First Amendment, dated as of October 18, 2017, to Credit Agreement, dated November 30, 2016, among Franklin Street Properties Corp., JPMorgan Chase Bank, N.A., and the other parties thereto

Exhibit 10.3

FIRST AMENDMENT TO CREDIT AGREEMENT

This FIRST AMENDMENT TO CREDIT AGREEMENT (this “First Amendment”) is made and entered into as of the 18th day of October, 2017, by and among FRANKLIN STREET PROPERTIES CORP. (the “Borrower”), JPMORGAN CHASE BANK, N.A. (“JPM”) in its capacity as Lender, CITIZENS BANK, N. A. (“Citizens”) in its capacity as Lender, Joint Bookrunner, Joint Lead Arranger, and Syndication Agent, BANK OF MONTREAL (“BMO”) in its capacity as Lender, Joint Bookrunner, Joint Lead Arranger and Syndication Agent, and JPMORGAN CHASE BANK, N.A. in its capacity as Administrative Agent (the “Administrative Agent”) for itself and the other lenders party to the Credit Agreement from time to time.  Capitalized terms used herein and not otherwise defined shall have the meanings assigned to such terms in the Credit Agreement.

WHEREAS, the Borrower, the Administrative Agent and Lenders are parties to that certain Credit Agreement, dated as of November 30, 2016 (the “Original Credit Agreement”), pursuant to which the Lenders party to the Original Credit Agreement have extended credit to the Borrowers on the terms set forth therein;

WHEREAS, the parties hereto are entering into this First Amendment to make certain amendments to the Original Credit Agreement.  The Original Credit Agreement as amended by this First Amendment is referred to herein as the “Credit Agreement”.

NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1.                                      Definition of Affiliate.  Section 1.01 of the Credit Agreement is hereby amended by deleting the definition of “Affiliate” appearing therein and replacing it with the following definition:

““Affiliate” means, at any time, and with respect to any Person, any other Person that at such time directly or indirectly through one or more intermediaries Controls, or is Controlled by, or is under common Control with, such first Person.  In no event shall Administrative Agent or any Lender be deemed to be an Affiliate of the Borrower.  Unless the context otherwise clearly requires, any reference to an “Affiliate” is a reference to an Affiliate of the Borrower, and Sponsored REITS shall not be considered Affiliates of the Borrower.”

2.                                      Definition of “Audited Financial Statements.” Section 1.01 of the Credit Agreement is hereby amended by deleting the year “2013” appearing in the definition of “Audited Financial Statements” and replacing it with the year “2016.”

3.                                      Definition of “Capitalization Rate”.  Section 1.01 of the Credit Agreement is hereby amended by deleting the definition of “Capitalization Rate” appearing therein and replacing it with the following definition:

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““Capitalization Rate” means six and three-quarters percent (6.75%) for each CBD or Urban Infill Property and seven and one-half percent (7.50%) for each Suburban Property.”

4.                                      Definition of “Commitment”.  Section 1.01 of the Agreement is hereby amended by deleting the definition of “Commitment” appearing therein and replacing it with the following definition:

““Commitment” means, as to each Lender, its obligation to make a Loan to the Borrower pursuant to Section 2.01, in an aggregate principal amount equal to the amount set forth opposite such Lender’s name on Schedule 2.01, as such Schedule 2.01 may be updated from time to time pursuant to an Assignment and Assumption.”

5.                                      Definition of “EBITDA”.  Section 1.01 of the Credit Agreement is hereby amended by deleting the definition of “EBITDA” appearing therein and replacing it with the following definition:

““EBITDA” means for the Consolidated Parties, for the most recently ended fiscal quarter of Borrower, without duplication, the sum of (a) net income of the Consolidated Parties, in each case, excluding any non recurring or extraordinary gains and losses and Hedge Ineffectiveness for such period (but including syndication fees), plus (b) an amount which, in the determination of net income for such period pursuant to clause (a) above, has been deducted for or in connection with (i) Interest Expense (plus, amortization of deferred financing costs, to the extent included in the determination of Interest Expense per GAAP), (ii) income taxes, and (iii) depreciation and amortization, all determined in accordance with GAAP for the prior quarter plus (c) the Consolidated Parties’ Equity Percentage of the above attributable to Unconsolidated Affiliates.”

6.                                      Definition of “Eurodollar Rate”.  Section 1.01 of the  Credit Agreement is hereby amended by deleting the definition of “Eurodollar Rate” in its entirety and replacing it with the following definition:

““Eurodollar Rate” means for any Interest Period with respect to a Eurodollar Rate Loan, the Adjusted LIBO Rate.  If the Eurodollar Rate for any applicable Interest Period shall be less than zero, such rate shall be deemed zero for purposes of this Agreement; provided that this floor of zero for any applicable Interest Period shall not be applied to any Loan with respect to which the Borrower has entered into a corresponding Swap Contract for the amount of such Loan so long as the Borrower has notified the Administrative Agent of such Swap Contract at least five (5) Business Days prior to such applicable Interest Period.  The Eurodollar Rate for each outstanding Eurodollar Rate Loan shall be adjusted automatically as of the effective date of any change in the Statutory Reserve Rate.”

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7.                                      Definition of “Responsible Officer”.  Section 1.01 of the Credit Agreement is hereby amended by adding the words “, assistant treasurer” after the words “chief financial officer” in clause (d) of the definition of “Responsible Officer”.

8.                                      Definition of “Total Asset Value”.  Section 1.01 of the Credit Agreement is hereby amended by deleting the definition of “Total Asset Value” appearing therein and replacing it with the following definition:

““Total Asset Value” means, without duplication, for the most recently ended fiscal quarter of Borrower, with respect to the Consolidated Parties on a consolidated basis, the sum of (a) the quotient of annualized NOI for such fiscal quarter minus the aggregate amount of NOI attributable to each Property sold or otherwise disposed of during such fiscal quarter minus the aggregate amount of NOI attributable to each Property acquired during the last four fiscal quarters, divided by the Capitalization Rate plus (b) the acquisition cost of each Property acquired during such prior four fiscal quarters, plus (c) unrestricted cash and Cash Equivalents, plus (d) the book value of unimproved land holdings, plus (e) the book value of construction in progress, plus (f) the carrying value of performing mortgage loans to Sponsored REITs, plus (g) the carrying value of preferred stock investments in Sponsored REITs as shown on Borrower’s financial statements.

Notwithstanding the foregoing, for purposes of determining Total Asset Value, to the extent the aggregate of Investments in Projects under Development, undeveloped land holdings, Joint Venture Projects and Joint Ventures, Securities Holdings and Mortgages to non-affiliates (excluding Mortgages to Sponsored REITS) would exceed 10% of Total Asset Value, such aggregate excess shall be excluded.”

9.                                      Section 1.01 of the Credit Agreement is hereby amended by adding the following new definition in the proper alphabetical order thereto:

“Leverage Increase Period” shall have the meaning set forth in Section 7.11(b) hereof.

10.                               Section 5.11.  Section 5.11 of the Credit Agreement is hereby amended by deleting the last sentence in Section 5.11 and replacing it with the following:

“Neither the Borrower nor any Subsidiary is party to any agreement the principal purpose of which is to share tax liabilities.”

11.                               Section 7.11.  Section 7.11 of the Credit Agreement is hereby amended by deleting Section 7.11 appearing therein and replacing it with the following Section 7.11:

“7.11      Financial Covenants.  Fail, at any time, to comply with any of the following financial covenants on a consolidated basis provided that such covenants shall be calculated as of the last day of a calendar quarter:

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(a)                                 Minimum Tangible Net Worth.  Borrower shall maintain a Tangible Net Worth equal to or in excess of $661,752,000 plus seventy-five percent (75%) of the aggregate net proceeds received by Borrower in connection with any offering of stock or other equity in the Borrower after October 18, 2017.

(b)                                 Maximum Leverage Ratio.  Borrower shall not permit the ratio of Total Indebtedness to Total Asset Value to exceed 0.60:1.0, to be increased at the election of the Borrower a maximum of two times during the term of the Loans, provided that no Leverage Increase Period (hereinafter defined) shall be consecutive) to 0.65 to 1.0 commencing on the date on which a Significant Acquisition occurs and continuing for the succeeding three full fiscal quarters thereafter (each, a “Leverage Increase Period”).

(c)                                  Maximum Secured Leverage Ratio.  Borrower shall not permit the ratio of Total Secured Indebtedness (excluding the Credit Extensions) to Total Asset Value to exceed 0.30:1.0.

(d)                                 Minimum Fixed Charge Coverage Ratio.  Borrower shall not permit the ratio of Adjusted EBITDA to Fixed Charges to be less than 1.50:1.0.

(e)                                  Maximum Unencumbered Leverage Ratio.  Borrower shall not permit the ratio of Unsecured Indebtedness to Unencumbered Asset Value to exceed 0.60:1.0, to be increased at the election of the Borrower a maximum of two times during the term of the Loans, provided that no Leverage Increase Period shall be consecutive, to 0.65 to 1.0 commencing on the date on which a Significant Acquisition occurs and continuing for the succeeding three full fiscal quarters thereafter.

(f)                                   Minimum Unsecured Interest Coverage.  Borrower shall not permit the ratio of Unencumbered NOI to the Interest Expense from the Eligible Unencumbered Property Pool to be less than 1.75:1.0.  For the purpose of calculating NOI for this covenant 7.11(f), items (a)-(d) of the definition of Net Operating Income shall be adjusted to (i) exclude the amount attributable to the Properties disposed of during such fiscal quarter and (ii) adjust the amount attributable to Properties owned less than a full fiscal quarter so that such amount is grossed up as if the Property had been owned for the entire fiscal quarter.

(g)                                  Dividends and Distributions.  To the extent an Event of Default exists or would result therefrom, Borrower shall not make Restricted Payments and no Subsidiary shall make any Restricted Payments to any Person other than Borrower or a Subsidiary of Borrower.

In calculating the financial covenants pursuant to this Section 7.11, any obligations that are secured by Cash Collateral by Borrower shall not be deemed

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to be secured by a mortgage, deed of trust, lien, pledge, encumbrance or other security agreement.”

12.                               Exhibit E.  Exhibit E of the Credit Agreement is hereby deleted and the Exhibit E attached hereto is substituted therefor.

13.                               Schedule 10.02.  Schedule 10.02 of the Credit Agreement is hereby deleted and the Schedule 10.02 attached hereto is substituted therefor.

14.                               No Waiver.  Nothing contained herein shall be deemed to (i) constitute a waiver of any Default or Event of Default that may heretofore or hereafter occur or have occurred and be continuing or, except as expressly provided herein, to otherwise modify any provision of the Original Credit Agreement, or (ii) give rise to any defenses or counterclaims to Administrative Agent’s or any of the Lenders right to compel payment of the Obligations when due or to otherwise enforce their respective rights and remedies under the Credit Agreement and the other Loan Documents.

15.                               Conditions to Effectiveness.  This First Amendment shall become effective as of the date (the “Effective Date”) when each of the following conditions is met:

(a)         receipt by the Administrative Agent of this First Amendment duly and properly authorized, executed and delivered by each of the Borrower and the Lenders signatory hereto;

(b)         receipt by the Administrative Agent of a certificate dated as of the date hereof signed by a Responsible Officer of Borrower certifying that, before and after giving effect to the First Amendment, (I) the representations and warranties contained in Article V of the Credit Agreement are true and correct in all material respects except (i) to the extent that such representations and warranties specifically refer to an earlier date, in which case they shall be true and correct as of such earlier date, and (ii) that (1) the representations and warranties contained in subsections (a), (b) and (c) of Section 5.05 shall be deemed to refer to the most recent statements furnished pursuant to clauses (a) and (b), respectively, of Section 6.01; and (2) the representations and warranties contained in Section 5.13(a) shall be deemed to refer to the most recent update to Schedule 5.13(a) furnished pursuant to Section 6.02(a)(ii), and shall be true and correct in all material respects as of the effective date of such update, and (3) the  representations and warranties contained in the first and second sentences of Section 5.21 shall be deemed to refer to the most recent update to Schedule 5.21 furnished pursuant to Section 6.02(a)(i), and shall be true and correct in all material respects as of the effective date of such update, and (II) no Default or Event of Default exists;

(c)          payment of any costs and expenses due to the Administrative Agent or the Lenders, including all of the Administrative Agent’s reasonable legal fees and

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expenses incurred in connection with the preparation and negotiation of this First Amendment; and

(d)         amendments to the Bank of America Credit Agreement and the Bank of Montreal Loan Agreement to accommodate this First Amendment and otherwise as agreed to by the parties to such loan facilities to close contemporaneously with this First Amendment.

16.                               Representations and Warranties.  The Borrower represents and warrants to the Administrative Agent and the Lenders as follows:

(a)           The execution, delivery and performance by Borrower of this First Amendment, has been duly authorized by all necessary corporate or other organizational action, and do not and will not (a) contravene the terms of any of Borrower’s Organization Documents; (b) conflict with or result in any breach or contravention of, or the creation of any Lien under, or require any payment to be made under (i) any Contractual Obligation to which Borrower is a party or affecting Borrower or the properties of Borrower or any of its Subsidiaries or (ii) any order, injunction, writ or decree of any Governmental Authority or any arbitral award to which Borrower or its property is subject; or (c) violate any Law.

(b)           This First Amendment has been duly executed and delivered by Borrower. This First Amendment constitutes a legal, valid and binding obligation of Borrower, enforceable against Borrower in accordance with its terms, except as enforceability is limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting generally the enforcement of creditors’ rights and except to the extent that availability of the remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding therefor may be brought.

(c)           No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority or any other Person is necessary or required in connection with the execution and delivery of, and the performance of the Borrower’s obligations under the Credit Agreement as amended by this First Amendment, except where such approval, consent, exemption, authorization, action, notice or filing has been obtained or made, and except where the failure to do so would not reasonably be expected to have a Material Adverse Effect.

(d)           There has not occurred since December 31, 2016 any event or condition that has had or would be reasonably expected, either individually or in the aggregate, to have a Material Adverse Effect, as determined by Administrative Agent.

17.                               Ratification, etc.  Except as expressly amended hereby, the Original Credit Agreement, the other Loan Documents and all documents, instruments and agreements related thereto are hereby ratified and confirmed in all respects and

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shall continue in full force and effect.  This First Amendment and the Credit Agreement shall hereafter be read and construed together as a single document, and all references in the Credit Agreement, any other Loan Document or any agreement or instrument related to the Credit Agreement shall hereafter refer to the Credit Agreement as amended by this First Amendment.

18.                               GOVERNING LAW.  THIS FIRST AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

19.                               Counterparts.  This First Amendment may be executed in any number of counterparts and by different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which counterparts taken together shall be deemed to constitute one and the same instrument.  Any counterpart signed by all parties may be introduced into evidence in any action or proceeding without having to produce or account for the other counterparts.  Likewise, the existence of this First Amendment may be established by the introduction into evidence of counterparts that are separately signed, provided they are otherwise identical in all material respects.

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IN WITNESS WHEREOF, each of the undersigned has duly executed this First Amendment to Credit Agreement as of the date first set forth above.

ADMINISTRATIVE AGENT:

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[Signature Page to Amendment No. 1 to Credit Agreement — Franklin Street Properties Corp.]

LENDERS:

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[Signature Page to Amendment No. 1 to Credit Agreement — Franklin Street Properties Corp.]

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[Signature Page to Amendment No. 1 to Credit Agreement — Franklin Street Properties Corp.]

BORROWER:

[Signature Page to Amendment No. 1 to Credit Agreement — Franklin Street Properties Corp.]

EXHIBIT E

FORM OF COMPLIANCE CERTIFICATE

Financial Statement Date:                           ,         

To:          JPMorgan Chase Bank, N.A., as Administrative Agent

Ladies and Gentlemen:

Reference is made to that certain Credit Agreement, dated as of November 30, 2016 (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the “Agreement;” the terms defined therein being used herein as therein defined), among Franklin Street Properties Corp. (the “Borrower”), the Lenders from time to time party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent.

The undersigned Responsible Officer hereby certifies as of the date hereof that he/she is the                                         of Borrower, and that, as such, he/she is authorized to execute and deliver this Certificate to the Administrative Agent on the behalf of the Borrower, and that:

[Use following paragraph 1 for fiscal year-end financial statements]

1.             The Borrower has delivered the year-end audited financial statements required by Section 6.01(a) of the Agreement for the fiscal year of the Borrower ended as of the above date, together with the report and opinion of an independent certified public accountant required by such section.

[Use following paragraph 1 for fiscal quarter-end financial statements]

1.             The Borrower has delivered the unaudited financial statements required by Section 6.01(b) of the Agreement for the fiscal quarter of the Borrower ended as of the above date.  Such financial statements fairly present, in all material respects, the financial condition, results of operations and cash flows of the Consolidated Parties in accordance with GAAP as at such date and for such period, subject only to normal year-end audit adjustments and the absence of footnotes.

2.             The undersigned has reviewed and is familiar with the terms of the Agreement and has made, or has caused to be made under his/her supervision, a detailed review of the transactions and condition (financial or otherwise) of the Borrower during the accounting period covered by such financial statements.

3.             A review of the activities of the Borrower during such fiscal period has been made under the supervision of the undersigned with a view to determining whether during such fiscal period the Borrower performed and observed all its Obligations under the Loan Documents, and

[select one:

]

[to the knowledge of the undersigned, during such fiscal period no Default or Event of Default has occurred and is continuing.]

—or—

[to the knowledge of the undersigned, during such fiscal period the following Defaults and Events of Default exist:(1)]

(1)  Specify nature and extent thereof and what action Borrower proposes to take with respect thereto.

4.             The representations and warranties of the Borrower contained in Article V of the Agreement are true and correct in all material respects on and as of the date hereof, except (a) to the extent that such representations and warranties specifically refer to an earlier date, in which case they are true and correct as of such earlier date, and (b) except that (i) the representations and warranties contained in subsections (a), (b) and (c) of Section 5.05 refer to the most recent statements furnished pursuant to clauses (a) and (b), respectively, of Section 6.01; and (ii) the representations and warranties contained in Section 5.13(a) refer to the most recent update to Schedule 5.13(a) furnished pursuant to Section 6.02(a)(ii), and are true and correct in all material respects as of the effective date of such update, and (iii) the representations and warranties contained in the first and second sentences of Section 5.21 refer to the most recent update to Schedule 5.21 furnished pursuant to Section 6.02(a)(i), and are true and correct in all material respects as of the effective date of such update.

5.             The financial covenant analyses and information set forth on Schedule 1 attached hereto are true and accurate in all material respects as of the Financial Statement Date covered by this Certificate.

6.             The updates to Schedules 5.21 and 5.13(a) attached hereto and the list of all Projects Under Development attached hereto are true and accurate on and as of the Financial Statement Date covered by this Certificate.

IN WITNESS WHEREOF, the undersigned has executed this Certificate as of                ,      .

SCHEDULE 1

Franklin Street Properties Corp.
Financial Covenants

          [Date]

(in thousands, except percentages and ratios)

1.  Maximum Leverage Ratio

(2) to the extent the aggregate of Investments in Projects under Development, undeveloped land holdings, Joint Venture Projects and Joint Ventures, Securities Holdings and Mortgages to non-affiliates (excluding Mortgages to Sponsored REITS) would exceed 10% of Total Asset Value, such aggregate excess shall be excluded.

3. Minimum Fixed Charge Cover Ratio

4. Maximum Unencumbered Leverage Ratio

5. Minimum Unsecured Interest Coverage

(3)  Total Assets and Total Liabilities shall also exclude an asset or liability created by Hedge Ineffectiveness and the Swap Termination Value.

Franklin Street Properties Corp.
Financial Covenants

        [Date]

Schedule A

Unencumbered Asset Value

(4)  6.75% for CBD or Urban Infill Property/7.5% for Suburban Property

Schedule B        

Encumbered Asset Value

(5)  6.75% for CBD or Urban Infill Property/7.5% for Suburban Property

Franklin Street Properties Corp.
Consolidated Statement of Income

(Audited/Unaudited)

                  [Date]

Franklin Street Properties Corp.
Financial Covenants

Quarterly Debt Service
                  [Date]

Interest Expense

Franklin Street Properties Corp.
Property NOI
                  [Date]

(6)  6.75% for CBD or Urban Infill Property/7.5% for Suburban Property

Franklin Street Properties Corp.
Management Fee Calculation(7)
                  [Date]

(7)  To be adjusted as appropriate to determine management fees for the quarter.

SCHEDULE 10.02

ADMINISTRATIVE AGENT’S OFFICE;

CERTAIN ADDRESSES FOR NOTICES

[Administrative Agent address on following page(s)]