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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
________________
For Quarter Ended June 30, 1994 Commission File Number 1-6249
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First Union Real Estate Equity and Mortgage Investments
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(Exact name of registrant as specified in its charter)
Ohio 34-6513657
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Suite 1900, 55 Public Square
Cleveland, Ohio 44113-1937
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(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (216) 781-4030
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________________________________________________________________________________
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [x] No [ ]
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
18,103,725 Shares of Beneficial Interest outstanding as of June 30, 1994
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Total number of pages contained in this report: 8
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PART I - FINANCIAL INFORMATION
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Item 1. Financial Statements.
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The combined financial statements included herein have been prepared
by the registrant, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the registrant believes that
the disclosures contained herein are adequate to make the information presented
not misleading. It is suggested that these combined financial statements be
read in conjunction with the combined financial statements and the notes
thereto included in the registrant's latest annual report on Form 10-K.
The unaudited "Combined Balance Sheets" as of June 30, 1994 and
December 31, 1993, and "Selected Financial Data, Combined Statements of Income
and Combined Statements of Changes in Cash" for the periods ended June 30, 1994
and 1993, of the registrant, and "Notes to Combined Financial Statements,"
presented in the registrant's Second Quarter Report, June 30, 1994, are
incorporated herein by reference. These financial statements reflect, in the
opinion of the registrant, all adjustments (consisting of normal recurring
accruals) necessary to present fairly the combined financial position and
results of operations for the respective periods in conformity with generally
accepted accounting principles consistently applied.
Item 2. Management's Discussion and Analysis of Financial Condition and
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Results of Operations.
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Income from operations was $1.7 million and $2.9 million for the three
months ended June 30, 1994 and 1993, respectively, and $3.3 million and $5.7
million for the six months ended June 30, 1994 and 1993, respectively.
Income from property operations, which is rents less operating expenses
and real estate taxes, was consistent when comparing the second quarters of
1994 and 1993 and declined by $195,000 when comparing the first half of 1994 to
that of 1993. This decrease is primarily attributed to the one time
recognition, in 1993, of a real estate tax refund from an office building.
Short term investment interest income increased when comparing the
second quarter and first six months of 1994 to the same periods of 1993 because
of investments in short term securities averaging $36 million during the first
six months of 1994. In 1993 an average of $1.7 million was invested in short
term securities. The large increase in short term investments in 1994 from
1993 was due to the registrant borrowing $38 million under one of its lines of
credit on December 31, 1993 and the subsequent investing in short term
securities. This line of credit converted to a five-year term loan based on
the $60 million balance outstanding as of December 31, 1993.
Mortgage interest expense increased when comparing the second quarter
and first six months of 1994 to the same period of 1993. This increase was
caused by the $35 million mortgage, secured by a shopping mall in St. Cloud,
MN. This mortgage was obtained in September 1993.
Senior notes interest expense increased when comparing the second
quarter and first six months of 1994 as compared to the same periods of 1993.
The increase was caused by the issuance of $100 million of senior notes on
October 1, 1993. The proceeds were primarily used to repay $45 million of
8.375% senior notes and $37.6 million of 10.25% convertible debentures on
November 1, 1993.
General and administrative expenses increased when comparing the second
quarter and six months of 1994 to the same periods of 1993. The increase in
expenses resulted from increased professional fees from the registrant's
management and portfolio reorganization efforts, and increased staff required
to execute the registrant's new strategic plan.
Net income was $1.7 million and $6.1 million for the second quarter of
1994 and 1993, respectively, and $3.3 million and $10.5 million for the six
months of 1994 and 1993, respectively. Capital gains included in net income
during the second
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quarter and six months of 1993 were $3.3 million and $4.8 million,
respectively. The majority of capital gains for 1993 was the result of an
installment sale of an office building in 1983.
There has been no material change in the registrant's financial
condition from December 31, 1993.
PART II - OTHER INFORMATION
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Item 1. Legal Proceedings.
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None.
Item 2. Changes in Securities.
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None.
Item 3. Defaults Upon Senior Securities.
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None.
Item 4. Submission of Matters to a Vote of Security Holders.
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None.
Item 5. Other Information.
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None.
Item 6. Exhibits and Reports on Form 8-K.
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(a) Exhibits:
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Exhibit (10) - Employment Contracts
-Chairman, President and Chief Executive Officer
-Executive Vice President and Chief
Financial Officer
Exhibit (11) - Statements Re: Computation of Per Share Earnings.
Exhibit (20) - Second Quarter Report, June 30, 1994.
(b) Reports on Form 8-K:
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None.
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SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
First Union Real Estate Equity and
Mortgage Investments
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(Registrant)
Date: August 12, 1994 By: /s/ Gregory D. Bruhn
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Gregory D. Bruhn, Executive
Vice President and Chief
Financial Officer
Date: August 12, 1994 By: /s/ John J. Dee
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John J. Dee, Senior Vice
President-Controller (Principal
Accounting Officer)
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Index to Exhibits
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Page
Number
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Exhibit (10) - Employment Contracts............................. 6
Chairman, President and Chief
Executive Officer
Executive Vice President and Chief
Financial Officer
Exhibit (11) - Statements Re: Computation of Per Share
Earnings ........................................ 7
Exhibit (20) - Second Quarter Report, June 30, 1994 ............ 8
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Exhibit 10
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Employment Contracts
- Chairman, President and Chief Executive Officer
- Executive Vice President and Chief Financial Officer
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July 13, 1994
EMPLOYMENT AGREEMENT
BETWEEN FIRST UNION REAL ESTATE EQUITY AND MORTGAGE
INVESTMENTS
AND JAMES C. MASTANDREA
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made at Cleveland, Ohio, this
13TH day of JULY , 1994, between FIRST UNION REAL ESTATE EQUITY AND
MORTGAGE INVESTMENTS, an Ohio business trust (the "Trust"), and JAMES C.
MASTANDREA, II Bratenahl Towers, Suite 5E, Bratenahl, Ohio 44108
("Mastandrea").
WITNESSETH:
WHEREAS, Mastandrea holds the offices of Chairman of the Board of Trustees,
Chairman of the Executive and Nominating Committees of the Board of Trustees,
President, and Chief Executive Officer of the Trust;
WHEREAS, Mastandrea has made and is expected to continue to make major
contributions toward the elimination of a downward trend in operations, and
toward the profitability, growth, and financial strength of the Trust; and
WHEREAS, the Trust and Mastandrea desire to enter into this Agreement
pursuant to which the Trust will continue to employ Mastandrea and Mastandrea
will continue to serve the Trust;
NOW, THEREFORE, the Trust and Mastandrea, in consideration of the premises
and the mutual covenants herein contained, agree as follows:
1. EMPLOYMENT, CONTRACT PERIOD. During the period specified in this Section
1, the Trust shall employ Mastandrea, and Mastandrea shall serve the Trust, on
the terms and subject to the conditions set forth herein. The initial term of
Mastandrea's employment hereunder shall commence as of the date specified in
the first sentence of this Agreement (the "Effective Date") and, subject to
prior termination as provided in Section 8, shall continue through the third
anniversary of the Effective Date. The term of Mastandrea's employment
hereunder shall be automatically renewed on the third anniversary of the
Effective Date and on each succeeding anniversary of the Effective Date
thereafter for succeeding terms of one year each, unless either party shall
have given, at least 90 days prior to the expiration of any term, written
notice of his or its intention not to renew the term of Mastandrea's employment
hereunder, except that no extension of the term of Mastandrea's employment
hereunder shall extend beyond the date of Mastandrea's 65th birthday. The term
of Mastandrea's employment hereunder is sometimes hereinafter referred to as
the "Contract Period."
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2. POSITION, DUTIES, RESPONSIBILITIES.
(a) At all times during the Contract Period, Mastandrea shall have the
titles of Chairman of the Board of Trustees, Chairman of the Executive
Committee of the Board of Trustees, President, and Chief Executive Officer of
the Trust and shall have and perform the duties and responsibilities of those
offices (the "Offices"), consistent with the duties and responsibilities
performed by Mastandrea as the incumbent in those Offices before the Effective
Date, subject to the authority of the Board of Trustees of the Trust (the
"Board of Trustees"). In addition, Mastandrea may hold such other offices as
may be designated from time to time by the Board of Trustees; it is
acknowledged that Mastandrea presently holds the office of Chairman of the
Nominating Committee and shall continue in that office unless removed by the
Board of Trustees.
(b) At all times during the Contract Period, Mastandrea shall devote
substantially all of his business time, energy, and talent to the business of
and to the furtherance of the purposes and objectives of the Trust, and neither
directly nor indirectly render any business, commercial, or professional
services to any other person, firm, or organization for compensation without
the prior approval of the Board of Trustees. Nothing in this Agreement shall
preclude Mastandrea from devoting reasonable periods of time to charitable and
community activities, service on boards of other companies (public or private)
not in competition with the Trust, or the management of his personal
investment assets provided:
(i) such activities do not interfere with the performance by Mastandrea of
his duties hereunder;
(ii) Mastandrea does not make any single investment in excess of $150,000
in the outstanding securities of a publicly owned equity real estate
investment trust or of any other entity engaged primarily in the ownership
and/or management of real estate, other than the Trust, either for his own
benefit or for the benefit of any person, firm, or entity (except that this
limitation shall not apply to the continued holding by Mastandrea of any
investments listed on Exhibit A to this Agreement that were held by him on
July 1, 1993 and have been held by him continuously thereafter); and
(iii) Mastandrea does not advise, assist, or render any services, either
directly or indirectly, to a publicly owned equity real estate investment
trust or in any other entity engaged primarily in the ownership and/or
management of real estate that competes with the Trust, (except that this
limitation shall not apply to the continued holding by Mastandrea of any
investments listed on Exhibit A to this Agreement that were held by him on
July 1, 1993 and have been held by him continuously thereafter), other than
the Trust.
(c) The duties to be performed by Mastandrea under this Agreement shall be
performed primarily in Cuyahoga County at the offices of the Trust, and he
shall not be required to
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perform services elsewhere except for travel incident to his performance of
services and consistent with his travel for the Trust before the Effective
Date.
3. BASE SALARY AND PLAN COMPENSATION.
(a) The rate of Mastandrea's base salary hereunder as of the Effective Date
shall be $250,000 per year. The rate of Mastandrea's base salary shall be
reviewed at least annually during the Contract Period and may be adjusted from
time to time, based upon such standards as the Board of Trustees may determine
to be appropriate, except that no such adjustment shall result in a reduction
of Mastandrea's base salary below the level for the preceding year during the
Contract Period.
(b) Mastandrea shall receive the awards and any other compensation that have
been earned during the Contract Period and that he is entitled to receive under
the Trust's 1994 Long Term Incentive Ownership Plan and under any other share
option, incentive compensation, or executive bonus plan in which he is entitled
to participate (such awards and other compensation are hereinafter referred to
as "Plan Compensation").
4. BENEFITS. During the Contract Period, the Trust shall provide Mastandrea
(a) health and welfare benefits that are generally comparable with the health
and welfare benefits that the Trust historically provided to Mastandrea before
the Effective Date, including health insurance, travel accident insurance, life
and accidental death insurance, and long term disability insurance at the
levels in effect immediately before the Effective Date, (b) directors and
officers liability insurance, (c) use of an executive class automobile with all
maintenance and insurance paid by the Trust, (d) an indoor, heated parking
space, (e) memberships in The Club at Society, The Union Club, and such other
Cleveland business or social clubs, if any, as may be deemed necessary by
Mastandrea and approved by the Board of Trustees, and (f) such other benefits
as the Board of Trustees may from time to time authorize.
5. SPLIT DOLLAR LIFE INSURANCE. The Trust shall enter into a split-dollar
agreement with respect to an insurance policy on the life of Mastandrea with a
death benefit in the amount of $2,500,000 payable to Mastandrea's designated
beneficiary; any death benefit in excess of $2,500,000 shall be payable to the
Trust. The premiums on the policy shall be set so that, based on reasonable
dividend assumptions, the cash surrender value of the policy when Mastandrea
attains age 65 is expected to be sufficient to fund the sum of (i) the return
of all premiums theretofore paid (without interest) and (ii) paid-up insurance
on the life of Mastandrea in the amount of $2,500,000 (when the cash surrender
value attains this sum, the policy is referred to as "fully funded"). During
the Contract Period, the Trust shall pay all premiums until the policy is fully
funded; Mastandrea understands that a portion of those premiums will be
included in his income for federal income tax purposes and that the Trust will
compensate him for such amounts on a "grossed up" basis equal to his federal
tax liabilities resulting therefrom. In the event of the termination of
Mastandrea's employment before the policy is fully funded for any reason other
than Mastandrea's death, a termination by the Trust for Cause, or a termination
by Mastandrea without Good Reason, the Trust shall continue to pay the premiums
until the earlier
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of (x) the end of the third year following termination of Mastandrea's
employment and (y) the time at which the policy becomes fully funded. When the
Trust's obligation to pay premiums ceases, whether or not the policy is fully
funded, the Trust shall be entitled to receive an amount equal to the lesser of
(i) all premiums theretofore paid by it and (ii) the cash surrender value of
the policy. The Trust shall be entitled to a collateral assignment of the
policy to secure the receipt of that amount. Upon receipt of that amount, the
collateral assignment shall expire, and Mastandrea or his designated
beneficiary shall own the policy in full.
6. REIMBURSEMENT FOR EXPENSES. Subject to such limitations as may be
reasonably imposed by the Board of Trustees from time to time, the Trust shall
reimburse Mastandrea for all reasonable, ordinary, and necessary expenses
incurred by him in the performance of his duties hereunder, provided that
Mastandrea accounts to the Trust therefor in a manner sufficient to
substantiate deductions with respect to those expenses by the Trust for federal
income tax purposes.
7. EFFECT OF DISABILITY DURING CONTRACT PERIOD. If, during the Contract
Period, Mastandrea becomes disabled as determined by a physician acceptable to
Mastandrea and the Trust, by reason of physical or mental impairment, to such
an extent that he is unable to substantially perform his duties under this
Agreement ("Disabled"):
(a) The Trust may relieve Mastandrea of his duties under this Agreement for
as long as Mastandrea is Disabled.
(b) So long as Mastandrea remains Disabled, the Trust shall continue to pay
Mastandrea the base salary and bonus (cash and stock) at the rate in effect
immediately before he became Disabled, net of any other disability benefits
paid to him by the Trust or any insurance funded by the Trust, the Trust
shall continue to provide those health and welfare benefits, including
contribution to any Pension Plan, that were being provided to Mastandrea
immediately before he became Disabled, and Mastandrea shall continue to earn
the Plan Compensation (other than bonus) to which he would have been entitled
under Section 3(b) had he continued to be actively employed, until the
earliest of (i) the first date on which he is no longer Disabled, (ii) the
date of his death, (iii) the date on which Mastandrea attains age 65, or (iv)
the third anniversary of the date on which he became Disabled. If Mastandrea
becomes Disabled, thereafter recovers sufficiently to be able to
substantially perform his duties, and later becomes Disabled again, the
combined period in which Mastandrea is entitled to receive disability
benefits under this Section 7(b) shall not exceed three years.
8. TERMINATION.
(a) DEATH OR DISABILITY. Mastandrea's employment hereunder will terminate
immediately upon Mastandrea's death. The Trust may terminate Mastandrea's
employment hereunder immediately upon giving notice of termination if
Mastandrea is Disabled for an aggregate of 180 days (whether business or
non-business days and whether or not consecutive)
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during any period of twelve consecutive calendar months; in the event of any
such termination, the disability benefits payable under Section 7(b) shall be
in lieu of any payments upon termination under Section 9.
(b) FOR CAUSE. The Trust may terminate Mastandrea's employment under this
Agreement for "Cause" if:
(i) Except by reason of disability, Mastandrea fails substantially to
devote the time and effort required for him to perform his duties
hereunder;
(ii) Except by reason of disability, Mastandrea fails to follow
directions from the Board of Trustees that are appropriate in the context
of his status as the principal executive officer of the Trust;
(iii) Mastandrea is convicted of a felony involving moral turpitude;
(iv) Mastandrea engages in acts in violation of the confidentiality
provisions of Section 13; or
(v) Mastandrea willfully, wantonly, voluntarily, and without approval of
the Board of Trustees takes any action that he knows to be materially
adverse to the interest of the Trust and its shareholders, collectively.
Any termination of Mastandrea's employment for Cause shall be effective
immediately upon the Trust giving Mastandrea 60 days notice of termination of
employment and the grounds therefore. However, if any failure on Mastandrea's
part referred to in clause (i) or (ii) of this Section 8(b) is curable, the
Trust may not terminate Mastandrea's employment unless the Board of Trustees
first gives him written notice specifying the nature of the failure and the
steps that he must take to cure the failure, and Mastandrea fails to take those
steps within 60 days after the notice is given.
(c) BY THE TRUST WITHOUT CAUSE. The Trust may terminate Mastandrea's
employment hereunder without Cause at any time upon notice from the Board of
Trustees to Mastandrea.
(d) BY MASTANDREA FOR GOOD REASON. Mastandrea may terminate his employment
hereunder for "Good Reason" if one or more of the events listed in clauses (i)
through (vi) of this Section 8(d) occurs:
(i) Mastandrea's base salary is reduced from the amount in effect for the
preceding year.
(ii) The Trust fails to provide the Plan Compensation contemplated by
Section 3(b);
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(iii) The Trust fails in any material respect to provide benefits in
accordance with Section 4 or split-dollar insurance in accordance with
Section 5, in either case after Mastandrea has given the Trust written
notice of the failure, and the Trust has failed to effect a cure within 60
days after the notice is given;
(iv) Mastandrea is removed from any of his Offices (except the Chairman of
the Nominating Committee) or responsibilities or his duties with the Trust
are otherwise reduced to such an extent that he no longer has authority
commensurate with the principal executive officer of the Trust;
(v) Mastandrea's principal place of employment for the Trust is relocated
outside of the Cleveland metropolitan area and, as a result, he is required
to relocate outside the Cleveland metropolitan area; or
(vi) After a Shift in Ownership the Board of Trustees fundamentally changes
its strategic plan in a manner opposed by Mastandrea. Mastandrea may not
terminate his employment under this clause (vi) unless he first gives the
Board of Trustees written notice of specifying the change or changes that he
opposes and the steps that Board of Trustees must take to rectify the
strategic plan, and the Board of Trustees fails to take those steps within
60 days after the notice is given.
(e) BY MASTANDREA WITHOUT GOOD REASON. Mastandrea may terminate his
employment hereunder without Good Reason at any time upon thirty days advance
notice from Mastandrea to the Board of Trustees.
9. PAYMENTS UPON TERMINATION. Following any termination of Mastandrea's
employment with the Trust, the Trust shall pay and provide to Mastandrea, after
the date of the termination (the "Termination Date"), the amounts and benefits
provided in this Section 9.
(a) TERMINATION BY THE TRUST OR BY MASTANDREA FOR ANY REASON. Upon any
termination of Mastandrea's employment for any reason, the Trust (i) shall pay
to Mastandrea all unpaid base salary and other benefits (e.g., accrued
vacation) with respect to periods ending on or before the Termination Date and
(ii) shall provide to Mastandrea all Plan Compensation that has been earned and
vested prior to the Termination Date, subject to the terms and provisions of
the applicable plans.
(b) TERMINATION BY THE TRUST WITHOUT CAUSE, OR BY MASTANDREA FOR GOOD
REASON. If Mastandrea's employment hereunder is terminated by the Trust
without Cause or by Mastandrea for Good Reason, in addition to (but not in
duplication of) the salary and Plan Compensation under Section 9(a), Trust
shall pay and provide to Mastandrea the following amounts and benefits through
the first to occur of (i) the date of his death, (ii) the date on which
Mastandrea attains age 65, or (iii) the third anniversary of the Termination
Date (the "Benefit Termination Date") at the same times as those amounts and
benefits would have been paid and provided if Mastandrea had continued in the
active employ of the Company through the Benefit Termination
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Date:
(i) Base salary and bonus (cash and stock) at the rate in effect
immediately before the Termination Date, provided however that if
termination is after a Shift in Ownership, the Trust shall pay to Mastandrea
the full amount otherwise due under this subsection immediately in a lump
sum.
(ii) Those health and welfare benefits including contribution to any
Pension Plan that were being provided to Mastandrea immediately before the
Termination Date through the Benefit Termination Date;
(iii) In addition to any benefits Mastandrea is or may be entitled to under
any retirement plan or program in which he participates, if after a Shift in
Ownership an amount equal to three (3) times the total amount contributed by
the Trust to Mastandrea's account under the Money Purchase Pension Plan and
any excess benefit plan related thereto, with respect to the Plan year
immediately prior to the Termination Date provided such payment shall not be
duplicative of any payment made or to be made under subsection (ii) above.
(iv) Continued vesting of share options held by Mastandrea through the
Benefit Termination Date and the ability to exercise vested options through
the first to occur of the expiration date of the share options or the
Benefit Termination Date, as if Mastandrea had remained employed by the
Trust; except that, if termination is after a Shift in Ownership, all share
options that would otherwise have vested on or before the Benefit
Termination Date shall become vested at and as of the Termination Date.
(v) Lapse of restrictions on a number of restricted shares in each grant to
Mastandrea made prior to the Termination Date (including the grant in July
1994 and any subsequent made grants prior to the Termination Date)
calculated in accordance with the formula in option (I) or the formula in
option (II) below, whichever generates the higher number:
Option (I)
A * (P2 - P1)
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($21 - P1)
A = the total number of restricted shares in the grant
P1 = the market price of the shares at the date of grant
P2 = the higher of (X) the market price of the shares at the Termination
Date and (Y) the market price of the shares at the Benefit Termination Date.
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Option (II) A * X/96
A = the total number of restricted shares in the grant
X = the number of completed calendar months between the date of grant and
the Termination Date
All other restricted shares will be forfeited and returned to the Trust.
After the Termination Date, against delivery to the Trust of the certificate
or certificates representing all of the restricted shares, the Trust will
issue to Mastandrea an unlegended certificate or certificates for the shares
whose restrictions have lapsed. If the market price of the shares at the
Benefit Termination Date exceeds the market price of the shares at the
Termination Date, the Trust will promptly issue to Mastandrea an unlegended
certificate for the balance of the shares due to him.
(vi) Continued accrual and vesting through the Benefit Termination Date of
any Plan Compensation not referred to above and the ability to exercise
vested awards through the first to occur of the expiration date of the
awards or the Benefit Termination Date, as if Mastandrea had remained
employed by the Trust.
(c) SHARE OPTIONS. If Mastandrea's employment hereunder is terminated by
the Trust without Cause or by Mastandrea for Good Reason, each of Mastandrea
and the Trust shall have the right to "cash out" outstanding vested options
held by Mastandrea (including options) by the payment of the aggregate spread
between the exercise prices of the options and the last reported sales price of
the shares on the date of termination, but only to the extent permitted by loan
and other covenants then applicable to the Trust. The Trust may, at its
election, pay up to 60% of this amount by delivery of a promissory note, with
principal payable in equal quarterly installments over a period of four years
and interest at a rate equal to prime as quoted by National City Bank,
Cleveland, Ohio, plus 1%, compounded quarterly; the balance of the amount will
be paid in cash.
(d) FULL SATISFACTION; MITIGATION. Payment and provision of the salary and
benefits to which Mastandrea is entitled under this Section 9 shall constitute
full satisfaction of all obligations of the Trust to Mastandrea arising under
this Agreement and/or in connection with the termination of his employment.
The Plan Compensation provided to Mastandrea under this Section 9 shall not be
subject to mitigation under any circumstances. The salary and health and
welfare benefits shall be subject to mitigation, but only if (i) Mastandrea's
employment is terminated by him for Good Reason prior to a Change of Control or
Shift in Ownership and (ii) during the period in which the amounts are to be
paid or the benefits provided, Mastandrea is employed as an executive officer
of another publicly owned equity real estate investment trust or other entity
engaged primarily in the ownership and/or management of real estate.
(e) To secure payment of the benefits provided for in this Section 9 or
Section 14, the Trust agrees to establish an irrevocable escrow account (the
"Escrow Account") at Society
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National Bank, Cleveland, Ohio or other national bank acceptable to Mastandrea
(the "Bank") promptly upon the earliest to occur of (i) public notice of Change
in Control or Shift in Ownership, (ii) an agreement in principle to effect a
Change in Control or Shift in Ownership by merger, purchase or sale of assets
or other business combination by any person or (iii) a consummation of a Change
in Control or Shift in Ownership ("The Change in Control Date or the Shift in
Ownership Date"). The amount of security required to be kept on deposit in the
Escrow Account shall be the maximum amount which the Trust would be required to
pay to Mastandrea under Sections 9 or 14, if the Trust were to terminate
Mastandrea's employment on the Change of Control Date or Shift in Ownership
Date, and such amount shall be maintained on deposit in the Escrow Account
until receipt by the Bank of written acknowledgement by Mastandrea that he has
received all amounts payable to him by the Trust under Sections 9 or 14.
Amounts deposited in the Escrow Account shall be paid out by the Bank only to
Mastandrea or his designated beneficiary, in such amounts as Mastandrea shall
certify to the Bank as amounts that the Trust is in default under Sections 9 or
14 of this Agreement, or to the Trust, to the extent that any amounts remain on
deposit in the Escrow Account after the requirements of clause (i) or (ii)
above have been satisfied. If any amounts payable to Mastandrea pursuant to
Sections 9 or 14 are not paid by the Trust or the Bank when due, interest on
such payments shall accrue at the rate of one percent (1%) per month, or the
highest rate allowed by law, whichever is lower, until all overdue payments are
paid in full.
10. EFFECT OF FAILURE TO EXTEND TERM. If either the Trust or Mastandrea
gives notice to the other of an intention not to extend the term of
Mastandrea's employment hereunder for an additional year, as contemplated in
Section 1, that notice shall be treated as a notice of intended termination of
Mastandrea's employment as of the end of then term. Accordingly, the
termination of his employment will be treated as a termination by the Trust or
by Mastandrea, as the case may be, with or without Cause, and for or not for
Good Reason, as the case may be. This Section 10 is not intended to abrogate
the specific notice requirements applicable to a termination for Cause under
clause (i) or (ii) of Section 8(b) or to a termination for Good Reason under
Section 8(d).
11. CHANGE OF CONTROL; SHIFT IN OWNERSHIP. (a) A "Change of Control" shall
have the meaning given to it in the Trust's 1994 Long Term Incentive Ownership
Plan. A "Shift in Ownership" shall be deemed to have occurred if at any time
before the Termination Date any Person (other than the Trust, any Subsidiary of
the Trust, any employee benefit plan or employee share ownership plan of the
Trust or any Subsidiary of the Trust, or any Person organized, appointed, or
established by the Trust or any Subsidiary of the Trust for or pursuant to the
terms of any such plan), alone or together with any of its Affiliates or
Associates, becomes the Beneficial Owner of 15% or more of the Shares then
outstanding; provided that no Shift in Ownership shall be deemed to have
occurred if, prior to the acquisition of Shares that causes the Person to
become the Beneficial Owner of 15% or more of the combined voting power of the
Trust's then outstanding Shares, the acquisition is supported by Mastandrea and
approved by the Trust's Board of Trustees. For purposes of this definition,
the terms "Beneficial Owner," "Person," and "Subsidiary" have the meanings
given to them in the Rights Agreement, dated as of March 7, 1990, between the
Trust and National City Bank, as Rights
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<PAGE> 11
Agent, as amended from time to time.
(b) As provided in the Trust's 1994 Long Term Incentive Ownership Plan, in
the event of a Change in Control of the Trust, (i) all share options then
outstanding will become fully exercisable as of the date of the Change in
Control, (ii) all restrictions and conditions applicable to restricted stock
and other stock awards will be deemed to have been satisfied as of the date of
the Change in Control, and (iii) all cash awards will be deemed to have been
fully earned as of the date of the Change in Control.
12. EXCESS PARACHUTE PAYMENT REDUCTION.
(a) Anything in this Agreement to the contrary notwithstanding, if it is
determined that any payment or distribution by the Trust to or for the benefit
of Mastandrea (whether paid or payable or distributed or distributable pursuant
to the terms of this Agreement or otherwise) (a "Payment") would be
nondeductible by the Trust for Federal income tax purposes because of Section
280G of the Internal Revenue Code and applicable regulations promulgated
thereunder, then the aggregate present value of amounts payable or
distributable to or for the benefit of Mastandrea pursuant to this Agreement
(such payments or distributions pursuant to this Agreement are hereinafter
referred to as "Agreement Payments") shall be reduced (but not below zero) to
the Reduced Amount. The "Reduced Amount" shall be an amount expressed in
present value which maximizes the aggregate present value of Agreement Payments
without causing any Payment to be nondeductible by the Trust because of Section
280G of the Internal Revenue Code and applicable regulations promulgated
thereunder. For purposes of this Section 12, present value shall be determined
in accordance with Section 280G(d)(4) of the Internal Revenue Code and
applicable regulations promulgated thereunder. All determinations required to
be made under this Section 12 shall be made by the Accounting Firm (as defined
in Section 12(b)) which shall provide detailed supporting calculations both to
the Trust and Mastandrea within 30 days after the Termination Date or such
earlier time as is requested by the Trust. The Trust and Mastandrea shall
cooperate with each other and the Accounting Firm and will provide necessary
information so that the Accounting Firm may make all such determinations. All
such determinations by the Accounting Firm shall be final and binding upon the
Trust and Mastandrea. Mastandrea shall determine which of the Agreement
Payments (or, at the election of Mastandrea, other payments) shall be
eliminated or reduced consistent with the requirements of this Section 12,
provided that, if Mastandrea does not make such determination within 20 days of
the receipt of the calculations made by the Accounting Firm, the Trust shall
elect which of the Agreement Payments shall be eliminated or reduced consistent
with the requirements of this Section 12, and shall notify Mastandrea promptly
of such election. As a result of the uncertainty in the application of Section
280G of the Internal Revenue Code and applicable regulations promulgated
thereunder at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Agreement Payments will be made by the Trust
which should not have been made ("Overpayment") or the additional Agreement
Payments will not be made by the Trust which could have been made
("Underpayment"), in each case, consistent with the calculations required to be
made hereunder. If the Accounting Firm or a court of competent jurisdiction
(in a final judgment as to which the
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<PAGE> 12
time for appeal has lapsed or no appeal is available) determines at any time
that an Overpayment has been made, any such Overpayment shall be treated for
all purposes as a loan to Mastandrea which Mastandrea shall repay to the Trust
together with interest at the applicable short-term Federal rate provided for
in Section 1274(d)(1) of the Internal Revenue Code, compounded semi-annually;
provided, however that no amount shall be payable by Mastandrea to the Trust,
(or if paid by Mastandrea to the Trust, such payment shall be returned to
Mastandrea) if and to the extent such payment would not reduce the amount which
is subject to taxation under Section 4999 of the Internal Revenue Code. If the
Accounting Firm or a court of competent jurisdiction (in a final judgment as to
which the time for appeal has lapsed or no appeal is available) determines at
any time that an Underpayment has occurred, any such Underpayment shall be
properly paid by the Trust to or for the benefit of Mastandrea - together with
interest at the applicable short-term Federal rate provided for in Section
1274(d)(1) of the Internal Revenue Code, compounded semi-annually. All costs
and expenses relating to the determinations to be made hereunder shall be borne
solely by the Trust.
(b) The term "Accounting Firm" means the independent auditors of the Trust
for the fiscal year preceding the year in which the Change of Control or Shift
in Ownership occurred and such firm's successor or successors; provided,
however, if such firm is unable or unwilling to serve and perform in the
capacity contemplated by this Agreement, the Trust shall select another
national accounting firm of recognized standing to serve and perform in that
capacity under this Agreement, except that such other accounting firm shall not
be the then independent auditors for the Trust.
13. CONFIDENTIALITY. Mastandrea acknowledges that the business in which the
Trust is engaged is competitive and that his employment with the Trust has
required and will require that he have access to and knowledge of confidential
and proprietary information pertaining to the Trust's operations and its
properties ("Confidential Information"). Mastandrea shall not, during the term
of his employment hereunder or at any time thereafter, except in connection
with the performance of services hereunder or in furtherance of the business of
the Trust, communicate, divulge, or disclose to any other person not a Trustee,
officer, employee, or affiliate of, or not engaged to render services to or
for, the Trust or use for his own benefit or purposes any Confidential
Information that he has obtained from the Trust during the term of his
Employment under this Agreement, except that this provision shall not preclude
Mastandrea from communication or use of Confidential Information made known
generally to the public by any party unrelated to Mastandrea, or from making
any disclosure required by applicable law, rules, regulations, or court or
governmental or regulatory authority order or decree provided that, if
practicable, Mastandrea shall not disclose any Confidential Information without
first giving the Trust notice of intention to make that disclosure and an
opportunity to interpose an objection to the disclosure.
14. DEFERRAL OF PAYMENT OF COMPENSATION UNDER CERTAIN CIRCUMSTANCES.
(a) SECTION 162(M). For purposes of this Section 14, the term "Section
162(m)" shall mean Section 162(m) of the Internal Revenue Code (which, as
amended by the Revenue
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<PAGE> 13
Reconciliation Act of 1993, prescribes rules disallowing deductions for certain
"applicable employee remuneration" to any of five specified "covered employees"
of a publicly held corporation in excess of $1,000,000 per year), as from time
to time amended, and the corresponding provisions of any similar law
subsequently enacted, and to all regulations issued under that section and any
such provisions.
(b) DEFERRAL. For purposes of this Section 14, "Excess Compensation" as
determined by the Accounting Firm, as defined in Section 12(b) shall mean the
amount of compensation (including base salary, bonus and the lapse of
restrictions on restricted shares granted to Mastandrea) otherwise paid or
provided to Mastandrea by the Trust under this Agreement at any particular time
(the "Scheduled Time") that, after giving effect to all elective deferrals of
compensation, (i) would not be deductible by the Trust if paid at the Scheduled
Time by reason of the disallowance rules of Section 162(m), and (ii) would be
deductible by the Trust if deferred until and paid during a later year.
(c) RESTRICTED SHARES. Except as provided in Section 14(e) or Section
14(f), if and to the extent that the lapse of restrictions on restricted shares
at the Scheduled Time would result in Excess Compensation, Mastandrea will
forfeit the restricted shares immediately prior to the Scheduled Time.
Thereafter the Trust will deliver to Mastandrea a number of unrestricted shares
equal to the number of restricted shares forfeited, together with an amount
equal to any and all dividends that would have been paid on those shares from
the Scheduled Time through the date of delivery, during the year that is
determined by the Accounting Firm to be the first year following the Scheduled
Time during which the unrestricted shares and dividends can be delivered
without disallowance of the deduction for payment of the compensation by reason
of Section 162(m). If the Accounting Firm determines that in any such year a
portion, but not all, of the unrestricted shares and dividends can be delivered
without disallowance of the deduction, the Trust will deliver to Mastandrea the
portion that can be so delivered, and, except as provided in Section 14(e) or
Section 14(f), the remainder of the unrestricted shares and dividends will be
delivered at a later date.
(d) DEFERRED CASH COMPENSATION. Except as provided in Section 14(e) or
Section 14(f), if and to the extent that the payment of cash compensation would
result in Excess Compensation, after the forfeiture of any restricted shares
under Section 14(c), payment of the cash compensation will be deferred.
Thereafter, the Trust will pay to Mastandrea the amount of the deferred
compensation, together with accrued interest, during the year that is
determined by the Accounting Firm to be the first year following the Scheduled
Time during which the compensation can be paid without disallowance of the
deduction for payment of the compensation by reason of Section 162(m). If the
Accounting Firm determines that in any such year a portion, but not all, of the
deferred compensation and interest can be paid without disallowance of the
deduction, the Trust will pay to Mastandrea the portion that can be so paid,
and, except as provided in Section 14(e) or Section 14(f), the remainder of the
deferred compensation and interest will be paid at a later date. For purposes
hereof, interest will accrue from the date on which the compensation would have
been paid but for this Section 14(d) through the date of payment at a rate
equal to prime plus 1% quoted by National City Bank,
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<PAGE> 14
Cleveland, Ohio, compounded quarterly.
(e) EARLY DELIVERY OF UNRESTRICTED SHARES OR PAYMENT OF DEFERRED
COMPENSATION. If the Accounting Firm determines that the delivery to
Mastandrea of the unrestricted shares and dividends under Section 14(c), or the
payment to Mastandrea of the deferred compensation and interest under Section
14(d), will not result in a deduction to the Trust, even if paid in a later
year, the Trust will, within three months of the date on which that
determination is made, deliver to Mastandrea those unrestricted shares and
dividends, or pay to Mastandrea that deferred compensation and interest, as the
case may be.
(f) DELIVERY OR PAYMENT FOLLOWING TERMINATION OF EMPLOYMENT IN ALL EVENTS.
Within three months of the date on which Mastandrea ceases to be employed as an
officer by the Trust, the Trust will deliver to Mastandrea all of the
unrestricted shares and dividends not previously delivered to him under Section
14(c) and pay to Mastandrea, in a single lump sum, all of the deferred
compensation and interest not previously paid to him under Section 14(d),
whether or not the Trust is entitled to a deduction with respect thereto.
(g) MISCELLANEOUS. In addition to all other payments provided for in this
Section 14 the Trust shall also pay to Mastandrea an amount, if any, equal to
the additional taxes payable by Mastandrea on account of any deferral, due to
higher marginal income tax rates payable by Mastandrea when the deferred
compensation becomes payable. Mastandrea's rights with respect to the delivery
of unrestricted shares and dividends, and the payment of deferred compensation
and interest, under this Section 14 may not be assigned by him unless approved
by the Board of Trustees. If Mastandrea dies before all unrestricted shares
and dividends, and all deferred compensation and interest, under this Section
14 has been paid to him, any such unrestricted shares, dividends, deferred
compensation, and interest shall be delivered and paid, at the same time it
would have been paid if Mastandrea had not died but had merely ceased to be an
employee of the Trust on the date of his death (or, if earlier, on the last
date he actually was an employee of the Trust), to his estate or, if Mastandrea
so directs the Trust in writing, to his wife or to a trust created by
Mastandrea. The obligations of the Trust to deliver unrestricted shares and
dividends, and to pay deferred compensation and interest, under this Section 14
constitute unsecured promises of the Trust, and neither Mastandrea nor any
person claiming through him shall have, as a result of this Section 14, any
lien or claim on any assets of the Trust that is superior to the claims of the
general creditors of the Trust.
15. MERGER OR TRANSFER OF ASSETS OF THE TRUST. The Trust will not
consolidate with or merge into any other entity, or transfer all or
substantially all of its assets or shares to another entity, unless such other
entity assumes this Agreement in a signed writing and delivers a copy thereof
to Mastandrea. Upon such assumption the successor entity shall become
obligated to perform the obligations of the Trust under this Agreement, and the
term "the Trust" as used in this Agreement shall be deemed to refer to such
successor entity.
16. NOTICES. Notices and all other communications provided for in this
Agreement shall be in writing and shall be deemed to have been duly given when
delivered in person (to the
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<PAGE> 15
Secretary of the Trust in the case of notices to the Trust and to Mastandrea in
the case of notices to Mastandrea) or mailed by United States registered mail,
return receipt requested, postage prepaid, as follows:
If to the Trust:
First Union Real Estate Equity
and Mortgage Investments
55 Public Square
Suite 1900
Cleveland, Ohio 44113
Attention: Secretary
If to Mastandrea:
Mr. James C. Mastandrea
II Bratenahl Towers
Suite 5E
Bratenahl, Ohio 44108
or such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
17. VALIDITY. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement which shall remain in full force and effect.
18. PURCHASE OF PROPERTIES OWNED BY MASTANDREA. As set forth in the
Agreement between Mastandrea and the Trust, dated June 17, 1993, the Trust will
consider the exchange of two real estate properties owned by Mastandrea and
previously disclosed, for shares in the Trust, upon terms agreeable to
Mastandrea and the Trust.
19. MISCELLANEOUS. This Agreement has been duly approved and authorized by
the Board of Trustees of the Trust. No provision of this Agreement may be
modified, waived, or discharged unless such waiver, modification, or discharge
is agreed to in a writing signed by Mastandrea and the Trust. This Agreement
shall inure to the benefit of Mastandrea and his heirs and legal
representatives. No waiver by either party hereto at any time of any breach by
the other party of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same time or at any prior
or subsequent time. No agreement or representation, oral or otherwise, express
or implied, with respect to the subject matter hereof has been made by either
party which is not set forth expressly in this Agreement. This Agreement shall
be governed by and construed in accordance with the laws of the State of Ohio.
In the event legal action is instituted to enforce any provision of this
Agreement, each party shall pay its own cost
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<PAGE> 16
and expense thereof. This Agreement constitutes the entire agreement between
the parties with the subject matter hereof and all prior negotiations,
discussions, and agreements on that subject matter are hereby superseded.
20. NO PERSONAL LIABILITY. Notwithstanding anything herein to the contrary,
this Agreement is made and executed on behalf of the Trust, a business trust
organized under the laws of the State of Ohio, by its officers thereof on
behalf of the trustees thereof, and none of the trustees or any additional or
successor trustees hereinafter appointed, nor any beneficiary, officer,
employee or agent of the Trust shall have any liability hereunder in his
personal or individual capacity, but, instead, all parties shall look solely to
the property and assets of the Trust for satisfaction of claims of any nature
arising under or in connection with this Agreement.
IN WITNESS WHEREOF, this Agreement has been signed by the Trust and
Mastandrea as of the date first above written.
FIRST UNION REAL ESTATE EQUITY
AND MORTGAGE INVESTMENTS
By /s/ William E. Conway
-----------------------------
Title: Trustee
/s/ James C. Mastandrea
-----------------------------
JAMES C. MASTANDREA
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<PAGE> 17
EXHIBIT A
OWNERSHIP INTEREST IN REAL ESTATE PROPERTIES
- - --------------------------------------------
SPOERLEIN COMMONS RETAIL, MEDICAL OFFICE AND PROFESSIONAL CENTER
BUFFALO GROVE, ILLINOIS 60089
RICHTON TRAIL APARTMENTS
RICHTON PARK, ILLINOIS
SINGLE FAMILY RESIDENTIAL LOTS
- - ------------------------------
NORTHWEST SUBURBS OF CHICAGO
<PAGE> 18
July 13, 1994
EMPLOYMENT AGREEMENT
BETWEEN FIRST UNION REAL ESTATE EQUITY AND MORTGAGE
INVESTMENTS
AND GREGORY D. BRUHN
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made at Cleveland, Ohio, this
13TH day of JULY , 1994, between FIRST UNION REAL ESTATE EQUITY AND
MORTGAGE INVESTMENTS, an Ohio business trust (the "Trust"), and GREGORY D.
BRUHN, 80 WEST JUNIPER LANE , Moreland Hills, Ohio 44022 ,
("Bruhn").
WITNESSETH:
WHEREAS, Bruhn holds the offices of Executive Vice President and Chief
Financial Officer of the Trust;
WHEREAS, Bruhn has made and is expected to continue to make major
contributions toward the elimination of a downward trend in operations, and
toward the profitability, growth, and financial strength of the Trust; and
WHEREAS, the Trust and Bruhn desire to enter into this Agreement pursuant to
which the Trust will continue to employ Bruhn and Bruhn will continue to serve
the Trust;
NOW, THEREFORE, the Trust and Bruhn, in consideration of the premises and the
mutual covenants herein contained, agree as follows:
1. EMPLOYMENT, CONTRACT PERIOD. During the period specified in this Section
1, the Trust shall employ Bruhn, and Bruhn shall serve the Trust, on the terms
and subject to the conditions set forth herein. The initial term of Bruhn's
employment hereunder shall commence as of the date specified in the first
sentence of this Agreement (the "Effective Date") and, subject to prior
termination as provided in Section 7, shall continue through the third
anniversary of the Effective Date. The term of Bruhn's employment hereunder
shall be automatically renewed on the third anniversary of the Effective Date
and on each succeeding anniversary of the Effective Date thereafter for
succeeding terms of one year each, unless either party shall have given, at
least 90 days prior to the expiration of any term, written notice of his or its
intention not to renew the term of Bruhn's employment hereunder, except that no
extension of the term of Bruhn's employment hereunder shall extend beyond the
date of Bruhn's 65th birthday. The term of Bruhn's employment hereunder is
sometimes hereinafter referred to as the "Contract Period."
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2. POSITION, DUTIES, RESPONSIBILITIES.
(a) At all times during the Contract Period, Bruhn shall have the title of
Executive Vice President and Chief Financial Officer of the Trust and shall
have and perform the duties and responsibilities of those offices (the
"Offices"), consistent with the duties and responsibilities performed by Bruhn
as the incumbent in those Offices before the Effective Date, subject to the
authority of the Board of Trustees of the Trust (the "Board of Trustees"). In
addition, Bruhn may hold such other offices as may be designated from time to
time by the Board of Trustees.
(b) At all times during the Contract Period, Bruhn shall devote
substantially all of his business time, energy, and talent to the business of
and to the furtherance of the purposes and objectives of the Trust, and neither
directly nor indirectly render any business, commercial, or professional
services to any other person, firm, or organization for compensation without
the prior approval of the Board of Trustees. Nothing in this Agreement shall
preclude Bruhn from devoting reasonable periods of time to charitable and
community activities, service on boards of other companies (public or private)
not in competition with the Trust, or the management of his personal
investment assets provided:
(i) such activities do not interfere with the performance by Bruhn of his
duties hereunder;
(ii) Bruhn does not make any single investment in excess of $150,000 in the
outstanding securities of a publicly owned equity real estate investment
trust or of any other entity engaged primarily in the ownership and/or
management of real estate, other than the Trust, either for his own benefit
or for the benefit of any person, firm, or entity; and
(iii) Bruhn does not advise, assist, or render any services, either directly
or indirectly, to a publicly owned equity real estate investment trust or in
any other entity engaged primarily in the ownership and/or management of
real estate that competes with the Trust, other than the Trust.
(c) The duties to be performed by Bruhn under this Agreement shall be
performed primarily in Cuyahoga County at the offices of the Trust, and he
shall not be required to perform services elsewhere except for travel incident
to his performance of services and consistent with his travel for the Trust
before the Effective Date.
3. BASE SALARY AND PLAN COMPENSATION.
(a) The rate of Bruhn's base salary hereunder as of the Effective Date shall
be $140,000 per year through March 13, 1995 and increase to no less than
$160,000 per year as of March 14, 1995. The rate of Bruhn's base salary shall
be reviewed at least annually during the Contract Period and may be adjusted
from time to time, based upon such standards as the Board of Trustees may
determine to be appropriate, except that no such adjustment shall result in a
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<PAGE> 20
reduction of Bruhn's base salary below the level for the preceding year during
the Contract Period.
(b) Bruhn shall receive the awards and any other compensation that have
been earned during the Contract Period and that he is entitled to receive under
the Trust's 1994 Long Term Incentive Ownership Plan and under any other share
option, incentive compensation, or executive bonus plan in which he is entitled
to participate (such awards and other compensation are hereinafter referred to
as "Plan Compensation").
4. BENEFITS. During the Contract Period, the Trust shall provide Bruhn (a)
health and welfare benefits that are generally comparable with the health and
welfare benefits that the Trust historically provided to Bruhn before the
Effective Date, including health insurance, travel accident insurance, life and
accidental death insurance, and long term disability insurance at the levels in
effect immediately before the Effective Date, (b) directors and officers
liability insurance, (c) an indoor, heated parking space, and (d) such other
benefits as the Board of Trustees may from time to time authorize. The Trust
will also pay up to a maximum of $30,000 membership initiation fee for a
country club membership; thereafter monthly dues and assessments shall be the
responsibility of Bruhn.
5. REIMBURSEMENT FOR EXPENSES. Subject to such limitations as may be
reasonably imposed by the Board of Trustees from time to time, the Trust shall
reimburse Bruhn for all reasonable, ordinary, and necessary expenses incurred
by him in the performance of his duties hereunder, provided that Bruhn accounts
to the Trust therefor in a manner sufficient to substantiate deductions with
respect to those expenses by the Trust for federal income tax purposes.
6. EFFECT OF DISABILITY DURING CONTRACT PERIOD. If, during the Contract
Period, Bruhn becomes disabled as determined by a physician acceptable to Bruhn
and the Trust, by reason of physical or mental impairment, to such an extent
that he is unable to substantially perform his duties under this Agreement
("Disabled"):
(a) The Trust may relieve Bruhn of his duties under this Agreement for as
long as Bruhn is Disabled.
(b) So long as Bruhn remains Disabled, the Trust shall continue to pay Bruhn
the base salary and bonus (cash and stock) at the rate in effect immediately
before he became Disabled, net of any other disability benefits paid to him
by the Trust or any insurance funded by the Trust, the Trust shall continue
to provide those health and welfare benefits, including contribution to any
Pension Plan, that were being provided to Bruhn immediately before he became
Disabled, and Bruhn shall continue to earn the Plan Compensation (other than
bonus) to which he would have been entitled under Section 3(b) had he
continued to be actively employed, until the earliest of (i) the first date
on which he is no longer Disabled, (ii) the date of his death, (iii) the date
on which Bruhn
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<PAGE> 21
attains age 65, or (iv) the third anniversary of the date on which he became
Disabled. If Bruhn becomes Disabled, thereafter recovers sufficiently to be
able to substantially perform his duties, and later becomes Disabled again,
the combined period in which Bruhn is entitled to receive disability benefits
under this Section 7(b) shall not exceed three years.
7. TERMINATION.
(a) DEATH OR DISABILITY. Bruhn's employment hereunder will terminate
immediately upon Bruhn's death. The Trust may terminate Bruhn's employment
hereunder immediately upon giving notice of termination if Bruhn is Disabled
for an aggregate of 180 days (whether business or non-business days and
whether or not consecutive) during any period of twelve consecutive calendar
months; in the event of any such termination, the disability benefits payable
under Section 6(b) shall be in lieu of any payments upon termination under
Section 8.
(b) FOR CAUSE. The Trust may terminate Bruhn's employment under this
Agreement for "Cause" if:
(i) Except by reason of disability, Bruhn fails substantially to devote
the time and effort required for him to perform his duties hereunder;
(ii) Except by reason of disability, Bruhn fails to follow directions
from the Chief Executive Officer or Board of Trustees that are appropriate
in the context of his status as the Executive Vice President and Chief
Financial Officer of the Trust;
(iii) Bruhn is convicted of a felony involving moral turpitude;
(iv) Bruhn engages in acts in violation of the confidentiality provisions
of Section 12; or
(v) Bruhn willfully, wantonly, voluntarily, and without approval of the
Board of Trustees takes any action that he knows to be materially adverse
to the interest of the Trust and its shareholders, collectively.
Any termination of Bruhn's employment for Cause shall be effective immediately
upon the Trust giving Bruhn 60 days notice of termination of employment and the
grounds therefore. However, if any failure on Bruhn's part referred to in
clause (i) or (ii) of this Section 7(b) is curable, the Trust may not terminate
Bruhn's employment unless the Board of Trustees first gives him written notice
specifying the nature of the failure and the steps that he must take to cure
the failure, and Bruhn fails to take those steps within 60 days after the
notice is given.
(c) BY THE TRUST WITHOUT CAUSE. The Trust may terminate Bruhn's employment
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<PAGE> 22
hereunder without Cause at any time upon notice from the Board of Trustees to
Bruhn.
(d) BY BRUHN FOR GOOD REASON. Bruhn may terminate his employment hereunder
for "Good Reason" if one or more of the events listed in clauses (i) through
(vi) of this Section 7(d) occurs:
(i) Bruhn's base salary is reduced from the amount in effect for the
preceding year.
(ii) The Trust fails to provide the Plan Compensation contemplated by
Section 3(b);
(iii) The Trust fails in any material respect to provide benefits in
accordance with Section 4 after Bruhn has given the Trust written notice of
the failure, and the Trust has failed to effect a cure within 60 days after
the notice is given;
(iv) Bruhn is removed from any of his Offices or responsibilities or his
duties with the Trust are otherwise reduced to such an extent that he no
longer has authority commensurate with the Executive Vice President and
Chief Financial Officer of the Trust;
(v) Bruhn's principal place of employment for the Trust is relocated
outside of the Cleveland metropolitan area and, as a result, he is required
to relocate outside the Cleveland metropolitan area; or
(e) BY BRUHN WITHOUT GOOD REASON. Bruhn may terminate his employment
hereunder without Good Reason at any time upon thirty days advance notice from
Bruhn to the Board of Trustees.
8. PAYMENTS UPON TERMINATION. Following any termination of Bruhn's
employment with the Trust, the Trust shall pay and provide to Bruhn, after the
date of the termination (the "Termination Date"), the amounts and benefits
provided in this Section 8.
(a) TERMINATION BY THE TRUST OR BY BRUHN FOR ANY REASON. Upon any
termination of Bruhn's employment for any reason, the Trust (i) shall pay to
Bruhn all unpaid base salary and other benefits (e.g., accrued vacation) with
respect to periods ending on or before the Termination Date and (ii) shall
provide to Bruhn all Plan Compensation that has been earned and vested prior to
the Termination Date, subject to the terms and provisions of the applicable
plans.
(b) TERMINATION BY THE TRUST WITHOUT CAUSE, OR BY BRUHN FOR GOOD REASON. If
Bruhn's employment hereunder is terminated by the Trust without Cause or by
Bruhn for Good Reason, in addition to (but not in duplication of) the salary
and Plan Compensation under Section 8(a), Trust shall pay and provide to Bruhn
the following amounts and benefits through the first to occur of (i) the date
of his death, (ii) the date on which Bruhn attains age 65, or (iii) the third
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<PAGE> 23
anniversary of the Termination Date (the "Benefit Termination Date") at the
same times as those amounts and benefits would have been paid and provided if
Bruhn had continued in the active employ of the Company through the Benefit
Termination Date:
(i) Base salary and bonus (cash and stock) at the rate in effect
immediately before the Termination Date, provided however that if
termination is after a Change in Control or Shift in Ownership, the Trust
shall pay to Bruhn the full amount otherwise due under this subsection
immediately in a lump sum.
(ii) Those health and welfare benefits including contribution to any
Pension Plan that were being provided to Bruhn immediately before the
Termination Date through the Benefit Termination Date;
(iii) In addition to any benefits Bruhn is or may be entitled to under any
retirement plan or program in which he participates, if after a Change in
Control or Shift in Ownership an amount equal to three (3) times the total
amount contributed by the Trust to Bruhn's account under the Money Purchase
Pension Plan and any excess benefit plan related thereto, with respect to
the Plan year immediately prior to the Termination Date provided such
payment shall not be duplicative of any payment made or to be made under
subsection (ii) above.
(iv) Continued vesting of share options held by Bruhn through the Benefit
Termination Date and the ability to exercise vested options through the
first to occur of the expiration date of the share options or the Benefit
Termination Date, as if Bruhn had remained employed by the Trust; except
that, if termination is after a Shift in Ownership, all share options that
would otherwise have vested on or before the Benefit Termination Date shall
become vested at and as of the Termination Date.
(v) Lapse of restrictions on a number of restricted shares in each grant to
Bruhn made prior to the Termination Date (including the grant in July 1994
and any subsequent made grants prior to the Termination Date) calculated in
accordance with the formula in option (I) or the formula in option (II)
below, whichever generates the higher number:
Option (I)
A * (P2 - P1)
---------
($21 - P1)
A = the total number of restricted shares in the grant
P1 = the market price of the shares at the date of grant
6
<PAGE> 24
P2 = the higher of (X) the market price of the shares at the Termination
Date and (Y) the market price of the shares at the Benefit Termination Date.
Option (II) A * X/96
A = the total number of restricted shares in the grant
X = the number of completed calendar months between the date of grant and
the Termination Date
All other restricted shares will be forfeited and returned to the Trust.
After the Termination Date, against delivery to the Trust of the certificate
or certificates representing all of the restricted shares, the Trust will
issue to Bruhn an unlegended certificate or certificates for the shares
whose restrictions have lapsed. If the market price of the shares at the
Benefit Termination Date exceeds the market price of the shares at the
Termination Date, the Trust will promptly issue to Bruhn an unlegended
certificate for the balance of the shares due to him.
(vi) Continued accrual and vesting through the Benefit Termination Date of
any Plan Compensation not referred to above and the ability to exercise
vested awards through the first to occur of the expiration date of the
awards or the Benefit Termination Date, as if Bruhn had remained employed by
the Trust.
(c) SHARE OPTIONS. If Bruhn's employment hereunder is terminated by the
Trust without Cause or by Bruhn for Good Reason, each of Bruhn and the Trust
shall have the right to "cash out" outstanding vested options held by Bruhn
(including options) by the payment of the aggregate spread between the exercise
prices of the options and the last reported sales price of the shares on the
date of termination, but only to the extent permitted by loan and other
covenants then applicable to the Trust. The Trust may, at its election, pay up
to 60% of this amount by delivery of a promissory note, with principal payable
in equal quarterly installments over a period of four years and interest at a
rate equal to prime as quoted by National City Bank, Cleveland, Ohio, plus 1%,
compounded quarterly; the balance of the amount will be paid in cash.
(d) FULL SATISFACTION; MITIGATION. Payment and provision of the salary and
benefits to which Bruhn is entitled under this Section 8 shall constitute full
satisfaction of all obligations of the Trust to Bruhn arising under this
Agreement and/or in connection with the termination of his employment. The
Plan Compensation provided to Bruhn under this Section 8 shall not be subject
to mitigation under any circumstances. The salary and health and welfare
benefits shall be subject to mitigation, but only if (i) Bruhn's employment is
terminated by him for Good Reason prior to a Change of Control or Shift in
Ownership and (ii) during the period in which the amounts are to be paid or the
benefits provided, Bruhn is employed as an executive officer of another
publicly owned equity real estate investment trust or other entity engaged
primarily in the ownership and/or management of real estate.
7
<PAGE> 25
(e) To secure payment of the benefits provided for in this Section 8 or
Section 13 the Trust agrees to establish an irrevocable escrow account (the
"Escrow Account") at Society National Bank, Cleveland, Ohio or other national
bank acceptable to Bruhn (the "Bank") promptly upon the earliest to occur of
(i) public notice of Change in Control or Shift in Ownership, (ii) an agreement
in principle to effect a Change in Control or Shift in Ownership by merger,
purchase or sale of assets or other business combination by any person or (iii)
a consummation of a Change in Control or Shift in Ownership ("The Change in
Control Date or Shift in Ownership Date"). The amount of security required to
be kept on deposit in the Escrow Account shall be the maximum amount which the
Trust would be required to pay to Bruhn under Sections 8 or 13, if the Trust
were to terminate Bruhn's employment on the Change of Control or Shift in
Ownership Date, and such amount shall be maintained on deposit in the Escrow
Account until receipt by the Bank of written acknowledgement by Bruhn that he
has received all amounts payable to him by the Trust under Sections 8 or 13.
Amounts deposited in the Escrow Account shall be paid out by the Bank only to
Bruhn or his designated beneficiary, in such amounts as Bruhn shall certify to
the Bank as amounts that the Trust is in default under Sections 8 or 13 of this
Agreement, or to the Trust, to the extent that any amounts remain on deposit in
the Escrow Account after the requirements of clause (i) or (ii) above have been
satisfied. If any amounts payable to Bruhn pursuant to Sections 8 or 13 are
not paid by the Trust or the Bank when due, interest on such payments shall
accrue at the rate of one percent (1%) per month, or the highest rate allowed
by law, whichever is lower, until all overdue payments are paid in full.
9. EFFECT OF FAILURE TO EXTEND TERM. If either the Trust or Bruhn gives
notice to the other of an intention not to extend the term of Bruhn's
employment hereunder for an additional year, as contemplated in Section 1, that
notice shall be treated as a notice of intended termination of Bruhn's
employment as of the end of then term. Accordingly, the termination of his
employment will be treated as a termination by the Trust or by Bruhn, as the
case may be, with or without Cause, and for or not for Good Reason, as the case
may be. This Section 9 is not intended to abrogate the specific notice
requirements applicable to a termination for Cause under clause (i) or (ii) of
Section 7(b) or to a termination for Good Reason under Section 7(d).
10. CHANGE OF CONTROL; SHIFT IN OWNERSHIP. (a) A "Change of Control" shall
have the meaning given to it in the Trust's 1994 Long Term Incentive Ownership
Plan. A "Shift in Ownership" shall be deemed to have occurred if at any time
before the Termination Date any Person (other than the Trust, any Subsidiary of
the Trust, any employee benefit plan or employee share ownership plan of the
Trust or any Subsidiary of the Trust, or any Person organized, appointed, or
established by the Trust or any Subsidiary of the Trust for or pursuant to the
terms of any such plan), alone or together with any of its Affiliates or
Associates, becomes the Beneficial Owner of 15% or more of the Shares then
outstanding; provided that no Shift in Ownership shall be deemed to have
occurred if, prior to the acquisition of Shares that causes the Person to
become the Beneficial Owner of 15% or more of the combined voting power of the
Trust's then outstanding Shares, the acquisition is supported by the Trust's
Chairman and Chief Executive Officer and approved by the Trust's Board of
Trustees. For
8
<PAGE> 26
purposes of this definition, the terms "Beneficial Owner," "Person," and
"Subsidiary" have the meanings given to them in the Rights Agreement, dated as
of March 7, 1990, between the Trust and National City Bank, as Rights Agent, as
amended from time to time.
(b) As provided in the Trust's 1994 Long Term Incentive Ownership Plan, in
the event of a Change in Control of the Trust, (i) all share options then
outstanding will become fully exercisable as of the date of the Change in
Control, (ii) all restrictions and conditions applicable to restricted stock
and other stock awards will be deemed to have been satisfied as of the date of
the Change in Control, and (iii) all cash awards will be deemed to have been
fully earned as of the date of the Change in Control.
11. EXCESS PARACHUTE PAYMENT REDUCTION.
(a) Anything in this Agreement to the contrary notwithstanding, if it is
determined that any payment or distribution by the Trust to or for the benefit
of Bruhn (whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise) (a "Payment") would be nondeductible
by the Trust for Federal income tax purposes because of Section 280G of the
Internal Revenue Code and applicable regulations promulgated thereunder, then
the aggregate present value of amounts payable or distributable to or for the
benefit of Bruhn pursuant to this Agreement (such payments or distributions
pursuant to this Agreement are hereinafter referred to as "Agreement Payments")
shall be reduced (but not below zero) to the Reduced Amount. The "Reduced
Amount" shall be an amount expressed in present value which maximizes the
aggregate present value of Agreement Payments without causing any Payment to be
nondeductible by the Trust because of Section 280G of the Internal Revenue Code
and applicable regulations promulgated thereunder. For purposes of this
Section 11, present value shall be determined in accordance with Section
280G(d)(4) of the Internal Revenue Code and applicable regulations promulgated
thereunder. All determinations required to be made under this Section 11 shall
be made by the Accounting Firm (as defined in Section 11(b)) which shall
provide detailed supporting calculations both to the Trust and Bruhn within 30
days after the Termination Date or such earlier time as is requested by the
Trust. The Trust and Bruhn shall cooperate with each other and the Accounting
Firm and will provide necessary information so that the Accounting Firm may
make all such determinations. All such determinations by the Accounting Firm
shall be final and binding upon the Trust and Bruhn. Bruhn shall determine
which of the Agreement Payments (or, at the election of Bruhn, other payments)
shall be eliminated or reduced consistent with the requirements of this Section
11, provided that, if Bruhn does not make such determination within 20 days of
the receipt of the calculations made by the Accounting Firm, the Trust shall
elect which of the Agreement Payments shall be eliminated or reduced consistent
with the requirements of this Section 11, and shall notify Bruhn promptly of
such election. As a result of the uncertainty in the application of Section
280G of the Internal Revenue Code and applicable regulations promulgated
thereunder at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Agreement Payments will be made by the Trust
which should not have been made ("Overpayment") or the additional Agreement
Payments will not be made by the Trust which could have been made
("Underpayment"), in each case, consistent with the calculations required to be
made hereunder.
9
<PAGE> 27
If the Accounting Firm or a court of competent jurisdiction (in a final
judgment as to which the time for appeal has lapsed or no appeal is available)
determines at any time that an Overpayment has been made, any such Overpayment
shall be treated for all purposes as a loan to Bruhn which Bruhn shall repay to
the Trust together with interest at the applicable short-term Federal rate
provided for in Section 1274(d)(1) of the Internal Revenue Code, compounded
semi-annually; provided, however that no amount shall be payable by Bruhn to
the Trust, (or if paid by Bruhn to the Trust, such payment shall be returned to
Bruhn) if and to the extent such payment would not reduce the amount which is
subject to taxation under Section 4999 of the Internal Revenue Code. If the
Accounting Firm or a court of competent jurisdiction (in a final judgment as to
which the time for appeal has lapsed or no appeal is available) determines at
any time that an Underpayment has occurred, any such Underpayment shall be
properly paid by the Trust to or for the benefit of Bruhn together with
interest at the applicable short-term Federal rate provided for in Section
1274(d)(1) of the Internal Revenue Code, compounded semi-annually. All costs
and expenses relating to the determinations to be made hereunder shall be borne
solely by the Trust.
(b) The term "Accounting Firm" means the independent auditors of the Trust
for the fiscal year preceding the year in which the Change of Control or Shift
in Ownership occurred and such firm's successor or successors; provided,
however, if such firm is unable or unwilling to serve and perform in the
capacity contemplated by this Agreement, the Trust shall select another
national accounting firm of recognized standing to serve and perform in that
capacity under this Agreement, except that such other accounting firm shall not
be the then independent auditors for the Trust.
12. CONFIDENTIALITY. Bruhn acknowledges that the business in which the
Trust is engaged is competitive and that his employment with the Trust has
required and will require that he have access to and knowledge of confidential
and proprietary information pertaining to the Trust's operations and its
properties ("Confidential Information"). Bruhn shall not, during the term of
his employment hereunder or at any time thereafter, except in connection with
the performance of services hereunder or in furtherance of the business of the
Trust, communicate, divulge, or disclose to any other person not a Trustee,
officer, employee, or affiliate of, or not engaged to render services to or
for, the Trust or use for his own benefit or purposes any Confidential
Information that he has obtained from the Trust during the term of his
Employment under this Agreement, except that this provision shall not preclude
Bruhn from communication or use of Confidential Information made known
generally to the public by any party unrelated to Bruhn, or from making any
disclosure required by applicable law, rules, regulations, or court or
governmental or regulatory authority order or decree provided that, if
practicable, Bruhn shall not disclose any Confidential Information without
first giving the Trust notice of intention to make that disclosure and an
opportunity to interpose an objection to the disclosure.
13. DEFERRAL OF PAYMENT OF COMPENSATION UNDER CERTAIN CIRCUMSTANCES.
(a) SECTION 162(M). For purposes of this Section 13, the term "Section
162(m)" shall
10
<PAGE> 28
mean Section 162(m) of the Internal Revenue Code (which, as amended by the
Revenue Reconciliation Act of 1993, prescribes rules disallowing deductions for
certain "applicable employee remuneration" to any of five specified "covered
employees" of a publicly held corporation in excess of $1,000,000 per year), as
from time to time amended, and the corresponding provisions of any similar law
subsequently enacted, and to all regulations issued under that section and any
such provisions.
(b) DEFERRAL. For purposes of this Section 13, "Excess Compensation" as
determined by the Accounting Firm, as defined in Section 11(b), shall mean the
amount of compensation (including base salary, bonus and the lapse of
restrictions on restricted shares granted to Bruhn) otherwise paid or provided
to Bruhn by the Trust under this Agreement at any particular time (the
"Scheduled Time") that, after giving effect to all elective deferrals of
compensation, (i) would not be deductible by the Trust if paid at the Scheduled
Time by reason of the disallowance rules of Section 162(m), and (ii) would be
deductible by the Trust if deferred until and paid during a later year.
(c) RESTRICTED SHARES. Except as provided in Section 13(e) or Section
13(f), if and to the extent that the lapse of restrictions on restricted shares
at the Scheduled Time would result in Excess Compensation, Bruhn will forfeit
the restricted shares immediately prior to the Scheduled Time. Thereafter the
Trust will deliver to Bruhn a number of unrestricted shares equal to the number
of restricted shares forfeited, together with an amount equal to any and all
dividends that would have been paid on those shares from the Scheduled Time
through the date of delivery, during the year that is determined by the
Accounting Firm to be the first year following the Scheduled Time during which
the unrestricted shares and dividends can be delivered without disallowance of
the deduction for payment of the compensation by reason of Section 162(m). If
the Accounting Firm determines that in any such year a portion, but not all, of
the unrestricted shares and dividends can be delivered without disallowance of
the deduction, the Trust will deliver to Bruhn the portion that can be so
delivered, and, except as provided in Section 13(e) or Section 13(f), the
remainder of the unrestricted shares and dividends will be delivered at a later
date.
(d) DEFERRED CASH COMPENSATION. Except as provided in Section 13(e) or
Section 13(f), if and to the extent that the payment of cash compensation would
result in Excess Compensation, after the forfeiture of any restricted shares
under Section 13(c), payment of the cash compensation will be deferred.
Thereafter, the Trust will pay to Bruhn the amount of the deferred
compensation, together with accrued interest, during the year that is
determined by the Accounting Firm to be the first year following the Scheduled
Time during which the compensation can be paid without disallowance of the
deduction for payment of the compensation by reason of Section 162(m). If the
Accounting Firm determines that in any such year a portion, but not all, of the
deferred compensation and interest can be paid without disallowance of the
deduction, the Trust will pay to Bruhn the portion that can be so paid, and,
except as provided in Section 13(e) or Section 13(f), the remainder of the
deferred compensation and interest will be paid at a later date. For purposes
hereof, interest will accrue from the date on which the compensation would have
been paid but for this Section 13(d) through the date of
11
<PAGE> 29
payment at a rate equal to prime plus 1% quoted by National City Bank,
Cleveland, Ohio, compounded quarterly.
(e) EARLY DELIVERY OF UNRESTRICTED SHARES OR PAYMENT OF DEFERRED
COMPENSATION. If the Accounting Firm determines that the delivery to Bruhn of
the unrestricted shares and dividends under Section 13(c), or the payment to
Bruhn of the deferred compensation and interest under Section 13(d), will not
result in a deduction to the Trust, even if paid in a later year, the Trust
will, within three months of the date on which that determination is made,
deliver to Bruhn those unrestricted shares and dividends, or pay to Bruhn that
deferred compensation and interest, as the case may be.
(f) DELIVERY OR PAYMENT FOLLOWING TERMINATION OF EMPLOYMENT IN ALL EVENTS.
Within three months of the date on which Bruhn ceases to be employed as an
officer by the Trust, the Trust will deliver to Bruhn all of the unrestricted
shares and dividends not previously delivered to him under Section 13(c) and
pay to Bruhn, in a single lump sum, all of the deferred compensation and
interest not previously paid to him under Section 13(d), whether or not the
Trust is entitled to a deduction with respect thereto.
(g) MISCELLANEOUS. In addition to all other payments provided for in this
Section 13 the Trust shall also pay to Bruhn an amount, if any, equal to the
additional taxes payable by Bruhn on account of any deferral, due to higher
marginal income tax rates payable by Bruhn when the deferred compensation
becomes payable. Bruhn's rights with respect to the delivery of unrestricted
shares and dividends, and the payment of deferred compensation and interest,
under this Section 13 may not be assigned by him unless approved by the Board
of Trustees. If Bruhn dies before all unrestricted shares and dividends, and
all deferred compensation and interest, under this Section 13 has been paid to
him, any such unrestricted shares, dividends, deferred compensation, and
interest shall be delivered and paid, at the same time it would have been paid
if Bruhn had not died but had merely ceased to be an employee of the Trust on
the date of his death (or, if earlier, on the last date he actually was an
employee of the Trust), to his estate or, if Bruhn so directs the Trust in
writing, to his wife or to a trust created by Bruhn. The obligations of the
Trust to deliver unrestricted shares and dividends, and to pay deferred
compensation and interest, under this Section 13 constitute unsecured promises
of the Trust, and neither Bruhn nor any person claiming through him shall have,
as a result of this Section 13, any lien or claim on any assets of the Trust
that is superior to the claims of the general creditors of the Trust.
14. MERGER OR TRANSFER OF ASSETS OF THE TRUST. The Trust will not
consolidate with or merge into any other entity, or transfer all or
substantially all of its assets or shares to another entity, unless such other
entity assumes this Agreement in a signed writing and delivers a copy thereof
to Bruhn. Upon such assumption the successor entity shall become obligated to
perform the obligations of the Trust under this Agreement, and the term "the
Trust" as used in this Agreement shall be deemed to refer to such successor
entity.
15. NOTICES. Notices and all other communications provided for in this
Agreement shall
12
<PAGE> 30
be in writing and shall be deemed to have been duly given when delivered in
person (to the Secretary of the Trust in the case of notices to the Trust and
to Bruhn in the case of notices to Bruhn or mailed by United States registered
mail, return receipt requested, postage prepaid, as follows:
If to the Trust:
First Union Real Estate Equity
and Mortgage Investments
55 Public Square
Suite 1900
Cleveland, Ohio 44113
Attention: Secretary
If to Bruhn:
Gregory D. Bruhn
80 West Juniper Lane
Moreland Hills, Ohio 44022
or such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
16. VALIDITY. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement which shall remain in full force and effect.
17. MISCELLANEOUS. This Agreement has been duly approved and authorized by
the Board of Trustees of the Trust. No provision of this Agreement may be
modified, waived, or discharged unless such waiver, modification, or discharge
is agreed to in a writing signed by Bruhn and the Trust. This Agreement shall
inure to the benefit of Bruhn and his heirs and legal representatives. No
waiver by either party hereto at any time of any breach by the other party of,
or compliance with, any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same time or at any prior or subsequent time.
No agreement or representation, oral or otherwise, express or implied, with
respect to the subject matter hereof has been made by either party which is not
set forth expressly in this Agreement. This Agreement shall be governed by and
construed in accordance with the laws of the State of Ohio. In the event legal
action is instituted to enforce any provision of this Agreement, each party
shall pay its own cost and expense thereof. This Agreement constitutes the
entire agreement between the parties with the subject matter hereof and all
prior negotiations, discussions, and agreements on that subject matter are
hereby superseded, except that that portion of a certain letter agreement
between the Trust and Bruhn, dated March 3, 1994, labeled "Other" and relating
to reimbursement of certain moving
13
<PAGE> 31
and relocation expenses shall still apply to the extent not paid as of the date
hereof.
18. NO PERSONAL LIABILITY. Notwithstanding anything herein to the contrary,
this Agreement is made and executed on behalf of the Trust, a business trust
organized under the laws of the State of Ohio, by its officers thereof on
behalf of the trustees thereof, and none of the trustees or any additional or
successor trustees hereinafter appointed, nor any beneficiary, officer,
employee or agent of the Trust shall have any liability hereunder in his
personal or individual capacity, but, instead, all parties shall look solely to
the property and assets of the Trust for satisfaction of claims of any nature
arising under or in connection with this Agreement.
IN WITNESS WHEREOF, this Agreement has been signed by the Trust and Bruhn as
of the date first above written.
FIRST UNION REAL ESTATE EQUITY
AND MORTGAGE INVESTMENTS
By /s/ William E. Conway
----------------------------------
Title: Trustee
/s/ Gregory D. Bruhn
----------------------------------
GREGORY D. BRUHN
14
<PAGE> 1
<TABLE>
Exhibit 11
----------
FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS AND
-----------------------------------------------------------
FIRST UNION MANAGEMENT, INC.
----------------------------
STATEMENTS RE: COMPUTATION OF PER SHARE EARNINGS
------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- ----------------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Shares Outstanding:
For computation of primary net
income per share -
Weighted average 18,109 18,094 18,109 18,092
====== ====== ====== ======
For computation of fully diluted
net income per share -
Weighted average, without regard
to exercise of shares under
share option plans 18,109 18,093 18,109 18,086
Weighted average of outstanding
shares issued under share
option plans --- 1 --- 6
------- ------- ------- -------
Adjusted shares outstanding 18,109 18,094 18,109 18,092
======= ======= ======= =======
Net Income $ 1,654 $ 6,136 $ 3,266 $10,493
------- ------- ------- -------
Per Share - Primary and fully diluted:
Income from operations $ .09 $ .16 $ .18 $ .32
Capital gains .18 .26
------- ------- ------- -------
Net income $ .09 $ .34 $ .18 $ .58
======= ======= ======= =======
</TABLE>
7
<PAGE> 1
Exhibit 20
----------
8
<PAGE> 2
<TABLE>
EXHIBIT 20
----------
SELECTED FINANCIAL DATA
<CAPTION>
THREE MONTHS SIX MONTHS
Unaudited (In thousands, except per share data) ENDED JUNE 30, ENDED JUNE 30,
------------------------- ----------------------
1994 1993 1994 1993
----------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
OPERATING RESULTS
Revenues $18,732 $18,455 $37,649 $36,671
Income from operations 1,654 2,879 3,266 5,726
Net income 1,654 6,136 3,266 10,493
Funds from operations (1) 4,562 5,598 9,015 11,153
Dividends declared 1,811 3,257 3,622 6,514
PER SHARE
Income from operations $ .09 $ .16 $ .18 $ .32
Net income .09 .34 .18 .58
Funds from operations .25 .31 .50 .62
Dividends declared .10 .18 .20 .36
<FN>
(1) The amount of funds from operations is calculated as income from operations plus
noncash charges for depreciation and amortization.
</TABLE>
<PAGE> 3
<TABLE>
COMBINED STATEMENTS OF INCOME
-----------------------------
<CAPTION>
THREE MONTHS SIX MONTHS
Unaudited (In thousands, except per share data) ENDED JUNE 30, ENDED JUNE 30,
-------------------------- -------------------------
1994 1993 1994 1993
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
REVENUES
Rents $ 17,391 $ 17,452 $ 35,042 $ 34,574
Interest - Mortgage loans 981 1,000 1,956 2,070
- Investment interest 360 3 651 27
---------- ---------- ---------- ---------
18,732 18,455 37,649 36,671
---------- ---------- ---------- ---------
EXPENSES
Property operating 6,150 6,083 12,741 12,138
Real estate taxes 1,913 2,084 3,934 3,874
Depreciation and amortization 2,908 2,719 5,749 5,427
Interest--Mortgage loans 1,759 1,356 3,547 2,732
--Senior notes 2,325 1,049 4,652 2,099
--Convertible debentures 964 1,929
--Bank loans and other 1,129 1,035 2,139 2,072
General and administrative 894 286 1,621 674
---------- ---------- ---------- ---------
17,078 15,576 34,383 30,945
---------- ---------- ---------- ---------
INCOME FROM OPERATIONS 1,654 2,879 3,266 5,726
CAPITAL GAINS 3,257 4,767
---------- ---------- ---------- ---------
NET INCOME $ 1,654 $ 6,136 $ 3,266 $ 10,493
========== ========== ========== =========
PER SHARE
Income from operations $ .09 $ .16 $ .18 $ .32
Capital gains .18 .26
---------- ---------- ---------- ---------
Net income $ .09 $ .34 $ .18 $ .58
========== ========== ========== =========
Dividends declared $ .10 $ .18 $ .20 $ .36
========== ========== ========== =========
ADJUSTED SHARES OF BENEFICIAL INTEREST 18,109 18,094 18,109 18,092
========== ========== ========== =========
<FN>
NOTES TO COMBINED FINANCIAL STATEMENTS
--------------------------------------
1. Income per share of beneficial interest has been computed based on weighted average shares
and share equivalents outstanding for the applicable periods. The shares issuable upon
conversion of the convertible subordinated debentures have not been included in the per share
computation because they were not dilutive.
2. Capital gains recognized included $3.2 million and $4.7 million for the three and six months
ended June 30, 1993, respectively, from an installment sale which occurred in 1983. The final
installment from this sale was received in June 1993. Capital gains for the three and six months
ended June 30, 1993 also included $71,000 from the sale of a small land parcel.
</TABLE>
<PAGE> 4
<TABLE>
COMBINED BALANCE SHEETS
-----------------------
<CAPTION>
JUNE 30, DECEMBER 31,
Unaudited (In thousands, except shares) 1994 1993
------------ -----------
<S> <C> <C>
ASSETS
INVESTMENTS IN REAL ESTATE
Land $ 40,350 $ 40,284
Buildings and improvements 371,427 368,776
------------ -----------
411,777 409,060
Less - Accumulated depreciation (107,304) (101,824)
------------ -----------
Total investments in real estate 304,473 307,236
MORTGAGE LOANS RECEIVABLE 35,647 35,550
OTHER ASSETS
Cash and cash equivalents 40,163 38,523
Accounts receivable 3,871 4,621
Deferred charges, net 2,806 2,506
Unamortized debt issue costs 5,004 5,185
------------ -----------
$ 391,964 $ 393,621
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Mortgage loans $ 92,817 $ 92,355
Senior notes 105,000 105,000
Bank loans 60,000 60,000
Accounts payable and accrued liabilities 12,591 14,356
Deferred obligations 10,455 10,394
Deferred capital gains and other
deferred income 7,748 7,750
Shareholders' equity, including shares of
beneficial interest, $1 par, unlimited
authorization, outstanding 1994--18,103,725;
1993--18,108,725 103,353 103,766
------------ -----------
$ 391,964 $ 393,621
============ ===========
</TABLE>
<PAGE> 5
<TABLE>
COMBINED STATEMENTS OF CHANGES IN CASH
--------------------------------------
<CAPTION>
THREE MONTHS SIX MONTHS
Unaudited (In thousands) ENDED JUNE 30, ENDED JUNE 30,
------------------------- -------------------------
1994 1993 1994 1993
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
CASH PROVIDED BY (USED FOR) OPERATIONS
Net income $ 1,654 $ 6,136 $ 3,266 $ 10,493
Adjustments to reconcile net income to net
cash provided by operations --
Depreciation and amortization 2,908 2,719 5,749 5,427
Capital gains (3,257) (4,767)
Increase in deferred charges, net (412) (3) (343) (219)
Increase in deferred interest on
mortgage investments, net (87) (96) (168) (191)
Increase in deferred obligations 31 27 61 53
Recognition of deferred income, net (1) (28) (2) (80)
Net changes in other assets and liabilities (2,117) (1,378) 434 168
---------- --------- ---------- ---------
Net cash provided by operations 1,976 4,120 8,997 10,884
---------- --------- ---------- ---------
CASH PROVIDED BY (USED FOR) INVESTING
Principal received from mortgage investments 36 2,215 71 4,357
Investments in properties (1,374) (4,437) (2,717) (6,232)
Other 71 71
---------- --------- ---------- ---------
Net cash used for investing (1,338) (2,151) (2,646) (1,804)
---------- --------- ---------- ---------
CASH PROVIDED BY (USED FOR) FINANCING
Increase in mortgage loans 4,600 4,600
Decrease in short term loans (2,940) (940)
Repayment of mortgage loans - Normal payments (1,003) (742) (1,913) (1,614)
- Balloon payments (2,225)
Dividends paid (1,810) (3,257) (5,070) (6,512)
Debt issue costs paid (28) (226) (46) (358)
Purchase of First Union securities (34) (34)
Other (1) (92) (23) (30)
---------- --------- ---------- ---------
Net cash provided by (used for) financing 1,724 (7,257) (4,711) (9,454)
---------- --------- ---------- ---------
Increase (decrease) in cash and cash equivalents 2,362 (5,288) 1,640 (374)
Cash and cash equivalents at beginning of period 37,801 5,906 38,523 992
---------- --------- ---------- ---------
Cash and cash equivalents at end of period $ 40,163 $ 618 $ 40,163 $ 618
========== ========= ========== =========
</TABLE>
