERTIFICATE OF LTD. PARTNERSHIP Exhibit 3.2 AMENDMENT TO THE CERTIFICATE OF LIMITED PARTNERSHIP OF FRANKLIN STREET PARTNERS LIMITED PARTNERSHIP Pursuant to the provisions of ss.9 of the Massachusetts Uniform Limited Partnership Act (the "Act"), the undersigned hereby agrees, certifies and swears to the following: 1. Name of Partnership. The name of the Partnership is Franklin Street Partners Limited Partnership (the "Partnership"). 2. Date of Filing Certificate. The Certificate of Limited Partnership was filed on the 4th day of February, 1997. 3. Date of Dissolution of the Partnership. The latest date on which the partnership is to dissolve is the 31st day of December, 2060. 4. The Amendment. The Certificate of Limited Partnership of Franklin Street Partners Limited Partnership is hereby amended to reflect the withdrawal of the current general partners: George J. Carter, R. Scott MacPhee, Richard R. Norris and William W. Gribbell (collectively, the "Withdrawing General Partners"), from the Partnership and the admission of FSP General Partner LLC, as sole general partner, each effective as of January 1, 2000. IN WITNESS WHEREOF, the undersigned, being the withdrawing general partners of the Partnership and the new general partner, have signed and sworn to this Amendment to the Certificate of Limited Partnership under penalties of perjury as of this 1st day of January, 2000. WITHDRAWING GENERAL SUCCESSOR GENERAL PARTNER: PARTNERS: /s/ George J. Carter FSP GENERAL PARTNER LLC - ---------------------------- George J. Carter By: /s/ George J. Carter ----------------------------------- /s/ R. Scott MacPhee George J. Carter, Managing Member - ---------------------------- R. Scott MacPhee /s/ Richard R. Norris - ---------------------------- Richard R. Norris /s/ William W. Gribbell - ---------------------------- Willam W. Gribbell EX-4.1 4 0004.txt AMENDED AND RESTATED LTD. PARTNERSHIP AGREEMENT Exhibit 4.1 FRANKLIN STREET PARTNERS LIMITED PARTNERSHIP THIRD AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT Third Amended and Restated Agreement of Limited Partnership of Franklin Street Partners Limited Partnership, a Massachusetts limited partnership (the "Partnership"), dated as of January 1, 2000, among George J. Carter, R. Scott MacPhee, Richard R. Norris, and William W. Gribbell, each as a general partner (each of them being sometimes hereinafter referred to individually as a "General Partner" and collectively as the "General Partners"), Scott H. Carter and Jeffrey B. Carter as limited partners (the "Class B Limited Partners") and those Persons listed on Schedule I hereto as limited partners (the "Limited Partners"). The General Partners, Limited Partners and Class B Limited Partners are sometimes hereinafter referred to individually as a "Partner" and collectively as the "Partners." "Person" means any natural person or any corporation, partnership, limited liability company, trust or other entity. Preliminary Statement The Partnership was formed as a limited partnership pursuant to an Agreement of Limited Partnership dated as of January 24,1997, as amended to date (the "Original Partnership Agreement") and a Certificate of Limited Partnership dated as of February 4,1997, filed with the Office of the Secretary of State of the Commonwealth of Massachusetts (the "'Filing Office") on February 4, 1997. The purposes of this amendment to the Original Partnership Agreement are to (i) provide for the admission of additional Limited Partners to the Partnership, (ii) set out more fully the rights, obligations and duties of the General Partners and the Limited Partners, and (iii) amend and restate in its entirety the Original Partnership Agreement. WHEREAS, the Original Partnership Agreement provides that the General Partners may amend the Original Partnership Agreement, without the consent or approval of the Limited Partners or Class B Limited Partners, in any manner they deem necessary or appropriate in connection with establishing, or taking steps to establish, a public market for the Units (as defined below) of limited partnership interest; WHEREAS, the Original Partnership Agreement provides that the distribution of cash by the Partnership and allocations of net profits and net losses shall be made in; WHEREAS, the General Partners have determined that allocating distributions of cash on the basis of units of partnership interest designated as general partnership interest, limited partnership interest or Class B limited partnership interest (collectively, "Units") rather than on the basis of fixed percentages to the Limited Partners, General Partners and Class B Limited Partners as groups, is an appropriate step for the Partnership to take in preparing to establish a public market for the Units of limited partnership interest; WHEREAS, the General Partners have determined that converting the percentage interests of the General Partners and the Class B Limited Partners into a number of Units of general partnership interest and Class B limited partnership, respectively, equal to their respective corresponding percentages of the total number of Units (taking into account the dilutive effect of the admission of additional Limited Partners pursuant to this amendment), does not affect the method of allocation of cash distributions or the method of allocation of net profits or net losses except by reducing the percentages thereof allocated to the General Partners and the Class B Limited Partners; and WHEREAS, the Class B Limited Partners are consenting to the adoption of this amendment. NOW, THEREFORE, it is hereby agreed that the Original Partnership Agreement is amended and restated and shall be replaced in its entirety by the following agreement: ARTICLE I GENERAL PROVISIONS 1.01 Name of the Partnership. The name of the Partnership shall be Franklin Street Partners Limited Partnership, or such other name as the General Partners may from time to time determine. The General Partners shall cause to be filed on behalf of the Partnership such partnership or assumed or fictitious name certificate or certificates as may from time to time be required by law. 1.02 Business of the Partnership. The business of the Partnership shall be to (i) hold a 99% interest in FSP Investments LLC, a Massachusetts limited liability company, (ii) own corporations or other entities organized to act as general partners of limited partnerships sponsored by FSP Investments LLC ("Sponsored Partnerships"), (iii) hold a 99% interest in FSP Property Management LLC, a Massachusetts limited liability company, (iv) acquire by merger or otherwise the Sponsored Partnerships, and (v) engage in any other activity in which a limited partnership organized under the laws of the Commonwealth of Massachusetts may lawfully engage. FSP Investments LLC, FSP Property Management LLC, the entities referred to in clause (ii) above and any other entities in which the Partnership may hold an equity interest are hereinafter referred to as "Operating Companies." 1.03 Place of Business of the Partnership. The principal place of business of the Partnership shall be located at 401 Edgewater Place, Suite 200, Wakefield, Massachusetts 01880. The General Partners may, at any time and from time to time, change the location of the Partnership's principal place of business, upon written notice of such change to the Limited Partners and Class B Limited Partners, and may establish such additional place or places of business of the Partnership as they may from time to time determine. 1.04 Duration of the Partnership. The Partnership commenced upon the filing of a Certificate of Limited Partnership for the Partnership in accordance with the Uniform Limited Partnership Act as enacted in the Commonwealth of Massachusetts (the "Partnership Act"), and shall have infinite life unless terminated at an earlier date in accordance with Article VII hereof. -2- 1.05 Partners' Names and Addresses. The names and business address of the General Partners are: George J. Carter R. Scott MacPhee Richard R. Norris William W. Gribbell 401 Edgewater Place, Suite 200 Wakefield, Massachusetts 01880 The names and mailing addresses of the Limited Partners are as set forth on Schedule II hereto. The names and business addresses of the Class B Limited Partners are set forth on Schedule III hereto. 1.06 Title to Partnership Property. All property owned by the Partnership, whether real or personal, tangible or intangible, shall be deemed to be owned by the Partnership as an entity, and no Partner, individually, shall have any ownership of such property. The Partnership may hold any of its assets in its own name or in the name of its nominee, which nominee may be one or more individuals, partnerships, trusts or other entities. 1.07 Resident Agent. The Partnership's agent for service of process shall be George J. Carter, 5 Megans Way, Gloucester, Massachusetts 01930, or such other Person as may be designated by the General Partners in a certificate of amendment to the Certificate of Limited Partnership of the Partnership filed with the Secretary of State of Massachusetts. The General Partners shall give each Limited Partner prompt notice of any change of such agent for service of process. 1.08 Certificate of Limited Partnership. Except as otherwise provided herein, the General Partners shall not be obligated to deliver or mail copies of the Partnership Certificate of Limited Partnership or any certificate of amendment thereto or of cancellation thereof to the Limited Partners or Class B Limited Partners. Such documents will be available for inspection at the offices of the Partnership as provided in Section 5.01 hereof. ARTICLE II CAPITAL CONTRIBUTIONS, PROFITS AND LOSSES 2.01 Capital Contributions. (a) The General Partners have contributed $100,003 in cash to the capital of the Partnership and own the number of Units of general partnership interest set forth opposite their respective names on Schedule I hereto. (b) The Limited Partners have made contributions to the capital of the Partnership in the amounts, and own the number of Units of limited partnership interest, set forth opposite their respective names on Schedule II hereto. -3- (c) The Class B Limited Partners have made contributions to the capital of the Partnership in the amounts, and own the number of Units of Class B limited partnership interest, set forth opposite their respective names on Schedule III hereto. (d) No interest shall accrue on any contributions to the capital of the Partnership, and no Partner shall have the right to withdraw or to be repaid any capital contributed by him, except as specifically provided in this Agreement. No Partner shall be required to contribute any additional capital to the Partnership. 2.02 Capital Accounts; Accounting Principles. A separate capital account shall be maintained for each Partner (a "Capital Account"). Such accounts shall be maintained and adjusted in accordance with the Internal Revenue Code of 1986, as amended (the "Code"), and Treasury Regulation ss.1.704-1(b)(2)(iv) and other applicable regulations under Sections 704(b) and (c) of the Code. There shall be credited to each Partner's Capital Account the amount of money and the fair market value of property actually contributed to the Partnership by such Partner, and there shall be charged to such Capital Accounts the fair market value of distributions to the Partner and the Partner's share of syndication costs of the Partnership which are described in Section 709 of the Code. There shall also be credited or charged to the Capital Accounts of the Partners their shares of the income or loss of the Partnership in the proportions hereinafter set forth. The income or loss of the Partnership for any fiscal year shall be the taxable income or loss as shown on the Partnership's Federal income tax return, adjusted as required by the regulations under Section 704 of the Code. In particular, but not in limitation of the foregoing, the income of the Partnership shall include income exempt from tax and any increases in basis occasioned by Section 48(q)(2) of the Code, and losses shall include expenses described in Section 705(a)(2)(B) of the Code (relating (primarily to expenses incurred in generating income exempt from tax) and decreases in basis occasioned by Section 48(a)(1) or (3) of the Code. If a new Partner is admitted to the Partnership (or the interest of an existing Partner is increased) by reason of a contribution to it (and not by reason of purchase of an existing interest in the Partnership), the Capital Accounts of all Partners and the book basis of Partnership property shall be adjusted to reflect the fair market value of Partnership property. Subsequent depreciation and gain or loss on sale of Partnership property shall be based on such adjusted books for purposes of Capital Accounts. Depreciation for book purposes shall equal depreciation for tax purposes for any period during which tax depreciation is allowable, so the only effect of such adjustment to the Partnership's books will be that depreciation for book purposes will continue after depreciation for tax purposes has expired. Taxable gain or loss on sale of Partnership property shall be allocated first to eliminate any discrepancy between a Partner's book and tax basis for his interest in the property, and then in the manner in which book gain or loss is allocated. For purposes of determining the Partners' capital accounts, repayments of loans made pursuant to Section 4.03 shall not be treated as distributions to Partners. -4- 2.03 Definitions. For purposes of this Agreement, the following terms shall have the following meanings: "Economic Risk of Loss" means the risk as determined under Treasury Regulation ss.1-752-2 (taking all applicable "grandfathering" rules into account) that a Partner or Person related to a Partner will suffer an economic loss as a result of the failure of the Partnership to repay a liability. "Excess Negative Balance" for a Partner means the excess, if any, of (i) the negative balance in a Partner's Capital Account after reducing such balance by the net adjustments, allocations and distributions described in Treasury Regulation ss.1.704-1(b)(2)(ii)(d)(4), (5) and (6) which, as of the end of the Partnership's taxable year are reasonably expected to be made to such Partner, over (H) the sum of (A) the amount, if any, which the Partner is required to restore to the Partnership upon liquidation of such Partner's interest in the Partnership (or which is so treated pursuant to Treasury Regulations ss.1104-1(b)(2)(h)(c)), (B) the Partner's Share of Minimum Gain and (C) that portion of any indebtedness of the Partnership (other than Partner Nonrecourse Debt) with respect to which the Partner bears the Economic Risk of Loss that such indebtedness would not be repaid out of the Partnership's assets if all of the Partnership's assets were sold at their respective tax basis as of the end of the fiscal year or other period and the proceeds from the sales together with any amounts described in clause (A), above, were used to pay the Partnership's liabilities. "Net Profits" and "Net Losses" mean the taxable income or loss, as the case may be, for a period (or from a transaction) as determined in accordance with Code Section 703(a) computed with any adjustments required by Treasury Regulation ss.1.704-1(b)(2)(iv). "Minimum Gain" means the amount determined by computing with respect to each Nonrecourse Debt of the Partnership, the amount of gross income, if any, that would be realized by the Partnership if it disposed of the property securing such debt in full satisfaction thereof, and by then aggregating the amounts so computed. "Nonrecourse Debt" means any Partnership liability to the extent that the liability is nonrecourse for purposes of Treasury Regulation ss.1.1001-2. "Nonrecourse Deductions" for a taxable year means deductions funded by Nonrecourse Debt as determined under Treasury Regulation ss.ss.1.704-2(c) and 1.704-2(i)(2). "Partner Nonrecourse Debt" means any Nonrecourse Debt to the extent that a Partner bears the Economic Risk of Loss associated with the debt. "Partnership Capital" means the fair market value of all of the Partnership's assets reduced by the amount of all of the Partnership's liabilities. "Share of Minimum Gain" means, for each Partner, the sum of such Partner's share of Minimum Gain attributable to Nonrecourse Debt other than Partner Nonrecourse Debt (computed in accordance with Treasury Regulation ss.1.704-2(g)) and such Partner's share of -5- Minimum Gain attributable to Partner Nonrecourse Debt (computed in accordance with Treasury Regulation ss.1.704-2(i)(5)). 2.04 Allocation of Net Profits and Net Losses. (a) Except as provided in Sections 2.05 and 2.06 below (which shall be applied first), the Net Profits and Net Losses of the Partnership from operations 'for any year (or other fiscal period) shall be allocated pro rata among the Partners in proportion to the number of Units held by each of them. (b) Except as provided in Sections 2.05 and 2.06 below (which shall be applied first), any Net Profits arising from a sale or other disposition of all or any portion of the Partnership's property or upon liquidation of the Partnership shall be allocated as follows: (i) First, to any Partners having negative Capital Account balances, in proportion to and to the extent of such negative balances; and (ii) The balance, if any, to the Partners in such proportions and in such amounts as would result in the respective Capital Account balance of each Partner equaling, as nearly as possible, such Partner's share of the then Partnership Capital determined by calculating the amount the Partner would receive if an amount equal to the Partnership Capital were distributed to the Partners in accordance with the provisions of Section 3.01. (c) Except as provided in Sections 2.05 and 2.06 below (which shall be applied first), any Net Losses arising from a sale or other disposition of all or any portion of the Partnership's property or upon liquidation of the Partnership shall be allocated among the Partners as follows: (i) First, to each Partner with a positive Capital Account balance, in the amount of such positive balance; provided, however, that if the amount of Net Losses to be allocated is less than the sum of the Capital Account balances of all Partners having positive Capital Account balances, then the Net Losses shall be allocated to the Partners in such proportions and in such amounts as would result in the respective Capital Account balance of each Partner equaling, as nearly as possible, such Partner's share of the then Partnership Capital determined as set forth in Section 2.04(b)(ii) above; and (ii) The balance, if any, pro rata to the Partners in accordance with the number of Units held by each of them. (d) If the amount of Net Profits allocable to the Partners pursuant to Section 2.04(b)(ii) or the amount of Net Losses allocable to them pursuant to Section 2.04(c)(i) is insufficient to allow the Capital Account balance of each Partner to equal such Partner's share of the Partnership Capital, such Net Profits or Net Losses shall be allocated among the Partners in -6- such a manner as to decrease the differences between the Partners' respective Capital Account balances and their respective shares of the Partnership Capital in proportion to such differences. 2.05 Allocations of Nonrecourse Deductions and Minimum Gain. Notwithstanding the provisions of Section 2.04 above, the following allocations of gross income and Nonrecourse Deductions shall be made in the following order of priority: (a) If in any year there is a net decrease in the amount of Minimum Gain attributable to either (i) Nonrecourse Debt that is not Partner Nonrecourse Debt or (ii) Partner Nonrecourse Debt, then each Partner shall first be allocated items of gross income for such year (and, if necessary, subsequent years) in an amount equal to such Partner's share of the net decrease in such Minimum Gain (determined in accordance with Treasury Regulation ss.ss.1.704-2(g)(2) and 1.704-2(i)(5)) to the minimum extent required by, and in the manner specified in, Treasury Regulation ss.ss.1.704-2(f) and 1.704-2(i)(4). (b) All Nonrecourse Deductions of the Partnership for any year, other than Nonrecourse Deductions attributable to Partner Nonrecourse Debt, shall be allocated in the same manner and proportions as are the Net Profits or Net Losses of the Partnership for such year. All Nonrecourse Deductions of the Partnership for any year attributable to Partner Nonrecourse Debt shall be allocated to the Partners who bear the Economic Risk of Loss with respect to the debt. 2.06 Overriding Allocations of Net Profits and Net Losses. Notwithstanding the provisions of Section 2.04 above, but subject to the provisions of Section 2.05 above, the following allocations of Net Profits and Net Losses and items thereof shall be made: (a) If, during any year a Partner receives any adjustment, allocation or distribution described in Treasury Regulation ss.1.704-1(b)(2)(ii)(d)(4), (5) or (6), and, as a result of such adjustment, allocation or distribution, such Partner's Capital Account has an Excess Negative Balance, then items of income for such year (and, if necessary, subsequent years) shall first be allocated to such Partner in an amount equal to such Partner's Excess Negative Balance. (b) In no event shall Net Losses of the Partnership be allocated to a Partner if such allocation would cause or increase an Excess Negative Balance in such Partner's Capital Account. (c) In the event that Net Profits, Net Losses or items thereof are allocated to one or more Partners pursuant to subsections (a) or (b) above, subsequent Net Profits and Losses will first be allocated (subject to the provisions of subsections (a) and (b)) to the Partners in a manner designed to result in each Partner having a Capital Account balance equal to what it would have been had the original allocation of Net Profits, Net Losses or items thereof pursuant to subsections (a) or (b) not occurred. -7- (d) Except as otherwise provided herein or as required by Code Section 704, for tax purposes, all items of income, gain, loss, deduction or credit shall be allocated to the Partners in the same manner as are Net Profits and Net Losses. (e) Allocation of items of income, gain, loss, deduction or credit attributable to interests owned by the Partnership in entities which are treated as partnerships for Federal income tax purposes shall be allocated in accordance with the provisions of Treasury Regulation ss.1.704-2(k). (f) The respective interests of the Partners in the net profits and net losses of the Partnership shall remain as set forth above unless changed by amendment to this Agreement or by a transfer of an interest in the Partnership authorized by the terms of this Agreement. (g) If Units are transferred by a Partner other than on the first day of the Partnership's fiscal year, as between transferor and transferee net profits and net losses for the year of transfer shall be allocated on the basis of the number of days in such year that each was the owner of the Unit(s) transferred without regard to the results of the Partnership's operations during the periods before and after such transfer. (h) In the event the Partnership shall, at any time, whether pursuant to the dissolution of the Partnership or otherwise, distribute any property in kind, the difference, if any, between the fair market value of such property and the value at which such property is carried on the books of the Partnership shall be credited (or charged) to the capital accounts of the Partners in accordance with the manner in which the Partners would have shared in the gain or loss from the sale of such property prior to such distribution. 2.07 Minimum Allocations to General Partners. Notwithstanding the other provisions of this Article II the General Partners shall receive at least 1% of each item of income, gain, loss, deduction or credit allocated to the Partners hereunder. ARTICLE III CASH DISTRIBUTIONS 3.01 Distribution of Cash. Cash available for distribution to Partners, shall, in amounts which shall be the sole discretion of the General Partners, be distributed within 90 days following the end of each fiscal quarter, subject to the prior payment of all Partnership fees and obligations as they become due (including, without limitation, the loans described in Section 4.03 and the expenses described in Section 4.09 hereof), pro rata to the Partners in proportion to the number of Units held by each of them. -8- ARTICLE IV MANAGEMENT 4.01 Management of the Partnership. (a) The overall management and control of the business and affairs of the Partnership shall be vested solely in the General Partners. Unless and until revoked by the holders of a majority of the Units of general partnership interest (such number is referred to herein as "a majority in interest of the General Partners"), George J. Carter shall be the Managing General Partner and, except as provided in Section 4.01(b) hereof, the Managing General Partner shall have the full, exclusive and complete discretion in the management and control of the business of the Partnership for the purposes herein stated and shall make all decisions affecting the business of the Partnership and shall exercise all of the powers, duties and responsibilities of the General Partners under this Agreement. A majority in interest of the General Partners may, at any time, revoke the Managing General Partner's authority to manage and control the affairs of the Partnership and designate another General Partner to be the Managing General Partner by giving notice to the Managing General Partner of such election to revoke and designate, whereupon the business of the Partnership will be managed and controlled by, the new Managing General Partner. No Person dealing with the Partnership shall be required to inquire (i) into the authority of any General Partner to take any action or to make any decision hereunder or (ii) as to whether any necessary consents of other Partners have been obtained. (b) Notwithstanding anything herein to the contrary, the following actions shall require the approval of a majority in interest of the General Partners: (i) the disposition of all or substantially all of the Partnership's interest in an Operating Company; (ii) the acquisition of an interest in an Operating Company; (iii) any amendment to this Agreement; (iv) the removal of a General Partner, with or without Cause; (v) the admission of an additional General Partner or additional Limited Partner; or (vi) the dissolution of the Partnership. 4.02 Authority of the General Partners. (a) Except as otherwise expressly provided in this Agreement, all decisions respecting any matter set forth herein or otherwise affecting or arising out of the conduct of the business of the Partnership shall be made by the General Partners and the General Partners shall have the exclusive right and full authority to manage, conduct and operate the Partnership's business. Specifically, but not by way of limitation, and subject to Section 4.01 and subsection (c) hereof, the General Partners shall be authorized in the name and on behalf of the Partnership: -9- (1) to borrow money and, as security therefor, to mortgage, pledge or otherwise encumber the assets of the Partnership; (2) to cause to be paid all amounts due and payable by the Partnership to any Person; (3) to employ such agents, employees, managers, accountants, attorneys, consultants and other Persons necessary or appropriate to carry out the business and affairs of the Partnership, whether or not any such Persons so employed are affiliated or related to any Partner, and to pay such fees, expenses, salaries, wages and other compensation to such Persons as any of them shall in his sole discretion determine; provided, however, that any Person employed by the Partnership which is affiliated with or related to' any Partner shall not be employed upon terms and conditions materially more favorable than the Partnership would obtain from an unrelated third party for similar service; (4) to pay, extend, renew, modify, adjust, submit to arbitration, prosecute, defend or compromise, upon such terms as any of them may determine and upon such evidence as any of them may deem sufficient, any obligation, suit, liability, cause of action or claim, including tax claims, either in favor of or against the Partnership; (5) to compromise the obligation of a Partner to make a contribution to the capital of the Partnership or to return to the Partnership money or other property paid or distributed to such Partner in violation of the Uniform Limited Partnership Act as enacted in the Commonwealth of Massachusetts; (6) to pay any and all fees and to make any and all expenditures which any of them, in his sole discretion, deems necessary or appropriate in connection with the organization of the Partnership, the offering and sale of limited partnership interests therein, the management of the affairs of the Partnership, and the carrying out of his obligations and responsibilities under this Agreement; (7) to exercise the rights and fulfill the obligations of the Partnership as an owner of an equity interest in any Operating Company, including without limitation the giving of any consent, approval or waiver and the taking of any actions permitted to be taken by the Partnership under the governing documents of an Operating Company; (8) to cause to be obtained and continued in force all policies of insurance which the General Partners deem reasonably necessary for the protection of the Partnership, from such insurer or insurers as the General Partners may, in their sole discretion, select; (9) to cause to be paid any and all taxes, charges and assessments that may be levied, assessed or imposed upon any of the assets of the Partnership, and, if they so determine, to contest any such taxes, charges or assessments; -10- (10) to serve as the tax matters partner for the Partnership, pursuant to Sections 6221-6233 of the Code; (11) to acquire interests in Operating Companies and to sell or otherwise dispose of or finance or refinance all or any portion of the Partnership's interest in an Operating Company; (12) to execute such documents as the General Partners deem necessary or advisable to reflect the Partnership's ownership of its interest in an Operating Company as may be required; (13) to make all applicable elections under the Code; (14) to exercise all powers and authority granted to general partners pursuant to the Partnership Act; and (15) to enter into any other agreements on behalf of the Partnership regardless of whether they extend beyond the term of the Partnership. (b) With respect to all of their obligations, powers and responsibilities under this Agreement, the General Partners are, and each of them is, authorized to execute and deliver, for and on behalf of the Partnership, such notes and other evidences of indebtedness, contracts, agreements, assignments, deeds, leases, loan agreements, mortgages and other security instruments and agreements as any of them deems proper, all on such terms and conditions as any of them deems proper. (c) Notwithstanding anything to the contrary herein contained, the General Partners shall have no authority to, and they covenant and agree that they will not, (i) commingle the Partnership's funds with funds of any other natural person, partnership, corporation, association or other legal entity; (ii) do any act in contravention of this Agreement or the Certificate of Limited Partnership of the Partnership which would make it impossible to carry on the ordinary business of the Partnership; or (iii) possess any Partnership property or assign the right of the Partnership in specific Partnership property for other than a Partnership purpose. In no event shall the General Partners enter into any loan, lease or other obligation, whether or not set forth above, that shall provide or purport to provide for the personal liability of any Limited Partner or Class B Limited Partner thereunder. (d) The Managing General Partner shall be the "tax matters partner" of the Partnership for Federal income tax purposes. Pursuant to Section 6223(c)(3) of the Code, upon receipt of notice from the Internal Revenue Service ("IRS") of the beginning of an administrative proceeding with respect to the Partnership, the Managing General Partner, as the tax matters partner, agrees to furnish the Internal Revenue Service with the names, addresses and profits interests of each of the Limited Partners and Class B Limited Partners. The Managing General Partner agrees not to enter into a settlement agreement pursuant to Section 6224 of the Code without providing at least 30 days' advance written notice to each Limited Partner of the terms of the settlement. If the Partnership receives from the IRS a Final Partnership Administrative Adjustment pursuant to Code Section 6223, and if it is determined to seek judicial review of such -11- IRS action pursuant to Code Section 6226, then the tax matters partner shall select the judicial forum for such review. The tax matters partner shall receive no compensation for his services. All third party costs and expenses incurred by the tax matters partner in performing his duties as such shall be borne by the Partnership. Nothing herein shall be construed to restrict the Partnership from engaging an accounting firm, law firm, or any other advisor to assist the tax matters partner in discharging his duties hereunder. The Partnership hereby indemnifies and holds harmless the Managing General Partner from and against any claim, loss, liability action or damage resulting from his action or his failure to take any action as the "tax matters partner, provided that any such action or failure to act was not willful. (e) The General Partners shall at all times use their best efforts to meet all requirements of the Code and currently applicable regulations, rulings and revenue procedures of the IRS and to meet any further requirements set by Congress, the IRS, any agency of the federal government or the courts to assure that the Partnership will be classified for Federal income tax purposes as a partnership and not as an association taxable as a corporation. 4.03 Loans by General Partners to the Partnership. To the extent the Partnership does not have available to it from other sources sufficient funds to enable the Partnership to meet its costs, expenses, obligations, liabilities and charges, or to make any expenditure authorized by this Agreement, the General Partners shall advance such funds to the Partnership, up to a maximum aggregate amount outstanding at any time of $1,000,000. Notwithstanding the provisions of Section 4.01(a), the foregoing obligation to advance funds shall be the joint and several obligation of the General Partners. All amounts so advanced shall take the form of a loan and shall bear interest at a rate equal to the "prime rate" announced from time to time by Fleet Bank, N.A., or any successor bank thereto, plus two percent (2%). Such loans will be repaid prior to any other distributions to the Partners. 4.04 Services of the General Partners. During the existence of the Partnership, the General Partners shall devote such time and effort to the Partnership business as may be necessary to promote adequately the interests of the Partnership and the mutual interests of the Partners; however, it is specifically understood and agreed that the General Partners shall not be required to devote full time to Partnership business, and the General Partners may at any time and from time to time engage in and possess interests in other business ventures of any and every type and description, including, without limitation, the ownership, operation, financing, and management of real estate, independently or with others, and neither the Partnership nor any Partner shall by virtue of this Agreement have any right, title or interest in or to such independent ventures. 4.05 Liability of the General Partners; Indemnification. (a) The General Partners shall not be personally liable for the return of the capital contributions of the Limited Partners or Class B Limited Partners, it being expressly understood that any return of capital shall be made solely from the assets of the Partnership; nor shall the General Partners be required to pay to the Partnership or to any Limited Partner or Class B Limited Partner any capital deficits upon dissolution or otherwise. The General Partners shall -12- not be liable, responsible or accountable in damages or otherwise to the Partnership or any of the Partners for any act or omission performed or omitted by any of them in good faith and in a manner reasonably believed by such General Partner to be within the scope of authority granted by this Agreement and in the best interests of the Partnership if such General Partner shall not have been guilty of gross negligence or willful misconduct with respect to such acts or omissions. (b) The Partnership shall save harmless and indemnify each General Partner (which term shall for the purposes of this Section 4.05 include employees, agents, partners, officers and directors of a General Partner) to the fullest extent permitted by law against any cost, expense (including attorneys' fees), loss, damage, judgment or liability reasonably incurred by or imposed upon him or it in connection with any action, claim, suit or proceeding (including any proceeding before any administrative or legislative body or agency) to which he may be made a party or otherwise involved or with which he shall be threatened by reason of being a General Partner or by reason of having served, at the request of the Partnership, as a director, trustee or officer of a corporation or other business entity or partner of a partnership in which the Partnership owns or owned an interest or of which the Partnership is or was a creditor (whether or not he continues to be a General Partner or an officer, director or trustee of such corporation or other business entity or partner of a partnership at the time such action, claim, suit or proceeding is brought or threatened). No indemnification shall be provided hereunder with respect to matters as to which the Person seeking indemnification shall have been finally adjudicated in any such action, suit or proceeding not to have acted in good faith in the reasonable belief that his action was in or not inconsistent with the best interests of the Partnership. The foregoing right of indemnification shall be in addition to any rights to which the General Partners may otherwise be entitled and shall inure to the benefit of the successors, assigns, executors or administrators of each General Partner. The Partnership may, but shall not be required to, pay the expenses incurred by any Person indemnified hereunder in defending a civil or criminal action, suit or proceeding in advance of the final disposition of such action, suit or proceeding, upon receipt of an undertaking by such indemnified person to repay such payment if there shall be an adjudication or determination that he is not entitled to indemnification as provided herein, which undertaking may be accepted without reference to the financial ability of such person to make repayment. (c) The General Partners may cause the Partnership to purchase and maintain, at the expense of the Partnership, insurance on behalf of any General Partner, an officer, director or stockholder of any corporate General Partner, a partner in any General Partner which is itself a partnership or any agent appointed by any General Partner, which shall insure such parties against any liability asserted against all or any of them in any such capacity or arising out of their status as such. (d) All judgments against the Partnership and the General Partners, wherein the General Partners are entitled to indemnification, must first be satisfied from Partnership assets before any General Partner is responsible for these obligations. 4.06 Limitations on Limited Partners. Neither any Limited Partner nor any Class B Limited Partner in its capacity as such shall: (a) be permitted to take part in the control of the business or affairs of the Partnership; (b) have any voice in the management or operation of any -13- Partnership property; or (c) have the authority or power in his capacity as a Limited Partner or Class B Limited Partner to act as agent for or on behalf of the Partnership or any other Partner, to do any act which would be binding on the Partnership or any other Partner, or to incur any expenditures on behalf of or with respect to the Partnership. 4.07 Liability of Limited Partners. So long as he complies with the provisions of Section 4.06, the liability of each Limited Partner and Class B Limited Partner for the losses, debts and obligations of the Partnership shall be limited to his capital contribution and his share of any undistributed net profits; provided, however, that under applicable partnership law, a Limited Partner or Class B Limited Partner may be liable to the Partnership to the extent of previous distributions made to him in the event that the Partnership does not have sufficient assets to discharge its liabilities. 4.08 Evidence of General Partner Authority. (a) Every contract, deed, mortgage, lease and other instrument executed by a General Partner shall be conclusive evidence in favor of every Person relying thereon or claiming thereunder that at the time of the delivery thereof: (1) the Partnership was in existence, (2) this Agreement had not been terminated or cancelled or amended in any manner so as to restrict such authority (except as shown in certificates or other instruments duly filed in the office of the Secretary of State of the Commonwealth of Massachusetts), and (3) the execution and delivery of such instruments were duly authorized by the General Partners. (b) Any Person dealing with the Partnership or a General Partner may rely on a certificate signed by any General Partner hereunder: (1) as to who are the General Partners, Limited Partners and Class B Limited Partners hereunder; (2) as to the existence or nonexistence of any fact or facts which constitute conditions precedent to acts by the General Partners or in any other manner germane to the affairs of the Partnership; (3) as to who is authorized to execute and deliver any instrument or document of the Partnership; (4) as to the authenticity of any copy of this Agreement and amendments hereto; or (5) as to any act or failure to act by the Partnership or as to any other matter whatsoever involving the Partnership or any Partner. -14- 4.09 Certain Expenses. All out-of-pocket expenses incurred by each General Partner in connection with the Partnership's organization, formation or business shall be paid by the Partnership or reimbursed to each General Partner by the Partnership. 4.10 Meetings. (a) A meeting of the Partners for the purpose of acting upon any matter upon which the Limited Partners are entitled to vote may be called by the General Partners at any time and shall be called by the General Partners no more than 15 days after receipt of a written request for such a meeting signed by that number of Limited Partners owning an aggregate number of Units of limited partnership interest which are equal to or greater than 25% of the aggregate number of Units of limited partnership interest owned by all Limited Partners (such number of Limited Partners is referred to herein as "25% in interest of the Limited Partners"). The General Partners shall give written notice of any such meeting to all Limited Partners, and such meeting shall be held no more than 60 days after the General Partners send such notice to the Limited Partners. (b) At any meeting of Limited Partners the presence in person of that number of Limited Partners whose aggregate number of Units are equal to or greater than a majority of the aggregate number of Units of limited partnership interest (such number of Limited Partners is referred to herein as "a majority in interest of Limited Partners") shall be necessary to constitute a quorum for the transaction of business. If such quorum is not present on the date for which the meeting is called within one-half hour after the time fixed for the holding of such meeting, the meeting shall be adjourned to be held not earlier than ten days and not later than 21 days thereafter. Notice shall be given promptly to all Limited Partners of the time and place of the adjourned meeting. Any business may be transacted at the adjourned meeting which might properly have been transacted at the original meeting. A General Partner shall serve as chairman at any such meeting and shall establish rules of procedure for such meeting. (c) The General Partners may, and, no more than 15 days after receipt of a written request signed by 25% in interest of the Limited Partners, the General Partners shall, submit any matter upon which the Limited Partners are entitled to vote to the Limited Partners for a vote by written consent without a meeting. Such written consents shall be treated for all purposes as votes at a meeting. (d) Subject to the provisions of Section 4.11(b), any action which may be taken at a meeting in accordance with this Section 4.10 may be taken by the General Partners with the prior written consent of a majority in interest of the Limited Partners. 4.11 Rights of Limited Partners. (a) A majority in interest of the Limited Partners, with the consent of the General Partners may amend this Agreement subject to the limitations that such amendment (A) shall not in any manner allow the Limited Partners or Class B Limited Partners to take part in the control of the Partnership's business or otherwise modify their limited liability, (B) shall not, without the consent of the General Partner affected, alter the rights, powers and duties of such General Partner as set forth in Articles IV and V, the capital contribution of such General Partner -15- as set forth in Section 2.01, the interest of such General Partner in net profits and net losses as set forth in Section 2.04 (except as the interest of the General Partners may be altered as a group), the interest of such General Partner in distributions of cash as set forth in Article III or the interest of such General Partner in distributions upon liquidation as set forth in Section 7.02 (except as the interest of the General Partners may be altered as a group), or the obligation of the Partnership to purchase the interest of the General Partner as set forth in Section 4.12(c), (C) shall not alter any Limited Partner's share of profits, losses, or distributions, except as the share of the Limited Partners may be altered as a group and shall not alter any Class B Limited Partner's share of profits, losses or distributions without the consent of such Class B Limited Partner, and (D) shall not alter the limitations set forth in clauses (A), (B) and (C). (b) The voting rights of the Limited Partners set forth in this Section 4.11 shall not be effective and any votes taken pursuant thereto shall be void ab initio if prior to or within 15 days after such vote either (i) the Partnership has received an opinion of counsel that such action may not be effective without subjecting the Limited Partners to liability as general partners under Massachusetts law or the law of any other jurisdiction in which the Partnership owns property and is doing business or (ii) a court of competent jurisdiction shall have entered a final judgment to the foregoing effect. 4.12 Withdrawal, Removal and Resignation of a General Partner. (a) Except as otherwise provided in this Section 4.12, a General Partner shall not retire or withdraw from the Partnership and shall not transfer, sell, alienate, assign or otherwise dispose of all or any part of its interest as a General Partner, whether voluntarily, involuntarily, by operation of law, at judicial sale or otherwise. (b) A General Partner who (i) voluntarily withdraws as a General Partner from the Partnership prior to January 1, 2000 or (ii) is required to withdraw for Cause (as defined below) by vote of a majority in interest of the General Partners, shall relinquish his interest as a General Partner in the Partnership immediately upon such withdrawal, and such interest shall thereupon be converted to the interest of a Limited Partner in the Partnership and shall be allocated among the Limited Partners, pro rata in accordance with their respective ownership of Units. (c) Any General Partner who (i) voluntarily withdraws as a General Partner in the Partnership on or after January 1, 2000, (ii) dies, (iii) is adjudicated incompetent by a court of competent jurisdiction, (iv) becomes bankrupt (which shall mean the occurrence of one of the events specified in Sections 23(4) and (5) of the Partnership Act in effect on the date hereof or (v) is required to withdraw without Cause by a vote of a majority in interest of the General Partners, shall sell, and the Partnership shall purchase, such General Partner's interest in the Partnership for a price equal to the fair market value of such interest. The effective date of the sale shall be the date on which the event specified in clauses (i) through (v) of this Section 4.12(c) occurs, and on such date the General Partner's interest in the Partnership shall be converted to that of a Limited Partner and shall be allocated among the remaining Partners, pro rata in accordance with their respective interests in cash available for distribution as set forth in Article III hereof. The purchase price for such General Partner's interest shall be paid by the Partnership within 30 days of the date of determination of the fair market value of such General -16- Partner's interest by, at the election of the remaining General Partners, either (A) payment m cash of the full amount of such purchase price or (B) delivery of a promissory note in the principal amount of such purchase price, payable in three equal consecutive annual installments commencing on the first anniversary of the effective date of the sale. Such promissory note shall bear interest at the "prime rate" charged from time to time by Fleet Bank, N.A., or any successor bank thereto, plus 2%, payable annually on the date that the principal payment for such year is due and payable. Such fair market value shall be determined by agreement of such withdrawing General Partner and the remaining General Partners. If they are unable to reach agreement within 30 days of the effective date of the sale, such fair market value shall be determined by two independent appraisers, one selected by the withdrawing General Partner and one by the remaining General Partners. If such appraisers are unable to agree on the value of the former General Partner's interest in the Partnership, they shall jointly appoint a third independent appraiser whose determination shall be final and binding. The cost of the appraisal shall be borne equally by the withdrawing General Partner and the Partnership. (d) For purposes of this Section 4.12, "Cause" shall mean (i) dishonesty or intentional misconduct by the General Partner in connection with the performance by him of his duties as a General Partner or as an employee of an Operating Company, (ii) the material failure by a General Partner to perform his duties and obligations under this Agreement or as an employee of an Operating Company, (iii) conduct by a General Partner of a criminal nature which has an adverse impact on the Partnership or an Operating Company, (iv) conduct by a General Partner which is a material breach of such General Partner's fiduciary duties to the Partnership and the other Partners or (v) fraudulent conduct by a General Partner in connection with the business affairs of the Partnership or an Operating Company. (e) Notwithstanding anything to the contrary in this Agreement, the General Partners may unanimously contribute their interests in the Partnership to a limited liability company, partnership or similar entity, which shall thereupon be admitted as the General Partner of the Partnership, and such contribution shall not constitute a withdrawal for purposes of Sections 4.12(b) or 4.12(c). 4.13 Successor and Additional General Partners. (a) Any Person may, without the consent of the Limited Partners or Class B Limited Partners but with the consent of a majority in interest of the General Partners, be admitted as an additional or successor General Partner, to the extent permitted by law, upon his agreeing to be bound by the provisions of this Agreement to the same extent and on the same terms and conditions as the General Partners then serving as such. Any such additional or successor General Partner shall, as a condition of receiving any interest in the Partnership, also agree to be bound by the Massachusetts Uniform Limited Partnership Act and any agreements, contracts, leases, instruments or other documents theretofore executed and delivered on behalf of the Partnership to the same extent and on the same terms and conditions as the General Partners then serving as such. Each Limited Partner and Class B Limited Partner by agreeing to become such and by his execution of a counterpart of the signature page of this Agreement hereby consents to the admission of any such Person as a successor or additional General Partner on the terms and conditions set forth above. -17- (b) Notwithstanding the withdrawal of a General Partner, and in addition to his other obligations herein contained, such General Partner shall remain liable for payment of all debts, obligations, liabilities and commitments of the Partnership incurred while he was a General Partner, to the extent (i) the Partnership does not have funds available for such payment and (ii) such debts, obligations, liabilities and commitments of the Partnership provide for the personal liability of such General Partner or of the Partnership thereunder. 4.14 Additional Limited Partners. With the consent of a majority in interest of the General Partners, additional Limited Partners or additional limited partners of a new class of limited partnership interest may be admitted as partners of the Partnership. ARTICLE V BOOKS, RECORDS AND BANK ACCOUNTS 5.01 Books and Records. The General Partners shall keep just and true books of account with respect to the operations of the Partnership. Such books shall reflect, to the extent applicable, that the limited partnership interests have not been registered under the Securities Act of 1933, as amended (the "Act") and that the interests may not be sold or transferred without registration under the Act or exemption therefrom or without compliance with Section 6.01 of this Agreement. Such books shall be maintained at the principal place of business of the Partnership, or at such other place as the General Partners shall determine, and all Partners, and their duly authorized representatives, shall at all reasonable times have access to such books. 5.02 Accounting Basis and Fiscal Year. The Partnership's books of account shall be kept on the tax basis accrual method of accounting, or on such other method of accounting as the General Partners may from time to time determine, and shall be dosed and balanced at the end of each Partnership year. The same method of accounting shall be used for both Partnership accounting and tax purposes. The fiscal year of the Partnership shall be the calendar year. 5.03 Reports. Until the Units of limited partnership interest shall have been registered under the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), within 90 days after the end of each fiscal year, the General Partners shall cause to be prepared and sent to each Person who was a Limited Partner or Class B Limited Partner at any time during the fiscal year then ended a financial report of the Partnership, including a balance sheet and a profit and loss statement, and, if such profit and loss statement is not prepared on a cash basis, a cash flow or Source and application of funds statement. Within 90 days after the end of each fiscal year, the General Partners shall furnish each Limited Partner and Class B Limited Partner with such information as may be needed to enable such Limited Partner or Class B Limited Partner to file his Federal income tax return and any required state income tax return. The cost of all such reporting shall be paid by the Partnership as a Partnership expense. Until the Units shall have been registered under the Exchange Act, any Partner may, at any time, at his own expense, cause an audit of the Partnership books to be made by a certified public accountant of his own selection. 5.04 Bank Accounts. The General Partners shall be responsible for causing one or more accounts to be maintained in a bank or banks which is a member of the Federal Deposit -18- Insurance Corporation, which accounts shall be used for the payment of the expenditures incurred by the General Partners in connection with the business of the Partnership, and in which shall be deposited any and all cash receipts. All such amounts shall be and remain the property of the Partnership, and shall be received, held and disbursed by the General Partners for the purposes specified in this Agreement. There shall not be deposited in any of said accounts any funds other than funds belonging to the Partnership, and no other funds shall in any way be commingled with such funds. ARTICLE VI ASSIGNABILITY OF INTEREST OF LIMITED PARTNERS 6.01 Assignment of a Limited Partner's Interest. A Limited Partner may not sell, transfer, assign, pledge, or otherwise dispose of or encumber all or any part of his or its economic interest in the Partnership whether voluntarily, involuntarily or by operation of law) unless all of the following conditions shall have been satisfied: (a) unless the Units of limited partnership interest shall have been listed for trading on a national stock exchange, the General Partners shall have previously consented to such assignment in writing, the granting or denying of which consent shall be in the General Partners' absolute discretion (except that the General Partners' consent shall not be required for assignment or transfers occurring pursuant to the death, incompetency or dissolution of a Limited Partner); (b) no such assignment shall be made if, in the opinion of counsel to the Partnership, such assignment may not be effected without registration under the Act, would cause the Partnership to become subject to the Investment Company Act of 1940, as amended or would result in the violation of any applicable state securities laws; (c) the Partnership shall not be required to recognize any such assignment until the instrument conveying such interest has been delivered to the General Partners for recordation on the books of the Partnership; (d) unless an assignee becomes a Substituted Limited Partner in accordance with the provisions set forth below, he shall not be entitled to any of the rights granted to a Limited Partner hereunder, other than the right (unless prohibited by Section 6.01(b) hereof) to receive all or part of the share of the net profits, net losses, cash distributions or returns of capital to which his assignor would otherwise be entitled; and (e) the assignee pays to the Partnership all costs and expenses incurred in connection with such assignment, including Specifically, without limitation, fees and expenses of counsel to the Partnership. 6.02 Substituted Limited Partner. An assignee of the interest of a Limited Partner or any portion thereof shall become a Substituted Limited Partner entitled to all the rights of a Limited Partner if, and only if: (a) the assignor gives the assignee such right; -19- (b) the General Partners consent to such substitution, the granting or denying of which consent shall be in the General Partners' absolute discretion; (c) the assignee pays to the Partnership all costs and expenses incurred in connection with such substitution; and (d) the assignee executes and delivers such instruments in form and substance satisfactory to the General Partners, as the General Partners may deem necessary or desirable to effect such substitution and to confirm the agreement of the assignee to be bound by all of the terms and provisions of this Agreement. 6.03 Other Restrictions on Assignment. The Partnership and the General Partners shall be entitled to treat the record owner of any Partnership interest as the absolute owner thereof in all respects, and shall incur no liability for distributions of cash or other property made in good faith to such owner until such time as a written assignment of such interest has been received and accepted by the General Partners and recorded on the books of the Partnership. The General Partners may refuse to accept an assignment until the first day of the next successive quarterly accounting period. In no event shall any Partnership interest, or any portion thereof, be sold, transferred or assigned to a minor or incompetent, and any such attempted sale, transfer or assignment shall be void and ineffectual and shall not bind the Partnership or the General Partners. ARTICLE VII DISSOLUTION AND TERMINATION 7.01 Events of Dissolution. (a) The Partnership shall be dissolved: (i) on a date designated by the General Partners; and (ii) upon the occurrence of an event of withdrawal (as defined in the Partnership Act) with respect to a General Partner. (b) Notwithstanding the occurrence of an event specified in Section 7.01(a)(ii), the Partnership shall not be dissolved and its business and affairs shall not be discontinued, and the Partnership shall remain in existence as a limited partnership under the laws of the Commonwealth of Massachusetts if (i) one or more General Partners continue to serve as a General Partner; or (ii) if there be 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. Upon the occurrence of an event Specified in Section 7.01(a)(ii) with respect to a General Partner who is not the sole General Partner, the business of the Partnership shall be continued by the remaining General Partner(s) upon the same terms and conditions set forth in this Agreement, each remaining General Partner agrees to continue the Partnership on such terms and conditions, and each Limited Partner hereby agrees to such continuation. Upon the occurrence of an event specified in Section 7.01(a)(ii) if there is no remaining General Partner, any Limited Partner may obtain from the Partnership a list of all of the Limited Partners -20- and their addresses and a meeting may be called and held in accordance with Section 4.10 hereof to consider the continuation of the Partnership's business. If such election is made by a majority in interest of the Limited Partners, they shall also choose an additional General Partner. (c) Dissolution of the Partnership shall be effective on the day on which the event occurs giving rise to the dissolution but the Partnership shall not terminate until the Partnership's Certificate of Limited Partnership shall have been cancelled and the assets of the Partnership shall have been distributed as provided herein. Notwithstanding the dissolution of the Partnership, prior to the termination of the Partnership, as aforesaid, the business of the Partnership and the affairs of the Partners, as such, shall continue to be governed by this Agreement. Upon dissolution, the General Partners or, if there be none, a liquidator appointed by a majority in interest of the Limited Partners shall liquidate the assets of the Partnership, apply and distribute the proceeds thereof as contemplated by this Agreement and cause the cancellation of the Partnership's Certificate of Limited Partnership. (d) In the event the General Partners (or, where applicable, the liquidator) determine that it is necessary upon dissolution to make a distribution of any property of the Partnership in kind or if the General Partners shall determine to make a distribution in kind other than pursuant to dissolution, such property shall be transferred and conveyed on the basis of the fair market value thereof to the Partners or their assignees, so as to vest in each of them an undivided interest, as tenants-in-common, in the whole of such property, and the capital accounts of all Partners shall be adjusted to reflect any difference between such fair market value and the cost at which such property is carried on the books of the Partnership. 7.02 Distribution Upon Liquidation. (a) After payment of liabilities owing to creditors, the General Partners or liquidator shall set up such reserves as they or he deems reasonably necessary for any contingent or unforeseen liabilities or obligations of the Partnership. Said reserves may be paid over by the General Partners or liquidator to a bank, to be held in escrow for the purpose of paying any such contingent or unforeseen liabilities or obligations and, at the expiration of such period as the General Partners or liquidator may deem advisable, such reserves shall be distributed to the partners or their assigns in the manner set forth in subsection (b) below. (b) After paying such liabilities and providing for such reserves, the General Partners or liquidator shall cause the remaining net assets of the Partnership to be distributed to and among the Partners in proportion to and in satisfaction of the positive balances in their capital accounts. In the event that any part of such net assets consists of notes or accounts receivable or other non-cash assets, the General Partners or liquidator shall take whatever steps they or he deems appropriate to convert such assets into cash or into any other form which would facilitate the distribution thereof. -21- ARTICLE VIII MISCELLANEOUS 8.01 Notices. Any and all notices, elections or demands permitted or required to be made under this Agreement shall be in writing, signed by the Partner giving such notice, election or demand and shall be delivered personally, sent by registered or certified mail, return receipt requested or sent for overnight delivery by a nationally recognized overnight delivery service (except that routine notices required or permitted to be given by the General Partners or the Partnership may be sent by ordinary first-class mail), to the other Partner or Partners, at his or its address set forth herein, or at such other address as may be supplied by written notice given in conformity with the terms of this Section 8.01. The date of personal delivery or the date of mailing, as the case may be, shall be the date of such notice. 8.02 Successors and Assigns. Subject to the restrictions on transfer set forth herein, this Agreement, and each and every provision hereof, shall be binding upon and shall inure to the benefit of the Partners, their respective successors, successors-in-title, heirs and assigns, and each and every successor-in-interest to any Partner, whether such successor acquires such interest by way of gift, purchase, foreclosure, or by any other method, shall hold such interest subject to all of the terms and provisions of this Agreement. 8.03 Power of Attorney. Each Limited Partner and Class B Limited Partner, including any additional or substituted Limited Partner, by the execution of this Agreement or any counterpart thereof does hereby irrevocably constitute and appoint the Managing General Partner, with full power of substitution, his true and lawful agent and attorney-in-fact, with full power and authority in his name, place and stead, to make, execute, acknowledge, swear to, deliver, file and record such documents and instruments as may be necessary or appropriate to carry out the provisions of this Agreement, including, but not limited to, (a) copies of this Agreement and amendments hereto or restatements hereof adopted pursuant to the provisions hereof (including without limitation any such amendment adopted pursuant to the provisions of Section 8.04(a) or Section 8.04(b) and any such amendment required upon the admission of a substituted or additional Limited Partner or Class B Limited Partner, an additional limited partner of a different class or a successor or additional General Partner, the continuation of this Partnership, the formation of a successor limited partnership or the doing of any act requiring the amendment of this Agreement under the laws of the Commonwealth of Massachusetts, the applicable laws of any other jurisdiction in which the Managing General Partner deems such action to be necessary or desirable or by any regulatory agency and any such amendment relating to a successor limited partnership) and, upon termination of the Partnership (or its successor), a certificate or agreement of dissolution and termination, as and if the same may be required by the laws of the Commonwealth of Massachusetts, the applicable laws of any other jurisdiction in which the Managing General Partner deems said filing to be necessary or desirable or by any regulatory agency, (b) any amendments to the Certificate of Limited Partnership or restatements thereof adopted pursuant to the provisions hereof (including without limitation any such amendment required upon the continuation of the Partnership, the formation of a successor limited partnership or the doing of any act requiring the amendment of this Agreement under the laws of the Commonwealth of Massachusetts, the applicable laws of any other jurisdiction in which the Managing General Partner deems said filing to be necessary or desirable, the rules and -22- regulations of any regulatory agency and any such amendment relating to a successor limited partnership), (c) any certificate of fictitious name, if required by law, (d) such other certificates or instruments as may be required under the law of the Commonwealth of Massachusetts or any other jurisdiction, or by any regulatory agency, as the Managing General Partner may deem necessary or advisable, and (e) all such other instruments as the Managing General Partner may deem necessary or advisable in accordance with the terms hereof; provided, however, that none of the foregoing acts shall increase the liability of any Limited Partner or Class B Limited Partner beyond that expressly set forth in this Agreement. The power of attorney granted in this Section 8.03 is a special power of attorney coupled with an interest and is irrevocable, shall survive the death or incompetency of a Limited Partner or Class B Limited Partner, may be exercised by the attorney-in-fact by his signature on behalf of all Limited Partners and all Class B Limited Partners, and shall survive the delivery of an assignment by a Limited Partner or Class B Limited Partner of the whole or any portion of his economic interest, except that where the assignee of any such interest has been approved, pursuant to the provisions of Section 6.02, for admission to the Partnership as a substitute Limited Partner, the power of attorney shall survive the delivery of such assignment solely for the purpose of enabling the attorney-in-fact to execute, acknowledge and file any instrument necessary to effect such substitution. 8.04 Amendments. (a) In addition to any amendments otherwise authorized herein, amendments may be made to this Agreement and the Partnership's Certificate of Limited Partnership from time to time in any of the following manners: (i) Subject to the limitations set forth in Section 4.12(a)(i)(A) (B), (C) and (D), by the General Partners, without the consent or approval of the Limited Partners or the Class B Limited Partners (x) to add to the duties or obligations of the General Partners or surrender any right or power granted to the General Partners herein; (y) to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein or to make any other provisions with respect to matters or questions arising under this Agreement which will not be inconsistent with the provisions of this Agreement; and (z) in any manner that they deem necessary or appropriate, in their sole discretion, in connection with establishing or taking steps to establish, a public market for the Units; provided, however, that no amendment shall be adopted pursuant to this Section 8.04(a)(i) unless the adoption thereof (1) does not affect the method of allocation of cash distributions provided in Article III or the method of allocation of net profits or net losses provided in Section 2.04 among the Limited Partners or Class B Limited Partners, respectively, or among the Limited Partners, Class B Limited Partners and the General Partners, except that any such amendment may reduce the percentage thereof allocated to the General Partners; and (2) does -23- not affect the limited liability of the Limited Partners or Class B Limited Partners contemplated by Section 4.07 of this Agreement or the status of the Partnership as a partnership for Federal income tax purposes. (ii) By a writing duly executed by the General Partners and a majority in interest of the Limited Partners in accordance with Section 4.11. (iii) The General Partners may amend this Agreement in any respect not otherwise provided for in Sections 8.04(a)(i), 8.04(a)(ii) and 8.04(b), subject to the limitations set forth in Section 4.12(a)(i)(A), (B), (C) and (D), in accordance with the procedures set forth in this Section 8.04(a)(iii). Not less than thirty (30) days prior to the effective date of such proposed amendment, the General Partners shall send notice in writing to each Limited Partner setting forth a verbatim statement of the proposed amendment and a statement that on the proposed effective date this Agreement will be amended as proposed unless, prior to such date, Limited Partners then owning twenty percent (20%) or more of the Units of limited partnership interest send to the General Partners written notice stating that they object to such proposed amendment. Unless such objections are received prior to the proposed effective date, on or after the effective date the General Partners shall execute the proposed amendment on behalf of all Partners. If such objections are received prior to the proposed effective date, then such proposed amendment shall not become effective without the vote or written consent of a majority in interest of the Limited Partners. (b) In addition to any amendments otherwise authorized herein, amendments may be made to this Agreement from time to time by the General Partners, without the consent or approval of the Limited Partners or the Class B Limited Partners, to amend appropriate provisions of this Agreement if the Partnership is advised at any time by its legal counsel that the allocations of profits and losses provided in Section 2.04 hereof are unlikely to be respected for Federal income tax purposes, because of either the promulgation and adoption of further Treasury regulations under Code Section 704 or other developments in applicable law. In making any such amendment, the General Partners shall use their best efforts to effect as little change in the economic and tax arrangements among the Partners as they shall determine in their sole discretion to be necessary to provide for allocations of profits and losses which they believe will be respected for Federal income tax purposes. Any amendments made by the General Partners pursuant to this Section 8.04(b) shall be deemed to be made pursuant to the fiduciary obligations of the General Partners to the Partnership and the Limited Partners and Class B Limited Partners and no such amendment shall give rise to any claim or cause of action by any Limited Partners or Class B Limited Partners. 8.05 Partition. The Partners hereby agree that no Partner, nor any successor-in-interest to any Partner, shall have the right while this Agreement remains in effect to have the property of the Partnership partitioned, or to file a complaint or institute any proceeding at law or in equity to -24- have the property of the Partnership partitioned, and each Partner, on behalf of himself, his successors, representatives, heirs, and assigns, hereby waives any such right. It is the intention of the Partners that during the term of this Agreement, the rights of the Partners and their successors-in-interest, as among themselves shall be governed by the terms of this Agreement, and that the right of any Partner or successor-in-interest to assign, transfer, sell or otherwise dispose of his interest in the Partnership's property shall be subject to the limitations and restrictions of this Agreement. 8.06 No Waiver. The failure of any Partner to insist upon strict performance of a covenant hereunder or of any obligations hereunder, irrespective of the length of time for which such failure continues, shall not be a waiver of such Partner's right to demand strict compliance in the future. No consent or waiver, express or implied, to or of any breach or default in the performance of any obligation hereunder shall constitute a consent or waiver to or of any other breach or default in the performance of the same or any other obligation hereunder. 8.07 Entire Agreement. This Agreement constitutes the full and complete agreement of the parties hereto with respect to the subject matter hereof and supersedes any prior understandings, inducements or conditions, expressed or implied, written or oral, among them respecting the subject matter contained herein. There are no representations, agreements, arrangements or understandings, oral or written, between and among the parties hereto relating to the subject matter of this Agreement which are not fully expressed herein. The express terms hereof control and supersede any course of performance or usage of the trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended, except as provided in Section 4.11(a) and Section 8.04, other than by an agreement in writing executed by and on behalf of the party sought to be bound by such modification or amendment. 8.08 Captions. Titles or captions of Articles or Sections contained in this Agreement are inserted only as a matter of convenience and for reference, and in no way define, limit, extend or describe the scope of this Agreement or the intent of any provision hereof. 8.09 Counterparts. This Agreement may be executed in any number of counterparts, and by the different parties hereto on separate counterparts, each of which shall be deemed an original and all of which shall constitute one and the same instrument, and in pleading or proving any provisions of this Agreement it shall not be necessary to produce more than one such counterpart. This Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of all of the parties reflected hereon as the signatories. 8.10 Applicable Law. This Agreement and the rights and obligations of the parties hereunder shall be governed by and interpreted, construed and enforced in accordance with the laws of the Commonwealth of Massachusetts and the Partnership Act. In the event of any conflict between any provisions of this Agreement and any non-mandatory provision of the Partnership Act, the provisions of this Agreement shall control and take precedence. It is agreed that the parties hereto intend to continue a limited partnership hereby, but in the event that the General Partners shall fail to comply substantially with the requirements for the continuation of a limited partnership under the laws of the Commonwealth of Massachusetts, the Partnership shall -25- be administered pursuant to the provisions of the Partnership Act as if it were a limited partnership. 8.11 Gender Etc. In the case of all terms used in this Agreement, the singular shall include the plural and the masculine gender shall include the feminine and neuter, and vice versa, as the context requires. 8.12 General Partners. References herein to the General Partner shall refer collectively to all of the General Partners or if there be at the time only one General Partner to such General Partner. As used herein, the term "General Partner" or "General Partners" shall mean the party named as such in this Agreement and any successor or additional General Partners that may properly be added from time to time pursuant to the terms of this Agreement. 8.13 Status of Successor Trustees as Partners. Any successor trustee or trustees of any trust as a Partner of the Partnership shall be entitled to exercise the same rights and privileges and be subject to the same duties and obligations as his predecessor trustee. As used in this Agreement, the term "trustee" shall include any and all such successor trustees. 8.14 Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law; but if any such provision of this Agreement or the application thereof to any party or circumstance shall be prohibited by or be invalid under applicable law, such provision shall be ineffective only to the minimal extent of such prohibition or invalidity without invalidating the remainder of such provisions or the remaining provisions of this Agreement or the application of such provisions to other parties or circumstances. 8.15 Number of Days. In computing the number of days for purposes of this Agreement, all days shall be counted, including Saturdays, Sundays or holidays in the Commonwealth of Massachusetts; provided, however, that if the final day of any time period falls on a Saturday, Sunday or holiday in the Commonwealth of Massachusetts, then the final day shall be deemed to be the next day which is not a Saturday, Sunday or such a holiday. 8.16 Further Assurances. In addition to the documents and instruments to be delivered as herein provided, each Limited Partner and Class B Limited Partner shall, from time to time at the request of any General Partner, execute and deliver such instruments and shall take such other action as may be required to carry out more effectively the terms of this Agreement. 8.17 Schedules. Schedules I, II and III hereto shall be incorporated into and shall be deemed a part of this Agreement. If either such Schedule shall not be attached hereto at the time of execution of this Agreement, or if either such Schedule shall be incomplete, such Schedule may be later attached or completed in accordance with the provisions of this Agreement and such Schedule shall, as later attached or completed, for all purposes be deemed a part of this Agreement as if attached hereto or completed at the time of the execution hereof. Without limiting the generality of the foregoing, Schedule II shall be amended from time to time to reflect the admission of Limited Partners. -26- IN WITNESS WHEREOF, the Partners have executed this Agreement as of the first day of January, 2000. GENERAL PARTNERS LIMITED PARTNERS: THOSE PERSONS LISTED ON SCHEDULE II HERETO George J. Carter /s/ George J. Carter /s/ George J. Carter - ---------------------------------- ------------------------------------------ By: George J. Carter, George J. Carter their Attorney-in-Fact R. Scott MacPhee /s/ R. Scott MacPhee - ---------------------------------- CLASS B LIMITED PARTNERS Richard R. Norris Scott H. Carter /s/ Richard R. Norris /s/ Scott H. Carter - ---------------------------------- ------------------------------------------ William W. Gribbell Jeffrey B. Carter /s/ William W. Gribbell /s/ Jeffrey B. Carter - ---------------------------------- ------------------------------------------ -27- EX-4.2 5 0005.txt AMENDED & RESTATED LTD. PARTNERSHIP AGREEMENT Exhibit 4.2 FRANKLIN STREET PARTNERS LIMITED PARTNERSHIP FIRST AMENDMENT TO THIRD AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT This First Amendment to the Third Amended and Restated Limited Partnership Agreement, dated as of January 1, 2000 (the "Partnership Agreement") of Franklin Street Partners Limited Partnership, a Massachusetts limited liability partnership (the "Partnership"), is made as of January 1, 2000 by and among George J. Carter, R. Scott MacPhee, Richard R. Norris and William W. Gribbell (collectively, the "Withdrawing General Partners"), FSP General Partner LLC, a Massachusetts limited liability company ("FSP LLC"), Scott H. Carter and Jeffrey B. Carter as limited partners (the "Class B Limited Partners") and those Persons listed on Schedule II to the Partnership Agreement as limited partners (the "Limited Partners"). Capitalized terms used herein and otherwise defined shall have the respective meanings ascribed to them in the Partnership Agreement. WHEREAS, the Partnership was formed as a limited partnership pursuant to an Agreement of Limited Partnership dated as of January 24, 1997, as amended to date in the form of the Partnership Agreement, and a Certificate of Limited Partnership dated as of February 4, 1997, filed with the Office of the Secretary of State of the Commonwealth of Massachusetts on February 4, 1997; WHEREAS, Section 4.12(e) of the Partnership Agreement provides that the Withdrawing General Partners may unanimously contribute their interests in the Partnership to a limited liability company, which shall thereupon be admitted as the General Partner of the Partnership; WHEREAS, the Withdrawing General Partners have contributed their general partner interests in the Partnership to FSP LLC, effective as of the date hereof; and WHEREAS, the parties hereto wish to provide for the admission of FSP LLC as a General Partner in substitution for the Withdrawing General Partners. NOW, THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, it is hereby agreed that the Partnership Agreement is amended as follows: -1- 1. In accordance with the provisions of Section 4.12(e) of the Partnership Agreement, FSP LLC is hereby admitted as the sole General Partner of the Partnership. 2. References in the Partnership Agreement to the "General Partners", "a majority in interest of the General Partners" and the "Managing General Partner" shall henceforward refer to FSP LLC. 3. The words "Schedule I" in the first sentence of the Partnership Agreement are hereby amended to read "Schedule II". P Except as specifically amended hereby, the Partnership Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed this First Amendment as of January 1, 2000. WITHDRAWING GENERAL SUCCESSOR GENERAL PARTNER: PARTNERS: /s/ George J. Carter - ----------------------------- FSP GENERAL PARTNER LLC George J. Carter By: /s/ George J. Carter ------------------------------------------ George J. Carter, Managing Member /s/ R. Scott MacPhee - ----------------------------- R. Scott MacPhee /s/ Richard R. Norris - ----------------------------- CLASS B LIMITED PARTNERS Richard R. Norris AND LIMITED PARTNERS: /s/ William W. Gribbell By: /s/ George J. Carter - ----------------------------- ------------------------------------------ William W. Gribbell George J. Carter, their attorney-in-fact -2- EX-4.3 6 0006.txt AMENDED & RESTATED LTD. PARTNERSHIP AGREEMENT Exhibit 4.3 FRANKLIN STREET PARTNERS LIMITED PARTNERSHIP SECOND AMENDMENT TO THIRD AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT This Second Amendment to the Third Amended and Restated Limited Partnership Agreement, dated as of January 1, 2000 (the "Partnership Agreement") of Franklin Street Partners Limited Partnership, a Massachusetts limited liability partnership (the "Partnership"), is made as of June 26, 2000 by and among FSP General Partner LLC, a Massachusetts limited liability company ("FSP LLC"), Scott H. Carter and Jeffrey B. Carter as limited partners (the "Class B Limited Partners") and those Persons listed on Schedule II to the Partnership Agreement as limited partners (the "Limited Partners"). Capitalized terms used herein and otherwise defined shall have the respective meanings ascribed to them in the Partnership Agreement. WHEREAS, the Partnership was formed as a limited partnership pursuant to an Agreement of Limited Partnership dated as of January 24, 1997, as amended to date in the form of the Partnership Agreement, and a Certificate of Limited Partnership dated as of February 4, 1997, filed with the Office of the Secretary of State of the Commonwealth of Massachusetts on February 4, 1997; WHEREAS, Section 8.04 of the Partnership Agreement provides that the General Partner and a majority in interest of the Limited Partners may amend the Partnership Agreement; and; WHEREAS, a majority in interest of the Limited Partners have consented to the adoption of this Second Amendment. NOW, THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, it is hereby agreed that the Partnership Agreement is amended as follows: A new Section 6.04 in the form attached hereto as Appendix A is hereby added to the Partnership Agreement. Except as specifically amended hereby, the Partnership Agreement shall remain in full force and effect. -1- IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment as of June 26, 2000. GENERAL PARTNER: FSP GENERAL PARTNER LLC By: /s/ George J. Carter -------------------------------------------- George J. Carter, Managing Member CLASS B LIMITED PARTNERS AND LIMITED PARTNERS: By: /s/ George J. Carter -------------------------------------------- George J. Carter, their attorney-in-fact -2- EX-21 7 0007.txt SUBSIDIARIES FRANKLIN ST PARTNERS LTD PARTNERSHIP Subsidiaries of Franklin Street Partners Limited Partnership Name Jurisdiction of Organization - ---- ---------------------------- FSP Investments LLC Massachusetts FSP Property Management LLC Massachusetts FSP Holdings LLC Delaware Essex Lane Associates Limited Partnership Massachusetts FSP Apartment Properties Limited Partnership Massachusetts FSP Austin N.W. Limited Partnership Massachusetts FSP Blue Ravine Limited Partnership Massachusetts FSP Bollman Place Limited Partnership Massachusetts FSP Gateway Crossing Limited Partnership Massachusetts FSP Hillview Center Limited Partnership Massachusetts FSP Lyberty Way Limited Partnership Massachusetts FSP North Andover Office Park Limited Partnership Massachusetts FSP Park Seneca Limited Partnership Massachusetts FSP Piedmont Center Limited Partnership Massachusetts FSP Santa Clara Limited Partnership Massachusetts FSP Silverside Plantation Limited Partnership Massachusetts FSP Southfield Centre Limited Partnership Massachusetts FSP Telecom Business Center Limited Partnership Massachusetts FSP Weslayan Oaks Limited Partnership Massachusetts One Technology Drive Limited Partnership Massachusetts -----END PRIVACY-ENHANCED MESSAGE-----