SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
[Amendment No. ___________]
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary proxy statement
/ / Confidential, for use of the Commission only (as permitted by
Rule 14a-6(e)(2))
/ / Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Sec. 240.14a-11(c) or Sec. 240.14a-12
Washington Real Estate Investment Trust
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) or Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- - --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
- - --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing
fee is calculated and state how it was determined):
- - --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- - --------------------------------------------------------------------------------
(5) Total fee paid:
- - --------------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount previously paid:
- - --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- - --------------------------------------------------------------------------------
(3) Filing party:
- - --------------------------------------------------------------------------------
(4) Date filed: April 12, 1996
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<PAGE>
WASHINGTON REAL ESTATE INVESTMENT TRUST
10400 Connecticut Avenue
Kensington, Maryland 20895
April 22, 1996
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders
of the Washington Real Estate Investment Trust to be held on June 20, 1996. The
formal Notice of the meeting and a Proxy Statement describing the proposals to
be voted on are enclosed.
The meeting is being held to elect two Trustees; to vote upon a
proposal to change the Trust's jurisdiction of organization from the District of
Columbia to Maryland by merging the Trust with and into a newly-formed Maryland
real estate investment trust that will survive the merger under the name
"Washington Real Estate Investment Trust"; to vote upon a proposal to amend the
Trust's Employee Stock Option Plan; and to transact such other business as may
properly come before the meeting.
The Trust proposes to change its jurisdiction of organization from the
District of Columbia to Maryland. This change is intended to permit the Trust to
obtain the benefit of several favorable provisions of Maryland law not available
under the laws of the District of Columbia. These provisions of Maryland law are
described in the attached proxy statement. Although the change of jurisdiction
of organization is accomplished by a merger, it will not have any effect on the
continued existence of the Trust, will not require any exchange of shares by
investors and will not have any tax consequences to investors.
Please read the Proxy Statement, then complete, sign and return your
proxy in the enclosed envelope. Regardless of the number of shares you own, your
vote is important.
Sincerely,
Arthur A. Birney
Chairman of the Board
<PAGE>
WASHINGTON REAL ESTATE INVESTMENT TRUST
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
The Annual Meeting of the Shareholders (the "Annual Meeting") of the
Washington Real Estate Investment Trust (the "Trust") will be held in the
Mayflower Hotel Grand Ball Room, 1127 Connecticut Avenue, N.W., Washington,
D.C., on June 20, 1996 at 11:00 a.m., for the following purposes:
1. To elect two Trustees;
2. To vote upon a proposal to change the Trust's jurisdiction of
organization from the District of Columbia to Maryland by
merging the Trust with and into a newly-formed Maryland real
estate investment trust that will survive the merger under the
name "Washington Real Estate Investment Trust";
3. To vote upon a proposal to amend the Trust's Employee Stock
Option Plan; and
4. To transact such other business as may properly come before
the meeting.
The Trustees have fixed the close of business on April 19, 1996 as the
record date for shares entitled to vote at the Annual Meeting.
The Annual Report of the Trust, Proxy Statement and a Proxy are
enclosed with this Notice.
You are requested, if you cannot be present at the meeting, to sign and
return the Proxy in the enclosed business reply envelope promptly.
BENJAMIN H. DORSEY
Secretary
April 22, 1996.
<PAGE>
WASHINGTON REAL ESTATE INVESTMENT TRUST
10400 Connecticut Avenue
Kensington, Maryland 20895
PROXY STATEMENT
This Proxy Statement is furnished by the Trust's Board of Trustees (the
"Board") in connection with its solicitation of proxies for use at the Annual
Meeting of Shareholders on June 20, 1996, and at any and all adjournments
thereof. Mailing of this Proxy Statement will commence on or about April 26,
1996. All proxies will be voted in accordance with the instructions contained
therein, and if no choice is specified, the proxies will be voted in favor of
the proposals set forth in the Notice of Annual Meeting. Abstentions are voted
neither "for" nor "against", but are counted in the determination of a quorum. A
Proxy on the enclosed form may be revoked by the shareholder at any time prior
to its exercise at the meeting by submitting, to the Secretary of the Trust, a
duly executed Proxy bearing a later date or by attending the Annual Meeting and
orally withdrawing the Proxy.
The voting securities of the Trust consist of shares of beneficial
interest, no par value ("Shares"), of which 31,751,734 Shares were issued and
outstanding at the close of business on March 31, 1996. So far as is known to
the Trust, no person holds of record or beneficially as much as 5% of the
outstanding Shares. The Trust has no other class of voting security. Each Share
outstanding on April 19, 1996, will be entitled to one vote. Shareholders do not
have cumulative voting rights.
I.
THE BOARD OF TRUSTEES AND MANAGEMENT
The Board of Trustees
The Board consists of seven Trustees divided into two classes of two
Trustees each and one class of three Trustees. The terms of the Trustees
continue until the Annual Meetings to be held in 1996, 1997 and 1998,
respectively, and until their respective successors are elected and qualified.
At each Annual Meeting, two or three Trustees are elected, subject to the
limitations described below, for a term of three years to succeed those Trustees
whose terms expire at such Annual Meeting. The Trust's By-Laws provide that no
Trustee shall be nominated or elected as a Trustee after such person's 72nd
birthday. The By-Laws further provide that any Trustee who is first elected a
Trustee after December 19, 1995 shall tender his resignation as a Trustee on his
72nd birthday.
The Board held 19 meetings in 1995. The Board has no standing
nominating committee; however, the Trustees meet as a committee of the whole to
consider such matters. The Trustees met once in 1995 for this purpose. The
Trustees will consider recommendations for nominations for Trustee received from
shareholders provided that the shareholder submits such recommendation in
writing before April 15, 1997 accompanied by a written statement setting forth
the reasons the Trust would benefit from the election of such nominee. An Audit
Committee, consisting of Messrs. Cafritz and Osnos was formed on April 11, 1995.
The Audit Committee meets at least quarterly with the President and Chief
Executive Officer, Chief Financial Officer and Chief Accounting Officer to
review
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operating results and other matters. The Audit Committee also makes
recommendations to the Board regarding dividend declarations and receives
reports from and participates in discussions with the Trust's independent
auditors, at least annually. The Audit Committee met 3 times in 1995. A
Compensation Committee, composed of Messrs. Cronin, Snyder and Cafritz, is
responsible for making recommendations to the Board with respect to compensation
decisions. The Compensation Committee met three times during 1995. See "Report
on Executive Compensation" below. All members of the Board attended more than
75% of the total number of meetings held during 1995.
The five non-officer Trustees of the Trust, Messrs. Birney, Cafritz,
Kahn, Osnos and Snyder, were compensated in the form of fees. This amount for
each such Trustee was $33,000 for 1995, except Mr. Kahn who was compensated as
an officer until June 21, 1995. Mr. Kahn's non-officer Trustee fees totaled
$16,500 in 1995. Mr. Birney, who acted as the recording secretary, received
additional remuneration for such services of $9,500. During 1995 the Trust
utilized the legal services of the law firm of Arent Fox Kintner Plotkin & Kahn
and advisory services of the accounting firm of Snyder, Kamerow & Associates,
P.C. Trustee David M. Osnos is a senior partner of Arent Fox and Trustee Stanley
P. Snyder is Chairman of Snyder, Kamerow. The amount of fees paid to Arent Fox
and Snyder, Kamerow did not exceed 5% of either firm's 1995 gross revenues or 5%
of the Trust's 1995 gross revenues.
The following table sets forth the names and certain biographical
information concerning each of the current Trustees.
<TABLE>
<CAPTION>
Served as Term
Name Principal Occupation(*) Trustee Since Age Expires
- - ---- ----------------------- ------------- --- -------
<S> <C> <C> <C> <C>
William N. Cafritz ........ President, William Cafritz 1984 70 1996
Development Corp. (real
estate development)
Stanley P. Snyder ......... Chairman, Snyder, Kamerow & 1968 61 1996
Associates, P.C. (Certified
Public Accountants)
Arthur A. Birney .......... Chairman of the Trustees 1961 68 1997
Managing Partner and Chief Executive
Officer, Washington Brick & Terra
Cotta Co.(Real Estate Holding and
Development Company); Managing
Partner, Queenstown Harbor Golf
Links LP
B. Franklin Kahn ........... Chairman Emeritus 1960 71 1997
Edmund B. Cronin, Jr ....... President and Chief Executive 1994 59 1998
Officer
Benjamin H. Dorsey.......... Secretary of the Trust 1960 72 1998
Retired General Counsel
David M. Osnos ............. Senior partner, Arent Fox Kintner 1987 64 1998
Plotkin & Kahn (Legal counsel
to the Trust);Director, VSE
Corporation (engineering);
Director, EastGroup Properties
(real estate investment trust)
<FN>
(*) Each person has held the indicated position for more than the past five
years except Messrs. Birney, Cronin, Dorsey and Kahn.
</FN>
</TABLE>
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Mr. Arthur A. Birney, a founding Trustee, is Managing Partner and Chief
Executive Officer of Washington Brick & Terra Cotta Co., a real estate
investment and holding company founded in 1892, President of Port Annapolis
Marina, Inc. and Managing Partner of Queenstown Harbor Golf Links L.P.
Mr. Edmund B. Cronin, Jr. has 35 years of real estate investment,
development, operations and finance experience in the Washington, D.C.
metropolitan market. From 1977 to 1993, he served as Chairman and Chief
Executive Officer of Smithy Braedon, a full service commercial real estate firm
providing leasing, sales, asset management, finance, consulting, advisory and
development services. From 1993 until joining the Trust in June 1994, Mr. Cronin
was Chief Executive Officer of H.G. Smithy Company, a real estate management and
advisory service company whose debt and equity assets under management total
approximately $1.5 billion.
Mr. Benjamin H. Dorsey retired as General Counsel of the Trust as of
December 31, 1995. Mr. Dorsey had served as Secretary and General Counsel of the
Trust since 1960. Mr. Dorsey continues to serve as Secretary and as a Trustee.
Mr. B. Franklin Kahn retired as Chairman of the Trustees and Chief
Executive Officer of the Trust effective March 9, 1995, a position he had held
since 1960. The Trustees elected Arthur A. Birney as Chairman of the Trustees
and Edmund B. Cronin, Jr. as Chief Executive Officer of the Trust. Mr. Kahn
continues to serve as a Trustee.
Other Executive Officers
The following table contains information regarding other executive
officers of the Trust. Such officers are elected annually by the Board and serve
at the Board's discretion.
<TABLE>
<CAPTION>
Name Age Position
- - ------------------ --- ------------------------
<S> <C> <C>
Mary Beth Avedesian 35 Vice President--Investments
Larry E. Finger 42 Senior Vice President--Chief Financial Officer
Brian J. Fitzgerald 34 Vice President--Leasing Division Manager
Laura M. Franklin 35 Vice President--Chief Accounting Officer
Sandra T. Hunt 44 Vice President--Leasing
Thomas L. Regnell 39 Vice President--Acquisitions
</TABLE>
Ms. Mary Beth Avedesian joined the Trust as Vice President--Investments
in March 1995. Ms. Avedesian was an Assistant Vice President for Towle Financial
Services from 1993-1995, where she performed acquisition due diligence and asset
management. Before Towle, Ms. Avedesian was employed for 2 years as an Assistant
Manager and Marketing Manager for AMRESCO, a subsidiary of NationsBank formed to
dispose of bank-owned property; and for 4 years with Himmel and Company as a
Financial Analyst and Development Coordinator.
Mr. Larry E. Finger, an attorney and CPA, joined the Trust as Vice
President and Chief Financial Officer in December of 1993 and was elected Senior
Vice President and Chief Financial
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Officer in June of 1995. Prior to joining the Trust, Mr. Finger served as Chief
Operating Officer of Savage/Fogarty Companies, Inc., a real estate investment,
management and development company based in Alexandria, Virginia. Mr. Finger was
employed by Savage/Fogarty for 13 years, from 1978- 1991 serving four years in
the accounting division, ultimately as Vice President--Finance, seven years as
Senior Vice President and General Counsel then Executive Vice President and
General Counsel and finally two years as Chief Operating Officer. During 1992
and until he joined the Trust, Mr. Finger created and operated a
multi-restaurant delivery business in Richmond, Virginia.
Mr. Brian J. Fitzgerald joined the Trust in January of 1996 as Vice
President and Division Manager of Leasing. Prior to coming to the Trust, Mr.
Fitzgerald served as a commercial leasing broker from 1984 to 1993 with Smithy
Braedon Company, in Northern Virginia. In 1993, he became a Vice President of H.
G. Smithy Company, with responsibilities for managing all agency leasing
activities. From the date of the merger of H. G. Smithy Commercial Management
Group with Cushman & Wakefield of Washington, D.C., Inc. in June of 1994 until
joining the Trust, Mr. Fitzgerald managed institutional agency leasing
activities at Cushman & Wakefield, Inc. of Washington, D.C.
Ms. Laura M. Franklin, a CPA, joined the Trust in 1993. Prior to
joining the Trust, Ms. Franklin spent over 10 years with the public accounting
firm of Reznick, Fedder and Silverman, P.C. specializing in auditing and tax for
real estate clients.
Ms. Sandra T. Hunt joined the Trust in 1983 and has held the position
of Vice President--Leasing for more than five years.
Mr. Thomas L. Regnell joined the Trust as Vice President--Acquisitions
in January of 1995. From 1992 through 1994, Mr. Regnell served as an Investment
Officer with Federal Realty Investment Trust in Bethesda, Maryland. Mr. Regnell
was responsible for Federal Realty's real estate acquisitions in the Midwest and
Southeast United States. Prior to joining Federal Realty, Mr. Regnell was a Vice
President with Spaulding & Slye Company, a real estate development, brokerage
and management company in Bethesda, Maryland. Mr. Regnell was associated with
Spaulding & Slye for seven years.
There are no family relationships between any Trustee or executive
officer.
Ownership of Shares by Trustees and Executive Officers
The following table sets forth certain information concerning all
Shares beneficially owned as of April 19, 1996, by each Trustee, by each of the
"Named Officers" (as defined in "Executive Compensation" below) and by all
Trustees and Executive Officers as a group. Unless otherwise indicated, the
voting and investment powers for the Shares listed are held solely by the named
holder.
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<TABLE>
<CAPTION>
Percentage
Name Shares Owned of Total
- - ---- ------------ --------
<S> <C> <C>
Arthur A. Birney 48,433(1) 0.153%
William N. Cafritz 17,648(1) 0.056%
Edmund B. Cronin, Jr. 26,453(2) 0.083%
Benjamin H. Dorsey 108,134(1,2) 0.341%
Larry E. Finger 4,261(2) 0.013%
Sandra T. Hunt 51,702(2) 0.163%
B. Franklin Kahn 393,389(1,2) 1.239%
David M. Osnos 900 0.003%
Thomas L. Regnell --- ---
Stanley P. Snyder 5,062 0.016%
All Trustees and Executive Officers
as a group (12 persons) 661,971(2) 2.085%
<FN>
- - -----------
(1) Includes shares held in a trust or estate or by spouse.
(2) Includes shares subject to options exercisable within 60 days, as follows:
Mr. Cronin, 7,838; Mr. Dorsey, 23,376; Mr. Finger, 3,292; Ms. Hunt, 48,879;
Mr. Kahn, 84,161 shares; and all Trustees and Executive Officers as a
group, 173,225.
</FN>
</TABLE>
II.
ELECTION OF TRUSTEES
Two Trustees, Messrs. Cafritz and Snyder, stand for election at the
Annual Meeting, to serve for three years. It is intended that the proxies given
to the persons named in the accompanying Proxy (unless otherwise indicated on
such Proxy) will be voted for the election of Messrs. Cafritz and Snyder, each
of whom currently serves as a Trustee. If a nominee becomes unable or unwilling
to stand for election for any reason not presently known or contemplated, the
persons named in the enclosed Proxy will have discretionary authority to vote
pursuant to the Proxy for a substitute nominee nominated by the Board. The
election of Trustees requires the affirmative vote of the holders of a majority
of the shares voting at the Annual Meeting either in person or by proxy.
THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE IN FAVOR OF THE
ELECTION OF WILLIAM N. CAFRITZ AND STANLEY P. SNYDER.
III.
PROPOSAL TO CHANGE THE TRUST'S STATE OF ORGANIZATION
On April 5, 1996, the Board approved, subject to shareholder approval,
a proposal to change the Trust's state of organization from the District of
Columbia to Maryland by means of a merger (the "Merger") of the Trust with and
into Washington Real Estate Investment Trust of Maryland ("Maryland WRIT"), a
newly formed Maryland real estate investment trust that initially will be a
subsidiary of the Trust (the "Change of Domicile Proposal"). Maryland WRIT will
be the survivor of the Merger and will change its name to Washington Real Estate
Investment Trust. The principal effect of the Merger will be to change the law
governing the Trust's organization and operations as an unincorporated business
trust from the law of the District of Columbia to the law of the state of
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Maryland, including the portion of the Maryland Corporations and Associations
law pertaining to real estate investment trusts (the "Maryland REIT Law").
The following discussion summarizes certain aspects of the Change of
Domicile Proposal, including certain differences between District of Columbia
and Maryland law. This summary does not purport to be a complete description of
the Change of Domicile Proposal or the differences between shareholders' rights
under District of Columbia and Maryland law and is qualified in its entirety by
reference to the Maryland WRIT Declaration of Trust and By-Laws, copies of which
are available for inspection at the Trust's offices and will be provided to
shareholders on request and without charge by written or oral request to the
Trust at 10400 Connecticut Avenue, Kensington, Maryland 20895, Attention: Brenda
Barnhart (telephone (301) 929-5900).
Approval of the Change of Domicile Proposal by the Trust's shareholders
will also constitute approval of the Merger.
Principal Features of the Change of Domicile Proposal
On the effective date of the Merger, the separate existence of the
Trust, as a District of Columbia trust, will cease, and Maryland WRIT will
succeed to all of the business, properties, assets and liabilities of the Trust.
Each Share issued and outstanding immediately prior to the effective date will
by virtue of the Merger be converted into one share of Maryland WRIT. At the
effective date, certificates which immediately prior to the effective date
represented Shares will be deemed for all purposes to represent the same number
of shares of Maryland WRIT. IT WILL NOT BE NECESSARY FOR SHAREHOLDERS TO
EXCHANGE THEIR EXISTING CERTIFICATES FOR MARYLAND WRIT CERTIFICATES.
Approval of the Change of Domicile Proposal will not result in any
change in the business, management, assets or liabilities of the Trust.
Following consummation of the Merger, Maryland WRIT shares will be listed on the
American Stock Exchange, the exchange on which the Shares are currently listed.
The American Stock Exchange will consider the delivery of existing certificates
representing Shares as constituting "good delivery" of shares of Maryland WRIT
in transactions subsequent to the Merger.
Pursuant to the terms of the Merger, Maryland WRIT will adopt the 1991
Stock Option Plan, as amended, and each option to purchase Shares outstanding
immediately prior to the Merger will become an option to purchase Maryland WRIT
shares, subject to the same terms and conditions as set forth in the agreements
pursuant to which such options were granted. All other employee benefit plans
and other agreements and arrangements of the Trust will continue on the same
terms and subject to the same conditions.
It is anticipated that the Merger will become effective as soon as
practicable after the Annual Meeting. However, the Merger may be abandoned by
the Board prior to the effective date, either before or after shareholder
approval. In addition, the terms of the Merger may be amended prior to the
effective date, either before or after shareholder approval; provided, however,
that the terms of
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the Merger may not be amended after shareholder approval if such amendment would
(i) alter the amount or kind of shares or other consideration to be received by
shareholders in the Merger, (ii) alter any material terms of the Maryland WRIT
Declaration of Trust, (iii) alter any of the terms and conditions of the Merger
if such alteration would adversely affect the shareholders or (iv) otherwise
violate applicable law. No federal or state regulatory requirements must be
complied with or approvals obtained in connection with the Merger, other than
the acceptance for filing of Articles of Merger by the Maryland Department of
Assessments and Taxation and the District of Columbia Recorder of Deeds.
Principal Reasons for the Change of Domicile Proposal
Maryland has adopted detailed laws governing the organization and
operations of real estate investment trusts, while the District of Columbia has
no statutory provisions pertaining to real estate investment trusts and little
other law pertaining to the organization and operations of trusts. The Board
believes that the best interest of the Trust and the shareholders will be served
by changing the Trust's state of organization from the District of Columbia to
Maryland. At the time of the Trust's organization in 1960, no state had
statutory provisions pertaining to the organization or operation of a real
estate investment trust and a larger portion of the Trust's property was located
in the District of Columbia.
Since that time, Maryland has adopted and continued to improve
statutory provisions pertaining to the organization and operation of real estate
investment trusts. The Trustees believe that Maryland law, including the
Maryland REIT Law, will provide specific rights and powers in connection with
the organization and operation of the Trust which are not available under
District of Columbia law and will make clear rights and powers which are not
expressly granted to trusts under District of Columbia law. The Trust
understands that currently seventeen publicly owned real estate investment
trusts are organized under Maryland law, including the Maryland REIT Law.
Comparison of Certain Declaration of Trust and By-Law Provisions and of Certain
Provisions of Maryland REIT Law and District of Columbia Law
The Declaration of Trust of Maryland WRIT (the "New Articles") are
substantially similar to the Trust's current Declaration of Trust (the "Current
Articles"). The differences between the New Articles and the Current Articles
are primarily the result of the adoption of provisions intended to take
advantage of the additional rights and powers specifically provided by the
Maryland REIT Law. Significant provisions of the New Articles and new By-Laws,
certain important differences between such documents and the Current Articles
and current By-Laws and certain differences between the Maryland REIT Law and
District of Columbia law are discussed below.
Limitation of Liability of Shareholders. The Current Articles provide
that no shareholder shall be personally liable in connection with the Trust's
property or affairs. The Current Articles further provide that the Trust shall
indemnify and hold harmless shareholders against all claims and liabilities and
related reasonable expenses to which they become subject by reason of their
being or having been shareholders. In addition, the Trust as a matter of
practice, inserts a clause in its
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business, management and other contracts which provides that shareholders shall
not be personally liable thereunder. Although there are no District of Columbia
statutes addressing the subject, the Trust in the past has received the advice
of counsel, based upon the judicial decisions of other jurisdictions, that under
the laws of the District of Columbia and most other jurisdictions, no personal
liability will attach to the Trust's shareholders for contract claims under any
contract containing such a clause where adequate notice is given. However, in
respect to tort claims, contract claims where shareholder liability is not so
negated, claims for taxes and certain statutory liabilities, the shareholders of
the Trust may, in some jurisdictions, be personally liable to the extent that
such claims are not satisfied by the Trust. The Trust carries public liability
insurance which the Trustees consider adequate. Thus, any risk of personal
liability to shareholders is limited to situations in which the Trust's assets
plus its insurance coverage would be insufficient to satisfy the claims against
the Trust and its shareholders or the Trust's assets were insufficient to
satisfy such claims and the Trust's insurance did not cover them.
The text of Section 3.3 of the New Articles, which deals with
shareholder liability, is virtually unchanged from the same provision of the
Current Articles. However, under the applicable provisions of Maryland law,
including the Maryland REIT Law, shareholders of a real estate investment trust,
in their capacity as shareholders, bear no liability for the obligations or
liabilities of the Trust. Accordingly, the adoption of the Change of Domicile
Proposal will provide express statutory authority for the Section 3.3 negation
of shareholder liability. The Trust believes that this statutory authority for
Section 3.3 will eliminate uncertainty as to the Trust's authority to negate
shareholder liability and eliminate the remaining risk of shareholder liability
for any of the Trust's obligations or liabilities.
Limitation of Liability of Trustees and Officers. The Current Articles
provide that the Trust's Trustees and officers shall not be liable to the Trust
or its shareholders except for (i) any breach of the duty of loyalty of the
Trustee or officer to the Trust or its shareholders, (ii) acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law or (iii) any transaction from which the Trustee or officer derived any
improper personal benefit. Again, although there are judicial decisions
supporting the proposition that a trust may include limitations on the liability
of its trustees in its declaration of trust, there is no District of Columbia
statute authorizing such provisions nor stating the extent to which the
liability of the Trustees or officers may be so limited. The Trust believes that
a court would find that the Trust may limit the liability of its Trustees and
officers, but it is not certain that a court would uphold the extent of the
limitation of liability included in the Current Articles. The Trust has modeled
the limitation on liability included in the Current Articles on similar
provisions authorized in the corporation statutes of other jurisdictions, but a
court, absent more direct authority, may not necessarily hold that the Trust has
the authority or power to limit the liability of the Trustees or officers to the
extent provided in the Current Articles.
Under the Maryland REIT Law, there is express authority for a real
estate investment trust's declaration of trust to include provisions limiting
the liability of trustees and officers to the trust and its shareholders and
specifying the extent of the permitted limitations of liability. The New
Articles give the Trustees and officers the benefit of the fullest protection
permitted by the Maryland REIT
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Law. The New Articles, as authorized by the Maryland REIT Law, provide that the
Trustees and officers shall be liable to the Trust or the shareholders only (i)
to the extent the Trustee or officer actually received an improper benefit or
profit in money, property or services, in which case any such liability shall
not exceed the amount of the benefit or profit in money, property or services
actually received; or (ii) to the extent that a judgment or other final
adjudication adverse to such Trustee or officer is entered in a proceeding based
on a finding in the proceeding that such Trustee's or officer's action or
failure to act was the result of active and deliberate dishonesty and was
material to the cause of action adjudicated in the proceeding.
In addition to receiving the benefit of express statutory authority for
the inclusion of a limitation on the liability of Trustees and officers and for
the extent of such limitation, the New Articles also, as permitted by the
Maryland REIT Law, expand the limitation of liability of the Trustees and
officers by excluding liability for a breach of the duty of loyalty, unless it
results in an improper personal benefit or was the result of active and
deliberate dishonesty, as described above. In situations in which the provisions
of the New Articles limiting Trustee and officer liability would apply, the
remedies available to the Trust or its shareholders would be limited to
equitable remedies such as an injunction or rescission.
The Trust believes that it is important that the New Articles provide
the fullest limitation on liability permitted by the Maryland REIT Law. The
Board currently includes six Trustees who are not employees of the Trust. In
addition, the Trust enjoys the benefit of a staff of skilled and professional
executive officers. The Trust believes that in order to retain its outside
Trustees and executive officers, and to obtain the services of outside Trustees
and executive officers in the future, it is essential to provide these persons
with reasonable assurances of protection from personal liability. The Trust
believes that the limitations on liability included in the New Articles are
comparable to those provided by other publicly-held real estate investment
trusts and are reasonable.
Indemnification of Trustees and Officers. The Current Articles provide
for the indemnification of Trustees and officers to the same extent and in the
same manner as provided in the District of Columbia Business Corporations Act.
There is, however, no statute in the District of Columbia applicable to real
estate investment trusts expressly permitting a real estate investment trust to
indemnify its trustees and officers. As with respect to the limitation of
liability, the Trust believes that a court would hold that the Trust may include
provisions in its Declaration of Trust providing for the indemnification of the
Trust's Trustees and officers in certain circumstances, but again, the extent to
which such indemnification would be permitted is not certain. The Maryland REIT
Law, however, provides that indemnification of trustees and officers is
permitted to the fullest extent permitted under Section 2-418 of the Corporation
and Associations Article of the Annotated Code of Maryland ("Section 2-418"). By
providing express statutory authority, the Maryland law reduces the likelihood
that the indemnification provisions in the New Articles would be found to exceed
the permitted indemnification.
Section 2-418 also provides broader protection than the comparable
provision of the District of Columbia Business Corporation Act. Under District
of Columbia law, a director or officer cannot be indemnified if he or she is
found by a court to be liable for negligence or misconduct in the
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performance of duty. Under Section 2-418 indemnification is restricted only if
(i) an act or omission of the trustee or officer was material to the matter
giving rise to the proceeding and (a) was committed in bad faith or (b) was the
result of active and deliberate dishonesty; (ii) the trustee actually received
an improper personal benefit in money, property or services; or (iii) in the
case of any criminal proceeding, the trustee or officer had reasonable cause to
believe that the act or omission was unlawful. Section 3.2 of the New Articles
provides for the indemnification of Trustees and officers to the fullest extent
permitted under Section 2-418.
For the reasons stated above with respect to the limitations of
liability of the Trustees and officers, the Trust also believes that it is
important that the New Articles provide the fullest indemnification permitted by
the Maryland REIT Law. The Trust believes that the indemnification included in
the New Articles is comparable to that provided by other publicly-held real
estate investment trusts and is reasonable.
Indemnification of Employees and Agents. There is no provision in the
Current Articles authorizing indemnification of the Trust's employees or agents.
Under the Maryland REIT Law, however, indemnification of these individuals is
permitted. The New Articles, therefore, take advantage of the greater
flexibility permitted under Maryland law. Under Section 3.2 of the New Articles,
indemnification of employees and agents of the Trust is permitted to the extent
authorized by the Trustees or provided for in the provisions of the new By-Laws.
For the reasons stated above with respect to the limitations of
liability and indemnification of the Trustees and officers, the Trust also
believes that it is important that the New Articles provide the fullest
indemnification of its employees and agents permitted by the Maryland REIT Law.
The Trust believes that the indemnification included in the New Articles is
comparable to that provided by other publicly-held real estate investment trusts
and is reasonable.
Business Combination Provisions. The Current Articles provide that any
merger, consolidation or liquidation of the Trust, or any sale of all or
substantially all of its assets, must be approved by a majority of the Trustees,
and that if any such transaction is with, into or to a Related Shareholder
(defined as a person or entity beneficially owning, directly or indirectly, 5%
or more of the outstanding Shares), the transaction must be approved by a
majority of the Trustees not appointed or nominated by or acting on behalf of
the Related Shareholder or an affiliate or associate of the Related Shareholder.
An identical provision is included in the New Articles. These provisions may be
amended only by the affirmative vote of the holders of 70% or more of the
outstanding Shares.
In the New Articles, the Trust, as permitted by Maryland Law, has
expressly elected to be governed by the special voting requirement of the
Maryland Corporations and Associations Article (the "Special Voting Article").
Opting to be governed by the Special Voting Article adds additional restrictions
to those already set forth in the Current Articles concerning business
combinations. The Special Voting Article establishes special requirements with
respect to "business combinations" between an "interested stockholder" and a
Maryland corporation unless exemptions are applicable. Among other things, the
Special Voting Article prohibits, for a period of five years, a merger and other
specific or similar transactions between a Maryland corporation and an
interested stockholder
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and requires a super majority-vote for such transactions after the end of such
five-year period. (For the purposes of the Special Voting Article and the
Control Share Article (described below), a "Maryland corporation" includes a
Maryland real estate investment trust. They are referred to collectively in this
section as a "Maryland company".)
"Interested stockholders" are all persons owning beneficially, directly
or indirectly, more than 10% of the outstanding voting stock of a Maryland
company. "Business combinations" include any merger or similar transaction
subject to a statutory vote and additional transactions involving transfers of
assets or securities in specified amounts to interested stockholders or their
affiliates. Unless an exemption is available, transactions of these types may
not be consummated between a Maryland company and an interested stockholder or
its affiliates for a period of five years after the date on which the
stockholder first became an interested stockholder and, thereafter, may not be
consummated unless recommended by the board of the Maryland company and approved
by the affirmative vote of at least 80% of the votes entitled to be cast by all
holders of outstanding shares of voting stock and 66-2/3% of the votes entitled
to be cast by all holders of outstanding shares of voting stock other than the
interested stockholder unless, among other things, the company's stockholders
receive a minimum price (as defined in the Special Voting Article) for their
shares and the consideration is received in cash or in the same form as
previously paid by the interested stockholder for its shares. This provision was
included in the Special Voting Article to protect investors in Maryland
companies who may be involved in an attempt by a person or entity to gain
control of a Maryland company using a "front-end loaded" tender offer. In this
technique, the person or entity offers to purchase up to a certain amount of a
company's stock, such as 51%, and states its intention to follow with a
second-stage merger or similar transaction following the tender at a lower price
than was paid for the first 51%. The opportunity to obtain the earlier, higher
price is often availed of by arbitrageurs who purchase large quantities of stock
and tender it during such tender offer. Other investors are frequently left with
the second-stage transaction following the tender offer at a lower price.
A business combination with an interested stockholder which is approved
by the board of a Maryland company at any time before an interested stockholder
first becomes an interested stockholder is not subject to the special voting
requirements or fair price provisions of the Special Voting Article. An
amendment to a Maryland company's charter electing not to be subject to the
foregoing requirements must be approved by the affirmative vote of at least 80%
of the votes entitled to be cast by all holders of outstanding shares of voting
stock and 66-2/3% of the votes entitled to be cast by holders of outstanding
shares of voting stock who are not interested stockholders. Any such amendment
is not effective until eighteen months after the vote of stockholders and does
not apply to any business combination of a company with a stockholder who was an
interested stockholder on the date of the stockholder vote.
In the New Articles, the Trust, as permitted by Maryland law, has also
expressly elected to be governed by the control share provisions of the Maryland
Corporations and Associations Article (the "Control Share Article"). Under the
Control Share Article, "control shares" of a Maryland company acquired in a
"control share acquisition" have no voting rights except to the extent approved
by a vote of two-thirds of the votes entitled to be cast on the matter,
excluding shares of stock owned
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by the acquirer or by officers or directors who are employees of the company.
"Control shares" are voting shares of stock which, if aggregated with all other
shares of stock previously acquired by such a person, would entitle the acquirer
to exercise voting power in electing directors within one of the following
ranges of voting power: (i) 20% or more but less than 33-1/3%, or (ii) 33-1/3%
or more but less than a majority, or (iii) a majority of all voting power.
Control shares do not include shares the acquiring person is then entitled to
vote as a result of having previously obtained shareholder approval. A "control
share acquisition" means, subject to certain exceptions, the acquisition of,
ownership of, or the power to direct the exercise of voting power with respect
to, control shares.
A person who has made or proposes to make a control share acquisition
upon satisfaction of certain conditions (including an undertaking to pay
expenses), may compel the board of directors to call a special meeting of
shareholders to be held within 50 days of demand to consider the voting rights
of the shares. If no request for a meeting is made, the Maryland company may
itself present the question at any shareholders' meeting.
If voting rights are not approved at the meeting or if the acquiring
person does not deliver an acquiring person statement as permitted by the
statute, then, subject to certain conditions and limitations, the Maryland
company may redeem any or all of the control shares (except those for which
voting rights have previously been approved) for fair value, without regard to
voting rights. Fair value shall be determined as of the date of the meeting of
the shareholders at which the voting rights of the control shares are considered
but not approved. If no such meeting is held, fair value shall be determined as
of the date of the last acquisition of control shares by the acquiring person.
If voting rights for control shares are approved at a shareholders' meeting and
the acquirer becomes entitled to vote a majority of the shares entitled to vote,
all other shareholders may exercise appraisal rights. The fair value of the
shares as determined for purposes of such appraisal rights may not be less than
the highest price per share paid in the control share acquisition, and certain
limitations and restrictions otherwise applicable to the exercise of dissenters'
rights do not apply in the context of a control share acquisition.
The Control Share Article does not apply to shares acquired in a
merger, consolidation or share exchange if the Maryland company is a party to
the transaction, to acquisitions approved or exempted by the charter or bylaws
of the Maryland company or to shares acquired before November 4, 1988 or
pursuant to a contract entered into before November 4, 1988.
The foregoing provisions may have the effect of discouraging unilateral
tender offers or other takeover proposals which certain shareholders might deem
in their interests or pursuant to which they might receive a substantial premium
for their Shares. The Control Share Article in particular has the effect of
making a unilateral tender offer or other takeover of the Trust much more
difficult. The provisions could also have the effect of insulating current
management against the possibility of removal and could, by possibly reducing
temporary fluctuations in market price caused by accumulations of Shares,
deprive shareholders of opportunities to sell at a temporarily higher market
price. However, the Trustees believe that inclusion of the business combination
provisions in the New Articles may help assure fair treatment of shareholders
and preserve the assets of the Trust.
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Excess Share Provisions. The excess share provisions in the Current
Articles have not been altered in the New Articles. The provisions have been
maintained because the Board believes it is in the best interests of the Trust
to protect its status as a real estate investment trust.
For the Trust to qualify as a real estate investment trust (a "REIT")
under the Internal Revenue Code (the "Code"), in any taxable year, not more than
50% in value of its outstanding Shares may be owned, directly or indirectly, by
five or fewer individuals during the last six months of such year, and the
Shares must be owned by 100 or more persons during at least 335 days of a
taxable year or a proportionate part of a taxable year less than 12 months. In
order to meet these and other requirements, the Trustees have the power to
redeem or prohibit the transfer of a sufficient number of Shares to maintain or
bring the ownership of the Shares into conformity with such requirements. In
connection with the foregoing, if the Trustees shall, at any time and in good
faith, be of the opinion that direct or indirect ownership of Shares
representing more than 10% in value of the total Shares outstanding (the "Excess
Shares") has or may become concentrated in the hands of one beneficial owner,
the Trustees shall have the power (i) to repurchase from any shareholder of the
Trust such Excess Shares and (ii) to refuse to sell, transfer or deliver Shares
to any person whose acquisition of such Shares would, in the opinion of the
Trustees, result in the direct or indirect beneficial ownership by any person of
Shares representing more than 10% in value of the outstanding Shares. The
purchase price for any Shares so repurchased shall be at cost or at the last
sale price of the Share as of the date immediately preceding the day on which
the demand for repurchase is mailed, whichever price is higher. From and after
the date fixed for repurchase by the Trustees, and so long as payment of the
purchase price for the Shares to be so repurchased shall have been made or duly
provided for, the holder of any Excess Shares so called for repurchase shall
cease to be entitled to distributions, voting rights and other benefits with
respect to such Shares, except the right to payment of the purchase price for
the Shares.
Both the Current Articles and the New Articles have a similar excess
share provision to ensure that any rent paid to the Trust by a "sister
corporation" not become disqualified as rent from real property by virtue of
Section 856(d)(2)(B) of the Code. Under these provisions, the Trustees have the
power (i) by lot or other means deemed equitable to call for purchase from any
shareholder such numbers of Shares as shall be sufficient in the opinion of the
Trustees to maintain or bring the direct or indirect ownership of Shares in
conformity with the requirements of Section 856(d)(2)(B), and (ii) to refuse to
register the transfer of Shares to any person whose ownership would jeopardize
the Trust's compliance with Section 856(d)(2)(B). For purposes of this
provision, the term "sister corporation" means a corporation the shares of which
are owned by exactly or substantially the same persons and in exactly or
substantially the same numbers as are the shares. This provision shall apply
even if a "sister corporation" does not exist (i) at the time the Trustees
determine that the ownership of Shares has or may become so concentrated, or
(ii) at the time the Trustees call Shares for purchase or refuse to register the
transfer of Shares. The purchase price for the Shares purchased pursuant thereto
shall be equal to the fair market value of such Shares as reflected in the
closing price for such Shares on the principal stock exchange on which such
Shares are listed or, if such Shares are not listed, then the last bid for the
Shares, as of the close of business on the date fixed by the Trustees for such
purchase or, if no such quotation is available, as shall be determined in good
faith by the Trustees. From and after the date fixed for purchase by the
Trustees, the holder of any Shares so
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called for purchase shall cease to be entitled to dividends, voting rights and
other benefits with respect to such Shares, except the right to payment of the
purchase price fixed as aforesaid.
In order to further assure that ownership of the Shares does not become
so concentrated, both the Current Articles and the New Articles have a provision
that provides that if any transfer of Shares would prevent amounts received by
the Trust from a "sister corporation," if one existed, from qualifying as "rents
from real property" as defined in Section 856(d) of the Code, by virtue of the
application of Section 856(d)(2)(B) of the Code, the transfer shall be void ab
initio and the intended transferee of such Shares shall be deemed never to have
had an interest therein. If this provision is deemed void or invalid by virtue
of any legal decision, statute, rule or regulation, then the transferee of such
Shares is deemed to have acted as an agent on behalf of the Trust. Furthermore,
both the Current Articles and the New Articles provide that shareholders shall
upon demand disclose to the Trustees in writing such information with respect to
their direct and indirect ownership of the Shares as the Trustees deem necessary
to determine whether the Trust satisfies the provisions of Sections 856(a)(5)
and (6) and Section 856(d) of the Code or the regulations thereunder, as the
same shall from time to time be amended, or to comply with the requirements of
any other taxing authority.
Similarly to the business combination provisions, the excess share
provisions may deter or render more difficult attempts by third parties to
obtain control of the Trust if such attempts are not supported by the Board. The
Board, however, believes these provisions are necessary to protect the Trust's
interests in maintaining its status as an REIT under the Code.
Other Differences in the Law. As mentioned in several sections of this
discussion, the District of Columbia law does not include statutory provisions
pertaining expressly to real estate investment trusts. The principal provisions
of the Maryland REIT Law which will be applicable to Maryland WRIT are discussed
above. Set forth below is a brief description of other matters expressly
addressed in the Maryland REIT Law for which there is no comparable provision in
District of Columbia law.
Section 8-301 of the Maryland REIT Law specifically sets forth the
powers of a Maryland real estate investment trust. These powers are
substantially the same as the powers set forth in the Current Articles and the
New Articles. Section 8-301, however, provides specific authority for the Trust
to make and alter bylaws not inconsistent with law or the New Articles to
regulate the government of the Trust and the administration of its affairs.
Although the Trust, in accordance with the Current Articles, has adopted By-Laws
for the administration and operation of the Trust, it is not clear under
District of Columbia law to what extent a trust is permitted to adopt bylaws.
Section 8- 301 eliminates this concern with respect to the By-Laws of Maryland
WRIT.
Section 8-402 of the Maryland REIT Law grants the shareholders of a
Maryland real estate investment trust the same specific rights to inspect
records of the trust as are granted to shareholders in a Maryland corporation.
Although District of Columbia law has no comparable provision, Section 7.7 of
the Current Articles grants shareholders of the Trust the rights of inspection
provided to shareholders of a District of Columbia corporation. The shareholder
inspection statutes for Maryland and the District of Columbia are very similar;
however, Maryland law permits limited rights to inspect
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the records of a corporation to any shareholder of the corporation. Upon meeting
requirements of a 5% minimum shareholder interest and ownership for at least six
months, a shareholder of a Maryland corporation may gain access to the
corporation's stock ledger. Shareholders may combine to meet the 5% shareholder
interest requirement. The District of Columbia law imposes a 5% shareholder
interest requirement to inspect the records of a corporation or the
corporation's stock ledger, but does not require a minimum ownership period.
Shareholders also may combine to meet the District of Columbia's 5% minimum
shareholder interest requirement.
Section 8-501.1 of the Maryland REIT Law specifically authorizes a
Maryland real estate investment trust to enter into a merger with a corporation,
another trust, a limited liability company or a limited partnership, specifies
the procedures for such a merger and grants shareholders objecting to any such
merger the same rights to dissent as provided to shareholders of a Maryland
corporation. Although judicial decisions authorize trusts to enter into mergers
and the Current Articles also specifically contemplate that the Trust may enter
into a merger, neither District of Columbia law nor the Current Articles specify
the procedures for a merger involving a real estate investment trust or grants
dissenter rights with respect to such a merger.
Other Article Provisions. The New Articles also differ from the Current
Articles in several other respects. Among these differences are the following
provisions.
Under Section 2.20 of the Current Articles, the Trust is prohibited
from investing in investment securities, including certificates of interest or
shares of beneficial interest in other real estate investment trusts ("REIT
Shares"), beyond 25% of the net assets of the Trust. The Code currently
specifies that at least 75% of a REIT's assets must be invested in real estate
assets, government securities, cash and cash items, including receivables. The
Code, however, defines "real estate assets" to include REIT Shares. Accordingly,
although the Board has no current intention to invest Trust assets in a material
amount of REIT Shares, because the Code defines "real estate assets" to include
REIT Shares, an exception has been inserted in Section 2.20 of the New Articles
to permit unlimited investments in REIT Shares.
The Maryland REIT Law requires the New Articles to explicitly state the
number of authorized shares, and accordingly, under Section 4.1(a) of the New
Articles, the total number of authorized shares is set at 100,000,000 shares,
with a par value of $.01 per share. This differs from the Current Articles,
which permit an unlimited number of authorized Shares. The requirement to state
the number of authorized shares in the New Articles, however, is not restrictive
because the New Articles, in accordance with the Maryland REIT Law, also
authorize the Board to increase the aggregate number of authorized Shares
without shareholder approval.
As discussed below under "Vote Required," the Current Articles do not
clearly specify the shareholder vote required to approve certain actions.
Section 7.5 of the New Articles expressly specifies that, except as otherwise
set forth in the New Articles, any matter requiring a vote of shareholders shall
be approved by a vote of the holders of a majority of the Shares.
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Changes to Current By-Laws. The new By-Laws contain only minor changes
from the current By-Laws. Sections 7.1 and 7.2 of the Current Articles, which
set forth the manner in which annual and special meetings can be called and
held, have been moved to the new By-Laws, and the provisions for calling a
meeting of the Trustees have also been moved to the new By-Laws. The principal
consequence of including provisions in the By-Laws rather than the New Articles
is to permit their further amendment by Board vote rather than requiring
shareholder approval.
Federal Income Tax Consequences of the Merger
The Merger will constitute a reorganization under Section 368(a)(1)(F)
of the Code. Consequently, holders of Shares will not recognize any gain or loss
for federal income tax purposes as a result of the conversion of their Shares
into shares of Maryland WRIT. For federal income tax purposes, a holder's
aggregate basis in the shares of Maryland WRIT received in the Merger will equal
such holder's adjusted basis in the Shares converted therefor and such holder's
holding period for the Maryland WRIT shares received in the Merger will include
such holder's holding period in the Shares converted therefor.
Likewise, the Trust will not recognize any gain or loss for federal
income tax purposes upon the transfer of its property to Maryland WRIT pursuant
to the Merger. In addition, Maryland WRIT will succeed to and take into account
the earnings and profits, accounting methods, and other tax attributes of the
Trust specified in Section 381(c) of the Code.
Holders of Shares should consult their own tax advisors as to the
application and effect of state, local and foreign income and other tax laws to
the conversion of their Shares into shares of Maryland WRIT pursuant to the
Merger.
Vote Required
Although the Current Articles permit the Trust to enter into a merger,
the Current Articles do not expressly state the percentage vote of shareholders
required to approve the Change of Domicile Proposal. Section 10.1 of the Current
Articles, however, provides that the Trust may be terminated with the approval
of the holders of a majority of the Shares. It also provides that the Current
Articles may be amended with the approval of the holders of a majority of the
Shares, except that an amendment to certain Sections, including Section 8.1
specifying the number of Trustees, Section 8.2 providing for the election of the
Trustees in three staggered classes, Section 10.1 specifying the percentage of
shareholder approval required for certain actions and Article 15 requiring a
special Trustee vote in connection with certain transactions relating to the
acquisition of the Trust or its assets, require the vote of holders of 70
percent of the outstanding Shares.
Because the New Articles, as described above, do not differ in any
material respect from Sections 8.1, 8.2 and 10.1 and Article 15 of the Current
Articles, and because the Change of Domicile Proposal will be effected through
the Merger and not by an amendment of the Current Articles, the Trust believes
that the Change of Domicile Proposal may be approved by the vote of the holders
of a majority of the outstanding Shares.
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THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF THE CHANGE OF
DOMICILE PROPOSAL
IV.
ADOPTION OF AMENDMENTS TO OPTION PLAN
The Trust currently maintains the Washington Real Estate Investment
Trust 1991 Stock Option Plan (the "Plan"), which provides for the grant to
officers and employees of the Trust of options to purchase up to an aggregate of
1,515,241.5 Shares (as adjusted for the three-for-two split effected in 1992).
Since its adoption, the Plan has provided that each option initially granted
under the Plan shall be an incentive stock option ("ISO"), as that term is
defined in Section 422 of the Internal Revenue Code (the "Code") and as further
described below. See "Federal Income Tax Consequences."
The Board has approved amendments to the Plan (the "Amendments") which
provide (i) that options granted under the Plan may be granted as an ISO (as the
Plan currently provides) or may be granted as an option which does not qualify
as an ISO (a non-qualified option or "NQO"), (ii) that options may be
exercisable upon grant or on such vesting schedule as the Board may determine,
(iii) that options shall continue for their original term following the death of
the option holder and (iv) that the Board may amend the adjustment provisions of
the Plan without shareholder approval. The Amendments do not increase the number
of Shares available in the aggregate for option grants under the Plan, do not
expand the persons eligible to receive options under the Plan and do not change
the terms of options granted under the Plan, except as described below. The
terms of the Plan and the effect of the Amendments are described in more detail
below.
Description of the Plan
The Plan provides that it may be administered by the Board or a
committee of the Board composed of at least three Trustees (the "Committee").
The Board (or the Committee) has authority, subject to the limits of the Plan,
to designate persons to whom options are granted, to determine the number of
Shares covered by each option and to determine the terms and provisions of each
option. As amended, the Plan provides that the Board (or the Committee) also
will be authorized to designate whether the option is an ISO or an NQO. Options
only may be granted to an employee of the Trust, including any Trustee or
officer who is an employee. Currently, approximately 28 employees are eligible
to receive option grants under the Plan.
Under the Plan, whether the option is an ISO or an NQO, the option
price may not be less than the fair market value of the Shares on the date the
option is granted, and options will expire no later than ten years from the date
of the grant. As of April , 1996, the closing price for the Shares on the
American Stock Exchange was $ . The option price must be paid in full at the
time an option is exercised, in cash, by check or by delivery of Shares already
owned by the optionee. As amended, the Plan provides that an option may be
exercisable on grant or in one or more installments
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as determined by the Board (or the Committee).
As required by the Code, the Plan currently provides that the Trust may
grant an optionee an ISO with respect to Shares with an aggregate fair market
value at the time of the grant in excess of $100,000 during any particular
calendar year, provided that such option does not become first exercisable by
the optionee in an amount exceeding $100,000 per calendar year. This provision
would not apply to an option designated to be an NQO.
Options, whether an ISO or an NQO, are not assignable or transferable
by the optionee except by will or by the laws of descent and distribution. As
amended, the Plan provides that in case of death, an option will continue in
accordance with its terms and may be exercised thereafter by the persons
entitled to do so under the optionee's will or by his legal representatives. If
an optionee's employment is terminated for any reason other than death,
termination for cause or retirement on or after attaining age 65, the option
will terminate three months after the date of such termination of employment,
but in no event later than the date of expiration of the option. If an
optionee's employment is terminated for cause, the option will terminate as of
the date of such termination of employment. If an optionee ceases to be employed
by the Trust due to retirement on or after attaining age 65, the option will
continue in accordance with its terms; however, the Plan provides that the
option will cease to be an ISO upon the expiration of three months from the date
of the optionee's retirement and will thereafter be treated as an NQO.
The Board may terminate the Plan at any time and may amend the Plan
from time to time. However, the Board may not change the maximum number of
Shares for which options may be granted, the periods during which options may be
granted or exercised or materially increase the benefits under the Plan without
shareholder approval. No amendment may adversely affect an optionee's rights
under any issued option without the optionee's consent.
Pursuant to the Code, an ISO plan may not have a term longer than ten
years from the earlier of the date the plan is adopted or the date the plan is
approved by the stockholders. Accordingly, the Plan will expire on June 25, 2001
(except as to options outstanding on that date), and the Amendments will not
extend the term of the Plan.
Effect of the Amendments
NQOs. As described above, the Plan currently provides that the Board
(or Committee) may grant an optionee an ISO with respect to Shares with an
aggregate fair market value at the time of the grant in excess of $100,000
during any particular calendar year, provided that such option does not become
first exercisable by the optionee in an amount exceeding $100,000 per calendar
year. The Amendments will permit the grant of options which would not be subject
to this provision, and therefore would not qualify for treatment as an ISO. The
provision would also permit the grant of options which otherwise would satisfy
all requirements for ISO status, but because of their NQO designation, would not
be treated as an ISO. See "Federal Income Tax Consequences."
As described in "Executive Compensation," Mr. Cronin's Employment
Agreement provides
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for the grant of options to him with respect to Shares with an aggregate fair
market value at the time of the grant equal to his base salary during 1994, 1995
and 1996. Because of the required terms of these options, a portion of the
options cannot qualify as ISOs, and accordingly the Board previously has granted
Mr. Cronin non-qualified options which are not subject to or governed by the
Plan. This arrangement, however, has a number of consequences. First, these
options are not subject to the provisions of the Plan, including the limitation
on the number of Shares reserved for options under the Plan. If the Amendments
are approved, the Board contemplates that future grants of NQO's would be made
under the Plan to the extent that Shares are available. Further, because these
options are not granted pursuant to the Plan, they are not entitled to the
exemptions from the short-swing trading prohibition of Section 16(b) of the
Securities Exchange Act ("Section 16(b)") provided to options granted under the
Plan. The ability to grant NQOs under the Plan would enable the Board to grant
Mr. Cronin options which are entitled to the benefit of this exemption. See
"Section 16."
Exercise. Previously the Plan has provided that options may not be
exercised prior to one year from the date of grant. The Board believes that this
is an unnecessary constraint upon the administration of the Plan and that the
Board (or the Committee) should be granted the discretion to make options vest
more quickly, including becoming exercisable upon grant. Currently, the Board
grants certain NQOs, including Mr. Cronin's, outside of the Plan with immediate
vesting. For the reasons discussed above under "NQOs," the Board believes it is
preferable to grant options pursuant to the Plan and has adopted this amendment
to provide the same flexibility in determining vesting terms as is available
with respect to such non-Plan options.
Option Term. The Plan also has previously provided that, upon the death
of an optionee, the option could be exercised by the persons entitled to do so
under the optionee's will or the optionee's legal representative for a period
not to exceed twelve months after the optionee's death. The Board believes that
this provision unnecessarily and unreasonably deprives a deceased optionee's
estate of the full benefit of the option. The Board has amended the Plan to
provide that in these circumstances the option will continue in accordance with
its terms until its originally specified expiration date. The Plan, however,
will continue to specify that, if the option includes a vesting provision, no
further vesting would occur following the optionee's death.
Adjustment. The Plan provides that the number and price of the Shares
covered by each option and the total number of Shares that may be granted under
the Plan shall be proportionately adjusted to reflect, as deemed equitable and
appropriate by the Board, any stock dividend, stock split or share combination
of the Shares or recapitalization of the Trust. It also provides that to the
extent deemed equitable and appropriate by the Board, in any merger,
consolidation, reorganization, liquidation or dissolution, any option granted
under the Plan shall pertain to the securities and other property to which a
holder of the number of Shares covered by the option would have been entitled to
receive in connection with such event. The Plan also provides, however, that the
foregoing provisions relating to adjustments to be made upon changes in
capitalization may not be amended without shareholder approval.
In view of the broad discretion granted to the Board to determine what
adjustment would be "equitable and appropriate," the restriction on the Board's
ability to amend these provisions is
19
<PAGE>
inconsistent and imposes an unnecessary limitation on the proper administration
of the Plan. Although the Board is not currently aware of any pending proposal,
transaction or other event, other than the Change of Domicile Proposal, which
would trigger the application of these provisions, the Board believes it is
efficient, while it is seeking shareholder approval of the Amendments, to
correct this inconsistency in the Plan now rather than attempt to do so at some
time in the future in conjunction with a transaction which might call for
further flexibility in these provisions. No adjustments are expected to be made
in connection with the Change of Domicile Proposal other than to substitute WRIT
Maryland shares for the current Shares. In order to make clear that any
amendment to the adjustment provisions is intended only to address a particular
transaction and not increase the benefits under the Plan, the Board has also
amended the Plan to specify that no amendment to the Plan may materially
increase the benefits accruing to participants under the Plan without
shareholder approval.
Federal Income Tax Consequences
The following is a summary of the federal income tax consequences
relating to stock options.
ISO. Under the Code, an optionee will not recognize income at the time
of grant of an ISO or the subsequent purchase of the Shares pursuant to the
exercise of such ISO. The amount by which the fair market value of the Shares
purchased at the time of exercise exceeds the option price will constitute an
item of tax preference and may be potentially subject to the alternative minimum
tax. If the optionee makes no disposition of the Shares purchased on exercise of
an ISO within two years from the grant date and within one year from the date of
exercise of the option, upon a subsequent sale of Shares the optionee will
recognize a long-term capital gain or loss equal to the difference between the
amount realized on the disposition of such Shares and his option exercise price.
If an optionee disposes of Shares purchased through the exercise of an
ISO within the foregoing two- or one-year periods, the transaction will be
treated as a disqualifying disposition and the optionee will be required to
include in his gross income as compensation for the taxable year in which the
disposition occurs, the amount by which the fair market value of the Shares on
the date the option was exercised by the optionee (or the amount realized upon
disposition, if that amount is less than the fair market value on the date of
exercise) exceeds the option exercise price. In addition, upon a sale within
either period, the optionee will recognize a capital gain or loss equal to the
difference between (a) the sum of the exercise price he paid (or if the exercise
price is paid in whole or in part by the transfer of Shares previously owned by
the optionee, the amount of money plus the adjusted basis of such previously
owned Shares) and any amount he or she is required to include in his or her
gross income in accordance with the preceding sentence and (b) the amount
realized on the sale.
The Trust will be entitled to a deduction for compensation with respect
to an ISO only if and to the extent that the optionee recognizes ordinary income
from a disqualifying disposition of Shares received upon the exercise of such
ISO.
NQO. The grant of an NQO will have no immediate tax consequences to the
optionee or the
20
<PAGE>
Trust. If Shares received on the exercise of an NQO are not subject to a
substantial risk of forfeiture, the optionee will recognize ordinary income
equal to the excess, if any, of the fair market value of the Shares at the time
of exercise over the exercise price. It is not contemplated that the Trust will,
upon the exercise of an NQO, issue or deliver Shares that are subject to a
substantial risk of forfeiture, except as noted in the next paragraph.
Shares received on the exercise of an NQO will be treated as subject to
a substantial risk of forfeiture for up to a six-month period if the sale of the
Shares at a profit during such six months could subject the optionee to suit
under Section 16(b). Under these circumstances, however, the optionee has a
right to elect, within a 30-day period from the date of transfer of the Shares,
to include in his or her taxable income for the taxable year of exercise an
amount equal to the excess of the fair market value of such Shares at the time
of the exercise over the exercise price. If the optionee does not make the
preceding election, the optionee will recognize ordinary income upon the
expiration of the above-referenced six-month period. The amount of such income
will be equal to the excess of the fair market value of the Shares at that time
over the exercise price, and the holding period for determining whether any
capital gain or loss on the subsequent sale or exchange of the Shares is
long-term or short-term capital gain or loss will commence at that time.
Where ordinary income is recognized by an optionee as described above
in connection with Shares received on the exercise of an NQO, the Trust will be
entitled to a deduction in the amount of ordinary income so recognized by the
optionee.
Section 16
Currently, pursuant to Securities Exchange Act Rule 16b-3, the
acquisition of an option pursuant to the Plan by an officer of the Trust is
exempt from the provisions of Section 16(b). Section 16(b) provides, among other
things, that an officer who purchases and sells the shares of the company that
employs him within a six-month period is liable to the company for the
difference between the purchase price and the sale price. Rule 16b-3 provides
that the acquisition of a stock option by an officer of a company pursuant to a
stock option plan which meets certain requirements (one of which is shareholder
approval of the plan) is not subject to Section 16(b). Approval of the
Amendments will permit the Trust to adopt the Amendments and maintain the
foregoing exemption for options granted to officers of the Trust pursuant to the
Plan.
The affirmative vote of the holders of record of a majority of the
outstanding Shares is required for approval of the Amendments.
THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENTS
21
<PAGE>
V.
EXECUTIVE COMPENSATION
Summary Compensation Table
The Summary Compensation Table shows the compensation awarded, earned
or paid during the past three years to the Trust's Chief Executive Officer and
each of the Trust's four other most highly compensated executive officers (the
"Named Officers") whose compensation exceeded $100,000 for the periods
indicated.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Cash Options Granted(1)(2)
Name and Principal Position Year Compensation (number of shares)
- - --------------------------- ---- ------------ ------------------
<S> <C> <C> <C>
B. Franklin Kahn(3) ................. 1995 $280,109 --
Chairman of the Trustees and ........ 1994 591,300 --
Chief Executive Officer ............. 1993 591,300 --
Edmund B. Cronin, Jr ................ 1995 $295,000 20,171
President and Chief Executive Officer 1994 171,875 15,675
Benjamin H. Dorsey(3) ............... 1995 $100,000 --
General Counsel ..................... 1994 150,500 6,584
Secretary and Trustee ............... 1993 158,000 4,848
Larry E. Finger ..................... 1995 $150,000 6,838
Senior Vice President and ........... 1994 125,000 6,584
Chief Financial Officer ............. 1993 6,170 --
Sandra T. Hunt ...................... 1995 $180,246 6,838
Vice President-Leasing .............. 1994 151,700 6,584
1993 145,850 4,848
Thomas L. Regnell ................... 1995 $107,913 6,838
Vice President-Acquisitions
<FN>
(1) All options reflected in the table were granted under the Incentive Stock
Option Plan except 9,091 of Mr. Cronin's 1994 options and 13,333 of Mr.
Cronin's 1995 options, which were granted as non-qualified options.
(2) Options indicated for 1993 were granted January 11, 1994 for the year 1993.
22
<PAGE>
(3) Mr. Kahn retired March 9, 1995, and Mr. Dorsey retired December 31, 1995.
</FN>
</TABLE>
The Trust has entered into an Employment Agreement with Edmund B.
Cronin, Jr., establishing Mr. Cronin's position initially as President and Chief
Operating Officer of the Trust. The Agreement was entered into on May 11, 1994
for a term of two years and eight months ending on December 31, 1996, unless
earlier terminated by either party. Pursuant to the Employment Agreement, Mr.
Cronin received an annual base salary of $275,000 in his first year of
employment, subject to annual review by the Board. Mr. Cronin receives standard
insurance, vacation and sick leave benefits and is eligible to participate in
the Trust's Pension Plan. The Agreement provides for the grant to Mr. Cronin of
incentive stock options in December 1994, 1995 and 1996 to purchase $100,000
worth of Trust shares each year, based on the then current market price of such
shares, which shall also be the option exercise price. In addition, Mr. Cronin
shall receive non-qualified options in December 1994, 1995 and 1996 for an
amount equal to the difference between his then current base salary and
$100,000, based on the then current market price of the Shares, except for
options granted in December 1994 for which the exercise price was based on the
market value of the Shares as of June 1, 1994.
The Employment Agreement further provided that not later than September
30, 1994, the Board would consider whether Mr. Cronin should be nominated to a
position as Trustee. He was appointed a Trustee on September 13, 1994 and was
elected President and Chief Executive Officer effective March 9, 1995.
Under the Employment Agreement, Mr. Cronin may be terminated upon his
death or disability or at any time for cause. Mr. Cronin may be terminated
without cause upon thirty days notice, provided, however, the Trust shall
thereafter be obligated to pay severance equal to all cash compensation
otherwise payable for the balance of the term of the Employment Agreement, plus
medical benefits during such period.
Option Grants Table
The following table shows the specified information with respect to
options granted to the Named Officers in 1995.
23
<PAGE>
1995 OPTION GRANTS TABLE
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Number of Percentage Price Appreciation
Securities of Total Full 10-Year
Underlying Options Option Term
Options Granted to Exercise Expiration ----------------------
Name Granted(1) Employees(2) Price Date 5% 10%
- - ---- ----------- ------------ -------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Edmund B
Cronin, Jr... 20,171 29.20% 14.6250 12/19/2005 185,524 470,155
Benjamin H
Dorsey ...... 0 N/A N/A N/A N/A N/A
Larry E. Finger 6,838 9.90% 14.6250 12/19/2005 62,893 159,383
Sandra T. Hunt. 6,838 9.90% 14.6250 12/19/2005 62,893 159,383
B. Franklin Kahn 0 N/A N/A N/A N/A N/A
Thomas L
Regnell ..... 6,838 9.90% 14.6250 12/19/2005 62,893 159,383
<FN>
(1) Options become exercisable 50% after one year and 100% after two years.
(2) 13,333 of Mr. Cronin's options were granted as non-qualified stock options.
See "V. Report on Executive Compensation--Executive Compensation Program."
Percentages reflect the percentage of all options granted, including these
13,333 non-qualified options.
</FN>
</TABLE>
The dollar amounts under the 5% and 10% columns in the table above are
the result of calculations required by the SEC's rules and therefore are not
intended to forecast possible future appreciation in the price of the Shares,
which would benefit all shareholders. For example, in order for the Named
Officers to realize the potential values set forth in the 5% and 10% columns in
the table above, the price per Share of the Shares would have to be
approximately $23-7/8 and $37-7/8, respectively, as of the expiration date of
the option. Actual gains, if any, on option exercises and Share holdings are
dependent on the future performance of the Shares and overall stock market
conditions.
Aggregated Option Exercises and Option Value Table
The following table shows information concerning the exercise of stock
options during 1995 by each of the Named Officers and the year-end value of
unexercised options.
24
<PAGE>
AGGREGATED OPTION EXERCISES IN 1995 AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Value of Unexercised in
Shares Number of Unexercised the Money Options at
Acquired Value Options at December 31, 1995 December 31, 1995
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- - ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Edmund B. Cronin, Jr -- -- 7,838 28,009 5,388 30,602
Benjamin H. Dorsey .. 7,497 81,005 23,376 0 8,899 0
Larry E. Finger ..... -- -- 3,292 10,130 2,263 10,811
Sandra T. Hunt ...... 1,693 14,611 48,879 10,130 115,527 10,811
B. Franklin Kahn .... -- -- 84,161 32,214 333,616 111,623
Thomas L. Regnell ... -- -- 0 6,838 0 8,548
</TABLE>
Pension Plan
The Trust has a non-contributory defined benefit pension plan (the
"Pension Plan") that covers all employees who meet certain requirements
regarding age and years of service before December 31, 1995. The Pension Plan
was amended on December 12, 1995 to fix benefits and years of service accruals
as of December 31, 1995.
The following table is illustrative of various annual payments that
would be made pursuant to the Pension Plan and the Supplemental Benefit Plan (as
defined below) upon retirement on an individual's 65th birthday, assuming the
indicated five-year average remuneration and years of service.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
Years of Service
Remuneration 15 20 25 30 35
- - ------------ ------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
$125,000 $ 34,440 $ 45,920 $ 57,400 $ 68,880 $ 71,176
150,000 41,565 55,420 69,275 83,130 85,901
175,000 48,690 64,920 81,150 97,380 100,626
200,000 55,815 74,420 93,025 111,630 115,351
225,000 62,940 83,920 104,900 125,880 130,076
250,000 70,065 93,420 116,775 140,130 144,801
300,000 84,315 112,420 140,525 168,630 174,251
400,000 112,815 150,420 188,025 225,630 233,151
450,000 127,065 169,420 211,775 254,130 262,601
500,000 141,315 188,420 235,525 282,630 292,051
</TABLE>
The Pension Plan provides for retirement upon the participant's 65th
birthday, disability or upon attainment of age 50 with 10 or more years of
service at an actuarially reduced benefit. The Pension Plan provides both
retirement benefits and death benefits prior to retirement. Retirement benefits
are based on the participant's average salary during the five years of
employment which produces the highest average. Accrued pension benefits are
fully vested after six years of employment. Death benefits are based on the
projected monthly pension benefit.
The Code limits the maximum annual benefit for a person retiring under
a defined benefit pension plan
25
<PAGE>
such as the Pension Plan. The Board has adopted a plan to provide supplemental
retirement benefits to employees who are restricted by such limitation and who
had accrued a benefit under the Pension Plan prior to January 1, 1994 (the
"Supplemental Benefit Plan"). Mr. Kahn is the only employee eligible to receive
a benefit under the Supplemental Benefit Plan. The supplemental benefit provided
equals the difference between the retirement benefits to which the employee was
entitled at the time of retirement, assuming the Code limitation was not in
effect under the Pension Plan, and the benefits to which such employee is
actually entitled under the Pension Plan at that time.
The Board also authorized the establishment of a separate trust fund to
acquire ownership of a life insurance policy on the life of Mr. Kahn. In the
event of Mr. Kahn's demise prior to his receipt of all accrued supplemental
retirement benefits, the assets of such separate trust fund would be used to pay
any remaining supplemental retirement benefit entitlements to Mr. Kahn's
beneficiaries. Any remaining assets of the separate trust fund would then revert
to the general use of the Trust.
VI.
REPORT ON EXECUTIVE COMPENSATION
Compensation Committee Interlocks and Insider Participation
in Compensation Decision
The Board determined executive compensation for 1995. A Compensation
Committee (the "Compensation Committee") composed of Messrs. Kahn, Osnos and
Snyder was responsible for making recommendations to the Board with respect to
1995 compensation decisions. Mr. Kahn, the Trust's Chief Executive Officer at
the time, was not involved in the consideration or vote concerning his own
compensation. Mr. Osnos is a senior partner with the Trust's legal counsel and
Mr. Snyder is Chairman of an accounting firm providing advisory services to the
Trust. See "I. The Board of Trustees and Management--The Board of Trustees"
above.
Executive Compensation Principles
The Trust's Executive Compensation Program is based on guiding
principles designed to align executive compensation with Trust values and
objectives, business strategy, management initiatives and business financial
performance. In applying these principles the Compensation Committee has
established a program designed to:
o Attract and retain key executives critical to the long-term success of
the Trust.
o Reward executives for long-term strategic management and the
enhancement of shareholder value.
o Support a performance-oriented environment that rewards performance
not only with respect to Trust goals but also Trust performance as
compared to that of industry performance levels.
26
<PAGE>
Executive Compensation Program
The Trust's compensation program consists of both cash and stock
options. Through the award of stock options, the objective is to align the
executive officers' long-range interests with those of the shareholders. During
1995, cash compensation consisted of a base salary; bonuses were not utilized.
The Board, upon the recommendation of the Compensation Committee, has
determined the salary for each executive officer based upon (i) a review of the
compensation paid to similarly situated executive officers employed by companies
comprising the EREIT Index and (ii) a subjective evaluation of each officer's
performance throughout the year. See "Executive Compensation--Performance Graph"
for additional discussion regarding the EREIT Index. Specific performance goals
were not established for the Trust's executive officers during 1995. In general,
the EREIT Index comparison and the subjective evaluation were weighted equally
by the Board when making individual compensation decisions. The Board believes
that compensation paid to the Trust's executive officers is comparable to that
paid by the companies comprising the EREIT Index.
Long-term incentives are provided through a "qualified" Incentive Stock
Option Plan and Non- qualified Stock Options. Options granted each year under
the Incentive Stock Option Plan are based on individual determinations
predicated on the Board's desire to retain, reward and encourage the optionee
and to promote entrepreneurship. Such "qualified" stock options are limited to a
maximum annual grant value of $100,000 as set by federal tax law. All option
prices are at fair market value on the date of grant and expire after 10 years.
The size of an individual award is based on subjective evaluation.
With respect to non-qualified stock options, the Compensation Committee
can recommend to the Board optionees, option terms and the number of option
shares without regard to the restrictions established by federal tax law for
incentive stock option plans. The determination of whether to grant qualified or
non-qualified options is based on subjective evaluation, except in the case of
Mr. Cronin whose option grant is determined in accordance with his Employment
Agreement. See "IV. Executive Compensation-Summary Compensation Table" for more
details on this Employment Agreement. Mr. Cronin received non-qualified stock
option grants for 13,333 shares in 1995.
Chief Executive Officer Compensation
Mr. Kahn's 1995 compensation consisted solely of his salary and was
determined by the Board (excluding Mr. Kahn) after a recommendation by the
Compensation Committee and was based upon (i) a review of the compensation paid
to Chief Executive Officers employed by companies comprising EREIT Index and
(ii) a subjective evaluation of Mr. Kahn's performance throughout the year.
Specific performance goals were not established for Mr. Kahn during 1995. In
general, the EREIT Index comparison and the subjective evaluation were weighted
equally by the Board when making the decision to maintain Mr. Kahn's 1995 salary
at the level established in 1994. Compensation paid to Mr. Kahn is comparable to
compensation paid to the Chief Executive Officers of the companies comprising
the EREIT Index.
Mr. Kahn retired as Chairman and Chief Executive Officer effective
March 9, 1995, and Mr. Edmund B. Cronin, Jr. was elected Chief Executive Officer
effective March 9, 1995. Mr. Cronin's compensation was
27
<PAGE>
not adjusted during 1995 as a result of this promotion.
The Board of Trustees
Arthur A. Birney
William N. Cafritz
Edmund B. Cronin, Jr.
Benjamin H. Dorsey
B. Franklin Kahn
David M. Osnos
Stanley P. Snyder
Performance Graph
Set forth below is a graph comparing the cumulative total shareholder
return on the Shares with the cumulative total return of companies making up the
Standard & Poor's 500 Stock Index as provided by Standard & Poor's Corporation
and the Equity Real Estate Investment Trust Index (excluding Health Care REITs)
(the "EREIT Index") as provided by the National Association of Real Estate
Investment Trusts. The EREIT Index is a compilation of 171 companies as of
December 31, 1995 which qualify as real estate investment trusts and own real
property and/or equity interests in real property and has been weighted
according to each individual company's stock market capitalization. The EREIT
Index companies are traded on the New York and American Stock Exchanges and on
the NASDAQ National Market. The graph assumes an initial investment of $100 on
December 31, 1990 and the reinvestment of all dividends paid thereafter with
respect to such $100 investment. [GRAPHIC OMITTED]
COMPARISON OF 5 YEAR
CUMULATIVE TOTAL RETURN
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
WRIT $100 $167 $199 $211 $175 $182
EREIT 100 129 156 185 190 218
S&P 100 131 141 155 157 215
</TABLE>
28
<PAGE>
VII.
OTHER MATTERS
Independent Accountants
The firm of Price Waterhouse LLP served as the Company's independent
accountants for 1995. The Company has not yet selected its independent
accountants for 1996. This selection is expected to be made by the Board during
the second or third quarter of 1996, based upon the recommendation of the Audit
Committee. Representatives of Price Waterhouse LLP are expected to attend the
Annual Meeting, will be provided with an opportunity to make a statement, should
they desire to do so, and will be available to respond to appropriate questions
from the stockholders.
Securities Reporting Requirements
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires Trustees and certain officers to file reports of changes in stock
ownership with the SEC and with the American Stock Exchange, with copies to the
Trust. Based solely on a review of such copies, the Trust believes that all such
filing requirements have been met for the year ended December 31, 1995.
Expenses and Administration
The cost of this solicitation of proxies will be borne by the Trust. In
addition to the use of the mails, some of the officers and regular employees of
the Trust may solicit proxies by telephone or telecopier, will request brokerage
houses and other custodians, nominees and fiduciaries to forward soliciting
material to the beneficial owners of shares held of record by such persons and
may also verify the accuracy of marked proxies by contacting record and
beneficial owners of shares. The Trust will reimburse such persons for expenses
incurred in forwarding such soliciting material.
1997 Annual Meeting
Shareholders may present proposals to be considered for inclusion in
the Proxy Statement relating to the 1997 Annual Meeting, provided they are
received by the Trust no later than December 24, 1996 and are in compliance with
applicable laws and SEC regulations.
Benjamin H. Dorsey
Secretary
April 22, 1996.
29
<PAGE>
FRONT OF PROXY CARD
FOR WITHHELD
1. Election of two Trustees Nominees (for the terms
For, except vote withheld from the stated in the Proxy
following Nominee: Statement):
William N. Cafritz
_____________________ Stanley P. Snyder
2. To change the Trust's jurisdiction of organization FOR AGAINST ABSTAIN
from the District of Columbia to Maryland by merging
the Trust with and into a newly-formed Maryland real
estate investment trust that will survive the merger
under the name "Washington Real Estate Investment Trust."
3. To amend the Trust's Employee Stock Option Plan. FOR AGAINST ABSTAIN
4. Such other matters as may come before the meeting,
hereby revoking any proxy or proxies heretofore
given.
IF NO CHOICE IS SPECIFIED, THIS PROXY WILL BE VOTED "FOR" THE NOMINATED
TRUSTEES AND "FOR" EACH OF THE MATTERS SET FORTH IN THIS PROXY. PROXIES
WILL BE VOTED AS DIRECTED OR SPECIFIED.
PLEASE vote at once. It is important.
Please mark your choice in black ink.
SIGNATURE______________ DATE ________ SIGNATURE____________ DATE ________
Note: SIGNATURE(S) MUST CORRESPOND EXACTLY WITH NAME(S) AS IMPRINTED HEREON.
When signing as attorney, executor, administrator, trustee or guardian,
please give the full title as such and if the signer is a corporation,
please sign with the full corporate name by a duly authorized officer.
If stock is held in the name of more than one person, all named holders
must sign the proxy.
30
<PAGE>
REAR OF PROXY CARD:
WASHINGTON REAL ESTATE INVESTMENT TRUST
Proxy for ANNUAL MEETING OF Shareholders June 20, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
The undersigned shareholder of Washington Real Estate Investment Trust
appoints Benjamin H. Dorsey and Edmund B. Cronin, Jr., and each of them, with
full power of substitution, as proxy to vote all shares of the undersigned in
Washington Real Estate Investment Trust at the Annual Meeting of Shareholders to
be held on June 20, 1996, and at any adjournment thereof, with like effect and
as if the undersigned were personally present and voting, upon the following
matters:
(Continued and to be signed on reverse side.)
31
<PAGE>
